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 ~~September~~June 30, ~~2022~~2023

☐

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, California91361

(Address of principal executive offices, including zip code)

(805) 981-8655

(Registrant’s telephone number, including area code)

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

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 þ☑ No ◻☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ☑ 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 þ☑	Accelerated filer ◻☐	Non-accelerated filer ◻☐	Smaller reporting company ☐	Emerging growth 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 þ☑

The number of shares of common stock outstanding on ~~October~~July 20, ~~2022~~2023 was ~~40,504,791.~~41,408,693.

Table of Contents

LTC PROPERTIES, INC.

FORM 10-Q

~~September~~June 30, ~~2022~~2023

INDEX

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)

[


					June 30, 2023		December 31, 2022
	September 30, 2022		December 31, 2021		(unaudited)		(audited)
ASSETS		(unaudited)		(audited)
Investments:
Land	$	124,665	$	123,239	$	124,901	$	124,665
Buildings and improvements		1,270,722		1,285,318		1,286,615		1,273,025
Accumulated depreciation and amortization		(379,915)		(374,606)		(393,449)		(389,182)
Operating real estate property, net		1,015,472		1,033,951		1,018,067		1,008,508
Properties held-for-sale, net of accumulated depreciation: 2022—$2,305; 2021—$0		10,710		—
Properties held-for-sale, net of accumulated depreciation: 2023—$3,691; 2022—$2,305						6,053		10,710
Real property investments, net		1,026,182		1,033,951		1,024,120		1,019,218
Financing receivable, net of credit loss reserve: 2022—$760; 2021—$0		75,507		—
Mortgage loans receivable, net of credit loss reserve: 2022—$3,862; 2021—$3,473		383,006		344,442
Financing receivables, net of credit loss reserve: 2023—$1,981; 2022—$768						196,075		75,999
Mortgage loans receivable, net of credit loss reserve: 2023—$4,761; 2022—$3,930						471,978		389,728
Real estate investments, net		1,484,695		1,378,393		1,692,173		1,484,945
Notes receivable, net of credit loss reserve: 2022—$590; 2021—$286		58,424		28,337
Notes receivable, net of credit loss reserve: 2023—$463; 2022—$589						45,949		58,383
Investments in unconsolidated joint ventures		19,340		19,340		19,340		19,340
Investments, net		1,562,459		1,426,070		1,757,462		1,562,668

Other assets:
Cash and cash equivalents		6,478		5,161		7,026		10,379
Debt issue costs related to revolving line of credit		2,480		3,057		1,925		2,321
Interest receivable		44,290		39,522		50,593		46,000
Straight-line rent receivable		22,253		24,146		20,815		21,847
Lease incentives		2,001		2,678		1,360		1,789
Prepaid expenses and other assets		12,004		4,191		19,061		11,099
Total assets	$	1,651,965	$	1,504,825	$	1,858,242	$	1,656,103
LIABILITIES
Revolving line of credit	$	151,000	$	110,900	$	326,350	$	130,000
Term loans, net of debt issue costs: 2022—$526; 2021—$637		99,474		99,363
Senior unsecured notes, net of debt issue costs: 2022—$1,533; 2021—$524		543,287		512,456
Term loans, net of debt issue costs: 2023—$417; 2022—$489						99,583		99,511
Senior unsecured notes, net of debt issue costs: 2023—$1,364; 2022—$1,477						527,456		538,343
Accrued interest		3,120		3,745		3,870		5,234
Accrued expenses and other liabilities		29,915		33,234		41,368		32,708
Total liabilities		826,796		759,698		998,627		805,796
EQUITY
Stockholders’ equity:
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2022—40,505; 2021—39,374		404		394
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2023—41,409; 2022—41,262						413		412
Capital in excess of par value		899,921		856,895		935,427		931,124
Cumulative net income		1,526,721		1,444,636		1,583,968		1,544,660
Accumulated other comprehensive income (loss)		9,445		(172)
Accumulated other comprehensive income						8,568		8,719
Cumulative distributions		(1,633,241)		(1,565,039)		(1,703,710)		(1,656,548)
Total LTC Properties, Inc. stockholders’ equity		803,250		736,714		824,666		828,367
Non-controlling interests		21,919		8,413		34,949		21,940
Total equity		825,169		745,127		859,615		850,307
Total liabilities and equity	$	1,651,965	$	1,504,825	$	1,858,242	$	1,656,103

See accompanying notes.

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share, unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Revenues:
Rental income	$	31,585	$	29,320	$	93,537	$	91,097	$	31,537	$	31,628	$	63,272	$	61,952
Interest income from financing receivable		357		—		357		—
Interest income from financing receivables										3,830		—		7,581		—
Interest income from mortgage loans		10,379		7,924		30,112		23,779		11,926		10,097		23,170		19,733
Interest and other income		1,182		228		3,308		1,005		953		1,299		3,723		2,126
Total revenues		43,503		37,472		127,314		115,881		48,246		43,024		97,746		83,811
Expenses:
Interest expense		7,941		6,610		22,607		20,442		11,312		7,523		21,921		14,666
Depreciation and amortization		9,385		9,462		28,202		28,847		9,376		9,379		18,586		18,817
Impairment charges		1,286		—		1,286		—
Impairment loss										12,076		—		12,510		—
Provision for credit losses		795		68		1,454		59		187		305		1,918		659
Transaction costs		629		4,046		728		4,271		91		67		208		99
Property tax expense		4,179		3,932		12,180		11,713		3,187		4,019		6,480		8,001
General and administrative expenses		5,888		5,318		17,407		15,688		6,091		5,711		12,385		11,519
Total expenses		30,103		29,436		83,864		81,020		42,320		27,004		74,008		53,761
Other operating income:
(Loss) gain on sale of real estate, net		(387)		2,702		37,809		7,392
Gain on sale of real estate, net										302		38,094		15,675		38,196
Operating income		13,013		10,738		81,259		42,253		6,228		54,114		39,413		68,246
Income from unconsolidated joint ventures		376		376		1,127		1,041		376		376		752		751
Net income		13,389		11,114		82,386		43,294		6,604		54,490		40,165		68,997
Income allocated to non-controlling interests		(99)		(92)		(301)		(271)		(430)		(107)		(857)		(202)
Net income attributable to LTC Properties, Inc.		13,290		11,022		82,085		43,023		6,174		54,383		39,308		68,795
Income allocated to participating securities		(131)		(113)		(481)		(346)		(146)		(318)		(293)		(407)
Net income available to common stockholders	$	13,159	$	10,909	$	81,604	$	42,677	$	6,028	$	54,065	$	39,015	$	68,388

Earnings per common share:
Basic	$	0.33	$	0.28	$	2.06	$	1.09	$	0.15	$	1.37	$	0.95	$	1.74
Diluted	$	0.32	$	0.28	$	2.04	$	1.09	$	0.15	$	1.36	$	0.95	$	1.73

Weighted average shares used to calculate earnings per common share:
Basic		40,270		39,177		39,658		39,149		41,145		39,492		41,113		39,347
Diluted		40,552		39,177		39,939		39,149		41,232		39,665		41,200		39,520

Dividends declared and paid per common share	$	0.57	$	0.57	$	1.71	$	1.71	$	0.57	$	0.57	$	1.14	$	1.14

See accompanying notes.

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in thousands, unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Net income	$	13,389	$	11,114	$	82,386	$	43,294	$	6,604	$	54,490	$	40,165	$	68,997
Unrealized gain on cash flow hedges before reclassification		3,501		—		9,361		—		2,146		1,276		1,596		5,860
(Gains) losses reclassified from accumulated other comprehensive income to interest expense		(195)		—		256		—		(935)		159		(1,747)		451
Comprehensive income		16,695		11,114		92,003		43,294		7,815		55,925		40,014		75,308
Less: Comprehensive income allocated to non-controlling interests		(99)		(92)		(301)		(271)		(430)		(107)		(857)		(202)
Comprehensive income attributable to LTC Properties, Inc.	$	16,596	$	11,022	$	91,702	$	43,023	$	7,385	$	55,818	$	39,157	$	75,106

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

Capital in

Cumulative

Total

Non-

Common Stock

Excess of

Net

Accumulated

Cumulative

Stockholder's

Controlling

Total

Shares

Amount

Par Value

Income

OCI

Distributions

Equity

Interests

Equity

Balance—December 31, 2020

39,242

$
392

$
852,780

$
1,388,775

$
—

$
(1,474,545)

$
767,402

$
8,404

$
775,806

Common Stock cash distributions ($0.57 per share)

—

—

—

—

—

(22,405)

(22,405)

—

(22,405)

Vesting of performance-based stock units, including the payment of distributions

109

1

(1)

—

—

(764)

(764)

—

(764)

Stock-based compensation expense

—

—

1,852

—

—

—

1,852

—

1,852

Net income

—

—

—

13,762

—

—

13,762

88

13,850

Non-controlling interest distributions

—

—

—

—

—

—

—

(88)

(88)

Cash paid for taxes in lieu of common shares

(84)

—

(3,470)

—

—

—

(3,470)

—

(3,470)

Other

95

1

(11)

—

—

—

(10)

—

(10)

Balance—March 31, 2021

39,362

$
394

$
851,150

$
1,402,537

$
—

$
(1,497,714)

$
756,367

$
8,404

$
764,771

Common Stock cash distributions ($0.57 per share)

—

—

—

—

—

(22,439)

(22,439)

—

(22,439)

Vesting of performance-based stock units, including the payment of distributions

—

—

-

—

-

Stock-based compensation expense

—

—

1,958

—

—

—

1,958

—

1,958

Net income

—

—

—

18,239

—

—

18,239

91

18,330

Non-controlling interest distributions

—

—

—

—

—

—

—

(91)

(91)

Cash paid for taxes in lieu of common shares

(3)

—

(103)

—

—

—

(103)

—

(103)

Other

15

—

(46)

—

—

—

(46)

—

(46)

Balance—June 30, 2021

39,374

$
394

$
852,959

$
1,420,776

$
—

$
(1,520,153)

$
753,976

$
8,404

$
762,380

Common Stock cash distributions ($0.57 per share)

—

—

—

—

—

(22,443)

(22,443)

—

(22,443)

Stock-based compensation expense

—

—

1,975

—

—

—

1,975

—

1,975

Net income

—

—

—

11,022

—

—

11,022

92

11,114

Non-controlling interest distributions

—

—

—

—

—

—

—

(92)

(92)

Non-controlling interest contributions

—

—

—

—

—

—

—

9

9

Other

—

—

(13)

—

—

—

(13)

—

(13)

Balance—September 30, 2021

39,374

$
394

$
854,921

$
1,431,798

$
—

$
(1,542,596)

$
744,517

$
8,413

$
752,930

Common Stock cash distributions ($0.57 per share)

—

—

—

—

—

(22,443)

(22,443)

—

(22,443)

Stock-based compensation expense

—

—

1,975

—

—

—

1,975

—

1,975

Net income

—

—

—

12,838

—

—

12,838

92

12,930

Non-controlling interest distributions

—

—

—

—

—

—

—

(92)

(92)

Fair market valuation adjustment for interest rate swap

—

—

—

—

(172)

—

(172)

—

(172)

Other

—

—

(1)

—

—

—

(1)

—

(1)

Balance—December 31, 2021

39,374

$
394

$
856,895

$
1,444,636

$
(172)

$
(1,565,039)

$
736,714

$
8,413

$
745,127

Common Stock cash distributions ($0.57 per share)

—

—

—

—

—

(22,480)

(22,480)

—

(22,480)

Stock-based compensation expense

—

—

1,925

—

—

—

1,925

—

1,925

Net income

—

—

—

14,412

—

—

14,412

95

14,507

Cash paid for taxes in lieu of common shares

(37)

—

(1,255)

—

—

—

(1,255)

—

(1,255)

Non-controlling interest distributions

—

—

—

—

—

—

—

(95)

(95)

Fair market valuation adjustment for interest rate swap

—

—

—

—

4,876

—

4,876

—

4,876

Other

123

1

(7)

—

—

—

(6)

—

(6)

Balance—March 31, 2022

39,460

$
395

$
857,558

$
1,459,048

$
4,704

$
(1,587,519)

$
734,186

$
8,413

$
742,599

Issuance of common stock

910

9

33,684

—

—

-

33,693

—

33,693

Common Stock cash distributions ($0.57 per share)

—

—

—

—

—

(22,635)

(22,635)

—

(22,635)

Stock-based compensation expense

—

—

2,012

—

—

—

2,012

—

2,012

Net income

—

—

—

54,383

—

—

54,383

107

54,490

Cash paid for taxes in lieu of common shares

(2)

—

(100)

—

—

—

(100)

—

(100)

Non-controlling interest distributions

—

—

—

—

—

—

—

(998)

(998)

Fair market valuation adjustment for interest rate swap

—

—

—

—

1,435

—

1,435

—

1,435

Other

12

—

—

—

—

—

—

—

—

Balance—June 30, 2022

40,380

$
404

$
893,154

$
1,513,431

$
6,139

$
(1,610,154)

$
802,974

$
7,522

$
810,496

Issuance of common stock

125

—

4,753

—

—

-

4,753

—

4,753

Common Stock cash distributions ($0.57 per share)

—

—

—

—

—

(23,087)

(23,087)

—

(23,087)

Stock-based compensation expense

—

—

2,014

—

—

—

2,014

—

2,014

Net income

—

—

—

13,290

—

—

13,290

99

13,389

Cash paid for taxes in lieu of common shares

—

—

-

—

—

—

-

—

-

Non-controlling interest contributions

—

—

-

—

—

—

-

14,375

14,375

Non-controlling interest distributions

—

—

—

—

—

—

—

(77)

(77)

Fair market valuation adjustment for interest rate swap

—

—

—

—

3,306

—

3,306

—

3,306

Balance—September 30, 2022

40,505

$
404

$
899,921

$
1,526,721

$
9,445

$
(1,633,241)

$
803,250

$
21,919

$
825,169


					Capital in		Cumulative						Total		Non-
	Common Stock				Excess of		Net		Accumulated		Cumulative		Stockholder's		Controlling		Total
	Shares		Amount		Par Value		Income		OCI		Distributions		Equity		Interests		Equity
Balance—December 31, 2021	39,374	$	394	$	856,895	$	1,444,636	$	(172)	$	(1,565,039)	$	736,714	$	8,413	$	745,127
Common Stock cash distributions ($0.57 per share)	—		—		—		—		—		(22,480)		(22,480)		—		(22,480)
Stock-based compensation expense	—		—		1,925		—		—		—		1,925		—		1,925
Net income	—		—		—		14,412		—		—		14,412		95		14,507
Cash paid for taxes in lieu of common shares	(37)		—		(1,255)		—		—		—		(1,255)		—		(1,255)
Non-controlling interest distributions	—		—		—		—		—		—		—		(95)		(95)
Fair market valuation adjustment for interest rate swap	—		—		—		—		4,876		—		4,876		—		4,876
Other	123		1		(7)		—		—		—		(6)		—		(6)
Balance—March 31, 2022	39,460	$	395	$	857,558	$	1,459,048	$	4,704	$	(1,587,519)	$	734,186	$	8,413	$	742,599
Issuance of common stock	910		9		33,684		—		—		-		33,693		—		33,693
Common Stock cash distributions ($0.57 per share)	—		—		—		—		—		(22,635)		(22,635)		—		(22,635)
Stock-based compensation expense	—		—		2,012		—		—		—		2,012		—		2,012
Net income	—		—		—		54,383		—		—		54,383		107		54,490
Cash paid for taxes in lieu of common shares	(2)		—		(100)		—		—		—		(100)		—		(100)
Non-controlling interest distributions	—		—		—		—		—		—		—		(998)		(998)
Fair market valuation adjustment for interest rate swap	—		—		—		—		1,435		—		1,435		—		1,435
Other	12		—		—		—		—		—		—		—		—
Balance—June 30, 2022	40,380	$	404	$	893,154	$	1,513,431	$	6,139	$	(1,610,154)	$	802,974	$	7,522	$	810,496

Balance—December 31, 2022	41,262	$	412	$	931,124	$	1,544,660	$	8,719	$	(1,656,548)	$	828,367	$	21,940	$	850,307
Issuance of common stock	48		—		1,697		—		—		—		1,697		—		1,697
Issuance of restricted stock	128		1		(1)		—		—		—		—		—		—
Common Stock cash distributions ($0.57 per share)	—		—		—		—		—		(23,563)		(23,563)		—		(23,563)
Stock-based compensation expense	—		—		2,088		—		—		—		2,088		—		2,088
Net income	—		—		—		33,134		—		—		33,134		427		33,561
Cash paid for taxes in lieu of common shares	(41)		—		(1,538)		—		—		—		(1,538)		—		(1,538)
Non-controlling interest contributions	—		—		—		—		—		—		—		3,831		3,831
Non-controlling interest distributions	—		—		—		—		—		—		—		(406)		(406)
Fair market valuation adjustment for interest rate swap	—		—		—		—		(1,362)		—		(1,362)		—		(1,362)
Other	(1)		—		—		—		—		—		—		—		—
Balance—March 31, 2023	41,396	$	413	$	933,370	$	1,577,794	$	7,357	$	(1,680,111)	$	838,823	$	25,792	$	864,615
Issuance of restricted stock	15		—		—		—		—		—		—		—		—
Common Stock cash distributions ($0.57 per share)	—		—		—		—		—		(23,599)		(23,599)		—		(23,599)
Stock-based compensation expense	—		—		2,138		—		—		—		2,138		—		2,138
Net income	—		—		—		6,174		—		—		6,174		430		6,604
Cash paid for taxes in lieu of common shares	(2)		—		(81)		—		—		—		(81)		—		(81)
Non-controlling interest contributions	—		—		—		—		—		—		—		9,133		9,133
Non-controlling interest distributions	—		—		—		—		—		—		—		(406)		(406)
Fair market valuation adjustment for interest rate swap	—		—		—		—		1,211		—		1,211		—		1,211
Balance—June 30, 2023	41,409	$	413	$	935,427	$	1,583,968	$	8,568	$	(1,703,710)	$	824,666	$	34,949	$	859,615

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands, unaudited)


	Nine Months Ended September 30,				Six Months Ended June 30,
	2022		2021		2023		2022
OPERATING ACTIVITIES:
Net income	$	82,386	$	43,294	$	40,165	$	68,997
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,202		28,847		18,586		18,817
Stock-based compensation expense		5,951		5,785		4,226		3,937
Impairment charges		1,286		—
Impairment loss						12,510		—
Gain on sale of real estate, net		(37,809)		(7,392)		(15,675)		(38,196)
Income from unconsolidated joint ventures		(1,127)		(1,041)		(752)		(751)
Income distributions from unconsolidated joint ventures		351		—
Straight-line rental adjustment (income)		963		(619)
Straight-line rental adjustment						888		527
Exchange of prepayment fee for participating interest in mortgage loan						(1,380)		—
Adjustment for collectability of lease incentives and rental income		256		758		26		173
Amortization of lease incentives		665		386		413		429
Provision for credit losses		1,454		59		1,918		659
Application of interest reserve		(4,348)		—		(1,609)		(2,451)
Amortization of debt issue costs		841		778		600		547
Other non-cash items, net		(170)		4		47		4
Change in operating assets and liabilities
Lease incentives funded		(418)		(650)		(19)		(8)
Increase in interest receivable		(4,768)		(4,730)		(4,593)		(3,191)
Decrease in accrued interest payable		(625)		(1,044)
(Decrease) increase in accrued interest payable						(1,364)		201
Net change in other assets and liabilities		(318)		5,146		(7,453)		(1,250)
Net cash provided by operating activities		72,772		69,581		46,534		48,444
INVESTING ACTIVITIES:
Investment in real estate properties		(51,815)		—		(43,759)		(51,815)
Investment in real estate developments		(105)		—
Investment in real estate capital improvements		(4,555)		(4,839)		(3,230)		(2,905)
Proceeds from sale of real estate, net		72,628		43,628		37,553		72,359
Investment in financing receivable		(61,661)		—		(112,712)		—
Investment in real estate mortgage loans receivable		(35,234)		(2,081)		(70,603)		(33,910)
Principal payments received on mortgage loans receivable		625		625		251		625
Investments in unconsolidated joint ventures		—		(5,676)
Advances and originations under notes receivable		(37,008)		(6,453)		(866)		(36,788)
Principal payments received on notes receivable		6,618		2,553		5,965		6,618
Net cash (used in) provided by investing activities		(110,507)		27,757
Net cash used in investing activities						(187,401)		(45,816)
FINANCING ACTIVITIES:
Borrowings from revolving line of credit		194,000		92,500		224,950		99,000
Repayment of revolving line of credit		(153,900)		(48,000)		(28,600)		(153,900)
Proceeds from issuance of senior unsecured notes		75,000		—		—		75,000
Principal payments on senior unsecured notes		(43,160)		(32,160)		(11,000)		(7,000)
Proceeds from common stock issued		38,957		—		1,777		34,203
Distributions paid to stockholders		(68,202)		(68,051)		(47,162)		(45,115)
Contribution from non-controlling interests		50		9
Distributions paid to non-controlling interests		(1,170)		(271)		(812)		(1,093)
Financing costs paid		(1,162)		(35)		(20)		(1,122)
Cash paid for taxes in lieu of shares upon vesting of restricted stock and performance-based stock units		(1,355)		(3,573)
Cash paid for taxes in lieu of shares upon vesting of restricted stock						(1,619)		(1,355)
Other		(6)		(70)		—		(6)
Net cash provided by (used in) financing activities		39,052		(59,651)		137,514		(1,388)
Increase in cash and cash equivalents		1,317		37,687
(Decrease) increase in cash and cash equivalents						(3,353)		1,240
Cash and cash equivalents, beginning of period		5,161		7,772		10,379		5,161
Cash and cash equivalents, end of period	$	6,478	$	45,459	$	7,026	$	6,401

Supplemental disclosure of cash flow information:
Interest paid	$	22,391	$	20,708	$	22,685	$	13,918
Non-cash investing and financing transactions:
Contribution of financing receivable from non-controlling interest	$	14,325	$	—
Mortgage loan receivable reserve withheld at origination (See Footnote 2. Real Estate Investments)	$	102	$	142
Preferred return reserve related to investments in unconsolidated joint ventures (See Footnote 3. Investment in Unconsolidated Joint Ventures)	$	—	$	2,324
Contribution from non-controlling interest					$	12,964	$	—
Exchange of mezzanine loan and related prepayment fee for participating interest in mortgage loan					$	(8,841)	$	—
Reserves withheld at financing and mortgage loan receivable origination					$	(5,147)	$	—
Accretion of interest reserve recorded as mortgage loan receivable	$	4,348	$	—	$	1,609	$	2,451
Increase in fair value of interest rate swap agreements (See Footnote 6. Debt Obligations)	$	9,617	$	—
Notes receivable reserve withheld at origination (See Footnote 4. Notes Receivable)	$	—	$	353
(Decrease) increase in fair value of interest rate swap agreements					$	(151)	$	6,311
Mortgage loan receivable reserve withheld at origination					$	1,506	$	—

See accompanying notes.

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	General

LTC Properties, Inc., a health care real estate investment trust (“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-leasebacks, mortgage financing, joint ventures and structured finance solutions including preferred equity and mezzanine lending. We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal 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 (“SNF”), assisted living communities (“ALF”), independent living communities (“ILF”), memory care communities (“MC”) and combinations thereof. We also invest in other (“OTH”) types of properties, such as land parcels, projects under development (“UDP”) and behavioral health care hospitals.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 (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“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 and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 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.

2.	Real Estate Investments

Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (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. Our owned properties are leased pursuant 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. Many of the leases contain renewal options. The majority of our leases contain provisions for specified annual increases over the rents of the prior year.

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

The following table summarizes our investments in owned properties at ~~September~~June 30, ~~2022~~2023 (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	Investment		Investment		Properties ⁽¹⁾	Beds	Units	Bed/Unit		Investment		Investment		Properties ⁽¹⁾	Beds	Units	Bed/Unit
Assisted Living	$	797,426	56.6	%	99	—	5,497	$	145.07	$	817,781	57.5	%	97	—	5,570	$	146.82
Skilled Nursing		599,058	42.5	%	52	6,348	236	$	90.99		591,474	41.6	%	50	6,113	236	$	93.16
Other ⁽²⁾		11,918	0.9	%	1	118	—		—		12,005	0.9	%	1	118	—		—
Total	$	1,408,402	100.0	%	152	6,466	5,733			$	1,421,260	100.0	%	148	6,231	5,806

(1)	We own properties in 26 states that are leased to 2422 different operators.

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

~~Future minimum base rents receivable~~Many of our existing leases contain renewal options that, if exercised, could result in the amount of rent payable upon renewal being greater or less than that currently being paid. During 2023, Brookdale Senior Living Communities, Inc. (“Brookdale”) elected not to exercise its renewal option. Accordingly, the master lease expires in December 2023. Additionally, during 2023, a master lease covering two skilled nursing centers that was scheduled to mature in 2023 was renewed at the contractual rate for another five years extending the maturity to November 2028. The centers have a total of 216 beds and are located in Florida. Also, during 2023, a master lease covering two skilled nursing centers that was scheduled to mature in 2023 was renewed for another two years extending the maturity to December 2025. The master lease was renewed at the contractual annual cash rent of $1,005,000 increasing 2.5% per year. As amended, this master lease provides the lessee with a purchase option available through December 31, 2024. The centers have a total of 141 beds and are located in Tennessee.

During the second quarter of 2023, we transitioned a portfolio of eight assisted living communities with 500 units in Illinois, Ohio and Michigan to Encore Senior Living (“Encore”). We agreed to provide assistance in the second quarter of 2023 to the former operator of this portfolio and as part of the transition, we received repayment of $1,250,000 of deferred rent which represents $934,000 of April and May 2023 deferred rent and $316,000 of unrecorded deferred rent provided in 2022. Cash rent under the ~~remaining non-cancelable terms of operating leases excluding the effects of straight-line~~new two-year lease with Encore is based on mutually agreed upon fair market rent ~~receivable, amortization of lease incentives and renewal options are as follows~~ (beginning in ~~thousands):~~September 2023.

Cash

Rent ⁽¹⁾

2022

$
31,970

2023

114,037

2024

94,257

2025

85,460

2026

68,784

Thereafter

263,280

~~(1)~~

Represents contractual cash rent, except for certain master leases which are based on estimated cash payments. Includes rent from subsequent acquisitions and excludes rent from subsequent dispositions. See ~~Note 12. Subsequent Events~~ ~~for more information.~~

We monitor the collectability of our receivable balances, including deferred rent receivable balances, on an ongoing basis. We write-off uncollectible operator receivable balances, including straight- line rent receivable and lease incentives balances, as a reduction to rental income in the period such balances are no longer probable of being collected. Therefore, recognition of rental income is limited to the lesser of the amount of cash collected or rental income reflected on a “straight-line” basis for those customer receivable balances deemed uncollectible. We wrote-off straight-line rent receivable and lease incentives balances of ~~$256,000~~$26,000 and ~~$758,000~~$173,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, as a result of property sales and lease ~~terminations and transitioning rental revenue recognition to cash basis.~~terminations.

We continue to take into account the current financial condition of our operators, including consideration of the impact of COVID-19, in our estimation of uncollectible accounts and deferred rents receivable at ~~September~~June 30, ~~2022.~~2023. We are closely monitoring the collectability of such rents and will adjust future estimations as appropriate as further information becomes known.

~~Table of Contents~~

~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

~~The following table summarizes components of our rental income for the three and nine months ended September 30, 2022 and 2021~~ ~~(in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,
Rental Income

2022

2021

2022

2021

Base cash rental income

$
28,180
⁽¹⁾
$
25,934
⁽¹⁾
$
83,203
⁽²⁾
$
80,967
⁽²⁾
Variable cash rental income

4,160
⁽³⁾

3,588
⁽³⁾

12,218
⁽³⁾

10,655
⁽³⁾
Straight-line rent

(436)
⁽⁴⁾

(44)
⁽⁴⁾

(963)
⁽⁵⁾

619
⁽⁵⁾
Adjustment for lease incentives and rental income

(83)
⁽⁶⁾

—

(256)
⁽⁷⁾

(758)
⁽⁸⁾
Amortization of lease incentives

(236)

(158)

(665)

(386)

Total

$
31,585

$
29,320

$
93,537

$
91,097

~~(1)~~

Increased primarily due to rent received from properties transitioned from the former Senior Care Centers, LLC (“Senior Care”) and Senior Lifestyle Corporation (“Senior Lifestyle”) portfolios and rental income from acquisitions, completed development projects and annual rent escalations.

~~(2)~~

~~Increased primarily due to (1) above. Also relates to a $1,181 lease termination fee received in connection with the sale of a 74-unit ALF.~~

~~(3)~~

The variable rental income for the three and nine months ended September 30, 2022, primarily includes reimbursement of real estate taxes by our lessees of $4,160 and $12,161, respectively. The variable rental income for the three and nine months ended September 30, 2021, only includes reimbursement of real estate taxes by our lessees of $3,588 and $10,655. Increases primarily due to properties transitioned from Senior Care and new acquisitions partially offset by properties sold.

~~(4)~~

~~Decreased primarily due to a deferred rent repayment and normal amortization.~~

~~(5)~~

~~Decreased primarily due to (4) above. Also relates to the impact of prior year’s 50% reduction of 2021 rent escalations for those leases accounted for on a straight-line basis.~~

~~(6)~~

~~Represents lease incentive balance write-off related to two properties that were transitioned to another operator in our portfolio.~~

~~(7)~~

~~Represents a lease incentive balance write-off related to a closed property and subsequent lease termination and (6) above.~~

~~(8)~~

~~Represents a straight-line rent receivable write-off due to transitioning rental revenue recognition to cash basis for one lease in accordance with Accounting Standard Codification~~ ~~Topic 842, Leases~~.

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 amounts in thousands):~~

Type

Number

of

of

Gross

Carrying

Option

State

Property

Properties

Investments

Value

Window

California

ALF/MC

2

$
38,895

$
33,954

2023-2029

Florida

MC

1

15,201

12,614

2029

Florida

SNF

3

76,267

76,267

2025-2027
⁽¹⁾
Nebraska

ALF

3

7,633

3,008

TBD
⁽²⁾
South Carolina

ALF/MC

1

11,680

9,197

2029

Texas

SNF

4

51,816

51,157

2027-2029
⁽³⁾
Total

$
201,492

$
186,197

~~(1)~~

During the third quarter of 2022, we entered into a joint venture (“JV”) to purchase three skilled nursing centers. The JV leased the properties under a 10-year master lease. For more information regarding this transaction see ~~Financing Receivable~~ ~~below.~~

~~(2)~~

~~Subject to the properties achieving certain coverage ratios.~~

~~(3)~~

~~During the second quarter of 2022, we purchased four skilled nursing centers and leased these properties under a~~ ~~10-year~~ lease with an existing operator. The lease provides the operator to elect either an earn-out payment or purchase option. If neither option is elected within the timeframe defined in the lease, both elections are terminated. For more information regarding the earn-out see ~~Note 8. Commitments and Contingencies~~.

~~Table of Contents~~

~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and on March 13, 2020, the United States declared a national emergency with regard to COVID-19. At September 30, 2022, in conjunction with the continued levels of uncertainty related to the adverse effects of COVID-19, we assessed the probability of collecting substantially all of our lease payments through maturity and concluded that we did not have sufficient information available to evaluate the impact of COVID-19 on the collectability of our lease payments. The extent to which COVID-19 could impact our operators and the collectability of our future lease payments will depend on the future developments including the financial impact significance, government support and subsidies and the duration of the pandemic.

In recognition of the pandemic’s ongoing impact affecting our operators, we have agreed to provide assistance in form of rent abatements and rent deferrals and we will continue to provide assistance as needed.

~~Impairment Charges.~~ During 2022, we made the decision to sell an assisted living community located in Kentucky which decreased the period over which we could recover the carrying value of the community. As a result of our decision to sell, we determined that the property’s carrying value would not be fully recoverable and recorded an impairment loss of ~~$1,286,000. As of September 30, 2022, the community was classified as held-for-sale.~~

~~Properties Held -for-Sale:~~ ~~The following summarizes our held-for-sale properties as of September 30, 2020 (~~~~dollar amounts in thousands~~):

Type

Number

Number

of

of

of

Gross

Accumulated

State

Property

Properties

Beds/units

Investment

Depreciation

KY

ALF

1

60

$
13,015

$
2,305

~~Acquisitions and Improvements:~~ ~~During the nine months ended September 30, 2021 we did not have any acquisitions. The following table summarizes our acquisitions for the nine months ended September 30, 2022 (~~~~dollar amounts in thousands~~):

Total

Number

Number

Purchase

Transaction

Acquisition

of

of
Year

Type of Property

Price

Costs

Costs

Properties

Beds/Units
2022

SNF

$
51,534

$
281

$
51,815

4

339

~~We accounted for the above acquisition as an asset acquisition. The properties are located in Texas and are leased to an affiliate of an existing operator under a~~ ~~10-year~~ lease with two 5-year renewal options. Additionally, the lease provides the operator to elect either an earn-out payment or purchase option. If neither option is elected within the timeframe defined in the lease, both elections are terminated. The earn-out payment is available, contingent on achieving certain thresholds per the lease, beginning at the end of the second lease year through the end of the fifth lease year. The purchase option is available beginning in the sixth lease year through the end of the seventh lease year. The initial cash yield is 8% for the first year, increasing to 8.25% for the second year, then increases annually by 2.0% to 4.0% based on the change in the Medicare Market Basket Rate. In connection with the transaction, we provided the lessee a ~~10-year~~ ~~working capital loan for up to $2,000, of which $1,867 has been funded, at 8% for first year, increasing to 8.25% for the second year, then increasing annually with the lease rate.~~

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

The following table summarizes components of our rental income for the six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Rental Income		2023			2022			2023			2022
Contractual cash rental income	$	29,014	⁽¹⁾	$	28,108	⁽¹⁾	$	58,139	⁽¹⁾	$	55,023	⁽¹⁾
Variable cash rental income		3,176	⁽²⁾		4,019	⁽²⁾		6,460	⁽²⁾		8,058	⁽²⁾
Straight-line rent		(423)			(293)			(888)			(527)
Adjustment for collectability of lease incentives and rental income		(26)			—			(26)			(173)	⁽³⁾
Amortization of lease incentives		(204)			(206)			(413)			(429)
Total	$	31,537		$	31,628		$	63,272		$	61,952

(1)	Increased primarily due to rental income from acquisitions, transitioned portfolios, completed development projects and annual rent escalations, partially offset by sold properties.

(2)

The variable rental income for the three and six months ended June 30, 2023, includes reimbursement of real estate taxes by our lessees of $3,176 and $6,460, respectively. The variable rental income for the three and six months ended June 30, 2022, includes reimbursement of real estate taxes by our lessees of $4,019 and $8,001, respectively. The variable rental income for the six months ended June 30, 2022 also includes contingent rental income of $57. Decreased primarily due to property tax reassessment and sold properties partially offset by the acquisitions.

(3)	Represents a lease incentive balance write-off related to a closed property and subsequent lease termination.


	Type	Number
	of	of		Gross		Carrying	Option
State	Property	Properties		Investments		Value	Window
California	ALF/MC	2	$	38,895	$	33,248	2023-2029
Florida	MC	1		7,680		4,750	2029	⁽¹⁾
Florida	SNF	3		76,734		76,734	2025-2027	⁽²⁾
Nebraska	ALF	3		7,633		2,834	TBD	⁽³⁾
North Carolina	ALF/MC	11		121,321		121,321	2025-2028	⁽⁴⁾
Ohio	MC	1		16,161		13,708	2024-2025
Ohio	ILF/ALF/MC	1		54,437		54,256	2025-2027
South Carolina	ALF/MC	1		11,680		8,764	2029
Tennessee	SNF	2		5,275		2,333	2023-2024
Texas	SNF	4		51,837		50,188	2027-2029	⁽⁵⁾
Total			$	391,653	$	368,136

(1)	During the second quarter of 2023, we recorded an impairment loss of $7,522 during the second quarter of 2023.. See Impairment Loss below for more information.

(2)	During 2022, we entered into a joint venture (“JV”) to purchase three skilled nursing centers with a total of 299 beds. The JV leased the properties under a 10-year master lease. For more information regarding this transaction see Financing Receivables below.

(3)	Subject to the properties achieving certain coverage ratios.

(4)

During 2023, we entered into a JV that purchased 11 ALFs and MCs with a total of 523 units and leased the communities under a 10-year master lease. The master lease provides the operator with the option to buy up to 50% of the properties at the beginning of the third lease year, and the remaining properties at the beginning of the fourth lease year through the end of the sixth lease year, with an exit IRR of 9.00% on any portion of the properties being purchased. For more information regarding this transaction see Financing Receivables below.

(5)

During 2022, we purchased four skilled nursing centers and leased these properties under a 10-year lease with an existing operator. The lease allows the operator to elect either an earn-out payment or purchase option. If neither option is elected within the timeframe defined in the lease, both elections are terminated. For more information regarding the earn-out see Note 8. Commitments and Contingencies.

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

Impairment Loss. In conjunction with the planned sale of a 70-unit assisted living community located in Florida, we recorded a $434,000 impairment loss during the three months ended March 31, 2023 and a $1,222,000 impairment loss during the fourth quarter of 2022. During the second quarter of 2023, the community was sold for $4,850,000. Additionally, during the second quarter of 2023, we performed a recoverability analysis on the carrying value of two assisted living communities that we are negotiating to sell and concluded that their carrying value may not be recoverable through future undiscounted cash flows. Accordingly, we recorded an aggregate impairment loss of $12,076,000 during the second quarter of 2023. As of June 30, 2023, we do not believe these communities meet the criteria to be classified as held-for-sale.

Properties Held -for-Sale. The following summarizes our held-for-sale properties as of June 30, 2023 (dollar amounts in thousands):


	Type	Number	Number
	of	of	of		Gross		Accumulated
State	Property	Properties	Beds/units		Investment		Depreciation
PA	ALF	2	130	$	9,744	$	3,691
		2	130	$	9,744	$	3,691

Acquisitions. The following table summarizes our acquisitions for the six months ended June 30, 2023 and 2022 (dollar amounts in thousands):


		Cash				Non-						Number	Number
		Paid at	Assumed			Controlling	Transaction			Assets		of	of
Year	Type of Property	Acquisition	Liabilities			Interest	Costs			Acquired		Properties	Beds/Units
2023	ALF ⁽¹⁾	43,759	$	9,767	$	9,133	$	363	$	63,022	⁽²⁾	1	242

2022	SNF⁽³⁾	51,815	$	—	$	—	$	—	$	51,815		4	339

(1)

We entered into a $54,134 Joint Venture (“JV”) and contributed $45,000 into the JV that purchased an ILF/ALF/MC in Ohio. Under the JV agreement, the seller, our JV partner, has the option to purchase the campus between the third and fourth lease years for LTC’s allocation of the JV investment plus an IRR of 9.75%. The campus was leased to Encore Senior Living (“Encore”) under a 10-year term with an initial yield of 8.25% on LTC’s allocation of the JV investment. LTC committed to fund $2,100 of lease incentives under the Encore lease. Rent is expected to be approximately $3,900 per year.

(2)	Includes $8,585 tax abatement intangible included in the Prepaid expenses and other assets line item in our Consolidated Balance Sheets.

(3)

The properties are located in Texas and are leased to an affiliate of an existing operator under a 10-year lease with two 5-year renewal options. Additionally, the lease provides either an earn-out payment or purchase option but not both. If neither option is elected within the timeframe defined in the lease, both elections are terminated. The earn-out payment is available, contingent on achieving certain thresholds per the lease, beginning at the end of the second lease year through the end of the fifth lease year. The purchase option is available beginning in the sixth lease year through the end of the seventh lease year. The initial cash yield is 8% for the first year, increasing to 8.25% for the second year, then increases annually by 2.0% to 4.0% based on the change in the Medicare Market Basket Rate. In connection with the transaction, we provided the lessee a 10-year working capital loan for up to $2,000, of which $1,867 has been funded, at 8% for first year, increasing to 8.25% for the second year, then increasing annually with the lease rate.

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

Improvements.During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, we invested the following ~~developments and~~in improvements projects (in thousands):


									Six Months Ended June 30,
Type of Property		2022				2021				2023		2022
	Developments		Improvements		Developments		Improvements
Assisted Living Communities	$	105	$	3,015	$	—	$	4,560	$	2,000	$	1,964
Skilled Nursing Centers		—		981		—		279		1,143		620
Other		—		559		—		—		87		321
Total	$	105	$	4,555	$	—	$	4,839	$	3,230	$	2,905

Properties Sold. During the three and six months ended ~~September~~June 30, ~~2022 and 2021,~~2023, we recorded a ~~net (loss)/~~gain on sale of ~~($387,000)~~$302,000 and ~~$2,702,000,~~$15,675,000, respectively. During the three and six months ended June 30, 2022, we recorded a gain on sale of $38,094,000 and $38,196,000, respectively. The following table summarizes property sales during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (dollar amounts in thousands):

Type

Number

Number

of

of

of

Sales

Carrying

Net

Year

State

Properties

Properties

Beds/Units

Price

Value

Gain (loss)⁽¹⁾

2022

California

ALF

2

232

$
43,715

$
17,832

$
25,867

California

SNF

1

121

13,250

1,846

10,846

Texas

SNF

1

—

485

697

(434)

Virginia

ALF

1

74

16,895

15,549

1,344
⁽²⁾

n/a

n/a

—

—

—

—

186
⁽³⁾
Total 2022

5

427

$
74,345

$
35,924

$
37,809

2021

Florida

ALF

1

—

$
2,000

$
2,626

$
(858)

Nebraska

ALF

1

40

900

1,079

(198)

Washington

SNF

1

123

7,700

4,528

2,562

Wisconsin

ALF

3

263

35,000

28,295

5,594

n/a

n/a

—

—

—

—

292
⁽³⁾
Total 2021

6

426

$
45,600

$
36,528

$
7,392


		Type	Number	Number
		of	of	of		Sales		Carrying		Net
Year	State	Properties	Properties	Beds/Units		Price		Value		Gain ⁽¹⁾
2023	Florida	ALF	1	70	$	4,850	$	4,082	$	65
	Kentucky	ALF	1	60		11,000		10,710		57
	New Jersey	ALF	1	39		2,000		1,552		266
	New Mexico	SNF	2	235		21,250		5,379		15,287
Total 2023			5	404	$	39,100	$	21,723	$	15,675

2022	California	ALF	2	232	$	43,715	$	17,832	$	25,867
	California	SNF	1	121		13,250		1,846		10,849
	Virginia	ALF	1	74		16,895		15,549		1,336	⁽²⁾
	n/a	n/a	—	—		—		—		144	⁽³⁾
Total 2022			4	427	$	73,860	$	35,227	$	38,196

(

(1)	Calculation of net gain ~~(loss)~~ includes cost of sales and write-off of straight-line receivable and lease incentives, when applicable.

(2)	In connection with this sale, the former operator paid us a lease termination fee of $1,181 which is not included in the gain on sale.

(3)	We recognized additional gain due to the reassessment adjustment of the holdbacks related to properties sold during 2019 and 2020, under the expected value model per ASC Topic 606, Contracts with Customers (“ASC 606”).

Financing ~~Receivable.~~Receivables. As part of our acquisitions, we may from time to time, invest in sale and leaseback transactions. In accordance with ASC Topic 842, Leases (“ACS 842”), we are required to determine whether the sale and leaseback transaction qualifies as a sale. ASC 842 clarifies that an option for the seller-lessee to repurchase a real estate asset would generally preclude accounting for the transfer of the asset as a sale. Therefore, a sale and leaseback transaction of real estate that includes a seller-lessee repurchase option is accounted for as a failed sale and leaseback transaction. As a result, the purchased assets of a failed sale and leaseback transaction would be presented as a Financing ~~receivable~~receivables on our Consolidated Balance Sheets and the rental revenue from these properties is recorded as Interest income from financing ~~receivable~~receivables on our Consolidated Statements of Income. Furthermore, upon expiration of the purchase option if the purchase option remains unexercised by the seller-lessee, the purchased assets will be reclassified from Financing ~~receivable~~receivables to Real property investments on our Consolidated Balance Sheets.

During ~~the third quarter of 2022,~~2023, we entered into a ~~joint venture~~$121,321,000 JV with an affiliate of an existing operator and contributed ~~$61,661,000~~$117,490,000 into the JV that purchased 11 assisted living and memory care communities from an affiliate of our JV partner. The JV leased the communities back to an affiliate of the seller under

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

a 10-year master lease, with two five-year renewal options. The contractual initial cash yield of 7.25% increases to 7.5% in year three then escalates thereafter based on CPI subject to a floor of 2.0% and a ceiling of 4.0%. Additionally, the JV provided the seller-lessee with a purchase option to buy up to 50% of the properties at the beginning of the third lease year and the remaining properties at the beginning of the fourth lease year through the end of the sixth lease year, with an exit Internal Rate of Return (“IRR”) of 9.0%. During the three and six months ended June 30, 2023, we recognized $2,426,000 and $4,772,000, respectively of Interest income from financing receivables and upon origination we recorded $1,213,000 Provision for credit losses equal to 1% of the loan balance related to this investment.

During 2022, we entered into a JV and contributed $61,661,000 into the JV that purchased three skilled nursing centers located in Florida for $75,825,000. ~~Our JV partner contributed the remaining $14,325,000 of equity.~~ The JV leased the centers back to an affiliate of the seller under a 10-year master lease, with two five-year renewal options and provided the seller-lessee with a purchase option, exercisable at the beginning of the fourth year through the end of the fifth year. ~~Accordingly,~~During the ~~transaction has been accounted for as a failed sale~~three and ~~leaseback transaction and recorded as a~~ ~~Financing receivable.~~ ~~During this quarter,~~six months ended June 30, 2023, we recognized ~~$357,000~~$1,405,000 and $2,810,000, respectively of Interest income from financing ~~receivable~~receivables ~~on our~~ ~~Consolidated Statements of Income~~~~. Additionally, we recorded $760,000 provision for expected loan losses during the three months ended September 30, 2022.~~related to this investment.

Mortgage Loans. The following table ~~summarizes~~sets forth information regarding our investments in mortgage loans secured by first mortgages at ~~September~~June 30, ~~2022~~2023 (dollar amounts in thousands):


					Type	Percentage		Number of					Investment							Type	Percentage		Number of					Investment
			Gross		of	of					SNF	ALF	per				Gross			of	of					SNF	ALF	per
Interest Rate	Maturity	State	Investment		Property	Investment		Loans ⁽¹⁾	Properties ⁽²⁾		Beds	Units	Bed/Unit		Maturity	State	Investment			Property	Investment		Loans ⁽¹⁾	Properties ⁽²⁾		Beds	Units	Bed/Unit
7.5%	2023	MO	$	1,886	OTH	0.5	%	1	—	⁽³⁾	—	—	$	n/a	2024	MO	$	1,961		OTH	0.4	%	1	—	⁽³⁾	—	—	$	n/a
7.5%	2024	LA		27,347	SNF	7.1	%	1	1		189	—	$	144.69	2024	LA		29,346		SNF	6.2	%	1	1		189	—	$	155.27
7.5%															2024	GA		51,111	⁽⁴⁾	ALF	10.7	%	1	1		—	203	$	251.78
7.8%	2025	FL		13,123	ALF	3.4	%	1	1		—	68	$	192.99	2025	FL		16,525		ALF	3.5	%	1	1		—	68	$	243.01
7.3% ⁽⁴⁾	2025	NC/SC		52,812	ALF	13.6	%	1	13		—	523	$	100.98
7.3%	2026	NC		32,373	ALF	8.4	%	1	4		—	217	$	149.18	2025	NC		10,750	⁽⁴⁾	ALF	2.3	%	1	1		—	45	$	238.89
7.3%	2026	NC		782	OTH	0.2	%	1	—	⁽⁵⁾	—	—	$	n/a
10.4% ⁽⁶⁾	2043	MI		184,854	SNF	47.8	%	1	15		1,875	—	$	98.59
9.5% ⁽⁶⁾	2045	MI		39,066	SNF	10.1	%	1	4		501	—	$	77.98
9.9%⁽⁶⁾	2045	MI		19,750	SNF	5.1	%	1	2		205	—	$	96.34
10% ⁽⁶⁾	2045	MI		14,875	SNF	3.8	%	1	1		146	—	$	101.88
7.3% ⁽⁵⁾															2025	NC/SC		56,855		ALF	11.9	%	1	13		—	523	$	108.71
7.3% ⁽⁵⁾															2026	NC		34,043		ALF	7.1	%	1	4		—	217	$	156.88
7.3% ⁽⁵⁾															2026	NC		826		OTH	0.2	%	1	—	⁽⁶⁾	—	—	$	—
8.8%															2028	IL		16,500	⁽⁷⁾	SNF	3.5	%	1	1		150	—	$	110.00
10.6% ⁽⁸⁾															2043	MI		184,222		SNF	38.6	%	1	15		1,875	—	$	98.25
9.6% ⁽⁸⁾															2045	MI		40,000		SNF	8.4	%	1	4		480	—	$	83.33
10.1%															2045	MI		19,750		SNF	4.1	%	1	2		201	—	$	98.26
10.3% ⁽⁸⁾															2045	MI		14,850		SNF	3.1	%	1	1		146	—	$	101.71
Total			$	386,868		100.0	%	10	41		2,916	808	$	103.89			$	476,739			100.0	%	13	44		3,041	1,056	$	116.36

(1)	Some loans contain certain guarantees and provide for certain facility fees.

(2)	Our mortgage loans are secured by properties located in ~~six~~eight states with ~~five~~seven borrowers.

(3)	Represents a mortgage loan secured by a parcel of land for the future development of a 91-bed post-acute SNF.

(4)

We originated a $10,750 mortgageloan secured by a 45-unit MC located in North Carolina. The loan carries a two-year term with an interest-only rate of 7.25% and an IRR of 9.0%. Additionally, we invested $51,111 in an existing mortgage loan secured by a 203-unit ILF, ALF and MC located in Georgia by acquiring a participating interest owned by existing lenders for $42,251 in addition to converting our $7,461 mezzanine loan in the property into a participating interest in the mortgage loan. The mortgage loan matures in October 2024 and our investment is at an initial rate of 7.5% with an IRR of 7.75%. We recorded $1,380 of additional interest income in connection with the effective prepayment of the mezzanine loan in the first quarter of 2023.

(5)	Represents the initial ~~rate. This loan has~~rate with an IRR of 8%.

~~(5)~~(6)

Represents a mortgage loan secured by a parcel of land in North Carolina held for future development of a seniors housing community.

(7)	We originated a $16,500 senior loan for the purchase of a 150-bed SNF in Illinois. The mortgage loan matures in June 2028 and our investment is at an interest rate of 8.75%.

~~(6)~~(8)

Mortgage loans provide for 2.25% annual increases in the interest ~~rate after a certain time period.~~rate.

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

The following table summarizes our mortgage loan activity for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Nine Months Ended September 30,					Six Months Ended June 30,
	2022			2021		2023			2022
Originations and funding under mortgage loans receivable	$	35,234	⁽¹⁾	$	2,223	$	81,727	⁽¹⁾	$	33,910	⁽²⁾
Application of interest reserve		4,348			—		1,609			2,451
Scheduled principal payments received		(625)			(625)		(251)			(625)
Mortgage loan premium amortization		(4)			(4)		(4)			(3)
(Provision) recovery for loan loss reserve		(389)			(16)
Provision for loan loss reserve							(831)			(358)
Net increase in mortgage loans receivable	$	38,564		$	1,578	$	82,250		$	35,375

(1)

(2)

We originated two senior mortgage loans, secured by four ALFs operated by an existing operator, as well as a land parcel in North Carolina. The communities have a combined total of 217 units, with an average age of less than four years. The land parcel is approximately 7.6 acres adjacent to one of the ALFs and is being held for the future development of a seniors housingcommunity. The mortgage loans have a four-year term, an interest rate of 7.25% and an IRR of 8%.

We apply ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and the “expected loss” model to estimate our loan losses on our mortgage loans and notes

~~Table of Contents~~

~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

receivable. In determining the expected losses on these receivables, we utilize the probability of default and discounted cash flow methods. Further, we stress-test the results to reflect the impact of unknown adverse future events including recessions.

As of ~~September~~June 30, ~~2022,~~2023, the accrued interest receivable of ~~$44,290,000~~$50,593,000 was not included in the measurement of expected credit losses on the financing receivables, mortgage ~~loan~~loans receivable and notes receivable (see Note 4. Notes Receivable). We elected not to measure an allowance for expected credit losses on the related accrued interest receivable using the expected credit loss standard. Rather, we have elected to write-off accrued interest receivable by reversing interest income and/or recognizing credit loss expense as incurred. We review the collectability of the accrued interest receivable quarterly as part of our review of the financing receivables, mortgage ~~loan~~loans receivable or notes receivables including the performance of the underlying collateral and net worth of the borrower. For the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021, the Company~~we did not write-off any accrued interest receivable.

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

3.	Investment in Unconsolidated Joint Ventures

We have preferred equity investments in two joint ventures. We determined that each of these JVs meets the accounting criteria to be considered a variable interest entity (“VIE”). We are not the primary beneficiary of the JVs as we do not have both: 1) the power to direct the activities that most significantly affect the JVs’ economic ~~performance.~~performance, and 2) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. However, we do have significant influence over the JVs. Therefore, we have accounted for the JVs using the equity method of accounting. The following table provides information regarding these preferred equity investments (dollar amounts in thousands):

Type

Type

Total

Contractual

Number

of

of

Preferred

Cash

of

Carrying

State

Properties

Investment

Return

Portion

Beds/ Units

Value

Washington

ALF/MC

Preferred Equity
⁽¹⁾
12
%

7
%

95

$
6,340
⁽¹⁾
Washington

UDP

Preferred Equity
⁽²⁾
12
%

8
%

—

13,000
⁽²⁾
Total

95

$
19,340

Type

Total

Contractual

Number

Preferred

Cash

Carrying

State

Properties

Investment

Return

Portion

Beds/ Units

Value

Washington

ALF/MC

Preferred Equity

⁽¹⁾

6,340

⁽¹⁾

Washington

UDP

Preferred Equity

⁽²⁾

—

13,000

⁽²⁾

Total

19,340

(1)

Represents a preferred equity interest in an entity that developed and owns a 95-unit ALF and MC in Washington. Our investment represents 15.5% of the total investment. The preferred equity investment earns an initial cash rate of 7% increasing to 9% in year four until the internal rate of return (“IRR”) is 8%. After achieving an 8% IRR, the cash rate drops to 8% ~~until achieving~~with an IRR ranging between 12% to 14%, depending upon timing of redemption. During the fourth quarter of 2021, the entity completed the development project and received its certificate of occupancy. We have the option to require the JV partner to purchase our preferred equity interest at any time between August 17, 2031 and December 31, 2036.

(2)

Represents a preferred equity interest in an entity that will develop and own a 267-unit ILF and ALF in Washington. Our investment represents ~~11.6%~~11.0% of the estimated total investment. The preferred equity investment earns an initial cash rate of 8% with an IRR of ~~12%~~14%. The JV partner has the option to buy out our investment at any time after August 31, 2023 at the IRR rate. Also, we have the option to require the JV partner to purchase our preferred equity interest at any time between August 31, 2027 and, upon project completion and leasing the property, prior to the end of the first renewal term of the lease.

During the three and six months ended June 30, 2023, we recognized $376,000 and $752,000, respectively, in income from unconsolidated joint ventures. During the three and six months ended June 30, 2022, we recognized $376,000 and $751,000, respectively, in income from unconsolidated joint ventures. The following table summarizes our income recognized, and application of interest reserves related to our investments in unconsolidated joint ventures for the six months ended June 30, 2023 and 2022 (in thousands):


	Type
	of		Income		Cash Interest		Application of
Year	Properties		Recognized		Earned		Interest Reserve
2023	ALF/MC	$	225	$	—	$	225
	UDP		527		—		527
Total		$	752	$	—	$	752

2022	ALF/MC	$	224	$	—	$	224
	UDP		527		—		527
Total		$	751	$	—	$	751

1415

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

During the three months ended September 30, 2022 and 2021, we recognized $376,000 in income from unconsolidated joint ventures. The following table summarizes our capital contributions, income recognized, and cash interest received related to our investments in unconsolidated joint ventures for the nine months ended September 30, 2022 and 2021 ~~(in thousands):~~

Type

of

Capital

Income

Cash Interest

Application of

Year

Properties

Contribution

Recognized

Earned

Interest Reserve

2022

ALF/MC

$
—

$
337

$
—

$
337

UDP
⁽¹⁾

—

790

351

439

Total

$
—

$
1,127

$
351

$
776

2021

ALF/MC

$
—

$
337

$
—

$
300

UDP
⁽¹⁾

8,000

704

—

616

Total

$
8,000

$
1,041

$
—

$
916

~~(1)~~

During 2021, we funded the remaining $8,000 related to a $13,000 preferred equity investment commitment in an entity that will develop and own a 267-unit ILF and ALF in Washington. Additionally, we withheld $2,324 from the $8,000 funding for a total reserve of $3,777 related to this preferred equity investment.

~~Table of Contents~~

~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

4.	Notes Receivable

Notes receivable ~~consists~~consist of a mezzanine ~~loans~~loan and ~~other loan arrangements.~~ working capital loans. The following table sets forth information regarding our investment in notes receivable at June 30, 2023 (dollar amounts in thousands):


Interest			Type of	Gross				Type of
Rate	IRR	Maturity	Loan	Investment			# of loans	Property
5.0%	—	2023	Working capital	$	370		1	ALF
5.0%	—	2024	Working capital		1,050		1	ALF
4.0%	—	2024	Working capital		13,531		1	SNF
5.0%	—	2025	Working capital		831		1	ALF
7.5%	—	2027	Working capital		550		1	ALF
8.0%	11.0%	2027	Mezzanine		25,000		1	ALF
6.5%	—	2030	Working capital		138		1	SNF
7.1%	—	2030	Working capital		500		1	ALF
7.3%	—	2030	Working capital		1,107		1	ALF
7.0%	—	2031	Working capital		2,693		1	ALF
8.3%	—	2032	Working capital		642		1	SNF
				$	46,412	^{(1) (2)}	11

(1)	Excludes the impact of credit loss reserve.

(2)	Subsequent to June 30, 2023, we originated a $17,000 mezzanine loan for recapitalization of an existing 130-unit ILF/ALF/MC in Georgia as well as the construction of 89 additional units. The loan term is five years at an initial yield of 8.75% and an IRR of 12%.

The following table is a summary of our notes receivable components as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~ 2022 (in thousands):


	June 30, 2023		December 31, 2022
Mezzanine loans	$	25,000	$	36,815
Other loans		21,412		22,157
Notes receivable credit loss reserve		(463)		(589)
Total	$	45,949	$	58,383

September 30, 2022

December 31, 2021

Mezzanine loans ⁽¹⁾
$
36,816

$
11,815

Other loans

22,198

16,808

Notes receivable credit loss reserve

(590)

(286)

Total
$
58,424

$
28,337

The following table summarizes our notes receivable activity for the six months ended June 30, 2023 and 2022 (in thousands):


	Six Months Ended June 30,
		2023			2022
Advances under notes receivable	$	866		$	36,788	⁽²⁾
Principal payments received under notes receivable		(13,426)	⁽¹⁾		(6,618)
Provision (recovery) for credit losses		126			(301)
Net (decrease) increase in notes receivable	$	(12,434)		$	29,869

(1)

During 2023, we received $4,545, which includes a prepayment fee and the ~~first quarter~~exit IRR totaling $190 from a mezzanine loan prepayment. The mezzanine loan was on a 136-unit ILF in Oregon. Additionally, another $7,461 mezzanine loan was effectively prepaid through converting it as part of our $51,111 investment in a participating interest in an existing mortgage loan that is secured by a 203-unit ALF, ILF and MC located in Georgia. We recorded $1,380 of interest income in connection with the effective prepayment of the mezzanine loan.

(2)

During 2022, we originated a $25,000 mezzanine loan for the recapitalization of a five-property seniors housing portfolio. The mezzanine loan has a term of approximately five years, with two one-year extension options and bears interest at 8% with an IRR of 11%. The five communities are located in Oregon and Montana, have a total of 621 units, and include independent living, assisted living and memory care.

~~The following table summarizes our notes receivable activity for the nine months ended September 30, 2022 and 2021~~ ~~(in thousands):~~

Nine Months Ended September 30,

2022

2021

Advances under notes receivable
$
37,008
⁽¹⁾
$
6,453

Interest reserve withheld

—

353

Principal payments received under notes receivable

(6,618)

(2,553)

Provision for credit losses

(303)

43

Net increase in notes receivable
$
30,087

$
4,296

~~(1)~~

Includes origination of a $25,000 mezzanine loan for the recapitalization of five assisted living communities located in Oregon and Montana. Additionally includes origination of a working capital loan for a commitment of up to $2,000, of which $1,867 has been funded and $9,761 of funding under a working capital loan to HMG Healthcare, LLC (“HMG”).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

5.	Lease Incentives

Our non-contingent lease incentive balances at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were ~~$2,001,000~~$1,360,000 and ~~$2,678,000,~~$1,789,000, respectively. The following table summarizes our lease incentives activity for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ (in thousands):


				Nine Months Ended September 30,											Six Months Ended June 30,
	2022										2021					2023		2022
		Adjustment			Funding		Amortization		Write-off			Funding		Amortization
Non-contingent lease incentives	$	(174)	⁽¹⁾	$	418	$	(665)	$	(256)	⁽²⁾	$	650	$	(386)
Lease incentives funded															$	19	$	8
Amortization of lease incentives																(413)		(429)
Adjustment for collectability of lease incentives																—		(173)	⁽²⁾
Other adjustments ⁽¹⁾																(35)		(174)
Net decrease in non-contingent lease incentives															$	(429)	$	(768)

(1)	Primarily relates to ~~the sale of two ALFs in California during the second quarter of 2022.~~lease incentive balance write-off related to property sales.

(2)	Represents the lease incentive balance write-off related to a closed property and subsequent lease ~~termination and lease incentive balance write-off related to 12 assisted living communities transitioned to an existing operator.~~termination.

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

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

~~(Unaudited)~~

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

Unsecured Credit Facility. We have an unsecured credit agreement (the “Credit Agreement”) that provides for an aggregate commitment of the lenders of up to $500,000,000 comprising of a $400,000,000 revolving credit facility (the “Revolving Line of Credit”) and two $50,000,000 term loans (the “Term Loans”). The Credit Agreement permits us to request increases to the Revolving Line of Credit and Term Loans commitments up to a total of $1,000,000,000. The Revolving Line of Credit matures November 19, 2025 and provides for a one-year extension option at our discretion, subject to customary conditions. The Term Loans mature on November 19, 2025 and November 19, 2026. During the fourth quarter of 2022, we entered into the First Amendment (the “Amended Credit Agreement”) to replace LIBOR with SOFR, plus a credit spread adjustment of 10 basis points (“Adjusted SOFR”), as the reference rate for purpose of calculating interest under the Amended Credit Agreement. Other material terms of the Credit Agreement remain unchanged.

Based on our leverage at ~~September~~June 30, ~~2022,~~2023, the facility provides for interest annually at ~~LIBOR~~Adjusted SOFR plus ~~115~~120 basis points and a facility fee of 20 basis points and the Term Loans provide for interest annually at Adjusted SOFR plus 140 basis points. ~~At September 30, 2022, we were in compliance with all covenants.~~

Interest Rate Swap Agreements. In connection with entering into the Term Loans described above, we entered into two receive variable/pay fixed interest rate swap agreements (the “Interest Rate Swaps”) with maturities of November 19, 2025 and November 19, 2026, respectively, that ~~serve to~~will effectively lock-in the forecasted interest payments on the ~~borrowings under the~~ Term ~~Loans~~Loans’ borrowings over their four and five year ~~terms.~~terms of the loans. The Interest Rate Swaps are considered cash flow hedges and are recorded on our Consolidated Balance Sheets at fair value in ~~prepaid~~Prepaid expenses and other assets, with cumulative changes in the fair value of these instruments recognized in Accumulated other comprehensive income (loss) on ~~our~~ ~~Consolidated Balance Sheets~~. During the three and nine months ended September 30, 2022, we recorded increase in fair value of Interest Rate Swaps of $3,306,000 and $9,617,000, respectively. During the three and nine months ended September 30, 2021, we did not record an adjustment to the fair value of Interest Rate Swaps.

~~As of September 30, 2022 and December 31, 2021, the terms of the Interest Rate Swaps are as follows (~~~~dollar amounts in thousands~~):

Notional

Fair Value at

Date Entered

Maturity Date

Swap Rate

Rate Index

Amount

September 30, 2022

December 31, 2021

November 2021

November 19, 2025

2.56
%

1-month LIBOR

$
50,000

$
4,300

$
(38)

November 2021

November 19, 2026

2.69
%

1-month LIBOR

50,000

5,145

(134)

$
100,000

$
9,445

$
(172)

~~Senior Unsecured Notes.~~ We have senior unsecured notes held by institutional investors with interest rates ranging from 3.66% to 5.03%. The senior unsecured notes mature between 2024 and 2033. During the nine months ended September 30, 2022, we sold $75,000,000 aggregate principal amount of 3.66% senior unsecured notes. The notes have an average 10-year life, scheduled principal payments and mature in May 2033.

The senior unsecured notes and the Credit Agreement, including the Revolving Line of Credit and the Term Loans, contain financial covenants, which are measured quarterly, that require us to maintain, among other things:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

our Consolidated Balance Sheets. In connection with entering into the Amended Credit Agreement discussed above, we entered into amendments to our Interest Rate Swaps to account for SOFR as the updated reference rate in the Amended Credit Agreement. During the six months ended June 30, 2023 and 2022, we recorded a $151,000 decrease and a $6,311,000 increase in fair value of Interest Rate Swaps, respectively.

As of June 30, 2023 and December 31, 2022, the terms of the Interest Rate Swaps are as follows (dollar amounts in thousands):


						Notional	Fair Value at
Date Entered	Maturity Date	Swap Rate		Rate Index		Amount		June 30, 2023		December 31, 2022
November 2021	November 19, 2025	2.62	%	1-month SOFR	$	50,000	$	3,895	$	4,003
November 2021	November 19, 2026	2.76	%	1-month SOFR		50,000		4,673		4,716
					$	100,000	$	8,568	$	8,719

Senior Unsecured Notes. We have senior unsecured notes held by institutional investors with interest rates ranging from 3.66% to 5.03%. The senior unsecured notes mature between 2024 and 2033.

●

a ratio of total indebtedness to total asset value not greater than 0.6 to 1.0;

●

a ratio of secured debt to total asset value not greater than 0.35 to 1.0;

●

a ratio of unsecured debt to the value of the unencumbered asset value not greater than 0.6 to 1.0; and

●

a ratio of EBITDA, as calculated in the debt obligation, to fixed charges not less than 1.50 to 1.0.

At ~~September~~June 30, ~~2022,~~2023, we were in compliance with all applicable financial covenants. These debt obligations also contain additional customary covenants and events of default that are subject to a number of important and significant limitations, qualifications and exceptions.

The following table sets forth information regarding debt obligations by component as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (dollar amounts in thousands):


		At September 30, 2022				At December 31, 2021					At June 30, 2023				At December 31, 2022
	Applicable			Available				Available		Applicable			Available				Available
	Interest	Outstanding		for		Outstanding		for		Interest	Outstanding		for		Outstanding		for
Debt Obligations	Rate ⁽¹⁾	Balance		Borrowing		Balance		Borrowing		Rate ⁽¹⁾	Balance		Borrowing		Balance		Borrowing
Revolving line of credit(2)	4.21%	$	151,000	$	249,000	$	110,900	$	289,100	6.35%	$	326,350	$	73,650	$	130,000	$	270,000
Term loans, net of debt issue costs	2.63%		99,474		—		99,363		—	2.69%		99,583		—		99,511		—
Senior unsecured notes, net of debt issue costs(3)	4.25%		543,287		—		512,456		—	4.24%		527,456		—		538,343		—
Total	4.04%	$	793,761	$	249,000	$	722,719	$	289,100	4.80%	$	953,389	$	73,650	$	767,854	$	270,000

(1)	Represents weighted average of interest rate as of ~~September~~June 30, ~~2022.~~2023.

(2)	Subsequent to June 30, 2023, we borrowed $34,000 under our Revolving Line of Credit. Accordingly, we have $360,350 outstanding and $39,650 available for borrowing under our Revolving Line of Credit.

(3)	Subsequent to June 30, 2023, we paid $17,160 in regular scheduled principal payments under our senior unsecure notes. Accordingly, we have $510,296 outstanding under our senior unsecured notes.

~~Our~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

During the six months ended June 30, 2023 and 2022, our debt borrowings and repayments ~~are~~were as follows ~~(in thousands)~~(in thousands):


	Nine Months Ended September 30,								Six Months Ended June 30,
	2022				2021				2023				2022
Debt Obligations		Borrowings		Repayments	Borrowings		Repayments			Borrowings		Repayments	Borrowings		Repayments
Revolving line of credit(1)	$	194,000	$	(153,900)	$	92,500	$	(48,000)	$	224,950	$	(28,600)	$	99,000	$	(153,900)
Term loans		—		—		—		—
Senior unsecured notes		75,000		(43,160)		—		(32,160)
Senior unsecured notes ⁽²⁾										—		(11,000)		75,000		(7,000)
Total	$	269,000	$	(197,060)	$	92,500	$	(80,160)	$	224,950	$	(39,600)	$	174,000	$	(160,900)

(1)	Subsequent to June 30, 2023, we borrowed $34,000 under our Revolving Line of Credit. Accordingly, we have $360,350 outstanding and $39,650 available for borrowing under our Revolving Line of Credit.

(2)	Subsequent to June 30, 2023, we paid $17,160 in regular scheduled principal payments under our senior unsecure notes. Accordingly, we have $510,296 outstanding under our senior unsecured notes.

7.	Equity

Non-controlling Interests. We have entered into 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 have concluded that the partnerships are VIEs. As we exercise power over and receive benefits from the VIEs, we are considered the primary beneficiary. Accordingly, we consolidate the VIEs and record the non-controlling interests on the consolidated financial statements.

As of June 30, 2023, we have the following consolidated VIEs (in thousands):


						Gross
Investment			Property			Consolidated		Non-Controlling
Year	Purpose		Type	State		Assets ⁽¹⁾		Interests
2023	Owned real estate	⁽²⁾	ILF/ALF/MC	OH	$	54,437	$	9,134
2023	Owned real estate	⁽³⁾	ALF/MC	NC		121,321		3,831
2022	Owned real estate	⁽⁴⁾	SNF	FL		76,734		14,325
2018	Owned real estate		ILF	OR		14,650		2,907
2018	Owned real estate and development		ALF/MC	OR		18,452		1,207
2017	Owned real estate and development		ILF/ALF/MC	WI		22,007		2,305
2017	Owned real estate		ALF/MC	SC		11,680		1,240
Total					$	319,281	$	34,949

(1)	Includes the total real estate investments and excludes intangible assets.

(2)	During the second quarter of 2023, we entered into a JV that purchased an ILF/ALF/MC in Ohio with a total of 242 units. For more information see Acquisitions above in Note 2.

(3)	During the first quarter of 2023, we entered into a JV that purchased 11 ALF and MC with a total of 523 units. For more information regarding this transaction see Financing Receivable above in Note 2.

(4)	During 2022, we entered into a JV that purchased three SNFs with a total of 299 beds. For more information regarding this transaction see Financing Receivable above in Note 2.

Common Stock. We have separate equity distribution agreements (collectively, “Equity Distribution Agreements”) to offer and sell, from time to time, up to $200,000,000 in aggregate offering price of shares of our common stock. During the six months ended June 30, 2023, we sold 48,500 shares of common stock for $1,777,000 in net proceeds under our Equity Distribution Agreements. In conjunction with the sale of common stock, we incurred $80,000 of costs associated with this agreement which have been recorded in additional paid in capital as a reduction of proceeds received. At June 30, 2023, we had $128,822,000 available under the Equity Distribution Agreements.

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(Unaudited)

~~As of September~~During the six months ended June 30, 2023 and 2022, we ~~have the following consolidated VIEs~~ ~~(in thousands):~~

Gross

Investment

Property

Consolidated

Non-Controlling

Year

Purpose

Type

State

Assets

Interests

2022

Owned real estate
⁽¹⁾
SNF

FL

$
76,267

$
14,325

2018

Owned real estate

ILF

OR

14,650

2,906

2018

Owned real estate and development

ALF/MC

OR

18,452

1,142

2017

Owned real estate and development

ILF/ALF/MC

WI

22,007

2,305

2017

Owned real estate

ALF/MC

SC

11,680

1,241

Total

$
143,056

$
21,919

~~(1)~~

During the third quarter of 2022, we entered into a joint venture and contributed $61,661 into the JV that purchased three skilled nursing centers located in Florida for $75,825. Our JV partner contributed the remaining $14,325 of equity. Additionally, we incurred $161 of costs associated with this transaction. The JV leased the centers back to an affiliate of the seller under a ~~10-year~~ ~~master lease, with two five-year renewal options and provided the seller-lessee with a purchase option, exercisable at the beginning of the fourth year through the end of the fifth year.See~~ ~~Note 2. Real Estate Investments~~ ~~for more information.~~

~~Common Stock.~~ We have separate equity distribution agreements (collectively, “Equity Distribution Agreements”) to offer and sell, from time to time, up to $200,000,000 in aggregate offering price of shares of our common stock. During the nine months ended September 30, 2022, we sold 1,035,000 shares of common stock for $38,957,000 in net proceeds under our Equity Distribution Agreements. In conjunction with the sale of common stock, we paid $694,000 as compensation to our sales agents and incurred $511,000 of costs associated with this agreement which have been recorded in additional paid in capital as a reduction of proceeds received. Accordingly, we have $160,349,000 available under the Equity Distribution Agreements.

~~During the nine months ended September 30, 2022 and 2021, we~~ acquired ~~39,463~~43,933 shares and ~~87,249~~39,463 shares, respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Available Shelf 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. Our shelf registration statement expires on February 17, 2025.

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


	Nine Months Ended September 30,										Six Months Ended June 30,
	2022				2021						2023				2022
	Declared		Paid		Declared			Paid			Declared		Paid		Declared		Paid
Common Stock ⁽¹⁾	$	68,202	$	68,202	$	68,051	⁽²⁾	$	68,051	⁽²⁾	$	47,162	$	47,162	$	45,115	$	45,115

(1)	Represents $0.19 per share per month for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

~~(2)~~

~~Includes $764 of distributions that were paid as a result of the vesting of performance-based stock units.~~

In ~~October 2022,~~July 2023, we declared a monthly cashdividend of $0.19 per share on our common stock

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

~~(Unaudited)~~

for the months of ~~October~~July, ~~November~~August and ~~December~~September ~~2022,~~ 2023, payable on ~~October~~July 31, ~~November 30,~~August 31, and ~~December 30, 2022,~~September 29, 2023, respectively, to stockholders of record on ~~October~~July 21, ~~November 22,~~August 23, and ~~December 22, 2022,~~September 21, 2023, respectively.

Stock-Based Compensation. During the second quarter of 2021, we adopted and our shareholders approved the 2021 Equity Participation Plan (“the 2021 Plan”) which replaces the 2015 Equity Participation Plan (“the 2015 Plan”). Under the 2021 Plan, 1,900,000 shares of common stock have been authorized and reserved for awards, less one share for every one share that was subject to an award granted under the 2015 Plan after December 31, 2020 and prior to adoption. In addition, any shares that are not issued under outstanding awards under the 2015 Plan because the shares were forfeited or cancelled after December 31, 2020 will be added to and again be available for awards under the 2021 Plan. Under the 2021 Plan, the shares were authorized and reserved for awards to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2021 Plan and the 2015 Plan are set by our compensation committee at its discretion.

At ~~September~~June 30, ~~2022,~~2023, we had ~~10,000~~5,000 stock options outstanding and exercisable. During each of the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, 5,000 stock options expired and were cancelled. During each of the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, no stock options were granted or exercised.

The following table summarizes our restricted stock activity for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022:

Nine Months Ended September 30,

2022

2021

Outstanding, January 1

197,422

180,440

Granted

135,210

110,348

Vested

(103,396)

(93,366)

Outstanding, September 30

229,236

197,422

During the nine months ended September 30, 2022 and 2021, we granted 86,332 and 71,892, respectively, of performance-based stock units. Additionally, no performance-based stock units vested during the nine months ended September 30, 2022 and 108,720 performance-based stock units vested during the nine months ended September 30, 2021.

~~During the nine months ended September 30, 2022 and 2021, we granted restricted stock and performance-based stock units under the 2021 Plan and 2015 Plan as follows:~~

No. of

Price per

Year

Shares/Units

Share

Reward Type

Vesting Period

2022

122,865

$
33.94

Restricted stock

ratably over 3 years

86,332

$
33.94

Performance-based stock units

TSR targets ⁽¹⁾

12,345

$
38.48

Restricted stock

May 25,2023

221,542

2021

95,293

$
42.27

Restricted stock

ratably over 3 years

71,892

$
42.27

Performance-based stock units

TSR targets ⁽¹⁾

12,055

$
39.40

Restricted stock

May 26, 2022

3,000

$
43.14

Restricted stock

April 1, 2022

182,240

~~(1)~~

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


	Six Months Ended June 30,
	2023		2022
Outstanding, January 1		229,236		197,422
Granted		143,020		135,210
Vested		(115,551)		(103,396)
Cancelled		(1,085)		—
Outstanding, June 30		255,620		229,236

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

No performance-based stock units vested during the six months ended June 30, 2023, and 2022.

During the six months ended June 30, 2023 and 2022, we granted restricted stock and performance-based stock units under the 2021 Plan as follows:


	No. of	Price per
Year	Shares/Units	Share		Reward Type	Vesting Period
2023	127,960	$	37.16	Restricted stock	ratably over 3 years
	86,867	$	37.16	Performance-based stock units	TSR targets ⁽¹⁾
	15,060	$	31.54	Restricted stock	May 24,2024
	229,887

2022	122,865	$	33.94	Restricted stock	ratably over 3 years
	86,332	$	33.94	Performance-based stock units	TSR targets ⁽¹⁾
	12,345	$	38.48	Restricted stock	May 25, 2023
	221,542

(1)	Vesting is based on achieving certain total shareholder return (“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 ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 were $4,225,000 and ~~2021 were $5,951,000 and $5,785,000,~~$3,937,000, respectively. At ~~September~~June 30, ~~2022,~~2023, 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 (in thousands):


	Remaining		Remaining
	Compensation		Compensation
Vesting Date	Expense		Expense
October - December 2022	$	2,013
2023		5,603
July - December 2023			$	4,211
2024		2,853		5,964
2025		309		3,238
2026				356
Total	$	10,778	$	13,769

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

8.	Commitments and Contingencies

At ~~September~~June 30, ~~2022,~~2023, we had commitments as follows (in thousands):


						Total									Total
	Investment			2022		Commitment		Remaining		Investment			2023		Commitment		Remaining
	Commitment			Funding		Funded		Commitment		Commitment			Funding		Funded		Commitment
Real estate properties(Note 2. Real Estate Investments)	$	21,038	⁽¹⁾	$	3,054	$	4,692	$	16,346
Real estate properties(Note 2. Real Estate Investments)										$	13,778	⁽¹⁾	$	1,149	$	4,224	$	9,554
Accrued incentives and earn-out liabilities (Note 5. Lease Incentives)		12,000	⁽²⁾		—		—		12,000		21,100	⁽²⁾		—		—		21,100
Mortgage loans (Note 2. Real Estate Investments)		32,507	⁽³⁾		2,187		5,928		26,579
Notes receivable (Note 4. Notes Receivable)		27,541			12,008		15,778		11,763
Mortgage loans (Note 2. Real Estate Investments)											28,275	⁽³⁾		2,210		9,690		18,585
Notes receivable (Note 4. Notes Receivable)											25,950	⁽⁴⁾		—		13,531		12,419
Total	$	93,086		$	17,249	$	26,398	$	66,688	$	89,103		$	3,359	$	27,445	$	61,658

(1)	Represents commitments to purchase land and improvements, if applicable, and to develop, re-develop, renovate or expand seniors housing and skilled nursing properties.

(2)

Includes an earn-out payment of up to $3,000 to an operator under a master lease on four ~~skilled nursing centers~~SNFs in Texas which were acquired during ~~the nine months ended September 30,~~ 2022. The master lease ~~provides~~allows either an earn-out payment up to $3,000 or a purchase option. The earn-out payment is available, contingent on achieving certain thresholds per the lease, beginning at the end of the second lease year through the end of the fifth lease year. If neither option is elected within the timeframe defined in the lease, both elections are terminated. For more information regarding the purchase option see Note 2. Real Estate Investments.

(3)	Represents ~~$14,507~~$10,275 of commitments for the expansion, renovation and working capital related to seniors housing and skilled nursing properties securing the mortgage loans and $18,000 of commitments which are contingent upon the borrower achieving certain coverage ratios.

(4)	Represents working capital loan commitments.

Additionally, some of our lease agreements provide purchase options allowing the lessee to purchase the properties they currently lease from us. See Note 2. Real Estate Investments 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

9.	Major Operators

We have one operator that represents 10% or more of our combined rental revenue and interest income from mortgage loans. The following table sets forth information regarding our major operator as of ~~September~~June 30, ~~2022:~~2023:

Number of

Percentage of

Number of

Percentage of

SNF

ALF

Total

SNF

ALF

Total

Operator

SNF

ALF

Beds

Units

Revenue⁽¹⁾

Assets ⁽²⁾

SNF

ALF

Beds

Units

Revenues⁽¹⁾

Assets ⁽²⁾

Prestige Healthcare ⁽³⁾

—

2,845

19.7

16.0

—

2,820

16.7

14.3

(1)

~~Includes rental income from owned properties and~~During the second quarter of 2023, we agreed to defer up to $1,500, or up to $300 per month for May through September 2023, in interest ~~income from~~payments due on one of Prestige’s mortgage loans assecured by 15 skilled nursing centers in Michigan. We deferred $600 in interest payments during the second quarter of ~~September 30, 2022.~~2023 and $300 in interest payments in July 2023.

(2)	Represents the net carrying value of the mortgage loans and properties we own divided by the Total assets on the Consolidated Balance Sheets.

(3)	The majority of the revenue derived from this operator relates to interest income from mortgage loans.

Our financial position and ability to make distributions may be adversely affected if Prestige Healthcare 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, continuing impact upon services or occupancy levels due to COVID-19, or in the event any such operator does not renew and/or extend its relationship with us.

2223

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

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					Nine Months Ended						Three Months Ended				Six Months Ended
	September 30,					September 30,						June 30,				June 30,
	2022		2021			2022			2021			2023		2022		2023		2022
Net income	$	13,389	$	11,114		$	82,386		$	43,294		$	6,604	$	54,490	$	40,165	$	68,997
Less income allocated to non-controlling interests		(99)		(92)			(301)			(271)			(430)		(107)		(857)		(202)
Less income allocated to participating securities:
Non-forfeitable dividends on participating securities		(131)		(113)			(401)			(346)			(146)		(133)		(293)		(270)
Income allocated to participating securities		—		—			(80)			—			—		(185)		—		(137)
Total net income allocated to participating securities		(131)		(113)			(481)			(346)			(146)		(318)		(293)		(407)
Net income available to common stockholders		13,159		10,909			81,604			42,677			6,028		54,065		39,015		68,388
Effect of dilutive securities:
Participating securities ⁽¹⁾		—		—			—			—			—		—		—		—
Net income for diluted net income per share	$	13,159	$	10,909		$	81,604		$	42,677		$	6,028	$	54,065	$	39,015	$	68,388

Shares for basic net income per share		40,270		39,177			39,658			39,149			41,145		39,492		41,113		39,347
Effect of dilutive securities:
Stock options(1)		1		—	⁽¹⁾		—	⁽¹⁾		—	⁽¹⁾		—		—		—		—
Performance-based stock units		281		—	⁽²⁾		281			—	⁽²⁾		87		173		87		173
Participating securities ⁽³⁾⁽¹⁾		—		—			—			—			—		—		—		—
Total effect of dilutive securities		282		—			281			—			87		173		87		173
Shares for diluted net income per share		40,552		39,177			39,939			39,149			41,232		39,665		41,200		39,520

Basic net income per share	$	0.33	$	0.28		$	2.06		$	1.09		$	0.15	$	1.37	$	0.95	$	1.74
Diluted net income per share	$	0.32	$	0.28		$	2.04		$	1.09		$	0.15	$	1.36	$	0.95	$	1.73

(1)	For the ~~nine~~three and six months ended ~~September~~June 30, 2023 and 2022, ~~and~~ the ~~three~~participating securities and ~~nine months ended September 30, 2021,~~ stock options have been excluded from the computation of diluted net income per share as such inclusion would be anti-dilutive.

~~(2)~~

~~For the three and nine months ended September 30, 2021, no performance-based stock units would be earned based on TSR targets.~~

~~(3)~~

For the three and nine months ended September 30, 2022, and 2021, the participating securities have been excluded from the computation of diluted net income per share as such inclusion would be anti-dilutive.

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.

~~As of September 30, 2022, we had two interest rate swaps related to our term loans that were designated as cash flow hedges of interest rate risk with a total notional amount of $100,000,000. See~~ ~~Note 6. Debt Obligations~~ within our consolidated financial statements for further detail on our interest rate swaps. We record cash flow hedges either as an asset or a liability measured at fair value. We estimate the fair value of our interest rate swaps using the assistance of a third-party using inputs that are observable in the market which include forward yield curves and other relevant information. Although we have determined that the majority of the inputs used to value our derivative instruments fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level 3

2324

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

~~inputs to evaluate the likelihood of default by us and our counterparties.~~

The carrying amount of cash and cash equivalents ~~prepaid expenses and other assets (excluding the interest rate swaps which are marked for fair value each reporting period), accrued interest, accrued expenses and other liabilities~~ approximates their 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 estimated fair value of our financial instruments as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows (in thousands):


	At September 30, 2022					At December 31, 2021					At June 30, 2023					At December 31, 2022
	Carrying		Fair			Carrying		Fair			Carrying		Fair			Carrying		Fair
	Value		Value			Value		Value			Value		Value			Value		Value
Financing receivable, net of credit loss reserve	$	75,507	$	75,507	⁽¹⁾	$	—	$	—		$	196,075	$	198,927	⁽¹⁾	$	75,999	$	76,033	⁽¹⁾
Mortgage loans receivable, net of credit loss reserve		383,006		454,185	⁽²⁾		344,442		405,162	⁽²⁾		471,978		555,283	⁽²⁾		389,728		461,276	⁽²⁾
Notes receivable, net of credit loss reserve		58,424		62,741	⁽³⁾		28,337		28,653	⁽³⁾		45,949		49,727	⁽³⁾		58,383		61,858	⁽³⁾
Revolving line of credit		151,000		151,000	⁽⁴⁾		110,900		110,900	⁽⁴⁾		326,350		326,350	⁽⁴⁾		130,000		130,000	⁽⁴⁾
Term loans, net of debt issue costs		99,474		100,000	⁽⁴⁾		99,363		100,000	⁽⁴⁾		99,583		100,000	⁽⁴⁾		99,511		100,000	⁽⁴⁾
Senior unsecured notes, net of debt issue costs		543,287		496,955	⁽⁵⁾		512,456		540,045	⁽⁵⁾		527,456		465,751	⁽⁵⁾		538,343		477,653	⁽⁵⁾

(1)

Our investment in financing ~~receivable~~receivables is classified as Level 3. ~~At September 30, 2022, the~~The fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate used to value our future cash inflows of ~~our~~the financing ~~receivable approximated its carrying value since the asset~~receivables at June 30, 2023 and December 31, 2022 was ~~acquired during the third quarter of 2022.~~7.6%.

(2)

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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~9.2%~~9.1% and ~~9.5%~~9.3%, respectively.

(3)

Our investments in notes receivable are classified as Level 3. 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 flows of the notes receivable at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, were ~~6.6%~~6.4% and ~~5.6%~~7.1%, respectively.

(4)

Our revolving line of credit and term loans bear interest at a variable interest rate. The estimated fair value of our revolving line of credit and term loans approximated their carrying values at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 based upon prevailing market interest rates for similar debt arrangements.

(5)

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 ~~September~~June 30, 2023, the discount rate used to value our future cash outflow of our senior unsecured notes was 6.75% for those maturing before year 2030 and 7.25% for those maturing at or beyond year 2030. At December 31, 2022, the discount rate used to value our future cash outflow of our senior unsecured notes was ~~6.5%~~6.50% for those maturing before year 2030 and 7.0% for those maturing at or beyond year 2030. At December 31, 2021, the discount rate used to value our future cash outflow of our senior unsecured notes was 3.00% for those maturing before year 2030 and 3.25%7.00% for those maturing at or beyond year 2030.

12.

Subsequent Events

Subsequent to ~~September~~June 30, ~~2022~~2023 the following events occurred:

~~Rental Income:~~ Notes Receivable:We ~~received $300,000 repayment~~originated a $17,000,000 mezzanine loan for recapitalization of ~~Anthem’s temporary rent reduction.~~an existing 130-unit assisted living, memory care and independent living community in Georgia as well as the construction of 89 additional units. The loan term is five years at an initial yield of 8.75% and an IRR of 12%.

Debt: We borrowed $34,000,000 under our revolving line of credit. Accordingly, we have $360,350,000 outstanding and $39,650,000 available for borrowing under our revolving line of credit. Also, we ~~provided $240,000 of abated rent~~paid $17,160,000 in ~~October 2022, and agreed to provide rent abatements of up to $215,000 for each of November and~~ ~~December~~ ~~2022 to an operator pursuant to a master lease covering two assisted living communities.~~regular scheduled principal payments under our senior unsecured notes. Accordingly, we have $510,296,000 outstanding under our senior unsecured notes.

Equity: We declared a monthly cashdividend of $0.19 per share on our common stock for the months of ~~October~~July, ~~November~~August and ~~December~~September ~~2022,~~ 2023, payable on ~~October~~July 31, ~~November 30,~~August 31, and

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~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

~~December 30, 2022,~~ September 29, 2023, respectively to stockholders of record on ~~October~~July 21, ~~November 22,~~August 23, and ~~December 22, 2022,~~September 21, 2023, respectively.

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

Cautionary Statement Regarding Forward-Looking Statements

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, our dependence on our operators for revenue and cash flow; the duration and extent of the effects of the COVID-19 pandemic; government regulation of the health care industry; federal and state health care cost containment measures including reductions in reimbursement from third-party payors such as Medicare and Medicaid; required regulatory approvals for operation of health care facilities; a failure to comply with federal, state, or local regulations for the operation of health care facilities; the adequacy of insurance coverage maintained by our operators; our reliance on a few major operators; our ability to renew leases or enter into favorable terms of renewals or new leases; the impact of inflation, operator financial or legal difficulties; the sufficiency of collateral securing mortgage loans; an impairment of our real estate investments; the relative illiquidity of our real estate investments; our ability to develop and complete construction projects; our ability to invest cash proceeds for health care properties; a failure to qualify as a REIT; our ability to grow if access to capital is limited; and a failure to maintain or increase our dividend. 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, ~~2021~~2022 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 real estate investment trust (“REIT”) that invests in seniors housing and health care properties through sale-leaseback, ~~transactions,~~financing receivables, mortgage financing, joint ventures ~~construction financing~~ and structured finance solutions including preferred equity and mezzanine lending. 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 following graph summarizes our gross investments as of ~~September~~June 30, ~~2022:~~2023:

Our primary seniors housing and health care property classifications include skilled nursing centers (“SNF”), assisted living communities (“ALF”), independent living communities (“ILF”), memory care communities (“MC”) and combinations thereof. We also invest in other (“OTH”) types of properties, such as land parcels, projects under development (“UDP”) and behavioral health care hospitals. 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 conduct and manage our business as one operating segment ~~rather than multiple operating segments,~~ for internal reporting and internal decision-making purposes. For purposes of this quarterly report and other presentations, we generally include ALF, ILF, MC, and combinations thereof in the ALF classification. As of ~~September~~June 30, ~~2022,~~2023, seniors housing and health care properties comprised approximately ~~98.6%~~99.3% of our gross 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, interest earned on financing receivable, interest earned on outstanding loans receivable and income from investments in unconsolidated joint ventures. Income from our investments ~~in owned properties and mortgage loans~~ represent our 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 property type 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.

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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 are generally ~~cross-~~

~~Table of Contents~~

~~defaulted~~cross-defaulted and cross-collateralized with other loans, operating leases or agreements between us and the operator and its affiliates.

Depending upon the availability and cost of external capital, we anticipate making additional investments in health care related properties. New investments are generally funded from cash on hand, proceeds from periodic asset sales, temporary borrowings under our unsecured revolving line of credit and internally generated cash flows. Our investments generate internal cash from rent and interest receipts and principal payments on ~~mortgage loans receivable.~~loan receivables and income from unconsolidated joint ventures. Permanent financing for future investments, which replaces funds drawn under our unsecured revolving line of credit, is expected to be provided through a combination of public and private offerings of debt and equity securities. We could also look to secured and unsecured debt financing. The timing, source and amount of cash flows provided by financing activities and used in investing activities are sensitive to the capital markets’ environment, especially to changes in interest rates. Changes in the capital markets’ environment may impact the availability of cost-effective capital.

We believe our business model has enabled and will continue to enable us to maintain the integrity of our property investments, including in response to financial difficulties that may be experienced by operators. Traditionally, we have taken a conservative approach to managing our business, choosing to maintain liquidity and exercise patience until favorable investment opportunities arise.

~~COVID-19~~

On March 11, 2020, the World Health Organization declared the outbreak of coronavirus (“COVID-19”) as a pandemic, and on March 13, 2020, the United States declared a national emergency with regard to COVID-19. The COVID-19 pandemic has had repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly and adversely impacted public health and economic activity, and has contributed to significant volatility, dislocations and liquidity disruptions in financial markets.

The operations and occupancy levels at our properties have been adversely affected by COVID-19 and could be further adversely affected by COVID-19 or another pandemic especially if there are infections on a large scale at our properties. The impact of COVID-19 has included, and another pandemic could include, early resident move-outs, our operators delaying accepting new residents due to quarantines, potential occupants postponing moves to our operators’ facilities, and/or hospitals cancelling or significantly reducing elective surgeries thereby there were fewer people in need of skilled nursing care. Additionally, as our operators have responded to the pandemic, operating costs have begun to rise. A decrease in occupancy, ability to collect rents from residents and/or increase in operating costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent. In recognition of the ongoing pandemic impact affecting our operators, we have agreed to provide assistance in form of rent abatements and rent deferrals and will continue to provide assistance as needed.

During the nine months ended September 30, 2021, we proactively provided additional financial support to the majority of our operators by reducing 2021 rent and interest escalations by 50%. The rent and interest escalation reduction were given in the form of a rent and interest credit in recognition of operators’ increased costs due to COVID-19. During nine months ended September 30, 2021, we recognized a Generally Accepted Accounting Principles (“GAAP”) revenue decrease of $0.5 million and a cash revenue decrease of $1.3 million related to the 50% escalation reduction.

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Real Estate Portfolio Overview

The following tables summarize our real estate investment portfolio by owned properties and mortgage loans and by property type, as of ~~September~~June 30, ~~2022~~2023 (dollar amounts in thousands):


								Nine Months Ended												Six Months Ended
								September 30, 2022												June 30, 2023
		Number of				Percentage					Percentage			Number of				Percentage					Percentage
	Number of	SNF	ALF	Gross		of		Rental			of Total		Number of	SNF	ALF	Gross		of		Rental			of Total
Owned Properties	Properties ⁽¹⁾	Beds	Units	Investments		Investments		Revenue			Revenues		Properties ⁽¹⁾	Beds	Units	Investments		Investments		Revenue			Revenues
Assisted Living	99	—	5,497	$	797,426	40.9	%	$	38,651		34.1	%	97	—	5,570	$	817,781	37.8	%	$	27,094		29.7	%
Skilled Nursing	52	6,348	236		599,058	30.7	%		39,246		34.6	%	50	6,113	236		591,474	27.4	%		28,801		31.5	%
Other ⁽²⁾	1	118	—		11,918	0.6	%		734		0.6	%	1	118	—		12,005	0.6	%		501		0.5	%
Total Owned Properties	152	6,466	5,733		1,408,402	72.2	%		78,631	⁽⁴⁾	69.3	%	148	6,231	5,806		1,421,260	65.8	%		56,396	⁽⁴⁾	61.7	%

		Number of				Percentage		Interest Income			Percentage			Number of				Percentage		Interest Income			Percentage
	Number of	SNF	ALF		Gross	of		from Mortgage			of Total		Number of	SNF	ALF		Gross	of		from Financing			of Total
Financing Receivables													Properties ⁽¹⁾	Beds	Units		Investments	Investments		Receivable			Revenues
Assisted Living													11	—	523		121,321	5.6	%		4,771		5.2	%
Skilled Nursing													3	299	—		76,735	3.5	%		2,810		3.1	%
Total Financing Receivables													14	299	523		198,056	9.1	%		7,581		8.3	%

														Number of				Percentage		Interest Income			Percentage
													Number of	SNF	ALF		Gross	of		from Mortgage			of Total
Mortgage Loans	Properties ⁽¹⁾	Beds	Units		Investments	Investments		Loans			Revenues		Properties ⁽¹⁾	Beds	Units		Investments	Investments		Loans			Revenues
Assisted Living	18	—	808		98,308	5.1	%		4,732		4.2	%	20	—	1,056		169,284	7.8	%		6,080		6.7	%
Skilled Nursing	23	2,916	—		285,892	14.7	%		25,253		22.3	%	24	3,041	—		304,668	14.1	%		16,986		18.6	%
Other ⁽³⁾	—	—	—		2,668	0.1	%		127		0.1	%	—	—	—		2,787	0.1	%		104		0.1	%
Total Mortgage Loans	41	2,916	808		386,868	19.9	%		30,112		26.6	%	44	3,041	1,056		476,739	22.0	%		23,170		25.4	%

		Number of				Percentage		Interest Income			Percentage			Number of				Percentage		Interest			Percentage
	Number of	SNF	ALF		Gross	of		from Financing			of Total		Number of	SNF	ALF		Gross	of		and other			of Total
Financing Receivable	Properties ⁽¹⁾	Beds	Units		Investments	Investments		Receivable			Revenues
Notes Receivable													Properties ⁽¹⁾	Beds	Units		Investments	Investments		Income			Revenues
Assisted Living													5	—	621		32,101	1.5	%		3,109		3.4	%
Skilled Nursing	3	299	—		76,267	3.9	%		357		0.3	%	—	—	—		14,311	0.7	%		329		0.4	%
Total Notes Receivable	3	299	—		76,267	3.9	%		357		0.3	%	5	—	621		46,412	2.2	%		3,438		3.8	%

		Number of				Percentage		Interest			Percentage			Number of				Percentage		Income from			Percentage
	Number of	SNF	ALF		Gross	of		and other			of Total		Number of	SNF	ALF		Gross	of		Unconsolidated			of Total
Notes Receivable	Properties ⁽¹⁾	Beds	Units		Investments	Investments		Income			Revenues
Assisted Living ⁽⁵⁾	7	—	961		43,478	2.2	%		2,607		2.3	%
Skilled Nursing ⁽⁶⁾	—	—	—		15,536	0.8	%		542		0.5	%
Total Notes Receivable	7	—	961		59,014	3.0	%		3,149		2.8	%

		Number of				Percentage		Income from			Percentage
	Number of	SNF	ALF		Gross	of		Unconsolidated			of Total
Unconsolidated Joint Ventures	Properties ⁽¹⁾	Beds	Units		Investments	Investments		Joint Ventures			Revenues		Properties ⁽¹⁾	Beds	Units		Investments	Investments		Joint Ventures			Revenues
Assisted Living ⁽⁷⁾	1	—	95		6,340	0.3	%		337		0.3	%
Under Development ⁽⁸⁾	—	—	—		13,000	0.7	%		790		0.7	%
Assisted Living													1	—	95		6,340	0.3	%		225		0.2	%
Under Development													—	—	—		13,000	0.6	%		527		0.6	%
Total Unconsolidated Joint Ventures	1	—	95		19,340	1.0	%		1,127		1.0	%	1	—	95		19,340	0.9	%		752		0.8	%

Total Portfolio	204	9,681	7,597	$	1,949,891	100.0	%	$	113,376		100.0	%	212	9,571	8,101	$	2,161,807	100.0	%	$	91,337		100.0	%


	Number	Number of				Percentage		Number	Number of				Percentage
	of	SNF	ALF	Gross		of		of	SNF	ALF	Gross		of
Summary of Properties by Type	Properties ⁽¹⁾	Beds	Units	Investments		Investments		Properties ⁽¹⁾	Beds	Units	Investments		Investments
Assisted Living								134	—	7,865	$	1,146,827	53.0	%
Skilled Nursing	78	9,563	236	$	976,753	50.1	%	77	9,453	236		987,188	45.7	%
Assisted Living	125	—	7,361		945,552	48.5	%
Other ⁽²⁾ ⁽³⁾								1	118	—		14,792	0.7	%
Under Development	—	—	—		13,000	0.7	%	—	—	—		13,000	0.6	%
Other ⁽²⁾ ⁽³⁾	1	118	—		14,586	0.7	%
Total Portfolio	204	9,681	7,597	$	1,949,891	100.0	%	212	9,571	8,101	$	2,161,807	100.0	%

(1)	We have investments in owned properties, financing receivables, mortgage loans, notes receivable and unconsolidated joint ventures in 29 states to 3229 operators.

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

(3)	Includes one parcel of land in Missouri securing a first mortgage held for future development of a post-acute ~~skilled nursing center~~SNF and one parcel of land in North Carolina securing a first mortgage held for future development of a seniors housing community.

(4)	Excludes variable rental income from lessee reimbursement of $6,460 and sold properties of $416.

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~~(4)~~

~~Excludes variable rental income from lessee reimbursement of $12,161 and sold properties of $2,745.~~

~~(5)~~

~~Includes~~ a mezzanine loan on a 204-unit combination ILF, ALF, and MC in Georgia, a mezzanine loan on a 136-unit ILF in Oregon, a mezzanine loan on five combination ILF, ALF and MC in Oregon and Montana, and seven working capital loans with interest rates between 5% and 8% and maturities between 2023 and 2031.

~~(6)~~

~~Includes~~ ~~three working capital loans with interest rates between 4% and 8% and maturities between 2024 and 2032.~~

~~(7)~~

Includes a preferred equity investment in an entity that developed and owns a 95-unit ALF and MC in Washington. Our investment represents 15.5% of the total investment. The preferred equity investment earns an initial cash rate of 7% increasing to 9% in year four until the internal rate of return (“IRR”) is 8%. After achieving an 8% IRR, the cash rate drops to 8% with an IRR ranging between 12% to 14% depending on the timing of redemption.

~~(8)~~

Represents a preferred equity investment in an entity that will develop and own a 267-unit ILF/ALF in Washington. Our investment represents 11.6% of the estimated total investment. The preferred equity investment earns an initial cash rate of 8% with an IRR of 12%.

As of ~~September~~June 30, ~~2022,~~2023, we had ~~$1.5~~$1.8 billion in net carrying value of investments, consisting of $1.0 billion or ~~65.7%~~58.3% invested in owned and leased properties, ~~$0.1 million~~$0.2 billion or ~~4.8%~~11.1% invested in financing ~~receivable, and $0.4~~receivables, $0.5 billion or ~~24.5%~~26.9% invested in mortgage loans secured by first ~~mortgages. Our investments~~mortgages, $45.9 million or 2.6% in ~~mortgage loans mature between 2023~~notes receivable and ~~2045 and contain interest rates between 7.3% and 10.4%.~~$19.3 million or 1.1% in unconsolidated joint ventures.

~~For the nine months ended September 30, 2022, rental~~Rental income, ~~represented 73.5% of total revenues, interest~~ income from financing ~~receivable represented 0.2% of total revenues,~~receivables and interest income from mortgage loans represented 64.8%, 7.8% and 23.7%, respectively, of ~~total~~Total revenues ~~and interest and other income represented 2.6%~~ on the Consolidated Statements of ~~total revenues.~~Income for the six months ended June 30, 2023. In most instances, our lease structure contains fixed annual rental escalations and/or annual rental escalations that are contingent upon changes in the Consumer Price Index. Certain leases have annual rental escalations that are contingent upon changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved.

Many of our existing leases contain renewal options that, if exercised, could result in the amount of rent payable upon renewal being greater or less than that currently being paid. During 2023, Brookdale Senior Living Communities, Inc. (“Brookdale”) elected not to exercise its renewal option. Accordingly, the master lease expires in December 2023. Additionally, during 2023, a master lease covering two skilled nursing centers that was scheduled to mature in 2023 was renewed at the contractual rate for another five years extending the maturity to November 2028. The centers have a total of 216 beds and are located in Florida. Also, another master lease covering two skilled nursing centers that was scheduled to mature in 2023 was renewed for another two years extending the maturity to December 2025. The master lease was renewed at the contractual annual cash rent of $1.0 million increasing 2.5% per year. As amended, this master lease provides the lessee with a purchase option available through December 31, 2024. The centers have a total of 141 beds and are located in Tennessee.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we recorded ~~$1.0~~$0.9 million in straight-line rental adjustment and amortization of lease incentive cost of ~~$0.9~~$0.4 million. ~~Also, during~~During the ~~nine~~six months ended ~~September 30,2022, we wrote-off a $0.2 million lease incentive balance related to a property closure and subsequent lease termination. During the nine months ended September~~June 30, ~~2022,~~2023, we received ~~$95.4~~$64.6 million of cash rental income, which includes ~~$12.2~~$6.5 million of operator reimbursements for real estate taxes. At ~~September~~June 30, ~~2022,~~2023, the straight-line rent receivable balance on the consolidated balance sheet was ~~$22.3~~$20.8 million.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we recorded ~~$30.1~~$23.2 million in Interest income from mortgage loans which includes ~~$21.8~~$19.8 million of interest received in cash, ~~$4.3~~$0.1 million of income from interest reserves and ~~$4.0~~$3.3 million in mortgage loans effective interest. At ~~September~~June 30, ~~2022,~~2023, the mortgage loans effective interest receivable which is included in the Interest receivable line item in our Consolidated Balance Sheets was ~~$42.9~~$47.5 million.

Update on Certain Operators ~~and Former Operators~~

Anthem Memory Care

Anthem Memory Care (“Anthem”) operates 11 memory care communities under a master lease and was placed in default in 2017 resulting from Anthem’s partial payment of its minimum rent. However, we did not enforce our rights and remedies pertaining to the event of default, under the stipulation that Anthem achieves sufficient performance and pays agreed upon rent. Anthem increased their rent payment every year between 2017 and 2021. ~~Anthem paid us annual cash rent of $10.8 million in 2021 and $9.9 million in 2020.~~ During the second and third quarter of 2022, we ~~agreed to certain temporary rent reduction. Our agreed upon rent for 2022 is $10.8 million of which $6.6 million was paid~~

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~~through~~agreed to a certain temporary rent reduction totaling $1.5 million. During the ~~end~~fourth quarter of ~~September 2022. In October~~ 2022, we received payment of Anthem’s $1.5 million temporary rent reduction and a return to ~~date, we have received an additional $1.2 million~~Anthem’s previously agreed upon rent of ~~rent which represents~~ $0.9 million ofper month. Accordingly, Anthem paid us the agreed upon ~~October 2022~~annual cash rent ~~and $0.3 million of repayment towards the temporary rent reduction. We still expect to receive the total~~ of $10.8 million ~~by year end conditioned~~in 2022 and we anticipate receiving $10.8 million in 2023. During the first quarter of 2023, we transitioned a 60-unit memory care community located in Ohio to Anthem under a new two-year lease. Under the new two-year lease, no rent was paid through May 2023 after which cash rent is be based on mutually agreed upon fair market rent. The first quarterly mutually agreed rent for June through August 2023 was set at $45,000 and is payable in August 2023, at which time rent will be reset for the following three months. Anthem ~~receiving additional money from the Employee Retention Tax Credit stimulus fund and from improving operating results.~~is current on agreed upon rent payments through July 2023. We receive regular financial performance updates from Anthem and continue to monitor their performance obligations under the master lease agreement.

Brookdale Senior Living Communities, Inc

Brookdale Senior Living Communities, Inc’s (“Brookdale”) master lease ~~was amended in~~matures on December 31, 2023 and provided Brookdale a $4.0 million capital commitment, which matured on February 28, 2023, at a yield of 7% with a reduced rate for qualified ESG projects. During the first quarter of ~~2021 to extend the term by one year through December 31, 2022.~~2023, we funded $0.9 million under Brookdale’s capital commitment. The ~~renewal options under the amended~~ master lease ~~remained the same during the first quarter of 2022 and provided~~provides three renewal options consisting of a ~~three-year~~two-year renewal option, a five-year renewal option and a 10-year renewal option. ~~The notice period for~~During the first ~~renewal option was January 1, 2022 to April 30, 2022. During the second~~ quarter of ~~2022, Brookdale’s master lease was again amended~~2023, Brookdale elected not to ~~extend~~exercise its renewal option. Brookdale is obligated to pay rent on the portfolio of 35 assisted living communities through maturity to December 31, 2023. The renewal options under the new amended master lease remained unchanged except the term of the first renewal option was reduced from three years to two. Also, the notice period for the first renewal option was changed to November 1, 2022 through February 28, 2023. During 2020, we extended to Brookdale a $4.0 million capital commitment which was fully funded during 2021, and a $2.0 million capital commitment which is available between January 1, 2022 through December 31, 2022. Under the new amendment, the $2.0 million capital commitment was increased to $4.0 million and the maturity was extended to February 28, 2023. The yield on these capital commitments is 7% with a reduced rate for qualified ESG projects. During the nine months ended September 30, 2022, we funded $1.5 million under the $4.0 million capital commitment. Accordingly, we have a remaining commitment of $2.5 million under this commitment. Brookdale is current on rent payments through July 2023. We plan to sell 14 of the 35 properties in the Brookdale portfolio while re-leasing the remaining assets. We estimate net proceeds, after transaction costs and seller financing, between $35.0 million to $40.0 million from these sales and expect to replace the rent currently generated by our Brookdale portfolio through a combination of pre-invested sales proceeds during the first half of 2023 and re-leasing the remaining properties.

Prestige Healthcare

Prestige Healthcare (“Prestige”) operates 22 skilled nursing centers located in Michigan secured under four mortgage loans and two skilled nursing centers located in South Carolina under a master lease. Prestige is our largest operator based upon revenues and assets representing 16.7% of our total revenues and 14.3% of our total assets as of June 30, 2023. During the second quarter of 2023, we agreed to defer up to $1.5 million, or up to $0.3 million per month for May through September 2023, in interest payments due on one of Prestige’s mortgage loans secured by 15 skilled nursing centers. We deferred $0.6 million in interest payments during the second quarter of 2023 and deferred $0.3 million in interest payments in July 2023. Medicaid rates are expected to increase effective October ~~2022.~~1^st and retroactive rate settlements related to prior years are expected to be paid in fourth quarter of 2023 and fourth quarter of 2024. We continue to work with Prestige to assess the impact of the rate increases and settlement payments on this portfolio in light of the continued occupancy challenges.

Other Operators

During ~~2020,~~the six months ended June 30, 2023, we ~~consolidated our two master leases with an~~provided $1.3 million of abated rent to the same operator ~~into one combined master lease~~for which we have been providing assistance. Also, we provided the same operator $0.2 million of abated rent in July 2023 and we agreed to ~~abate $0.7~~provide up to $0.2 million ~~of rent and allow the operator~~per month from August through December 2023 pursuant to ~~defer rent as needed through March 31, 2021. The combined~~a master lease covering 12two assisted living communities. We anticipate receiving $0.3 million in rent during 2023 from this operator.

Additionally, during the second quarter of 2023, we transitioned a portfolio of eight assisted living communities with a total of ~~625~~500 units ~~was amended during 2021~~in Illinois, Ohio and ~~2022~~Michigan to extend the rent deferral period through April 30, 2022. The operator deferred rent of $2.1 million during the nine months ended September 30, 2022. During the third quarter of 2022, we terminated the master lease and transitioned the communities to an existing operator. In connection with the lease termination, we abated rent for June 2022 and have forgiven the former operator’s $7.1 million outstanding unaccrued deferred rent balance. Additionally, we paid the former operator a $0.5 million lease termination fee in exchange for cooperation and assistance in facilitating an orderly transition.

The transition of the communities was pursuant to a new two-year master lease with zero rent for the first four months. Thereafter, cash rent will be based on mutually agreed upon fair market rent. In connection with the new lease, we paid the new operator a $0.4 million lease incentive payment which will be amortized as a yield adjustment to rental income over the two-year lease term.

Additionally, we agreed to defer $0.2 million of the $0.4 million monthly contractual rent for August and September of 2022 from a lessee that operates eight assisted living communities under a master lease. The operator requested rent assistance due to protracted lease-up of their portfolio during COVID. We anticipate they will be able to repay the total $0.3 million of deferred rent in 2023, upon receipt of additional stimulus funds from the Employee Retention Credit program. This operator paid its full October 2022 rent.Encore Senior Living

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~~Also,~~(“Encore”). We agreed to provide assistance in the second quarter of 2023 to the former operator of this portfolio and as part of the transition, we ~~provided $0.7~~received repayment of $1.25 million of ~~abated~~deferred rent which represents $0.93 million of April and May 2023 deferred rent and $0.32 million of unrecorded deferred rent provided in 2022. Cash rent under the new two-year lease with Encore is based on mutually agreed upon fair market rent beginning in month four of the lease.

2023 Activities Overview

The following tables summarize our transactions during the ~~third quarter of 2022 to~~six months ended June 30, 2023 (dollar amounts in thousands):

Acquisitions

During the six months ended June 30, 2023, we entered into a $54.1 million Joint Venture (“JV”) and contributed $45.0 million into the JV that purchased an ~~operator pursuant to a master lease covering two~~independent living, assisted living ~~communities. We are evaluating options~~and memory care campus in Ohio. Under the JV agreement, the seller, our JV partner, has the option to purchase the campus between the third and fourth lease years for ~~these communities.~~

LTC’s allocation of the JV investment plus an IRR of 9.75%. The campus was leased to Encore Senior ~~Lifestyle Corporation- Former Operator~~

~~During 2020,~~Living (“Encore”) under a 10-year term with an ~~affiliate~~initial yield of ~~Senior Lifestyle (“Senior Lifestyle”) failed~~8.25% on LTC’s allocation of the JV investment. LTC committed to ~~pay its contractual obligations under its master lease. As a result, we applied their letter~~fund $2.1 million of ~~credit and deposits to past due rent and to their outstanding notes receivable. Senior Lifestyle has not paid rent or its other obligations~~lease incentives under the ~~master lease since 2021. During 2021, we transitioned 18 assisted living communities previously leased~~Encore lease. Rent is expected to ~~Senior Lifestyle to six operators. These communities are located~~be approximately $3.9 million per year.

Investment in Illinois, Ohio, Wisconsin, Colorado, Pennsylvania and Nebraska. Also, during 2021, we sold three Wisconsin communities and a closed community in Nebraska previously leased to Senior Lifestyle for a combined total of $35.9 million. We received total proceeds of $34.8 million and recorded a net gain onImprovement projects


	Amount
Assisted Living Communities	$	2,000
Skilled Nursing Centers		1,143
Other		87
Total	$	3,230

Impairment Loss

In conjunction with the planned sale of ~~$5.4 million. During 2022, an~~a 70-unit assisted living community located in ~~Colorado, which transitioned from Senior Lifestyle to~~Florida, we recorded a ~~new operator~~$0.4 million impairment loss during the ~~first~~three months ended March 31, 2023 and a $1.2 million impairment loss during the fourth quarter of ~~2021,~~2022. During the second quarter of 2023, the community was ~~closed and~~sold for $4.9 million. Additionally, during the ~~lease was terminated. We have engaged~~second quarter of 2023, we performed a ~~broker and intend~~recoverability analysis on the carrying value of two assisted living communities that we are negotiating to sell this assisted living community. Additionally, during 2022, we transitioned the remaining community located in New Jersey under the Senior Lifestyle master lease to an existing operator. Accordingly, as of September 30, 2022, Senior Lifestyle doesand concluded that their carrying value may not ~~operate any properties in our portfolio.~~

~~Senior Care Centers, LLC – Former Operator~~

Senior Care Centers, LLC and affiliates and subsidiaries (“Senior Care”) filed for Chapter 11 bankruptcy in December 2018. During 2019, while in bankruptcy, Senior Care assumed LTC’s master lease and, in March 2020, Senior Care emerged from bankruptcy. Concurrent with their emergence from bankruptcy, in accordance with the order confirming Senior Care’s plan of reorganization, Abri Health Services, LLC (“Abri Health”) was formed as the parent company of reorganized Senior Care and became co-tenant and co-obligor with reorganized Senior Care under our master lease. In March 2021, Senior Care and Abri Health (collectively, “Lessee”) failed to pay rent and additional obligations owed under the master lease.be recoverable through future undiscounted cash flows. Accordingly, we ~~sent a notice~~recorded an aggregate impairment loss of ~~default and applied proceeds from letters~~$12.1 million during the second quarter of ~~credit to certain obligations owed under~~2023. As of June 30, 2023, we do not believe these communities meet the ~~master lease. Furthermore, we sent the Lessee a notice of termination of the master lease~~criteria to be effective April 17, 2021. On April 16, 2021, the Lessee filed for Chapter 11 bankruptcy. In August 2021, the United States Bankruptcy Court approved a settlement agreement between Lessee and LTC. The settlement provided for, among other things, a one-time payment of $3.3 million from LTC to the affiliates of Lessee in exchange for cooperation and assistance in facilitating an orderly transition of the 11 skilled nursing centers from the Lessee and its affiliates to affiliates of HMG Healthcare, LLC (“HMG”) which occurred on October 1, 2021. As of October 1, 2021, Senior Care and Abri Health no longer operate any properties in our portfolio.classified as held-for-sale.

Properties Held -for-Sale


	Type	Number	Number
	of	of	of		Gross		Accumulated
State	Property	Properties	Beds/units		Investment		Depreciation
PA	ALF	2	130	$	9,744	$	3,690
		2	130	$	9,744	$	3,690

(1)

During the second quarter of 2023, we entered into an agreement to sell these communities for $11,500. The sale is expected to close during the third quarter of 2023. Accordingly, we anticipate recording a net gain on sale of approximately $5,200. One of these properties is non-revenue producing and the other produces minimal rent.

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~~2022 Activities Overview~~

~~The following tables summarize our transactions during the nine months ended September 30, 2022~~ ~~(dollar amounts in thousands):~~

~~Investment in Owned Properties~~

Number

Type

Number

Initial

Total

Total

of

of

of

Cash

Purchase

Transaction

Acquisition

State

Properties

Properties

Beds/Units

Yield

Price

Costs

Costs

Texas ⁽¹⁾

4

SNF

339

8.0
%

$
51,534

$
281

$
51,815

~~(1)~~

The properties are leased to an affiliate of an existing operator under a 10-year lease with two 5-year renewal options. Additionally, the lease provides the operator to elect for either an earn-out payment or purchase option. If neither option is elected within the timeframe defined in the lease, both elections are terminated. The earn-out payment is available, contingent on achieving certain thresholds per the lease, beginning at the end of the second lease year through the end of the fifth lease year. The purchase option is available beginning in the sixth lease year through the end of the seventh lease year. The initial cash yield is 8% for the first year, increasing to 8.25% for the second year, then increases annually by 2.0% to 4.0% based on the change in the Medicare Market Basket Rate. In connection with the transition, we provided the lease a 10-year working capital loan for up to $2,000 of which $1,867 has been funded at 8% for the first year, increasing to 8.25% for the second year, the increasing annually with the lease rate.

~~Investment in Improvement projects~~

Developments

Improvements
Assisted Living Communities

$
105

$
3,015
Skilled Nursing Centers

—

981
Other

—

559
Total

$
105

$
4,555

Properties Sold


	Type	Number	Number								Type	Number	Number
	of	of	of		Sales		Carrying		Net		of	of	of		Sales		Carrying		Net
State	Properties	Properties	Beds/Units		Price		Value		Gain (loss)⁽¹⁾		Properties	Properties	Beds/Units		Price		Value		Gain ⁽¹⁾
California	ALF	2	232	$	43,715	$	17,832	$	25,867
California	SNF	1	121		13,250		1,846		10,846
Texas	SNF	1	—		485		697		(434)
Virginia	ALF	1	74		16,895		15,549		1,344	⁽²⁾
n/a	n/a	—	—		—		—		186	⁽³⁾
Florida											ALF	1	70	$	4,850	$	4,082	$	65
Kentucky											ALF	1	60		11,000		10,710		57
New Jersey											ALF	1	39		2,000		1,552		266
New Mexico											SNF	2	235		21,250		5,379		15,287
		5	427	$	74,345	$	35,924	$	37,809			5	404	$	39,100	$	21,723	$	15,675

(1)	Calculation of net gain includes cost of ~~sales.~~

~~(2)~~

~~In connection with this sale, the former operator paid us a~~sales and write-off of straight-line receivable and lease ~~termination fee of $1,181 which is not included in the gain on sale.~~

~~(3)~~

We recognized additional gain due to the reassessment adjustment of the holdbacks related to properties sold during 2019 and 2020, under the expected value model per Accounting Standard Codification (“ASC”) ~~Topic 606, Contracts with Customers~~ ~~(“ASC 606”).~~incentives, when applicable.

Financing ~~Receivable.~~Receivables

During ~~the third quarter of 2022,~~2023, we entered into a ~~joint venture~~$121.3 million JV with an affiliate of an existing operator and contributed ~~$61.7~~$117.5 million into the JV that purchased ~~three skilled nursing centers located in Florida for $75.8 million.~~11 assisted living and memory care communities from an affiliate of our JV partner. The JV leased the ~~centers~~communities back to an affiliate of the seller under a 10-year master lease, with two five-year renewal ~~options~~options. The contractual initial cash yield of 7.25% increases to 7.5% in year three then escalates thereafter based on CPI subject to a floor of 2.0% and a ceiling of 4.0%. Additionally, the JV provided the seller-lessee with a purchase option ~~exercisable~~to buy up to 50% of the properties at the beginning of the third lease year and the remaining properties at the beginning of the fourth lease year through the end of the ~~fifth year.~~sixth lease year, with an exit Internal Rate of Return (“IRR”) of 9.0%. In accordance with ~~ASC 842,~~GAAP, the ~~purchased assets~~communities acquired by the JV are required to be presented as Financing ~~receivable~~receivables on our Consolidated Balance ~~Sheets.~~Sheets ~~Furthermore,~~and the rental revenue from ~~this transaction~~these properties is recorded as Interest ~~Income~~income from financing ~~receivable~~receivables on our Consolidated Statements of Income. ~~See~~Furthermore, upon expiration of the purchase option if the purchase option remains unexercised by the seller-lessee, the purchased assets will be reclassified from ~~Note 2.~~ Financing receivables to Real ~~Estate Investments~~property investments ~~for more information~~ on ~~the accounting guidance for~~

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~~Financing receivable.~~our Consolidated Balance Sheets. During the ~~third quarter of 2022,~~three and six months ended June 30, 2023, we recognized ~~$0.4~~$3.8 million and $7.6 million, respectively, of Interest income from financing ~~receivable~~receivables from this investment and upon origination we recorded $1.2 million Provision for credit losses ~~on our~~ ~~Consolidated Statements~~equal to 1% of ~~Income~~.the loan balance related to this investment.

Investment in Mortgage Loans


				Amount
Originations and funding under mortgage loans receivable	$	35,234	⁽¹⁾	$	81,727	⁽¹⁾
Application of interest reserve		4,348			1,609
Scheduled principal payments received		(625)			(251)
Mortgage loan premium amortization		(4)			(4)
Provision for loan loss reserve		(389)			(831)
Net increase in mortgage loans receivable	$	38,564		$	82,250

(1)

We originated ~~two senior~~a $10,750 mortgage ~~loans,~~loan secured by ~~four ALFs operated by an existing operator, as well as~~ a ~~land parcel~~45-unit MC located in North Carolina. The ~~communities have~~loan carries a ~~combined total of 217 units,~~two-year term with an average age of less than four years. The land parcel is approximately 7.6 acres adjacent to one of the ALFs and is being held for the future development of a seniors housing community. The mortgage loans have a four-year term, an interestinterest-only rate of 7.25% and an IRR of 8%9.0%. Additionally, we invested $51,111 in an existing mortgage loan secured by a 203-unit ILF, ALF and MC located in Georgia by acquiring a participating interest owned by existing lenders for $42,251 in addition to converting our $7,461 mezzanine loan in the property into a participating interest in the mortgage loan. The initial rate is 7.5% with an IRR of 7.75%. The mortgage loan matures in October 2024. We recorded $1,380 of additional interest income in connection with the effective prepayment of the mezzanine loan in the first quarter of 2023. Also, we originated a $16,500 senior loan for the purchase of a 150-bed SNF in Illinois. The mortgage loan matures in June 2028 and our investment is at an interest rate of 8.75%.

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Preferred Equity Investment in Unconsolidated Joint Ventures


	Type	Total		Contractual		Number						Cash		Application	Type	Total		Contractual		Number						Cash		Application
	of	Preferred		Cash		of		Carrying		Income		Interest		of Interest	of	Preferred		Cash		of		Carrying		Income		Interest		of Interest
State	Properties	Return		Portion		Beds/ Units		Value		Recognized		Received		Reserve	Properties	Return		Portion		Beds/ Units		Value		Recognized		Received		Reserve
Washington ⁽¹⁾	ALF/MC	12	%	7	%	95	$	6,340	$	337	$	—	$	337	ALF/MC	12	%	7	%	95	$	6,340	$	225		—	$	225
Washington ⁽²⁾	UDP	12	%	8	%	—		13,000		790		351		439	UDP	14	%	8	%	—		13,000		527		—		527
						95	$	19,340	$	1,127	$	351	$	776						95	$	19,340	$	752	$	—	$	752

(1)

(2)

Represents a preferred equity interest in an entity that will develop and own a 267-unit ILF and ALF in Washington. Our investment represents ~~11.6%~~11.0 % of the estimated total investment. The preferred equity investment earns an initial cash rate of 8% with an IRR of ~~12%~~14%. The JV partner has the option to buy out our investment at any time after August 31, 2023 at the IRR rate. Also, we have the option to require the JV partner to purchase our preferred equity interest at any time between August 31, 2027 and, upon project completion and leasing the property, prior to the end of the first renewal term of the lease.

Notes Receivable


				Amount
Advances under notes receivable	$	37,008	⁽¹⁾	$	866	⁽¹⁾
Principal payments received under notes receivable		(6,618)			(13,426)	⁽²⁾
Provision for credit losses		(303)			126
Net increase in notes receivable	$	30,087
Net decrease in notes receivable				$	(12,434)

(1)

~~Includes the origination of~~Subsequent to June 30, 2023, we originated a ~~$25,000~~$17,000 mezzanine loan for ~~the~~ recapitalization of an existing 130-unit ILF/ALF/MC in Georgia as well as the construction of 89 additional units. The loan term is five ~~assisted living communities~~years at an initial yield of 8.75% and an IRR of 12%.

(2)

During 2023, we received $4,545, which includes a prepayment fee and the exit IRR totaling $190 related to the payoff of a mezzanine loan on a 136-unit ILF in Oregon. Additionally, another $7,461 mezzanine loan was effectively prepaid through converting it as part of our $51,111 investment in a participating interest in an existing mortgage loan that is secured by a 203-unit ALF, ILF and MC located in ~~Oregon and Montana~~Georgia. We recorded $1,380 of interest income in connection with ~~a total~~the effective prepayment of ~~621 units. The~~the mezzanine loan has a term of approximately five years with two one-year extension options. It bears interest at 8% with IRR of 11%. Also includes origination of a working capital loan for a commitment of up to $2,000, of which $1,867 has been funded and $9,761 of funding under a working capital loan to HMG.loan.

Health Care Regulatory ~~Climate~~

The Centers for Medicare & Medicaid Services (“CMS”) annually updates Medicare skilled nursing facility (“SNF”) prospective payment system rates and other policies. On July 30, 2019, CMS issued its final fiscal year 2020 Medicare skilled nursing facility update. Under the final rule, CMS projected aggregate payments to SNFs would increase by $851 million, or 2.4%, for fiscal year 2020 compared with fiscal year 2019. The final rule also addressed implementation of the Patient-Driven Payment Model case mix classification system that became effective on October 1, 2019, changes to the group therapy definition in the skilled nursing facility setting, and various SNF Value-Based Purchasing

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and quality reporting program policies. On April 10, 2020, CMS issued a proposed rule to update SNF rates and policies for fiscal year 2021, which started October 1, 2020, and issued the final rule on July 31, 2020. CMS estimated that payments to SNFs would increase by $750 million, or 2.2%, for fiscal year 2021 compared to fiscal year 2020. CMS also adopted revised geographic delineations to identify a provider’s status as an urban or rural facility and to calculate the wage index, applying a 5% cap on any decreases in a provider’s wage index from fiscal year 2020 to fiscal year 2021. Finally, CMS also finalized updates to the SNF value-based purchasing program to reflect previously finalized policies, updated the 30-day phase one review and correction deadline for the baseline period quality measure quarterly report, and announced performance periods and performance standards for the fiscal year 2023 program year. On April 8, 2021, CMS issued a proposed rule to update SNF rates and policies for fiscal year 2022, which started October 1, 2021, and issued the final rule on July 29, 2021. CMS estimated that the aggregate impact of the payment policies in the final rule would result in an increase of approximately $410 million in Medicare Part A payments to SNFs in fiscal year 2022. The final rule also includes several policies that update the SNF Quality Reporting Program and the SNF Value-Based Program for fiscal year 2022. On April 11, 2022, CMS issued a proposed rule to update SNF rates and policies for fiscal year 2023. CMS estimated that the aggregate impact of the payment policies in the proposed rule would result in a decrease of approximately $320 million in Medicare Part A payments to SNFs in fiscal year 2023 compared to fiscal year 2022. CMS also sought input on the effects of direct care staffing requirements to improve long-term care requirements for participation and promote thoughtful, informed staffing plans and decisions within facilities to meet residents’ needs, including maintaining or improving resident function and quality of life. Specifically, CMS sought input on establishing minimum staffing requirements for long-term care facilities. On June 29, 2022, CMS issued updates to guidance on minimum health and safety standards that long-term care facilities must meet to participate in Medicare and Medicaid, and updated and

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developed new guidance in the State Operations Manual to address issues that significantly affect residents of long-term care facilities. On July 29, 2022, CMS issued a final rule to update SNF rates and policies for fiscal year 2023. CMS estimated that the aggregate impact of the payment policies in the final rule would result in an increase of 2.7%, or approximately $904 million, in Medicare Part A payments to SNFs in fiscal year 2023 compared to fiscal year 2022. CMS also finalized a permanent 5% cap on annual wage index decreases to smooth year-to-year changes in providers’ wage index payments. In addition, CMS indicated that it would continue to review the comments it received in response to its request for information on establishing minimum staffing requirements for long-term care facilities, and that it intends to issue proposed rules on a minimum staffing level measure within one year. On April 4, 2023, CMS issued a proposed rule that would update SNF rates and policies for fiscal year 2024. CMS estimated that the aggregate impact of the payment policies in the proposed rule would result in a net increase of 3.7%, or approximately $1.2 billion, in Medicare Part A payments to SNFs in fiscal year 2024. CMS also indicated that it continues to review the feedback it received from its comment solicitation regarding minimum staffing requirements and that the feedback would be used, along with evidence from its mixed-methods study launched in August 2022 collecting quantitative and qualitative evidence on staffing levels within nursing homes, to inform proposals for minimum direct care staffing requirements in nursing homes in a future rulemaking.

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.

Since the announcement of the COVID-19 pandemic and beginning as of March 13, 2020, CMS has issued numerous temporary regulatory waivers and new rules to assist health care providers, including SNFs, respond to the COVID-19 pandemic. These include waiving the SNF 3-day qualifying inpatient hospital stay requirement, flexibility in calculating a new Medicare benefit period, waiving timing for completing functional assessments, waiving requirements for health care professional licensure, survey and certification, provider enrollment, and reimbursement for services performed by telehealth, among many others. CMS also announced a temporary expansion of its Accelerated and Advance Payment Program, ~~to allow SNFs and certain other Medicare~~which granted providers the ability to request accelerated or advance ~~payments in an amount up to 100% of the~~ Medicare Part A payments ~~they received from October–December 2019; this expansion was suspended April 26, 2020 in light of other CARES Act funding relief. The Continuing Appropriations Acts, 2021~~ and Other Extensions Act, enacted on October 1, 2020, amended the repayment terms for all providers and suppliers that requested and received accelerated and advance payments during the COVID-19 public health emergency. Specifically, Congress gave providers and

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~~suppliers that received Medicare accelerated and advance payment(s)~~up to one year ~~from when the first loan payment was made~~ to ~~begin making~~make repayments. In addition, CMS enhanced requirements for nursing facilities to report COVID-19 infections to local, state and federal authorities. On ~~October 13, 2022, HHS Secretary Becerra announced that he had renewed, effective October 13, 2022,~~April 10, 2023, President Biden signed into law H.J. Res. 7, which terminated the national emergency related to the COVID-19 pandemic. Separately, the declared public health emergency ~~for an additional 90-day period.~~expired at the end of the day on May 11, 2023.

On March 26, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), sweeping legislation intended to bolster the nation’s response to the COVID-19 pandemic. In addition to offering economic relief to individuals and impacted businesses, the law expands coverage of COVID-19 testing and preventative services, addresses health care workforce needs, eases restrictions on telehealth services during the crisis, and increases Medicare regulatory flexibility, among many other provisions. Notably, the CARES Act temporarily suspended the 2% across-the-board “sequestration” ~~reduction during the period~~from May 1, 2020 through December 31, 2020, and extended the ~~current~~ Medicare sequester requirement through fiscal year 2030. In addition, the law provides $100 billion in grants to eligible health care providers for health care related expenses or lost revenues that are attributable to COVID-19. On April 10, 2020, CMS announced the distribution of $30 billion in funds to Medicare providers based upon their 2019 Medicare fee for service revenues. Eligible providers were required to agree to certain terms and conditions in receiving these grants. In addition, the Department of Health and Human Services (“HHS”) authorized $20 billion of additional funding for providers that have already received funds from the initial distribution of $30 billion. Unlike the first round of funds, which came automatically, providers were required to apply for these additional funds and submit the required

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supporting documentation, using the online portal provided by HHS. Providers were required to attest to and agree to specific terms and conditions for the use of such funds. HHS expressed a goal of allocating the whole $50 billion proportionally across all providers based on those providers’ proportional share of 2018 net Medicare fee-for-service revenue, so that some providers would not be eligible for additional funds. On May 22, 2020, HHS announced that it had begun distributing $4.9 billion in additional relief funds to SNFs to offset revenue losses and assist nursing homes with additional costs related to responding to the COVID-19 public health emergency and the shipments of personal protective equipment provided to nursing homes by the Federal Emergency Management Agency. On June 9, 2020, HHS announced that it expected to distribute approximately $15 billion to eligible providers that participate in state Medicaid and Children’s Health Insurance Program (“CHIP”) programs and have not received a payment from the Provider Relief Fund General Allocation. On July 22, 2020, ~~President Trump~~HHS announced ~~that HHS would devote~~ $5 billion in Provider Relief Funds to Medicare-certified long-term care facilities and state veterans’ homes to build nursing home skills and enhance nursing homes’ response to COVID-19, including enhanced infection control. Nursing homes were required to participate in the Nursing Home COVID-19 training to qualify for this funding. On August 27, 2020, HHS announced that it had distributed almost $2.5 billion to nursing homes to support increased testing, staffing, and personal protective equipment needs. On September 3, 2020, HHS announced a $2 billion performance-based incentive payment distribution to nursing homes and SNFs. Finally, on October 1, 2020, HHS announced $20 billion in additional funding for several types of providers, including those who previously received, rejected, or accepted a general distribution provider relief fund payment. The application deadline for these Phase 3 funds was November 6, 2020.

~~On December 27, 2020, President Trump signed the~~The Consolidated Appropriations Act, 2021 ~~(H.R. 133). The $1.4 trillion omnibus appropriations legislation funds the government through September 30, 2021 and was attached to~~included a $900 billion COVID-19 relief package. Of the $900 billion in COVID-19 relief, $73 billion was allocated to HHS. Notably, the ~~bill adds~~legislation added an additional $3 billion to the Provider Relief Fund, includes language specific to reporting requirements, and allows providers to use any reasonable method to calculate lost revenue, including the difference between such provider’s budgeted and actual revenue budget if such budget had been established and approved prior to March 27, 2020, to demonstrate entitlement for these funds. This change reverts to HHS’ previous guidance from June 2020

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on how to calculate lost revenues. The Consolidated Appropriations Act, 2021 also extended the CARES Act’s sequestration suspension to March 31, 2021. On January 15, 2021, HHS announced that it would be amending the reporting timeline for Provider Relief Funds and indicated that it was working to update the Provider Relief Fund requirements to be consistent with the passage of the Consolidated Appropriations Act, 2021.

On April 14, 2021, President Biden signed an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes (H.R. 1868), which extended the sequestration suspension period to December 31, 2021. On June 11, 2021, HHS issued revised reporting requirements for recipients of Provider Relief Fund payments. The announcement included expanding the amount of time providers would have to report information, aimed to reduce burdens on smaller providers, and extended key deadlines for expending Provider Relief Fund payments for recipients who received payments after June 30, 2020. The revised reporting requirements are applicable to providers who received one or more payments exceeding, in the aggregate, $10,000 during a single Payment Received Period from the PRF General Distributions, Targeted Distributions, and/or Skilled Nursing Facility and Nursing Home Infection Control Distributions. On July 1, 2021, HHS, through the Health Resources and Services Administration (“HRSA”), notified recipients of Provider Relief Fund payments by e-mail that the Provider Relief Fund Reporting Portal was open for recipients who were required to report on the use of funds in Reporting Period 1, as described by HHS’s June 11, 2021 update to the reporting requirements. On September 10, 2021, HHS announced a final 60-day grace period of the September 30, 2021 reporting deadline for Provider Relief Funds exceeding $10,000 in aggregate payments received from April 10, 2020 to June 30, 2020. Although the September 30, 2021 reporting deadline remained in place, HHS explained that recoupment or other enforcement actions would not be initiated during the 60-day grace period, which began on October 1, 2021 and ended on November 30, 2021.

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Reporting Period 2, for providers who received one or more payments exceeding $10,000, in the aggregate, from July 1, 2020 to December 31, 2020, was from January 1, 2022 to March 31, 2022. Reporting Period 3, for providers who received one or more payments exceeding $10,000, in the aggregate, from January 1, 2021 to June 30, 2021, was from July 1, 2022 to September 30, 2022. Reporting Period 4, for providers who received one or more payments exceeding $10,000, in the aggregate, from July 1, 2021 to December 31, 2021, ~~opens on~~was from January 1, 2023 to March 31, 2023. Reporting Period 5, for providers who received one or more payments exceeding $10,000, in the aggregate, from January 1, 2022 to June 30, 2022, opened July 1, 2023. The deadline to submit a report is September 30, 2023. Reporting Period 6, for providers who received one or more payments exceeding $10,000, in the aggregate, from July 1, 2022 to December 31, 2022, opens January 1, 2024.

On September 10, 2021, the Biden Administration announced $25.5 billion in new funding for health care providers affected by the COVID-19 pandemic, including $8.5 billion in American Rescue Plan (“ARP”) resources for providers who serve rural Medicaid, CHIP, or Medicare patients, and an additional $17 billion for Phase 4 Provider Relief Funds for a broad range of providers who can document revenue loss and expenses associated with the pandemic, including assisted living facilities that were state-licensed/certified on or before December 31, 2020. Approximately 25% of the Phase 4 allocation was for bonus payments based on the amount and type of services provided to Medicaid, CHIP, and Medicare beneficiaries from January 1, 2019 through September 30, 2020. ~~The deadline for submitting applications for Phase 4 funds was October 26, 2021.~~

On December 10, 2021, President Biden signed the Protecting Medicare and American Farmers from Sequester Cuts Act, which suspended the Medicare 2% sequestration reduction through March 31, 2022, and then reduced the sequestration cuts to 1% from April through June 2022.

On December 14, 2021, HHS announced the distribution of approximately $9 billion in Provider Relief Fund Phase 4 payments to health care providers who have experienced revenue losses and expenses related to the COVID-19 pandemic. Further, on January 25, 2022, HHS announced that it would be making more than $2 billion in Provider Relief Fund Phase 4 General Distribution payments to more than 7,600 providers across the country that same week. On March 22, 2022, HHS announced ~~more than~~an additional $413 million in Provider Relief Fund Phase 4 payments to more than 3,600 providers across the country.

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On Finally, on April 13, 2022, HRSA announced the disbursement of more than $1.75 billion in Provider Relief Fund payments to 3,680 providers across the country.

Following prior legislation in suspending sequestration, on December 10, 2021, President Biden signed the Protecting Medicare and American Farmers from Sequester Cuts Act, which suspended the Medicare 2% sequestration reduction through March 31, 2022, and then reduced the sequestration cuts to 1% from April through June 2022. As of July 1, 2022, cuts of 2% were re-imposed.

Congress periodically considers legislation revising Medicare and Medicaid policies, including legislation that could have the impact of reducing Medicare reimbursement for SNFs 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. ~~Congress continues to consider further legislative action in response to the COVID-19 pandemic.~~ There can be no assurances that enacted or future legislation will not have an adverse impact on the financial condition of our lessees and borrowers, 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. ~~State Medicaid budgets may experience shortfalls due to increased costs in addressing the COVID-19 pandemic.~~ Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment 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 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. 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. 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):



	9/30/22		6/30/22		3/31/22		12/31/21		9/30/21		6/30/23		3/31/23		12/31/22		9/30/22		6/30/22
Asset mix:
Real property	$	1,408,402	$	1,409,937	$	1,409,625	$	1,408,557	$	1,407,098	$	1,421,260	$	1,389,222	$	1,410,705	$	1,408,402	$	1,409,937
Financing receivable		76,267		—		—		—		—
Financing receivables												198,056		198,077		76,767		76,267		—
Loans receivable		386,868		383,647		350,037		347,915		261,437		476,739		457,524		393,658		386,868		383,647
Notes receivable		59,014		58,794		62,127		28,623		18,864		46,412		46,936		58,973		59,014		58,794
Unconsolidated joint ventures		19,340		19,340		19,340		19,340		19,340		19,340		19,340		19,340		19,340		19,340
Real estate investment mix:
Assisted living communities	$	945,552	$	942,581	$	956,642	$	929,113	$	868,081	$	1,146,827	$	1,113,096	$	951,441	$	945,552	$	942,581
Skilled nursing centers		976,753		901,911		858,150		849,182		812,518		987,188		970,300		980,401		976,753		901,911
Other ⁽¹⁾												14,792		14,703		14,601		14,586		14,226
Under development		13,000		13,000		13,000		13,000		13,000		13,000		13,000		13,000		13,000		13,000
Other ⁽¹⁾		14,586		14,226		13,337		13,140		13,140
Operator mix:
ALG Senior											$	307,891	$	326,288	$	192,699	$	189,533	$	110,075
Prestige Healthcare ⁽¹⁾	$	271,851	$	271,853	$	272,326	$	272,453	$	272,789		272,818		271,904		271,476		271,851		271,853
ALG Senior		189,533		110,075		76,715		74,888		26,881
Encore Senior Living ⁽²⁾												179,153		57,101		57,101		57,101		56,992
HMG Healthcare		174,107		175,532		180,662		171,920		23,705		176,285		176,285		175,835		174,107		175,532
Anthem Memory Care		139,176		139,176		139,176		139,176		139,176		155,867		155,629		139,176		139,176		139,176
Brookdale Senior Living		104,461		103,831		103,136		102,921		102,261
Remaining operators(2)		1,070,763		1,071,251		1,069,114		1,043,077		1,141,927		1,069,793		1,123,892		1,123,156		1,118,123		1,118,090
Geographic mix:
Texas	$	325,380	$	326,983	$	274,803	$	274,626	$	274,204	$	328,517	$	328,442	$	327,490	$	325,380	$	326,983
Michigan		280,932		280,934		281,407		281,512		282,022		281,210		280,294		280,389		280,932		280,934
Florida ⁽²⁾		158,175		81,525		80,815		80,540		68,634
Wisconsin		114,838		114,729		114,729		114,538		114,288
Colorado		104,760		104,651		104,514		104,514		104,445
North Carolina												233,301		232,841		99,646		95,456		92,639
Florida												146,019		159,461		158,892		158,175		81,525
Ohio ⁽³⁾												142,206		87,693		87,569		87,543		87,543
Remaining states ⁽²⁾⁽³⁾		965,806		962,896		984,861		948,705		863,146		1,030,554		1,022,368		1,005,457		1,002,405		1,002,094

(1)	Includes three parcels of land located adjacent to properties securing the Prestige Healthcare mortgage loan and are managed by Prestige.

(2)

During the three months ended ~~September~~June 30, ~~2022, as~~2023, we terminated a master lease agreement and transitioned eight assisted living communities with 500 units in Illinois from a former operator to Encore Senior Living. As a result of ~~recent transactions, North Carolina~~this transaction, Encore Senior Living is a top five operator and replaced Brookdale Senior Living. Accordingly, our “Brookdale Senior Living” properties were reclassified to “Remaining States” and our “Encore Senior Living” properties were reclassified from “Remaining States” for all periods presented.

(3)

During the three months ended June 30, 2023, we invested $45,000 in a $54,134 joint venture for the purchase of an ILF/ALF/MC in Ohio. As a result of this transaction, Wisconsin is no longer a top five state under our geographic mix and is replaced by ~~Florida.~~Ohio. Accordingly, our ~~“Florida”~~"Ohio" properties were reclassified from ~~“Remaining states”~~"Remaining States" and our ~~“North Carolina”~~"Wisconsin" properties were reclassified ~~back~~ to ~~“Remaining States”~~"Remaining States" for all periods presented.

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 Sheets 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 earnings before interest, taxes, depreciation and amortization 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, 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:

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Balance Sheet Metrics


	Year to Date		Quarter Ended														Year to Date		Quarter Ended
	9/30/22		9/30/22			6/30/22			3/31/22			12/31/21			9/30/21		6/30/23		6/30/23			3/31/23			12/31/22			9/30/22			6/30/22
Debt to gross asset value	38.9	%	38.9	%	⁽¹⁾	37.6	%	⁽³⁾	39.6	%	⁽¹⁾	38.4	%	⁽¹⁾	36.3	%	42.1	%	42.1	%	⁽¹⁾	41.0	%	⁽¹⁾	37.4	%	⁽⁵⁾	38.9	%	⁽¹⁾	37.6	%
Debt to market capitalization ratio	34.4	%	34.4	%	⁽²⁾	32.2	%	⁽⁴⁾	33.4	%	⁽⁵⁾	35.0	%	⁽²⁾	34.7	%	41.1	%	41.1	%	⁽²⁾	38.3	%	⁽³⁾	34.4	%		34.4	%	⁽²⁾	32.2	%
Interest coverage ratio ⁽⁶⁾⁽⁷⁾	4.3	x	4.2	x		4.3	x		4.4	x		4.3	x		4.3	x	3.5	x	3.5	x		3.6	x	⁽⁴⁾	4.4	x	⁽⁶⁾	4.2	x		4.3	x
Fixed charge coverage ratio ⁽⁶⁾⁽⁷⁾	4.3	x	4.2	x		4.3	x		4.4	x		4.3	x		4.3	x	3.5	x	3.5	x		3.6	x	⁽⁴⁾	4.4	x	⁽⁶⁾	4.2	x		4.3	x

(1)	Increased due to increase in outstanding debt partially offset by increase in gross asset value.

(2)	Increased due to decrease in market capitalization and increase in outstanding ~~debt primarily related to investments.~~debt.

(3)	Increased due to increase in outstanding debt.

(4)	Decreased due to increase in interest expense.

(5)	Decreased due to decrease in outstanding debt and increase in gross asset value.

~~(4)~~(6)

~~Decreased~~Increased due to ~~decrease in outstanding debt and~~ increase in ~~market capitalization.~~rental income and interest income from financing receivables partially offset by an increase in interest expense.

~~(5)~~

~~Decreased due to increase in market capitalization partially offset by increase in outstanding debt.~~

~~(6)~~(7)

In calculating our interest coverage and fixed charge coverage ratios above, we use EBITDAre, which is a financial measure not derived in accordance with GAAP (non-GAAP financial measure). 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 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 EBITDAre.


	Year to Date			Quarter Ended															Year to Date			Quarter Ended
	9/30/22			9/30/22			6/30/22			3/31/22			12/31/21			9/30/21			6/30/23			6/30/23			3/31/23			12/31/22			9/30/22			6/30/22
Net income	$	82,386		$	13,389		$	54,490		$	14,507		$	12,930		$	11,114		$	40,165		$	6,604		$	33,561		$	18,198		$	13,389		$	54,490
Less/Add: (Gain)/loss on sale		(37,809)			387			(38,094)			(102)			(70)			(2,702)			(15,675)			(302)			(15,373)			(21)			387			(38,094)
Add: Impairment loss		1,286			1,286			—			—			—			—			12,510			12,076			434			2,136			1,286			—
Add: Interest expense		22,607			7,941			7,523			7,143			6,933			6,610			21,921			11,312			10,609			8,830			7,941			7,523
Add: Depreciation and amortization		28,202			9,385			9,379			9,438			9,449			9,462			18,586			9,376			9,210			9,294			9,385			9,379
EBITDAre	$	96,672		$	32,388		$	33,298		$	30,986		$	29,242		$	24,484		$	77,507		$	39,066		$	38,441		$	38,437		$	32,388		$	33,298
Add (less): Non-recurring one-time items		824	^{(1) (2) (3)}		1,260	⁽¹⁾		(859)	⁽²⁾		423	⁽³⁾		869	⁽⁴⁾		3,895	⁽⁵⁾		262	⁽¹⁾		—			262	⁽¹⁾		—			1,260	⁽²⁾		(859)	⁽³⁾
Adjusted EBITDAre	$	97,496		$	33,648		$	32,439		$	31,409		$	30,111		$	28,379		$	77,769		$	39,066		$	38,703		$	38,437		$	33,648		$	32,439

Interest expense	$	22,607		$	7,941		$	7,523		$	7,143		$	6,933		$	6,610		$	21,921		$	11,312		$	10,609		$	8,830		$	7,941		$	7,523
Interest incurred	$	22,607		$	7,941		$	7,523		$	7,143		$	6,933		$	6,610

Interest coverage ratio		4.3	x		4.2	x		4.3	x		4.4	x		4.3	x		4.3	x		3.5	x		3.5	x		3.6	x		4.4	x		4.2	x		4.3	x

Interest incurred	$	22,607		$	7,941		$	7,523		$	7,143		$	6,933		$	6,610
Interest expense																			$	21,921		$	11,312		$	10,609		$	8,830		$	7,941		$	7,523
Total fixed charges	$	22,607		$	7,941		$	7,523		$	7,143		$	6,933		$	6,610		$	21,921		$	11,312		$	10,609		$	8,830		$	7,941		$	7,523

Fixed charge coverage ratio		4.3	x		4.2	x		4.3	x		4.4	x		4.3	x		4.3	x		3.5	x		3.5	x		3.6	x		4.4	x		4.2	x		4.3	x

(1)	~~Represents$500~~Represents $1,832 provision for credit losses related to the $121,321 acquisition accounted for as a financing receivable and $61,900 of mortgage loan originations partially offset by $1,570 for the prepayment fee related to the payoff of two mezzanine loans.

(2)	Represents $500 lease termination fee paid to a former operator in exchange for cooperation in facilitating an orderly transition and $760 provision for credit losses related to the ~~origination of~~$75,825 acquisition accounted for as a financing receivable during the third quarter of 2022.

~~(2)~~(3)

Represents the $1,181 lease termination fee received in connection with the sale of a 74-unit assisted living community partially offset by the $322 provision for credit losses related to the origination of two mortgage loans during the second quarter of 2022.

~~(3)~~

~~Represents the provision for credit losses related to the origination of a $25,000 mezzanine loan and a lease incentive balance write-off related to a closed property and subsequent lease termination.~~

~~(4)~~

~~Represents the provision for credit losses related to the origination of $86,900 of mortgage loans.~~

~~(5)~~

~~Represents a settlement payment to Senior Care (See our Annual Report on Form 10-K).~~

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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.

Additionally, as described in the Executive Overview above, COVID-19 is adversely affecting and is expected to continue to adversely affect our business, results of operations, cash flows and financial condition. Depending on the future developments regarding COVID-19, the duration, spread and severity of the outbreak, historical trends reflected in our balance sheet metrics may not be achieved in the future.

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
	September 30,									June 30,
	2022			2021			Difference			2023			2022			Difference
Revenues:
Rental income	$	31,585		$	29,320		$	2,265	⁽¹⁾	$	31,537		$	31,628		$	(91)
Interest income from financing receivable		357			—			357	⁽²⁾
Interest income from financing receivables											3,830			—			3,830	⁽¹⁾
Interest income from mortgage loans		10,379			7,924			2,455	⁽³⁾		11,926			10,097			1,829	⁽²⁾
Interest and other income		1,182			228			954	⁽⁴⁾		953			1,299			(346)
Total revenues		43,503			37,472			6,031			48,246			43,024			5,222

Expenses:
Interest expense		7,941			6,610			(1,331)	⁽⁵⁾		11,312			7,523			(3,789)	⁽³⁾
Depreciation and amortization		9,385			9,462			77			9,376			9,379			3
Impairment loss from real estate investments		1,286			—			(1,286)	⁽⁶⁾
Impairment loss											12,076			—			(12,076)	⁽⁴⁾
Provision for credit losses		795			68			(727)	⁽⁷⁾		187			305			118
Transaction costs		629			4,046			3,417	⁽⁸⁾		91			67			(24)
Property tax expense		4,179			3,932			(247)			3,187			4,019			832	⁽⁵⁾
General and administrative expenses		5,888			5,318			(570)	⁽⁹⁾		6,091			5,711			(380)
Total expenses		30,103			29,436			(667)			42,320			27,004			(15,316)

Other operating income:
(Loss) gain on sale of real estate, net		(387)	⁽¹⁰⁾		2,702	⁽¹¹⁾		(3,089)
Gain on sale of real estate, net											302	⁽⁶⁾		38,094	⁽⁷⁾		(37,792)
Operating income		13,013			10,738			2,275			6,228			54,114			(47,886)
Income from unconsolidated joint ventures		376			376			—			376			376			—
Net income		13,389			11,114			2,275			6,604			54,490			(47,886)
Income allocated to non-controlling interests		(99)			(92)			(7)			(430)			(107)			(323)
Net income attributable to LTC Properties, Inc.		13,290			11,022			2,268			6,174			54,383			(48,209)
Income allocated to participating securities		(131)			(113)			(18)			(146)			(318)			172
Net income available to common stockholders	$	13,159		$	10,909		$	2,250		$	6,028		$	54,065		$	(48,037)

(1)	Increased primarily due to rent received from properties transitioned from the former Senior Care and Senior Lifestyle portfolios and rental income from acquisitions, completed development projects and annual rent escalations partially offset by sold properties.

~~(2)~~

Represents the revenue from the acquisition of 11 ALFs and MCs located in North Carolina for $121,321 during the first quarter of 2023 and the acquisition of three ~~skilled nursing centers~~SNFs located in Florida for ~~$75,825.~~$75,825 during the third quarter of 2022. In accordance with ASC 842, ~~this transaction is presented~~these transactions are accounted as ~~Financing Receivable~~ ~~on our~~ ~~Consolidated Statements of Balance Sheet~~.financing receivables. See Note 2. Real Estate Investments within our consolidated financial statements for more information.

(2)	Increased primarily due to mortgage loan originations during the second quarter of 2022 and the first quarter of 2023.

(3)	Increased primarily due to higher outstanding balance and higher interest rates on our revolving line of credit and the issuance of $75,000 senior unsecured notes during the second quarter of 2022.

(4)	Represents aggregate impairment loss of $12,076 related to two ALFs. See Note 2. Real Estate Investments within our consolidated financial statements for more information.

(5)	Decreased primarily due to property tax reassessment and properties sold partially offset by the acquisitions.

(6)	Represents the gain on sale related to two ALFs located in Florida and New Jersey during the second quarter of 2023.

(7)	Represents the net gain on sale of $38,052 related to a SNF located in California and three ALFs located in Virginia and California during the second quarter of 2022 and quarterly reassessment of prior years’ sale holdbacks.

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	Six Months Ended
	June 30,
	2023			2022			Difference
Revenues:
Rental income	$	63,272		$	61,952		$	1,320	⁽¹⁾
Interest income from financing receivable		7,581			—			7,581	⁽²⁾
Interest income from mortgage loans		23,170			19,733			3,437	⁽³⁾
Interest and other income		3,723			2,126			1,597	⁽⁴⁾
Total revenues		97,746			83,811			13,935

Expenses:
Interest expense		21,921			14,666			(7,255)	⁽⁵⁾
Depreciation and amortization		18,586			18,817			231
Impairment loss		12,510			—			(12,510)	⁽⁶⁾
Provision for credit losses		1,918			659			(1,259)	⁽⁷⁾
Transaction costs		208			99			(109)
Property tax expense		6,480			8,001			1,521	⁽⁸⁾
General and administrative expenses		12,385			11,519			(866)	⁽⁹⁾
Total expenses		74,008			53,761			(20,247)

Other operating income:
Gain on sale of real estate, net		15,675	⁽¹⁰⁾		38,196	⁽¹¹⁾		(22,521)
Operating income		39,413			68,246			(28,833)
Income from unconsolidated joint ventures		752			751			1
Net income		40,165			68,997			(28,832)
Income allocated to non-controlling interests		(857)			(202)			(655)
Net income attributable to LTC Properties, Inc.		39,308			68,795			(29,487)
Income allocated to participating securities		(293)			(407)			114
Net income available to common stockholders	$	39,015		$	68,388		$	(29,373)

(1)	Increased primarily due to rental income from acquisitions, rent received from transitioned portfolios, completed development projects and annual rent escalations partially offset by sold properties and decrease in property tax revenue.

(2)

Represents the revenue from the acquisition of 11 ALFs and MCs located in North Carolina for $121,321 during the first quarter of 2023 and the acquisition of three SNFs located in Florida for $75,825 during the third quarter of 2022. In accordance with ASC 842, these transactions are accounted as financing receivables. See Note 2. Real Estate Investments within our consolidated financial statements for more information.

(3)	Increased primarily due to mortgage loan originations during the ~~fourth quarter of 2021 and~~ second quarter of ~~2022.~~2022 and the first quarter of 2023.

(4)

Increased primarily due to the prepayment fees received in connection with the payoff of two mezzanine loans during the first quarter of 2023 and a mezzanine loan origination during the first quarter of 2022 ~~and additional funding under working capital loans~~ partially offset by lower income from loan payoffs.

(5)

Increased primarily due to ~~the origination~~higher outstanding balance and higher interest rates on our revolving line of ~~two $50,000 term loans in~~credit and the ~~fourth quarter of 2021,~~ issuance of $75,000 senior unsecured notes during the second quarter of ~~2022 and higher interest rates in~~ 2022.

(6)

Represents ~~the~~$434 impairment loss related to ~~an assisted living community~~a 70-unit ALF located in ~~Kentucky.~~Florida that was sold during 2023. Additionally, represents aggregate impairment loss of $12,076 related to two ALFs. See Note 2. Real Estate Investments within our consolidated financial statements for more information.

(7)

Increased primarily due to more originations during the ~~financing receivable origination, as discussed in (2) above, mortgage and mezzanine loan originations and capital improvement funding offset by scheduled principal paydowns.~~six months ended June 30, 2023 compared to six months ended June 30, 2022.

(8)	Decreased primarily due to property tax reassessment and properties sold partially offset by the ~~Senior Care and Abri Health settlement and related fees paid during the third quarter of 2021.~~acquisitions.

(9)	Increased ~~costs related~~due to ~~property maintenance expense for closed properties, as well as~~ higher non-cash compensation charges and increases in overall costs due to inflationary ~~pressures.~~pressures and the timing of certain expenditures.

(10)	Represents the net ~~loss on sale of $434 related to a closed skilled nursing center in Texas offset by additional gain due to quarterly reassessment of prior years’ sale holdbacks.~~

~~(11)~~

~~Represents the net~~ gain on sale ~~of $2,562~~ related to ~~a SNF in Washington and additional gain due to quarterly reassessment of prior years’ sale holdbacks.~~

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Nine Months Ended

September 30,

2022

2021

Difference

Revenues:

Rental income

$
93,537

$
91,097

$
2,440
⁽¹⁾
Interest income from financing receivable

357

—

357
⁽²⁾
Interest income from mortgage loans

30,112

23,779

6,333
⁽³⁾
Interest and other income

3,308

1,005

2,303
⁽⁴⁾
Total revenues

127,314

115,881

11,433

Expenses:

Interest expense

22,607

20,442

(2,165)
⁽⁵⁾
Depreciation and amortization

28,202

28,847

645
⁽⁶⁾
Impairment loss from real estate investments

1,286

—

(1,286)
⁽⁷⁾
Provision for credit losses

1,454

59

(1,395)
⁽⁸⁾
Transaction costs

728

4,271

3,543
⁽⁹⁾
Property tax expense

12,180

11,713

(467)

General and administrative expenses

17,407

15,688

(1,719)
⁽¹⁰⁾
Total expenses

83,864

81,020

(2,844)

Other operating income:

Gain on sale of real estate, net

37,809
⁽¹¹⁾

7,392
⁽¹²⁾

30,417

Operating income

81,259

42,253

39,006

Income from unconsolidated joint ventures

1,127

1,041

86

Net income

82,386

43,294

39,092

Income allocated to non-controlling interests

(301)

(271)

(30)

Net income attributable to LTC Properties, Inc.

82,085

43,023

39,062

Income allocated to participating securities

(481)

(346)

(135)

Net income available to common stockholders

$
81,604

$
42,677

$
38,927

~~(1)~~

Increased primarily due to a $1,181 lease termination fee received in connection with the sale of a 74-unit ALF, rent received from properties transitioned from the former Senior Lifestyle portfolios and rental income from completed development projects and annual rent escalations partially offset by reduction of rental income from sold properties and $1,500 temporary rent reduction from Anthem.

~~(2)~~

~~Represents the revenue from the acquisition of~~ three ~~skilled nursing centers~~ALFs located in Kentucky, Florida ~~for $75,825. In accordance with ASC 842, this transaction is presented as Financing Receivable on our Consolidated Statements of Balance Sheet. See~~ ~~Note 2. Real~~ ~~Estate Investments~~ ~~within our consolidated financial statements for more information.~~

~~(3)~~

~~Increased primarily due to mortgage loan originations~~and New Jersey and two SNFs in New Mexico during ~~the fourth quarter of 2021 and second quarter of 2022.~~

~~(4)~~

~~Increased due to a mezzanine loan origination during the first quarter of 2022 and additional funding under working capital loans partially offset by loan payoffs.~~

~~(5)~~

Increased primarily due to the origination of two $50,000 term loans in the fourth quarter of 2021, issuance of $75,000 senior unsecured notes during the second quarter of 2022 and higher interest rates in 2022.

~~(6)~~

~~Decreased due to property sales.~~

~~(7)~~

~~Represents the impairment loss related to an assisted living community in Kentucky. See~~ ~~Note 2~~. ~~Real Estate Investments~~ ~~within our consolidated financial statements for more information.~~

~~(8)~~

Increased primarily due to the financing receivable origination, as discussed in (2) above, mortgage and mezzanine loan originations and capital improvement funding offset by scheduled principal paydowns.

~~(9)~~

~~Decreased primarily due to the Senior Care and Abri Health settlement and related fees paid during the third quarter of 2021.~~

~~(10)~~

Increased costs related to conference sponsorships and travel, property maintenance expense for closed properties, higher incentive compensation charges and increase in overall costs due to inflationary pressures.2023.

(11)

Represents the net gain on sale of $38,052 related to a SNF located in California and three ALFs located in Virginia and California during the second quarter of 2022 and quarterly reassessment of prior years’ sale ~~holdbacks partially offset by the net loss on sale of $434 related to a closed skilled nursing center in Texas.~~

~~(12)~~

Represents the net gain on sale of $2,562 related to a SNF in Washington, $5,594 related to three ALFs in Wisconsin and $292 of quarterly reassessment of the prior years’ sale holdbacks partially offset by the net loss on sale of $198 related to a closed ALF in Nebraska and the net loss on sale of $858 related to a closed property in Florida.holdbacks.

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Funds From Operations Available to Common Stockholders

Funds from Operations (“FFO”) attributable to common stockholders, basic FFO attributable to common stockholders per share and diluted FFO attributable 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 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 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					Nine Months Ended					Three Months Ended						Six Months Ended
	September 30,					September 30,					June 30,						June 30,
	2022			2021		2022			2021		2023			2022			2023			2022
GAAP net income available to common stockholders	$	13,159		$	10,909	$	81,604		$	42,677	$	6,028		$	54,065		$	39,015		$	68,388
Add: Depreciation and amortization		9,385			9,462		28,202			28,847		9,376			9,379			18,586			18,817
Add: Impairment loss from investments		1,286			—		1,286			—
Add/Less: Loss (gain) on sale of real estate, net		387			(2,702)		(37,809)			(7,392)
Add: Impairment loss												12,076			—			12,510			—
Less: Gain on sale of real estate, net												(302)			(38,094)			(15,675)			(38,196)
NAREIT FFO attributable to common stockholders	$	24,217		$	17,669	$	73,283		$	64,132	$	27,178		$	25,350		$	54,436		$	49,009
NAREIT FFO attributable to common stockholders per share:
Basic	$	0.60		$	0.45	$	1.85		$	1.64	$	0.66		$	0.64		$	1.32		$	1.25
Diluted	$	0.60		$	0.45	$	1.83		$	1.64	$	0.66		$	0.64		$	1.32		$	1.24
Weighted average shares used to calculate NAREIT FFO per share:
Basic		40,270			39,177		39,658			39,149		41,145			39,492			41,113			39,347
Diluted		40,781	⁽¹⁾		39,177		39,939	⁽²⁾		39,149		41,489	⁽¹⁾		39,665	⁽²⁾		41,454	⁽¹⁾		39,520	⁽²⁾

(1)	Includes the effect of ~~stock option equivalents,~~ performance-based stock units and participating securities.

(2)	Includes the effect of performance-based stock units.

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Liquidity and Capital Resources

Sources and Uses of Cash

As of ~~September~~June 30, ~~2022,~~2023, we had a total of ~~$6.5~~$7.0 million of cash and cash equivalents, ~~$249.0~~$73.7 million available under our unsecured revolving line of credit and the potential ability to access the capital markets through the issuance of ~~$160.3~~$128.8 million of common stock under our Equity Distribution Agreements. 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.

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 used in financing and investing activities are sensitive to the capital markets environment, especially to changes in interest rates. In addition, ~~as described in the Executive Overview above,~~ COVID-19 has adversely affected ~~and is expected to continue to adversely affect~~ our operators’ business, results of operations, cash flows and financial condition which could, in turn, adversely affect our financial position.

We maintain our cash deposits primarily in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). We have not experienced any losses related to amounts in excess of FDIC limits.

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 health of the economy, inflation pressures, employee availability and cost, changes in supply of or demand for competing seniors housing and health care facilities, competition from home health providers, ability to control other rising operating costs, the potential for significant reforms in the health care industry including state and federal reimbursement programs, and the ongoing impact of COVID-19. Prestige is our largest operator based upon revenues and assets representing 16.7% of our total revenues and 14.3% of our total assets as of June 30, 2023. During the second quarter of 2023, we agreed to defer up to $1.5 million, or up to $0.3 million per month for May through September 2023, in interest payments due on one of Prestige’s mortgage loans secured by 15 skilled nursing centers. We deferred $0.6 million in interest payments during the second quarter of 2023 and deferred $0.3 million in interest payments in July 2023. Medicaid rates are expected to increase effective October 1^st and retroactive rate settlements related to prior years are expected to be paid in fourth quarter of 2023 and fourth quarter of 2024. Our financial position and ability to make distributions may be adversely affected if Prestige faces financial difficulties, including bankruptcy, inability to emerge from bankruptcy, insolvency or a general downturn in its business.

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, and the continuing impact of COVID-19. 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.

Depending on ~~the duration, spread and severity of a future COVID-19 outbreak,~~ our borrowing capacity, compliance with financial covenants, ability to access the capital markets, and the payment of dividends may be negatively impacted. We continuously evaluate the

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availability of cost-effective capital and believe we have sufficient liquidity for our current dividend, corporate expenses and additional capital investments in ~~2022~~2023 and ~~2023.~~2024.

Our investments, principally our investments in owned properties and mortgage loans, 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 leases have agreed upon annual increases and our loans have predetermined increases in interest rates. 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 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

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~~(including~~ (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):


	Nine Months Ended September 30,					Change	Six Months Ended June 30,					Change
Cash provided by (used in):	2022		2021			$	2023		2022			$
Operating activities	$	72,772	$	69,581	$	3,191	$	46,534	$	48,444	$	(1,910)
Investing activities		(110,507)		27,757		(138,264)		(187,401)		(45,816)		(141,585)
Financing activities		39,052		(59,651)		98,703		137,514		(1,388)		138,902
Increase in cash and cash equivalents		1,317		37,687		(36,370)
(Decrease) increase in cash and cash equivalents								(3,353)		1,240		(4,593)
Cash and cash equivalents, beginning of period		5,161		7,772		(2,611)		10,379		5,161		5,218
Cash and cash equivalents, end of period	$	6,478	$	45,459	$	(38,981)	$	7,026	$	6,401	$	625

Debt Obligations

Unsecured Credit Facility. We have an unsecured credit agreement (the “Credit Agreement”) that provides for an aggregate commitment of the lenders of up to $500.0 million comprising of a $400.0 million revolving credit facility (the “Revolving Line of Credit”) and two $50.0 million term loans (the “Term Loans”). The Credit Agreement permits us to request increases to the Revolving Line of Credit and Term Loans commitments up to a total of $1.0 billion. The Revolving Line of Credit matures November 19, 2025 and provides for a one-year extension option at our discretion, subject to customary conditions. The Term Loans mature on November 19, 2025 and November 19, 2026.

During 2022, we entered into the First Amendment to the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) to replace London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”), plus a credit spread adjustment of 10 basis points, (“Adjusted SOFR”) as the reference rate for purpose of calculating interest under the Amended Credit Agreement. Other material terms of the Credit Agreement remain unchanged. Based on our leverage at ~~September~~June 30, ~~2022,~~2023, the facility provides for interest annually at ~~LIBOR~~Adjusted SOFR plus ~~115~~120 basis points and a facility fee of 20 basis points and the Term Loans provide for interest annually at Adjusted SOFR plus 140 basis points.

Interest Rate Swap Agreements. In connection with entering into the Term Loans as described above, we entered into two receive variable/pay fixed interest rate swap agreements (the “Interest Rate Swaps”) with maturities of November 19, 2025 and November 19, 2026, respectively, that ~~serves to~~will effectively lock-in the forecasted interest payments on the ~~borrowings under the~~ Term ~~Loans~~Loans’ borrowings over their four and five year ~~terms.~~terms of the loans. The Interest Rate Swaps are considered cash flow hedges and are recorded on our Consolidated Balance Sheets at fair value, with changes in the fair value of these instruments recognized in Accumulated other comprehensive income (loss) on our Consolidated Balance Sheets. In connection with entering into the Amended Credit Agreement discussed above, we entered into amendments to our

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Interest Rate Swaps to account for SOFR as the updated reference rate in the Amended Credit Agreement. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we recorded a ~~$9.6~~$0.2 million ~~increase~~decrease in fair value of Interest Rate Swaps.

As of ~~September~~June 30, ~~2022,~~2023, the terms of the Interest Rate Swaps are as follows (dollar amounts in thousands):


						Notional	Fair Value at							Notional	Fair Value at
Date Entered	Maturity Date	Swap Rate		Rate Index		Amount		September 30, 2022	Maturity Date	Swap Rate		Rate Index		Amount		June 30, 2023
November 2021	November 19, 2025	2.56	%	1-month LIBOR	$	50,000	$	4,300	November 19, 2025	2.62	%	1-month SOFR	$	50,000	$	3,895
November 2021	November 19, 2026	2.69	%	1-month LIBOR		50,000		5,145	November 19, 2026	2.76	%	1-month SOFR		50,000		4,673
					$	100,000	$	9,445					$	100,000	$	8,568

Senior Unsecured Notes. We have senior unsecured notes held by institutional investors with interest rates ranging from 3.66% to 5.03%. The senior unsecured notes mature between 2024 and 2033. During the nine months ended September 30, 2022, we sold $75 million aggregate principal amount of 3.66% senior unsecured notes. The notes have an average 10-year life, scheduled principal payments and mature in May 2033.

~~Table of Contents~~

The senior unsecured notes and the Credit Agreement, including the Revolving Line of Credit and the ~~Terms~~Term Loans, contain financial covenants, which are measured quarterly, that require us to maintain, among other things:

●

a ratio of total indebtedness to total asset value not greater than 0.6 to 1.0;

●

a ratio of secured debt to total asset value not greater than 0.35 to 1.0;

●

a ratio of unsecured debt to the value of the unencumbered asset value not greater than 0.6 to 1.0; and

●

a ratio of EBITDA, as calculated in the debt obligation, to fixed charges not less than 1.50 to 1.0.

The debt obligations by component as of ~~September~~June 30, ~~2022~~2023 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
Revolving line of credit	4.21%	$	151,000	$	249,000	6.35%	$	326,350	$	73,650
Term loans, net of debt issue costs	2.63%		99,474		—	2.69%		99,583		—
Senior unsecured notes, net of debt issue costs	4.25%		543,287		—	4.24%		527,456		—
Total	4.04%	$	793,761	$	249,000	4.80%	$	953,389	$	73,650

(1)	Represents weighted average of interest rate as of ~~September~~June 30, ~~2022.~~2023.

~~Our~~During the six months ended June 30, 2023, our debt borrowings and repayments ~~during the nine months ended September 30, 2022 are~~were as follows (in thousands):


Debt Obligations		Borrowings		Repayments		Borrowings		Repayments
Revolving line of credit(1)	$	194,000	$	(153,900)	$	224,950	$	(28,600)
Senior unsecured notes(2)		75,000		(43,160)		—		(11,000)
Total	$	269,000	$	(197,060)	$	224,950	$	(39,600)

(1)	Subsequent to June 30, 2023, we borrowed $34,000 under our Revolving Line of Credit. Accordingly, we have $360,350 outstanding and $39,650 available for borrowing under our Revolving Line of Credit.

(2)	Subsequent to June 30, 2023, we paid $17,160 in regular scheduled principal payments under our senior unsecured notes. Accordingly, we have $510, 296 outstanding under our senior unsecured notes.

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Equity

At ~~September~~June 30, ~~2022,~~2023, we had ~~40,504,791~~41,408,693 shares of common stock outstanding, equity on our balance sheet totaled ~~$825.2~~$859.6 million and our equity securities had a market value of ~~$1.5~~$1.4 billion. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we declared and paid ~~$68.2~~$47.2 million of cash dividends.

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we acquired ~~39,463~~43,933 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Subsequent to ~~September~~June 30, ~~2022,~~2023, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of ~~October, November~~July, August and ~~December 2022,~~September 2023, payable on ~~October~~July 31, ~~November 30,~~August 31, and ~~December 30, 2022,~~September 29, 2023, respectively, to stockholders of record on ~~October~~July 21, ~~November 22,~~August 23, and ~~December 22, 2022,~~September 21, 2023, respectively.

At-The-Market Program. We have separate equity distribution agreements (collectively, “Equity Distribution Agreements”) to offer and sell, from time to time, up to $200.0 million in aggregate offering price of shares of our common stock. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we sold ~~1,035,000~~48,500 shares of common stock for ~~$39.0~~$1.8 million in net proceeds under our Equity Distribution

~~Table of Contents~~

Agreements. In conjunction with the sale of common stock, we ~~paid $0.6 million as compensation to our sales agents and we~~ incurred ~~$0.5 million~~$80,000 of costs associated with this agreement which have been recorded in additional paid in capital as a reduction of proceeds received. Accordingly, we have $128.8 million available under the Equity Distribution Agreements.

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 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. Our shelf registration statement expires on February 17, 2025.

Stock-Based Compensation. During the second quarter of 2021, we adopted and our shareholders approved the 2021 Equity Participation Plan (“the 2021 Plan”) which replaces the 2015 Equity Participation Plan (“the 2015 Plan”). Under the 2021 Plan, 1,900,000 shares of common stock have been authorized and reserved for awards, less one share for every one share that was subject to an award granted under the 2015 Plan after December 31, 2020 and prior to adoption. In addition, any shares that are not issued under outstanding awards under the 2015 Plan because the shares were forfeited or cancelled after December 31, 2020 will be added to and again be available for awards under the 2021 Plan. Under the 2021 Plan, the shares were authorized and reserved for awards to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2021 Plan and the 2015 Plan are set by our compensation committee at its discretion.

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During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we ~~granted~~awarded restricted stock and performance-based stock units as follows:

No. of

Price per

Shares

Share

Award Type

Vesting Period

122,865

$
33.94

Restricted stock

ratably over 3 years

86,332

$
33.94

Performance-based stock units

TSR targets (1)

12,345

$
38.48

Restricted stock

May 25,2023

221,542


No. of	Price per
Shares	Share		Award Type	Vesting Period
127,960	$	37.16	Restricted stock	ratably over 3 years
86,867	$	37.16	Performance-based stock units	TSR targets ⁽¹⁾
15,060	$	31.54	Restricted stock	May 24,2024
229,887

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

Critical Accounting Policies

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 described our most critical accounting policies in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no material changes to our critical accounting policies or estimates since December 31, ~~2021.~~2022.

~~Table of Contents~~

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in our market risk during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. For additional information, refer to Item 7A as presented in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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, ~~2021.~~2022.

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

~~None~~During the three months ended June 30, 2023, we did not make any unregistered sales of equity securities.

During the three months ended June 30, 2023, we acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. The average prices paid per share for each month in the quarter ended June 30, 2023 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
April 1 - April 30, 2023	—	$	—	—	—
May 1 - May 31, 2023	2,583	$	31.34	—	—
June 1 - June 30, 2023	—	$	—	—	—
Total	2,583			—	—

Item 5. OTHER INFORMATION

Rule 10b5-1 Trading Arrangements

During the three months ended June 30, 2023, no director or officer of our company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as defined in Item 408(a) of Regulation S-K.

In January 2023, prior to the February 27, 2023 effective date of amendments to Rule 10b5-1 under the Securities Exchange Act of 1934, our company’s Co-President and Chief Investment Officer, Clint Malin, adopted a Rule 10b5-1 trading plan that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 12,931 shares of LTC common stock until February 29, 2024.

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Changes in Procedures for Director Nominations by Security Holders

On May 24, 2023, the Board of Directors of LTC approved an amendment and restatement of our company’s Bylaws to among other things:

●

revise the advance notice provisions for stockholder nominations to require certain additional disclosures with respect to any such stockholder, the stockholder’s nominee(s), and any other person related to the stockholder’s solicitation of proxies;

●

incorporate Rule 14a-19 (the universal proxy rule) into the advance notice provisions applicable to stockholder nominations, including to add a requirement for the stockholder submitting a notice of nomination to make a representation as to whether the stockholder intends to solicit proxies in support of any nominee other than the Board of Directors’ nominee(s) in accordance with Rule 14a-19, and, on request of LTC, to provide reasonable evidence that certain requirements of such rule have been satisfied; and

●

change the deadline for stockholders to submit notice to LTC of nominations to be not less than 120 days nor more than 150 days prior to the anniversary date of the last annual meeting of stockholders.

The foregoing description of the amendments to our company’s Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Bylaws, as so amended and restated, a copy of which is filed herewith as Exhibit 3.2 and incorporated herein by reference.

5051

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Item 6. EXHIBITS

3.1	LTC Properties, Inc. Articles of Restatement (incorporated by reference to Exhibit 3.1.2 to the registrant’s Current Report on Form 8-K filed June 6, 2016)

3.2	Bylaws of LTC Properties, Inc. (incorporated by reference to Exhibit ~~3.2.2~~3.2 to the registrant’s ~~Annual~~Current Report on Form ~~10-K~~8-K filed ~~February 18, 2021)~~May 26, 2023)
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.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

5152

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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: ~~October~~July 27, ~~2022~~2023	By:	/s/ Caroline Chikhale
		Caroline Chikhale
		Executive Vice President, Chief Accounting Officer and Treasurer
		(Principal Accounting Officer)

5253


PART I -- Financial Information		Page

Item 1.	Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 4.	Controls and Procedures	49
PART II -- Other Information

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 5.	Other Information	50
Item 6.	Exhibits	5152


	Cash
	Rent ⁽¹⁾
2022	$	31,970
2023		114,037
2024		94,257
2025		85,460
2026		68,784
Thereafter		263,280


	Type
	of			Capital		Income		Cash Interest		Application of
Year	Properties			Contribution		Recognized		Earned		Interest Reserve
2022	ALF/MC		$	—	$	337	$	—	$	337
	UDP	⁽¹⁾		—		790		351		439
Total			$	—	$	1,127	$	351	$	776

2021	ALF/MC		$	—	$	337	$	—	$	300
	UDP	⁽¹⁾		8,000		704		—		616
Total			$	8,000	$	1,041	$	—	$	916


	September 30, 2022		December 31, 2021
Mezzanine loans ⁽¹⁾	$	36,816	$	11,815
Other loans		22,198		16,808
Notes receivable credit loss reserve		(590)		(286)
Total	$	58,424	$	28,337