•·
type of property;
·
the location;
·
construction quality, condition and design of the property;
·
the property’s current and anticipated cash flow and its adequacy to meet operational needs and lease obligations or debt service obligations;
·
the experience, reputation and solvency of the licensee providing services;
·
the payor mix of private, Medicare and Medicaid patients;
·
the growth, tax and regulatory environments of the communities in which the properties are located;
·
the occupancy and demand for similar properties in the area surrounding the property; and
·
the Medicaid reimbursement policies and plans of the state in which the property is located.
7
Prior to every investment, we conduct a property site review to assess the general physical condition of the property and the potential of additional services. In addition, we review the environmental reports, site surveys and financial statements of the property before the investment is made.
We believe skilled nursing facilities are the lowest cost provider for certain levels of acuity; therefore, such facilities play a vital role in our nation’s health care delivery system. Our investments include direct ownership, development and mortgages secured by skilled nursing properties. We prefer to invest in a property that has a significant market presence in its community and where state certificate of need and/or licensing procedures limit the entry of competing properties.
We believe that assisted living,
andindependent living and memory care facilities are an important sector in the long term care market and our investments include direct ownership, development and mortgages secured by assisted living,and/orindependent living and/or memory care properties.For assisted living and independent living investments weWe have attempted to diversify our portfolio both geographically and across product levels.Thus, we believe that although the majority of our investments are in affordably priced units, our portfolio also includes upscale units in appropriate markets with certain operators.Borrowing Policies. We may incur additional indebtedness when, in the opinion of our Board of Directors, it is advisable. We may incur such indebtedness to make investments in additional senior housing and long term care properties or to meet the distribution requirements imposed upon REITs under the Internal Revenue Code of 1986, as amended. For other
short-termshort‑term purposes, we may, from time to time, negotiate lines of credit, or arrange for othershort-termshort‑term borrowings from banks or otherwise. We may also arrange forlonglong‑term borrowings through public or private offerings or from institutional investors.In addition, we may incur mortgage indebtedness on real estate which we have acquired through purchase, foreclosure or otherwise. We may also obtain mortgage financing for unleveraged or underleveraged properties in which we have invested or may refinance properties acquired on a leveraged basis.
There is no limitation on the number or amount of mortgages that may be placed on any one property, and we have no policy with respect to limitations on borrowing, whether secured or unsecured.Prohibited Investments and Activities.Our policies, which are subject to change by our Board of Directors without stockholder approval, impose certain prohibitions and restrictions on our investment practices or activities including prohibitions against:•investing in any junior mortgage loan unless by appraisal or other method, our Board of Directors determine that(a)the capital invested in any such loan is adequately secured on the basis of the equity of the borrower in the property underlying such investment and the ability of the borrower to repay the mortgage loan; or(b)such loan is a financing device we enter into to establish the priority of our capital investment over the capital invested by others investing with us in a real estate project;
•investing in commodities or commodity futures contracts (other than interest rate futures, when used solely for hedging purposes);•investing more than 1% of our total assets in contracts for the sale of real estate unless such contracts are recordable in the chain of title;•holding equity investments in unimproved, non-income producing real property, except such properties as are currently undergoing development or are presently intended to be developed within one year, together with mortgage loans on such property (other than first mortgage development loans), aggregating to more than 10% of our assets.
Competition
In the health care industry, we compete for real property investments with health care providers, other health care related REITs, real estate partnerships, banks, private equity funds, venture capital funds and other investors. Many of our competitors are significantly larger and have greater financial resources and lower cost of capital than we have available to us. Our ability to compete successfully for real property investments will be determined by numerous factors, including our ability to identify suitable acquisition targets, our ability to negotiate acceptable terms for any such acquisition and the availability and our cost of capital.
The lessees and borrowers of our properties compete on a local, regional and, in some instances, national basis with other health care providers. The ability of the lessee or borrower to compete successfully for patients or residents at our properties depends upon several factors, including the levels of care and services provided by the lessees or borrowers, the reputation of the providers, physician referral patterns, physical appearances of the properties, family preferences, financial condition of the operator and other competitive systems of health care delivery within the community, population and demographics.
Government Regulation
The health care industry is heavily regulated by the government. Our borrowers and lessees who operate health care facilities are subject to extensive regulation by federal, state and local governments. These laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. These changes may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot be predicted. The failure of any borrower of funds from us or lessee of any of our properties to comply with such laws, requirements and regulations could result in sanctions or remedies such as denials of payment for new Medicare and Medicaid admissions, civil monetary penalties, state oversight and loss of Medicare and Medicaid participation or licensure. Such action could affect our
borrower'sborrower’s orlessee'slessee’s ability to operate8
its facility or facilities and could adversely affect such
borrower'sborrower’s orlessee'slessee’s ability to make debt or lease payments to us.The properties owned by us and the manner in which they are operated are affected by changes in the reimbursement, licensing and certification policies of federal, state and local governments. Properties may also be affected by changes in accreditation standards or procedures of accrediting agencies. In addition, expansion (including the addition of new beds or services or acquisition of medical equipment) and occasionally the discontinuation of services of health care facilities are, in some states, subjected to state and regulatory approval through
"certificate“certificate ofneed"need” laws and regulations.The ability of our borrowers and lessees to generate revenue and profit determines the underlying value of that property to us. Revenues of our borrowers and lessees of skilled nursing properties are generally derived from payments for patient care. Sources of such payments for skilled nursing facilities include the federal Medicare program, state Medicaid programs, private insurance carriers,
healthmanaged careservice plans, health maintenanceorganizations, preferred provider arrangements, and self-insured employers, as well as the patients themselves.A significant portion of the revenue of our skilled nursing property borrowers and lessees is derived from governmentally-funded reimbursement programs, such as Medicare and Medicaid. Because of significant health care costs paid by such government programs, both federal and state governments have adopted and continue to consider various health care reform proposals to control health care costs.
Over the years there have been fundamental changes in the Medicare program that resulted in reduced levels of payment for a substantial portion of health care services, including skilled nursing facility services.In many instances, revenues from Medicaid programs arealreadyinsufficient to cover the actual costs incurred in providing care tothoseMedicaid patients.The American Recovery and Reinvestment Act of 2009 temporarily increased federal Medicaid payments by approximately $87 billion to help support state Medicaid programs facing budget shortfalls. An additional $16.1 billion in temporary enhanced federal Medicaid assistance was included in the Education Jobs and Medicaid Assistance Act, which President Obama signed into law in August 2010. However, enhanced funding under this federal legislation expired in June 2011.Moreover, the Kaiser Commission on Medicaid and the Uninsuredreportedstated in October20112014 thatnearly every state implemented34 states reported enacting new Medicaid rate restrictions for at least onenew Medicaidpolicy to control spendingprovider type in fiscalyears 2011year 2014, while 33 states plan rate restrictions for fiscal year 2015. In fiscal year 2014, 34 states reported one or more rate restrictions across provider types and2012, with46 states reported one or more rate increases. For fiscal year 2015, 33 states have planned at least one provider rate restriction while 45 states are planning at least one rate increase. On the other hand, the Kaiser Commission notes that due to improving state finances, more states are enhancing rates than restricting rates overall in 2014 and 2015. With regard to nursing home rates in particular, 39 states increased rates in fiscal year 2014 and 40 plan rate increases for fiscal year 2015, compared to nursing home rate restrictions being adopted in 12 states in fiscal year2011 implementing provider rate cuts or freezes,2014 and4610 statesplanning to do soin fiscal year2012. Thirty states restricted nursing home rates in fiscal year 2011 (24 rate freezes and 6 cuts), while 17 states plan to freeze rates and 14 states plan to cut rates in fiscal year 2012. On the other hand, 21 states increased nursing home rates in fiscal year 2011 and 20 plan to do so in fiscal year 2012.2015. In addition, many states have been making changes to their long term care delivery systems that emphasize home and community-based long term care services, in some cases coupled with cost controls for institutional providers. According to the Kaiser Commission,3242 states inFY 2011fiscal year 2014 and3347 states inFY 2012 expanded long term care services (primarily expandingfiscal year 2015 took action to expand the number of individuals serviced in home and community-basedservice), while 14 states in FY 2011 and 11 states in FY 2012 acted to restrict long term care services.service programs. The federal government also has adopted various policies to promote community-based alternatives to institutional services. As states and the federal government continue to respond to budget pressures, future reduction in Medicaidand/or Medicarepayments for skilled nursing facility services could 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.Over the years there also have been fundamental changes in the Medicare program that resulted in reduced levels of payment for a substantial portion of health care services, including skilled nursing facility services. CMS annually updates Medicare skilled nursing facility prospective payment system rates and other policies. On August 5, 2014, CMS published its final Medicare skilled nursing facility payment rate update for fiscal year 2015, which began on October 1, 2014. CMS estimates that the final rule will increase aggregate Medicare skilled nursing facility payments by $750 million, or 2%, compared to fiscal year 2014 levels. Specifically, under the final rule, Medicare rates are updated to reflect a 2.5% market basket increase that is reduced by a 0.5 percentage point “multifactor productivity adjustment” mandated by the Affordable Care Act. There can be no assurance that any future reductions in Medicare skilled nursing facility payment rates or other policy changes would 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.
Moreover, health care facilities continue to experience pressures from private payors attempting to control health care costs, and reimbursement from private payors has in many cases effectively been reduced to levels approaching those of government payors.
The Centers for Medicare & Medicaid Services (or CMS) annually updates Medicare skilled nursing facility prospective payment system rates and other policies. On July 29, 2011, CMS issued its final rule updating Medicare skilled nursing facility rates for fiscal year 2012, which began on October 1, 2011. Under the final rule, average rates have been reduced by 11.1%, or $3.87 billion, compared to fiscal year 2011 levels. CMS has stated that the rate reduction is needed to recalibrate skilled nursing facility payment rates to correct what CMS characterizes as an "unintended spike" in payments in fiscal year 2011, when CMS implemented the Resource Utilization Groups, version four (or RUG-IV) patient classification system. Although CMS intended implementation of RUG-IV to be budget-neutral, CMS has taken the position that claims under the updated system show a significant increase in Medicare expenditures, in part because the proportion of patients grouped in the highest-paying RUG therapy categories greatly exceeded CMS expectations. CMS is applying a 12.6% recalibration reduction, which is partially offset by a 1.7% standard rate update (which represents a 2.7% market basket update reduced by a 1.0% percentage point "multifactor productivity adjustment" mandated by the Affordable Care Act). There can be no assurance that this rule or any future reductions in Medicare skilled nursing facility payment rates would 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.Governmental and public concern regarding health care costs may result in significant reductions in payment to health care facilities, and there can be no assurance that future payment rates for either governmental or private payors will be sufficient to cover cost increases in providing services to patients. Any changes in reimbursement policies which reduce reimbursement to levels that are insufficient to cover the cost of
9
providing patient care could adversely affect revenues of our skilled nursing property borrowers and lessees and to a much lesser extent our assisted living property borrowers and lessees and thereby adversely affect those
borrowers'borrowers’ andlessees'lessees’ abilities to make their debt or lease payments to us. Failure of the borrowers or lessees to make their debt or lease payments would have a direct and material adverse impact on us.Various federal and state laws govern financial and other arrangements between health care providers that participate in, receive payments from, or make or receive referrals for work in connection with government funded health care programs, including Medicare and Medicaid. These laws, known as the fraud and abuse laws, include the federal anti-kickback statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration directly or indirectly in return for, or to induce, the referral, or arrange for the referral, of an individual to a person for the
furnishing of an item or service for which payment may be made under federal health care programs. In addition, the federal physician self-referral law, commonly known as
Stark II (orthe StarkLaw),Law, prohibits physicians and certain other types of practitioners from making referrals for certain designated health services paid in whole or in part by Medicare and Medicaid to entities with which the practitioner or a member of thepractitioner'spractitioner’s immediate family has a financial relationship, unless the financial relationship fits within an applicable exception to the Stark Law. The Stark Law also prohibits the entity receiving the referral from seeking payment under the Medicareand Medicaid programsprogram for services rendered pursuant to a prohibited referral. If an entity is paid for services rendered pursuant to a prohibited referral, it may incur civil penalties of up to $15,000 per prohibited claim and may be excluded from participating in the Medicare and Medicaid programs. Many states have enacted similar fraud and abuse laws which are not necessarily limited to items and services for which payment is made by federal health care programs. Violations of these laws may result in fines, imprisonment, denial of payment for services, and exclusion from federal and/or other state-funded programs. Other federal and state laws authorize the imposition of penalties, including criminal and civil fines and exclusion from participation in federalhealthcarehealth care programs for submitting false claims, improper billing and other offenses. Federal and state government agencies have continued rigorous enforcement of criminal and civil fraud and abuse laws in the health care arena. Our borrowers and lessees are subject to many of these laws, and some of them could in the future become the subject of a governmental enforcement action.Health Care Reform and Other Legislative Developments
Congress and the state legislatures regularly consider, and in some cases adopt, legislation impacting health care providers, including long term care providers. For instance, the Balanced Budget Act of 1997 enacted significant changes to the Medicare and Medicaid programs designed to modernize payment and health care delivery systems while achieving substantial budgetary savings. Among other things, the law established the Medicare prospective payment system for skilled nursing facility services to replace the cost-based reimbursement system, which resulted in significant reductions in Medicare payments to skilled nursing facilities. Over the years, Congress adopted legislation to somewhat mitigate the impact of the new payment system, including a temporary payment add-on for high-acuity patients, which subsequently expired, and a temporary payment add-on for residents with AIDS that still is in effect through fiscal year
2012.2015. Other legislation enacted by Congress in recent years has reduced certain Medicare skilled nursing facility bad debt payments, strengthened Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long term care coverage, reduced Medicaid provider taxes that are used by many states to finance state health programs, and given states greater flexibility to expand access to home andcommunity basedcommunity-based services.In March 2010, the President signed into law the Patient Protection and Affordable Care Act, which subsequently was amended by the Health Care and Education and Reconciliation Act of 2010 (collectively referred to as the
"Affordable“Affordable CareAct"Act”). The Affordable Care Act is designed to expand access to affordable health insurance, contain health care costs, and institute a variety of health policy reforms. The provisions of the sweeping law may affect us directly, as well as impact our lessees and borrowers. While certain provisions, such as expanding the insured population, may positively impact the revenues of our lessees and borrowers, other provisions, particularly those intended to reduce federal health care spending, could have a negative impact on our lessees and borrowers. Among other things, the Affordable Care Act: reduces Medicare skilled nursing facility reimbursement by a so-called"productivity adjustment"“productivity adjustment” based on economy-wide productivitygains beginning in fiscal year 2012;gains; requires the development of a value-based purchasing program for Medicare skilled nursing facility services; establishes a national voluntary pilot program to bundle Medicare payments for hospital and post-acute services that could lead to changes in the delivery of post-acute services; and provides incentives to state Medicaid programs to promote community-based care as an alternative to10
institutional long term care services. The Affordable Care Act also includes provisions intended to
expand public disclosure about nursing home ownership and operations, institute mandatory compliance and quality assurance programs, increase penalties for noncompliance, and expand fraud and abuse enforcement and penalty provisions that could impact our operators. In addition, the Affordable Care Act impacts both us and our lessees and borrowers as employers, including new requirements related to the health insurance we offer to our respective employees. Many aspects of the Affordable Care Act are being implemented through new regulations and subregulatory guidance. We cannot predict at this time what effect, if any, the various provisions of the Affordable Care Act will have on our lessees and borrowers or our
business.business when fully implemented. There can be no assurances, however, that the Affordable Care Act will not adversely impact the operations, cash flows or financial condition of our lessees and borrowers, which subsequently could materially adversely impact our revenue and operations.On August 2, 2011, President Obama signed into lawUnder the terms of the Budget Control Act of 2011,which increased the nation's debt ceiling while taking steps to reduce the federal deficit. Under this law, a bipartisan Joint Select Committee on Deficit Reduction was responsible for identifying $1.5 trillion in deficit reduction, which could include cuts in Medicare, Medicaid, and other federal spending and/or revenue increases. The Committee failed to achieve consensus on deficit reduction measures. As a result, because no legislation was adopted to achieve deficit reduction targetsas modified by thestatutory deadline, absent additionalAmerican Taxpayer Relief Act, President Obama issued a sequestration order on March 1, 2013 that mandates a 2% cut to Medicare payments to providers and health plans. The cuts generally apply to Medicare fee-for-service claims with dates-of-service or dates-of-discharge on or after April 1, 2013. As amended by subsequent legislation,an enforcement mechanism known asthe Medicare sequestrationwill trigger a total of $1.2 trillion in spending reductions in January 2013, divided between domesticcuts are currently scheduled to be applied through fiscal year 2024, although Congress anddefense spending.the Administration could enact legislation to end or modify sequestration at any time, including through alternative budget legislation that includes alternative Medicareprovider payments will also be subject to sequestration, although the reductions will be capped at 2%.or Medicaid savings. There can be no assurances thatfederal spending reductions resulting from the Budget Control Actenacted orotherfuture budget control mechanisms will not have an adverse impact on the financial condition of our borrowers and lessees,and borrowers,which subsequently could materially adversely impact our company.In addition, comprehensiveOn April 1, 2014, President Obama signed into law the Protecting Access to Medicare Act of 2014. Among other things, the law requires the Secretary of the Department of Health and Human Services to develop a skilled nursing facility “value-based purchasing program,” which will tie Medicare payments to skilled nursing facilities to their performance on certain new readmissions measures, applicable to services furnished beginning October 1, 2018. Furthermore, on October 6, 2014, President Obama signed the Improving Medicare Post-Acute Care Transformation Act of 2014, which requires the collection of standardized post-acute care assessment data, which eventually could be used as the basis for developing changes to Medicare post-acute care reimbursement policy. Additional reforms affecting the payment for and availability of health care services have been proposed at the state level and adopted by certain states. Increasingly state Medicaid programs are providing coverage through managed care programs under contracts with private health plans, which is intended to decrease state Medicaid costs. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and paymentmethodologies.methodologies, including potential changes in Medicare and Medicaid payment policy for skilled nursing facility services and other types of post-acute care. 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.Environmental Matters
Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property or a secured lender (such as us) may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). Such laws often impose such liability without regard to whether the owner or secured lender knew of, or was responsible for, the presence or disposal of such substances and may be imposed on the owner or secured lender in connection with the activities of an operator of the property. The cost of any required remediation, removal, fines or personal or property damages and the
owner'sowner’s or securedlender'slender’s liability therefore could exceed the value of the property, and/or the assets of the owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect theowner'sowner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, would reduce our revenues.Although the mortgage loans that we provide and leases covering our properties require the borrower and the lessee to indemnify us for certain environmental liabilities, the scope of such obligations may be limited and we cannot assure that any such borrower or lessee would be able to fulfill its indemnification obligations.
Insurance11
Insurance
It is our current policy, and we intend to continue this policy, that all borrowers of funds from us and lessees of any of our properties secure adequate comprehensive property and general and professional liability insurance that covers us as well as the borrower and/or lessee. Even though that is our policy, certain borrowers and lessees have been unable to obtain general and professional liability insurance in the specific amounts required by our leases or mortgages because the cost of such insurance and some insurers have stopped offering such insurance for long term care facilities. Additionally, in the past, insurance companies have filed for bankruptcy protection leaving certain of our borrowers and/or lessees without coverage for periods that were believed to be covered prior to such bankruptcies. The unavailability and associated exposure as well as increased cost of such insurance could have a material adverse effect on the lessees and borrowers, including their ability to make lease or mortgage payments. Although we contend that as a
non-possessorynon‑possessory landlord we are not generally responsible for what takes place on real estate we do not possess, claims including general and professional liability claims, may still be asserted against us which may result in costs and exposure for which insurance is not available. Certain risks may be uninsurable, not economically insurable or insurance may not be available and there can be no assurance that we, a borrower or lessee will have adequate funds to cover all contingencies. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, we could be subject to an adverse claim including claims for general or professional liability, could lose the capital that we have invested in the properties, as well as the anticipated future revenue for the properties and, in the case of debt which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the properties. Certain losses, such as losses due to floods or seismic activity if insurance is available, may be insured subject to certain limitations including large deductibles orco-paymentsco‑payments and policy limits.Employees
At December 31,
2011,2014, we employed1719 people. Our employees are not members of any labor union, and we consider our relations with our employees to be excellent.Taxation of our Company
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code (or the Code). We believe that we have been organized and have operated in such a manner as to qualify for taxation as a REIT under the Code commencing with our taxable year ending December 31, 1992. We intend to continue to operate in such a manner, but there is no assurance that we have operated or will continue to operate in a manner so as to qualify or remain qualified.
If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net income that is currently distributed to our stockholders. This treatment substantially eliminates the
"double taxation"“double taxation” (once at the corporate level when earned and once at stockholder level when distributed) that generally results from investment in anon-REITnon‑REIT corporation.However, we will be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains.
Second, under certain circumstances, we may be subject to the alternative minimum tax, if our dividend distributions are less than our alternative minimum taxable income.
Third, if we have (i) net income from the sale or other disposition of foreclosure property which is held primarily for sale to customers in the ordinary course of business or (ii) other
non-qualifyingnon‑qualifying income from foreclosure property, we may elect to be subject to tax at the highest corporate rate on such income, if necessary to maintain our REIT status.Fourth, if we have net income from
"prohibited transactions"“prohibited transactions” (as defined below), such income will be subject to a 100% tax.12
Fifth, if we fail to satisfy the 75% gross income test or the 95% gross income test (as discussed below), but nonetheless maintain our qualification as a REIT because certain other requirements have been met, we will be subject to a 100% tax on an amount equal to (a) the gross income attributable to the greater of the amount by which we fail the 75% or 95% test multiplied by (b) a fraction intended to reflect our profitability.
Sixth, if we fail to distribute during each calendar year at least the sum of (i) 85% of our ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year, and (iii) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed.
Seventh, if we acquire an asset which meets the definition of a
built-inbuilt‑in gain asset from a corporation which is or has been a C corporation (i.e., generally a corporation subject to fullcorporate-levelcorporate‑level tax) in certain transactions in which the basis of thebuilt-inbuilt‑in gain asset in our hands is determined by reference to the basis of the asset in the hands of the C corporation, and if we subsequently recognize gain on the disposition of such asset during theten-yearten‑year period, called the recognition period, beginning on the date on which we acquired the asset, then, to the extent of thebuilt-inbuilt‑in gain (i.e., the excess of (a) the fair market value of such asset over (b) our adjusted basis in such asset, both determined as of the beginning of the recognition period), such gain will be subject to tax at the highest regular corporate tax rate, pursuant to IRS regulations.Eighth, if we have taxable REIT subsidiaries and they are required to be reported on a consolidated basis, we would be subject to corporate tax on the taxable income of the taxable REIT subsidiaries. In addition, we will also be subject to a tax of 100% on the amount of any rents from real property, deductions or excess interest paid to us by any of our taxable REIT subsidiaries that would be reduced through reapportionment under certain federal income tax principles in order to more clearly reflect income for the taxable REIT subsidiary.
Ninth, if we fail to satisfy any of the REIT asset tests, as described below, by more than a de minimus amount, due to reasonable cause and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the
non-qualifyingnon‑qualifying assets that caused us to fail such test.Tenth, if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of the REIT gross income tests or certain violations of the asset tests described below) and the violation is due to reasonable cause, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such failure.
Finally, if we own a residual interest in a real estate mortgage investment conduit (or REMIC), we will be taxed at the highest corporate rate on the portion of any excess inclusion income that we derive from the REMIC residual interests equal to the percentage of our shares that is held in record name by
"disqualified“disqualified organization."” A"disqualified organization"“disqualified organization” includes the United States, any state or political subdivision thereof, any foreign government or international organization, any agency or instrumentality of any of the foregoing, any rural electrical or telephone cooperative and anytax-exempttax‑ exempt organization (other than afarmer'sfarmer’s cooperative described in Section 521 of the Code) that is exempt from income taxation and from the unrelated business taxable income provisions of theCode. However, to the extent that we own a REMIC residual interest through a taxable REIT subsidiary, we will not be subject to this tax.
Requirements for Qualification. The Code defines a REIT as a corporation, trust or association:
(1)which is managed by one or more trustees or directors;(2)(1)
which is managed by one or more trustees or directors;
(2)
the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;
(3)
which would be taxable, but for Sections 856 through 860 of the Code, as a domestic corporation;
(4)
which is neither a financial institution nor an insurance company subject to certain provisions of the Code;
(5)
the beneficial ownership of which is held by 100 or more persons;
(6)
during the last half of each taxable year not more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals (including specified entities);
13
(7)
which meets certain other tests, described below, regarding the amount of its distributions and the nature of its income and assets;
(8)
that elects to be a REIT, or has made such election for a previous year, and satisfies the applicable filing and administrative requirements to maintain qualifications as a REIT; and
(9)
that adopts a calendar year accounting period.
The Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. Conditions (5) and (6) do not apply until after the first taxable year for which an election is made to be taxed as a REIT. For purposes of condition (6), pension funds and certain other entities are treated as individuals, subject to a
"look-through"“look‑ through” exception.Pursuant to the Code and applicable Treasury Regulations, in order to be able to elect to be taxed as a REIT, we must maintain certain records and request certain information from our stockholders designed to disclose the actual ownership of our stock. Based on publicly available information, we believe we have satisfied the share ownership requirements set forth in conditions (5) and (6). In addition, Sections 9.2 and 9.3 of our Charter provide for restrictions regarding the transfer and ownership of shares. These restrictions are intended to assist us in continuing to satisfy the share ownership requirements described in conditions (5) and (6). These restrictions, however, may not ensure that we will, in all cases, be able to satisfy the share ownership requirements described in conditions (5) and (6).
We have complied with, and will continue to comply with, regulatory rules to send annual letters to certain of our stockholders requesting information regarding the actual ownership of our stock. If despite sending the annual letters, we do not know, or after exercising reasonable diligence would not have known, whether we failed to satisfy the ownership requirement set forth in condition (6) above, we will be treated as having satisfied such condition. If we fail to comply with these regulatory rules, we will be subject to a monetary penalty. If our failure to comply was due to intentional disregard of the requirement, the penalty would be increased. However, if our failure to comply was due to reasonable cause and not willful neglect, no penalty would be imposed.
Income Tests. There presently are two gross income requirements that we must satisfy to qualify as a REIT:
•First,at least 75% of our gross income (excluding gross income from "prohibited transactions," as defined below) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property, including rents from real property, or from certain types of temporary investment income.•Second,at least 95% of our gross income for each taxable year must be directly or indirectly derived from income that qualifies under the 75% test, and from dividends (including dividends from taxable REIT subsidiaries), interest and gain from the sale or other disposition of stock or securities.
·
First, at least 75% of our gross income (excluding gross income from “prohibited transactions,” as defined below) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property, including rents from real property, or from certain types of temporary investment income.
·
Second, at least 95% of our gross income for each taxable year must be directly or indirectly derived from income that qualifies under the 75% test, and from dividends (including dividends from taxable REIT subsidiaries), interest and gain from the sale or other disposition of stock or securities.
Cancellation of indebtedness income generated by us is not taken into account in applying the 75% and 95% income tests discussed above. A
"prohibited transaction"“prohibited transaction” is a sale or other disposition of property (other than foreclosure property) held for sale to customers in the ordinary course of business. Any gain realized from a prohibited transaction is subject to a 100% penalty tax.Rents received by us will qualify as
"rents“rents from realproperty"property” for purposes of satisfying the gross income tests for a REIT only if several conditions are met:•·
The amount of rent must not be based in whole or in part on the income or profits of any person, although rents generally will not be excluded merely because they are based on a fixed percentage or percentages of receipts or sales.
·
Rents received from a tenant will not qualify as rents from real property if the REIT, or an owner of 10% or more of the REIT, also directly or constructively owns 10% or more of the tenant, unless the tenant is our
14
taxable REIT subsidiary and certain other requirements are met with respect to the real property being rented.
·
If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property.
·
We generally must not furnish or render services to tenants, other than through a taxable REIT subsidiary or an “independent contractor” from whom we derive no income, except that we may directly provide services that are “usually or customarily rendered” in the geographic area in which the property is located in connection with the rental of real property for occupancy only, or are not otherwise “rendered to the occupant for his convenience.”
For taxable years beginning after August 5, 1997, a REIT has been permitted to render a de minimus amount of impermissible services to tenants and still treat amounts received with respect to that property as rents from real property. The amount received or accrued by the REIT during the taxable year for the impermissible services with respect to a property may not exceed 1% of all amounts received or accrued by the REIT directly or indirectly from the property. If the amount received or accrued by the REIT during the taxable year for impermissible services with respect to a property exceeds 1% of the total amounts received or accrued with respect to such property, then none of the rents received or accrued from such property shall be treated as rents from real property. The amount received for any service or management operation for this purpose shall be deemed to be not less than 150% of the direct cost of the REIT in furnishing or rendering the service or providing the management or operation. Furthermore, impermissible services may be furnished to tenants by a taxable REIT subsidiary subject to certain conditions, and we may still treat rents received with respect to the property as rent from real property.
The term
"interest"“interest” generally does not include any amount if the determination of the amount depends in whole or in part on the income or profits of any person, although an amount generally willnot be excluded from the term
"interest"“interest” solely by reason of being based on a fixed percentage of receipts or sales.If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are eligible for relief. These relief provisions will be generally available if our failure to meet the tests was due to reasonable cause and not due to
wilfulwillful neglect and following the identification of the failure to satisfy one or both income tests, a description of each item of gross income is filed in accordance with IRS regulations.It is not now possible to determine the circumstances under which we may be entitled to the benefit of these relief provisions. If these relief provisions apply, a 100% tax is imposed on an amount equal to (a) the gross income attributable to the greater of the amount by which we failed the 75% or 95% test, multiplied by (b) a fraction intended to reflect our profitability.
Asset Tests. At the close of each quarter of our taxable year, we must also satisfy several tests relating to the nature and diversification of our assets. At least 75% of the value of our total assets must be represented by real estate assets, cash, cash items (including receivables arising in the ordinary course of our operations), and government securities and qualified temporary investments. Although the remaining 25% of our assets generally may be invested without restriction, we are prohibited from owning securities representing more than 10% of either the vote or value of the outstanding securities of any issuer other than a qualified REIT subsidiary, another REIT or a taxable REIT subsidiary (the
"10%“10% vote and valuetest"test”). Further, no more than 25% of our total assets may be represented by securities of one or more taxable REIT subsidiaries (for tax years beginning prior to July 30, 2008, 20% of the total value of our assets) and no more than 5% of the value of our total assets may be represented by securities of anynon-governmentalnon‑governmental issuer other than a qualified REIT subsidiary, another REIT or a taxable REIT subsidiary (or TRS). Each of the 10% vote and value test and the 25% and 5% asset tests must be satisfied at the end of any quarter. There are special rules which provide relief if the value related tests are not satisfied due to changes in the value of the assets of a REIT.Investments in Taxable REIT Subsidiaries. For taxable years beginning after December 1, 2000, REITs may own more than 10% of the voting and value of securities in a TRS. A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with the REIT to be treated as a TRS. A TRS
15
also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more that 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or
non-customarynon‑customary services to tenants of its parent REIT. A TRS is subject to income tax as a regular C corporation. In addition, a TRS may be prevented from deducting interest on debt funded directly or indirectly by its parent REIT if certain tests regarding theTRS'sTRS’s debt to equity ratio and interest expense are not satisfied. AREIT'sREIT’s ownership of a TRS will not be subject to the 10% or 5% asset tests described above, and its operations will be subject to the provisions described above. At this time, we do not have any taxable REIT subsidiaries.REMIC. A regular or residual interest in a REMIC will be treated as a real estate asset for purposes of the REIT asset tests, and income derived with respect to such interest will be treated as interest on an obligation secured by a mortgage on real property, assuming that at least 95% of the assets of the REMIC are real estate assets. If less than 95% of the assets of the REMIC are real estate assets, only a proportionate share of the assets of and income derived from the REMIC will be treated as qualifying under the REIT asset and income tests. All of our historical REMIC certificates were secured by real estate assets, therefore we believe that our historic REMIC interests fully qualified for purposes of the REIT income and asset tests.
Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries. We own interests in various partnerships and limited liabilities companies. In the case of a REIT which is a partner in a partnership, or a member in a limited liability company treated as a partnership for federal income tax purposes, Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership or limited liability company, based on its interest in partnership capital, subject to special rules relating to the 10% REIT asset test described above. Also, the REIT will be deemed to be entitled to its proportionate share of income of that entity. The assets and items of gross income of the partnership or limited liability company retain the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income tests and the asset tests. Thus, our proportionate share of the assets and items of income of partnerships and limited liability companies taxed as partnerships, in which we are, directly or indirectly through other partnerships or limited liability companies taxed as partnerships, a partner or member, are treated as our assets and items of income for purposes of applying the REIT qualification requirements described in this Annual Report on Form
10-K10‑K (including the income and asset tests previously described).We also own interests in a number of subsidiaries which are intended to be treated as qualified REIT subsidiaries. The Code provides that such subsidiaries will be ignored for federal income tax purposes and that all assets, liabilities and items of income, deduction and credit of such subsidiaries will be treated as assets, liabilities and such items of our company. If any partnership or qualified real estate investment trust subsidiary in which we own an interest were treated as a regular corporation (and not as a partnership or qualified real estate investment trust subsidiary) for federal income tax purposes, we would likely fail to satisfy the REIT asset test prohibiting a REIT from owning greater than 10% of the voting power of the stock or value of securities of any issuer, as described above, and would therefore fail to qualify as a REIT. We believe that each of the partnerships and subsidiaries in which we own an interest will be treated for tax purposes as a partnership or qualified REIT subsidiary, respectively, although no assurance can be given that the IRS will not successfully challenge the status of any such entity.
Annual Distribution Requirements. In order to qualify as a REIT, we are required to distribute dividends (other than capital gain dividends) to our stockholders annually in an amount at least equal to:
(1)the sum of:(a)90% of our "real estate investment trust taxable income" (computed without regard to the dividends paid deduction and our net capital gain); and(b)90% of the net income, if any (after tax), from foreclosure property; minus
(2)the excess of certain items of non-cash income over 5% of our real estate investment trust taxable income.
(1)
the sum of:
(a)
90% of our “real estate investment trust taxable income” (computed without regard to the dividends paid deduction and our net capital gain); and
(b)
90% of the net income, if any (after tax), from foreclosure property; minus
(2)
the excess of certain items of non‑cash income over 5% of our real estate investment trust taxable income.
In addition, if we dispose of any asset we acquired from a corporation which is or has been a C corporation in a transaction in which our basis in the asset is determined by reference to the basis of the asset in the hands of that C corporation, within the
ten-yearten‑year period following our acquisition of such asset, we would be required to distribute at least16
90% of the
after-taxafter‑tax gain, if any, we recognized on the disposition of the asset, to the extent that gain does not exceed the excess of (a) the fair market value of the asset on the date we acquired the asset over (b) our adjusted basis in the asset on the date we acquired the asset.We must pay these annual distributions (1) in the taxable year to which they relate or (2) in the following year if (i) we pay these distributions during January to stockholders of record in either October, November, or December of the prior year or (ii) we elect to declare the dividend before the
due date of the tax return (including extensions) and pay on or before the first regular dividend payment date after such declaration.
Amounts distributed must not be preferential; that is, every stockholder of the class of stock with respect to which a distribution is made must be treated the same as every other stockholder of that class, and no class of stock may be treated otherwise than in accordance with its dividend rights as a class.
To the extent that we do not distribute all of our net long term capital gain or distribute at least 90% but less than 100%, of our
"real“real estate investment trust taxable income,"” as adjusted, we will be subject to tax on such amounts at regular corporate tax rates. Furthermore, if we should fail to distribute during each calendar year (or, in the case of distributions with declaration and record dates in the last three months of the calendar year, by the end of the following January) at least the sum of:(1)85% of our real estate investment trust ordinary income for such year,(2)95% of our real estate investment trust capital gain net income for such year, and(3)100% of taxable income from prior periods less 100% of distributions from prior periods
(1)
85% of our real estate investment trust ordinary income for such year,
(2)
95% of our real estate investment trust capital gain net income for such year, and
(3)
100% of taxable income from prior periods less 100% of distributions from prior periods
We would be subject to a 4% excise tax on the excess of such required distributions over the amounts actually distributed. Any real estate investment trust taxable income and net capital gain on which this excise tax is imposed for any year is treated as an amount distributed during that year for purposes of calculating such tax.
We intend to make timely distributions sufficient to satisfy these annual distribution requirements and to avoid the imposition of the 4% excise tax.
Failure to Qualify. If we fail to qualify for taxation as a REIT in any taxable year, and certain relief provisions do not apply, we will be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by us, nor will any distributions be required to be made. Unless entitled to relief under specific statutory provisions, we will also be disqualified from
re-electingre‑electing our REIT status for the four taxable years following the year during which qualification was lost. It is not possible to state whether we would be entitled to the statutory relief in all circumstances. Failure to qualify as a REIT for even one year could substantially reduce distributions to stockholders and could result in our incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes.State and local taxation. We may be subject to state or local taxation in various state or local jurisdictions, including those in which we transact business or reside. The state and local tax treatment of our Company may not conform to the federal income tax consequences discussed above.
Investor Information
We make available to the public free of charge through our internet website our Annual Report on Form
10-K,10‑K, Quarterly Reports on Form10-Q,10‑Q, Current Reports on Form8-K,8‑K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission (or SEC). Our internet website address iswww.LTCProperties.comwww.LTCreit.com..We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form10-K.10‑K.17
Posted on our website
www.LTCProperties.comwww.LTCreit.com under the"Corporate Governance"“Corporate Governance” section under the “Investors” heading are our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee Charters, our Corporate Governance Policies, andaCode of Business ConductEthicsandCorporateGovernanceEthics governing our directors, officers and employees. Within the time period required by the SEC and the New York Stock Exchange (or NYSE), we will post on our website any amendment to the Code of Business ConductEthicsandCorporate GovernanceEthics and any waiver applicable to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Directors. In addition, our website under the heading"SEC Filings"“SEC Filings” includes information concerning purchases and sales of our equity securities by our executive officers and directors.
You may read and copy materials that we file with the SEC at the
SEC'sSEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. Information on the operation of the Public Reference Room is available by calling the SEC at1-800-SEC-0330.1‑800‑SEC‑0330. The SEC maintains an Internet site that contains reports, proxy statements and other information we file. The address of the SEC website is www.sec.gov.You also may contact our Investor Relations Department at:
LTC Properties, Inc.
2829 Townsgate Road, Suite 350
Westlake Village, California 91361
Attn: Investor Relations
(805)
981-8655981‑8655The following discussion ofThis section discusses risk factorscontains "forward-looking statements"that may affect our business, operations, and financial condition. If any of these risks, as well as other risks and uncertainties that we have not yet identified or that we currently think are not material, actually occur, we could be materially adversely affected and the value of our securities could decline. In addition, these risk factors contain “forward‑looking statements” as discussed above under the heading"Cautionary“Cautionary Statement." These risk factors may be important to understanding any statement in this Annual Report on Form 10-K or elsewhere.” The following information should be read in conjunction withManagement'sManagement’s Discussion and Analysis, and the consolidated financial statements and related notes in this Annual Report on Form10-K.10‑ K.A Failure to Maintain or Increase our Dividend Could Reduce the Market Price of Our Stock.
In January 2012, we declared a $0.145 per share monthly dividend for the first quarter of calendar 2012 which is a 3.6% increase from the previous $0.14 per share per month dividend.The ability to maintain or raise our common dividend is dependent, to a large part, on growth of funds available for distribution. This growth in turn depends upon increased revenues from additional investments and loans, rental increases and mortgage rate increases.At Times, We May Have Limited Access to Capital Which Will Slow Our Growth. A REIT is required to make dividend distributions and retains little cash flow for growth. As a result, growth for a REIT is generally through the steady investment of new capital in real estate assets. There may be times when we will have limited access to capital from the equity and/or debt markets. During such periods, virtually all of our available capital would be required to meet existing commitments and to reduce existing debt. We may not be able, during such periods, to obtain additional equity and/or debt capital or dispose of assets on favorable terms, if at all, at the time we require additional capital to acquire health care properties on a competitive basis or meet our obligations.
We believe that our $4.4 million cash balance atAt December 31,2011, our low debt levels, $154.02014, we had $25.2 million of cash on hand and $400.0 million available under our$210.0unsecured revolving line of credit. Subsequent to December 31, 2014, we borrowed $18.0 millionUnsecured Credit Agreement and $100.0under our unsecured revolving line of credit. Accordingly, we have $18.0 million outstanding with $382.0 million available for borrowing. Also, we have $775.1 million available underthe uncommitted privateour effective shelfagreement, and our potential abilityregistration to access the capital markets through the issuance of$64.6 million of common stock under our Amended Equity Distribution Agreement and through the issuance ofdebt and/or equitysecurities undersecurities. As a result, we believe our$167.6 million effective shelf registration, will enable usliquidity and various sources of available capital are sufficient to fund operations and development commitments, meetourdebt service obligations (both principal andcontinue tointerest), makeinvestments.dividend distributions and finance some future investments should we determine such future investments are financially feasible.Income and Returns from Health Care Facilities Can be Volatile. The possibility that the health care properties in which we invest will not generate income sufficient to meet operating expenses, will generate income and capital appreciation, if any, at rates lower than those anticipated or will yield
returns lower than those available through investments in comparable real estate or other investments are additional risks of investing in health care related real estate. Income from properties and yields from investments in such properties may be affected by many factors,
18
including changes in governmental regulation (such as zoning laws and government payment), general or local economic conditions (such as fluctuations in interest rates and employment conditions), the available local supply of and demand for improved real estate, a reduction in rental income as the result of an inability to maintain occupancy levels, natural disasters (such as hurricanes, earthquakes and floods) or similar factors.
We Depend on Lease Income and Mortgage Payments from Real Property. Approximately
99%99.5% of our revenue for the year ended December 31,2011,2014, was derived from lease income and mortgage payments from real property. Our revenue would be adversely affected if a significant number of our borrowers or lessees were unable to meet their obligations to us or if we were unable to lease our properties or make mortgage loans on economically favorable terms. There can be no assurance that any lessee will exercise its option to renew its lease upon the expiration of the initialterm orterm. There can be no assurance that if such failure to renew were to occur, or if we did not re‑lease a property to a current lessee, we could lease the property to others on favorableterms.terms, at the same rent as the current rent, or on a timely basis.We Rely on
a Few Majorour Operators.Extendicare REIT and Assisted Living Concepts, Inc. (or ALC), collectively lease 37 assisted living properties with a total of 1,427 units owned by us representing approximately 8.6%, or $55.5 million,Substantially all of ourtotal assets at December 31, 2011. Brookdale Senior Living Communities, Inc., (or Brookdale Communities), a whollyrevenues and sources of cash flows from operations are derived from operating lease rentals and interest earned on outstanding loans receivable. Our investments in mortgage loans and ownedsubsidiaryproperties represent our primary source ofBrookdale Senior Living, Inc., leases 35 assisted living properties with a totalliquidity to fund distributions and are dependent upon the performance of1,416 units owned by us representing approximately 8.6%, or $55.5 million, of our total assets at December 31, 2011. Preferred Care, Inc. (or Preferred Care), through various wholly owned subsidiaries, operates 30 skilled nursing propertiesthe operators on their lease andtwo other senior housing properties that we own or on which we hold mortgages secured by first trust deeds. These properties consist of a total of 3,861 skilled nursing bedsloan obligations and49 assisted living units. This represents approximately 8.8% or $57.0 million of our total assets at December 31, 2011.the rates earned thereon. Our financial position and ability to make distributions may be adversely affected by financial difficulties experienced by any of ourotherlesseesandor borrowers, including bankruptcies, inability to emerge from bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew and/or extend its relationship with us or our borrowers when it expires.Our Borrowers and Lessees Face Competition in the Health Care
Industry.Industry. The long term care industry is highly competitive and we expect that it may become more competitive in the future. Our borrowers and lessees are competing with numerous other companies providing similar long term care services or alternatives such as home health agencies, hospices, life care at home, community-based service programs, retirement communities and convalescent centers. There can be no assurance that our borrowers and lessees will not encounter increased competition in the future which could limit their ability to attract residents or expand their businesses and therefore affect their ability to make their debt or lease payments to us.The Health Care Industry is Heavily Regulated by the
Government.Government. Our borrowers and lessees who operate health care facilities are subject to extensive regulation by federal, state and local governments. These laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. These changes may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot be predicted. The failure of any borrower of funds from us or lessee of any of our properties to comply with such laws, requirements and regulations could affect its ability to operateits facility or facilities and could adversely affect such
borrower'sborrower’s orlessee'slessee’s ability to make debt or lease payments to us.In March 2010, the President signed into law the Patient Protection and Affordable Care Act, which subsequently was amended by the Health Care and Education and Reconciliation Act of 2010 (collectively referred to as the
"Affordable“Affordable CareAct"Act”). The Affordable Care Act is designed to expand access to affordable health insurance, contain health care costs, and institute a variety of health policy reforms. The provisions of the sweeping law may affect us directly, as well as impact our lessees and borrowers. While certain provisions, such as expanding the insured population, may positively impact the revenues of our lessees and borrowers, other provisions, particularly those intended to reduce federal health care spending, could have a negative impact on our lessees and borrowers. Among other things, the Affordable Care Act: reduces Medicare skilled nursing facility reimbursement by a so-called"productivity adjustment"“productivity adjustment” based on economy-wide productivity gains beginning in fiscal year 2012; requires the development of a value-based purchasing program for Medicare skilled nursing facility services; establishes a national voluntary pilot program to bundle Medicare payments for hospital and post-acute services that could lead to changes in the delivery of post-acute services; and provides incentives to state Medicaid programs to promote community-based care as an alternative to institutional long term care services. The Affordable Care Act also includes provisions intended to expand public disclosure about nursing home ownership and operations, institute mandatory compliance and quality assurance programs, increase penalties for noncompliance, and expand fraud and abuse enforcement and penalty provisions that could impact our operators. In addition, the Affordable19
Care Act impacts both us and our lessees and borrowers as employers, including new requirements related to the health insurance we offer to our respective employees. Many aspects of the Affordable Care Act are being implemented through new regulations and subregulatory guidance. We cannot predict at this time what effect, if any, the various provisions of the Affordable Care Act will have on our lessees and borrowers or our business. There can be no assurances, however, that the Affordable Care Act will not adversely impact the operations, cash flows or financial condition of our lessees and borrowers, which subsequently could materially adversely impact our revenue and operations.
In addition, comprehensiveAdditional reforms affecting the payment for and availability of health care services have been proposed at the state level and adopted by certain states. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and paymentmethodologies. In particular, absent new legislation,methodologies along with other cost-control measures. For instance, under thefederalterms of the Budget Control Act of 2011,will triggeras modified by the American Taxpayer Relief Act, President Obama issued atotal of $1.2 trillion in spending reductions in Januarysequestration order on March 1, 2013divided between domesticthat mandates a 2% cut to Medicare payments to providers anddefense spending.health plans. The cuts generally apply to Medicareprovider payments willfee-for-service claims with dates-of-service or dates-of-discharge on or after April 1, 2013. As amended by subsequent legislation, the Medicare sequestration cuts are currently scheduled to besubject to sequestration,applied through fiscal year 2024, although Congress and thereductions will be cappedAdministration could enact alternative budget legislation at2%. Changesany time that would end or modify sequestration. These and other 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.Federal and State Health Care Cost Containment Measures Including Reductions in Reimbursement From Third Party Payors Such as Medicare and Medicaid Could Adversely Affect Us and The Ability of Our Tenants to Make Payments to Us. The ability of our borrowers and lessees to generate revenue and profit determines the underlying value of that property to us. Revenues of our borrowers and skilled nursing property lessees are generally derived from payments for patient care. Sources of such payments include the federal Medicare program, state Medicaid programs, private insurance carriers, health care service plans, health maintenance organizations, preferred provider arrangements, self-insured employers, as well as the patients
themselves.themselves.The health care industry continues to face increased government and private payor pressure on health care providers to control costs. Certain of these initiatives have had the result of limiting Medicare and Medicaid reimbursement for nursing facility services. In particular, the establishment of a Medicare prospective payment system for skilled nursing facility services to replace the cost-based
reimbursement system significantly reduced Medicare reimbursement to skilled nursing facility providers. While Congress subsequently took steps to mitigate the impact of the prospective payment system on skilled nursing facilities, other federal legislative and regulatory policies have been adopted and may continue to be proposed that would reduce Medicare and/or Medicaid payments to nursing facilities. Moreover,
states are facing increasingstate budget pressures continue to result inlightadoption ofthe current economic conditions, prompting consideration andMedicaid provider payment reductions in somecases adoption of cuts in state Medicaid payments to providers.states. No assurances can be given that any additional Medicare or Medicaid legislation or regulatory policies adopted by the federal government or the states would not reduce Medicare or Medicaid reimbursement to nursing facilities or result in additional costs for operators of nursing facilities.Congress also has given states greater flexibility to expand access to home and community based services as an alternative to nursing facility services. These provisions could further increase state funding for home and community based services, while prompting states to cut funding for nursing facilities and homes for persons with disabilities. In light of continuing state Medicaid program reforms, budget cuts, and regulatory initiatives, no assurance can be given that the implementation of such regulations and reforms will not have a material adverse effect on the financial condition or results of operations of our lessees and/or borrowers which, in turn, could affect their ability to meet their contractual obligations to us.
We Could Incur More Debt. We operate with a policy of incurring debt when, in the opinion of our Board of Directors, it is advisable. We may incur additional debt by borrowing under our
Unsecured Credit Agreementunsecured revolving line of credit or the uncommitted private shelf agreement, mortgaging properties we own and/or issuing debt securities in a public offering or in a private transaction. Accordingly, we could become more highly leveraged. The degree of leverage could have important consequences to stockholders, including affecting our ability to obtain, in the future, additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes and making us more vulnerable to a downturn in business or the economy generally.20
We Could Fail to Collect Amounts Due Under Our
Straight-lineStraight‑line Rent Receivable Asset.Straight-lineStraight‑line accounting requires us to calculate the total rent we will receive as a fixed amount over the life of the lease and recognize that revenue evenly over that life. In a situation where a lease calls for fixed rental increases during the life of the lease, rental income recorded in the early years of a lease is higher than the actual cash rent received which creates an asset on the consolidated balance sheet calledstraight-linestraight‑line rent receivable. At some point during the lease, depending on the rent levels and terms, this reverses and the cash rent payments received during the later years of the lease are higher than the rental income recognized which reduces thestraight-linestraight‑line rent receivable balance to zero by the end of the lease. We periodically assess the collectability of thestraight-linestraight‑line rent receivable. If during our assessment we determined that we were unlikely to collect a portion or the entirestraight-linestraight‑line rent receivable asset, we may provide a reserve against the previously recognizedstraight-linestraight‑line rent receivable asset for a portion or up to its full value that we estimate may not be recoverable.Our Assets May be Subject to Impairment Charges. We periodically but not less than quarterly evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure. If we determine that a significant impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset which could have a material adverse affect on our results of operations and a
non-cashnon‑cash impact on funds from operations in the period in which thewrite-offwrite‑off occurs.A Failure to Reinvest Cash Available to Us Could Adversely Affect Our Future Revenues and Our Ability to Increase Dividends to Stockholders; There is Considerable Competition in Our Market for Attractive Investments. From time to time, we will have cash available from (1) proceeds of sales of
shares of securities, (2) proceeds from new debt issuances, (3) principal payments on our mortgages and other investments, (4) sale of properties, and (5) funds from operations. We may reinvest this cash in health care investments and in accordance with our investment policies, repay outstanding debt or invest in qualified short term or long term investments. We compete for real estate investments with a broad variety of potential investors. The competition for attractive investments negatively affects our ability to make timely investments on acceptable terms. Delays in acquiring properties or making loans will negatively impact revenues and perhaps our ability to increase distributions to our stockholders.
Our Failure to Qualify as a REIT Would Have Serious Adverse Consequences to Our Stockholders. We intend to operate so as to qualify as a REIT under the Code. We believe that we have been organized and have operated in a manner which would allow us to qualify as a REIT under the Code beginning with our taxable year ended December 31, 1992. However, it is possible that we have been organized or have operated in a manner which would not allow us to qualify as a REIT, or that our future operations could cause us to fail to qualify. Qualification as a REIT requires us to satisfy numerous requirements (some on an annual and quarterly basis) established under highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources, and we must pay dividends to stockholders aggregating annually at least 90% (95% for taxable years ending prior to January 1, 2001) of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding capital gains). Legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.
If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless we are entitled to relief under statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which we lost qualification. If we lose our REIT status, our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we would no longer be required to make distributions to stockholders.
Provisions in Our Articles of Incorporation May Limit Ownership of Shares of Our Capital Stock. In order for us to qualify as a REIT, no more than 50% in value of the outstanding shares of our stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year. To ensure qualification under this test, our Articles of Incorporation provide that, subject to exceptions, no person may beneficially own more than 9.8% of outstanding shares of any class or series of our stock, including our common stock. Our Board of Directors may exempt a person from the 9.8% ownership limit upon such conditions as the Board of Directors may
21
direct. However, our Board of Directors may not grant an exemption from the 9.8% ownership limit if it would result in the termination of our status as a REIT. Shares of capital stock in excess of the 9.8% ownership limitation that lack an applicable exemption may lose rights to dividends and voting, and may be subject to redemption. As a result of the limitations on ownership set forth in our Articles of Incorporation, acquisition of any shares of capital stock that would result in our disqualification as a REIT may be limited or void. The 9.8% ownership limitation also may have the effect of delaying, deferring, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our capital stock.
Our Real Estate Investments are Relatively Illiquid. Real estate investments are relatively illiquid and, therefore, tend to limit our ability to vary our portfolio promptly in response to changes in
economic or other conditions. All of our properties are
"special purpose"“special purpose” properties that cannot be readily converted to general residential, retail or office use. Health care facilities that participate in Medicare or Medicaid must meet extensive program requirements, including physical plant and operational requirements, which are revised from time to time. Such requirements may include a duty to admit Medicare and Medicaid patients, limiting the ability of the facility to increase its private pay census beyond certain limits. Medicare and Medicaid facilities are regularly inspected to determine compliance, and may be excluded from the programs—in some cases without a prior hearing—for failure to meet program requirements. Transfers of operations of nursing homes and otherhealthcare-relatedhealth care‑related facilities are subject to regulatory approvals not required for transfers of other types of commercial operations and other types of real estate. Thus, if the operation of any of our properties becomes unprofitable due to competition, age of improvements or other factors such that our lessee or borrower becomes unable to meet its obligations on the lease or mortgage loan, the liquidation value of the property may be substantially less than the net book value or the amount owing on any related mortgage loan, than would be the case if the property were readily adaptable to other uses. The receipt of liquidation proceeds or the replacement of an operator that has defaulted on its lease or loan could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the property or the replacement of the operator with a new operator licensed to manage the facility. In addition, certain significant expenditures associated with real estate investment, such as real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. Should such events occur, our income and cash flows from operations would be adversely affected.Our Remedies May Be Limited When Mortgage Loans Default. To the extent we invest in mortgage loans, such mortgage loans may or may not be recourse obligations of the borrower and generally will not be insured or guaranteed by governmental agencies or otherwise. In the event of a default under such obligations, we may have to foreclose on the property underlying the mortgage or protect our interest by acquiring title to a property and thereafter make substantial improvements or repairs in order to maximize the
property'sproperty’s investment potential. Borrowers may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against such enforcement and/or bring claims for lender liability in response to actions to enforce mortgage obligations. If a borrower seeks bankruptcy protection, the Bankruptcy Court may impose an automatic stay that would preclude us from enforcing foreclosure or other remedies against the borrower. Declines in the value of the property may prevent us from realizing an amount equal to our mortgage loan upon foreclosure.We are Subject to Risks and Liabilities in Connection with Properties Owned Through Limited Liability Companies and Partnerships.
We haveIn prior years, we had ownership interests inalimited liabilitypartnership.companies and partnerships. We may make additional investments through these ventures in the future. Partnership or limited liability company investments may involve risks such as the following:•our partners or co-members·
our partners or co‑members might become bankrupt (in which event we and any other remaining general partners or members would generally remain liable for the liabilities of the partnership or limited liability company);
·
our partners or co‑members might at any time have economic or other business interests or goals which are inconsistent with our business interests or goals;
·
our partners or co‑members may be in a position to take action contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT; and
22
·
agreements governing limited liability companies and partnerships often contain restrictions on the transfer of a member’s or partner’s interest or “buy‑sell” or other provisions which may result in a purchase or sale of the interest at a disadvantageous time or on disadvantageous terms.
We will, however, generally seek to maintain sufficient control of our partnerships and limited liability companies to permit us to achieve our business objectives. Our organizational documents do not limit the amount of available funds that we may invest in partnerships or limited liability companies. The occurrence of one or more of the events described above could have a direct and adverse impact on us.
Risks Associated with Property Development that Can Render a Project Less Profitable or Not Profitable, and, Under Certain Circumstances, Prevent Completion of Development Activities Undertaken. Our business includes development of senior housing and long term care properties. We currently have six parcels of land under development. Ground up development presents additional risk, including but not limited to the following:
·
a development opportunity may be abandoned after expending significant resources resulting in the loss of deposits or failure to recover expenses already incurred;
·
the development and construction costs of a project may exceed original estimates due to increased interest rates and higher materials, transportation, labor, leasing or other costs, which could make completion of the development project less profitable;
·
construction and/or permanent financing may not be available on favorable terms or at all;
·
the project may not be completed on schedule, which can result in increases in construction costs and debt service expenses as a result of a variety of factors that are beyond our control, including natural disasters, labor conditions, material shortages, regulatory hurdles, civil unrest and acts of war; and
·
occupancy rates and rents at a newly completed property may not meet expected levels and could be insufficient to make the property profitable.
These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have a material adverse effect on our business, results of operations and financial condition.
Item 1B. UNRESOLVED STAFF
COMMENTS
COMMENTSNone.
23
Here and throughout this Form
10-K10‑K wherever we provide details of ourproperties'properties’ bed/unit count, the number of beds/units applies to skilled nursing, assisted living,andindependent living and memory care properties only. This number is based upon unit/bed counts shown on operating licenses provided to us by lessees/borrowers or units/beds as stipulated by lease/mortgage documents. We have found during the years that these numbers often differ, usually not materially, from units/beds in operation at any point in time. The differences are caused by such things as operators converting a patient/resident room for alternative uses, such as offices or storage, or converting amulti-patientmulti‑patient room/unit into a single patient room/unit. We monitor our properties on a routine basis through site visits and reviews of current licenses. In an instance where such change would cause ade-licensingde‑licensing of beds or in our opinion impact the value of the property, we would take action against the lessee/borrower to preserve the value of the property/collateral.Owned Properties. The following table sets forth certain information regarding our owned properties as of December 31,
20112014 (dollars amounts in thousands):Remaining
No. of
No. of
No. of
No. of
No. of
No. of
Lease
Gross
LocationNo. of
SNFsNo. of
ALFsNo. of
Others(4)No. of
SchoolsNo. of
Beds/UnitsEncumbrances Remaining
Lease
Term(1)Gross
InvestmentSNFs
ALFs
ROCs
UDPs
Others
Beds/Units
Encumbrances
Term(1)
Investment
Alabama
2 — 2 — 459 $ — 49 $ 18,622 2 —
1 —
—
459 $
—
82 $
18,622 Arizona
5 2 — — 1,029 — 75 41,212 5 —
—
—
—
907 —
56 36,091 California
2 2 — — 499 — 79 48,719 2 2 —
—
—
508 —
71 48,719 Colorado
3 6 1 — 582 — 108 27,816 2 12 1 —
(2)
—
920 —
98 109,859 Florida
2 8 3 — 1,058 — 108 60,567 5 8 —
—
—
961 —
77 71,011 Georgia
2 — 1 — 300 — 38 6,600 2 —
—
—
—
257 —
112 4,860 Idaho
— 4 — — 148 — 36 9,756 Illinois
—
—
—
—
(3)
—
—
—
—
2,076 Indiana
— 3 — — 140 — 64 9,856 —
3 —
—
—
140 —
40 9,856 Iowa
6 1 1 — 616 — 110 17,422 6 1 1 —
—
579 —
71 17,422 Kansas
3 4 — — 398 — 113 20,844 3 5 —
—
—
461 —
92 31,256 Minnesota
— — — 1 — — 8 2,922 Kentucky
1 —
—
—
—
143 —
151 21,716 Michigan
—
—
—
—
—
(4)
—
—
—
1,613 Mississippi
— 1 — — 62 — 106 9,400 —
1 —
—
—
62 —
20 9,430 Nebraska
— 4 — — 156 — 36 9,332 —
4 —
—
—
157 —
—
9,332 New Jersey
— 1 — 1 39 — 51 12,195 —
4 —
—
1 205 —
133 70,667 New Mexico
7 — — — 860 — 81 48,876 7 —
—
—
—
843 —
66 50,622 N. Carolina
— 5 — — 210 — 108 13,096 —
5 —
—
—
210 —
72 13,096 Ohio
6 11 — — 737 — 51 56,804 2 11 —
—
—
772 —
96 98,647 Oklahoma
— 6 — — 221 — 108 12,315 —
6 —
—
—
219 —
72 12,315 Oregon
1 3 — — 218 — 41 11,927 1 1 —
—
—
135 —
12 6,828 Pennsylvania
— 3 — — 199 — 105 18,040 —
3 —
—
—
199 —
63 18,040 S. Carolina
— 3 2 — 339 — 109 19,734 —
3 2 —
—
339 —
73 19,800 Tennessee
2 — — — 142 — 82 3,075 2 —
—
—
—
141 —
108 5,236 Texas
23 13 2 — 4,044 — 111 189,745 24 15 1 —
—
4,251 —
105 225,647 Virginia
3 — 1 — 568 — 123 29,052 3 —
1 —
—
500 —
101 29,052 Washington
1 8 — — 431 3,200 38 27,104 1 —
—
—
—
123 —
19 8,025 TOTAL
68 88 13 2 13,455 $ 3,200 (2) 87 $ 725,031 (3) 68 84 7 —
1 13,491 $
—
90 $
949,838 (1)(1)
Weighted average remaining months in lease term as of December 31, 2014.
(2)
Includes a MC developments with 60 units.
(3)
Includes a MC development with 66 units.
(4)
Includes five parcels of land held‑for‑use.
24
The following table sets forth certain information regarding our lease expirations for our owned properties as of December 31,
2011.(2)Consists of $3,200 of tax-exempt bonds secured by five assisted living properties2014 (dollars amounts inWashington with 188 units. As of December 31, 2011 our gross investment in properties encumbered by these bonds was $11,280.(3)Of the total, $285,981 relates to investments in assisted living properties, $361,326 relates to investments in skilled nursing properties, $64,638 relates to investments in other senior housing properties, $12,192 relates to investments in two schools and $894 relates to a development project in Texas to construct a skilled nursing property with 120 beds which will replace an existing 90-bed skilled nursing property.(4)Other represents other senior housing properties consisting of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(1)Other represents other senior housing properties consisting of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(2)Includes principal and interest payments.(3)Represents a mortgage loan secured by land which was fully reserved during 2010.(4)Of the total current principal balance, $28,132 relates to investments in skilled nursing properties, $22,776 relates to investments in assisted living properties and $3,094 relates to an investment in other senior housing properties. This balance is gross of a loan loss reserve of $921 and includes discounts and premiums related to loans acquired in prior years totaling $30.(1)Includes bank borrowings, senior unsecured notes, mortgage loans payable and bonds payable.(2)Lower due to the pay off during 2008Table of
a mortgage loan in the amount of $14.2 million secured by four assisted living properties.(3)Lower due to the pay off during 2009 of three mortgage loans totaling $23.9 million secured by 11 assisted living properties partially offset by outstanding bank borrowings of $13.5 million.(4)Increase due to the sale of the senior unsecured term notes and additional bank borrowing to fund real estate acquisitions.(5)Income allocated to preferred stockholders includes the following(dollar amounts in thousands):(1)Includes rental income from properties classified as held-for-sale.(2)Includes interest income from mortgage loans.(3)Includes rental income and interest income from mortgage loans.(4)We have investments in 30 states leased or mortgaged to 41 different operators.(5)SeeItem 2. Propertiesfor discussion of bed/unit count.(6)Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(7)During 2011, we acquired a vacant parcel of land in Texas and entered into a commitment to fund the construction of a skilled nursing property with 120 beds which will replace an existing 90-bed skilled nursing property.•With respect to skilled nursing properties, we attempt to invest in properties that do not have to rely on a high percentage of private-pay patients. We seek to invest primarily in properties that are located in communities with viable and sustainable economic and demographic trends whether located in primary, secondary or tertiary markets. We prefer to invest in a property that has significant market presence in its community and where state certificate of need and/or licensing procedures limit the entry of competing properties.•For assisted living and independent living investments we have attempted to diversify our portfolio both geographically and across product levels. Thus, we believe that although the majority of our investments are in affordably priced units, our portfolio also includes a significant number of upscale units in appropriate markets with certain operators.(1)Other senior housing properties consistOur master lease with affiliates ofindependentExtendicare, Inc. (or Extendicare) and Enlivant (formerly known as Assisted Living Concepts, Inc.) covering 37 assisted living properties with a total of 1,429 units expired on December 31, 2014. For the year ended December 31, 2014, this portfolio generated approximately $11.0 million or 9.3% of our combined rental revenue andproperties providing any combinationinterest income from mortgage loans. During the fourth quarter ofskilled nursing, assisted living and/or independent living services.(2)We acquired a 196-bed skilled nursing property and a vacant parcel of land in Texas for a purchase price of $15,500 and $844, respectively. Simultaneous with the purchases,2014, we entered intoa commitment,three agreements relating to the 37 assisted living properties as follows:·
We sold 16 properties, consisting of 615 units located in Washington, Oregon, Idaho and Arizona to an affiliate of Enlivant for a sales price of $26.5 million. Accordingly, we recognized a gain on sale of $3.8 million. We also gave Enlivant consent to close a property located in Oregon. We are currently exploring sale and lease options for this property which has a net book value of $0.9 million.
·
We added 13 properties with 500 units in Indiana, Iowa, Ohio, Nebraska and New Jersey to an existing master lease with an affiliate of Senior Lifestyle Management (or Senior Lifestyle). Beginning January 1, 2015, the initial term of the amended and restated master lease will be 15 years and rent will increase by $5.1 million over the current annual rent, increasing by 2.6% annually thereafter.
·
We re-leased seven properties with 278 units in Texas to Veritas InCare (or Veritas) under a new 10-year master lease. Beginning January 1, 2015, the initial rent will be $1.5 million increasing 2.5% annually.
Extendicare and Enlivant paid rent in
an amount not to exceed $8,250, to fundaccordance with theconstructionterms ofa 120-bed skilled nursing propertythe current master leases through December 31, 2014. The initial cash yield on theacquired parcel of land which will replace a 90-bed skilled nursing property in our existing portfolio. Upon completion of the construction, the lessee intends20 properties re-leased torelocate the residentsSenior Lifestyle and Veritas is comparable to thenewly constructed property. Thesecash yield in 2014 under the expiring master leases with Extendicare and Enlivant. Additionally, the new and amended master leases will provide us with the potential for additional rent attributable to participation in revenue growth at the propertiesare leased to an operator within our existing portfolio pursuant toover a10-year master lease agreement atpredetermined base amount.32
Owned Properties. During 2014, we acquired a
GAAP(3)We purchased a 140-bed skilled nursing48-unit assisted living property located inTexasColorado foran aggregate purchase price of $10,000. Simultaneous with the purchase, we$9.8 million and recorded $0.1 million in transaction costs. The property was addedthe propertyto an existing master leasewith a third party operatorat an incrementalGAAPinitial cash yield of10.5%.(4)We purchased four skilled nursing properties6.5% and we provided the lessee with524 beds in Texas for $50,841 which consists of $41,000 in cash at closing with the remainder in the form ofcontingent earn-outpayments.payments as a lease inducement. The contingent earn-outpayment arrangementspayments require us to pay two earn-out paymentstotallingtotaling up to$11,000$4.0 million upon thepropertiesproperty achieving a sustainable stipulated rent coverage ratio.During 2011, we paid $4,000 related to the first contingent earn-out payment.We estimated the fair value of the contingent earn-out payments using a discounted cash flowanalysis.(5)Weanalysis and recorded the estimated fair value of $3.2 million as a lease inducement which is amortized as a yield adjustment over the life of the lease and a contingent earn-out liability which is accreted to the settlement amount as of the estimated payment date. See Investing Activities below for further discussion on the accounting treatment of the contingent earn-out liability.During 2014, we purchased a
156-bedvacant parcel of land in Illinois for $1.4 million under a development pipeline agreement whereby we have the opportunity to finance any senior housing development project or acquisition originated by an operator. The land was added to an existing master lease and we entered into development commitments in an amount not to exceed $12.2 million, including the land purchase, to fund the construction of a 66-unit memory care property.Also, in 2014, we completed the development of three assisted living properties with a total of 188 units and a 143-bed skilled nursing property
located in Californiafor$17,500a total cost of $45.0 million. Additionally, we completed the expansion andentered intorenovation of three existing assisted living properties with a12-year lease withtotal of 195 units for anunrelated third party. The lease has a GAAP yieldaggregate cost of10.3%, contains annual escalations of 2.0% and has$11.5 million.During 2014, we sold two
10-year renewal options.(6)We purchased two senior housingassisted living properties located inSouth CarolinaFlorida and Georgia with118a total of 133 units, a school located in Minnesota, and a closed skilled nursingbeds, 40 assisted living unitsproperty for a combined sales price of $8.1 million, resulting in net sales proceeds of $7.9 million and53net gain on sale of $1.1 million.Mortgage Loans. During 2014, we originated a $3.0 million mortgage loan secured by a 100-unit independent living
unitsproperty in Arizona. The loan is for$11,450.a term of five years and bears interest at 7.0%, escalating 0.25% annually. Additionally, we funded $3.0 million which represents the final funding on a $10.6 million mortgage and construction loan secured by an existing skilled nursing property and a newly constructed 106-bed replacement skilled nursing property. Upon completion of construction, the residents were relocated from the old skilled nursing property to the new replacement skilled nursing property and the old skilled nursing property was closed. The old skilled nursing property was sold by the borrower and released as collateral. Subsequent to December 31, 2014, we purchased and equipped the replacement property for a total of $13.9 million by exercising our right under the agreement. The property was added to an existing master leasehasat aGAAPlease rate equivalent to the interest rate in effect on the loan at the time of purchase. Additionally, we paid the lessee a $1.1 million lease inducement which will be amortized as a yield adjustment over the life of10.1%, contains annual escalations of 2.5% and has three 5-year renewal options.(i)a ratio of total indebtedness to total asset value not greater than 0.5 to 1.0;(ii)a ratio of secured debt to total asset value not greater than 0.35 to 1.0;(iii)a ratio of unsecured debt to the value of the unencumbered asset pool not greater than 0.6 to 1.0; and(iv)a ratio of EBITDA, as calculated in the new Unsecured Credit Agreement, to fixed charges not less than 1.50 to 1.0.(1)Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(2)During 2011, we acquired a vacant parcel of land in Texas and entered into a commitment to fund the construction of a skilled nursing property with 120 beds which will replace an existing 90-bed skilled nursing property.(3)Preferred Care, Inc. leases 23 skilled nursing and two other senior housing properties under two master leases and one skilled nursing property under a separate lease agreement. In addition, they operate six skilled nursing properties securing five mortgage loans receivable that we have with unrelated third parties and one mortgage loan receivable we have with Preferred Care. They also operate one skilled nursing facility under a sub-lease with another lessee we have which is not included in the Preferred Care operator mix.(1)Increase primarily due to the increase in bank borrowing.(2)Increase primarily due to the increase in bank borrowing and by the decrease in market capitalization.(3)Decrease primarily due to the increase in market capitalization, partially offset by the increase in bank borrowing.(4)Decrease primarily due to the increase in interest expense due to increased bank borrowing and the $50.0 million of 4.80% senior unsecured term notes, the increase in debt issue costs related to the new $210.0 million Unsecured Credit Agreement and the non-cash interest related to the contingent earn-out liabilities.(5)Increase due to the decrease in preferred dividends resulting from the redemption of all of our Series F preferred stock, partially offset by the increase in interest expense, as discussed in explanation (4) above.(6)Decrease primarily due to the payoff of the outstanding bank borrowing.(7)Decrease primarily due to the payoff of the outstanding bank borrowing and the redemption of all of our Series F preferred stock.(8)Decrease due to the increase in interest expense related to higher average outstanding bank borrowing.(9)(4)
Increase primarily due to sale of senior unsecured notes and decrease in market capitalization due to decrease in stock price.
•The status of the economy;•The status of capital markets, including prevailing interest rates;•Compliance with and changes to regulations and payment policies within the health care industry;•Changes in financing terms;•Competition within the health care and senior housing industries; and•Changes in federal, state and local legislation.(i)a specified annual increase over the prior year's rent, generally between 2.0% and 3.0%;(ii)a calculation based on the Consumer Price Index;(iii)as a percentage of facility net patient revenues in excess of base amounts or(iv)specific dollar increases.(1)Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(2)- We acquired a
196-bed skilled nursing property and a vacant parcel of land in Texas for a purchase price of $15,500 and $844, respectively. Simultaneous with the purchases, we entered into a commitment, in an amount not to exceed $8,250, to fund the construction of a 120-bed skilled nursing property on the acquired parcel of land which will replace a 90-bed skilled nursing property in our existing portfolio. Upon completion of the construction, the lessee intends to relocate the residents to the newly constructed property. These properties are leased to an operator within our existing portfolio pursuant to a 10-year master lease agreement at a GAAP yield of 11.0%. The master lease contains annual escalations of 2.5% and has two 5-year renewal options. (3)We purchased a 140-bed skilled nursing48-unit assisted living property located inTexasColorado foran aggregate purchase price of $10,000. Simultaneous with the purchase, we$9.8 million and recorded $0.1 million in transaction costs. The property was addedthe propertyto an existing master leasewith a third party operatorat an incrementalGAAPinitial cash yield of10.5%.(4)We purchased four skilled nursing properties6.5% and we provided the lessee with524-beds in Texas for $50,841 which consists of $41,000 in cash at closing with the remainder in the form ofcontingent earn-outpayments.payments as a lease inducement. The contingent earn-outpayment arrangementspayments require us to pay two earn-out paymentstotallingtotaling up to$11,000$4.0 million, payable in increments of $2.0 million upon thepropertiesproperty achieving a sustainable stipulated rent coverage ratio.During 2011, we paid $4,000 related to the first contingent earn-out payment.We estimated the fair value of the contingentearn-out paymentspayment using a discounted cash flow analysis.(5)WeThis fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement. The estimated fair value of $3.2 million was recorded at the date of the acquisition and master lease amendment as a lease inducement which is amortized as a yield adjustment over the life of the lease and a contingent earn-out liability which is accreted to the estimated settlement amount as of the estimated payment date. The fair value of these contingent liabilities will be evaluated on a quarterly basis based on changes in estimates of future operating results and changes in market discount rates. During 2014, we recorded non‑cash interest expense of $18,000 related to this contingent liabilities and the fair value of these contingent payments was $3.3 million at December 31, 2014.During 2014, we purchased a
156-bedparcel of land held-for-use in Michigan for $0.5 million. Additionally, we purchased a vacant parcel of land in Illinois for $1.4 million under a development pipeline agreement whereby we have the opportunity to finance any senior housing development project or acquisition originated by an operator. The land was added to an existing master lease and we entered into development commitments in an amount not to exceed $12.2 million, including the land purchase, to fund the construction of a 66-unit memory care property. See below for our total development, redevelopment, renovation and expansion project commitments.Subsequent to December 31, 2014, we funded $7.2 million under a $12.2 million development commitment to purchase the land and existing improvements and then complete the related development of a 56-unit memory care property currently under construction in Texas. In conjunction with this commitment, we entered into a master lease agreement for an initial term of 15 years with three 5-year renewal options at an initial cash yield of 8.75% escalating annually thereafter by the lesser of (i) a calculation based on the Consumer Price Index or (ii) 2.25%. The master lease provides for our payment of a lease inducement of up to $1.6 million, which will be amortized as a yield adjustment over the lease term, with up to 25% of the fee to be disbursed shortly after closing and the balance following the issuance of a certificate of occupancy and receipt of any other regulatory approval required for the operation of the 56-unit memory care property. The master lease also provides us a right to provide similar financing for certain future development opportunities.
42
Also, subsequent to December 31, 2014, we elected to exercise our right to provide financing for one such opportunity, adding to the master lease a parcel of land purchased in South Carolina for $2.5 million coupled with our commitment to provide the operator with up to $16.4 million, including the land purchase, for the development of an 89-unit combination assisted living and memory care property. In conjunction with this new development commitment, the master lease provided for an additional $2.4 million of lease inducement, which will be amortized as a yield adjustment over the lease term, with up to 25% of the fee to be disbursed shortly after closing and the balance following the issuance of a certificate of occupancy and receipt of any other regulatory approval required for the operation of the 89-unit combination assisted living and memory care property.
During 2014, we sold two assisted living properties located in Florida and Georgia with a total of 133 units, a school located in Minnesota, and a closed skilled nursing property
locatedfor a combined sales price of $8.1 million, resulting inCalifornia for $17,500net sales proceeds of $7.9 million andentered into a 12-yearnet gain on sale of $1.1 million.Our master lease with
an unrelated third party. The lease has a GAAP yieldaffiliates of10.3%, contains annual escalations of 2.0%Extendicare andhas two 10-year renewal options.(6)We purchased two senior housing properties located in South Carolina with 118 skilled nursing beds, 40Enlivant (formerly known as Assisted Living Concepts, Inc.) covering 37 assisted living properties with a total of 1,429 units expired on December 31, 2014. For the year ended December 31, 2014, this portfolio generated approximately $11.0 million or 9.3% of our combined rental revenue and53 independent living units for $11,450. The lease has a GAAP yieldinterest income from mortgage loans. During the fourth quarter of10.1%, contains annual escalations of 2.5% and has three 5-year renewal options.(i)a ratio of total indebtedness to total asset value not greater than 0.5 to 1.0;(ii)a ratio of secured debt to total asset value not greater than 0.35 to 1.0;(iii)a ratio of unsecured debt to the value of the unencumbered asset pool not greater than 0.6 to 1.0; and(iv)a ratio of EBITDA, as calculated in the new Unsecured Credit Agreement, to fixed charges not less than 1.50 to 1.0.(1)Other senior housing properties consist(2)
Excludes funding for completed development and improvement projects discussed above and includes $1,400 of land acquired for the development of a 66-unit memory care property, as previously discussed, and the reclass of a pre‑development loan with a balance of $304, as previously discussed in Investing Activities.
(2)- and memory care property for $2.5 million. The master lease also provides for the payment of two lease inducements of up to $4.0 million which will be amortized as a yield
is included inadjustment over the lease term. See Investing Activities above for further discussion of these transactions. (3)Minimum rent will increase ontwelve years of the1stterm. Since these conditions have not been met, no funding has been made under this $40.0 million additional loan commitment. We also committed to provide an additional $12.0 million for capital improvements under the Prestige mortgage loan. During 2014, we funded $3.4 million under this $12.0 million capital improvement commitment and had a remaining commitment to fund $8.7 million. Subsequent to December 31, 2014, we funded $0.8 million under this $12.0 million capital improvement commitment. Accordingly, we have a remaining commitment ofeach month by$7.9 million.Subsequent to December 31, 2014, we amended the
amount advancedPrestige mortgage loan to provide up to an additional $20.0 million inthe previous month multiplied by the estimated yield.(4)Minimum rent will increase upon final funding and project completion or in some cases, the improvement deadline as defined in each lease agreement.(5)9.5% plus the positive difference, if any, between the average yields on the U.S. Treasury 10-year noteloan proceeds for thefive days priorredevelopment of two of the properties securing the loan (increasing the total capital improvement commitment tofunding, minus 420 basis points (expressed as a percentage).(6)$5,000 per year$32.0 million) and agreed to convey to the borrower two parcels of land held-for-use adjacent to these properties to facilitate the projects. As partial consideration for thelifeincreased commitment and associated conveyance, the borrower forfeited the option to prepay up to 50% of thelease.(7)In January 2012,then outstanding loan balance. As a47
result of the forfeiture of the prepayment option, the Company expects to record $1.3 million of effective interest during 2015. Additionally, in 2015, we originated an $11.0 million mortgage loan with Prestige and concurrently funded $9.5 million under this
$56 commitment.(8)During 2011, we acquired a vacant parcel of land in Texas and entered intoloan; with a commitment to fund theconstruction ofbalance for approved capital improvement projects. The loan is secured by a 157-bed skilled nursing property in Michigan. See Investing Activities above for further discussion of the mortgage loans with120 beds which will replacePrestige.At December 31, 2014, we had eleven loans and line of credit agreements with commitments totaling $3.8 million and a remaining commitment balance of $2.3 million. The weighted average interest rate of these loan is 11.4%. During 2014, we received principal payments of $0.1 million and advanced principal of $1.3 million under these loan commitments. Subsequent to December 31, 2014, we advanced an additional $0.5 million of principal under these loan commitments and we committed to fund a working capital loan of $0.5 million to an existing
90-bed skilled nursing property.(1)Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(2)Represents a construction and term loan for capital improvements at two senior housing properties we own and lease to the borrower. Upon the earlier of the full funding of the commitment or December 31, 2012, construction distribution under this loan will cease and this loan will fully amortize to maturity in November 2017.(1)At December 31, 2011 we had $154,000 available for borrowing under our Unsecured Credit Agreement. During January 2012, we borrowed $4,000. After this borrowing, we had $60,000 outstanding and $150,000 available for borrowing.(1)On December 31, 2011 and 2010, we had $3,060 and $2,822, respectively, in straight-line rent receivable from a lessee that qualifies as a related party because the lessee's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related Partyfor further discussion.(2)At December 31, 2011 and 2010, we had a $6,500 face value investment in marketable securities issued by an entity that qualifies as a related party because the entity's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related Partyfor further discussion.(1)During 2011, 2010 and 2009, we received $4,264, $4,160, and $4,058, respectively, in rental income and recorded $238, $342 and $443, respectively, in straight-line rental income from a lessee that qualifies as a related party because the lessee's Chief Executive Officer is on our BoardTable of
Directors. SeeContentsLTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Note 12. Transactions with Related Partyfor further discussion.(2)During 2011, 2010 and 2009 we recognized $721, $720, and $720, respectively, of interest income from an entity that qualifies as a related party because the entity's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related Partyfor further discussion.(1)During 2011, 2010 and 2009, we recorded $238, $342, and $443, respectively, in straight-line rental income from a lessee that qualifies as a related party because the lessee's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related Partyfor further discussion.(i)a specified annual increase over the prior year's rent, generally between 2.0% and 3.0%;(ii)a calculation based on the Consumer Price Index;(iii)as a percentage of facility net patient revenues in excess of base amounts or(iv)specific dollar increases.(1)The numbers shown for Extendicare REIT are in Canadian dollars and are prepared in accordance with Canadian GAAP.*The financial information contained in the foregoing table for Extendicare REIT, ALC and Brookdale is based on information we obtained from such companies' available public filing and, therefore, we have not independently verified the accuracy of such information.(1)We purchased four skilled nursing properties with 524-beds in Texas for $50,841 which consists of $41,000 in cash at closing with the remainder in the form of contingent earn-out payments. The contingent earn-out payment arrangements require us to pay two earn-out payments totalling up to $11,000 upon the properties achieving a sustainable stipulated rent coverage ratio. During 2011, we paid $4,000 related to the first contingent earn-out payment which has been included inInvestment in real estate properties and capital improvements, neton our consolidated statement of cash flows. We estimated the fair value of the contingent earn-out payments using a discounted cash flow analysis. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement.(1)We have investments in 12 states that include mortgages to 14 different operators.(2)Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(1)We have investments in 25 states leased to 30 different operators.(2)Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(3)During 2011, we acquired a vacant parcel of land in Texas and entered into a commitment to fund the construction of a skilled nursing property with 120 beds which will replace an existing 90-bed skilled nursing property.(i)a specified annual increase over the prior year's rent, generally between 2.0% and 3.0%;(ii)a calculation based on the Consumer Price Index;(iii)as a percentage of facility net patient revenues in excess of base amounts or(iv)specific dollar increases.(1)Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing,During the year ended December 31, 2014, we acquired a 48-unit assisted livingand/or independent living services.(2)We acquired a 196-bed skilled nursing property and a vacant parcel of land in Texas for a purchase price of $15,500 and $844, respectively. Simultaneous with the purchases, we entered into a commitment, in an amount not to exceed $8,250, to fund the construction of a 120-bed skilled nursing property on the acquired parcel of land which will replace a 90-bed skilled nursing property in our existing portfolio. Upon completion of the construction, the lessee intends to relocate the residents to the newly constructed property. These properties are leased to an operator within our existing portfolio pursuant to a 10-year master lease agreement at a GAAP yield of 11.0%. The master lease contains annual escalations of 2.5% and has two 5-year renewal options.(3)We purchased a 140-bed skilled nursingproperty located inTexasColorado foran aggregate purchase price of $10,000. Simultaneous with the purchase, we$9,800,000 and recorded $130,000 in transaction costs. The property was addedthe propertyto an existing master leasewith a third party operatorat an incrementalGAAPinitial cash yield of10.5%.(4)We purchased four skilled nursing properties6.5% and we provided the lessee with524-beds in Texas for $50,841 which consists of $41,000 in cash at closing with the remainder in the form ofcontingent earn-outpayments.payments as a lease inducement. The contingent earn-outpayment arrangements requireagreement requires us to pay two earn-out paymentstotallingtotaling up to$11,000$4,000,000 upon thepropertiesproperty achieving a sustainable stipulated rent coverage ratio.During 2011, we paid $4,000 related to the first contingent earn-out payment.We estimated the fair value of the contingent earn-out payments using a discounted cash flowanalysis.(5)We purchased a 156-bed skilled nursing property located in California for $17,500analysis andentered into a 12-year lease with an unrelated third party. The lease has a GAAP yieldrecorded the estimated fair value of10.3%, contains annual escalations of 2.0% and has two 10-year renewal options.(6)We purchased two senior housing properties located in South Carolina with 118 skilled nursing beds, 40 assisted living units and 53 independent living units for $11,450. The lease has a GAAP yield of 10.1%, contains annual escalations of 2.5% and has three 5-year renewal options.(1)Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.(2)We purchased a 166-skilled nursing property in Texas and leased the property to a third party operator, who previously operated the property under a lease with the seller. We paid this operator $125$3,240,000 as a lease inducement which is amortized as a yield adjustment over the life of thelease.(3)Welease and a contingent earn-out liability which is accreted to the settlement amount as of the estimated payment date. See Note 11. Commitments and Contingencies for further discussion on the accounting treatment of the contingent earn-out liability.During 2014, we purchased
foura parcel of land held-for-use in Michigan for $450,000. Additionally, we purchased a vacant parcel of land in Illinois for $1,400,000 under a development pipeline agreement whereby we have the opportunity to finance any senior housing development project or acquisition originated by an operator. The land under the development pipeline agreement was added to an existing master lease and we entered into development commitments in an amount not to exceed $12,248,000, including the land purchase, to fund the construction of a 66-unit memory care property. See below for our total development, redevelopment, renovation and expansion project commitments.65
In February 2015, we funded $7,195,000 under a $12,179,000 development commitment to purchase the land and existing improvements and then complete the related development of a 56-unit memory care property currently under construction in Texas. In conjunction with this commitment, we entered into a master lease agreement for an initial term of 15 years with three 5-year renewal options at an initial cash yield of 8.75% escalating annually thereafter by the lessor of (i) a calculation based on the Consumer Price Index or (ii) 2.25%. The master lease provides for our payment of a lease inducement of up to $1,589,000, which will be amortized as a yield adjustment over the lease term, with up to 25% of the fee to be disbursed shortly after closing and the balance following the issuance of a certificate of occupancy and receipt of any other regulatory approval required for the operation of the 56-unit memory care property. The master lease also gives us a right to provide similar financing for certain future development opportunities.
Additionally, in February 2015, we elected to exercise our right to provide financing for one such opportunity, adding to the master lease a parcel of land purchased in South Carolina for $2,490,000 coupled with our commitment to provide the operator with up to $16,535,000, including the land purchase for the development of an 89-unit combination assisted living and memory care property. In conjunction with this new development commitment, the master lease provided for an additional $2,363,000 lease inducement payment, which will be amortized as a yield adjustment over the lease term, with up to 25% of the fee to be disbursed shortly after closing and the balance following the issuance of a certificate of occupancy and receipt of any other regulatory approval required for the operation of the 89-unit combination assisted living and memory care property.
During the twelve months ended December 31, 2014, we sold 16 assisted living properties with a total of
241615 units to an affiliate of Enlivant. The sales price for$26,900the 16 properties was $26,465,000, resulting in net sales proceeds of $25,702,000. As a result, we recorded a gain of $3,819,000. As part of this agreement, we consented to the closure of an assisted living property with a net book value of $935,000 andincurred $210 in transaction costs. Included in the transaction costs is a $106 charge which represents halfwe are exploring sale and lease options for this property. See Note 3. Major Operators for further discussions of theseller's prepayment penaltytransactions relating to the properties formerly co-leased to affiliates of Extendicare, Inc. and Enlivant. During 2014, we also sold two assisted living properties located in Florida and Georgia with a total of 133 units, a school located in Minnesota, and a closed skilled nursing property for a combined sales price of $8,100,000, resulting in net sales proceeds of $7,891,000, and net gain onits loan(i)a ratio of total indebtedness to total asset value not greater than 0.5 to 1.0;(ii)a ratio of secured debt to total asset value not greater than 0.35 to 1.0;(iii)a ratio of unsecured debt to the value of the unencumbered asset pool not greater than 0.6 to 1.0; and(iv)a ratio of EBITDA, as calculated in the new Unsecured Credit Agreement, to fixed charges not less than 1.50 to 1.0.(1)10. Equity
Preferred Stock.At December 31,
20112014 and 2013, we had$154,000 available for borrowing under2,000,000 shares of ourUnsecured Credit Agreement. During January 2012, we borrowed $4,000 under our Unsecured Credit Agreement. After this borrowing, we had $60,000 outstanding and $150,000 available for borrowing.(1)During 2010, we redeemed all of our Series E preferred stock.(2)During 2010, we redeemed 40% of our Series F preferred stock. During 2011, we redeemed all of our remaining Series F preferred stock.(3)Includes the accrued and unpaid dividends on the series F preferred stock up to the redemption date.(4)Represents $0.14 per share per month for 2011. For 2010, represents $0.13 per share per month for January through October and $0.14 per share per month for November and December.(5)The difference between declared and paid is the change in distributions payable on the balance sheet at December 31.(1)At December 31, 2011, the total compensation cost related to unvested restricted stock granted is $3,892,000,(1)
During 2013, we recorded $457,000 of compensation expense related to the accelerated vesting of 18,180 shares of restricted common stock due to the retirement of our former Senior Vice President, Marketing and Strategic Planning. At December 31, 2014, the total compensation cost related to unvested restricted stock granted is $4,195,000, which will be recognized ratably over the remaining vesting period.
Annualized
% of Annualized
No. of
No. of
No. of
No. of
No. of
No. of
Rental
Rental Income
Year
SNFs
ALFs
ROCs
Others
Beds/Units
Operators
Income(1)
Expiring
2015
—
—
—
—
—
—
—
—
%
2016
4 4 —
—
675 4 3,097 3.0 %
2017
1 —
—
1 60 2 1,653 1.6 %
2018
4 9 1 —
1,296 5 10,665 10.4 %
2019
3 —
—
—
613 1 1,596 1.5 %
2020
1 35 —
—
1,639 2 13,631 13.2 %
2021
30 4 4 —
4,232 4 18,365 17.8 %
2022
1 —
—
—
121 1 626 0.6 %
2023
8 1 1 —
1,163 3 9,345 9.1 %
2024
2 12 1 —
1,034 5 7,996 7.8 %
Thereafter
14 18 —
—
2,622 5 36,028 35.0 %
TOTAL
68 83 (2)
7 1 13,455 30 (3)
$
103,002 100.0 %
(1)
Annualized rental income is the total rent, excluding amortization of lease inducement, over the life of the lease recognized evenly over that lease term as of December 31, 2014 and was adjusted for the re-leasing of 20 assisted living properties formerly co-leased by affiliates of Extendicare, Inc. and Enlivant which is effective January 1, 2015. See Item 8. FINANCIAL STATEMENTS—NOTE 3. Major Operators for further discussion of the transactions relating to the properties formerly co-leased to affiliates of Extendicare, Inc. and Enlivant.
(2)
Excludes a closed assisted living property. See Item 8. FINANCIAL STATEMENTS—NOTE 3. Major Operators for further discussion of the transactions relating to this property formerly co-leased to affiliates of Extendicare, Inc. and Enlivant.
(3)
We have a total of 30 operators. Two of our operators are parties to multiple leases with dissimilar expirations; therefore, the sum of the number of operators by maturity does not equal our total number of operators.
Mortgage Loans. The following table sets forth certain information regarding our mortgage loans as of December 31,
20112014 (dollars amounts in thousands):Average
Original
Current
No. of
No. of
No. of
No. of
Interest
Months to
Face Amount
Gross
Annual Debt
LocationNo. of
SNFsNo. of
ALFsNo. of
Other(1)No. of
Beds/
UnitsInterest
RateAverage
Months to
MaturityOriginal
Face Amount of
Mortgage LoansCurrent
Carrying
Amount of
Mortgage LoansCurrent
Annual Debt
Service(2)SNFs
ALFs
ROCs
Beds/ Units
Rate
Maturity
of Mortgage Loans
Investment
Service(1)
Arizona
—
1 —
100 7.00%
55 $
3,027 $
3,016 $
242 California
1 — 1 297 11.25%-11.30% 24 $ 6,800 $ 3,317 $ 852 —
—
1 173 11.63%
3 4,700 2,311 583 Florida
4 1 — 387 10.88%-14.63% 15 11,360 9,650 1,472 Iowa
— 1 — 44 11.44% 22 2,400 2,074 276 Michigan
15 —
—
2,058 9.53%
346 124,387 127,725 12,079 Missouri
2 — — 190 10.51%-10.98% 75 3,000 3,838 646 2 —
—
190 10.88%-11.35%
37 3,000 3,051 657 Montana
— 1 — 34 14.23% 22 2,346 2,115 331 Nebraska
— 4 — 163 11.44%-11.67% 22 10,911 9,211 1,239 Oklahoma
— — — — — — 1,300 385 (3) — S. Dakota
— 1 — 34 11.44% 22 2,346 2,028 269 Pennsylvania
—
1 —
70 7.11%
24 5,100 5,100 367 Texas
11 6 — 1,471 9.95%-13.32% 41 26,865 18,015 3,206 9 6 —
1,208 10.40%-13.70%
36 22,715 13,892 2,869 Utah
1 — — 84 10.30% 95 1,400 1,330 166 1 —
—
84 10.75%
59 1,400 1,237 171 Washington
1 — — 104 13.38% 58 1,700 847 236 1 —
—
104 13.75%
22 1,700 397 237 Wisconsin
1 — — 115 11.00% 62 2,200 1,192 272 1 —
—
106 10.08%
95 10,600 10,600 1,083 TOTAL
21 14 1 2,923 37 $ 72,628 $ 54,002 (4) $ 8,965 29 8 1 4,093 276 $
176,629 $
167,329 $
18,288 (1)
Includes principal and interest payments.
Item 3. LEGAL
PROCEEDINGS
PROCEEDINGSWe are and may become from time to time a party to various
general and professional liabilityclaims and lawsuitsasserted againstarising in thelessees or borrowersordinary course of ourproperties,business, which in our opinion are not singularly or in the aggregate anticipated to be material to our results of operations or financial condition.These types of claimsClaims and lawsuits may include matters involving general or professional liability25
asserted against the lessees or borrowers of our properties, which we believe under applicable legal principles are not our responsibility as a
non-possessorynon‑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 suchclaims.claims and lawsuits.Item 4. MINE SAFETY
DISCLOSURES
DISCLOSURESNot applicable
Item 5.
MARKETMARKET FOR THEREGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarket Information
Our common stock is listed on the NYSE under the symbol
"LTC"“LTC”. Set forth below are the high and low reported sale prices for our common stock as reported on the NYSE for each of the periods indicated.2011 2010 High Low High Low First Quarter
$ 29.48 $ 27.01 $ 28.10 $ 24.52 Second Quarter
$ 30.14 $ 26.51 $ 28.76 $ 23.13 Third Quarter
$ 28.85 $ 20.41 $ 26.06 $ 22.91 Fourth Quarter
$ 31.38 $ 23.75 $ 28.66 $ 25.37 2014
2013
High
Low
High
Low
First quarter
$
39.31 $
34.77 $
40.80 $
35.58 Second quarter
$
41.07 $
36.46 $
48.69 $
36.12 Third quarter
$
41.25 $
36.77 $
41.84 $
34.30 Fourth quarter
$
44.49 $
36.75 $
40.68 $
34.88 Holders of Record
As of December 31,
20112014 we had approximately321262 stockholders of record of our common stock.Dividend Information
We declared and paid total cash distributions on common stock as set forth below:
Declared Paid 2011 2010 2011 2010 First Quarter
$ 0.42 $ 0.39 $ 0.42 $ 0.39 Second Quarter
$ 0.42 $ 0.39 $ 0.42 $ 0.39 Third Quarter
$ 0.42 $ 0.39 $ 0.42 $ 0.39 Fourth Quarter
$ 0.42 $ 0.41 $ 0.42 $ 0.41 $ 1.68 $ 1.58 $ 1.68 $ 1.58 Declared
Paid
2014
2013
2014
2013
First quarter
$
0.510 $
0.465 $
0.510 $
0.465 Second quarter
$
0.510 $
0.465 $
0.510 $
0.465 Third quarter
$
0.510 $
0.465 $
0.510 $
0.465 Fourth quarter
$
0.510 $
0.510 $
0.510 $
0.510 $
2.040 $
1.905 $
2.040 $
1.905 We intend to distribute to our stockholders an amount at least sufficient to satisfy the distribution requirements of a REIT. Cash flows from operating activities available for distribution to stockholders will be derived primarily from interest and rental payments from our real estate investments. All distributions will be made subject to approval of our Board of Directors and will depend on our earnings, our financial condition and such other factors as our Board of Directors deem relevant. In order to qualify for the beneficial tax treatment accorded to REITs by Sections 856 through 860 of the Internal Revenue Code, we are required to make distributions to holders of our shares equal to at least 90% of our REIT taxable income. (See
"Annual“Annual DistributionRequirements" beginning on page 17.Requirements”.)26
Issuer Purchases of Equity Securities
Our BoardThe number ofDirectors authorized a share repurchase program enabling us to repurchase up to 5,000,000shares of ourequity securities, including commonCommon Stock purchased andpreferred stock ontheopen market. This authorization does not expire until 5,000,000 shares of our equity securities have been repurchased oraverage prices paid per share for each month in theBoard of Directors terminates its authorization. During the fourthquarter ended December 31,2011, we did not repurchase any2014 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(1)
Share
Plan(2)
Under the Plan
October 1 - October 31, 2014
—
$
—
—
—
November 1 - November 30, 2014
—
$
—
—
—
December 1 - December 31, 2014
5,124 $
41.28 —
—
Total
5,124 —
(1)
During the three months ended December 31, 2014, we acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(2)
No shares were purchased as part of publicly announced plans or programs.
27
Since inception of our existing share repurchase program through December 31, 2011, we have repurchased on the open market (i) 893,979 shares of our common stock at an average cost of $21.01 per share, including fees and costs, for an aggregate purchase price including fees and costs paid of$18.8 million and (ii) 745,784 shares of our Series F preferred stock at an average cost of $21.83 per share, including fees and costs, for an aggregate purchase price including fees and costs paid of $16.3 million. We continue to have authorization to purchase on the open market an additional 3,360,237 shares of our equity securities.Stock Performance Graph
The National Association of Real Estate Investment Trusts (or NAREIT), an organization representing U.S. REITs and publicly traded real estate companies, classifies a company with 75% or more of assets directly or indirectly in the equity ownership of real estate as an equity REIT. In
2011,2013, our equity ownership of real estate assets was more than 75%.This graph compares the cumulative total stockholder return on our common stock from December 31,
20062009 to December 31,20112014 with the cumulative stockholder total return of (1) the Standard &Poor'sPoor’s 500 Stock Index and (2) the NAREIT Equity REIT Index. The comparison assumes $100 was invested on December 31,20062009 in our common stock and in each of the foregoing indices and assumes the reinvestment of dividends.
Period Ending Period Ending
Index12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
LTC Properties, Inc.
100.00 97.62 84.24 119.54 133.23 155.58 100.00 111.45 130.15 156.72 165.44 212.64 NAREIT Equity
100.00 84.31 52.50 67.20 85.98 93.11 100.00 127.96 138.57 163.60 167.63 218.16 S&P 500
100.00 105.49 66.46 84.05 96.71 98.76 100.00 115.06 117.49 136.30 180.44 205.14 The stock performance depicted in the above graph is not necessarily indicative of future performance.
The stock performance graph shall not be deemed incorporated by reference into any filing by us under the Securities Act of 1933 or the Securities Exchange Act of 1934 except to the extent that we specifically incorporate such information by reference, and shall not otherwise be deemed filed under such Acts.
28
Item 6.
SELECTEDSELECTED FINANCIAL DATAThe following table of selected financial information should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Annual Report on Form
10-K.10‑K.2014
2013
2012
2011
2010
(In thousands, except per share amounts)
Operating information:
Total revenues
$
118,961 $
104,974 $
92,482 $
83,618 $
72,740 Income from continuing operations
73,399 55,405 50,306 48,620 44,851 Income allocated to non-controlling interests(1)
—
—
37 191 191 Income allocated to participating securities
481 383 377 342 230 Income allocated to preferred stockholders(2)
3,273 3,273 3,273 9,078 16,045 Net income available to common stockholders
69,645 54,159 47,640 39,832 29,587 Per share information:
Net income per common share from continuing operations available to common stockholders:
Basic
$
2.01 $
1.56 $
1.54 $
1.34 $
1.16 Diluted
$
1.99 $
1.56 $
1.54 $
1.33 $
1.16 Net income per common share available to common stockholders:
Basic
$
2.01 $
1.64 $
1.58 $
1.36 $
1.21 Diluted
$
1.99 $
1.63 $
1.57 $
1.36 $
1.21 Common stock distributions declared
$
2.04 $
1.91 $
1.79 $
1.68 $
1.58 Common stock distributions paid
$
2.04 $
1.91 $
1.79 $
1.68 $
1.58 Balance sheet information:
Total assets
$
965,819 $
931,410 $
789,592 $
647,097 $
561,264 Total debt(3)
281,633 278,835 303,935 (4)
159,200 (4)
91,430 (1)
During 2012, our limited partners exercised their rights to convert all of their 112,588 partnership units. As a result, we subsequently terminated the limited partnership.
(2)
Income allocated to preferred stockholders includes the following (dollar amounts in thousands):
2014
2013
2012
2011
2010
Preferred stock dividends
$
3,273 $
3,273 $
3,273 $
5,512 $
13,662 Preferred stock redemption charge
—
—
—
3,566 2,383 Total income allocated to preferred stockholders
$
3,273 $
3,273 $
3,273 $
9,078 $
16,045 (3)
Includes bank borrowings, senior unsecured notes, mortgage loans payable and bonds payable.
(4)
Increase primarily due to the sale of senior unsecured term notes.
29
2011 2010 2009 2008 2007 (In thousands, except per share amounts) Operating Information:
Total revenues
$ 85,160 $ 73,696 $ 68,794 $ 68,839 $ 74,304 Income from continuing operations
49,673 45,860 44,473 43,056 47,803 Income allocated to non-controlling interests
191 191 296 307 343 Income allocated to participating securities
342 230 139 159 219 Income allocated to preferred stockholders(5)
9,078 16,045 14,515 14,401 16,923 Net income allocable to common stockholders
39,832 29,587 29,410 28,417 30,613 Per share Information:
Net Income per Common Share from Continuing Operations Allocable to Common Stockholders:
Basic
$ 1.37 $ 1.20 $ 1.28 $ 1.23 $ 1.31 Diluted
$ 1.37 $ 1.20 $ 1.28 $ 1.23 $ 1.29 Net Income Per Common Share Allocable to Common Stockholders:
Basic
$ 1.36 $ 1.21 $ 1.27 $ 1.24 $ 1.32 Diluted
$ 1.36 $ 1.21 $ 1.27 $ 1.24 $ 1.31 Common Stock Distributions declared
$ 1.68 $ 1.58 $ 1.56 $ 1.56 $ 1.50 Common Stock Distributions paid
$ 1.68 $ 1.58 $ 1.56 $ 1.56 $ 1.50 Balance Sheet Information:
Total assets
$ 647,097 $ 561,264 $ 490,593 $ 506,053 $ 544,105 Total debt(1)
159,200 (4) 91,430 (4) 25,410 (3) 36,753 (2) 52,295 Contents2011 2010 2009 2008 2007 Preferred stock dividends
$ 5,512 $ 13,662 $ 15,141 $ 15,390 $ 16,923 Preferred stock redemption charge
3,566 2,383 — — — Allocation of income from preferred stock buyback
— — (626 ) (989 ) — Total income allocated to preferred stockholders
$ 9,078 $ 16,045 $ 14,515 $ 14,401 $ 16,923 Item 7.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSExecutive Overview
Business
BusinessWe are a
self-administeredself‑administered health care real estate investment trust (or REIT) that invests primarily in senior housing and long term care properties through acquisitions, development, mortgage loansproperty lease transactionsand other investments. We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal decision making purposes. In2011,2014, senior housing and long term care properties, which include skilled nursing properties (or SNF), assisted living properties (or ALF), independent living properties (or ILF), memory care properties (or MC) and combinations thereof comprised approximately98%99.0% of our investment portfolio. The following table summarizes our real estate investment portfolio as of December 31,20112014 (dollar amounts in thousands):Twelve Months Ended
December 31, 2014
Percentage
Number
Number of
Twelve Months Ended
December 31, 2011Number of Gross
Percentage of
Rental
Interest
of
of
SNF
ALF
Type of PropertyGross
InvestmentsPercentage of
InvestmentsRental
Income(1)Interest
Income(2)Percentage
of
Revenues(3)Number
of
Properties(4)SNF
Beds(5)ALF
Units(5)ILF
Units(5)Investments
Investments
Income(1)
Income(2)
Revenues
Properties(3)
Beds(4)
Units(4)
Skilled Nursing
$
633,052 56.7 %
$
52,259 $
14,595 59.4 %
97 12,057 —
Assisted Living
$ 308,757 39.6 % $ 33,172 $ 2,596 42.6 % 102 — 4,365 — 415,520 37.2 %
37,847 985 34.5 %
92 —
4,446 Skilled Nursing
389,458 50.0 % 35,579 3,447 46.4 % 89 10,347 — — Other Senior Housing(6)
67,732 8.7 % 7,543 368 9.4 % 14 913 330 423 Schools
12,192 1.6 % 1,349 — 1.6 % 2 — — — Under Development(7)
894 0.1 % — — 0.00 % — — — — Range of Care
46,217 4.1 %
5,332 282 5.0 %
8 733 348 Under Development(5)
11,495 1.0 %
—
—
—
%
—
—
—
Other(6)
10,883 1.0 %
1,294 —
1.1 %
1 —
—
Totals
$ 779,033 100.0 % $ 77,643 $ 6,411 100.0 % 207 11,260 4,695 423 $
1,117,167 100.0 %
$
96,732 $
15,862 100.0 %
198 12,790 4,794 (1)
Excludes rental income from properties sold during 2014.
(2)
Excludes interest income from mortgage loans paid off during 2014.
(3)
We have investments in 29 states leased or mortgaged to 37 different operators.
(4)
See Item 2. Properties for discussion of bed/unit count.
(5)
Includes two MC developments with a total of 126 units.
(6)
Includes one school and five parcels of land held‑ for‑use.
As of December 31,
20112014 we had$599.9$892.2 million in carrying value of net real estate investment, consisting of$546.8$726.5 million or91.1%81.4% invested in owned and leased properties and$53.1$165.7 million or8.9%18.6% invested in mortgage loans secured by first mortgages.For the year ended December 31,
2011,2014, rental income and interest income from mortgage loansexcluding discontinued operationsrepresented91.2%85.6% and7.5%13.9%, respectively, of total gross revenues. In most instances, our lease structure contains fixed or estimable annual rental escalations, which are generally recognized on astraight-linestraight‑line basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved.This lease structure initially generates lower revenues and net income but enables us to generate additional growth and minimize non-cash straight-line rent over time.For the years ended December 31,2011, 20102014, we recognized $3.0 million in straight‑line rental income and2009 werecorded$3.7 million, $3.8 million, and $4.2 million,respectively, in straight-line rental income. Also during 2011, 2010 and 2009 we recorded $46,000, $0.8 million and $0.8 million, respectively,$30,000 ofstraight-linestraight‑line rent receivable reserve.Straight-line rental incomeOur lease with affiliates of Extendicare, Inc. (or Extendicare) and Enlivant covering 37 assisted living properties expired on December 31, 2014. Effective January 1, 2015, we re-leased 20 of the 37 properties by adding 13 properties to an existing master lease and entering into a new master lease for seven of the properties. See Investing Activities below for further discussion of the transactions relating to the properties formerly co-leased to affiliates of Extendicare and Enlivant. For the remaining leases in place at December 31,2011 are projected to decrease from $3.7 million in 2011 to $2.4 million in 2012 assuming no2014, including the newleased investments with fixed annual rental escalations are added to our portfolio. Conversely, our cash rental income is projected to increase from $74.6 million in 2011 to $81.1 million in 2012leases effective January 1, 2015 for the 20 properties formerly co-leased by Extendicare and Enlivant, and assuming no modification or replacement of existing leases and no new leased investments are added to ourportfolio.portfolio, we currently expect that straight‑line rental income will increase from $3.0 million in 2014 to $6.9 million for projected annual 2015 primarily due to the new leases effective January 1, 2015 for the 20 properties, as previously discussed, and completed development projects. Conversely, our cash rental income is projected to decrease from $99.7 million in 2014 to $98.1 million for projected annual 2015 primarily due to the sale of 16 properties to Enlivant partially offset by completed development projects. During the year ended December 31,2011,2014, we received$74.630
$99.7 million of cash rental revenue and recorded
$0.7$0.8 million of leaseinducement costs.inducement. At December 31,2011 and 2010,2014, thestraight-linestraight‑line rent receivable balance, net of reserves,for continuing and discontinued operationson the consolidated balance sheet was$23.8 million$32.7 million.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. For the year ended December 31, 2014, we materially amended two existing master leases and
$20.1 million, respectively.entered into one new master lease. One existing master lease was amended for the sole purpose of adding a newly acquired 48-unit assisted living property and incorporating the related economics (see Key Transactions below for further information regarding the acquisition). Another existing master lease was amended and restated to facilitate its combination with an existing individual lease, extend the lease term by approximately 10 years, and re-set the rent resulting in a 29% increase in the aggregate rent payable under the previous leases. Finally, we transitioned four non-stabilized, underperforming assisted living properties to a new lessee and entered into a new master lease for a term of two years at rent representing a decrease of approximately 61% from that rent payable under the prior master lease (which decrease may be partially mitigated by percentage rent derived from increased revenues at the properties). At the expiration of the 2-year term, the rent for these properties will be adjusted to their then current market rates.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 senior housing and long term care properties managed by experienced operators. 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 type and form of investment. We opportunistically consider investments in health care
propertiesfacilities in related businesses where the business model is similar to our existing model and the opportunity provides an attractive expected return. Consistent with this strategy, we pursue, from time to time, opportunities for potential acquisitions and investments, with due diligence and negotiations often at different stages of development at any particular time.·
With respect to skilled nursing properties, we attempt to invest in properties that do not have to rely on a high percentage of private‑pay patients. We prefer to invest in a property that has significant market presence in its community and where state certificate of need and/or licensing procedures limit the entry of competing properties.
·
For assisted living and independent living investments we have attempted to diversify our portfolio both geographically and across product levels.
·
Memory care facilities offer specialized options for seniors with Alzheimer’s disease and other forms of dementia. Purpose built, free‑standing memory care facilities offer an attractive alternative for private‑pay residents affected by memory loss in comparison to other accommodations that typically have been provided within a secured unit of an assisted living or skilled nursing facility. These facilities offer dedicated care and specialized programming for various conditions relating to memory loss in a secured environment that is typically smaller in scale and more residential in nature than traditional assisted living facilities. Residents require a higher level of care and more assistance with activities of daily living than in assisted living facilities. Therefore, these facilities have staff available 24 hours a day to respond to the unique needs of their residents.
Substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals and interest earned on outstanding loans receivable. Our investments in owned properties and mortgage loans
and owned propertiesrepresent 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 the type of health care facility and operator. Our monitoring process includes periodic review of financial statements for each facility, periodic review of operator credit, scheduled property inspections and review oflease or loancovenantcompliance relating to real estate taxes and insurance.compliance.In addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk.
Prior to 2008 we might have financed up to 90 percent of the stabilized market value of a property. Due to recent market uncertainties we most likely will finance at a lower percentage.Some operating leases and loans are credit enhanced by guaranties and/or letters of credit. In addition, operating31
leases are typically structured as master leases and loans are generally
cross-cross‑defaulted and
cross-collateralizedcross‑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
initiallyfunded from cash on hand,andtemporary 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. 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 and 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 capitalmarketsmarkets’ environment may impact the availability ofcost-effectivecost‑effective capital.We believe our liquidity and various sources of available capital are sufficient to fund operations, meet debt service obligations (both principal and interest), make dividend distributions and finance future investments.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.
At December 31,
2011,2014, we had$4.4$25.2 million of cash on hand$154.0 million available on our $210.0 million Unsecured Credit Agreement,and$100.0$400.0 million available underthe uncommitted privateour unsecured revolving line of credit. Subsequent to December 31, 2014, we borrowed $18.0 million under our unsecured revolving line of credit. Accordingly, we have $18.0 million outstanding with $382.0 million available for borrowing. Also, we have $775.1 million available under our effective shelfagreement. Also, our potential abilityregistration to access the capital markets through the issuance of$64.6 million of common stock under our Amended Equity Distribution Agreement and through the issuance ofdebt and/or equitysecurities under our $167.6 million effective shelf registration.securities. As a result, we believe our liquidity and various sources of available capital are sufficient to fund operations and development commitments, meet debt service obligations (both principal and interest), make dividend distributions and finance some future investments should we determine such future investments are financially feasible.Key Transactions
Owned Properties.Extendicare, Inc. and Enlivant.The following table summarizes our acquisitions during 2011(dollars amounts in thousands):Number of Type of PropertyPurchase
PriceTransaction
CostsTotal
Acquisition
CostsNumber
of
PropertiesSNF
BedsALF
UnitsILF
UnitsSkilled Nursing(2)(3)(4)(5)
$ 93,841 $ 330 $ 94,171 7 1,016 — — Other Senior Housing(1)(6)
11,450 34 11,484 2 118 40 53 Land(2)
844 11 855 — — — — Totals
$ 106,135 $ 375 $ 106,510 9 1,134 40 53 the lease term.yield of 11.0%. The master lease contains annual escalations of 2.5% and has two 5-year renewal options.Bank Borrowings. During
2011,2014, weentered into a new $210.0amended our unsecured revolving line of credit increasing the commitment to $400.0 millionUnsecured Credit Agreement which provides forwith the opportunity to increase the credit amount up to a total of$250.0$600.0 million. Thenew Unsecured Credit Agreement provides aamended unsecured revolving line of creditwith no scheduled maturities other thandecreased our drawn pricing by 25 basis points and the maturitydate of April 18, 2015, and allows uswas extended toborrow atOctober 14, 2018. Additionally, thesame interest rates applicable to borrowings under our prior agreement, 150 basis points over LIBOR based on current leverage ratios. Financial covenants contained in the new Unsecured Credit Agreement, which are measured quarterly, require us to maintain, among other things:amendment provides for a one-year extension.Senior Unsecured Notes.During
2011,2014, we sold$50.0$30.0 million aggregate principal amount of4.8%4.5% senior unsecured notesfully amortizing to maturity ondue July20, 202131, 2026 to affiliates and managed accounts of Prudential Investment Management, Inc.(individuallyThe notes mature in 12 years with interest‑only payments in the first eight years andcollectively "Prudential").annual principal amortization thereafter. Wealso entered into an Amended and Restated Note Purchase and Private Shelf Agreement with Prudential which provides forused a portion of thepossible issuanceproceeds to pay down our unsecured revolving line ofup to an additional $100.0 million of senior unsecured fixed-rate term notes during a three-year issuance period.credit.Common Stock.Equity. During2011,2014, we sold3,990,000600,000 shares of common stockin an underwritten public offeringat a price of$27.25$41.50 per sharebefore fees and costs of $5.1 million, forin a direct placement to certain institutional investors. The net proceeds of$103.6 million. The net proceeds$24.6 million were used toredeem all of our 8.0% Series F Cumulative Preferred Stock (or Series F preferred stock), as discussed below, and the remaining net proceeds were used to partially repaypay down amounts outstanding under ourUnsecured Credit Agreement.unsecured revolving line of credit, to fund our current development commitments and for general corporate purposes.Preferred Stock.We redeemed 3,536,530 shares of our Series F preferred stock, representing all of the outstanding shares. The redemption price was $25.1333 per share, including accrued and unpaid dividends up to the redemption date. Accordingly, we recognized the $3.6 million of original issue costsrelated to the Series F preferred stock as a preferred stock redemption charge in the consolidated income statement line item income allocated to preferred stockholders.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
33
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, investment mix, operator mix and geographic mix. Concentration risk is valuable to understand what portion of our investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments that are real property or mortgage loans. In order to qualify as an equity REIT, at least 75 percent of our total assets must be represented by real estate assets, cash, cash items and government securities. Investment mix measures the portion of our investments that relate to our various property types. Operator mix measures the portion of our investments that relate to our top
threefive operators. Geographic mix measures the portion of our investment that relate to our top five states.The following table reflects our recent historical trends of concentration risk(gross investment, in thousands):
Period Ended 12/31/11 9/30/11 6/30/11 3/31/11 12/31/10 Asset mix:
Real property
$ 725,031 $ 690,458 $ 679,806 $ 679,616 $ 615,666 Loans receivable
54,002 54,987 56,355 58,018 60,007 Investment asset mix:
Skilled nursing properties
$ 389,458 $ 357,271 $ 348,195 $ 349,700 $ 298,734 Assisted living properties
308,757 308,680 308,785 308,702 309,129 Other senior housing properties(1)
67,732 67,302 67,011 67,062 55,640 Schools
12,192 12,192 12,170 12,170 12,170 Under Development(2)
894 — — — — Operator asset mix:
Extendicare (ALC)
$ 88,034 $ 88,034 $ 88,034 $ 88,034 $ 88,034 Preferred Care, Inc.(3)
88,309 88,471 88,324 88,489 87,685 Brookdale Communities
84,210 84,210 84,210 84,210 84,210 Remaining operators
518,480 484,730 475,593 476,901 415,744 Geographic mix:
Texas
$ 207,760 $ 191,965 $ 182,317 $ 183,600 $ 134,366 Florida
70,217 70,282 70,345 70,406 70,466 Ohio
56,804 56,804 56,804 56,804 56,804 California
52,036 34,653 34,767 34,878 34,605 New Mexico
48,876 48,876 48,876 48,876 48,876 Remaining states
343,340 342,865 343,052 343,070 330,556 Period Ended
12/31/2014
9/30/2014
6/30/2014
3/31/2014
12/31/2013
Asset mix:
Real property
$
949,838 $
966,012 $
956,516 $
951,491 $
937,617 Loans receivable
167,329 173,051 169,766 169,163 167,115 Investment mix:
Skilled nursing properties(1)
$
633,052 $
632,547 $
629,228 $
625,831 $
621,791 Assisted living properties(1)
415,520 442,538 435,406 431,567 420,385 Range of care properties
46,217 46,293 46,367 46,439 46,509 Under development(1)
11,495 6,802 4,848 3,210 2,440 Other(2)
10,883 10,883 10,433 13,607 13,607 Operator mix:
Prestige Healthcare
$
141,527 $
139,702 $
138,437 $
137,739 $
137,739 Brookdale Communities(3)
123,984 123,229 123,172 119,160 112,290 Senior Care Centers, LLC
115,039 114,539 114,539 114,539 114,539 Juniper Communities, LLC
87,088 87,088 87,088 87,088 87,088 Extendicare, Inc. & Enlivant(4)
48,977 88,034 88,034 88,034 88,034 Remaining operators
600,552 586,471 575,012 574,094 565,042 Geographic mix:
Texas
$
239,539 $
239,926 $
239,809 $
239,158 $
238,750 Michigan
129,338 127,513 126,247 125,550 125,550 Colorado
109,859 94,598 89,019 78,258 67,416 Ohio
98,647 98,647 98,647 98,647 98,647 Florida
71,011 77,665 77,555 82,046 82,079 Remaining states(4)
468,773 500,714 495,005 496,995 492,290 (1)
During 2014, we completed the construction of a 60‑unit memory care property, a 48-unit memory care property, a 143‑bed skilled nursing property and a combination assisted living and memory care property with 80 units. Accordingly, these properties were reclassified from “Under development” to either “Skilled nursing property” or “Assisted living property,” depending on the property type, for all periods presented.
(2)
Includes a school and five parcels of land held‑ for‑use.
(3)
In July 2014, Brookdale Senior Living, Inc., parent company of Brookdale Senior Living Communities, Inc. (or Brookdale Communities) merged with Emeritus Corporation (or Emeritus). Prior to the merger, Emeritus operated two assisted living properties under a master lease. These properties were reclassified into Brookdale Communities for all periods presented.
(4)
In December 2014, we sold 16 assisted living properties with a gross investment of $39,056 to an affiliate of Enlivant. These properties were located in Arizona, Idaho, Oregon and Washington. During 2014, we re-leased 20 assisted living properties, effective January 1, 2015, and closed an assisted living property formerly co-leased to affiliates of Extendicare, Inc. and Enlivant. See Investing Activities below for further discussion of the transactions relating to the properties formerly co-leased to affiliates of Extendicare, Inc. and Enlivant.
Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to
book capitalizationgross asset value and debt to market capitalization. The leverage ratios indicate how much34
of our consolidated balance sheet capitalization is related to long term obligations. Our coverage ratios include interest coverage ratio and fixed charge coverage ratio. The coverage ratios indicate our ability to service interest and fixed charges (interest plus preferred dividends). The coverage ratios are based on adjusted earnings before gain on sale of real estate, interest, taxes, depreciation and
amortization.amortization (or Adjusted EBITDA). 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:Balance Sheet Metrics
Year Ended
Quarter Ended
12/31/14
12/31/14
9/30/14
6/30/14
3/31/14
12/31/13
Debt to gross asset value
23.7 %
23.7 %
(1)
25.5 %
25.1 %
25.2 %
(5)
24.2 %
Debt & preferred stock to gross asset value
26.9 %
26.9 %
(1)
28.7 %
28.4 %
28.5 %
(5)
27.6 %
Debt to market capitalization ratio
15.2 %
15.2 %
(2)
18.6 %
(4)
17.4 %
17.9 %
18.0 %
Debt & preferred stock to market capitalization ratio
17.3 %
17.3 %
(2)
21.0 %
(4)
19.7 %
20.2 %
20.5 %
Interest coverage ratio(6)
7.3 x
6.9 x
(3)
7.3 x
7.5 x
7.6 x
7.7 x
Fixed charge coverage ratio(6)
6.0 x
5.7 x
(3)
6.0 x
6.1 x
6.1 x
6.1 x
Year to Date Quarter Ended 12/31/11 12/31/11 9/30/11 6/30/11 3/31/11 12/31/10 Debt to book capitalization ratio
25.4 % 25.3% (1) 21.9% (1) 20.8% (1) 10.1% (6) 16.7 % Debt & Preferred Stock to book capitalization ratio
31.5 % 31.5% (1) 28.3% (1) 27.3% (1) 17.5% (7) 39.8 % Debt to market capitalization ratio
14.0 % 14.0 % 14.0% (2) 12.2% (1) 5.6% (6) 9.5 % Debt & Preferred Stock to market capitalization ratio
17.4 % 17.4% (3) 18.1% (2) 16.0% (1) 9.6% (7) 23.0 % Interest coverage ratio(9)
11.7 x 9.9 x(4) 10.7 x(4) 12.2 x(4) 16.1 x(8) 17.5 x Fixed charge coverage ratio(9)
6.3 x 7.0 x(4) 7.3 x(4) 8.0 x(5) 4.3 x 4.8 x Year Ended
Quarter Ended
12/31/14
12/31/14
9/30/14
6/30/14
3/31/14
12/31/13
Net income
$
73,399 $
21,000 $
17,122 $
18,273 $
17,004 $
14,650 Less: Gain on sale
(4,959) (3,819) —
(1,140) —
—
Add: Interest expense
13,128 3,683 3,170 3,088 3,187 2,852 Add: Depreciation and amortization—continuing & discontinued operations
25,529 6,594 6,335 6,302 6,298 6,237 Total adjusted EBITDA
$
107,097 $
27,458 $
26,627 $
26,523 $
26,489 $
23,739 Interest expense
$
13,128 $
3,683 $
3,170 $
3,088 $
3,187 $
2,852 Add: Capitalized interest
1,506 290 474 435 307 214 Interest incurred
$
14,634 $
3,973 $
3,644 $
3,523 $
3,494 $
3,066 Interest coverage ratio
7.3 x
6.9 x
7.3 x
7.5 x
7.6 x
7.7 x
Interest incurred
$
14,634 $
3,973 $
3,644 $
3,523 $
3,494 $
3,066 Preferred stock dividends (excludes preferred stock redemption charge)
3,273 819 818 818 818 819 Total fixed charges
$
17,907 $
4,792 $
4,462 $
4,341 $
4,312 $
3,885 Fixed charge coverage ratio
6.0 x
5.7 x
6.0 x
6.1 x
6.1 x
6.1 x
(1)
Decrease primarily due to debt pay down from proceeds from the sale of 16 properties to Enlivant and proceeds from the sale of 600,000 shares of common stock in a registered direct placement partially offset by a decrease in gross asset value related to the sale of properties.
(2)
Decrease primarily due to the decrease in outstanding debt and the increase in market capitalization resulting from the sale of 600,000 shares of common stock in a registered direct placement and increase in stock price.
(3)
Decrease primarily due to increase in interest expense resulting from the sale of senior unsecured notes and increased availability under our expanded unsecured revolving line of credit.
(5)
Increase primarily due to increased borrowings under our unsecured revolving line of credit partially offset by the increase in gross asset value from additional development and capital improvement funding.
In calculating our interest coverage and fixed charge coverage ratios above, we use Adjusted EBITDA, which is a financial measure not derived in accordance with U.S. generally accepted accounting principles
(non-GAAP(non‑GAAP financial measure). Adjusted EBITDA is not an alternative to net income, operating income, income from continuing operations or cash flows from operating activities as calculated and presented in accordance with U.S. GAAP. You should not rely on Adjusted EBITDA as a substituteforor any such U.S. GAAP financial measures or consider it in isolation, for the purpose of analyzing our financial performance, financial position or cash flows. Net income is the most directly comparable GAAP measure to Adjusted EBITDA.Below are a reconciliation of net income to EBITDA and the calculation of the interest coverage and fixed charge coverage ratios disclosed above.35
Year to Date Quarter Ended 12/31/11 12/31/11 9/30/11 6/30/11 3/31/11 12/31/10 Net income
$ 49,443 $ 12,604 $ 12,423 $ 12,262 $ 12,154 $ 12,291 Less: Gain on sale
— — — — — (310 ) Add: Interest Expense
6,434 1,993 1,794 1,543 1,104 981 Add: Depreciation and amortization—continuing & discontinued operations
19,623 5,141 4,974 4,987 4,521 4,162 Total EBITDA
$ 75,500 $ 19,738 $ 19,191 $ 18,792 $ 17,779 $ 17,124 Interest expense
$ 6,434 $ 1,993 $ 1,794 $ 1,543 $ 1,104 $ 981 Interest coverage ratio
11.7 x 9.9 x 10.7 x 12.2 x 16.1 x 17.5 x Interest expense
$ 6,434 $ 1,993 $ 1,794 $ 1,543 $ 1,104 $ 981 Preferred stock dividends (excludes preferred stock redemption charge)
5,512 818 818 818 3,058 2,586 Total fixed charges
$ 11,946 $ 2,811 $ 2,612 $ 2,361 $ 4,162 $ 3,567 Fixed charge coverage ratio
6.3 x 7.0 x 7.3 x 8.0 x 4.3 x 4.8 x 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 senior housing industries; and
·
Changes in federal, state and local legislation.
Management regularly monitors the economic and other factors listed above. We develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability
to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and
company-specificcompany‑specific trends.36
Operating Results
Year ended December 31,
20112014 compared to year ended December 31,20102013 (in thousands)Years ended December 31,
2014
2013
Difference
Revenues:
Rental income
$
101,849 $
98,166 $
3,683 (1)
Interest income from mortgage loans
16,553 6,298 10,255 (2)
Interest and other income
559 510 49 Total revenues
118,961 104,974 13,987 Expenses:
Interest expense
13,128 11,364 1,764 (3)
Depreciation and amortization
25,529 24,389 1,140 (1)
Provision for doubtful accounts
32 2,180 (2,148) (4)
General and administrative expenses
11,832 11,636 196 Total expenses
50,521 49,569 952 Operating income
68,440 55,405 13,035 Gain on sale of real estate, net
4,959 —
4,959 (5)
Income from continuing operations
73,399 55,405 17,994 Discontinued operations:
Income from discontinued operations
—
805 (805) (6)
Gain on sale of real estate, net
—
1,605 (1,605) (6)
Net income from discontinued operations
—
2,410 (2,410) Net income
73,399 57,815 15,584 Income allocated to participating securities
(481) (383) (98) Income allocated to preferred stockholders
(3,273) (3,273) —
Net income available to common stockholders
$
69,645 $
54,159 $
15,486 (1)
Increased due to acquisitions, developments and capital improvement investments.
(2)
Increased primarily due to mortgage loan originations and capital improvement funding under certain mortgage loans partially offset by payoffs and normal amortization of mortgage loans.
(3)
Increased primarily due to the sale of senior unsecured notes.
(4)
During 2013, we recorded a one-time mortgage loan loss reserve related to a mortgage loan origination and wrote off $869 of straight-line rent receivable related to the transition of four assisted living properties to a new lessee.
(5)
Represents the gain on sale of two assisted living properties and the gain on sale of 16 assisted living properties sold to an affiliate of Enlivant partially offset by the loss on sale of a school. See Investing Activities below for further discussion of the transactions relating to the properties formerly co-leased to affiliates of Extendicare, Inc. and Enlivant. During 2014, we adopted a new accounting principle which only requires the presentation of discontinued operations if a disposal represents a strategic shift in operations. The new accounting principle is applied prospectively to all disposals subsequent to the adoption. The 2014 disposals did not represent strategic shifts in our operations. As a result, we did not reclassify results of operations for these disposed properties.
(6)
Represents the net gain on sale of seven skilled nursing properties and the corresponding net results of operations from those sold properties.
Revenues for the year ended December 31, 2011 increased to $85.2 million from $73.7 million for the same period in 2010 primarily due to increases in rental income partially offset by decreases in interest income from mortgage loans and interest and other income, as discussed below. Rental income for the year ended December 31, 2011 increased $13.3 million from the same period in 2010 primarily due to increases resulting from acquisitions in 2011 and 2010.37
Interest income from mortgage loans for the year ended December 31, 2011 decreased $1.1 million from the same period in 2010 primarily due to payoffs, normal amortizationInterest and other income for the year ended December 31, 2011 decreased $0.8 million from the same period in 2010 primarily due to a $0.8 million bankruptcy settlement distribution received in 2010 related to a former operator.Interest expense for the year ended December 31, 2011 was $3.8 million higher than the same period in 2010 primarily due to an increase in borrowings to fund acquisitions in 2011 and 2010, and the non-cash interest expense related to earn-out liabilities which represents the accretion of the difference between the current fair value and estimated payment of the contingent earn-out liabilities.Depreciation and amortization expense for the year ended December 31, 2011 increased $3.8 million from the same period in 2010 primarily due to acquisitions in 2011 and 2010.Provisions for doubtful accounts for the year ended December 31, 2011 decreased $1.4 million from the same period in 2010 primarily due to a provision for doubtful accounts charge in 2010 relating to two mortgage loans (one secured by a private school property located in Minnesota and one secured by land in Oklahoma).Acquisition costs for the year ended December 31, 2011 were comparable to the same period in 2010.Operating and other expenses for the year ended December 31, 2011 increased $1.5 million from the same period in 2010 primarily due to higher expense related to vesting of restricted stock granted in 2010, increased salaries and benefits reflective of increasing staffing levels, and higher consulting and marketing expenses.For the year ended December 31, 2011 and 2010, net income from discontinued operations included the financial results from properties sold and properties classified as held-for-sale and a gain on sale of properties sold. Properties classified as held-for-sale include a 140-unit independent living property located in Texas that we acquired via foreclosure in 2008. This reclassification was made in accordance with accounting guidance which requires that the financial results of properties meeting certain criteria be reported on a separate line item called "Discontinued Operations."Net income allocable to common stockholders for the year ended December 31, 2011 increased $10.2 million from the same period in 2010 primarily due to the redemption of all of our Series E and Series F preferred stock and the changes previously described above.Year ended December 31,
20102013 compared to year ended December 31,20092012 (in thousands)Revenues for the year ended December 31, 2010 increased to $73.7 million from $68.8 million for the same period in 2009Years ended December 31,
2013
2012
Difference
Revenues:
Rental income
$
98,166 $
86,022 $
12,144 (1)
Interest income from mortgage loans
6,298 5,496 802 (2)
Interest and other income
510 964 (454) (3)
Total revenues
104,974 92,482 12,492 Expenses:
Interest expense
11,364 9,932 1,432 (4)
Depreciation and amortization
24,389 21,613 2,776 (5)
Provision (recovery) for doubtful accounts
2,180 (101) 2,281 (6)
General and administrative expenses
11,636 10,732 904 (7)
Total expenses
49,569 42,176 7,393 Income from continuing operations
55,405 50,306 5,099 Discontinued operations:
Income from discontinued operations
805 1,005 (200) (8)
Gain on sale of real estate, net
1,605 16 1,589 (9)
Net income from discontinued operations
2,410 1,021 1,389 Net income
57,815 51,327 6,488 Income allocated to non-controlling interests
—
(37) 37 (10)
Net income attributable to LTC Properties, Inc.
57,815 51,290 6,525 Income allocated to participating securities
(383) (377) (6) Income allocated to preferred stockholders
(3,273) (3,273) —
Net income available to common stockholders
$
54,159 $
47,640 $
6,519 (1)
Increased due to acquisitions, developments and capital improvement investments.
(2)
Increased primarily due to mortgage loan originations and capital improvement funding under certain mortgage loans partially offset by normal amortization of existing mortgage loans.
(3)
Decreased primarily due to the redemption of the Skilled Healthcare Group Senior Subordinated Notes and a lower bankruptcy settlement distribution from Sunwest in 2013 than in 2012.
(4)
Increased primarily due to the sale of senior unsecured notes.
(5)
Increased due to acquisitions, developments and capital improvement investments.
(6)
During 2013, we recorded a one-time mortgage loan loss reserve related to a mortgage loan origination and wrote off $869 of straight-line rent receivable related to the transition of four assisted living properties to a new lessee.
(7)
Increased primarily due to the one‑time severance and accelerated restricted stock vesting charges related to the retirement of our former Senior Vice President, Marketing and Strategic Planning and higher salaries and benefits reflective of increased staffing levels.
(8)
Includes the financial results from properties sold during 2013 and 2012.
(9)
During 2013, we sold seven skilled nursing properties with a total of 277 beds for $11,001. During 2012, we sold a 140‑bed skilled nursing property for $1,248.
(10)
Decreased due to
increases in rental income and in interest and other income partially offset by decreases in interest income from mortgage loans, as discussed below. Rental income for the year ended December 31, 2010 increased $5.4 million from the same period in 2009 primarily from acquisitions.Interest income from mortgage loans for the year ended December 31, 2010 decreased $1.1 million from the same period in 2009 primarily due to payoffs, normal amortization of existing mortgage loans andthe conversion of all 112,588 limited partnership units during 2012.38
Funds From Operations
Funds from Operations (or FFO) available to common stockholders, basic FFO available to common stockholders per share and diluted FFO available to common stockholders per share are supplemental measures of a
mortgage loan to an owned property. During 2010, we acquiredREIT’s financial performance that are not defined by U.S. GAAP. Real estate values historically rise and fall with market conditions, but cost accounting for real estate assets in accordance with U.S. GAAP assumes that theschool property via deed-in-lieuvalue offoreclosurereal 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
result of the borrower filing for Chapter 7 bankruptcy. During 2011, we leased the school to a non-for-profit corporation that provides therapeutic support and intensive home, school and center-based behavioral therapy for children, youth and families affected by Autism Spectrum Disorders.Interest and other income for the year ended December 31, 2010 increased $0.5 million from the same period in 2009 primarily due to a $0.8 million bankruptcy settlement distribution related to a former operator partially offset by lower interest income resulting from payoffs and the normal amortizationsupplemental performance measurement of ournotes receivable.cash flow generated by operations. FFO does not represent cash generated from operating activities in accordance with U.S. 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.Interest expense forWe calculate and report FFO in accordance with theyear ended December 31, 2010 was $0.2 million higher thandefinition and interpretive guidelines issued by thesame periodNational Association of Real Estate Investment Trusts (or NAREIT). FFO, as defined by NAREIT, means net income available to common stockholders (computed in2009 due to increase in bank borrowings outstanding during 2010 andaccordance with U.S. GAAP) excluding gains or losses on the sale of$50.0 million aggregate principalreal estate and impairment write‑downs ofsenior unsecured notes partially offset by a decrease in mortgage loans payable outstanding during the period resulting from the repayment of mortgage loans and the normal amortization of existing mortgage loans.Depreciationdepreciable real estate plus real estate depreciation and amortization,expenseand 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 theyear ended December 31, 2010 increased $1.4 million from the same period in 2009 primarily due to acquisitions.Provisions for doubtful accounts for the year ended December 31, 2010 increased $1.2 million from the same period in 2009 primarily due to a provision for doubtful accounts charge related to two mortgage loans (one secured by a private school property located in Minnesota and one secured by land in Oklahoma).Acquisition costs for the year ended December 31, 2010 increased $0.2 million as compared to same period in 2009 due to higher transaction volume in 2010.Operating and other expenses for the year ended December 31, 2010 increased $0.5 million from the same period in 2009 primarily due to an increase in legal and other expenses related to the shelf registration and the Series E and Series F preferred stock redemption.For the year ended December 31, 2010 and 2009, net income from discontinued operations included the financial results from properties sold and properties classified as held-for-sale and a gain on sale of properties sold. During 2010, we sold a 195-bed skilled nursing property in Virginia and recognized a gain of $0.3 million. Properties classified as held-for-sale include a 140-unit independent living property located in Texas that we acquired via foreclosure in 2008. This reclassification was madeterm in accordance withaccounting guidance which requiresthe current NAREIT definition or that have a different interpretation of thefinancial resultscurrent NAREIT definition from us; therefore, caution should be exercised when comparing our FFO to that ofproperties meeting certain criteria be reported on a separate line item called "Discontinued Operations."other REITs.NetThe following table reconciles net incomeallocableavailable to common stockholdersfor the year ended December 31, 2010 increased $0.2 million from the same periodto FFO available to common stockholders (unaudited, amounts in2009 primarily due to the changes previously described above and the redemptionthousands, except per share amounts):For the year ended December 31,
2014
2013
2012
Net income available to common stockholders
$
69,645 $
54,159 $
47,640 Add: Depreciation and amortization (including continuing and discontinued operations)
25,529 24,706 22,153 Less: Gain on sale of real estate, net
(4,959) (1,605) (16) FFO available to common stockholders(1)
$
90,215 $
77,260 $
69,777 FFO available to common stockholders per share:
Basic
$
2.61 $
2.33 $
2.31 Diluted(1)(2)
$
2.55 $
2.29 $
2.26 Weighted average shares used to calculate FFO per share:
Basic
34,617 33,111 30,238 Diluted(2)
36,866 35,342 32,508 (1)
For the years ended December 31, 2014 and 2013, FFO for diluted FFO per share includes income allocated to the participating securities and income allocated the preferred stockholders. For the year ended December 31, 2012, FFO for diluted FFO per share includes income allocated to the participating securities, income allocated the preferred stockholders and income allocated to non‑controlling interests.
(2)
For the years ended December 31, 2014 and 2013, weighted average shares for diluted FFO per share includes stock option common stock equivalents, participating securities and Series C Cumulative Convertible Preferred Stock. For the year ended December 31, 2012, weighted average shares for diluted FFO per share includes stock option common stock equivalents, participating securities, Series C Cumulative Convertible Preferred Stock and convertible non‑controlling interests.
39
Critical Accounting Policies
Preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. SeeItem 8. FINANCIAL STATEMENTS—Note 2. Summary of Significant Accounting Policies for a description of the significant accounting policies we followed in preparing the consolidated financial statements for all periods presented. We have identified the following significant accounting policies as critical accounting policies in that they require significant judgment and estimates and have the most impact on financial reporting.
Impairments. Impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses the impairment of properties individually and impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that we will dispose of the property. In determining fair value, we use current appraisals or other third party opinions of value and other estimates of fair value such as estimated discounted future cash flows.
Also, we evaluate the carrying values of mortgage loans receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgage loan receivable when events or circumstances, such as the
non-receiptnon‑receipt of principal and interest payments and/or significant deterioration of the financial condition of the borrower, indicate that the carrying amount of the mortgage loan receivable may not be recoverable. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying amount of the mortgage loan receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the mortgage.Accounting Standards Codification No. 320,Investments—Debt and Equity SecuritiesOwned Properties.(or ASC 320), requires an entityWe make estimates as part of our allocation of the purchase price of acquisitions toassess whether it intendsthe various components of the acquisition based upon the fair value of each component. In determining fair value, we use current appraisals or other third party opinions of value. The most significant components of our allocations are typically the allocation of fair value tosell, or it is more likely than not that it will be requiredland and buildings and, for certain of our acquisitions, in‑place leases and other intangible assets. In the case of the fair value of buildings and the allocation of value tosell, a debt security in an unrealized loss position before recoveryland and other intangibles, the estimates ofits amortized cost basis. If eitherthe values of thesecriteria is met, the entire difference between fair value and amortized cost is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria,components will affect the amount ofimpairment is split into two components as follows: 1) other-than-temporary impairment (or OTTI)depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in‑place leases, we make best estimates based on the evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease‑up periods, market conditions and costs to execute similar leases. These assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in‑place leases. We evaluate each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related toother factors such as an entity's abilityacquisitions that are not deemed tomake scheduled interest or principal payments onbe businesses are included in thedebt securities, which is recognized in other comprehensive income and 2) OTTIcost basis of the acquired assets, while transaction costs related tocredit loss, which must be recognized in the income statement. The credit loss is determined as the difference between the present value of the cash flows expectedacquisitions that are deemed to becollected and the amortized cost basis.businesses are expensed as incurred.Mortgage Loans Receivable. Mortgage loans receivable we originate are recorded on an amortized cost basis. Mortgage loans we acquire are recorded at fair value at the time of purchase net of any related premium or discount which is amortized as a yield adjustment to interest income over the life of the loan. We maintain a valuation allowance based upon the expected collectability of our mortgage loans receivable. Changes in the valuation allowance are included in current period earnings.
Revenue Recognition. Interest income on mortgage loans is recognized using the effective interest method. We follow a policy related to mortgage interest whereby we consider a loan to be
non-performingnon‑performing after 60 days ofnon-paymentnon‑payment of amounts due and do not recognize unpaid mortgage interest income from that loan until the past due amounts have been received.40
Rental income from operating leases is generally recognized on a
straight-linestraight‑line basis over the terms of the leases. Substantially all of our leases contain provisions for specified annual increases over therents of the prior year and are generally computed in one of four methods depending on specific provisions of each lease as follows:
(i)
a specified annual increase over the prior year’s rent, generally between 2.0% and 3.0%;
(ii)
a calculation based on the Consumer Price Index;
(iii)
as a percentage of facility revenues in excess of base amounts or
(iv)
specific dollar increases.
The FASB does not provide for the recognition of contingent revenue until all possible contingencies have been eliminated. We consider the operating history of the lessee and the general condition of the industry when evaluating whether all possible contingencies have been eliminated and have historically, and expect in the future, to not include contingent rents as income until received. We follow a policy related to rental income whereby we consider a lease to be
non-performingnon‑performing after 60 days ofnon-paymentnon‑payment of past due amounts and do not recognize unpaid rental income from that lease until the amounts have been received.Rental revenues relating to
non-contingentnon‑contingent leases that contain specified rental increases over the life of the lease are recognized on thestraight-linestraight‑line basis. Recognizing income on astraight-linestraight‑line basis requires us to calculate the totalnon-contingentnon‑contingent rent containing specified rental increases over the life of the lease and to recognize the revenue evenly over that life. This method results in rental income in the early years of a lease being higher than actual cash received, creating astraight-linestraight‑line rent receivable asset included in our consolidated balance sheet. At some point during the lease, depending on its terms, the cash rent payments eventually exceed thestraight-linestraight‑line rent which results in thestraight-linestraight‑line rent receivable asset decreasing to zero over the remainder of the lease term. We assess the collectability ofstraight-linestraight‑line rent in accordance with the applicable accounting standards and our reserve policy. If the lessee becomes delinquent in rent owed under the terms of the lease, we may provide a reserve against the recognizedstraight-linestraight‑line rent receivable asset for a portion, up to its full value, that we estimate may not be recoverable.Payments made to or on behalf of our lessees represent incentives that are deferred and amortized as a yield adjustment over the term of the lease on a straight-line basis. Net loan fee income and commitment fee income are amortized over the life of the related loan.
Costs associatedIn May 2014, the FASB issued Accounting Standards Update No. 2014-09 (or ASU 2014-09), Revenue from Contracts with
leases are deferred and allocated over the lease term in proportion toCustomers: Topic 606. ASU 2014-09 provides for a single comprehensive principles based standard for the recognition ofrental income.revenue across all industries through the application of the following five-step process:Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 requires expanded disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. We are evaluating the effects of this adoption on our consolidated financial statements.
Liquidity and Capital Resources
Operating Activities:
At December 31,
2011,2014, our gross real estate investment portfolio (before accumulated depreciation and amortization) consisted of$725.0$949.8 million invested primarily in owned long termhealthcarehealth care properties and mortgage loans of approximately$54.0$167.3 million (prior to deducting a$0.9$1.7 million reserve). Our portfolio consists of investments in8997 skilled nursing properties102(or SNF), 92 assisted living properties14 other senior housing(or ALF), eight range of care properties (or ROC), one school, twoschools and a parcelparcels of land underdevelopment.development and five parcels of land held‑for‑use. These properties are located in3041
29 states.
Other senior housing properties consist ofOur ALF classification includes assisted living, independent living and memory care properties and our ROC classification consists of properties providing skilled nursing and any combination ofskilled nursing,assisted living, independent living and/orindependent livingmemory care services. For the year ended December 31,2011,2014, we had net cash provided by operating activities of$70.8$95.8 million.For the year ended December 31,
20112014 werecorded $3.7recognized $3.0 million instraight-linestraight‑line rental income and$46,000$30,000 instraight-linestraight‑line rent receivable reserve.We currently expect that straight-line rental incomeOur lease with affiliates of Extendicare, Inc. (or Extendicare) and Enlivant covering 37 assisted living properties expired on December 31, 2014. Effective January 1, 2015, we re-leased 20 of the 37 properties by adding 13 properties to an existing master lease and entering into a new master lease for seven of the properties. See Investing Activities below for further discussion of the transactions relating to the properties formerly co-leased to affiliates of Extendicare and Enlivant. For the remaining leases in place at December 31,2011 will decrease from $3.7 million in 2011 to $2.4 million in 20122014, including the new leases effective January 1, 2015 for 20 properties formerly co-leased by Extendicare and Enlivant, and assuming no modification or replacement of existing leases and no new leased investments are added to ourportfolio.portfolio, we currently expect that straight‑line rental income will increase from $3.0 million in 2014 to $6.9 million for projected annual 2015 primarily due to the new leases effective January 1, 2015 for 20 properties, as previously discussed, and completed development projects. Conversely, our cash rental income is projected toincreasedecrease from$74.6$99.7 million in20112014 to$81.1$98.1 millionin 2012 assuming no modification or replacementfor projected annual 2015 primarily due to the sale ofexisting leases and no new leasedinvestments are added16 properties toour portfolio.Enlivant partially offset by completed development projects. During the year ended December 31,20112014, we received$74.6$99.7 million of cash rental revenue and recorded$0.7$0.8 million of amortized leaseinducement cost.inducement. At December 31, 2014, the straight‑line rent receivable balance, net of reserves, on the consolidated balance sheet was $32.7 million.Investing Activities:
For the year ended December 31,
2011,2014, we used$97.4$29.0 million of cash for investing activities.The following table summarizes our acquisitions during 2011(dollar amounts in thousands):Number of Type of PropertyPurchase
PriceTransaction
CostsTotal
Acquisition
CostsNumber
of
PropertiesSNF
BedsALF
UnitsILF
UnitsSkilled Nursing(2)(3)(4)(5)
$ 93,841 $ 330 $ 94,171 7 1,016 — — Other Senior Housing(1)(6)
11,450 34 11,484 2 118 40 53 Land(2)
844 11 855 — — — — Totals
$ 106,135 $ 375 $ 106,510 9 1,134 40 53 Also, during 2011, we invested $3.1 million, at an average yield of 9.7%, under agreements to expand and renovate 11 existing properties operated by seven different operators and we invested $42,000 in capital improvements to existing properties under various lease agreements whose rental rates already reflected this investment.In January 2012,2014, we entered intoan agreementthree agreements relating tosellthe 37 assisted living properties as follows:·
We sold 16 properties, consisting of 615 units located in Washington, Oregon, Idaho and Arizona to an affiliate of Enlivant for a sales price of $26.5 million. Accordingly, we recognized a gain on sale of $3.8 million. We also gave Enlivant consent to close a
140-bed skilled nursingproperty located in Oregon. We are currently exploring sale and lease options for this property which has a net book value of $0.9 million.·
We added 13 properties with 500 units in Indiana, Iowa, Ohio, Nebraska and New Jersey to an existing master lease with an affiliate of Senior Lifestyle Management (or Senior Lifestyle). Beginning January 1, 2015, the initial term of the amended and restated master lease will be 15 years and rent will increase by $5.1 million over the current annual rent, increasing by 2.6% annually thereafter.
·
We re-leased seven properties with 278 units in Texas to Veritas InCare (or Veritas) under a new 10-year master lease. Beginning January 1, 2015, the initial rent will be $1.5 million increasing 2.5% annually.
Extendicare and Enlivant paid rent in
Texas for $1.2 million. This property is leased under a master lease andaccordance with theeconomicterms ofthisthe current masterleaseleases through December 31, 2014. The initial cash yield on the 20 properties re-leased to Senior Lifestyle and Veritas is comparable to the cash yield in 2014 under the expiring master leases with Extendicare and Enlivant. Additionally, the new and amended master leases willnot change asprovide us with the potential for additional rent attributable to participation in revenue growth at the properties over aresultpredetermined base amount.43
During the twelve months ended December 31, 2014, we completed the following development and
will resultimprovement projects (dollar amounts ina $16,000 gain recognized in 2012.thousands):Number
Number
of
Type of
of
Type of Project
Properties
Property
Beds/Units
State
2014 Funding
Total Funding
Development
1
ALF
60
Colorado
$
6,351 $
9,689 (1)
Development
1
ALF
80
Texas
2,300 5,691 (2)
Development
1
SNF
143
Kentucky
10,579 20,904 (3)
Development
1
ALF
48
Colorado
7,257 8,744 (4)
Expansion/Renovation
1
ALF
72
Colorado
6,371 6,376 Expansion/Renovation
2
ALF
123
Colorado
5,091 5,095 Improvements
1
SNF
120
Florida
500 500 Improvements
2
SNF
235
New Mexico
319 1,746 10
881
$
38,768 (5)
$
58,745 (5)
(1)
Development of a memory care property completed in August 2014. The total funded amount includes acquired land of $1,200.
(2)
Development of a memory care property completed in October 2014. The total funded amount includes acquired land of $1,000.
(3)
Completed in October 2014 and total funded amount includes acquired land of $2,050.
(4)
Development of a memory care property completed in December 2014. The total funded amount includes acquired land of $850.
(5)
In 2014, we funded $500 to purchase Texas Medicaid bed rights for a 122-bed skilled nursing property under an existing lease. Additionally, during 2014, we funded the final commitment balance of $551 on a newly developed 77-unit assisted living property in Kansas which opened in 2013. Subsequent to December 31, 2014, we funded an additional $4,711 under these completed projects.
During
2011,the twelve months ended December 31, 2014, we received$2.8$2.2 million in regularly scheduled principal payments and received $7.0 million plus accrued interest related to the early payoff offourtwo mortgage loans secured by three skilled nursing properties and one assisted living property. Subsequent to December 31, 2014, we received $2.3 million plus accrued interest for the payoff of a mortgage loan secured by one range of care property. During 2014, we originated a $3.0 million mortgage loan secured by a 100-unit independent living property in Arizona. The loan is for a term of five years and bears interest at 7.0%, escalating 0.25% annually.We fully funded a $10.6 million mortgage and construction loan with final funding of $3.0 million in 2014. This mortgage and construction loan was secured by a skilled nursing property and
sevena newly constructed 106-bed replacement skilled nursingproperties.property. Upon completion of the 106-bed replacement skilled nursing property, the residents of the old skilled nursing property were relocated to the new skilled nursing property and the old skilled nursing property was closed. During 2014, the old skilled nursing property was sold by the borrower and released as collateral. Subsequent to December 31, 2014, we purchased and equipped the replacement property for a total of $13.9 million by exercising our option under the agreement. The property was added to an existing master lease at a lease rate equivalent to the interest rate in effect on the loan at the time the purchase option was exercised. Additionally, we paid the lessee a $1.1 million lease inducement which will be amortized as a yield adjustment over the life of the lease term.During 2013, we funded the initial amount of $124.4 million under a mortgage loan with a third‑party operator, Prestige Healthcare (or Prestige), secured by 15 skilled nursing properties with a total of 2,058 beds in Michigan. The loan agreement provides for additional commitments of $12.0 million for capital and, under certain conditions and based on certain operating metrics and valuation thresholds achieved and sustained within the initial twelve years of the term, up to $40.0 million of additional proceeds, for a total loan commitment of up to $176.4 million. During 2014, we funded $3.4 million under the $12.0 million capital improvement commitment with $8.7 million remaining as of December 31, 2014. Subsequent to December 31, 2014, we funded an additional $0.8 million under the $12.0 million capital improvement commitment, with a corresponding reduction in the remaining commitment balance to $7.9 million.
In addition, this mortgage loan provided Prestige a one‑time option to prepay up to 50% of the then outstanding loan balance without penalty. Subsequent to December 31, 2014, we amended this mortgage loan to provide up to an
44
additional $20.0 million in loan proceeds for the redevelopment of two properties securing the loan (increasing the total capital improvement commitment to $32.0 million and the total loan commitment to $196.4 million) and agreed to convey, to Prestige, two parcels of land held-for-use adjacent to these properties to facilitate the projects. As partial consideration for the increased commitment and associated conveyance, the borrower forfeited their prepayment option. As a result of the forfeiture of the prepayment option, we expect to record $1.3 million of effective interest during 2015.
Additionally, in 2015, we originated an $11.0 million mortgage loan with Prestige concurrently funding $9.5 million with a commitment to fund the balance for approved capital improvement projects. The loan is secured by a 157-bed skilled nursing property in Michigan and bears interest at 9.41% for five years, escalating annually thereafter by 2.25%. The term is 30 years with interest-only payments. After the thirteenth month of the commencement date, the interest rate on newly advanced amounts on the mortgage and construction loan will equal the greater of (i) 7.25% plus the positive difference, if any, between the average yield on the U.S. Treasury 10-year note for the twenty days prior to funding or (ii) 9.0% with annual escalations of 2.25%. Additionally, we have the option to purchase the property under certain circumstances, including a change in regulatory environment.
During 2014, we received
$3.1principal payments of $0.1 million and we advanced principal of $1.3 million under notes receivable. Subsequent to December 31, 2014, we advanced $0.5 million of principal under notes receivable. During 2014, we committed to fund four pre‑development loans of $0.3 million each to facilitate the site selection and pre‑construction costs for the future development of four memory care properties. The initial rate of each of these pre‑development loans is 12%, increasing by 25 basis points per year. One of these pre‑development loans matured due to the acquisition of the land and the outstanding balance of $0.3 million was reclassified to real estate under development during 2014. Also, during 2014, we committed to fund a $0.5 million working capital loan to an existing operator with interest at 6.5% maturing in December 2019. Subsequent to December 31, 2014, we committed to fund a working capital loan of $0.5 million to an existing operator with interest at 6.5% maturing in February 2019.Financing Activities:
For the year ended December 31, 2014, we used $48.3 million of cash for financing activities. We paid off our multifamily tax-exempt revenue bonds that were secured by five assisted living properties in Washington including $0.6 million in regularly scheduled principal payments
on mortgage loans.and the remaining outstanding balance of $1.4 million.During
the year ended December 31, 2011,2014, wefunded $0.2 million on an 8.5% construction and term loan in which we committed to provide up to $2.5 million for capital improvements at two senior housing properties we own and lease to the borrower. Upon the earlier of the full funding of the $2.5 million or December 31, 2012, construction distribution under this loan will cease and this loan will fully amortize to maturity in November 2017. Additionally, we received $0.7 million in principal payments on various loans and lines of credit with certain operators. At December 31, 2011, we had six such notes receivable outstanding with a carrying value of $0.8 million at a weighted average interest rate of 10.0%.Financing Activities:For the year ended December 31, 2011, we had net cash provided by financing activities of $24.1 million. During 2011, we paid $0.5 million in scheduled principal payments on bonds payable.During 2011, we entered into a new $210.0 millionamended our Unsecured Credit Agreementwhich provides forincreasing the commitment to $400.0 million with the opportunity to increase the credit amount up to a total of$250.0$600.0 million.The new Unsecured Credit Agreement provides a revolving line of credit with no scheduled maturities other thanAdditionally, the drawn pricing was decreased by 25 basis points and the maturitydateofApril 18, 2015, and allows usthe facility was extended toborrowOctober 14, 2018. The amendment also provides for a one‑year extension option at our discretion, subject to customary conditions. Based on our leverage ratios at December 31, 2014, thesameamended facility provides for interestrates applicable to borrowings under our prior agreement, 150annually at LIBOR plus 115 basis pointsover LIBOR based on current leverage ratios.and the unused commitment fee was 25 basis points.Financial covenants contained in the
newUnsecured Credit Agreement, which are measured quarterly, require us to maintain, among other things:(i)
a ratio of total indebtedness to total asset value not greater than 0.5 to 1.0;
(ii)
a ratio of secured debt to total asset value not greater than 0.35 to 1.0;
(iii)
a ratio of unsecured debt to the value of the unencumbered asset value not greater than 0.6 to 1.0; and
(iv)
a ratio of EBITDA, as calculated in the Unsecured Credit Agreement, to fixed charges not less than 1.50 to 1.0.
During
the year ended December 31, 2011,2014, we borrowed$167.6$37.5 million and repaid$149.3$58.5 million under our unsecured revolving line of credits. At December 31, 2014, we had no outstanding borrowings under our Unsecured CreditAgreement. At December 31, 2011, we had $56.0 million outstanding at an interest rate of LIBOR plus 1.50%Agreement and$154.0$400.0 million available for borrowing.During January 2012,Subsequent to December 31, 2014, we borrowed$4.0 million. After this borrowing,$18.0 million under our unsecured revolving line of credit. Accordingly, wehad $60.0have $18.0 million outstanding and$150.0$382.0 million available for borrowing. At December 31,2011,2014, we were in compliance with allourcovenants.During the year endedAt December 31,2011,2014, we had $281.6 million outstanding under our senior unsecured notes with a weighted average interest rate of 4.81%. During 2014, we sold $30.0 million senior unsecured term notes to affiliates and managed accounts of Prudential Investment Management, Inc.(individually and collectively "Prudential") $50.0 million aggregate principal amount of 4.8% senior unsecured term notes fully amortizing to maturity on July 20, 2021. Additionally, we entered into anunder our Amended and Restated Note Purchase and Private ShelfAgreement with Prudential which provides for45
agreement. These notes bear interest at 4.5% and will mature on July 31, 2026. We used the
possible issuanceproceeds to pay down our unsecured revolving line ofup to an additional $100.0credit. As a result of the sale of $30.0 millionofsenior unsecuredfixed-rateterm notes,during a three-year issuance period. Financial covenants contained in theour Amended and Restated Note Purchase and Private Shelf agreementare substantially the same as the financial covenants containedhas been exhausted with no more availability. Also, during 2014, we paid $4.2 million in regularly scheduled principal payments on ourUnsecured Credit Agreement. At December 31, 2011, we were in compliance with all our covenants.senior unsecured notes.During
2011, we redeemed 3,536,530 shares of our Series F preferred stock, representing all of the outstanding shares. The Series F preferred stock had a liquidation value of $25.00 per share. The redemption price was $25.1333 per share, including accrued and unpaid dividends up to the redemption date. Accordingly, we recognized the $3.6 million of original issue costs related to the Series F preferred stock as a preferred stock redemption charge in the consolidated income statement line item income allocated to preferred stockholders.During 2011,2014, we sold3,990,000600,000 shares of common stock at a price of$27.25$41.50 per sharebefore fees and costs of $5.1 million,inan underwritten public offering.a registered direct placement to certain institutional investors. The net proceeds of$103.6$24.6 million were used toredeem all of our Series F preferred stock outstanding, as previously discussed, and the remaining net proceeds were used to partially repaypay down amounts outstanding under ourUnsecured Credit Agreement.unsecured line of credit, to fund current developments and for general corporate purposes.We have an equity distribution agreement which allows us to issue and sell, from time to time, up to $85.7 million in aggregate offering price of our common shares. Sales of common shares are made by means of ordinary brokers' transactions at market prices, in block transactions, or as otherwise agreed between us and our sales agents. During the year ended December 31, 2011, we did not sell shares of common stock under our equity distribution agreement. At December 31, 2011 we had $64.6 million available under this agreement.Our Board of Directors authorized a share repurchase program enabling us to repurchase up to 5,000,000 shares of our equity securities, including common and preferred securities. During 2011, we did not purchase shares of our equity securities. We continue to have an open Board authorization to purchase an additional 3,360,237 shares in total of our equity securities.We paid cash dividends on our 8.5% Series C
and Series F preferred stockCumulative Convertible Preferred Stock totaling $3.3million and $4.0 million, respectively.million. Additionally, we declared and paid cash dividends on our common stock totaling$49.3$71.2 million. In January2012,2015, we declared a monthly cash dividend of$0.145$0.17 per share on our common stock for the months of January, February and March2012, which is a 3.6% increase from the previous $0.14 per share per month dividend. The monthly cash dividends are2015 payable on January31,30, February2927 and March30, 2012,31, 2015, respectively, to stockholders of record on January23,22, February2119 and March22, 2012,23, 2015, respectively.At December 31, 2014, we had a 2008 Equity Participation Plan, under which 600,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non‑employee directors and consultants. The terms of the awards granted under the 2008 Equity Participation Plan are set by our compensation committee at its discretion. Dividends are payable on the restricted shares to the extent and on the same date as dividends are paid on all of our common stock. During
2011,2014, we granted6,00095,000 shares of restricted common stock as follows:Price per
No. of Shares
Share
Vesting Period
59,000 $
36.81 ratably over 3 years
3,000 $
38.43 ratably over 3 years
15,000 $
40.05 ratably over 3 years
10,500 $
40.05 June 9, 2015
7,500 $
41.34 November 12, 2015
95,000 Subsequent to December 31, 2014, we cancelled 640 shares of restricted stock and granted 65,750 shares of restricted common stock at
$28.70$44.45 per share. These shares vest ratably from the grant date over a three-yearperiod fromperiod.During 2014, we issued 15,000 options to purchase common stock at an exercise price of $38.43 per share. These stock options vest ratably over a three-year period. The fair value of these options was estimated utilizing the Black-Scholes-Merton valuation model and assumptions as of the grant date.
We did not grant stock options during 2011.In determining the estimated fair value, the expected life assumption was three years, the volatility was 0.21, the risk free interest rate was 0.66% and the expected dividend yield was 5.31%. The fair value of the option granted was estimated to be $2.96. Also, during2011,2014, a total of5,00045,000 stock options were exercised at a total option value of$0.1$1.1 million and a total market value on the date of exercise of$0.2$1.8 million.In January 2012, we granted 14,000 shares of restricted common stock at $31.77 per share. These shares vest ratably over a five-year period from the grant date. Additionally, we granted 30,000 shares of restricted common stock at $31.77 per share. These shares all vest on June 15, 2015. We also granted 12,200 shares of restricted common stock at $31.77 per share in January 2012. These shares all vest on January 10, 2016.We have one limited partnership. The limited partnership agreement allows the limited partners to convert, on a one-for-one basis, their limited partnership units into shares of common stock or the cash equivalent, at our option.At December 31,2011,2014, we havereserved 112,588 shares43,334 stock options outstanding ofour commonwhich 28,334 of those stockunder this partnership agreement. Since we exercise control, we consolidate the limited partnership and we carry the non-controlling interests at cost. During 2011, none of our limited partners exercised their conversion rights. At December 31, 2011, the carrying value and market value of the partnership conversion rights was $2.0 million and $3.5 million, respectively.options are exercisable.In January 2012, two of our limited partners exercised their conversion rights. One limited partner exchanged all of its 67,294 partnership units and the other limited partner exchanged 22,000 partnership units in the limited partnership. Upon receipt of the redemption notification of 89,294 limited partnership units, we elected to satisfy the redemption in cash. We paid the limited partners$2.8 million, which represents the closing price of our common stock on the redemption date plus $0.05 per share multiplied by the number of limited partnership units redeemed. The amount we paid upon redemption exceeded the book value of the limited partnership interest redeemed by $1.2 million. In accordance with FASB accounting guidance, we account for this exchange as an equity transaction because there was no change in control requiring consolidation or deconsolidation and remeasurement. Accordingly, the $1.2 million excess book value of the limited partners' interest in the partnership was reclassified to stockholders' equity. Subsequent to these conversions, we have reserved 23,294 shares of our common stock under this partnership agreement.Available Shelf
Registrations:Registration:During 2010,On July 19, 2013, we filed a FormS-3 "shelf"S‑3ASR “shelf” registration statementwhich became effective June 16, 2010,to replace our prior shelf registration statement. Our current shelf registration statement provides us with the capacity to offer up to$400.0$800.0 million in common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under our current shelf registration 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. At December 31,2011,2014, we had availability of$167.6$775.1 million under our effective shelfregistration.registration which expires on July 19, 2016.46
Commitments:
Commitments:During 2011, we purchased four skilled nursing properties with 524-beds in Texas. As part of the purchase agreement, we paid cash at closing andWe committed to provide up to $4.0 million of contingentearn-outpayments, if certain operational thresholds aremet.met, to an operator under an amended master lease agreement, as previously discussed in Investing Activities. The contingentearn-outpaymentarrangements require us to pay two earn-out payments totalling up to $11.0 million upon the properties achieving a sustainable stipulated rent coverage ratio. We estimated thewas recorded at fair value ofthe contingent earn-out payments$3.2 million, which was estimated using a discounted cash flowanalysis.analysis, and we will accrete the contingent liabilities to the estimated settlement amount as of the estimated payment date. The fair value of such contingentearn-out payments were recorded at the dateliability will be re‑evaluated on a quarterly basis based on changes in estimates ofacquisitionfuture operating results and changes inthe amount of $9.8 million and were included on the consolidated balance sheet line item "earn-out liabilities."market discount rates. During2011,2014, we recordednon-cashnon‑cash interest expense of$0.5 million$18,000 related tothe earn-out liabilities which represent the accretion of the difference between the current fair value and estimated payment of thethese contingentearn-outliabilities.During 2011, we paid $4.0 million related to the first contingent earn-out payment.At December 31,2011, the remaining contingent2014, these earn-outpaymentsliabilities had a fair value of$6.3$3.3 million.The following table summarizes our
capital improvementinvestment commitments as of December 31,20112014 and amounts funded on our open development and improvement projects (excludes capitalized interest, dollar amounts in thousands):CommitmentExpiration
DateUsed
Commitment
at 12/31/11Open
Commitment
at 12/31/11Estimated
YieldProperty
TypeProperties Major Operator $ 100 8/1/12 $ — $ 100 (2) SNF 1 N/A 730 8/31/13 674 56 (7) 9.00 %(3) Other (1) 2 N/A 8,250 10/11/13 50 8,200 9.00 %(4) SNF (8) — N/A 5,000 (6) 12/31/14 — 5,000 (5) ALF 37 ALC $ 14,080 $ 724 $ 13,356 Number
Number
Investment
2014
Commitment
Remaining
of
of
Type of Property
Commitment
Funding(2)
Funded
Commitment
Properties
Beds/Units
Skilled Nursing
$
2,200 $
1,156 $
2,161 $
39 2 141 Assisted Living(1)
27,751 8,831 11,268 16,483 26 1,194 Totals
$
29,951 $
9,987 (3)
$
13,429 $
16,522 (3)
28 1,335 (1)
Includes the development of a 66-unit memory care property for a commitment of $12,248, as previously discussed, a 60-unit memory care property for a total commitment of $10,703 and the improvement of 24 assisted living properties for a total investment commitment of $4,800.
(3)
Subsequent to December 31, 2014, we funded $731 under investment commitments. Accordingly, we have a remaining commitment of $15,791. Additionally, in January 2015, we amended an existing master lease with an operator to provide a commitment not to exceed $600 for the purpose of making capital improvements at a 196-skilled nursing property in Texas. Upon the capital improvement deadline of June 30, 2015 or final funding of the capital improvement commitment, the minimum rent will increase by the product of 9% and the total capital improvement funded.
Subsequent to December 31, 2014, we entered into a master lease agreement and committed to provide development commitments totaling $28.7 million. Under these development commitments, we purchased land and existing improvements for the purpose of
independent living propertiescompleting a 56-unit memory care property currently under construction for $7.2 million andproperties providing anyland for the purpose of building an 89-unit combinationof skilled nursing,assisted livingand/or independent living services.Under a mortgage loan with Prestige, we committed to provide additional loan proceeds of up to $40.0 million, under certain conditions and based on certain operating metrics and valuation thresholds achieved and sustained within the initial
lease rate.The following table summarizes our loanoperator with interest at 6.5% maturing in February 2019. Accordingly, we have twelve loans and line of credit agreements with commitmentsastotaling $4.3 million and a remaining commitment balance ofDecember 31, 2011 (dollar amounts in thousands):$2.3 million.CommitmentExpiration
DateUsed
Commitment
at 12/31/11Open
Commitment
at 12/31/11Yield Property
Type(1)Properties Major
Operator$ 50 3/31/12 $ 20 $ 30 10.00 % Other 1 N/A 2,500 (2) 12/31/12 232 2,268 8.50 % Other 2 N/A $ 2,550 $ 252 $ 2,298 Contractual Obligations:
We monitor our contractual obligations and commitments detailed above to ensure funds are available to meet obligations when due. The following table represents our
longlong‑term contractual obligations (scheduled principal payments and amounts due at maturity) as of December 31,2011,2014, and excludes the effects of interest (in thousands):Total
2015
2016
2017
2018
2019
Thereafter
Bank borrowings
$
—
(1)
$
—
$
—
$
—
$
—
$
—
$
—
Senior unsecured notes
281,633 29,166 26,667 26,167 28,167 25,666 145,800 $
281,633 $
29,166 $
26,667 $
26,167 $
28,167 $
25,666 $
145,800 (1)
At December 31, 2014 we had $400,000 available for borrowing under our unsecured revolving line of credit. Subsequent to December 31, 2014, we borrowed $18,000. Accordingly, we had $18,000 outstanding and $382,000 available for borrowing.
Assuming no other borrowing under our unsecured revolving line of credit except for the $18.0 million borrowing subsequent December 31, 2014, and principal payments are paid as scheduled under our senior unsecured notes, the following table represents our projected interest expense, excluding capitalized interest, amortization of debt issue costs, bank fees and earn-out accretion, as of December 31, 2014 (in thousands):
Total
2015
2016
2017
2018
2019
Thereafter
Bank borrowings
$
4,775 $
1,261 $
1,265 $
1,261 $
988 $
—
$
—
Senior unsecured notes
69,505 12,529 11,302 10,107 8,902 7,674 18,991 $
74,280 $
13,790 $
12,567 $
11,368 $
9,890 $
7,674 $
18,991 Total 2012 2013 2014 2015 2016 Thereafter Bank borrowings
$ 56,000 (1) $ — $ — $ — $ 56,000 $ — $ — Senior unsecured notes
100,000 — — 4,167 29,166 16,667 50,000 Bonds payable
3,200 565 600 635 1,400 — — $ 159,200 $ 565 $ 600 $ 4,802 $ 86,566 $ 16,667 $ 50,000 Off-BalanceOff‑Balance Sheet Arrangements:We had no
off-balanceoff‑balance sheet arrangements as of December 31,2011.2014.Liquidity:
We have an Unsecured Credit Agreement in the amount of
$210.0$400.0 millionand it provides forwith the opportunity to increase the credit amount up to a total of$250.0$600.0 million. The Unsecured Credit Agreement provides a revolving line of credit with no scheduled maturities other than the maturity date ofApril 18, 2015.October 14, 2018. Based on ourcurrentmaximum total indebtedness to total asset value ratio at December 31, 2014 as calculated in the Unsecured Credit Agreement, ourcurrentpricing under the Unsecured Credit Agreement is either Prime Rate plus0.50%0.15% or LIBOR plus1.50%1.15% depending on our borrowing election. At the time of borrowing, we may elect the 1, 2, 3 or 6 month LIBOR rate.At December 31,
2011,2014, we had$4.4$25.2 million of cash on hand$154.0and $400.0 million availableonunsecured revolving48
line of credit. Subsequent to December 31, 2014, we borrowed $18.0 million under our
$210.0unsecured revolving line of credit. Accordingly, we have $18.0 millionUnsecured Credit Agreement, and $100.0outstanding with $382.0 million available for borrowing. Also, we have $775.1 million available underthe uncommitted privateour effective shelfagreement. Also, our potential abilityregistration to access the capital markets through the issuance of$64.6 million of common stock under our equity distribution agreement and through the issuance ofdebt and/or equitysecurities under our $167.6 million effective shelf registration.securities. As a result, we believe our liquidity and various sources of available capital are sufficient to provide for payment of our current operating costs, debt obligations (both principal and interest), and capital commitments to our lessees and borrowers and to provide funds for distribution to the holders of our preferred stock and pay common dividends at least sufficient to maintain our REIT status. 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.Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
You are cautioned that statements contained in this section are forward looking and should be read in conjunction with the disclosure under the heading
"Cautionary Statements"“Cautionary Statements” and the"Risk Factors"“Risk Factors” set forth above.We are exposed to market risks associated with changes in interest rates as they relate to our mortgage loans receivable and debt. Interest rate risk is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.
We do not utilize interest rate swaps, forward or option contracts or foreign currencies or commodities, or other types of derivative financial instruments nor do we engage in
"off-balance sheet"“off‑balance sheet” transactions. The purpose of the following disclosure is to provide a framework to understand our sensitivity to hypothetical changes in interest rates as of December 31,2011.2014.Our future earnings, cash flows and estimated fair values relating to financial instruments are dependent upon prevalent market rates of interest, such as LIBOR or term rates of U.S. Treasury Notes. Changes in interest rates generally impact the fair value, but not future earnings or cash flows, of mortgage loans receivable and fixed rate debt. Our mortgage loans receivable and debt, such as our senior unsecured notes, are primarily fixed‑rate instruments. For variable rate debt, such as our revolving line of credit, changes in interest rates generally do not impact the fair value, but do affect future earnings and cash flows.
At December 31,
2011,2014, the fair value of our mortgage loans receivable usinga 6.0%an 8.6% discount rate was approximately$61.8$199.0 million. A 1% increase in such rates would decrease the estimated fair value of our mortgage loans by approximately$1.8$16.4 million while a 1% decrease in such rates would increase their estimated fair value by approximately$1.8$19.3 million. At December 31,2011,2014, the fair value of our senior unsecured notes using a4.8%3.80% discount rate for those maturing before year 2020 and 4.55% discount rate for those maturing beyond year 2020 was approximately$101.2$283.9 million. A 1% increase in such rates would decrease the estimated fair value of our senior unsecured notes by approximately$4.5$12.3 million while a 1% decrease in such rates would increase their estimated fair value by approximately$4.8$13.2 million. These discount rates were measured based uponmanagement'smanagement’s estimates of rates currently prevailing for comparable loans available to us and instruments of comparable maturities.The estimated impact of changes in interest rates discussed above are determined by considering the impact of the hypothetical interest rates on our borrowing costs, lending rates and current U.S. Treasury rates from which our financial instruments may be priced. We do not believe that future market rate risks related to our financial instruments will be material to our financial position or results of operations. These analyses do not consider the effects of industry specific events, changes in the real estate markets, or other overall economic activities that could increase or decrease the fair value of our financial instruments. If such events or changes were to occur, we would consider taking actions to mitigate and/or reduce any negative exposure to such changes. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure.
49
Item 8. FINANCIAL
STATEMENTS
STATEMENTSIndex to Consolidated Financial Statements
and Financial Statement Schedules
Page
Report of Independent Registered Public Accounting Firm
51
Consolidated Balance Sheets as of December 31,
20112014 and2010201352
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012
53
5354
Consolidated Statements of Equity for the years ended December 31,
2011, 20102014, 2013 and200920125455
Consolidated Statements of Cash Flows for the years ended December 31,
2011, 20102014, 2013 and200920125556
Notes to Consolidated Financial Statements
5657
Schedule II—Valuation and Qualifying Accounts
8384
Schedule III—Real Estate and Accumulated Depreciation
8485
Schedule IV—Mortgage Loans on Real Estate
8990
Management Report on Internal Control over Financial Reporting
9293
Report of Independent Registered Public Accounting Firm
9394
50
REPORT OF INDEPENDEN
REPORT OF INDEPENDENTT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of LTC Properties, Inc.
We have audited the accompanying consolidated balance sheets of LTC Properties, Inc. (the
"Company"“Company”) as of December 31,20112014 and2010,2013, and the related consolidated statements of income,andcomprehensive income, equity, and cash flows for each of the three years in the period ended December 31,2011.2014. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of LTC Properties, Inc. at December 31,
20112014 and2010,2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,2011,2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects, the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), LTC Properties, Inc.
's’s internal control over financial reporting as of December 31,2011,2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February27, 201226, 2015 expressed an unqualified opinion thereon.As discussed in Note 2. Summary of Significant Accounting Policies to the consolidated financial statements, the Company changed its presentation of discontinued operations as a result of the early adoption of FASB Accounting Standard Update No. 2014-08 effective January 1, 2014.
/s/
ErnstERNST &YoungYOUNG LLPLos Angeles, California
February
27, 201226, 201551
CONSOLIDATED BALANCE SHEETS
(In thousands)December 31, 2011 2010 ASSETS
Real Estate Investments:
Land
$ 57,093 $ 43,031 Buildings and improvements
662,300 567,017 Accumulated depreciation and amortization
(177,583 ) (158,204 ) Net operating real estate property
541,810 451,844 Properties held-for-sale, net of accumulated depreciation and amortization: 2011—$613; 2010—$505
5,025 5,113 Net real estate property
546,835 456,957 Mortgage loans receivable, net of allowance for doubtful accounts: 2011—$921; 2010—$981
53,081 59,026 Real estate investments, net
599,916 515,983 Other Assets:
Cash and cash equivalents
4,408 6,903 Debt issue costs, net
2,301 743 Interest receivable
1,494 1,571 Straight-line rent receivable,(1) net of allowance for doubtful accounts: 2011—$680; 2010—$634
23,772 20,090 Prepaid expenses and other assets
7,852 8,162 Other assets related to properties held-for-sale, net of allowance for doubtful accounts: 2011—$839; 2010—$839
52 51 Notes receivable
817 1,283 Marketable securities(2)
6,485 6,478 Total assets
$ 647,097 $ 561,264 LIABILITIES
Bank borrowings
$ 56,000 $ 37,700 Senior unsecured notes
100,000 50,000 Bonds payable
3,200 3,730 Accrued interest
1,356 675 Earn-out liabilities
6,305 — Accrued expenses and other liabilities
11,400 9,737 Accrued expenses and other liabilities related to properties held-for-sale
126 132 Distributions payable
— 1,768 Total liabilities
178,387 103,742 EQUITY
Stockholders' equity:
Preferred stock $0.01 par value: 15,000 shares authorized; shares issued
and outstanding: 2011—2,000; 2010—5,536
38,500 126,913 Common stock: $0.01 par value; 45,000 shares authorized; shares issued and outstanding: 2011—30,346; 2010—26,345
303 263 Capital in excess of par value
507,343 398,599 Cumulative net income
672,743 623,491 Other
199 264 Cumulative distributions
(752,340 ) (693,970 ) Total LTC Properties, Inc. stockholders' equity
466,748 455,560 Non-controlling interests
1,962 1,962 Total equity
468,710 457,522 Total liabilities and equity
$ 647,097 $ 561,264 See accompanying notes.LTC PROPERTIES, INC.CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)December 31,
2014
2013
ASSETS
Real estate investments:
Land
$
80,024 $
80,993 Buildings and improvements
869,814 856,624 Accumulated depreciation and amortization
(223,315) (218,700) Net operating real estate property
726,523 718,917 Mortgage loans receivable, net of loan loss reserve: 2014—$1,673; 2013—$1,671
165,656 165,444 Real estate investments, net
892,179 884,361 Other assets:
Cash and cash equivalents
25,237 6,778 Debt issue costs, net
3,782 2,458 Interest receivable
597 702 Straight-line rent receivable, net of allowance for doubtful accounts: 2014—$731; 2013—$1,541
32,651 29,760 Prepaid expenses and other assets
9,931 6,756 Notes receivable
1,442 595 Total assets
$
965,819 $
931,410 LIABILITIES
Bank borrowings
$
—
$
21,000 Senior unsecured notes
281,633 255,800 Bonds payable
—
2,035 Accrued interest
3,556 3,424 Earn-out liabilities
3,258 —
Accrued expenses and other liabilities
17,251 16,713 Total liabilities
305,698 298,972 EQUITY
Stockholders’ equity:
Preferred stock $0.01 par value; 15,000 shares authorized; shares issued and outstanding: 2014—2,000; 2013—2,000
38,500 38,500 Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2014—35,480; 2013—34,746
355 347 Capital in excess of par value
717,396 688,654 Cumulative net income
855,247 781,848 Accumulated other comprehensive income
82 117 Cumulative distributions
(951,459) (877,028) Total equity
660,121 632,438 Total liabilities and equity
$
965,819 $
931,410 See accompanying notes.
52
Years ended December 31, 2011 2010 2009 Revenues:
Rental income(1)
$ 77,643 $ 64,351 $ 58,908 Interest income from mortgage loans
6,411 7,482 8,558 Interest and other income(2)
1,106 1,863 1,328 Total revenues
85,160 73,696 68,794 Expenses:
Interest expense
6,434 2,653 2,418 Depreciation and amortization
19,515 15,717 14,320 Provisions for doubtful accounts
(13 ) 1,409 196 Acquisition costs
393 370 180 Operating and other expenses
9,158 7,687 7,207 Total expenses
35,487 27,836 24,321 Income from continuing operations
49,673 45,860 44,473 Discontinued operations:
Loss from discontinued operations
(230 ) (117 ) (113 ) Gain on sale of assets, net
— 310 — Net (loss) income from discontinued operations
(230 ) 193 (113 ) Net income
49,443 46,053 44,360 Income allocated to non-controlling interests
(191 ) (191 ) (296 ) Net income attributable to LTC Properties, Inc.
49,252 45,862 44,064 Income allocated to participating securities
(342 ) (230 ) (139 ) Income allocated to preferred stockholders
(9,078 ) (16,045 ) (14,515 ) Net income available to common stockholders
$ 39,832 $ 29,587 $ 29,410 Net income
$
49,443
$
46,053
$
44,360Reclassification adjustment
(65 ) (126 ) (345 ) Comprehensive income
49,378 45,927 44,015 Comprehensive income allocated to non-controlling interests
(191 ) (191 ) (296 ) Comprehensive income attributed to LTC Properties, Inc.
$ 49,187 $ 45,736 $ 43,719 Basic earnings per common share (See Note 14):
Continuing operations
$ 1.37 $ 1.20 $ 1.28 Discontinued operations
$ (0.01 ) $ 0.01 $ (0.00 ) Net income available to common stockholders
$ 1.36 $ 1.21 $ 1.27 Diluted earnings per common share (See Note 14):
Continuing operations
$ 1.37 $ 1.20 $ 1.28 Discontinued operations
$ (0.01 ) $ 0.01 $ (0.00 ) Net income available to common stockholders
$ 1.36 $ 1.21 $ 1.27 Weighted average shares used to calculate earnings per common share:
Basic
29,194 24,495 23,099 Diluted
29,222 24,568 23,182 (In thousands, except per share amounts)
Year Ended December 31,
2014
2013
2012
Revenues:
Rental income
$
101,849 $
98,166 $
86,022 Interest income from mortgage loans
16,553 6,298 5,496 Interest and other income
559 510 964 Total revenues
118,961 104,974 92,482 Expenses:
Interest expense
13,128 11,364 9,932 Depreciation and amortization
25,529 24,389 21,613 Provision (recovery) for doubtful accounts
32 2,180 (101) General and administrative expenses
11,832 11,636 10,732 Total expenses
50,521 49,569 42,176 Operating income
68,440 55,405 50,306 Gain on sale of real estate, net
4,959 —
—
Income from continuing operations
73,399 55,405 50,306 Discontinued operations:
Income from discontinued operations
—
805 1,005 Gain on sale of assets, net
—
1,605 16 Net income from discontinued operations
—
2,410 1,021 Net income
73,399 57,815 51,327 Income allocated to non-controlling interests
—
—
(37) Net income attributable to LTC Properties, Inc.
73,399 57,815 51,290 Income allocated to participating securities
(481) (383) (377) Income allocated to preferred stockholders
(3,273) (3,273) (3,273) Net income available to common stockholders
$
69,645 $
54,159 $
47,640 Basic earnings per common share:
Continuing operations
$
2.01 $
1.56 $
1.54 Discontinued operations
$
—
$
0.07 $
0.03 Net income available to common stockholders
$
2.01 $
1.64 $
1.58 Diluted earnings per common share:
Continuing operations
$
1.99 $
1.56 $
1.54 Discontinued operations
$
—
$
0.07 $
0.03 Net income available to common stockholders
$
1.99 $
1.63 $
1.57 Weighted average shares used to calculate earnings per common share:
Basic
34,617 33,111 30,238 Diluted
36,640 33,142 30,278 NOTE: Computations of per share amounts from continuing operations, discontinued operations and net income are made independently. Therefore, the sum of per share amounts from continuing operations and discontinued operations may not agree with the per share amounts from net income available to common stockholders.
See accompanying
notes.53
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Year Ended December 31,
2014
2013
2012
Net income
$
73,399 $
57,815 $
51,327 Reclassification adjustment (Note 10)
(35) (35) (47) Comprehensive income
73,364 57,780 51,280 Comprehensive income allocated to non-controlling interests
—
—
(37) Comprehensive income attributable to LTC Properties, Inc.
$
73,364 $
57,780 $
51,243 See accompanying notes.
54
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Shares Shares
Capital in
Cumulative
Total
Non-
Preferred
StockCommon
StockPreferred
StockCommon
StockCapital in
Excess of
Par ValueCumulative
Net
IncomeOther Cumulative
DistributionsTotal
Stockholders'
EquityNon-
controlling
InterestsTotal
EquityPreferred
Common
Preferred
Common
Excess of
Net
Accumulated
Cumulative
Stockholders’
controlling
Total
Balance—December 31, 2008
8,042 23,136 $ 189,560 $ 231 $ 321,979 $ 533,565 $ 735 $ (588,192 ) $ 457,878 $ 3,134 $ 461,012 Conversion of 8.5% Series E Preferred Stock
(1
)
2
(22
)
—
22
—
—
—
—
—
—Stock
Stock
Stock
Stock
Par Value
Income
OCI
Distributions
Equity
Interests
Equity
Balance—December 31, 2011
2,000 30,346 $
38,500 $
303 $
507,343 $
672,743 $
199 $
(752,340) $
466,748 $
1,962 $
468,710 Reclassification adjustment
— — — — — — (345 ) — (345 ) — (345 ) —
—
—
—
—
—
(47) —
(47) —
(47) Stock option exercises
— 35 — — 770 — — — 770 — 770 —
85 —
1 1,925 —
—
—
1,926 —
1,926 Repurchase of stock
(109 ) (1 ) (2,737 ) — 95 — — 626 (2,016 ) — (2,016 ) Issue common stock
— 30 — — 766 — — — 766 — 766 Issue restricted stock
— 43 — 1 (1 ) — — — — — — —
90 —
1 (1) —
—
—
—
—
—
Net income
— — — — — 44,064 — — 44,064 296 44,360 —
—
—
—
—
51,290 —
—
51,290 37 51,327 Vested stock options
— — — — 147 — — — 147 — 147 —
—
—
—
10 —
—
—
10 —
10 Vested restricted stock
— — — — 1,242 — — — 1,242 — 1,242 —
—
—
—
1,809 —
—
—
1,809 —
1,809 Non-controlling interests conversion
— 67 — 1 1,143 — — — 1,144 (1,144 ) — —
23 —
—
(850) —
—
—
(850) (1,914) (2,764) Non-controlling interests preferred return
— — — — — — — — — (305 ) (305 ) —
—
—
—
—
—
—
—
—
(78) (78) Preferred stock dividends
— — — — — — — (15,141 ) (15,141 ) — (15,141 ) —
—
—
—
—
—
—
(3,273) (3,273) —
(3,273) Common stock cash distributions ($1.56 per share)
— — — — — — — (36,177 ) (36,177 ) — (36,177 ) Balance—December 31, 2009
7,932 23,312 186,801 233 326,163 577,629 390 (638,884 ) 452,332 1,981 454,313 Conversion of 8.5% Series E Preferred Stock
(33 ) 66 (823 ) 1 822 — — — — — — 8.5% Series E Preferred Stock full redemption
(5 ) — (123 ) — 6 — — (6 ) (123 ) — (123 ) 8.0% Series F Preferred Stock partial redemption
(2,358 ) — (58,942 ) — 2,377 — — (2,377 ) (58,942 ) — (58,942 ) Common stock cash distributions ($1.79 per share)
—
—
—
—
—
—
—
(54,512) (54,512) —
(54,512) Balance—December 31, 2012
2,000 30,544 38,500 305 510,236 724,033 152 (810,125) 463,101 7 463,108 Reclassification adjustment
— — — — — — (126 ) — (126 ) (126 ) —
—
—
—
—
—
(35) —
(35) —
(35) Stock option exercises
— 12 — — 182 — — — 182 — 182 Issue common stock
— 2,746 — 27 67,766 — — — 67,793 — 67,793 Issuance of common stock
—
4,152 —
42 175,556 —
—
—
175,598 —
175,598 Issue restricted stock
— 209 — 2 (2 ) — — — — — — —
35 —
—
—
—
—
—
—
—
—
Net income
— — — — — 45,862 — — 45,862 191 46,053 —
—
—
—
—
57,815 —
—
57,815 —
57,815 Vested stock options
— — — — 75 — — — 75 — 75 Vested restricted stock
— — — — 1,210 — — — 1,210 — 1,210 —
—
—
—
2,591 —
—
—
2,591 —
2,591 Stock option exercises
—
22 —
—
523 —
—
—
523 —
523 Non-controlling interests preferred return
— — — — — — — — — (210 ) (210 ) —
—
—
—
—
—
—
—
—
(7) (7) Preferred stock dividends
— — — — — — — (13,662 ) (13,662 ) — (13,662 ) —
—
—
—
—
—
—
(3,272) (3,272) —
(3,272) Common stock cash distributions ($1.58 per share)
— — — — — — — (39,041 ) (39,041 ) — (39,041 ) Balance—December 31, 2010
5,536 26,345 126,913 263 398,599 623,491 264 (693,970 ) 455,560 1,962 457,522 8.0% Series F Preferred Stock full redemption
(3,536 ) — (88,413 ) — 3,566 — — (3,566 ) (88,413 ) — (88,413 ) Common stock cash distributions ($1.91 per share)
—
—
—
—
—
—
—
(63,631) (63,631) —
(63,631) Other
—
(7) —
—
(252) —
—
—
(252) —
(252) Balance—December 31, 2013
2,000 34,746 38,500 347 688,654 781,848 117 (877,028) 632,438 —
632,438 Reclassification adjustment
— — — — — — (65 ) — (65 ) — (65 ) —
—
—
—
—
—
(35) —
(35) —
(35) Stock option exercises
— 5 — — 120 — — — 120 — 120 Issue common stock
— 3,990 — 40 103,591 — — — 103,631 — 103,631 Issuance of common stock
—
600 —
6 24,638 —
—
—
24,644 —
24,644 Issue restricted stock
— 6 — — — — — — — — — —
95 —
1 (1) —
—
—
—
—
—
Net income
— — — — — 49,252 — — 49,252 191 49,443 —
—
—
—
—
73,399 —
—
73,399 —
73,399 Vested restricted stock
—
—
—
—
3,241 —
—
—
3,241 —
3,241 Vested stock options
— — — — 17 — — — 17 — 17 —
—
—
—
12 —
—
—
12 —
12 Vested restricted stock
— — — — 1,450 — — — 1,450 — 1,450 Stock option exercises
—
45 —
1 1,070 —
—
—
1,071 —
1,071 Non-controlling interests preferred return
— — — — — — — — — (191 ) (191 ) —
—
—
—
—
—
—
—
—
—
—
Preferred stock dividends
— — — — — — — (5,512 ) (5,512 ) — (5,512 ) —
—
—
—
—
—
—
(3,273) (3,273) —
(3,273) Common stock cash distributions ($1.68 per share)
— — — — — — — (49,292 ) (49,292 ) — (49,292 ) Balance—December 31, 2011
2,000 30,346 $ 38,500 $ 303 $ 507,343 $ 672,743 $ 199 $ (752,340 ) $ 466,748 $ 1,962 $ 468,710 Common stock cash distributions ($2.04 per share)
—
—
—
—
—
—
—
(71,158) (71,158) —
(71,158) Other
—
(6) —
—
(218) —
—
—
(218) —
(218) Balance—December 31, 2014
2,000 35,480 $
38,500 $
355 $
717,396 $
855,247 $
82 $
(951,459) $
660,121 $
—
$
660,121 See accompanying
notes.55
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2014
2013
2012
OPERATING ACTIVITIES:
Net income
$
73,399 $
57,815 $
51,327 Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization—continuing and discontinued operations
25,529 24,706 22,153 Stock-based compensation expense
3,253 2,591 1,819 Gain on sale of assets, net
(4,959) (1,605) (16) Straight-line rental income—continuing and discontinued operations
(3,002) (3,955) (3,264) Provision (recovery) for doubtful accounts
32 2,180 (101) Non-cash interest related to earn-out liabilities
18 256 439 Other non-cash items, net
1,653 1,441 1,460 Decrease in interest receivable
72 32 535 Increase in accrued interest payable
132 145 1,923 Net change in other assets and liabilities
(365) 3,519 545 Net cash provided by operating activities
95,762 87,125 76,820 INVESTING ACTIVITIES:
Investment in real estate properties, net
(11,650) (19,040) (166,750) Investment in real estate developments, net
(34,135) (23,605) (9,957) Investment in real estate capital improvements, net
(13,967) (6,992) (1,132) Capitalized interest
(1,506) (932) (130) Proceeds from sale of real estate investments, net
33,593 11,001 1,271 Investment in real estate mortgages
(9,374) (129,358) (7,719) Principal payments received on mortgage loans receivable
9,155 1,933 21,633 Proceeds from redemption of marketable securities
—
—
6,500 Advances under notes receivable
(1,263) (1,004) (2,930) Principal payments received on notes receivable
113 3,110 569 Net cash used in investing activities
(29,034) (164,887) (158,645) FINANCING ACTIVITIES:
Bank borrowings
37,500 93,000 153,500 Repayment of bank borrowings
(58,500) (187,500) (94,000) Proceeds from issuance of senior unsecured notes
30,000 70,000 85,800 Principal payments on senior unsecured notes
(4,167) —
—
Principal payments on mortgage loan payable and bonds payable
(2,035) (600) (565) Payment of earn-out liabilities
—
(7,000) —
Proceeds from common stock offering
24,644 176,260 —
Stock option exercises
1,071 523 1,926 Distributions paid to stockholders
(74,431) (66,904) (57,785) Redemption of non-controlling interests
—
—
(2,764) Distributions paid to non-controlling interests
—
(7) (78) Financing costs paid
(2,132) (171) (1,426) Other
(219) (252) —
Net cash (used in) provided by financing activities
(48,269) 77,349 84,608 Increase (decrease) in cash and cash equivalents
18,459 (413) 2,783 Cash and cash equivalents, beginning of year
6,778 7,191 4,408 Cash and cash equivalents, end of year
$
25,237 $
6,778 $
7,191 Supplemental disclosure of cash flow information:
Interest paid
$
13,694 $
11,398 $
7,452 Non-cash investing and financing transactions:
See Note 4: Supplemental Cash Flow Information for further discussion.
Year ended December 31, 2011 2010 2009 OPERATING ACTIVITIES:
Net income
$ 49,443 $ 46,053 $ 44,360 Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization—continuing and discontinued operations
19,623 16,109 14,822 Stock-based compensation expense
1,467 1,285 1,389 Gain on sale of assets, net
— (310 ) — Straight-line rental income—continuing and discontinued operations(1)
(3,728 ) (3,822 ) (4,241 ) Provisions for doubtful accounts—continuing and discontinued operations
(13 ) 2,010 775 Non-cash interest related to earn-out liabilities
464 — — Other non-cash items, net
1,675 1,231 851 Decrease in interest receivable
56 95 91 Increase in prepaid, other assets and allowance
(490 ) (310 ) (285 ) Increase (decrease) in accrued interest payable
681 573 (149 ) Increase in accrued expenses and other liabilities
1,657 2,411 2,727 Net cash provided by operating activities
70,835 65,325 60,340 INVESTING ACTIVITIES:
Investment in real estate properties and capital improvements, net
(103,855 ) (100,424 ) (16,984 ) Proceeds from sale of real estate investments, net
— 4,864 — Investment in real estate mortgages
— (1,694 ) (221 ) Principal payments received on mortgage loans receivable
5,967 8,403 7,843 Advances under notes receivable
(232 ) (100 ) (375 ) Principal payments received on notes receivable
731 1,573 671 Net cash used in investing activities
(97,389 ) (87,378 ) (9,066 ) FINANCING ACTIVITIES:
Bank borrowings
167,600 83,700 19,000 Repayment of bank borrowings
(149,300 ) (59,500 ) (5,500 ) Proceeds from issuance of senior unsecured notes
50,000 50,000 — Principal payments on mortgage loan payable and bonds payable
(530 ) (8,180 ) (24,843 ) Proceeds from common stock offering
103,631 67,793 766 Repurchase of common stock
— — (16 ) Repurchase of preferred stock
— — (2,000 ) Redemption of preferred stock
(88,413 ) (59,065 ) — Distributions paid to stockholders
(56,572 ) (53,902 ) (51,373 ) Distributions paid to non-controlling interests
(191 ) (210 ) (305 ) Debt issue costs
(2,286 ) (718 ) (35 ) Stock option exercises
120 182 770 Net cash provided by (used in) financing activities
24,059 20,100 (63,536 ) Decrease in cash and cash equivalents
(2,495 ) (1,953 ) (12,262 ) Cash and cash equivalents, beginning of year
6,903 8,856 21,118 Cash and cash equivalents, end of year
$ 4,408 $ 6,903 $ 8,856 Supplemental disclosure of cash flow information:
Interest paid
$ 5,025 $ 1,628 $ 2,177 Non-cash investing and financing transactions:
SeeNote 4: Supplemental Cash Flow Information for further discussion.
See accompanying
notes.56
LTC Properties, Inc. (or LTC), a Maryland corporation, commenced operations on August 25, 1992. LTC is a real estate investment trust (or REIT) that invests primarily in senior housing and long term care properties through
mortgage loans,property lease transactions, mortgage loans and other investments.2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements include the accounts of LTC, our
wholly-ownedwholly‑owned subsidiaries and our controlledpartnership.partnership, prior to its liquidation in 2013. All intercompany investments, accounts and transactions have been eliminated. Control over the partnershipiswas based on the provisions of the partnership agreement thatprovidesprovided us with a controlling financial interest in the partnership. Under the terms of the partnership agreement, we, as the general partner,arewere responsible for the management of thepartnership'spartnership’s assets, business and affairs. Our rights and duties in management of the partnershipincludeincluded making all operating decisions, setting the capital budget, executing all contracts, making all employment decisions, and handling the purchase and disposition of assets, among others. We, as the general partner,arewere responsible for the ongoing, major, and central operations of the partnership andmakemade all management decisions. In addition, we, as the general partner,assumeassumed the risk for all operating losses, capital losses, andarewere entitled to substantially all capital gains (appreciation).The Financial Accounting Standard Board (or FASB) created a framework for evaluating whether a general partner or a group of general partners controls a limited partnership or a managing member or a group of managing members controls a limited liability company and therefore should consolidate the entity. The guidance states that the presumption of general partner or managing member control would be overcome only when the limited partners or
non-managingnon‑managing members have certain specific rights as described in the guidance. The limited partnershavehad virtually no rights andarewere precluded from taking part in the operation, management or control of the partnership. The limited partnersarewere also precluded from transferring their partnership interests without the expressed permission of the general partner. However, wecancould transfer our interest without consultation or permission of the limited partners. Weconsolidate our partnershipsconsolidated the partnership in accordance with the guidance.The FASB requires the classification of
non-controllingnon‑controlling interests(formerly minority interests)as a component of consolidated equity in the consolidated balance sheet subject to the provisions of the rules governing classification and measurement of redeemable securities. The guidance requires consolidated net income to be reported at the amounts attributable to both the controlling andnon-controllingnon‑ controlling interests. The calculation of earnings per share will be based on income amounts attributable to the controlling interest. Also, this guidance addresses accounting and reporting for a change in control of a subsidiary.Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation, including changes as a result of the application of accounting guidance for properties held-for-sale.The FASB addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. The guidance requires that we consolidate a
"variable“variable interestentity"entity” if we are determined to be the primary beneficiary of the equity. The guidance also requires disclosure about"variable“variable interestentities"entities” that we are not required to consolidate but in which we have a significant variable interest. We believe that as of December 31,2011,2014, we do not have investments in any entities that meet the definition of a"variable“variable interest entity."LTC PROPERTIES, INC.”NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Impact of New Accounting Pronouncement.In May 2011, the FASB issued Accounting Standards Update (or ASU) No. 2011-04,Fair Value Measurement(ASC Topic 820):Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS"). The pronouncement was issued to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and IFRS. ASU No. 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The revised guidance is effective for interim and annual periods beginning after December 15, 2011 and early application by public entities is prohibited. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.In June 2011, the FASB issued ASU No. 2011-05,Comprehensive Income. ASU No. 2011-05 amends Topic 220 of the ASC and provides that an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both instances, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The provisions of ASU No. 2011-05 will be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance concerns disclosure only and will not have an impact on our consolidated financial position or results of operations.Use of Estimates. Preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (or GAAP)requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents. Cash equivalents consist of highly liquid investments with a maturity of three months or less when purchased and are stated at cost which approximates market.
57
Owned Properties.
Accounting forWe make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the fair value ofsenior housing and long term care properties as a purchase transaction requires an allocation of purchase price to land, buildings, improvements, acquired lease intangibles and equipments are recorded at their respective fair values on the acquisition date. Further, the FASB accounting guidance requires the acquiring entity to measure any non-controlling interests at their fair values on the acquisition date.each component. In determining fair value, we use current appraisals or other third party opinions of value.This guidance also requiresThe most significant components of our allocations are typically the allocation of fair value to land and buildings and, for certain of our acquisitions, in‑place leases and other intangible assets. In the case of the fair value of buildings and the allocation of value to land and other intangibles, the estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in‑place leases, we make best estimates based on the evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease‑up periods, market conditions and costs to execute similar leases. These assumptions affect the amount of future revenue thatacquisition-relatedwe will recognize over the remaining lease term for the acquired in‑place leases. We evaluate each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related to acquisitions that are not deemed to be businesses are included in the cost basis of the acquired assets, while transaction costs related to acquisitions that are deemed to be businesses are expensed asincurred and acquired researchincurred.We capitalize direct construction and development
value be capitalized. In addition, acquisition-related restructuringcosts, including predevelopment costs, interest, property taxes, insurance and other costs directly related and essential to the acquisition, development or construction of a real estate asset. We capitalize construction and development costs while substantive activities are ongoing tobeprepare an asset for its intended use. We consider a construction project as substantially complete and held available for occupancy upon the issuance of the certificate of occupancy. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as incurred. For redevelopment, renovation and expansion of existing operating properties, we capitalize the cost for the construction and improvement incurred in connection with the redevelopment, renovation and expansion. Costs previously capitalizedonly if they meet certain criteria.related to abandoned acquisitions or developments are charged to earnings. Expenditures for repairs and maintenance are expensed as incurred.Depreciation is computed principally by the
straight-linestraight‑line method for financial reporting purposes over the estimated useful lives of the assets, whichgenerallyrange from 3 to 5 years for computers,75 to1015 years forequipments,furniture and equipment, 35 to4045 years for buildings, 10 to 20 years for building improvements and the respective lease term for acquired lease intangibles.Improvements made to the real estate properties subsequent to its acquisition are capitalized.Mortgage Loans Receivable. Mortgage loans receivable we originate are recorded on an amortized cost basis. Mortgage loans we acquire are recorded at fair value at the time of purchase net of any
LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)related premium or discount which is amortized as a yield adjustment to interest income over the life of the loan.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts. The allowance for doubtful accounts is based upon the expected collectability of our receivables and is maintained at a level believed adequate to absorb potential losses in our receivables. In determining the allowance we perform a quarterly evaluation of all receivables. If this evaluation indicates that there is a greater risk of receivable
charge-offs,charge‑offs, additional allowances are recorded in current period earnings. During the fourth quarter of 2013, we wrote‑off an $878,000 straight‑line rent receivable balance related to the transition of four assisted living properties to a new lessee.Impairments.
Impairment lossesAssets that arerecordedclassified as held for use are periodically evaluated for impairment when events or changes in circumstances indicate that the assetismay be impairedandor theestimatedcarrying amount of the asset may not be recoverable through future undiscounted cashflows to be generated by the asset are less than its carrying amount.flows. Management assesses the impairment of properties individually and impairment losses are calculated as the excess of the carrying amount over the estimated fair value of assetsto be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that we will disposeas of theproperty.measurement date. In determining fair value, we use current appraisals or other third party opinions of value and other estimates of fair value such as estimated discounted future cash flows.58
Also, we evaluate the carrying values of mortgage loans receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgage loan receivable when events or circumstances, such as the
non-receiptnon‑receipt of principal and interest payments and/or significant deterioration of the financial condition of the borrower, indicate that the carrying amount of the mortgage loan receivable may not be recoverable. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying amount of the mortgage loan receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the mortgage.ASC No. 320,Investments—Debt and Equity Securities, requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell, a debt security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between fair value and amortized cost is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) other-than-temporary impairment (or OTTI) related to other factors such as an entity's ability to make scheduled interest or principal payments on the debt securities, which is recognized in other comprehensive income and 2) OTTI related to credit loss, which must be recognized in the income statement. The credit loss is determined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.Fair Value of Financial Instruments. The FASB requires the disclosure of fair value information about financial instruments for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Accordingly, the aggregate fair market value amounts presented in the notes to these consolidated financial statements do not represent our underlying carrying value in financial instruments.
The FASB provides guidance for using fair value to measure assets and liabilities, the information used to measure fair value, and the effect of fair value measurements on earnings. The FASB
LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)emphasizes that fair value is a
market-basedmarket‑ based measurement, not anentity-specificentity‑specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the FASB establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reportingentity'sentity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices).The fair value guidance issued by the FASB excludes accounting pronouncements that address fair value measurements for purposes of lease classification or measurement. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value, regardless of whether those assets and liabilities are related to leases.
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 on items for which the fair value option has been elected reported in earnings. We
didhave notadoptelected theelectivefairmarketvalue optioninfor any of ourconsolidatedfinancialstatements.assets or liabilities.The FASB requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. SeeNote
16.15. Fair Value Measurements for the disclosure about fair value of our financial instruments.Investments. Investments in marketable debt and equity securities are categorized as trading,
available-for-saleavailable‑for‑sale orheld-to-maturity. Available-for-saleheld‑to‑maturity. Available‑for‑sale securities are stated at fair value, with the unrealized gains and losses, reported in other comprehensive income until realized. Realized gains and losses and declines in value judged to beother-than-temporaryother‑than‑temporary onavailable-for-saleavailable‑for‑sale securities are included in net income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified asavailable-for-saleavailable‑for‑sale are included in59
interest and other income. Our investment in marketable debt securities is classified as
held-to-maturityheld‑to‑ maturity because we have the positive intent and ability to hold the securities to maturity.Held-to-maturityHeld‑to‑maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity.ASC No. 320, Investments—Debt and Equity Securities, requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell, a debt security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between fair value and amortized cost is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) other‑than‑temporary impairment (or OTTI) related to other factors such as an entity’s ability to make scheduled interest or principal payments on the debt securities, which is recognized in other comprehensive income and 2) OTTI related to credit loss, which must be recognized in the income statement. The credit loss is determined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
Revenue Recognition. Interest income on mortgage loans is recognized using the effective interest method. We follow a policy related to mortgage interest whereby we consider a loan to be
non-performingnon‑performing after 60 days ofnon-paymentnon‑ payment of amounts due and do not recognize unpaid mortgage interest income from that loan until the past due amounts have been received.Rental income from operating leases is generally recognized on a
straight-linestraight‑line basis over the terms of the leases. Substantially all of our leases contain provisions for specified annual increases over the rents of the prior year and are generally computed in one of four methods depending on specific provisions of each lease as follows:(i)
a specified annual increase over the prior year’s rent, generally between 2.0% and 3.0%;
(ii)
a calculation based on the Consumer Price Index;
(iii)
as a percentage of facility revenues in excess of base amounts or
(iv)
specific dollar increases.
LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The FASB does not provide for the recognition of contingent revenue until all possible contingencies have been eliminated. We consider the operating history of the lessee and the general condition of the industry when evaluating whether all possible contingencies have been eliminated and have historically, and expect in the future, to not include contingent rents as income until received. We follow a policy related to rental income whereby we consider a lease to be
non-performingnon‑ performing after 60 days ofnon-paymentnon‑payment of past due amounts and do not recognize unpaid rental income from that lease until the amounts have been received.Rental revenues relating to
non-contingentnon‑contingent leases that contain specified rental increases over the life of the lease are recognized on thestraight-linestraight‑line basis. Recognizing income on astraight-linestraight‑line basis requires us to calculate the totalnon-contingentnon‑contingent rent containing specified rental increases over the life of the lease and to recognize the revenue evenly over that life. This method results in rental income in the early years of a lease being higher than actual cash received, creating astraight-linestraight‑line rent receivable asset included in our consolidated balance sheet. At some point during the lease, depending on its terms, the cash rent payments eventually exceed thestraight-linestraight‑line rent which results in thestraight-linestraight‑line rent receivable asset decreasing to zero over the remainder of the lease term. We assess the collectability ofstraight-linestraight‑line rent in accordance with the applicable accounting standards and our reserve policy. If the lessee becomes delinquent in rent owed under the terms of the lease, we may provide a reserve against the recognizedstraight-linestraight‑line rent receivable asset for a portion, up to its full value, that we estimate may not be recoverable.Payments made to or on behalf of our lessees represent incentives that are deferred and amortized as a yield adjustment over the term of the lease on a straight-line basis. Net loan fee income and commitment fee income are amortized over the life of the related loan.
Costs associated60
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (or ASU 2014-09), Revenue from Contracts with
leases are deferred and allocated over the lease term in proportion toCustomers: Topic 606. ASU 2014-09 provides for a single comprehensive principles based standard for the recognition ofrental income.revenue across all industries through the application of the following five-step process:Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 requires expanded disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. We are evaluating the effects of this adoption on our consolidated financial statements.
Federal Income
Taxes.Taxes. LTC qualifies as a REIT under the Internal Revenue Code of 1986, as amended, and as such, no provision for Federal income taxes has been made. A REIT is required to distribute at least 90% of its taxable income to its stockholders and a REIT may deduct dividends in computing taxable income. If a REIT distributes 100% of its taxable income and complies with other Internal Revenue Code requirements, it will generally not be subject to Federal income taxation.For Federal tax purposes, depreciation is generally calculated using the
straight-linestraight‑line method over a period of 27.5 years. Earnings and profits, which determine the taxability of distributions to stockholders, use thestraight-linestraight‑line method over 40 years. Both Federal taxable income and earnings and profits differ from net income for financial statement purposes principally due to the treatment of certain interest income, rental income, other expense items, impairment charges and the depreciable lives and basis ofassts.assets. At December 31,2011,2014, thebooktax basis of our net depreciable assets exceeds ourtaxbook basis by approximately$85,100,000$14,363,000 (unaudited), primarily due toadditional depreciation takenan investment recorded as an acquisition for taxpurposes.and a mortgage loan for GAAP.The FASB clarified the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The guidance utilizes a
two-steptwo‑step approach for evaluating tax positions. Recognition (step one) occurs when a company concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied (i.e., the position is more likely than not to be sustained). Under step two, the tax benefit is measured as the largest amount of benefit (determined on a cumulative probability basis) that is moreLTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)likely than not to be realized upon ultimate settlement. We currently do not have any uncertain tax positions that would not be sustained on its technical merits on a
more-likelymore‑likely than not basis.We may from time to time be assessed interest or penalties by certain tax jurisdictions. In the event we have received an assessment for interest and/or penalties, it has been classified in our consolidated financial statements as
operatingGeneral andotheradministrative expenses.Concentrations of Credit Risks. Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, mortgage loans receivable, marketable debt securities and operating leases on owned properties. Our financial instruments, mortgage loans receivable and operating leases, are subject to the possibility of loss of carrying value as a result of the failure of other parties to perform according to their contractual obligations or changes in market prices which may make the instrument less valuable. We obtain various collateral and other protective rights, and continually monitor these rights, in order to reduce such possibilities of loss. In addition, we
61
provide reserves for potential losses based upon
management'smanagement’s periodic review of our portfolio. SeeNote5.3. Major Operators for further discussion of concentrations of credit risk from our tenants.Discontinued Operations. Properties classified as
held-for-saleheld‑for‑sale on the consolidated balance sheetincludesinclude only those properties available for immediate sale in their present condition and for which management believes that it is probable that a sale of the property will be completed within one year. Accordingly, we record reclassification adjustments to reflect properties sold subsequent to the respective consolidated balance sheet date asheld-for-saleheld‑for‑ sale in the prior period consolidated balance sheet. Propertiesheld-for-saleheld‑for‑ sale are carried at the lower of cost or fair value less estimated selling costs. No depreciation expense is recognized on propertiesheld-for-saleheld‑for‑sale once they have been classified as such. The operating results of real estate assets designated asheld-for-saleheld‑for‑sale are included in discontinued operations in the consolidated statement of income. In addition, all gains and losses from real estate sold are also included in discontinued operations.For comparative purposes, as required byIn April 2014, the FASB
accounting guidance,issued Accounting Standards Update No. 2014-08 (or ASU 2014-08), Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in ASU 2014-08 change theprior year's operatingcriteria for reporting discontinued operations. Under ASU 2014-08, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. ASU 2014-08 is effective in the first quarter of 2015 with early adoption permitted. We elected early adoption of ASU 2014-08 and have not reclassified results ofsold and held-for-sale real estate assets have been reclassifiedoperations for properties disposed subsequent to January 1, 2014 as discontinued operations as these disposals do not represent strategic shifts inthe consolidated income statement for the prior years. SeeNote 6. Real Estate Investments, for a detail of the property classified as held for sale during 2011 and the related components of the net income from discontinuedour operations.Net Income Per Share. Basic earnings per share is calculated using the
weighted-averageweighted‑average shares of common stock outstanding during the period excluding common stock equivalents. Diluted earnings per share includes the effect of all dilutive common stock equivalents.In accordance with the accounting guidance regarding the determination of whether instruments granted in
share-basedshare‑based payments transactions areparticipationparticipating securities, we have applied thetwo-classtwo‑class method of computing basic earnings per share. This guidance clarifies that outstanding unvestedshare-basedshare‑based payment awards that contain rights tonon-forfeitablenon‑forfeitable dividends participate in undistributed earnings with common stockholders and are considered participating securities.Stock-BasedStock‑Based Compensation. The FASB requires allshare-basedshare‑based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. We use theBlack-Scholes-MertonBlack‑Scholes‑Merton formula to estimate the value of stock options granted to employees. This model requires management to make certain estimates including stock volatility, expected dividend yield and the expected term. If management incorrectly estimates these variables, the results of operations could be affected. The FASB also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow. Because we qualify as a REITLTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)under the Internal Revenue Code of 1986, as amended, we are generally not subject to Federal income taxation. Therefore, this reporting requirement does not have an impact on our statement of cash flows.
Segment Disclosures. The FASB accounting guidance regarding disclosures about segments of an enterprise and related information establishes standards for the manner in which public business enterprises report information about operating segments. Our investment decisions in senior housing and long term care
healthcareproperties, including mortgage loans, property leasetransactiontransactions and other investments, are made and resulting investments are managed as a single operating segment for internal reporting and for internaldecision-makingdecision‑making purposes. Therefore, we have concluded that we operate as a single segment.62
3. Major Operators
We have three operators from each of which we derive over 10% of our combined rental revenue and interest income from mortgage loans.
In
2006, Extendicare Services,July 2014, Brookdale Senior Living, Inc. (orEHSI)Brookdale),oneparent company ofour major operators, effected a reorganization whereby it completed a spin-off of Assisted Living Concepts, Inc. (or ALC). ALC is now a NYSE traded public company operating assisted living centers. The remaining EHSI assets and operations were converted into a Canadian REIT (or Extendicare REIT) listed on the Toronto Stock Exchange (or TSX). Both Extendicare REIT and ALC continue to be parties to the leases with us.Brookdale Senior Living Communities, Inc. (or Brookdale Communities)
is a wholly owned subsidiary of a publicly traded company,, merged with Emeritus Corporation. BrookdaleSenior Living, Inc. (or Brookdale).The following table summarizes Extendicare REIT's, ALC's and Brookdale's financial information as of and for the nine months ended September 30, 2011 per the operators' public filings (in thousands, unaudited). Our other operator is privately owned and thus no public financial information is available:Extendicare REIT(1) ALC Brookdale Current assets
$ 522,144 $ 20,427 $ 273,291 Non-current assets
1,443,363 445,435 4,165,150 Current liabilities
705,036 38,383 607,187 Non-current liabilities
1,195,498 125,206 2,781,868 Stockholders' equity
64,973 302,273 1,049,386 Gross revenue
1,571,223
175,589
1,785,947Operating expenses
1,345,373 144,187 1,715,579 (Loss) income from continuing operations
(12,499 ) 17,050 (53,300 ) Net (loss) income
(12,499 ) 17,050 (53,300 ) Cash provided by operations
98,587
41,290
212,002Cash used in investing activities
(47,044 ) (7,961 ) (122,210 ) Cash used in financing activities
(62,573 ) (44,094 ) (132,424 ) LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Extendicare REIT and ALC, collectively leaseCommunities leases 37 assisted living properties with a total of1,4271,704 units owned by us representing approximately8.6%8.3%, or$55,507,000,$79,745,000, of our total assets at December 31,20112014 and13.0%12.2% of our combined rental revenue and interest income from mortgage loans recognizedduringfor the year ended December 31,2011.2014.Brookdale Communities,Prestige Healthcare (or Prestige) is awholly owned subsidiary of Brookdale, leases 35 assisted living properties with a total of 1,416 units owned by us representing approximately 8.6%, or $55,477,000, of our total assets at December 31, 2011privately held company and12.5% of rental revenue and interest income from mortgage loans recognized during the year ended December 31, 2011.Preferred Care, Inc. (or Preferred Care), through various wholly owned subsidiaries,operates3015 skilled nursing properties and twoother senior housingrange of care properties that we own or on which we holdmortgagesa mortgage secured by first trust deeds. These properties consist of a total of3,8612,176 skilled nursing beds and4993 assisted living units.This represents approximately 8.8%,Additionally, Prestige manages five parcels of land that we own. These assets represent 14.3% or$57,024,000,$138,566,000 of our total assets at December 31,20112014 and12.8%generated 11.1% of our combined rental revenue and interest income from mortgage loans recognizedduringfor the year ended December 31,2011. They also operate one2014. In January 2015, we originated an $11,000,000 mortgage loan with Prestige and concurrently funded $9,500,000 under this loan. The mortgage and construction loan is secured by a 157-bed skilled nursing propertyunder a sub-lease with another lesseein Michigan. Assuming we held the mortgage and construction loan for the full year of 2014, the assets operated by Prestige would represent 15.2% or $147,971,000 of our total assets and would havewhich is not included in the Preferred Caregenerated 11.8% of our combined rental revenue and interest income from mortgage loans. See Note 6. Real Estate Investments for further discussion on the terms of the mortgage and construction loan.Senior Care Centers, LLC (or Senior Care) is a privately held company. Senior Care leases nine skilled nursing properties with a total of 1,190 beds owned by us representing approximately 10.5%, or $101,889,000, of our total assets at December 31, 2014 and 10.4% of our combined rental revenue and interest income from mortgage loans recognized for the year ended December 31, 2014.
Our master lease with affiliates of Extendicare, Inc. (or Extendicare) and Enlivant (formerly known as Assisted Living Concepts, Inc. (or ALC)) covering 37 assisted living properties with a total of 1,429 units expired on December 31, 2014. In 2013, ALC merged with Aid Holdings, LLC, a Delaware limited liability company (or Aid Holdings), and Aid Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of Aid Holdings (or Aid Merger Sub). Aid Holdings and Aid Merger Sub are affiliates of TPG Capital, L.P. For the year ended December 31, 2014, this portfolio generated approximately $10,963,000 or 9.3% of our combined rental revenue and interest income from mortgage loans. During the quarter ended December 31, 2014, we entered into three agreements relating to the 37 assisted living properties as follows:
·
We sold 16 properties, consisting of 615 units located in Washington, Oregon, Idaho and Arizona to an affiliate of Enlivant for a sales price of $26,465,000. Accordingly, we recognized a gain on sale of $3,819,000. We also gave Enlivant consent to close a property located in Oregon. We are currently exploring sale and lease options for this property which has a net book value of $935,000.
·
We added 13 properties with 500 units in Indiana, Iowa, Ohio, Nebraska and New Jersey to an existing master lease with an affiliate of Senior Lifestyle Management (or Senior Lifestyle). Beginning January 1, 2015, the initial term of the amended and restated master lease will be 15 years and rent will increase by $5,100,000 over the current annual rent, increasing by 2.6% annually thereafter.
63
·
We re-leased seven properties with 278 units in Texas to Veritas InCare (or Veritas) under a new 10-year master lease. Beginning January 1, 2015, the initial rent will be $1,461,000 increasing 2.5% annually.
Extendicare and Enlivant paid rent in accordance with the terms of the current master leases through December 31, 2014. The initial cash yield on the 20 properties re-leased to Senior Lifestyle and Veritas is comparable to the cash yield in 2014 under the expiring master leases with Extendicare and Enlivant. Additionally, the new and amended master leases will provide us with the potential for additional rent attributable to participation in revenue growth at the properties over a predetermined base amount.
Our financial position and ability to make distributions may be adversely affected by financial difficulties experienced by Brookdale Communities,
Extendicare REIT & ALC, PreferredPrestige, Senior Care, or any of our lessees and borrowers, including any bankruptcies, inability to emerge from bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew and/or extend its relationship with us or our borrowers when it expires.4. Supplemental Cash Flow Information
For the year ended
December 31,
2014
2013
2012
(in thousands)
Non-cash investing and financing transactions:
Earn-out liabilities related to lease incentives (See Note 11)
$
3,240 $
—
$
—
Reclassification of pre-development loans (See Note 6)
304 479 —
Redemption of non-controlling interest
—
—
396 Restricted stock issued, net of cancellations
1 —
1 For the year ended December 31, 2011 2010 2009 (in thousands) Non-cash investing and financing transactions:
Conversion of mortgage loans to owned properties
$ — $ 2,900 $ — Acquisition of real estate investments(1)
5,975 — — Conversion of preferred stock to common stock
— 823 22 Redemption of non-controlling interest
— — 1,144 Restricted stock issued, net of cancellations
— 2 1 LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)5. Impairment
ChargeNo impairment charges on
ourreal estateinvestments held and used andwe own or on our mortgage loans receivable were recorded during2011, 20102014, 2013 or2009. We have evaluated our marketable securities and concluded that our marketable securities were not other-than-temporary impaired.2012. However in past years, the long term care industry experienced significant adverse changes which resulted in operating losses by certain of our lessees and borrowers and in some instances the filing by certain lessees and borrowers for bankruptcy protection. Thus, we cannot predict what, if any, impairmentchargecharges may be needed in the future.6. Real Estate Investments
Mortgage Loans.The following table summarizes ourAny reference to the number of properties, number of schools, number of units, number of beds, and yield on investments inmortgage loans secured by first mortgages at December 31, 2011(dollar amountsreal estate are unaudited and outside the scope of our independent registered public accounting firm’s audit of our consolidated financial statements inthousands):(Unaudited) Number of Type of PropertyGross
InvestmentsPercentage
of
InvestmentsNumber
of LoansNumber
of
Properties(1)SNF
BedsALF
UnitsInvestment
per
Bed/UnitAssisted Living
$ 22,776 42.2 % 9 14 — 424 $ 53.72 Skilled Nursing
28,132 52.1 % 20 21 2,326 — $ 12.09 Other Senior Housing(2)
3,094 5.7 % 1 1 99 74 $ 17.88 Totals
$ 54,002 100.0 % 30 36 2,425 498 At December 31, 2011,accordance with themortgage loans had interest rates ranging from 9.95% to 14.63% and maturities ranging from 2012 to 2019. In addition, the loans contain certain guarantees, provide for certain facility fees and generally have 25-year amortization schedules. The majoritystandards of themortgage loans provide for annual increases in the interest rate based upon a specified increasePublic Company Accounting Oversight Board.64
During the year ended December 31, 2011, we received $3,136,000 in regularly scheduled principal payments and we received $2,831,000 plus accrued interest related to the payoff of four mortgage loans secured by one assisted living property and seven skilled nursing properties.During the year ended December 31, 2010, we received $3,904,000 plus accrued interest related to the payoff of five mortgage loans secured by five skilled nursing properties. We invested $72,000 in a mortgage loan for capital improvements and $1,622,000 in a mortgage loan secured by a skilled nursing property to finance an expansion of the property and extend the loan maturity for an additional five years. We received $4,499,000 in regularly scheduled principal paymentsAlso, during the year ended December 31, 2010, we recorded a $1,235,000 provision for doubtful accounts charge for two mortgage loans (one secured by a private school property in Minnesota and
LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
one secured by land in Oklahoma). We acquired the school property via deed-in-lieu of foreclosure as a result of the borrower filing for Chapter 7 bankruptcy. During 2011, we leased the school to a non-for-profit corporation providing therapeutic support and intensive home, school and center-based behavioral therapy for children, youth and families affected by Autism Spectrum Disorders.During the year ended December 31, 2009, we received $3,716,000 plus accrued interest related to the payoff of three mortgage loans secured by three skilled nursing properties. Additionally, we invested $221,000 under one mortgage loan for capital improvements. We received $4,127,000 in regularly scheduled principal payments.Owned Properties.The following table summarizes our investment in owned properties at December 31,
20112014 (dollar amounts in thousands):Average
Percentage
Number
Number of
Investment
Gross
of
of
SNF
ALF
per
Type of Property
Investments
Investments
Properties(1)
Beds
Units
Bed/Unit
Skilled Nursing
$
482,036 50.8 %
68 8,407 —
$
57.34 Assisted Living
401,517 42.3 %
84 —
4,176 $
96.15 Range of Care
43,907 4.6 %
7 634 274 $
48.36 Under Development(2)
11,495 1.2 %
—
—
—
—
Other(3)
10,883 1.1 %
1 —
—
—
Totals
$
949,838 100.0 %
160 9,041 4,450 (1)
We have investments in 26 states leased to 30 different operators.
Number of Type of PropertyGross
InvestmentsPercentage
of
InvestmentsNumber
of
Properties(1)SNF
BedsALF
UnitsILF
UnitsInvestment
per
Bed/UnitAssisted Living
$ 285,981 39.4 % 88 — 3,941 — $ 72.57 Skilled Nursing
361,326 49.9 % 68 8,021 — — $ 45.05 Other Senior Housing(2)
64,638 8.9 % 13 814 256 423 $ 43.29 Schools
12,192 1.7 % 2 — — — N/A Under Development(3)
894 0.1 % — — — — N/A Totals
$ 725,031 100.0 % 171 8,835 4,197 423 (2)
Includes two MC developments with a total of 126 units.
(3)
Includes a school and five parcels of land held-for-use.
Owned properties are leased pursuant to
non-cancelablenon‑cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital andnon-capitalnon‑capital expenditures and other costs necessary in the operations of the facilities. Many of the leases contain renewaloptions and one contains limited period options that permit the operator to purchase the property.options. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:(i)
a specified annual increase over the prior year’s rent, generally between 2.0% and 3.0%;
(ii)
a calculation based on the Consumer Price Index;
(iii)
as a percentage of facility revenues in excess of base amounts or
(iv)
specific dollar increases.
ContingentWe received no contingent rent income for the years ended December 31,2011, 20102014 and20092013. Contingent rent income for the year ended December 31, 2012 was not significant in relation to contractual base rent income.LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes our acquisitions during 2011(dollar amounts in thousands):(Unaudited) Number of Type of PropertyPurchase
PriceTransaction
CostsTotal
Acquisition CostsNumber
of
PropertiesSNF
BedsALF
UnitsILF
UnitsSkilled Nursing(2)(3)(4)(5)
$ 93,841 $ 330 $ 94,171 7 1,016 — — Other Senior Housing(1)(6)
11,450 34 11,484 2 118 40 53 Land(2)
844 11 855 — — — — Totals
$ 106,135 $ 375 $ 106,510 9 1,134 40 53 LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following unaudited pro forma consolidated results of operations for the years ended December 31, 2011 and 2010 assume that the 2011 acquisitions of the above properties were completed as of January 1, 2010 as shown below (in thousands):For the year ended December 31, 2011 2010 Revenues
$ 91,916 $ 86,257 Net Income
$ 53,636 $ 52,590 Pro forma data may not be indicative of the results that would have been obtained had the acquisition actually occurred as of January 1, 2010, nor does it intend to be a projection of future results.Also, during the year ended December 31, 2011, we invested $3,144,000 at an average yield of 9.7% under agreements to expand and renovate 11 properties operated by seven different operators and we invested $42,000 in capital improvements to existing properties under various lease agreements whose rental rates already reflected this investment. SeeNote 11. Commitments and Contingenciesfor further discussion about our commitment agreements.In January 2012, we entered into an agreement to sell a 140-bed skilled nursing property located in Texas for $1,248,000. This property is leased under a master lease and the economic terms of this master lease will not change as a result of this sale. This sale is scheduled to close on February 29, 2012 and will result in a $16,000 gain recognized in 2012.During the year ended December 31, 2010, we sold a 195-bed skilled nursing property located in Virginia to the lessee under a purchase option for $4,935,000. As a result, we received net cash proceeds of $4,864,000 and recognized a gain net of selling expenses of $310,000.The following table summarizes our acquisitions during 2010(dollar amounts in thousands):(Unaudited) Number of Type of PropertyPurchase
PriceTransaction
CostsTotal
Acquisition
CostsNumber
of
PropertiesSNF
BedsALF
UnitsILF
UnitsAssisted Living
$ 26,900 $ 210 (3) $ 27,110 4 — 241 — Skilled Nursing
54,011 (2) 140 54,151 5 668 — — Other Senior Housing(1)
13,339 — (4) 13,339 1 137 46 47 Totals
$ 94,250 $ 350 $ 94,600 10 805 287 47 66
We purchasedDuring theother senior housing property along with a 90-bed skilled nursing property for $22,000twelve months ended December 31, 2014, we completed the following development andincurred $7 in transaction costs. The transaction costs for this acquisition are included in the skilled nursing property transaction costs above. These properties were leased to a third party operator under a 12-year master lease with two 10-year renewal options and the annualized rental income is $2,420(unaudited)improvement projectswhich is included(dollar amounts inthe annualized rental income for skilled nursing properties above. We do not allocate rental income among propertiesthousands):Number
Number
of
Type of
of
Type of Project
Properties
Property
Beds/Units
State
2014 Funding
Total Funding
Development
1
ALF
60
Colorado
$
6,351 $
9,689 (1)
Development
1
ALF
80
Texas
2,300 5,691 (2)
Development
1
SNF
143
Kentucky
10,579 20,904 (3)
Development
1
ALF
48
Colorado
7,257 8,744 (4)
Expansion/Renovation
1
ALF
72
Colorado
6,371 6,376 Expansion/Renovation
2
ALF
123
Colorado
5,091 5,095 Improvements
1
SNF
120
Florida
500 500 Improvements
2
SNF
235
New Mexico
319 1,746 10
881
$
38,768 (5)
$
58,745 (5)
(1)
Completed a memory care property in August 2014. The total funded amount includes acquired land of $1,200.
(2)
Completed a memory care property in October 2014. The total funded amount includes acquired land of $1,000.
(3)
Completed in October 2014 and total funded amount includes acquired land of $2,050.
(4)
Completed a memory care property in December 2014. The total funded amount includes acquired land of $850.
(5)
In 2014, we funded $500 to purchase Texas Medicaid bed rights for a 122-bed skilled nursing property under an existing lease. Additionally, during 2014, we funded the final commitment balance of $551 on a newly developed 77-unit assisted living property in Kansas which opened in 2013. In January 2015, we funded an additional $4,711 under these completed projects.
The following table summarizes our investment commitments as of December 31, 2014 and amounts funded on our open development and improvement projects (excludes capitalized interest, dollar amounts in
a master lease.thousands):Number
Number
Investment
2014
Commitment
Remaining
of
of
Type of Property
Commitment
Funding(2)
Funded
Commitment
Properties
Beds/Units
Skilled Nursing
$
2,200 $
1,156 $
2,161 $
39 2 141 Assisted Living(1)
27,751 8,831 11,268 16,483 26 1,194 Totals
$
29,951 $
9,987 (3)
$
13,429 $
16,522 (3)
28 1,335 (1)
Includes the development of a 66-unit memory care property for a commitment of $12,248, as previously discussed, a 60-unit memory care property for a total commitment of $10,703 and the improvement of 24 assisted living properties for a total investment commitment of $4,800.
(2)
Excludes funding for completed development and improvement projects discussed above and includes $1,400 of land acquired for the development of a 66-unit memory care property, as previously discussed, and the reclass of a pre‑development loan with a balance of $304. See Note 7. Notes Receivable for further discussion of the pre‑development loans.
(3)
In January 2015, we funded $731 under investment commitments. Accordingly, we have a remaining commitment of $15,791. Additionally, in January 2015, we amended an existing master lease with an operator to provide a commitment not to exceed $600 for the purpose of making capital improvements at a 196-skilled nursing property in Texas. Upon the capital improvement deadline of June 30, 2015 or final funding of the capital improvement commitment, the minimum rent will increase by the product of 9% and the total capital improvement funded.
67
Also,Our construction in progress (or CIP) activity during the year ended December 31,
2010,2014 for our development, redevelopment, renovation, and expansion projects is as follows (dollar amounts in thousands):CIP
CIP
Balance at
Capitalized
Conversions
Balance at
Properties
Projects
12/31/2013
Funded(1)
Interest
out of CIP
12/31/2014
Development projects:
Assisted living
6 $
6,334 $
23,149 $
769 $
(21,581) $
8,671 Skilled nursing
1 5,893 10,579 505 (16,977) —
Subtotal
7 12,227 33,728 1,274 (38,558) 8,671 Redevelopment, renovation and expansion projects:
Assisted living
3 8 11,463 232 (11,703) —
Skilled nursing
5 2,433 1,661 —
(4,094) —
Subtotal
8 2,441 13,124 232 (15,797) —
Total
15 $
14,668 $
46,852 $
1,506 $
(54,355) $
8,671 (1)
Excludes $1,554 of capital improvement commitment funding which was capitalized directly into building and improvements and includes the reclass of a pre‑development loan with a total balance of $304 See Note 7. Notes Receivable for further discussion of pre‑development loans.
During the twelve months ended December 31, 2013 we
invested $4,593,000 at an average yieldacquired a 130-bed skilled nursing property located in Florida for $14,402,000 and recorded $58,000 in transaction costs. In addition, we purchased four parcels of9.7% under agreements to expandland held-for-use in Michigan for $1,163,000 andrenovate 11 properties operated by seven different operatorsthree vacant parcels of land in Colorado for a total of $3,475,000 and weinvested $1,231,000entered into development commitments incapital improvementsan amount not toexisting properties under various lease agreements whose rental rates already reflected this investment.exceed $30,256,000 to fund the construction of three memory care properties.During the year ended December 31,
2009, we acquired three assisted living2013, one of our lessees exercised its option to purchase six skilled nursing properties with a total of192 units230 beds located in Ohio for$13,000,000an all cash purchase price of $11,000,000. As a result, we recorded a $2,619,000 gain on sale. Also, during 2013, we sold a 47‑bed skilled nursing property in Colorado for $1,000 andincurred $181,000recognized a loss of $1,014,000 on the sale.During the twelve months ended December 31, 2013, we completed the following construction projects (dollar amounts in
transaction costs. We also invested $3,170,000 at an average yieldthousands):Number
Completed
of
Date
Type of Property
Beds/Units
State
2013 Funding
Total Funding
Jul 2013
Assisted Living(1)
60 Colorado
$
4,316 $
9,850 Jul 2013
Skilled Nursing(2)
120 Texas
5,065 8,635 Oct 2013
Assisted Living
77 Kansas
8,081 9,675 (3)
Totals
257 $
17,462 $
28,160 (1)
Represents a memory care property. The funded amount includes acquired land of $1,882.
(2)
This new property replaces a skilled nursing property in our existing portfolio. The old skilled nursing property was closed upon completion of the replacement property and subsequently sold in 2014, as previously discussed.
(3)
The funded amount includes acquired land of $730. In 2014, we funded an additional $551 and completed this commitment.
68
The following table summarizes our acquisitions during 2012 (dollar amounts in thousands):
Total
Number
Number
Purchase
Transaction
Acquisition
of
of
Type of Property
Price
Costs
Costs
Properties
Beds/Units
Skilled Nursing(1)
$
79,100 $
275 $
79,375 4 522 Assisted Living(2)
81,987 285 82,272 5 266 Land(3)
5,663 207 5,870 —
—
Totals
$
166,750 $
767 $
167,517 9 788 (1)
Includes two skilled nursing properties with a total of 234 beds located in Texas and two skilled nursing properties with a total of 288 beds located in Ohio.
(2)
Includes two properties with a total of 100 units located in Colorado and three properties with a total of 166 units located in New Jersey.
(3)
We purchased four vacant parcels of land in the following states: Colorado, Kansas Kentucky and Texas. Simultaneous with the purchase, we entered into lease agreements and development commitments in an amount not to exceed $49,702 to fund the construction of a memory care property with 60 units and two assisted living properties with a total of 158 units and one skilled nursing property with 143 beds. These construction projects were subsequently completed in 2014 and 2013.
During the year ended December 31, 2012, we sold a 140‑bed skilled nursing property located in Texas for $1,248,000 and recognized a gain, net of selling expenses, of $16,000. This property was leased under
agreements to expanda master lease andrenovate eight properties operated by six different operatorsthe economic terms of this master lease did not change as a result of this sale. During 2013 and 2012, weinvested $633,000 in capital improvements to existing properties under various lease agreements whose rental rates already reflected this investment.funded $13,135,000 and $11,089,000, respectively, on open development and improvement projects. See table above for funding on completed development and improvement projects.Depreciation expense on buildings and improvements, including properties classified as
held-for-sale,held‑for‑sale, was$19,487,000, $16,016,000,$25,424,000, $24,568,000, and$14,705,000$22,002,000 for the years ended December 31,2011, 20102014, 2013 and2009.2012, respectively.Future minimum base rents receivable under the remaining
non-cancelablenon‑cancelable terms of operating leases including the re-leasing of the 20 assisted living properties formerly co-leased to affiliates of Extendicare and Enlivant, as previously discussed in Note 3. Major Operators, and excluding the effects ofstraight-linestraight‑line rent andextensionrenewal optionsare: $81,021,000; $81,344,000; $81,774,000; $68,533,000; $68,106,000 and $343,828,000 for the years ending December 31, 2012, 2013, 2014, 2015, 2016 and thereafter.are as follows (in thousands):Annual Cash
Rent
2015
$
98,150 2016
102,113 2017
101,009 2018
97,955 2019
92,658 Thereafter
445,768 69
Set forth in the table below are the components of the
lossincome from discontinued operations (in thousands):For the year ended
For the year ended
December 31,December 31,
2011 2010 2009 2014
2013
2012
Rental income
$ — $ 1,005 $ 1,097 $
—
$
1,123 $
1,551 Interest and other income
5 5 3 Total revenues
5 1,010 1,100 —
1,123 1,551 Depreciation and amortization
(108 ) (392 ) (502 ) —
(317) (540) Provisions for doubtful accounts
— (601 ) (579 ) Operating and other expenses
(127 ) (134 ) (132 ) General and administrative expenses
—
(1) (6) Total expenses
(235 ) (1,127 ) (1,213 ) —
(318) (546) Loss from discontinued operations
$ (230 ) $ (117 ) $ (113 ) Income from discontinued operations
$
—
$
805 $
1,005 Any referenceMortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at December 31, 2014 (dollar amounts in thousands):
Percentage
Number
Number
Number of
Investment
Gross
of
of
of
SNF
ALF
per
Type of Property
Investments
Investments
Loans
Properties(1)
Beds
Units
Bed/Unit
Skilled Nursing(2)
$
151,016 90.3 %
15 29 3,650 —
$
41.37 Assisted Living
14,003 8.3 %
3 8 —
270 $
51.86 Range of Care
2,310 1.4 %
1 1 99 74 $
13.35 Totals
$
167,329 100.0 %
19 38 3,749 344 (1)
We have investments in 9 states that include mortgages to 12 different operators.
(2)
In January 2015, we received $2,285 plus accrued interest for the payoff of a mortgage loan secured by one range of care property.
At December 31, 2014, the mortgage loans had interest rates ranging from 7.0% to 13.7% and maturities ranging from 2015 to 2043. In addition, some loans contain certain guarantees, provide for certain facility fees and generally have 20‑year to 30‑year amortization schedules. The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 10 to 25 basis points.
During 2014, we originated a $3,027,000 mortgage loan secured by a 100-unit independent living property in Arizona. The loan is for a term of five years and bears interest at 7.0%, escalating 0.25% annually. During the twelve months ended December 31, 2014, 2013 and 2012, we funded $3,010,000, $4,971,000, and $2,619,000 respectively, under a $10,600,000 mortgage and construction loan. Subsequent to these investments, the mortgage and construction loan was fully funded. This mortgage and construction loan was secured by a skilled nursing property and a newly constructed 106-bed replacement skilled nursing property. Upon completion of the 106-bed replacement skilled nursing property, the residents of the old skilled nursing property were relocated to the
numbernew skilled nursing property and the old skilled nursing property was closed. During 2014, the old skilled nursing property was sold by the borrower and released as collateral. In February 2015, we purchased and equipped the replacement property for a total of $13,946,000 by exercising our right under the agreement. The property was added to an existing master lease at a lease rate equivalent to the interest rate in effect on the loan at the time the purchase option was exercised. Additionally, we paid the lessee a $1,054,000 lease inducement which will be amortized as a yield adjustment over the life of the lease term.During 2013, we funded the initial amount of $124,387,000 under a mortgage loan with a third‑party operator, Prestige, secured by 15 skilled nursing properties
numberwith a total ofschools, number2,058 beds in Michigan. The loan agreement provides for additional commitments ofunits, number$12,000,000 for capital improvements and, under certain conditions and based on certain70
operating metrics and valuation thresholds achieved and sustained within the initial twelve years of the term, up to $40,000,000 of additional proceeds, for a total loan commitment of up to $176,387,000. During 2014, we funded $3,337,000 under the $12,000,000 capital improvement commitment with $8,663,000 remaining as of December 31, 2014. In January 2015, we funded an additional $770,000 under the $12,000,000 capital improvement commitment, with a corresponding reduction in the remaining commitment balance to $7,893,000.
In addition, this mortgage loan provided the borrower a one‑time option to prepay up to 50% of the then outstanding loan balance without penalty. In January 2015, we amended this mortgage loan to provide up to an additional $20,000,000 in loan proceeds for the redevelopment of two properties securing the loan (increasing the total capital improvement commitment to $32,000,000 and the total loan commitment to $196,387,000) and agreed to convey, to Prestige, two parcels of land held-for-use adjacent to these properties to facilitate the projects. As partial consideration for the increased commitment and associated conveyance, the borrower forfeited their prepayment option. As a result of the forfeiture of the prepayment option, we expect to record $1,296,000 of effective interest during 2015.
Additionally, in January 2015, we originated an $11,000,000 mortgage loan with Prestige concurrently funding $9,500,000 with a commitment to fund the balance for approved capital improvement projects. The loan is secured by a 157-bed skilled nursing property in Michigan and bears interest at 9.41% for five years, escalating annually thereafter by 2.25%. The term is 30 years with interest-only payments. After the thirteenth month of the commencement date, the interest rate on newly advanced amounts on the mortgage and construction loan will equal the greater of (i) 7.25% plus the positive difference, if any, between the average yield on
investmentsthe U.S. Treasury 10-year note for the twenty days prior to funding or (ii) 9.0% with annual escalations of 2.25%. Additionally, we have the option to purchase the property under certain circumstances, including a change inreal estate are unauditedregulatory environment.During 2012, we originated a $5,100,000 two‑year interest‑only bridge loan. The loan is secured by a 70‑unit assisted living property in Pennsylvania and
outsidebears interest at 7.0% increasing annually by 1.5%. During 2014, we extended this loan for an additional two years.At December 31, 2014 and 2013 the
scope of our independent registered public accounting firm's audit of our consolidated financial statements in accordance with the standardscarrying values of thePublic Company Accounting Oversight Board.mortgage loans were $165,656,000 and $165,444,000, respectively. Scheduled principal payments on mortgage loan receivables are as follows (in thousands):Scheduled
Principal
2015
$
4,642 2016
7,527 2017
7,308 2018
8,425 2019
5,137 Thereafter
134,290 Total
$
167,329 During the twelve months ended December 31, 2014, 2013 and 2012, we received $2,159,000, $1,933,000, and $2,572,000, respectively in regularly scheduled principal payments. During 2014, we received $6,996,000 plus accrued interest related to the early payoff of two mortgage loans secured by three skilled nursing properties and one assisted living property. In January 2015, we received $2,285,000 plus accrued interest for the payoff of a mortgage loan secured by one range of care property. During 2012, we received $19,061,000 plus accrued interest related to the early payoff of eleven mortgage loans secured by four skilled nursing properties and seven assisted living properties.
71
7. Notes Receivable
Our notesNote receivable consists of various loans, and line of credit agreements with certain operators. During2011, we funded $232,000 on an 8.5% construction and term loan in which2014, we committed toLTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)provide upfund a $500,000 working capital loan to$2,500,000an existing operator with interest at 6.5% maturing in December 2019 and to fund four pre‑development loans of $325,000 each to facilitate the site selection and pre‑construction costs forcapital improvements at two senior housing properties we own and leasethe future development of four memory care properties. The initial rate of each of these pre‑development loans is 12%, increasing by 25 basis points per year. One of these pre‑development loans matured due to theborrower. Upon the earlieracquisition of thefull fundingland and the outstanding balance ofthe $2,500,000 or$304,000 was reclassified to real estate under development during 2014.At December 31,
2012, construction distribution under this loan will cease2014, we had eleven loans andthis loan will fully amortize to maturity in November 2017. SeeNote 11. Commitmentsline of credit agreements with commitments totaling $3,788,000 andContingenciesfor further discussion.a remaining commitment balance of $2,346,000. The
following table summarizes the number of loans outstanding, theweighted average interest rate of these loan commitments is 11.4%. During 2014, 2013, andthe carrying value as of December 31, 2011, 2010, and 2009 and notes receivable2012, we received principal payments,receivedincluding loan payoffs, of $113,000, $3,110,000, and $569,000, respectively, and we advancedfor the years 2011, 2010,principal of $1,263,000, $1,004,000, and2009(dollar amounts$2,930,000, respectively, under our notes. In January 2015, we advanced $500,000 under our loans and line of credit agreements and committed to fund a working capital loan of $500,000 to an existing operator with interest at 6.5% maturing inthousands):February 2019. Accordingly, we have twelve loans and line of credit agreements with commitments totaling $4,288,000 and a remaining commitment balance of $2,346,000.Number of Loans Weighted Average Interest Rate Carrying Value Principal Payments Received Principal Advanced 2011
6 10.0 % $ 817 $ 731 $ (232 ) 2010
5 11.9 % 1,283 1,573 (100 ) 2009
7 11.5 % 2,689 671 (375 ) 8. Marketable Securities
At December 31, 2011 and 2010, we had an investment in $6,500,000 face value ofDuring 2012, Skilled Healthcare Group, Inc.'s(or SHG) redeemed all of their outstanding Senior Subordinated Noteswithat par value plus accrued and unpaid interest up to the redemption date. The SHG Senior Subordinated Notes had a face rate of 11.0% and an effective yield of 11.1%.Interest on the notes is payable semi-annuallyDuring 2012, we recognized $235,000 of interest income from our $6,500,000 investment inarrears and the notes mature on January 15, 2014. One of our board members is the chief executive officer of SHG. SeeNote 12. Transactions with Related Partyfor further discussion.SHG Senior Subordinated Notes.9. Debt Obligations
Bank Borrowings. During
2011,the three months ended December 31, 2014, weentered into a new $210,000,000amended our Unsecured Credit Agreementwhich provides forincreasing the commitment to $400,000,000 with the opportunity to increase the credit amount up to a total of$250,000,000. The new Unsecured Credit Agreement provides a revolving line of credit with no scheduled maturities other than$600,000,000. Additionally, the drawn pricing was decreased by 25 basis points and the maturitydateofApril 18, 2015, and allows usthe facility was extended toborrowOctober 14, 2018. The amendment also provides for a one‑year extension option at our discretion, subject to customary conditions. Based on our leverage ratios at December 31, 2014, thesameamended facility provides for interestrates applicable to borrowings under our prior agreement, 150annually at LIBOR plus 115 basis pointsover LIBOR based on current leverage ratios.and the unused commitment fee was 25 basis points.Financial covenants contained in the
newUnsecured Credit Agreement, which are measured quarterly, require us to maintain, among other things:(i)
a ratio of total indebtedness to total asset value not greater than 0.5 to 1.0;
(ii)
a ratio of secured debt to total asset value not greater than 0.35 to 1.0;
(iii)
a ratio of unsecured debt to the value of the unencumbered asset value not greater than 0.6 to 1.0; and
(iv)
a ratio of EBITDA, as calculated in the Unsecured Credit Agreement, to fixed charges not less than 1.50 to 1.0.
During
20112014, we borrowed$167,600,000$37,500,000 and repaid$149,300,000$58,500,000 under our unsecured revolving line of credits. At December 31, 2014, we had no outstanding borrowings under our Unsecured CreditAgreement. At December 31, 2011, we had $56,000,000 outstanding at an interest rate of LIBOR plus 1.50%Agreement and$154,000,000$400,000,000 available for borrowing.During January 2012,Subsequent December 31, 2014, we borrowed$4,000,000. After this borrowing,$18,000,000 under our unsecured revolving line of credit. Accordingly, wehad $60,000,000have $18,000,000 outstanding and$150,000,000$382,000,000 available for borrowing. At December 31,20112014 and2010,2013, we were in compliance with all covenants.72
Senior Unsecured Notes. At December 31, 2014 and 2013, we had $281,633,000 and $255,800,000, respectively, outstanding under our Senior Unsecured Notes with a weighted average interest rate of 4.81% and 4.85%, respectively. During
2011,2014, we sold $30,000,000 senior unsecured term notes to affiliates and managed accounts of Prudential Investment Management, Inc.(individually(or individually and collectively"Prudential")Prudential) under our Amended and Restated Note Purchase and Private Shelf agreement. These notes bear interest at 4.5% and will mature on July 31, 2026. We used the proceeds to pay down our unsecured revolving line of credit. As a result of the sale of $30,000,000 senior unsecured term notes, our Amended and Restated Note Purchase and Private Shelf agreement has been exhausted with no more availability. Also, during 2014, we paid $4,167,000 in regularly scheduled principal payments.During 2013, we sold to Prudential $70,000,000 aggregate principal amount of 3.99% senior unsecured term notes fully amortizing to maturity on November 20, 2021. During 2012, we sold 12‑year senior unsecured notes in the aggregate amount of $85,800,000 to a group of institutional investors in a private placement transaction. The notes bear interest at 5.0% and mature on July 19, 2024. Additionally during 2012, we sold to Prudential $50,000,000 aggregate
LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)principal amount of 4.80% senior unsecured term notes fully amortizing to maturity on July 20, 2021.
Additionally, we entered into an Amended and Restated Note Purchase and Private Shelf agreement with Prudential which provides for the possible issuance of up to an additional $100,000,000 of senior unsecured fixed-rate term notes during a three-year issuance period. Financial covenants contained in the Amended and Restated Note Purchase and Private Shelf agreement are substantially the same as the financial covenants contained in our Unsecured Credit Agreement.Bonds Payable. During
2010, we sold to Prudential $25,000,000 aggregate principal amount of 5.26% senior unsecured term notes due July 14, 2015 and $25,000,000 aggregate principal amount of 5.74% senior unsecured term notes fully amortizing to maturity on January 14, 2019.Mortgage Loans Payable.At December 31, 2011 and 2010, we had no mortgage loans payable outstanding. During 2010,2014, we paid off a$7,626,000 mortgage loan secured by an assisted living property located in California. The retired debt had an interest rate of 8.69%. Also, during 2010, we paid $59,000 in regularly scheduled principal payments.Bonds Payable.At December 31, 2011 and 2010 we had outstanding principal of $3,200,000 and $3,730,000, respectively, on$1,400,000 multifamilytax-exempttax‑exempt revenuebondsbond thatarewas secured by five assisted living properties in Washington. These bondsbearbore interest at a variable rate thatisresetweeklyweekly. During 2014 andmature during 2015. For the year ended December 31, 2011, the weighted average interest rate, including letter of credit fees, on the outstanding bonds was 2.10%. During 2011 and 20102013, we paid$530,000$635,000 and$495,000,$600,000, respectively, in regularly scheduled principal payments.At December 31, 2011 and 2010, the aggregate carrying value of real estate properties securing our bonds payable was $6,915,000 and $7,179,000, respectively.Scheduled Principal Payments. The following table represents our long term contractual obligations (scheduled principal payments and amounts due at maturity) as of December 31,
2011,2014, and excludes the effects of interest (in thousands):Total
2015
2016
2017
2018
2019
Thereafter
Bank borrowings
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Senior unsecured notes
281,633 29,166 26,667 26,167 28,167 25,666 145,800 $
281,633 $
29,166 $
26,667 $
26,167 $
28,167 $
25,666 $
145,800 Total 2012 2013 2014 2015 2016 Thereafter Bank borrowings
$ 56,000 (1) $ — $ — $ — $ 56,000 $ — $ — Senior unsecured notes
100,000 — — 4,167 29,166 16,667 50,000 Bonds payable
3,200 565 600 635 1,400 — — $ 159,200 $ 565 $ 600 $ 4,802 $ 86,566 $ 16,667 $ 50,000 10. EquityPreferred Stock.Preferred Stock is comprised of the series summarized as follows:Shares outstanding at
December 31,Carrying Value at
December 31,Liquidation
Value
Per shareDividend
RateIssuance2011 2010 2011 2010 Series C Cumulative Convertible Preferred Stock
2,000,000 2,000,000 $ 19.25 8.5 % $ 18.80 $ 18.80 Series F Cumulative Preferred Stock
— 3,536,530 $ 25.00 8.0 % $ — $ 23.99 Total Cumulative Preferred Stock
2,000,000 5,536,530 LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Our8.5% Series C Cumulative Convertible Preferred Stock (or Series C preferred stock) outstanding. Our Series C preferred stock is convertible into 2,000,000 shares of our commonstock. Dividendsstock at $19.25 per share and dividends are payable quarterly. Total shares reserved for issuance of common stock related to the conversion of Series C preferred stock were 2,000,000 shares at December 31,20112014 and2010.At December 31, 2011 and 2010, we had no shares of our 8.5% Series E Cumulative Convertible Preferred Stock (or Series E preferred stock) outstanding. Our Series E preferred stock was convertible at any time into shares of our common stock at a conversion price of $12.50 per share of common stock. During 2010, holders of 32,895 shares of Series E preferred stock elected to convert such shares into 65,790 shares of common stock. During 2010, we redeemed the remaining 4,921 shares of outstanding Series E preferred stock at a redemption price of $25.4191 per share, including accrued and unpaid dividends up to and including the redemption date. Accordingly, we recognized the $6,000 of original issue costs related to the Series E preferred stock as a preferred stock redemption charge which is included in the income statement line item "Income allocated to preferred stockholders."Our 8.0% Series F Cumulative Stock (or Series F preferred stock) were redeemable by us, at our option, in whole or from time to time in part, for $25.00 per Series F Preferred Stock in cash plus any accrued and unpaid dividends up to the date of redemption. The dividend rate was 8.0% and the liquidation value was $25.00 per share. Dividends were cumulative from the date of original issue and were payable quarterly to stockholders of record on the first day of each quarter. During 2011, we redeemed 3,536,530 shares of our Series F preferred stock, representing all of our remaining outstanding shares. The redemption price was $25.1333 per share, including accrued and unpaid dividends. During 2010, we redeemed 2,357,686 shares of our Series F preferred stock, representing 40% of our outstanding shares, at a redemption price of $25.3889 per share, including accrued and unpaid dividends. Accordingly, we recognized the $3,566,000 and $2,377,000 in 2011 and 2010, respectively, of original issue costs related to the Series F preferred stock as a preferred stock redemption charge which is included in the income statement line item "Income allocated to preferred stockholders." During 2009, we invested $2,000,000 to repurchase a total of 109,484 shares of our Series F Preferred Stock at an average cost including fees and costs of $18.27 per share. In accordance with the accounting guidance regarding the effect on the calculation of earnings per share for the redemption or induced conversion of preferred stock, the discounted purchase price on these shares, which is equal to the liquidation value over the redemption value, netted with the original issuance costs has been added to net income in calculating net income allocable to common stockholders.While outstanding, the liquidation preferences of each share of preferred stock arepari passuwith one another. None have any voting rights, any stated maturity, nor are they subject to any sinking fund or mandatory redemption.2013.Common Stock. During
2011,2014, we sold3,990,000600,000 shares of common stock at a price of$27.25$41.50 per sharebefore fees and costs of $5,096,000, in an underwritten public offering. The net proceeds of $103,631,000 were used to redeem all of our Series F preferred stock outstanding, as previously discussed, and the remaining net proceeds were used to partially repay amounts outstanding under our Unsecured Credit Agreement.During 2010, we sold 1,970,000 shares of common stock at a price of $24.70 per share, before fees and costs of $703,000,in a registered direct placement to certain institutional investors.We raised $47,956,000 in net proceeds from the offering.The net proceeds of $24,644,000 were used toredeem allpay down amounts outstanding under our unsecured line of credit, to fund current developments and for general corporate purposes. During 2013, we sold 4,025,000 shares of common stock in a public offering at a price of $44.50 per share. The net proceeds of $171,365,000 were used to pay down amounts outstanding under ourSeries E preferredunsecured revolving line of credit, to fund acquisitions and our current development commitments and for general corporate purposes. During 2014 and 2013, we acquired 5,324 shares and 6,925 shares, respectively, of common stockand 40%held by employees who tendered owned shares to satisfy tax withholding obligations. Subsequent to December 31, 2014, we acquired 4,609 shares ofour Series F preferredcommon stockoutstanding, as previously discussed.LTC PROPERTIES, INC.held by employees who tendered owned shares to satisfy tax withholding obligations.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)We have anDuring 2013, we terminated the equity distribution agreement whichallowsallowed us to issue and sell, from time to time, up to $85,686,000 in aggregate offering price of our common shares. Sales of common sharesarewere made by means of ordinarybrokers'brokers’ transactions at market prices, in block transactions, or as otherwise agreed between us and our sales73
agents. During
2011,2013, we sold 126,742 shares of common stock for $4,895,000 in net proceeds under our equity distribution agreement. In conjunction with the sale of common stock, we reclassified $662,000 of accumulated costs associated with the equity distribution agreement to additional paid in capital. During 2012, we did not sell shares of our common stock under our equity distribution agreement.During
2010,2012, wesold 776,400amended our charter to increase the number of authorized shares of common stock from 45,000,000 shares to 60,000,000 shares. The charter amendment was approved by our stockholders ata weighted average price, including fees and costs,the 2012 annual meeting of$25.55 per share, resulting in net proceeds of $19,838,000 after $492,000 of fees and costs. During 2009, we sold 30,000 shares of common stock at a weighted average price, including fees and costs, of $25.54 per share, resulting in net proceeds of $766,000 after $18,000 of fees and costs. At December 31, 2011, we had $64,573,000 available under this equity distribution agreement.Our Board of Directors authorized a share repurchase program enabling us to repurchase up to 5,000,000 shares of our equity securities, including common and preferred stock in the open market. This authorization does not expire until 5,000,000 shares of our equity securities have been repurchased or the Board of Directors terminates its authorization. During 2011 and 2010, we did not purchase shares of our equity securities. At December 31, 2011, we continue to have an open Board authorization to purchase an additional 3,360,237 shares in total of equity securities.stockholders held on May 22, 2012.Non-controlling Interests.We have one limited partnership. The limited partnership agreement allows the limited partners to convert, on a one-for-one basis, their limited partnership units into shares of common stock or the cash equivalent, at our option. At December 31, 2011, we have reserved 112,588 shares of our common stock under this partnership agreement. Since we exercise control, we consolidate the limited partnership and we carry the non-controlling interests at cost. At December 31, 2011, the carrying value and market value of the partnership conversion rights was $1,962,000 and $3,522,000, respectively.In January 2012, two of our limited partners exercised their conversion rights. One limited partner exchanged all of its 67,294 partnership units and the other limited partner exchanged 22,000 partnership units in the limited partnership. Upon receipt of the redemption notification of 89,294 limited partnership units, we elected to satisfy the redemption in cash. We paid the limited partners $2,764,000, which represents the closing price of our common stock on the redemption date plus $0.05 per share multiplied by the number of limited partnership units redeemed. The amount we paid upon redemption exceeded the book value of the limited partnership interest redeemed by $1,246,000. In accordance with FASB accounting guidance, we account for this exchange as an equity transaction because there was no change in control requiring consolidation or deconsolidation and remeasurement. Accordingly, the $1,246,000 excess book value of the limited partners' interest in the partnership was reclassified to stockholders' equity. Subsequent to these conversions, we have reserved 23,294 shares of our common stock under this partnership agreement.During 2011 and 2010, none of our limited partners exercised their conversion rights. During 2009, one of our limited partners exercised its conversion rights and exchanged all of its interest in the limited partnership. Upon receipt of the redemption notification of 67,294 limited partnership units, we elected to convert its partnership units into 67,294 shares of our common stock. In accordance with FASB accounting guidance, we account for this exchange as an equity transaction because there was no change in control requiring consolidation or deconsolidation and remeasurement. Accordingly, the $1,144,000 carrying amount of the limited partner's interest in the partnership was reclassified toLTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)stockholders' equity. The following table represents the change from net income attributable to us and transfers from non-controlling interest (in thousands):Years Ended December 31, 2011 2010 2009 Net income attributable to LTC Properties, Inc.
$ 49,252 $ 45,862 $ 44,064 Transfers from the non-controlling interest
Increase in paid-in capital for limited partners conversion
— — 1,144 Change from net income attributable to LTC Properties, Inc. and transfers from non-controlling interest
$ 49,252 $ 45,862 $ 45,208 Available Shelf
Registrations.Registration.During 2010,On July 19, 2013, we filed a FormS-3 "shelf"S‑3ASR “shelf” registration statementwhich became effective June 16, 2010to replace our prior shelf registration statement.Our currentThis shelf registration statement provides us with the capacity to offerup to $400,000,000 incommon stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital underourthis current shelf registration 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. At December 31,2011,2014 we had availability of$167,614,000$775,100,000 under our effective shelfregistration.registration which expires on July 19, 2016.Non‑controlling Interests. We currently have no limited partners. During 2012, we had one limited partnership. The limited partnership agreement allowed the limited partners to convert, on a one‑for‑one basis, their limited partnership units into shares of common stock or the cash equivalent, at our option. Since we exercised control, we consolidated the limited partnership and we carried the non‑controlling interests at cost.
During 2012, two of our limited partners exercised their conversion rights to exchange all of their 112,588 partnership units. At our discretion, we converted 23,294 partnership units into an equal number of our common shares. The partnership conversion price was $17.00 per partnership unit. At our discretion, we elected to satisfy the conversion of 89,294 limited partnership units with cash. We paid the limited partners $2,764,000, which represents the closing price of our common stock on the redemption date plus $0.05 per share multiplied by the number of limited partnership units redeemed. The amount we paid upon redemption exceeded the book value of the limited partnership interest redeemed by $1,246,000. Accordingly, the $1,246,000 excess book value of the limited partners’ interest in the partnership was reclassified to stockholders’ equity. We accounted for these conversions as an equity transaction because there was no change in control requiring consolidation or deconsolidation and remeasurement. Subsequent to these partnership conversions, the assets held by the limited partnership were transferred to other subsidiaries of the Company and the limited partnership was terminated. At December 31, 2014 and 2013, we had no shares of our common stock reserved under any partnership agreements.
The following table represents the effect of changes in our ownership interest in the limited partnership on equity attributable to LTC Properties, Inc. (in thousands):
Years Ended December 31,
2014
2013
2012
Net income attributable to LTC Properties, Inc.
$
73,399 $
57,815 $
51,290 Transfers from the non-controlling interest
Increase in paid-in capital for limited partners conversion
—
—
396 Decrease in paid-in capital for limited partners conversion
—
—
(1,246) Change from net income attributable to LTC Properties, Inc. and transfers from non-controlling interest
$
73,399 $
57,815 $
50,440 74
DividendDistributions.We declared and paid the following cash dividendson our common and preferred stock(in thousands):Year Ended
December 31, 2011Year ended
December 31, 2010Declared Paid Declared Paid Preferred Stock
Series C
$ 3,272 $ 3,272 $ 3,272 $ 3,272 Series E(1)
— — 42 62 Series F(2)
2,240 (3) 4,008 10,348 (3) 11,527 Total Preferred
5,512 7,280 13,662 14,861 Common Stock(4)
49,292 49,292 39,041 39,041 Total(5)
$ 54,804 $ 56,572 $ 52,703 $ 53,902 LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Year Ended
Year Ended
December 31, 2014
December 31, 2013
Declared
Paid
Declared
Paid
Preferred Stock Series C
$
3,273 $
3,273 $
3,273 $
3,273 Common Stock
71,158 (1)
71,158 (1)
63,631 (2)
63,631 (2)
Total
$
74,431 $
74,431 $
66,904 $
66,904 (1)
Represents $0.17 per share per month for the twelve months ended December 31, 2014.
(2)
Represents $0.155 per share per month for January through September 2013 and $0.17 per share per month for October through December 2013.
In January
2012,2015, we declared a monthly cash dividend of$0.145$0.17 per share on our common stock for the months of January, February and March2012, which is a 3.6% increase from the previous $0.14 per share per month dividend. The monthly cash dividends are2015 payable on January31,30, February2927 and March30, 2012,31, 2015, respectively, to stockholders of record on January23,22, February2119 and March22, 2012,23, 2015, respectively.Accumulated Other
Equity.Comprehensive Income. During the years we had investments in Real Estate Mortgage Investment Conduit (or REMIC) Certificates, we retained thenon-investmentnon‑investment grade certificates issued in the securitizations. During 2005, a loan was paid off in the last remaining REMIC pool which caused the last third party REMIC Certificate holders entitled to any principal payments to be paid off in full. After this transaction, we became the sole holder of the remaining REMIC Certificates andarewere therefore entitled to the entire principal outstanding of the loan pool underlying the remaining REMIC Certificates. Under the FASB accounting guidance relating to accounting for changes that result in a transferor regaining control of financial assets sold, a Special Purpose Entity (or SPE) may becomenon-qualifiednon‑qualified or tainted which generally results in the"repurchase"“repurchase” by the transferor of all the assets sold to and still held by the SPE. Since we were the sole REMIC Certificate holder entitled to principal from the underlying loan pool, we had all the risks and were entitled to all the rewards from the underlying loan pool. As required by the accounting guidance, the repurchase for the transferred assets was accounted for at fair value. The accumulated other comprehensive income balance represents the fair market value adjustment offset by any previously adjusted impairment charge which is amortized to increase interest income over the remaining life of the loans that we repurchased from the REMIC pool. At December 31,20112014 and2010, Other Equity consisted of $199,000 and $264,000, respectively, of2013, accumulated other comprehensiveincome.income was $82,000 and $117,000, respectively.Stock Based Compensation Plans. During 2008 we adopted and our shareholders approved the 2008 Equity Participation Plan under which 600,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees,
non-employeenon‑employee directors and consultants. The terms of the awards granted under the 2008 Equity Participation Plan are set by our compensation committee at its discretion.75
Restricted Stock. During
20112014 and 2013, we granted6,00095,000 and 34,400 shares of restricted common stock, respectively, as follows:Price per
Year
No. of Shares
Share
Vesting Period
2014
59,000 $
36.81 ratably over 3 years
3,000 $
38.43 ratably over 3 years
15,000 $
40.05 ratably over 3 years
10,500 $
40.05 June 9, 2015
7,500 $
41.34 November 12, 2015
95,000 2013
8,400 $
46.54 ratably over 3 years
6,000 $
41.83 ratably over 3 years
20,000 $
36.26 June 1, 2016
34,400 In January 2015, we cancelled 640 shares of restricted stock. In February 2015, we granted 65,750 shares of restricted common stock at
$28.70$44.45 per share. These shares vest ratably from the grant date over a three-yearperiod fromperiod. During 2013, thegrant date. In January 2012, we granted 14,000vesting of 18,180 shares of restricted common stockat $31.77 per share. These shares vest ratably over a five-year period fromwere accelerated due to thegrant date. Additionally, we granted 30,000 sharesretirement ofrestricted common stock at $31.77 per share. These shares all vest on June 15, 2015. We also granted 12,200 shares of restricted common stock at $31.77 per share in January 2012. These shares all vest on January 10, 2016.During 2010, we granted 4,000 shares of restricted stock at $25.95 per share, 1,000 shares of restricted stock at $25.04 per shareour former Senior Vice President, Marketing and11,030 shares of restricted stock at $26.53 per share. These shares vest ratably over a three-year period from the grant date. Additionally, during 2010, we granted 92,900 shares of restricted stock at $26.59 per share. These shares vest ratably over a five-year period from the grant date. We also granted 99,661 shares of restricted stock at $26.53 per share during 2010. These shares vest ratably over a five-year period with the first date of vesting beginning in December 31, 2010.LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Strategic Planning. Dividends are payable on the restricted shares to the extent and on the same date as dividends are paid on all of our common stock. Restricted stock activity for the years ended December 31,
20112014 and20102013 was as follows:2011 2010 2014
2013
Outstanding, January 1
217,317 84,866 165,149 195,449 Granted
6,000 208,591 95,000 34,400 Vested
(58,183 ) (76,140 ) (45,981) (64,700) Canceled
— — —
—
Outstanding, December 31
165,134 217,317 214,168 165,149 Compensation expense for the year(1)
$ 1,450,000 $ 1,210,000 $
3,241,000 $
2,591,000 76
Stock Options. During 2014, we issued 15,000 options to purchase common stock at an exercise price of $38.43 per share. These stock options vest ratably over a three-year period. The fair value of these options was estimated utilizing the
remaining vesting period.
Stock Options.Black-Scholes-Merton valuation model and assumptions as of the grant date. In determining the estimated fair value, the expected life assumption was three years, the volatility was 0.21, the risk free interest rate was 0.66% and the expected dividend yield was 5.31%. The fair value of the option granted was estimated to be $2.96. No stock options were issued during 2011 and 2010.2013. Nonqualified stock option activity for the years ended December 31, 20112014 and 2010,2013, was as follows:
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
| Weighted Average |
| ||||||||||||||||||
| | Shares | Weighted Average Price |
| Shares |
| Price |
| |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2011 | 2010 |
| 2014 |
| 2013 |
| 2014 |
| 2013 |
| |||||||||||
Outstanding, January 1 | 185,334 | 197,000 | $ | 23.34 | $ | 22.88 |
| 73,334 |
| 95,334 |
| $ | 23.97 |
| $ | 23.93 |
| |||||||
Granted | — | — | $ | — | $ | — |
| 15,000 |
| — |
| $ | 38.43 |
| $ | — |
| |||||||
Exercised | (5,000 | ) | (11,666 | ) | $ | 23.79 | $ | 15.62 |
| (45,000) |
| (22,000) |
| $ | 23.79 |
| $ | 23.79 |
| |||||
Canceled | — | — | $ | — | $ | — |
| — |
| — |
| $ | — |
| $ | — |
| |||||||
Outstanding, December 31 | 180,334 | 185,334 | $ | 23.33 | $ | 23.34 |
| 43,334 |
| 73,334 |
| $ | 29.16 |
| $ | 23.97 |
| |||||||
Exercisable, December 31(1) | 175,334 | 175,334 | $ | 23.29 | $ | 23.27 |
| 28,334 |
| 73,334 |
| $ | 24.25 |
| $ | 23.97 |
| |||||||
(1)The aggregate intrinsic value of exercisable options at December 31, 2011, based upon the closing price of our common shares at December 30, 2011, amounted to approximately $1,327,000. Options exercisable at December 31, 2011 have a weighted average remaining contractual life of approximately 3.5 years.
(1) | The aggregate intrinsic value of exercisable options at December 31, 2014, based upon the closing price of our common shares at December 31, 2014 the last trading day of 2014, amounted to approximately $536,000. Options exercisable at December 31, 2014 have a weighted average remaining contractual life of approximately 2.7 years. |
The options exercised during 20112014 and 20102013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
| |
|
|
|
| Average |
|
|
|
|
|
|
| |
|
| Options |
| Exercise |
| Option |
| Market |
| |||
|
| Exercised |
| Price |
| Value |
| Value(1) |
| |||
2014 |
| 45,000 |
| $ | 23.79 |
| $ | 1,071,000 |
| $ | 1,840,000 |
|
2013 |
| 22,000 |
| $ | 23.79 |
| $ | 523,000 |
| $ | 865,000 |
|
| | Options Exercised | Weighted Average Exercise Price | Option Value | Market Value(1) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 | 5,000 | $ | 23.79 | $ | 119,000 | $ | 152,000 | ||||||
2010 | 11,666 | $ | 15.62 | $ | 182,000 | $ | 315,000 | ||||||
(1)As of the exercise dates.
(1) | As of the exercise dates. |
We use the Black-Scholes-MertonBlack‑Scholes‑Merton formula to estimate the value of stock options granted to employees. This model requires management to make certain estimates including stock volatility,
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
expected dividend yield and the expected term. If management incorrectly estimates these variables, the results of operations could be affected.
The weighted average exercise share price of the options was $23.33$29.16 and $23.34$23.97 and the weighted average remaining contractual life was 0.02.7 and 0.13.0 years as of December 31, 20112014 and 2010,2013, respectively. At December 31, 2011, 2014, the total compensation costnumber of stock options that are scheduled to vest through December 31, 2015, 2016 and 2017 is 5,000; 5,000 and 5,000, respectively. We have no stock options outstanding that are scheduled to vest beyond 2017. Compensation expense related to unvestedthe vesting of stock options grantedfor the year ended December 31, 2014 was $10,000, which will$12,000. We did not record compensation expense related to the vesting of stock options for the year ended December 31, 2013. The remaining compensation expense to be recognized overrelated to the remaining vesting period.future service period of unvested outstanding stock options for 2015, 2016 and 2017 is $15,000; $15,000 and $2,000, respectively.
11. Commitments and Contingencies
During 2011, we purchased four skilled nursing properties with 524-beds in Texas as described inNote 6. Real Estate Investments.As part of the purchase agreement,an acquisition in 2011, we paid cash at closing and committed to provide a contingent earn-out paymentspayment if certain operational thresholds arewere met. The contingent earn-out payment arrangements require uswas recorded at fair value, which was estimated using a discounted cash flow analysis, and we accreted the contingent liability to paythe settlement amount as of the estimated payment date. The
77
fair value of such contingent liability was re‑evaluated on a quarterly basis based on changes in estimates of future operating results and changes in market discount rates. During 2013, we paid $7,000,000 related to this contingent liability. Accordingly, we had no remaining contingent liability under this agreement as of December 31, 2013. During 2013 and 2012, we recorded non-cash interest expense of $256,000 and $439,000, respectively, related to this contingent liability.
During 2014, we acquired a 48-unit assisted living property located in Colorado and added the property to an existing master lease. Under the amended master lease agreement, we committed to provide two earn-outcontingent payments totallingtotaling up to $11,000,000$4,000,000 payable in increments of $2,000,000 upon the propertiesproperty achieving a sustainable stipulated rent coverage ratio. We estimated the fair value of the contingent earn-out paymentspayment using a discounted cash flow analysis. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement. TheThese contingent earn-out payments were recorded at the date of the acquisition and master lease amendment in the amount of $9,841,000$3,240,000 and were includedwe are accreting the contingent liability up to the estimated settlement amount as of the estimated payment date. The fair value of these contingent liabilities will be evaluated on the consolidated balance sheet line item "earn-out liabilities."a quarterly basis based on changes in estimates of future operating results and changes in market discount rates. During 2011,2014, we recorded non-cashnon‑cash interest expense of $464,000$18,000 related to this contingent liabilities and the earn-out liabilities which represents the accretionfair value of these contingent payments was $3,258,000 at December 31, 2014. See Note 6. Real Estate Investments for further discussion of the difference between the current fair valueacquisition and estimated payment of the contingent earn-out liabilities. Also during 2011, we paid $4,000,000 related to the first contingent earn-out payment. master lease terms.
At December 31, 2011, the remaining contingent earn-out payments2014, we had a fair value of $6,305,000.
The following table summarizes our capital improvementoutstanding commitments astotaling $29,951,000 to develop, re‑develop, renovate or expand senior housing and long term care properties. As of December 31, 2011(dollar amounts2014, we have funded $13,429,000 under these commitments and we have a remaining commitment of $16,522,000. In January 2015, we funded $731,000 under these investment commitments. Accordingly, we have a remaining commitment of $15,791,000. Additionally, in thousands):
Commitment | Expiration Date | Used Commitment at 12/31/11 | Open Commitment at 12/31/11 | Estimated Yield | Property Type | Properties | Major Operator | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ | 100 | 8/1/12 | $ | — | $ | 100 | (2) | SNF | 1 | N/A | ||||||||||
| 730 | 8/31/13 | 674 | 56 | (7) | 9.00% | (3) | Other(1) | 2 | N/A | |||||||||||
| 8,250 | 10/11/13 | 50 | 8,200 | 9.00% | (4) | SNF(8) | — | N/A | ||||||||||||
| 5,000 | (6) | 12/31/14 | — | 5,000 | (5) | ALF | 37 | ALC | ||||||||||||
| $ | 14,080 | $ | 724 | $ | 13,356 | |||||||||||||||
(1)Other senior housing properties consist of independent living properties and properties providing any combination ofJanuary 2015, we committed to an existing operator under an amended master lease $600,000 for capital improvements at a 196-bed skilled nursing property in Texas. See Note 6. Real Estate Investments for further discussion of these commitments.In February 2015, we funded $7,195,000 under a $12,179,000 development commitment to purchase and complete the development of a 56-unit memory care property currently under construction in Texas. In conjunction with this commitment, we entered into a master lease agreement which provides us a right to provide similar financing for certain future development opportunities and provides the operator lease inducement payments for each development commitment. In February 2015, we elected to exercise our right to provide financing for one such opportunity, adding to the master lease a parcel of land purchased in South Carolina for $2,490,000 coupled with our commitment to provide the operator with up to $16,535,000, including the land purchase, for the development of an 89-unit combination assisted living
and/or independent living services.(2)The yield is includedand memory care property. See Note 6. Real Estate Investments for further discussion of this master lease.As of December 31, 2014, we had invested $3,337,000 under a $12,000,000 capital improvements commitment to Prestige under a mortgage loan and invested an additional $770,000 under this capital improvement commitment in January 2015. Also, in January 2015, we amended this mortgage loan to provide an additional $20,000,000 commitment for redevelopment projects at two of the properties securing the loan increasing the total capital improvement commitment to $32,000,000. As a result, we have a remaining capital improvement commitment of $27,893,000. Additionally, under certain conditions and based on certain operating metrics and valuation thresholds achieved and sustained within the initial
lease rate.(3)Minimum rent will increase ontwelve years of the1stterm, the loan provides for additional commitment up to $40,000,000 ofeachadditional proceeds (not to exceed $10,000,000 in any twelve monthbyperiod). Since these conditions have not been met, no funding has been made under this additional $40,000,000 loan commitment. In January 2015, we originated an $11,000,000 mortgage loan with this borrower. Concurrent with theamount advanced in the previous month multiplied by the estimated yield.(4)Minimum rent will increase upon final fundingloan origination, we funded $9,500,000 under this loan andproject completion or in some cases, the improvement deadline as defined in each lease agreement.(5)9.5% plus the positive difference, if any, between the average yields on the U.S. Treasury 10-year notehave a remaining commitment of $1,500,000. See Note 6. Real Estate Investments forthe five days prior to funding, minus 420 basis points (expressed as a percentage).
78
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6)$5,000 per year for the life
At December 31, 2014, we committed to provide $3,788,000 in loans and line of the lease.(7)In January 2012, we funded this $56 commitment.(8)During 2011, we acquired a vacant parcel of land in Texas and entered into a commitment to fund the construction of a skilled nursing property with 120 beds which will replace an existing 90-bed skilled nursing property. The following table summarizes our loan commitments ascredit agreements. As of December 31, 2011 (dollar amounts in thousands): Expiration
Date Used
Commitment
at 12/31/11 Open
Commitment
at 12/31/11 Yield Property
Type(1) Properties Major
Operator$ 50 3/31/12 $ 20 $ 30 10.00 % Other 1 N/A 2,500 (2) 12/31/12 232 2,268 8.50 % Other 2 N/A $ 2,550 $ 252 $ 2,298 (1)Other senior housing properties consist of independent living properties2014, we had funded $1,442,000 under these commitments and properties providing any combination of skilled nursing, assisted living and/or independent living services.(2)Represents a construction and term loan for capital improvements at two senior housing properties we own and lease to the borrower. Upon the earlier of the full funding of the commitment or December 31, 2012, construction distribution under this loan will cease and this loan will fully amortize to maturity in November 2017.12. Transactions with Related Party We have entered into transactions with Skilled Healthcare Group, Inc. (or SHG). One of our directors, Boyd W. Hendrickson, serves as Chief Executive Officer of SHG. In December 2005, we purchased, on the open market, $10,000,000 face value of SHG Senior Subordinated Notes with a face rate of 11.0% and an effective yield of 11.1%. One of our directors, Boyd W. Hendrickson, serves as Chief Executive Officer of SHG. Our Board of Directors, with Mr. Hendrickson abstaining, ratified the purchase of SHG Senior Subordinated Notes. As a result of an early redemption by SHG in 2007, we have a remaining investmentcommitment of $2,346,000. In January 2015, we funded $500,000 under these loans and line of credit agreements. Also, in $6,500,000 face valueJanuary 2015, we committed to fund a working capital loan of SHG Senior Subordinated$500,000 to an existing operator. Accordingly, we have commitments of $4,288,000 and a remaining commitment of $2,346,000. See at December 31, 2011Receivables for further discussion of these commitments.
We are a party from time to time to various general and 2010. During 2011, 2010professional liability claims and 2009, we recognized $721,000, $720,000 and $720,000lawsuits asserted against the lessees or borrowers of interest income related to the SHG Senior Subordinated Notes. Interest on the notes is payable semi-annuallyour properties, which in arrears and the notes mature on January 15, 2014.
In addition, during September 2007 SHG purchased the assets of Laurel Healthcare (or Laurel). We wereour opinion are not a direct party to this transaction. One of the assets SHG purchased was Laurel's leasehold interestssingularly or in the skilled nursing properties in New Mexico Laurel leased from usaggregate 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 a 15-year master lease agreement dated in February 2006. Our Board of Directors, with Mr. Hendrickson abstaining, ratifiedapplicable legal principles are not our consent to the assignment of Laurel's master lease to subsidiaries of SHG. The economic terms of the master lease agreement did not changeresponsibility as a resultnon-possessory landlord or mortgage holder. We believe that these matters are the responsibility of our assignment oflessees and borrowers pursuant to general legal principals and pursuant to insurance and indemnification provisions in the master leaseapplicable leases or mortgages. We intend to subsidiaries of SHG. During 2011, 2010 and 2009, we received $4,264,000, $4,160,000 and $4,058,000, respectively, in rental income and recorded $238,000, $342,000 and $443,000, respectively, in straight-line rental income from subsidiaries of SHG. At December 31, 2011 and 2010, the straight-line rent receivable from subsidiaries of SHG was $3,060,000 and $2,822,000, respectively.
LTC PROPERTIES, INC.continue to vigorously defend such claims.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. Distributions
13. Distributions
We must distribute at least 90% of our taxable income in order to continue to qualify as a REIT. This distribution requirement can be satisfied by current year distributions or, to a certain extent, by distributions in the following year.
For federal tax purposes, distributions to stockholders are treated as ordinary income, capital gains, return of capital or a combination thereof. Distributions for 2011, 20102014, 2013 and 20092012 were cash distributions. The federal income tax classification of the per share common stock distributions are as follows (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2014 |
| 2013 |
| 2012 |
| |||
Ordinary taxable distribution |
| $ | 1.474 |
| $ | 1.534 |
| $ | 1.539 |
|
Return of capital |
|
| 0.196 |
|
| 0.313 |
|
| 0.242 |
|
Unrecaptured Section 1250 gain |
|
| 0.370 |
|
| 0.058 |
|
| 0.004 |
|
Long term capital gain |
|
| — |
|
| — |
|
| 0.005 |
|
Total |
| $ | 2.040 |
| $ | 1.905 |
| $ | 1.790 |
|
79
| | Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2009 | |||||||
Ordinary taxable distribution | $ | 1.370 | $ | 1.200 | $ | 1.549 | ||||
Return of capital | 0.295 | 0.334 | — | |||||||
Unrecaptured Section 1250 gain | — | 0.034 | — | |||||||
Long term capital gain | 0.015 | 0.012 | 0.011 | |||||||
Total | 1.680 | $ | 1.580 | $ | 1.560 | |||||
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14.
13. Net Income Per Common Share
Basic and diluted net income per share werewas as follows(in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended December 31, |
| |||||||
|
| 2014 |
| 2013 |
| 2012 |
| |||
Income from continuing operations |
| $ | 73,399 |
| $ | 55,405 |
| $ | 50,306 |
|
Less net income allocated to non-controlling interests |
|
| — |
|
| — |
|
| (37) |
|
Less net income allocated to participating securities: |
|
|
|
|
|
|
|
|
|
|
Non-forfeitable dividends on participating securities |
|
| (465) |
|
| (381) |
|
| (377) |
|
Income allocated to participating securities |
|
| (16) |
|
| (2) |
|
| — |
|
Total net income allocated to participating securities |
|
| (481) |
|
| (383) |
|
| (377) |
|
Less net income allocated to preferred stockholders: |
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
| (3,273) |
|
| (3,273) |
|
| (3,273) |
|
Total net income allocated to preferred stockholders |
|
| (3,273) |
|
| (3,273) |
|
| (3,273) |
|
Income from continuing operations available to common stockholders |
|
| 69,645 |
|
| 51,749 |
|
| 46,619 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
| — |
|
| 805 |
|
| 1,005 |
|
Gain on sale of assets, net |
|
| — |
|
| 1,605 |
|
| 16 |
|
Total net income from discontinued operations |
|
| — |
|
| 2,410 |
|
| 1,021 |
|
Net income available to common stockholders |
|
| 69,645 |
|
| 54,159 |
|
| 47,640 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
Convertible preferred securities |
|
| 3,273 |
|
| — |
|
| — |
|
Total effect of dilutive securities |
|
| 3,273 |
|
| — |
|
| — |
|
Net income for diluted net income per share |
| $ | 72,918 |
| $ | 54,159 |
| $ | 47,640 |
|
Shares for basic net income per share |
|
| 34,617 |
|
| 33,111 |
|
| 30,238 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
Stock options |
|
| 23 |
|
| 31 |
|
| 40 |
|
Convertible preferred securities |
|
| 2,000 |
|
| — |
|
| — |
|
Total effect of dilutive securities |
|
| 2,023 |
|
| 31 |
|
| 40 |
|
Shares for diluted net income per share |
|
| 36,640 |
|
| 33,142 |
|
| 30,278 |
|
Basic net income per share |
| $ | 2.01 |
| $ | 1.64 |
| $ | 1.58 |
|
Diluted net income per share(1) |
| $ | 1.99 |
| $ | 1.63 |
| $ | 1.57 |
|
(1) | For the year ended December 31, 2013, the Series C Cumulative Convertible Preferred Stock was excluded from the computation of diluted net income per share as such inclusion would be anti‑dilutive. For the year ended December 31, 2012, the Series C Cumulative Convertible Preferred Stock and the convertible non‑controlling interests have been excluded from the computation of diluted net income per share as such inclusion would be anti‑dilutive. |
| | For the year ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2009 | |||||||
Income from continuing operations | $ | 49,673 | $ | 45,860 | $ | 44,473 | ||||
Less income allocated to non-controlling interests | (191 | ) | (191 | ) | (296 | ) | ||||
Less income allocated to participating securities Non-forfeitable dividends on participating securities | (342 | ) | (230 | ) | (139 | ) | ||||
Total income allocated to participating securities | (342 | ) | (230 | ) | (139 | ) | ||||
Less income allocated to preferred stockholders: | ||||||||||
Preferred stock dividends | (5,512 | ) | (13,662 | ) | (15,141 | ) | ||||
Preferred stock redemption charge | (3,566 | ) | (2,383 | ) | — | |||||
Allocation of income from preferred stock buyback | — | — | 626 | |||||||
Total income allocated to preferred stockholders | (9,078 | ) | (16,045 | ) | (14,515 | ) | ||||
Income from continuing operations allocable to common stockholders | 40,062 | 29,394 | 29,523 | |||||||
Add net income from discontinued operations: | ||||||||||
Loss from discontinued operations | (230 | ) | (117 | ) | (113 | ) | ||||
Gain on sale of assets, net | — | 310 | — | |||||||
Total net income from discontinued operations | (230 | ) | 193 | (113 | ) | |||||
Total net income allocable to common stockholders | 39,832 | 29,587 | 29,410 | |||||||
Effect of dilutive securities: | ||||||||||
Convertible preferred securities | — | 40 | 80 | |||||||
Total effect of dilutive securities | — | 40 | 80 | |||||||
Net income for diluted net income per share | $ | 39,832 | $ | 29,627 | $ | 29,490 | ||||
Shares for basic net income per share | 29,194 | 24,495 | 23,099 | |||||||
Effect of dilutive securities: | ||||||||||
Stock options | 28 | 23 | 8 | |||||||
Convertible preferred securities | — | 50 | 75 | |||||||
| 28 | 73 | 83 | ||||||||
Shares for diluted net income per share | 29,222 | 24,568 | 23,182 | |||||||
Basic net income per common share | $ | 1.36 | $ | 1.21 | $ | 1.27 | ||||
Diluted net income per common share(1) | $ | 1.36 | $ | 1.21 | $ | 1.27 | ||||
80
(1)For each year, the Series C Cumulative Convertible Preferred Stock, the participating securities and the convertible non-controlling interests have been excluded from the computation14. Quarterly Financial Information
For the quarter ended
March 31,
June 30,
September 30,
December 31,
(unaudited, in thousands except per share amounts)
2014
Revenues
$
29,438 $
29,227 $
29,541 $
30,755 Net income from discontinued operations
—
—
—
—
Net income available to common stockholders
16,083 17,338 16,181 20,043 Net income per common share from continuing operations available to common stockholders:
Basic
$
0.47 $
0.50 $
0.47 $
0.58 Diluted
$
0.46 $
0.50 $
0.46 $
0.57 Net income (loss) per common share from discontinued operations:
Basic
$
—
$
—
$
—
$
—
Diluted
$
—
$
—
$
—
$
—
Net income per common share available to common stockholders:
Basic
$
0.47 $
0.50 $
0.47 $
0.58 Diluted
$
0.46 $
0.50 $
0.46 $
0.57 Dividends per share declared
$
0.510 $
0.510 $
0.510 $
0.510 Dividend per share paid
$
0.510 $
0.510 $
0.510 $
0.510 2013
Revenues
$
25,277 $
25,279 $
25,825 $
28,593 Net income (loss) from discontinued operations
254 (701) 2,857 —
Net income available to common stockholders
12,060 11,994 16,373 13,732 Net income per common share from continuing operations available to common stockholders:
Basic
$
0.39 $
0.39 $
0.39 $
0.40 Diluted
$
0.39 $
0.39 $
0.39 $
0.40 Net income (loss) per common share from discontinued operations:
Basic
$
0.01 $
(0.02) $
0.08 $
—
Diluted
$
0.01 $
(0.02) $
0.08 $
—
Net income per common share available to common stockholders:
Basic
$
0.40 $
0.36 $
0.47 $
0.40 Diluted
$
0.40 $
0.36 $
0.47 $
0.40 Dividends per share declared
$
0.465 $
0.465 $
0.465 $
0.510 Dividend per share paid
$
0.465 $
0.465 $
0.465 $
0.510 NOTE:
Quarterly and year‑to‑date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with the per share amounts for the year. Computations of per share amounts from continuing operations, discontinued operations and net income (loss) are made independently. Therefore, the sum of per share amounts from continuing operations and discontinued operations may not agree with the per share amounts from net income (loss) available to common stockholders.
81
For the quarter ended March 31, June 30, September 30, December 31, (unaudited, in thousands except per share amounts) 2011
Revenues
$ 20,253 $ 21,180 $ 21,429 $ 22,298 Net loss from discontinued operations
(94 ) (74 ) (30 ) (32 ) Net income available to common stockholders
5,393 11,311 11,472 11,656 Net income per common share from continuing operations allocable to common stockholders:
Basic
$ 0.21 $ 0.38 $ 0.38 $ 0.39 Diluted
$ 0.21 $ 0.38 $ 0.38 $ 0.39 Net loss per common share from discontinued operations:
Basic
$ (0.00 ) $ (0.00 ) $ (0.00 ) $ (0.00 ) Diluted
$ (0.01 ) $ (0.00 ) $ (0.00 ) $ (0.00 ) Net income per common share available to common stockholders:
Basic
$ 0.20 $ 0.38 $ 0.38 $ 0.39 Diluted
$ 0.20 $ 0.37 $ 0.38 $ 0.39 Dividends per share declared
$ 0.42 $ 0.42 $ 0.42 $ 0.42 Dividend per share paid
$ 0.42 $ 0.42 $ 0.42 $ 0.42 2010
Revenues
$ 17,592 $ 17,925 $ 18,359 $ 19,820 Net (loss) income from discontinued operations
(45 ) (43 ) 25 256 Net income available to common stockholders
6,694 7,739 5,571 9,583 Net income per common share from continuing operations allocable to common stockholders:
Basic
$ 0.29 $ 0.33 $ 0.22 $ 0.36 Diluted
$ 0.29 $ 0.33 $ 0.22 $ 0.36 Net (loss) income per common share from discontinued operations:
Basic
$ (0.00 ) $ (0.00 ) $ 0.00 $ 0.01 Diluted
$ (0.00 ) $ (0.00 ) $ 0.00 $ 0.01 Net income per common share available to common stockholders:
Basic
$ 0.29 $ 0.33 $ 0.22 $ 0.37 Diluted
$ 0.29 $ 0.33 $ 0.22 $ 0.37 Dividends per share declared
$ 0.39 $ 0.39 $ 0.39 $ 0.41 Dividend per share paid
$ 0.39 $ 0.39 $ 0.39 $ 0.41
Contents16.LTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. 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
on items for which the fair value option hasLTC PROPERTIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)been electedreported in earnings. We did not adopt the elective fair market value optioninfor our financialstatements.assets and financial liabilities.The carrying amount of cash and cash equivalents approximates fair value because of the
short-termshort‑term maturity of these instruments. We do not invest our cash in auction rate securities. The carrying value and fair value of our financial instruments as of December 31,20112014 and20102013 assuming election of fair value for our financial assets and financial liabilities were as follows ((inthousands)thousands):At December 31, 2011 At December 31, 2010 Carrying Value Fair Value Carrying Value Fair Value Mortgage loans receivable
$ 53,081 $ 61,844 (1) $ 59,026 $ 67,697 (1) Marketable debt securities
6,485 6,500 (2) 6,478 6,695 (2) Bonds payable
3,200 3,200 (3) 3,730 3,730 (3) Bank borrowings
56,000 56,000 (3) 37,700 37,700 (3) Senior unsecured notes
100,000 101,223 (4) 50,000 49,943 (4) (1)Our investment in mortgage loans receivable is classified as Level 3. The fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our investments. The discount rate used to value our future cash inflows of the mortgage loans receivable at December 31, 2011 and 2010 was 6.0% and 7.5%, respectively.(2)Our investment in marketable debt securities is classified as Level 2. The fair value is measured using quoted market rates based on most recent transactions from an independent third party source. The pricing of our marketable debt securities as of December 31, 2011 and 2010 was 100.0% and 103.0%, respectively.(3)Our bonds payable and bank borrowings are at a variable interest rate. The estimated fair value of our bonds payable approximated their carrying values at December 31, 2011 and 2010 based upon prevailing market interest rates for similar debt arrangements. At December 31, 2011, we had $56,000 outstanding under our Unsecured Credit Agreement and $154,000 was available for borrowing. In January 2012, we borrowed $4,000. After this borrowing we had $60,000 outstanding and $150,000 available for borrowing.(4)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 December 31, 2011 and 2010, the discount rate used to value our future cash outflow of our senior unsecured notes was 4.8% and 5.5%, respectively.
17. Subsequent EventsAt December 31, 2014
At December 31, 2013
Carrying
Carrying
Value
Fair Value
Value
Fair Value
Mortgage loans receivable
$
165,656 $
198,977 (1)
$
165,444 $
200,248 (1)
Bonds payable
—
—
2,035 2,035 (2)
Bank borrowings
—
—
21,000 21,000 (2)
Senior unsecured notes
281,633 283,933 (3)
255,800 262,351 (3)
Contingent liabilities
3,258 3,258 (4)
—
—
(4)
(1)
Our investment in mortgage loans receivable is classified as Level 3. The fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our investments. The discount rate used to value our future cash inflows of the mortgage loans receivable at December 31, 2014 and 2013 was 8.6% and 8.4%, respectively.
(2)
Our bonds payable and bank borrowings are at a variable interest rate. The estimated fair value of our bonds payable and bank borrowings approximated their carrying values at December 31, 2014 and 2013 based upon prevailing market interest rates for similar debt arrangements.
(3)
Our obligation under our senior unsecured notes is classified as Level 3 and thus the fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is measured based upon management’s estimates of rates currently prevailing for comparable loans available to us, and instruments of comparable maturities. At December 31, 2014, the discount rate used to value our future cash outflow of our senior unsecured notes was 3.80% for those maturing before year 2020 and 4.55% for those maturing beyond year 2020. At December 31, 2013, the discount rate used to value our future cash outflow of our senior unsecured notes was 3.95% for those maturing before year 2020 and 4.25% for those maturing beyond year 2020.
(4)
Our contingent obligation under the earn‑out liabilities is classified as Level 3. We estimated the fair value of the contingent earn‑out payments using a discounted cash flow analysis. The discount rate that we use consists of a risk‑free U.S. Treasury rate plus a company specific credit spread which we believe is acceptable by willing market participants. At December 31, 2014, the discount rate used to value our future cash outflow of the earn-out liability was 6.2%.
16. Subsequent Events
We had the following events occur subsequent to the balance sheet date.
Real Estate—Owned Properties: We
fundedentered into a master lease agreement and committed to provide development commitments totaling $28,715,000. Under these development commitments, we purchased land and existing improvements for theremaining balancepurpose of$56,000completing a 56-unit memory care property currently undera $730,000 capital improvement commitment on two senior housing properties providing aconstruction for $7,195,000 and land for the purpose of building an 89-unit combinationofassisted livingindependent livingand memory care property for $2,490,000. The master lease also provides for the payment of lease inducements of up to $3,952,000 which will be82
amortized as a yield adjustment over the lease term. We funded $4,711,000 under completed development, expansion and renovation commitments. Additionally, we funded $731,000 under ongoing real estate investments with remaining commitments of $15,791,000. See Note 6. Real Estate Investments for further discussion.
skilled nursing services. Minimum rental income will increaseReal Estate—Mortgage Loans: We originated an $11,000,000 mortgage loan secured bythis capital funding multiplied by 9.0%.In January 2012, we entered into an agreement to sella140-bed157-bed skilled nursing propertylocatedinTexasMichigan and funded $9,500,000 under this loan. We also purchased and equipped a newly constructed 106-bed replacement skilled nursing property for$1,248,000. This property is leaseda total of $13,946,000 by exercising our purchase option under a $10,600,000 mortgage and construction loan. Additionally, we amended a mortgage loan secured by 15 skilled nursing properties with a total of 2,058 beds in Michigan to provide an additional $20,000,000 in loan proceeds for the redevelopment of two properties securing the loan. Concurrent with the loan amendment, the borrower forfeited their option to repay up to 50% of the outstanding loan balance and we agreed to convey two parcels of land held-for-use adjacent to the two properties to facilitate the expansion and renovation projects. We funded $770,000 under a $12,000,000 capital improvement commitment to an existing borrower and have a remaining commitment of $7,893,000. We received $2,285,000 plus accrued interest for the payoff of a mortgage loan secured by one range of care property. See Note 6. Real Estate Investments for further discussion.Notes Receivable: In January 2015, we committed to fund a $500,000 working capital loan with interest at 6.5% maturing in February 2019. We also advanced $500,000 of principal under our note commitments. See Note 7. Notes Receivable for further discussion.
Major Operator: Our master
leaseleases with Extendicare andthe economic terms of this master lease will not change as a result of this sale. This sale is scheduledEnlivant expired on December 31, 2014. Effective January 1, 2015, we re-leased 20 assisted living properties toclose on February 29, 2012 and will result in a $16,000 gain recognized in 2012.two separate operators. See Note 3. Major Operator for further discussion.Debt: We borrowed
$4,000,000$18,000,000 under ourUnsecured Credit Agreement. After this borrowing,unsecured revolving line of credit. Accordingly, wehad $60,000,000have $18,000,000 outstanding and$150,000,000$382,000,000 available for borrowing.Commitments and Contingencies: We committed to an existing operator under an amended master lease $600,000 for capital improvements at a 196-bed skilled nursing property in Texas. See Note 6. Real Estate Investments for further discussion.
Equity: We declared a monthly cash dividend of
$0.145$0.17 per share on our common stock for the months of January, February and March2012, which is a 3.6% increase from the previous $0.14 per share per month dividend. The monthly cash dividends are2015, payable on January31,30, February2927, and March30, 2012,31, 2015, respectively, to stockholders of record on January23,22, February2119, and March22, 2012,23, 2015, respectively.We acquired 4,609 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations and we cancelled 640 shares of restricted stock. Additionally, we granted
14,00065,750 shares of restricted common stock at$31.77$44.45 per share. These shares vest ratablyover a five-year periodfrom the grantdate. Additionally, we granted 30,000 sharesdate over a three-year period.83
Two of our limited partners exercised their conversion rights. One limited partner exchanged all of its 67,294 partnership units and the other limited partner exchanged 22,000 partnership units in the limited partnership. Upon receipt of the redemption notification of 89,294 limited partnership units, we elected to satisfy the redemption in cash. We paid the limited partners $2,764,000, which represents the closing price of our common stock on the redemption date plus $0.05 per share multiplied by the number of limited partnership units redeemed. The amount we paid upon redemption exceeded the book value of the limited partnership interest redeemed by $1,246,000. In accordance with FASB accounting guidance, we account for this exchange as an equity transaction because there was no change in control requiring consolidation or deconsolidation and remeasurement. Accordingly, the $1,246,000 excess book value of the limited partners' interest in the partnership was reclassified to stockholders' equity.VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
(Recovered)
Balance at
charged to
beginning of
costs and
Charged to
Balance at end
Account Description
period(2)
expenses
other accounts
Deductions(1)
of period(2)
Year ended December 31, 2012
Loan loss reserves
$
921 $
(139) $
—
$
—
$
782 Straight-line rent receivable allowance
1,519 38 —
—
1,557 $
2,440 $
(101) $
—
$
—
$
2,339 Year ended December 31, 2013
Loan loss reserves
$
782 $
1,274 $
—
$
(385) $
1,671 Straight-line rent receivable allowance
1,557 906 (3)
—
(922) (3)
1,541 $
2,339 $
2,180 $
—
$
(1,307) $
3,212 Year ended December 31, 2014
Loan loss reserves
$
1,671 $
2 $
—
$
—
$
1,673 Straight-line rent receivable allowance
1,541 30 —
(840) (4)
731 $
3,212 $
32 $
—
$
(840) $
2,404 (1)
Deductions represent uncollectible accounts written off.
(2)
Includes straight‑line rent receivable allowance for properties classified as held‑for‑sale.
(3)
Includes the write‑off of an $878 straight‑line rent receivable balance relatedto the transition of four assisted living properties to a new lessee.
(4)
Includes the write-off of an $840 straight-line rent receivable balance related to the amendment of an existing lease.
84
Additions Account DescriptionBalance at
beginning of
period(2)(Recovered)
charged to
costs and
expensesCharged to
other accountsDeductions(1) Balance at end
of period(2)Year ended December 31, 2009
Allowance for doubtful accounts and other receivables
$ 760 $ (56 ) $ — $ — $ 704 Straight-line rent receivable allowance
140 831 — (342 ) 629 $ 900 $ 775 $ — $ (342 ) $ 1,333 Year ended December 31, 2010
Allowance for doubtful accounts and other receivables
$ 704 $ 1,166 $ — $ (889 ) $ 981 Straight-line rent receivable allowance
629 844 — — 1,473 $ 1,333 $ 2,010 $ — $ (889 ) $ 2,454 Year ended December 31, 2011
Allowance for doubtful accounts and other receivables
$ 981 $ (60 ) $ — $ — $ 921 Straight-line rent receivable allowance
1,473 46 — — 1,519 $ 2,454 $ (14 ) $ — $ — $ 2,440 (1)Deductions represent uncollectible accounts written off.(2)Includes straight-line rent receivable allowance for properties classified as held-for-sale.
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Costs
capitalized
Gross amount at which carried at
Initial cost to company
subsequent
December 31, 2014
Building and
to
Building and
Accum
Construction/
Acquisition
Encumbrances
Land
improvement
acquisition
Land
improvement
Total(1)
deprec.
renovation date
date
Skilled Nursing Properties:
134 Alamogordo, NM
$
—
$
210 $
2,593 $
539 $
210 $
3,132 $
3,342 $
908 1985 2001 218 Albuquerque, NM
—
1,696 3,891 530 1,696 4,421 6,117 1,390 2008 2005 219 Albuquerque, NM
—
1,950 8,910 207 1,950 9,117 11,067 2,828 1982 2005 220 Albuquerque, NM
—
2,463 7,647 9 2,463 7,656 10,119 2,373 1970 2005 042 Altoona, IA
—
105 2,309 444 105 2,753 2,858 1,652 1973 1996 252 Amarillo, TX
—
844 —
7,925 844 7,925 8,769 558 2013 2011 214 Aransas Pass, TX
—
154 1,276 589 154 1,865 2,019 676 2008 2004 247 Arlington, TX
—
1,016 13,649 —
1,016 13,649 14,665 1,938 2007 2011 171 Atlanta, GA
—
175 1,282 3 175 1,285 1,460 679 1968 1999 040 Atmore, AL
—
131 2,877 196 131 3,073 3,204 1,677 1974 1996 221 Beaumont, TX
—
370 1,141 93 370 1,234 1,604 436 1950 2005 213 Beeville, TX
—
186 1,197 70 186 1,267 1,453 373 1974 2004 215 Benbrook, TX
—
480 2,121 102 480 2,223 2,703 749 1976 2005 007 Bradenton, FL
—
330 2,720 160 330 2,880 3,210 1,801 2002 1993 256 Brownwood, TX
—
164 6,336 —
164 6,336 6,500 521 2011 2012 043 Carroll, IA
—
47 1,033 213 47 1,246 1,293 746 1969 1996 177 Chesapeake, VA
—
388 3,469 1,097 388 4,566 4,954 2,785 2007 1995 257 Cincinnati, OH
—
1,890 25,110 —
1,890 25,110 27,000 1,391 2009 2012 125 Clovis, NM
—
561 5,539 307 561 5,846 6,407 2,022 2006 2001 129 Clovis, NM
—
598 5,902 59 598 5,961 6,559 2,088 1995 2001 268 Coldspring, KY
2,050 19,665 —
2,050 19,665 21,715 146 N/A
2012 253 Colton, CA
—
2,342 15,158 —
2,342 15,158 17,500 1,361 1990 2011 211 Commerce City, CO
—
236 3,217 167 236 3,384 3,620 1,223 1964 2004 212 Commerce City, CO
—
161 2,160 95 161 2,255 2,416 790 1967 2004 246 Crowley, TX
—
2,247 14,276 —
2,247 14,276 16,523 1,900 2007 2011 235 Daleville, VA
—
279 8,382 —
279 8,382 8,661 1,389 2005 2010 258 Dayton, OH
—
373 26,627 —
373 26,627 27,000 1,486 2010 2012 196 Dresden, TN
—
31 1,529 1,066 31 2,595 2,626 697 2002 2000 185 Gardner, KS
—
896 4,478 4,150 896 8,628 9,524 2,909 2011 1999 248 Granbury, TX
—
836 6,693 —
836 6,693 7,529 1,323 2008 2011 044 Granger, IA
—
62 1,356 221 62 1,577 1,639 907 1979 1996 205 Grapevine, TX
—
431 1,449 188 431 1,637 2,068 785 1974 2002 172 Griffin, GA
—
500 2,900 —
500 2,900 3,400 1,409 1969 1999 250 Hewitt, TX
—
1,780 8,220 99 1,780 8,319 10,099 832 2008 2011 054 Houston, TX
—
202 4,458 1,426 202 5,884 6,086 3,389 2007 1996 051 Houston, TX
—
365 3,769 1,598 365 5,367 5,732 3,006 1968 1996 055 Houston, TX
—
202 4,458 1,359 202 5,817 6,019 3,282 2008 1996 208 Jacksonville, FL
—
486 1,981 30 486 2,011 2,497 808 1987 2002 045 Jefferson, IA
—
86 1,883 296 86 2,179 2,265 1,231 1972 1996 008 Lecanto, FL
—
351 2,665 2,737 351 5,402 5,753 3,181 2006 1993 053 Mesa, AZ
—
305 6,909 1,876 305 8,785 9,090 4,653 1996 1996 226 Mesa, AZ
—
1,095 2,330 —
1,095 2,330 3,425 688 1979 2006 050 Midland, TX
—
33 2,285 26 33 2,311 2,344 1,318 1973 1996 242 Mission, TX
—
1,111 16,602 —
1,111 16,602 17,713 2,022 2004 2010 041 Montgomery, AL
—
242 5,327 115 242 5,442 5,684 3,036 1974 1996 115 Nacogdoches, TX
—
100 1,738 168 100 1,906 2,006 1,005 1973 1997 233 Nacogdoches, TX
—
394 7,456 268 394 7,724 8,118 1,197 1991 2010 249 Nacogdoches, TX
—
1,015 11,109 —
1,015 11,109 12,124 1,766 2007 2011 046 Norwalk, IA
—
47 1,033 239 47 1,272 1,319 750 1975 1996 176 Olathe, KS
—
520 1,872 313 520 2,185 2,705 1,160 1968 1999 251 Pasadena, TX
—
1,155 14,345 —
1,155 14,345 15,500 1,244 2005 2011 210 Phoenix, AZ
—
334 3,383 456 334 3,839 4,173 1,528 1982 2004 193 Phoenix, AZ
—
300 9,703 92 300 9,795 10,095 4,594 1985 2000 047 Polk City, IA
—
63 1,376 153 63 1,529 1,592 888 1976 1996 094 Portland, OR
—
100 1,925 2,652 100 4,577 4,677 2,349 2007 1997 254 Red Oak, TX
—
1,427 17,173 —
1,427 17,173 18,600 1,417 2002 2012 124 Richland Hills, TX
—
144 1,656 427 144 2,083 2,227 982 1976 2001 197 Ripley, TN
—
20 985 1,606 20 2,591 2,611 598 2007 2000 85
Gross amount at which carried at
December 31, 2011Initial cost to company Costs
capitalized
subsequent
to
acquisitionEncumbrances Land Building and
improvementsLand Building and
improvementsTotal(2) Accum
deprec.Construction/
renovation dateAcquisition
dateSkilled Nursing Properties:
134 Alamogordo, NM
— 210 2,590 3 210 2,593 2,803 687 1985 2001 218 Albuquerque, NM
— 1,696 3,891 530 1,696 4,421 6,117 1,008 2008 2005 219 Albuquerque, NM
— 1,950 8,910 207 1,950 9,117 11,067 2,111 1982 2005 220 Albuquerque, NM
— 2,463 7,647 9 2,463 7,656 10,119 1,783 1970 2005 042 Altoona, IA
— 105 2,309 444 105 2,753 2,858 1,422 1973 1996 214 Aransas Pass, TX
— 154 1,276 589 154 1,865 2,019 442 2008 2004 247 Arlington, TX
— 1,022 13,636 — 1,022 13,636 14,658 409 2007 2011 171 Atlanta, GA
— 175 1,282 3 175 1,285 1,460 587 1968 1999 040 Atmore, AL
— 131 2,877 196 131 3,073 3,204 1,427 1974 1996 221 Beaumont, TX
— 370 1,141 93 370 1,234 1,604 329 1950 2005 213 Beeville, TX
— 186 1,197 70 186 1,267 1,453 265 1974 2004 215 Benbrook, TX
— 503 2,121 102 503 2,223 2,726 600 1976 2005 189 Canyon, TX(3)
— 196 506 211 196 717 913 384 1986 2000 043 Carroll, IA
— 47 1,033 213 47 1,246 1,293 642 1969 1996 177 Chesapeake, VA
— 388 3,469 1,097 388 4,566 4,954 2,309 2007 1995 125 Clovis, NM
— 561 5,539 307 561 5,846 6,407 1,597 2006 2001 129 Clovis, NM
— 598 5,902 59 598 5,961 6,559 1,658 1995 2001 253 Colton, CA
— 2,342 15,158 — 2,342 15,158 17,500 71 1990 2011 211 Commerce City, CO
— 236 3,217 167 236 3,384 3,620 961 1964 2004 212 Commerce City, CO
— 161 2,160 95 161 2,255 2,416 625 1967 2004 246 Crowley, TX
— 2,137 14,366 — 2,137 14,366 16,503 342 2007 2011 235 Daleville, VA
— 279 8,382 — 279 8,382 8,661 480 2005 2010 217 Del Norte, CO
— 103 930 336 103 1,266 1,369 290 2006 2005 196 Dresden, TN
— 31 1,529 123 31 1,652 1,683 581 2002 2000 185 Gardner, KS
— 896 4,478 4,150 896 8,628 9,524 2,188 2011 1999 248 Granbury, TX
— 878 6,708 — 878 6,708 7,586 359 2008 2011 044 Granger, IA
— 62 1,356 221 62 1,577 1,639 767 1979 1996 205 Grapevine, TX
— 431 1,449 188 431 1,637 2,068 676 1974 2002 172 Griffin, GA
— 500 2,900 — 500 2,900 3,400 1,182 1969 1999 250 Hewitt, TX
— 1,780 8,220 — 1,780 8,220 10,000 98 2008 2011 054 Houston, TX
— 202 4,458 1,426 202 5,884 6,086 2,863 2007 1996 051 Houston, TX
— 365 3,769 1,598 365 5,367 5,732 2,596 1968 1996 055 Houston, TX
— 202 4,458 1,359 202 5,817 6,019 2,770 2008 1996 208 Jacksonville, FL
— 486 1,981 30 486 2,011 2,497 676 1987 2002 045 Jefferson, IA
— 86 1,883 296 86 2,179 2,265 1,042 1972 1996 216 Marion, OH
— 119 1,156 1,142 119 2,298 2,417 554 2007 2005 222 Marion, OH
— 48 2,466 — 48 2,466 2,514 507 1997 2006 227 Marion, OH
— 210 804 — 210 804 1,014 804 1959 2008 053 Mesa, AZ
— 305 6,909 1,876 305 8,785 9,090 3,919 1996 1996 226 Mesa, AZ
— 1,095 2,330 — 1,095 2,330 3,425 476 1979 2006 050 Midland, TX
— 33 2,285 26 33 2,311 2,344 1,133 1973 1996 242 Mission, TX
— 1,111 16,602 — 1,111 16,602 17,713 448 2004 2010 041 Montgomery, AL
— 242 5,327 115 242 5,442 5,684 2,592 1974 1996 115 Nacogdoches, TX
— 100 1,738 168 100 1,906 2,006 862 1973 1997 233 Nacogdoches, TX
— 394 7,456 168 394 7,624 8,018 463 1991 2010 249 Nacogdoches, TX
— 1,084 11,012 — 1,084 11,012 12,096 389 2007 2011 046 Norwalk, IA
— 47 1,033 239 47 1,272 1,319 627 1975 1996 176 Olathe, KS
— 520 1,872 313 520 2,185 2,705 938 1968 1999 224 Orrville, OH
— 107 1,946 108 107 2,054 2,161 469 1956 2006 251 Pasadena, TX
— 1,155 14,345 — 1,155 14,345 15,500 94 2005 2011 210 Phoenix, AZ
— 334 3,383 456 334 3,839 4,173 1,211 1982 2004 193 Phoenix, AZ
— 300 9,703 92 300 9,795 10,095 3,838 1985 2000 047 Polk City, IA
— 63 1,376 153 63 1,529 1,592 758 1976 1996 094 Portland, OR
— 100 1,925 2,652 100 4,577 4,677 1,703 2007 1997 124 Richland Hills, TX
— 144 1,656 427 144 2,083 2,227 818 1976 2001 197 Ripley, TN
— 20 985 387 20 1,372 1,392 481 2007 2000 133 Roswell, NM
— 568 5,232 3 568 5,235 5,803 1,387 1975 2001
LTC PROPERTIES, INC.SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in thousands)
Costs
capitalized
Gross amount at which carried at
Initial cost to company
subsequent
December 31, 2014
Building and
to
Building and
Accum
Construction/
Acquisition
Encumbrances
Land
improvement
acquisition
Land
improvement
Total(1)
deprec.
renovation date
date
133 Roswell, NM
—
568 5,235 1,208 568 6,443 7,011 1,839 1975 2001 081 Sacramento, CA
—
220 2,929 —
220 2,929 3,149 1,618 1968 1997 085 Salina, KS
—
100 1,153 628 100 1,781 1,881 1,028 1985 1997 243 Stephenville TX
—
670 10,117 500 670 10,617 11,287 1,432 2009 2010 234 St. Petersburg, FL
—
1,070 7,930 500 1,070 8,430 9,500 1,164 1988 2010 225 Tacoma, WA
—
723 6,401 901 723 7,302 8,025 2,271 2009 2006 178 Tappahannock, VA
—
375 1,327 397 375 1,724 2,099 1,379 1978 1995 270 Trinity, FL
—
1,653 12,748 —
1,653 12,748 14,401 481 N/A
2013 192 Tucson, AZ
—
276 8,924 112 276 9,036 9,312 4,233 1992 2000 209 Tyler, TX
—
300 3,071 22 300 3,093 3,393 960 1974 2004 Skilled Nursing Properties
—
42,034 401,368 38,634 42,034 440,002 482,036 107,245 Assisted Living Properties:
077 Ada, OK
—
100 1,650 —
100 1,650 1,750 765 1996 1996 136 Arlington, OH
—
629 6,973 —
629 6,973 7,602 2,353 1993 2001 105 Arvada, CO
—
100 2,810 6,734 100 9,544 9,644 1,497 1997 1997 063 Athens, TX
—
96 1,510 1 96 1,511 1,607 736 1995 1996 269 Aurora, CO
—
850 8,111 —
850 8,111 8,961 27 N/A
2013 260 Aurora, CO
—
831 10,071 —
831 10,071 10,902 606 1999 2012 203 Bakersfield, CA
—
834 11,986 812 834 12,798 13,632 4,766 2002 2001 117 Beatrice, NE
—
100 2,173 —
100 2,173 2,273 960 1997 1997 137 Bexley, OH
—
306 4,196 —
306 4,196 4,502 1,417 1992 2001 278 Castle Rock, CO
—
759 9,041 —
759 9,041 9,800 17 N/A
2014 160 Central, SC
—
100 2,321 —
100 2,321 2,421 847 1998 1999 263 Chatham, NJ
—
5,365 36,399 —
5,365 36,399 41,764 2,099 2002 2012 240 Daytona Beach, FL
—
900 3,400 —
900 3,400 4,300 440 1996 2010 156 Denison, IA
—
100 2,713 —
100 2,713 2,813 1,143 1998 1998 057 Dodge City, KS
—
84 1,666 4 84 1,670 1,754 834 1995 1995 083 Durant, OK
—
100 1,769 —
100 1,769 1,869 804 1997 1997 107 Edmond, OK
—
100 1,365 526 100 1,891 1,991 839 1996 1997 122 Elkhart, IN
—
100 2,435 —
100 2,435 2,535 1,058 1997 1997 155 Erie, PA
—
850 7,477 —
850 7,477 8,327 3,184 1998 1999 100 Fremont ,OH
—
100 2,435 —
100 2,435 2,535 1,083 1997 1997 267 Frisco, TX
—
1,000 4,939 —
1,000 4,939 5,939 56 N/A
2012 163 Ft. Collins, CO
—
100 2,961 2,920 100 5,881 5,981 1,209 1998 1999 170 Ft. Collins, CO
—
100 3,400 2,324 100 5,724 5,824 1,353 1999 1999 132 Ft. Meyers, FL
—
100 2,728 9 100 2,737 2,837 1,170 1998 1998 230 Ft. Wayne, IN
—
594 3,461 731 594 4,192 4,786 767 1996 2009 229 Ft. Worth, TX
—
333 4,385 1,028 333 5,413 5,746 1,464 2009 2008 167 Goldsboro, NC
—
100 2,385 1 100 2,386 2,486 810 1998 1999 056 Great Bend, KS
—
80 1,570 21 80 1,591 1,671 872 1995 1995 102 Greeley, CO
—
100 2,310 270 100 2,580 2,680 1,141 1997 1997 164 Greenville, NC
—
100 2,478 2 100 2,480 2,580 948 1998 1999 062 Greenville, TX
—
42 1,565 —
42 1,565 1,607 762 1995 1996 161 Greenwood, SC
—
100 2,638 —
100 2,638 2,738 1,030 1998 1999 241 Gulf Breeze, FL
—
720 3,780 —
720 3,780 4,500 528 2000 2010 066 Jacksonville, TX
—
100 1,900 —
100 1,900 2,000 918 1996 1996 86
Gross amount at which carried at
December 31, 2011Initial cost to company Costs
capitalized
subsequent
to
acquisitionEncumbrances Land Building and
improvementsLand Building and
improvementsTotal(2) Accum
deprec.Construction/
renovation dateAcquisition
date070 Rusk, TX
— 34 2,399 448 34 2,847 2,881 1,650 1969 1994 081 Sacramento, CA
— 220 2,929 — 220 2,929 3,149 1,387 1968 1997 085 Salina, KS(3)
— 100 1,153 628 100 1,781 1,881 885 1985 1997 243 Stephenville TX
— 670 10,117 — 670 10,117 10,787 569 2009 2010 234 St. Petersburg, FL
— 1,070 7,930 — 1,070 7,930 9,000 441 1988 2010 225 Tacoma, WA
— 723 6,401 901 723 7,302 8,025 1,425 2009 2006 178 Tappahannock, VA(3)
— 375 1,327 397 375 1,724 2,099 1,256 1978 1995 192 Tucson, AZ
— 276 8,924 112 276 9,036 9,312 3,536 1992 2000 209 Tyler, TX
— 300 3,071 22 300 3,093 3,393 740 1974 2004 223 Wooster, OH
— 118 1,711 2,223 118 3,934 4,052 936 2008 2006 Skilled Nursing Properties
— 33,917 300,231 27,178 33,917 327,409 361,326 73,523 Assisted Living Properties:
077 Ada, OK
— 100 1,650 — 100 1,650 1,750 644 1996 1996 136 Arlington, OH
— 629 6,973 — 629 6,973 7,602 1,839 1993 2001 105 Arvada, CO
— 100 2,810 276 100 3,086 3,186 1,130 1997 1997 063 Athens, TX
— 96 1,510 1 96 1,511 1,607 624 1995 1996 203 Bakersfield, CA
— 834 11,986 812 834 12,798 13,632 3,569 2002 2001 072 Battleground, WA
— 100 2,500 — 100 2,500 2,600 968 1996 1996 117 Beatrice, NE
— 100 2,173 — 100 2,173 2,273 800 1997 1997 137 Bexley, OH
— 306 4,196 — 306 4,196 4,502 1,108 1992 2001 106 Bullhead City, AZ
— 100 2,500 — 100 2,500 2,600 922 1997 1997 111 Burley, ID
— 100 2,200 — 100 2,200 2,300 815 1997 1997 112 Caldwell, ID
— 100 2,200 — 100 2,200 2,300 815 1997 1997 024 Camas, WA
— (1) 100 2,175 — 100 2,175 2,275 872 1996 1996 160 Central, SC
— 100 2,321 — 100 2,321 2,421 695 1998 1999 240 Daytona Beach, FL
— 900 3,400 — 900 3,400 4,300 123 1996 2010 156 Denison, IA
— 100 2,713 — 100 2,713 2,813 942 1998 1998 057 Dodge City, KS
— 84 1,666 4 84 1,670 1,754 714 1995 1995 083 Durant, OK
— 100 1,769 — 100 1,769 1,869 674 1997 1997 107 Edmond, OK
— 100 1,365 526 100 1,891 1,991 699 1996 1997 122 Elkhart, IN
— 100 2,435 — 100 2,435 2,535 879 1997 1997 155 Erie, PA
— 850 7,477 — 850 7,477 8,327 2,663 1998 1999 113 Eugene, OR
— 100 2,600 — 100 2,600 2,700 958 1997 1997 100 Fremont ,OH
— 100 2,435 — 100 2,435 2,535 904 1997 1997 163 Ft. Collins, CO
— 100 2,961 — 100 2,961 3,061 967 1998 1999 170 Ft. Collins, CO
— 100 3,400 — 100 3,400 3,500 1,084 1999 1999 132 Ft. Meyers, FL
— 100 2,728 9 100 2,737 2,837 968 1998 1998 230 Ft. Wayne, IN
— 594 3,461 731 594 4,192 4,786 249 1996 2009 167 Goldsboro, NC
— 100 2,385 1 100 2,386 2,486 664 1998 1999 022 Grandview, WA
— (1) 100 1,940 — 100 1,940 2,040 793 1996 1996 056 Great Bend, KS
— 80 1,570 21 80 1,591 1,671 737 1995 1995 102 Greeley, CO
— 100 2,310 270 100 2,580 2,680 951 1997 1997 164 Greenville, NC
— 100 2,478 2 100 2,480 2,580 778 1998 1999 062 Greenville, TX
— 42 1,565 — 42 1,565 1,607 647 1995 1996 161 Greenwood, SC
— 100 2,638 — 100 2,638 2,738 845 1998 1999 241 Gulf Breeze, FL
— 720 3,780 — 720 3,780 4,500 149 2000 2010 079 Hayden, ID
— 100 2,450 243 100 2,693 2,793 1,035 1996 1996 097 Hoquiam, WA
— 100 2,500 — 100 2,500 2,600 927 1997 1997 066 Jacksonville, TX
— 100 1,900 — 100 1,900 2,000 779 1996 1996 071 Kelso, WA
— 100 2,500 — 100 2,500 2,600 1,024 1996 1996 021 Kennewick. WA
— (1) 100 1,940 — 100 1,940 2,040 797 1996 1996 073 Klamath Falls, OR
— 100 2,300 — 100 2,300 2,400 888 1996 1996 101 Lake Havasu, AZ
— 100 2,420 — 100 2,420 2,520 898 1997 1997 148 Longmont, CO
— 100 2,640 — 100 2,640 2,740 923 1998 1998 060 Longview, TX
— 38 1,568 1 38 1,569 1,607 654 1995 1995 114 Loveland, CO
— 100 2,865 270 100 3,135 3,235 1,138 1997 1997 068 Lufkin, TX
— 100 1,950 — 100 1,950 2,050 793 1996 1996 119 Madison, IN
— 100 2,435 — 100 2,435 2,535 894 1997 1997
LTC PROPERTIES, INC.SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in thousands)
Costs
capitalized
Gross amount at which carried at
Initial cost to company
subsequent
December 31, 2014
Building and
to
Building and
Accum
Construction/
Acquisition
Encumbrances
Land
improvements
acquisition
Land
improvement
Total(1)
deprec.
renovation date
date
255 Littleton, CO
—
1,882 8,248 —
1,882 8,248 10,130 439 2013 2012 268 Littleton, CO
—
1,200 8,684 —
1,200 8,684 9,884 152 2013 2013 148 Longmont, CO
—
100 2,640 —
100 2,640 2,740 1,118 1998 1998 060 Longview, TX
—
38 1,568 1 38 1,569 1,607 769 1995 1995 261 Louisville, CO
—
911 11,703 —
911 11,703 12,614 690 2000 2012 114 Loveland, CO
—
100 2,865 270 100 3,135 3,235 1,371 1997 1997 068 Lufkin, TX
—
100 1,950 —
100 1,950 2,050 936 1996 1996 119 Madison, IN
—
100 2,435 —
100 2,435 2,535 1,073 1997 1997 061 Marshall, TX
—
38 1,568 451 38 2,019 2,057 997 1995 1995 058 McPherson, KS
—
79 1,571 4 79 1,575 1,654 863 1994 1995 239 Merritt Island, FL
—
550 8,150 —
550 8,150 8,700 1,076 2004 2010 104 Millville, NJ
—
100 2,825 —
100 2,825 2,925 1,253 1997 1997 231 Monroeville, PA
—
526 5,334 435 526 5,769 6,295 947 1997 2009 166 New Bern, NC
—
100 2,427 1 100 2,428 2,528 841 1998 1999 118 Newark, OH
—
100 2,435 —
100 2,435 2,535 1,073 1997 1997 123 Newport Richey, FL
—
100 5,845 664 100 6,509 6,609 3,181 1995 1998 074 Newport, OR
—
100 2,050 —
100 2,050 2,150 1,215 1996 1996 143 Niceville, FL
—
100 2,680 —
100 2,680 2,780 1,135 1998 1998 095 Norfolk, NE
—
100 2,123 —
100 2,123 2,223 952 1997 1997 232 Pittsburgh, PA
—
470 2,615 333 470 2,948 3,418 529 1994 2009 165 Rocky Mount, NC
—
100 2,494 1 100 2,495 2,595 890 1998 1999 141 Rocky River, OH
—
760 6,963 —
760 6,963 7,723 2,915 1998 1999 059 Salina, KS
—
79 1,571 4 79 1,575 1,654 863 1994 1995 084 San Antonio, TX
—
100 1,900 —
100 1,900 2,000 862 1997 1997 092 San Antonio, TX
—
100 2,055 —
100 2,055 2,155 926 1997 1997 149 Shelby, NC
—
100 2,805 2 100 2,807 2,907 1,188 1998 1998 150 Spring Hill, FL
—
100 2,650 —
100 2,650 2,750 1,123 1998 1998 103 Springfield, OH
—
100 2,035 270 100 2,305 2,405 1,017 1997 1997 162 Sumter, SC
—
100 2,351 —
100 2,351 2,451 881 1998 1999 140 Tallahassee, FL
—
100 3,075 —
100 3,075 3,175 1,305 1998 1998 098 Tiffin, OH
—
100 2,435 —
100 2,435 2,535 1,083 1997 1997 088 Troy, OH
—
100 2,435 306 100 2,741 2,841 1,225 1997 1997 080 Tulsa, OK
—
200 1,650 —
200 1,650 1,850 758 1997 1997 093 Tulsa, OK
—
100 2,395 —
100 2,395 2,495 1,076 1997 1997 238 Tupelo, MS
—
1,170 8,230 30 1,170 8,260 9,430 1,144 2000 2010 075 Tyler, TX
—
100 1,800 —
100 1,800 1,900 832 1996 1996 202 Vacaville, CA
—
1,662 11,634 1,141 1,662 12,775 14,437 4,697 2002 2001 091 Waco, TX
—
100 2,235 —
100 2,235 2,335 1,005 1997 1997 096 Wahoo, NE
—
100 2,318 —
100 2,318 2,418 1,032 1997 1997 108 Watauga, TX
—
100 1,668 —
100 1,668 1,768 746 1996 1997 109 Weatherford, OK
—
100 1,669 592 100 2,261 2,361 999 1996 1997 110 Wheelersburg, OH
—
29 2,435 —
29 2,435 2,464 1,073 1997 1997 259 Wichita, KS
—
730 —
9,682 730 9,682 10,412 465 2013 2012 076 Wichita Falls, TX
—
100 1,850 —
100 1,850 1,950 855 1996 1996 120 Wichita Falls, TX
—
100 2,750 —
100 2,750 2,850 1,215 1997 1997 265 Williamstown, NJ
—
711 6,637 —
711 6,637 7,348 429 2000 2012 264 Williamstown, NJ
—
711 8,649 —
711 8,649 9,360 505 2000 2012 138 Worthington, OH
—
—
6,102 —
—
6,102 6,102 4,843 1993 2001 139 Worthington, OH
—
—
3,402 —
—
3,402 3,402 2,717 1995 2001 099 York, NE
—
100 2,318 —
100 2,318 2,418 1,032 1997 1997 Assisted Living Properties
—
30,719 341,228 29,570 30,719 370,798 401,517 98,814 Range of Care Properties:
199 Brownsville, TX
—
302 1,856 835 302 2,691 2,993 878 2009 2004 168 Des Moines, IA(2)
—
115 2,096 1,433 115 3,529 3,644 1,795 1972 1999 26A Gardendale, AL
—
100 7,550 2,084 100 9,634 9,734 4,548 2009 1996 87
Gross amount at which carried at
December 31, 2011Initial cost to company Costs
capitalized
subsequent
to
acquisitionEncumbrances Land Building and
improvementsLand Building and
improvementsTotal(2) Accum
deprec.Construction/
renovation dateAcquisition
date061 Marshall, TX
— 38 1,568 451 38 2,019 2,057 843 1995 1995 058 McPherson, KS
— 79 1,571 4 79 1,575 1,654 730 1994 1995 239 Merritt Island, FL
— 550 8,150 — 550 8,150 8,700 300 2004 2010 104 Millville, NJ
— 100 2,825 — 100 2,825 2,925 1,044 1997 1997 231 Monroeville, PA
— 526 5,334 435 526 5,769 6,295 337 1997 2009 082 Nampa, ID
— 100 2,240 23 100 2,263 2,363 874 1997 1997 166 New Bern, NC
— 100 2,427 1 100 2,428 2,528 688 1998 1999 118 Newark, OH
— 100 2,435 — 100 2,435 2,535 894 1997 1997 123 Newport Richey, FL
— 100 5,845 664 100 6,509 6,609 2,609 1995 1998 074 Newport, OR
— 100 2,050 — 100 2,050 2,150 989 1996 1996 143 Niceville, FL
— 100 2,680 — 100 2,680 2,780 937 1998 1998 095 Norfolk, NE
— 100 2,123 — 100 2,123 2,223 796 1997 1997 232 Pittsburgh, PA
— 470 2,615 333 470 2,948 3,418 176 1994 2009 165 Rocky Mount, NC
— 100 2,494 1 100 2,495 2,595 730 1998 1999 141 Rocky River, OH
— 760 6,963 — 760 6,963 7,723 2,424 1998 1999 059 Salina, KS
— 79 1,571 4 79 1,575 1,654 730 1994 1995 084 San Antonio, TX
— 100 1,900 — 100 1,900 2,000 723 1997 1997 092 San Antonio, TX
— 100 2,055 — 100 2,055 2,155 775 1997 1997 149 Shelby, NC
— 100 2,805 2 100 2,807 2,907 979 1998 1998 150 Spring Hill, FL
— 100 2,650 — 100 2,650 2,750 927 1998 1998 103 Springfield, OH
— 100 2,035 270 100 2,305 2,405 848 1997 1997 162 Sumter, SC
— 100 2,351 — 100 2,351 2,451 723 1998 1999 140 Tallahassee, FL
— 100 3,075 — 100 3,075 3,175 1,077 1998 1998 098 Tiffin, OH
— 100 2,435 — 100 2,435 2,535 904 1997 1997 088 Troy, OH
— 100 2,435 306 100 2,741 2,841 1,022 1997 1997 080 Tulsa, OK
— 200 1,650 — 200 1,650 1,850 638 1997 1997 093 Tulsa, OK
— 100 2,395 — 100 2,395 2,495 899 1997 1997 238 Tupelo, MS
— 1,170 8,230 — 1,170 8,230 9,400 321 2000 2010 075 Tyler, TX
— 100 1,800 — 100 1,800 1,900 701 1996 1996 202 Vacaville, CA
— 1,662 11,634 1,141 1,662 12,775 14,437 3,504 2002 2001 025 Vancouver, WA
— (1) 100 2,785 — 100 2,785 2,885 1,115 1996 1996 091 Waco, TX
— 100 2,235 — 100 2,235 2,335 841 1997 1997 096 Wahoo, NE
— 100 2,318 — 100 2,318 2,418 862 1997 1997 023 Walla Walla, WA
3,200 (1) 100 1,940 — 100 1,940 2,040 789 1996 1996 108 Watauga, TX
— 100 1,668 — 100 1,668 1,768 624 1996 1997 109 Weatherford, OK
— 100 1,669 592 100 2,261 2,361 832 1996 1997 110 Wheelersburg, OH
— 29 2,435 — 29 2,435 2,464 894 1997 1997 076 Wichita Falls, TX
— 100 1,850 — 100 1,850 1,950 719 1996 1996 120 Wichita Falls,TX
— 100 2,750 — 100 2,750 2,850 1,012 1997 1997 138 Worthington, OH
— — 6,102 — — 6,102 6,102 3,509 1993 2001 139 Worthington, OH
— — 3,402 — — 3,402 3,402 1,991 1995 2001 099 York, NE
— 100 2,318 — 100 2,318 2,418 862 1997 1997 Assisted Living Properties
3,200 17,036 261,551 7,394 17,036 268,945 285,981 86,131 Other Senior Housing:
007 Bradenton, FL
— 330 2,720 160 330 2,880 3,210 1,556 2002 1993 199 Brownsville, TX
— 302 1,856 835 302 2,691 2,993 592 2009 2004 191 Cordele, GA
— 153 1,455 132 153 1,587 1,740 616 2002 2000 168 Des Moines, IA(3)
— 115 2,096 1,433 115 3,529 3,644 1,536 1972 1999 229 Ft. Worth, TX
— 333 4,385 919 333 5,304 5,637 613 2009 2008 26A Gardendale, AL
— 84 6,316 2,084 84 8,400 8,484 2,980 2009 1996 26B Gardendale, AL
— 16 1,234 — 16 1,234 1,250 576 1988 1996 194 Holyoke, CO
— 211 1,513 283 211 1,796 2,007 847 1963 2000 190 Lakeland, FL
— 519 2,313 1,626 519 3,939 4,458 1,309 2009 2000 008 Lecanto, FL
— 351 2,665 2,737 351 5,402 5,753 2,718 2006 1993 245 Newberry, SC
— 439 4,638 562 439 5,200 5,639 141 1995 2011 244 Newberry, SC
— 919 5,453 112 919 5,565 6,484 171 2001 2011 236 Wytheville, VA
— 647 12,692 — 647 12,692 13,339 900 1996 2010
LTC PROPERTIES, INC.SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in thousands)
Costs
capitalized
Gross amount at which carried at
Initial cost to company
subsequent
December 31, 2014
��
Building and
to
Building and
Accum
Construction/
Acquisition
Encumbrances
Land
improvements
acquisition
Land
improvements
Total(1)
deprec.
renovation date
date
194 Holyoke, CO
—
211 1,513 283 211 1,796 2,007 955 1963 2000 245 Newberry, SC
—
439 4,639 608 439 5,247 5,686 867 1995 2011 244 Newberry, SC
—
919 5,454 131 919 5,585 6,504 818 2001 2011 236 Wytheville, VA
—
647 12,692 —
647 12,692 13,339 2,606 1996 2010 Range of Care Properties
—
2,733 35,800 5,374 2,733 41,174 43,907 12,467 Other:
School:
159 Trenton, NJ
—
100 6,000 3,170 100 9,170 9,270 4,789 1998 1998 School
—
100 6,000 3,170 100 9,170 9,270 4,789 Land:
271 Howell, MI
—
420 —
—
420 —
420 —
N/A
2013 273 Richmond, MI
—
380 —
—
380 —
380 —
N/A
2013 274 Rochester Hills, MI
—
290 —
—
290 —
290 —
N/A
2013 275 Yale, MI
—
73 —
—
73 —
73 —
N/A
2013 999 Milford, MI
—
450 —
—
450 —
450 —
N/A
2014 Land
—
1,613 —
—
1,613 —
1,613 —
Other Properties
—
1,713 6,000 3,170 1,713 9,170 10,883 4,789 Properties Under Development:
276 Westminster, CO
—
1,425 —
7,994 1,425 7,994 9,419 —
N/A
2013 999 Burr Ridge, IL
—
1,400 —
676 1,400 676 2,076 —
N/A
2014 Properties Under Development
—
2,825 —
8,670 2,825 8,670 11,495 —
$
—
$
80,024 $
784,396 $
85,418 $
80,024 $
869,814 $
949,838 (2)
$
223,315 (1)
Depreciation is computed principally by the straight‑line method for financial reporting purposes which generally range of a life from 5 to 15 years for furniture and equipment, 35 to 45 years for buildings, 10 to 20 years for building improvements and the respective lease term for acquired lease intangibles.
(2)
As of December 31, 2014, our aggregate cost for Federal income tax purposes was $965,043.
88
Gross amount at which carried at
December 31, 2011Initial cost to company Costs
capitalized
subsequent
to
acquisitionEncumbrances Land Building and
improvementsLand Building and
improvementsTotal(2) Accum
deprec.Construction/
renovation dateAcquisition
dateOther Senior Housing
— 4,419 49,336 10,883 4,419 60,219 64,638 14,555 School:
237 Eagan, MN
— 1,110 1,790 22 1,110 1,812 2,922 115 1994 2010 159 Trenton, NJ
— 100 6,000 3,170 100 9,170 9,270 3,872 1998 1998 School
— 1,210 7,790 3,192 1,210 10,982 12,192 3,987 Properties Under Development:
252 Amarillo, TX
— 844 — 50 844 50 894 — N/A 2011 Properties Under Development
— 844 — 50 844 50 894 — $ 3,200 $ 57,426 $ 618,908 $ 48,697 $ 57,426 $ 667,605 $ 725,031 $ 178,196 (1)Single note backed by five facilities in Washington.(2)Depreciation is computed principally by the straight-line method for financial reporting purposes which generally range(3)An impairment charge totaling $4,190 was taken against 4 facilities based on the Company's estimate of the excess carrying value over the fair value of assets to be held and used, and the carrying value over the fair value less cost to sell in instances where management has determined that the company will dispose of the property.
Contents
LTC PROPERTIES, INC.SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
(in thousands)
Activity for the years ended December 31,
2011, 20102014, 2013 and20092012 is as follows:For the Year Ended December 31,
2014
2013
2012
Reconciliation of real estate:
Carrying cost:
Balance at beginning of period
$
937,617 $
900,095 $
725,031 Acquisitions
11,650 19,040 166,750 Improvements
49,912 32,008 11,219 Conversion of mortgage loans into owned properties
—
—
—
Impairment charges
—
—
—
Cost of real estate sold
(49,341) (13,526) (2,905) Ending balance
$
949,838 $
937,617 $
900,095 Accumulated depreciation:
Balance at beginning of period
$
218,700 $
198,548 $
178,196 Depreciation expense
25,424 24,568 22,002 Conversion of mortgage loans into owned properties
—
—
—
Impairment charges
—
—
—
Cost of real estate sold
(20,809) (4,416) (1,650) Ending balance
$
223,315 $
218,700 $
198,548 89
For the Year Ended December 31, 2011 2010 2009 Reconciliation of real estate:
Carrying cost:
Balance at beginning of period
$ 615,666 $ 519,460 $ 502,617 Acquisitions
106,135 94,250 13,000 Improvements
3,230 5,941 3,843 Conversion of mortgage loans into owned properties
— 2,900 — Impairment charges
— — — Cost of real estate sold
— (6,885 ) — Ending balance
$ 725,031 $ 615,666 $ 519,460 Accumulated depreciation:
Balance at beginning of period
$ 158,709 $ 145,180 $ 130,475 Depreciation Expense
19,487 16,016 14,705 Conversion of mortgage loans into owned properties
— — — Impairment charges
— — — Cost of real estate sold
— (2,487 ) — Ending balance
$ 178,196 $ 158,709 $ 145,180 MORTGAGE LOANS ON REAL ESTATE
(in thousands)
Principal
Amount of
Loans
Subject to
Delinquent
Principal or
Interest(Unaudited)
Number ofCarrying
Amount of
Mortgages
December 31,
2011Current
Monthly
Debt
ServiceFinal
Maturity DateBalloon
Amount(2)Face
Amount of
MortgagesStateProperties Units/Beds(3) Interest Rate(1) TX
6 108 9.95% 2018 $ 5,095 $ 66 $ 6,800 $ 6,380 $ — FL
3 256 11.70% 2014 6,061 71 6,850 6,377 — TX
1 230 10.35% 2017 2,972 39 4,000 3,683 — CA
1 173 11.25% 2015 2,232 48 4,700 3,094 — MO
1 100 10.98% 2018 1,869 39 1,500 3,019 — NE
1 47 11.44% 2013 2,716 31 3,243 2,823 — NE
1 44 11.44% 2013 2,537 29 3,036 2,637 — FL
1 90 14.63% 2012 2,221 42 3,510 2,305 — MT
1 34 14.23% 2013 2,053 28 2,346 2,115 — NE
1 44 11.67% 2013 2,005 24 2,700 2,093 — IA
1 44 11.44% 2013 1,998 23 2,400 2,074 — TX
1 117 10.35% 2017 1,634 22 2,200 2,025 — SD
1 34 11.44% 2013 1,954 22 2,346 2,028 — Various
16 1,602 10.05%-13.38% 2012-2019 4,207 263 25,897 12,428 — 36 (4) 2,923 $ 39,554 $ 747 $ 71,528 $ 53,081 $ — Principal
Amount of
Carrying
Loans
Current
Amount of
Subject to
(Unaudited)
Monthly
Face
Mortgages
Delinquent
Number of
Final
Balloon
Debt
Amount of
December 31,
Principal or
State
Properties
Units/Beds(3)
Interest Rate(1)
Maturity Date
Amount(2)
Service
Mortgages
2013
Interest
MI
15 2,058 9.53%
2043
$
97,387 $
1,007 $
124,387 $
127,725 $
—
PA
1 70 7.11%
2016
5,100 31 5,100 5,100 —
TX
6 100 10.40%
2018
5,095 68 6,800 5,887 —
WI
1 106 10.08%
2022
9,437 90 10,600 10,600 —
Various
15 1,759 7.00%-13.75%
2015-2019
12,615 328 29,742 16,344 —
38 (4)
4,093 $
129,634 $
1,524 $
176,629 $
165,656 $
—
(1)Represents current stated interest rate. Generally, the loans have 25-year amortization with principal and interest payable at varying amounts over the life to maturity with annual interest adjustments through specified fixed rate increases effective either on the first anniversary or calendar year of the loan.(2)Balloon payment is due upon maturity.(3)This number is based upon unit/bed counts shown on operating licenses provided to us by lessees/borrowers or units/beds as stipulated by lease/mortgage documents. We have found during the years that these numbers often differ, usually not materially, from units/beds in operation at any point in time. The differences are caused by such things as operators converting a patient/resident room for alternative uses, such as offices or storage, or converting a multi-patient room/unit into a single patient room/unit. We monitor our properties on a routine basis through site visits and reviews of current licenses. In an instance where such change would cause a de-licensing of beds or in our opinion impact the value of the property, we would take action against the lessee/borrower to preserve the value of the property/collateral.(4)Includes 30 first-lien mortgage loans as follows:
(1)
Represents current stated interest rate. Generally, the loans have 25‑year amortization with principal and interest payable at varying amounts over the life to maturity with annual interest adjustments through specified fixed rate increases effective either on the first anniversary or calendar year of the loan.
(2)
Balloon payment is due upon maturity.
(3)
This number is based upon unit/bed counts shown on operating licenses provided to us by lessees/borrowers or units/beds as stipulated by lease/mortgage documents. We have found during the years that these numbers often differ, usually not materially, from units/beds in operation at any point in time. The differences are caused by such things as operators converting a patient/resident room for alternative uses, such as offices or storage, or converting a multi‑patient room/unit into a single patient room/unit. We monitor our properties on a routine basis through site visits and reviews of current licenses. In an instance where such change would cause a de‑licensing of beds or in our opinion impact the value of the property, we would take action against the lessee/borrower to preserve the value of the property/collateral.
(4)
Includes 19 first‑lien mortgage loans as follows:
Number of Loans
Original loan amounts
1611$ 500 -
$ 2,000$2,00071$2,001 -
$ 3,000$3,00042$3,001 -
$ 4,000$4,0001
$4,001 -
$ 5,000$5,00001$5,001 -
$ 6,000$6,00021$6,001 -
$ 7,000$7,00002$7,001
- $10,000+LTC PROPERTIES, INC.SCHEDULE IVMORTGAGE LOANS ON REAL ESTATE (Continued)(in thousands)Activity90Mortgage loans receivable activity for the years ended December 31,
2011, 20102014, 2013 and20092012 is as follows: