UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, ~~2017~~2018

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

For the Transition period from ____ to ____

Commission file number 1-11314

LTC PROPERTIES, INC.

(Exact name of Registrant as specified in its charter)


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

2829 Townsgate Road, Suite 350

Westlake Village, California 91361

(Address of principal executive offices, including zip code)

(805) 981-8655

(Registrant’s telephone number, including area code)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

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

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


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

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

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

The number of shares of common stock outstanding on November ~~3, 2017~~1, 2018 was ~~39,570,769.~~39,656,737.

Table of Contents

LTC PROPERTIES, INC.

FORM 10-Q

September 30, ~~2017~~2018

INDEX

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)


	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
	(unaudited)		(audited)		(unaudited)		(audited)
ASSETS
Investments:
Land	$	121,897	$	116,096	$	125,533	$	124,041
Buildings and improvements		1,227,044		1,185,467		1,280,491		1,262,335
Accumulated depreciation and amortization		(294,725)		(275,861)		(304,337)		(304,117)
Operating real estate property, net		1,054,216		1,025,702		1,101,687		1,082,259
Properties held-for-sale, net of accumulated depreciation: 2017—$4,264; 2016—$0		6,381		—
Properties held-for-sale, net of accumulated depreciation: 2018—$2,887; 2017—$1,916						5,356		3,830
Real property investments, net		1,060,597		1,025,702		1,107,043		1,086,089

Mortgage loans receivable, net of loan loss reserve: 2017—$2,234; 2016—$2,315		221,861		229,801
Mortgage loans receivable, net of loan loss reserve: 2018—$2,444; 2017—$2,255						242,609		223,907
Real estate investments, net		1,282,458		1,255,503		1,349,652		1,309,996
Notes receivable, net of loan loss reserve: 2017—$166; 2016—$166		16,402		16,427
Notes receivable, net of loan loss reserve: 2018—$128; 2017—$166						12,642		16,402
Investments in unconsolidated joint ventures		29,862		25,221		30,511		29,898
Investments, net		1,328,722		1,297,151		1,392,805		1,356,296

Other assets:
Cash and cash equivalents		3,842		7,991		20,408		5,213
Restricted cash						2,163		—
Debt issue costs related to bank borrowings		1,080		1,847		3,202		810
Interest receivable		13,650		9,683		19,290		15,050
Straight-line rent receivable, net of allowance for doubtful accounts: 2017—$901; 2016—$960		61,070		55,276
Straight-line rent receivable, net of allowance for doubtful accounts: 2018—$739; 2017—$814						73,114		64,490
Lease incentives						21,102		21,481
Prepaid expenses and other assets		22,829		22,948		3,767		2,230
Total assets	$	1,431,193	$	1,394,896	$	1,535,851	$	1,465,570
LIABILITIES
Bank borrowings	$	55,000	$	107,100	$	120,000	$	96,500
Senior unsecured notes, net of debt issue costs: 2017—$1,183; 2016—$1,009		582,950		502,291
Senior unsecured notes, net of debt issue costs: 2018—$981; 2017—$1,131						550,986		571,002
Accrued interest		4,108		4,675		3,468		5,276
Accrued incentives and earn-outs		8,790		12,229		9,292		8,916
Accrued expenses and other liabilities		23,710		28,553		28,812		25,228
Total liabilities		674,558		654,848		712,558		706,922
EQUITY
Stockholders’ equity:
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2017—39,571; 2016—39,221		396		392
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2018—39,657; 2017—39,570						397		396
Capital in excess of par value		855,746		839,005		861,226		856,992
Cumulative net income		1,080,949		1,013,443		1,224,998		1,100,783
Cumulative distributions		(1,180,456)		(1,112,792)		(1,270,779)		(1,203,011)
Total LTC Properties, Inc. stockholders’ equity						815,842		755,160
Non-controlling interests						7,451		3,488
Total equity		756,635		740,048		823,293		758,648
Total liabilities and equity	$	1,431,193	$	1,394,896	$	1,535,851	$	1,465,570

See accompanying notes.

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(amounts in thousands, except per share, unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Revenues:
Rental income	$	33,233	$	33,753	$	103,533	$	98,705	$	34,211	$	33,233	$	102,646	$	103,533
Interest income from mortgage loans		6,677		6,958		20,050		20,347		7,087		6,677		20,910		20,050
Interest and other income		1,336		131		2,753		390		478		1,336		1,502		2,753
Total revenues		41,246		40,842		126,336		119,442		41,776		41,246		125,058		126,336
Expenses:
Interest expense		7,644		6,836		22,266		19,586		7,497		7,644		22,981		22,266
Depreciation and amortization		9,519		9,155		28,186		26,623		9,447		9,519		28,159		28,186
Impairment on receivables		—		—		1,880		—
(Recovery) provision for doubtful accounts		(96)		43		(139)		245
Impairment charges										—		—		—		1,880
Provision (recovery) for doubtful accounts										106		(96)		76		(139)
Transaction costs		34		2		56		96		9		34		19		56
General and administrative expenses		4,144		4,464		13,270		12,864		4,879		4,144		14,392		13,270
Total expenses		21,245		20,500		65,519		59,414		21,938		21,245		65,627		65,519
Operating income		20,001		20,342		60,817		60,028		19,838		20,001		59,431		60,817
Income from unconsolidated joint ventures		615		289		1,635		839		746		615		2,103		1,635
Gain on sale of real estate, net		—		1,780		5,054		3,582		14,353		—		62,698		5,054
Net income		20,616		22,411		67,506		64,449		34,937		20,616		124,232		67,506
Income allocated to non-controlling interests										(17)		—		(17)		—
Net income attributable to LTC Properties, Inc.										34,920		20,616		124,215		67,506
Income allocated to participating securities		(80)		(90)		(281)		(296)		(138)		(80)		(504)		(281)
Net income available to common stockholders	$	20,536	$	22,321	$	67,225	$	64,153	$	34,782	$	20,536	$	123,711	$	67,225

Earnings per common share:
Basic	$	0.52	$	0.57	$	1.71	$	1.68	$	0.88	$	0.52	$	3.13	$	1.71
Diluted	$	0.52	$	0.57	$	1.70	$	1.68	$	0.88	$	0.52	$	3.12	$	1.70

Weighted average shares used to calculate earnings per common share:
Basic		39,428		39,057		39,403		38,161		39,487		39,428		39,470		39,403
Diluted		39,748		39,335		39,738		38,455		39,865		39,748		39,845		39,738

Dividends declared and paid per common share	$	0.57	$	0.54	$	1.71	$	1.62	$	0.57	$	0.57	$	1.71	$	1.71

Comprehensive Income:
Net income									$	34,937	$	20,616	$	124,232	$	67,506
Comprehensive income									$	34,937	$	20,616	$	124,232	$	67,506

See accompanying notes.

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~EQUITY

(~~Amounts in thousands, unaudited)~~

In thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Net income

$
20,616

$
22,411

$
67,506

$
64,449

Reclassification adjustment (Note 6)

—

(6)

—

(39)

Comprehensive income

$
20,616

$
22,405

$
67,506

$
64,410


					Capital in		Cumulative				Total		Non-
	Common Stock				Excess of		Net		Cumulative		Stockholder's		Controlling		Total
	Shares		Amount		Par Value		Income		Distributions		Equity		Interests		Equity
Balance—December 31, 2016	39,221	$	392	$	839,005	$	1,013,443	$	(1,112,792)	$	740,048	$	—	$	740,048
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,552)		(22,552)		—		(22,552)
Proceeds from common stock issued, net of issuance costs	313		3		14,526		—		—		14,529		—		14,529
Issuance of restricted stock	75		1		(7)		—		—		(6)		—		(6)
Stock-based compensation expense	—		—		1,259		—		—		1,259		—		1,259
Net income	—		—		—		21,513		—		21,513		—		21,513
Other	(36)		—		(1,651)		—		—		(1,651)		—		(1,651)
Balance—March 31, 2017	39,573	$	396	$	853,132	$	1,034,956	$	(1,135,344)	$	753,140	$	—	$	753,140
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,558)		(22,558)		—		(22,558)
Issuance of restricted stock	8		—		—		—		—		—		—		—
Cancelation of restricted stock	(14)		—		—		—		—		—		—		—
Stock option exercises	3		—		79		—		—		79		—		79
Stock-based compensation expense	—		—		1,425		—		—		1,425		—		1,425
Net income	—		—		—		25,377		—		25,377		—		25,377
Other	(6)		—		(296)		—		—		(296)		—		(296)
Balance—June 30, 2017	39,564	$	396	$	854,340	$	1,060,333	$	(1,157,902)	$	757,167	$	—	$	757,167
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,554)		(22,554)		—		(22,554)
Issuance of restricted stock	3		—		—		—		—		—		—		—
Cancelation of restricted stock	(1)		—		—		—		—		—		—		—
Stock option exercises	5		—		123		—		—		123		—		123
Stock-based compensation expense	—		—		1,283		—		—		1,283		—		1,283
Net income	—		—		—		20,616		—		20,616		—		20,616
Balance—September 30, 2017	39,571	$	396	$	855,746	$	1,080,949	$	(1,180,456)	$	756,635	$	—	$	756,635
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,555)		(22,555)		—		(22,555)
Issuance of restricted stock	—		—		(14)		—		—		(14)		—		(14)
Stock-based compensation expense	—		—		1,282		—		—		1,282		—		1,282
Net income	—		—		—		19,834		—		19,834		—		19,834
Non-controlling interest contributions	—		—		—		—		—		—		3,488		3,488
Other	(1)		—		(22)		—		—		(22)		—		(22)
Balance—December 31, 2017	39,570	$	396	$	856,992	$	1,100,783	$	(1,203,011)	$	755,160	$	3,488	$	758,648
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,578)		(22,578)		—		(22,578)
Issuance of restricted stock	82		—		—		—		—		—		—		—
Stock option exercises	5		—		123		—		—		123		—		123
Stock-based compensation expense	—		—		1,376		—		—		1,376		—		1,376
Net income	—		—		—		20,359		—		20,359		—		20,359
Other	(28)		—		(1,065)		—		—		(1,065)		—		(1,065)
Balance—March 31, 2018	39,629	$	396	$	857,426	$	1,121,142	$	(1,225,589)	$	753,375	$	3,488	$	756,863
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,590)		(22,590)		—		(22,590)
Issuance of restricted stock	9		—		(8)		—		—		(8)		—		(8)
Stock-based compensation expense	—		—		1,521		—		—		1,521		—		1,521
Net income	—		—		—		68,936		—		68,936		—		68,936
Non-controlling interest contributions	—		—		—		—		—		—		1,081		1,081
Other	(3)		—		(107)		—		—		(107)		—		(107)
Balance—June 30, 2018	39,635	$	396	$	858,832	$	1,190,078	$	(1,248,179)	$	801,127	$	4,569	$	805,696
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,600)		(22,600)		—		(22,600)
Proceeds from common stock issued, net of issuance costs	22		1		928		—		—		929		—		929
Stock-based compensation expense	—		—		1,487		—		—		1,487		—		1,487
Net income	—		—		—		34,920		—		34,920		17		34,937
Non-controlling interest contributions	—		—		—		—		—		—		2,882		2,882
Non-controlling interest distributions	—		—		—		—		—		—		(17)		(17)
Other	—		—		(21)		—		—		(21)		—		(21)
Balance—September 30, 2018	39,657	$	397	$	861,226	$	1,224,998	$	(1,270,779)	$	815,842	$	7,451	$	823,293

~~See accompanying notes.~~

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, unaudited)


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2018		2017
OPERATING ACTIVITIES:
Net income	$	67,506	$	64,449	$	124,232	$	67,506
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,186		26,623		28,159		28,186
Stock-based compensation expense		3,967		3,149		4,384		3,967
Impairment on receivables		1,880		—
Impairment charges						—		1,880
Gain on sale of real estate, net		(5,054)		(3,582)		(62,698)		(5,054)
Income from unconsolidated joint ventures		(1,635)		(839)		(2,103)		(1,635)
Income distributions from unconsolidated joint ventures		1,236		1,409		1,727		1,236
Insurance proceeds for damaged property						2,619		—
Payment for remediation of damaged property						(455)		—
Straight-line rental income		(7,362)		(8,201)		(8,629)		(7,362)
Lease incentives funded						(1,272)		(5,713)
Amortization of lease incentives		1,681		1,446		1,651		1,681
Provision for doubtful accounts		(139)		245		76		(139)
Non-cash interest related to contingent liabilities		476		538		377		476
Effect of earn-out and related lease inducement write-off		(842)		—
Non-cash income related to earn-out and related lease inducement write-off						—		(842)
Other non-cash items, net		958		909		923		958
Increase in interest receivable		(3,967)		(3,898)		(4,240)		(3,967)
Decrease in accrued interest payable		(567)		(358)		(1,808)		(567)
Net change in other assets and liabilities		(10,190)		(2,245)		495		(4,477)
Net cash provided by operating activities		76,134		79,645		83,438		76,134
INVESTING ACTIVITIES:
Investment in real estate properties		(54,804)		(73,449)		(40,408)		(54,804)
Investment in real estate developments		(13,939)		(35,623)		(25,717)		(13,939)
Investment in real estate capital improvements		(2,308)		(5,566)		(2,063)		(2,308)
Capitalized interest		(627)		(1,193)		(850)		(627)
Proceeds from sale of real estate, net		14,106		17,369		82,340		14,106
Investment in real estate mortgage loans receivable		(9,333)		(19,113)		(20,530)		(9,333)
Principal payments received on mortgage loans receivable		17,351		2,117		1,636		17,351
Investments in unconsolidated joint ventures		(3,847)		(481)		(580)		(3,847)
Payment of working capital reserve		(439)		(2,325)		—		(439)
Advances and originations under notes receivable		—		(2,328)		(50)		—
Principal payments received on notes receivable		25		90		3,848		25
Net cash used in investing activities		(53,815)		(120,502)		(2,374)		(53,815)
FINANCING ACTIVITIES:
Bank borrowings		64,500		83,500		96,500		64,500
Repayment of bank borrowings		(116,600)		(127,000)		(73,000)		(116,600)
Proceeds from issuance of senior unsecured notes		100,000		77,500		—		100,000
Principal payments on senior unsecured notes		(19,167)		(16,667)		(20,166)		(19,167)
Proceeds from common stock issued		14,578		78,592		1,005		14,578
Stock option exercises		202		159		123		202
Distributions paid to stockholders		(67,664)		(62,211)		(67,768)		(67,664)
Contribution from non-controlling interests						3,963		—
Financing costs paid		(363)		(130)		(3,162)		(363)
Other		(1,954)		(2,215)		(1,201)		(1,954)
Net cash (used in) provided by financing activities		(26,468)		31,528
Decrease in cash and cash equivalents		(4,149)		(9,329)
Cash and cash equivalents, beginning of period		7,991		12,942
Cash and cash equivalents, end of period	$	3,842	$	3,613
Net cash used in financing activities						(63,706)		(26,468)
Increase (decrease) in cash, cash equivalents and restricted cash						17,358		(4,149)
Cash, cash equivalents and restricted cash, beginning of period						5,213		7,991
Cash, cash equivalents and restricted cash, end of period					$	22,571	$	3,842

Supplemental disclosure of cash flow information:
Interest paid	$	21,877	$	19,004	$	23,869	$	21,877
Contingent Liabilities related to real estate investments	$	—	$	2,000

See accompanying notes.

~~Table of Contents~~

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~CONTINUED~~

(Unaudited)

1.General

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

We have prepared consolidated financial statements included herein without audit and in the opinion of management have included all adjustments necessary for a fair presentation of the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ~~(or SEC)~~(“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ~~(or GAAP)~~(“GAAP”) have been condensed or omitted pursuant to rules and regulations governing the presentation of interim financial statements. The accompanying consolidated financial statements include the accounts of our company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 are not necessarily indicative of the results for a full year.

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

Restricted Cash

During the third quarter of 2017, a 170-bed skilled nursing center in our portfolio was evacuated due to damages caused by Hurricane Harvey. This property is located in Texas and operated under a triple net master lease agreement. We periodically evaluate properties for impairment when events or changes in circumstances indicate that the asset may be impaired or the carrying amount of the asset may not be recoverable through future undiscounted cash flows. Based upon a quarterly assessment of this property using the recoverability test, we concluded the property has not been impaired.

As of September 30, 2018, the gross value and the carrying value of the property were $2,021,000 and $1,146,000, respectively.

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

Acquire property insurance, subject to certain criteria;

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

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

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During the second quarter of 2018, our operator provided us with insurance proceeds of $2,619,000 to be used for remediation of the property as noted in the provisions of our master lease agreement. Accordingly, we have classified the insurance proceeds as restricted cash on our consolidated financial statements.

New Accounting ~~Pronouncements.~~Pronouncements

In May 2014, the Financial Accounting Standards Board ~~(or FASB)~~(“FASB”) issued Accounting Standards Update ~~(or ASU)~~(“ASU”) 2014-09, Revenue from Contracts with Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” ~~In doing so, companies may need to use more judgement and make more estimates than under today’s guidance.~~ While this ASU specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate. Additionally, the FASB has ~~begun to issue~~issued targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. The new standard and its amendments ~~are~~were effective on January 1, 2018 and ~~permit~~permitted reporting entities to apply the standard using either a modified retrospective approach, by

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~~(Unaudited)~~

recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or full retrospective approach. We ~~have~~ assessed our revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. We ~~are currently evaluating~~evaluated the provisions of ASU 2014-09 and its related ~~updates and will be closely monitoring developments and~~ additional guidance to determine the potential impact of the new standard. We ~~expect to complete our evaluation~~concluded that adoption of ~~the impact during the fourth quarter of 2017 but we do not believe~~ this standard ~~will~~did not have ~~a material~~an impact on our results of operations or financial condition, as ~~a substantial portion of~~ our ~~revenues~~revenue consists of rental income from leasing arrangements and interest income from loan arrangements, both of which are specifically excluded from ASU 2014-09. We ~~expect to adopt~~adopted this standard using the modified retrospective adoption method on January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02 ~~(or~~ (“ASU ~~2016-02)~~2016-02”), Leases (Topic 842). The objective of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 modifies existing guidance by requiring lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance of operating leases.ASU 2016-02 requires the lessors to identify lease and non-lease components of a lease agreement. ASU 2016-02 will govern the recognition of revenue for lease components. Revenue related to non-lease components under lease agreements will be subject to the revenue recognition standard, upon adoption of this ASU. Entities are required to use a modified retrospective approach for leases that exist or are entered into after January 1, 2017, the beginning of the earliest comparative period presented in the 2019 consolidated financial statements with a cumulative adjustment to the opening balance of retained earnings.

Additionally, in July 2018, the FASB issued ASU No. 2018-11, Leases - Targeted Improvements (“ASU 2018-11”), which provides lessors with the option to elect a practical expedient allowing them to not separate lease and non-lease components and instead, to account for those components as a single lease component. This practical expedient is limited to circumstances in which: (i) the timing and pattern of transfer are the same for the non-lease component and the related lease component and (ii) the lease

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component, if accounted for separately, would be classified as an operating lease. This practical expedient causes an entity to assess whether a contract is predominantly lease-based or service-based and recognize the entire contract under the relevant accounting guidance (i.e., predominantly lease-based would be accounted for under ASU 2016-02 and predominantly service-based would be accounted for under the Revenue ASUs). This practical expedient option is available as a single election that must be consistently applied to all existing leases at the date of adoption. ASU 2018-11 also provides a practical expedient that allows companies to use an optional transition method. Under the optional transition method, a cumulative adjustment to retained earnings during the period of adoption is recorded and prior periods would not require restatement. Consequently, entities that elect both the practical expedient and the optional transitional method will apply the new lease ASU prospectively to leases commencing or modified after January 1, 2019, and will not be required to apply the disclosures under the new lease ASU to comparative periods.

Consistent with present standards, we will continue to account for lease revenue on a straight-line basis ~~for most leases.~~when applicable. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ~~Entities~~We are ~~required to use a modified retrospective approach for leases that exist or are entered into after beginning of the earliest comparative period in the financial statements. In conjunction with~~currently evaluating the impact of this guidance on our consolidated financial statements from both the ~~new~~lessee and lessor perspective. As a result of the adoption of this guidance, we may be required to increase our revenue ~~recognition standard,~~and expense for lessor costs paid directly by lessees under triple-net leases, if the amount paid is readily determinable (i.e. real estate taxes). Additionally, we have begun our process for implementing this guidance, including identifying any non-lease components in our lease arrangements. We ~~will continue~~plan to ~~evaluate this guidance and~~finalize our assessment during the ~~impact to us, as both lessor and lessee, on our consolidated financial statements.~~

~~In March 2016, FASB issued ASU No. 2016-07 (or ASU 2016-07),~~ ~~Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method~~fourth quarter of ~~Accounting.~~ ASU 2016-07 eliminates retroactive adjustment of an investment upon an investment qualifying for the equity method of accounting and requires the equity method investor to adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. ASU 2016-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this ASU did not have a material impact on our consolidated financial statements.

~~In March 2016, FASB issued ASU No. 2016-09 (or ASU 2016-09),~~ ~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~ ~~ASU 2016-09 addresses several aspects of the accounting for share-based payment award transactions, including: (~~a~~) income tax consequences; (~~b~~) classification of awards as either equity or liabilities; and (~~c) classification on the statement of cash flows. ASU 2016-09 is effective for public companies for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this ASU did not have a material impact on our consolidated financial statements.2018.

In August 2016, FASB issued ASU No. 2016-15 ~~(or~~ (“ASU ~~2016-15)~~2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the Emerging Issues Task Force). ASU 2016-15 provides guidance that reduces the diversity in practice of the classification of certain cash receipts and cash payments within the statement of cash flows. This guidance is effective for fiscal periods beginning after December 15, ~~2017 and allows for early adoption.~~

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2017. We adopted this standard on January 1, 2018. The ~~anticipated impact of the~~ adoption of this guidance did not have a material impact on ~~the Company’s~~our financial ~~statements is still being evaluated.~~statements.

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

In February 2017, the FASB issued ASU No. 2017-05 ~~(or~~ (“ASU ~~2017-05)~~2017-05”), Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets. ASU 2017-05 defines an in-substance nonfinancial asset and clarifies guidance related to partial sales of nonfinancial assets. This standard is

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effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, ~~2017, with early~~2017. The adoption ~~permitted. We don’t expect~~of this ASU did not have a material impact on the ~~Consolidated Financial Statements~~consolidated financial statements and related ~~notes from~~notes.

In 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires a new forward looking “expected loss” model to be used for receivables, held-to-maturity debt, loans, and other instruments. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption ~~of this standard.~~is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

2.Real Estate Investments

Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (or collectively ALF). Historically, we had a property classification identified as range of care communities (or ROC) which consisted of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services. Since we only have seven ROC remaining and given that these properties derive materially all of their revenue from skilled nursing services, we elected to reclassify them into the SNF property classification.

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

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Owned Properties. The following table summarizes our investments in owned properties at September 30, ~~2017~~2018 (dollar amounts in thousands):


								Average									Average
			Percentage		Number	Number of		Investment				Percentage		Number	Number of		Investment
	Gross		of		of	SNF	ALF	per		Gross		of		of	SNF	ALF	per
Type of Property	Investments		Investments		Properties(1)	Beds	Units	Bed/Unit		Investment		Investment		Properties (1)	Beds	Units	Bed/Unit
Assisted Living	$	743,015	54.6	%	103	—	5,772	$	128.73	$	802,484	56.8	%	103	—	5,885	$	136.36
Skilled Nursing~~(2)~~		579,758	42.6	%	76	9,276	274	$	60.71		569,141	40.2	%	73	8,919	261	$	62.00
Under Development~~(3)~~(2)		26,597	2.0	%	—	—	—		—		31,602	2.2	%	—	—	—		—
Other~~(4)~~(3)		10,216	0.8	%	1	118	—		—		11,040	0.8	%	1	118	—		—
Totals	$	1,359,586	100.0	%	180	9,394	6,046
Total										$	1,414,267	100.0	%	177	9,037	6,146

⁽¹⁾

We own properties in 2728 states that are leased to 2729 different operators.

⁽²⁾

~~Includes seven communities previously classified as ROC with ALF units.~~Represents three development projects, consisting of a 143-bed SNF in Kentucky, a 78-unit ALF/MC located in Oregon and a 110-unit ILF/ALF/MC in Wisconsin.

⁽³⁾

~~Represents three development projects consisting of two MC with a total of 132 units and a 143-bed SNF.~~

⁽⁴⁾

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

Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Many of the leases contain renewal options. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:

(i)

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

(ii)

a calculation based on the Consumer Price Index;

(iii)

as a percentage of facility net patient revenues in excess of base amounts; or

~~(iv)~~

~~specific dollar increases.~~

During the nine months ended September 30, 2017, we purchased a newly constructed 60-unit memory care community in Ohio for $15,650,000, as discussed below, and transitioned two memory care communities in our portfolio to a different operator. These three communities were added to a master lease with the same operator who took over the management of the two memory care communities previously mentioned. Annual rental income under the amended and restated master lease is approximately $6,400,000.

During the nine months ended September 30, 2017, we issued a notice of default on the master lease covering two properties under development and nine additional operational memory care communities resulting from lessee’s partial payment of minimum rent. We are currently negotiating the transition of two of the operational properties to another operator in our portfolio. Additionally, we wrote off $1,880,000 of straight-line rent and other receivables related to these two properties. Subsequent to September 30, 2017, we entered into a forbearance agreement with our lessee whereby we have agreed not to pursue enforcement of our rights and remedies pertaining to known events of default under the master lease and our guarantees through December 31, 2017, with the stipulation that the lessee pay $400,000 per month toward their obligations of the master lease through December 31, 2017.

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(iv)

specific dollar increases.

Acquisitions and Developments:The following table summarizes our acquisitions for the nine months ended September 30, 2018 and 2017 ~~(dollar~~(dollar amounts in thousands):

Total

Number

Number

Purchase

Transaction

Acquisition

of

of
Type of Property

Price

Costs(1)

Costs

Properties

Beds/Units
Assisted Living(2)

$
54,463

$
341

$
54,804

3

240


						Total		Number	Number
		Purchase		Transaction		Acquisition		of	of
Year	Type of Property	Price		Costs (1)		Costs		Properties	Beds/Units
2018	Assisted Living (2) (3)	$	39,600	$	65	$	39,665	3	177
	Land (3)		695		48		743	—	—
Total		$	40,295	$	113	$	40,408	3	177

2017	Assisted Living (4)	$	54,463	$	341	$	54,804	3	240
Total		$	54,463	$	341	$	54,804	3	240

⁽¹⁾

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

⁽²⁾

We acquired ~~a 107-unit assisted living community and a 73-unit memory care community for an aggregate purchase price of $38,813. Additionally, we acquired a 60-unit memory care community for $15,650.~~

Subsequent to September 30, 2017, we acquired a newly constructed 73-unit assisted living and memory care community in Missouri for $16,555,000. The property was added to an existing master lease agreement at an initial cash yield of 7%.

~~The following table summarizes our acquisitions for the nine months ended September 30, 2016~~ ~~(dollar amounts in thousands):~~

Total

Number

Number

Purchase

Transaction

Acquisition

of

of
Type of Property

Price

Costs(1)

Costs

Properties

Beds/Units
Skilled Nursing(2)

$
16,000

$
45

$
16,045

1

126
Assisted Living(3)

53,550

411

53,961

4

250
Land(4)

5,425

63

5,488

—

—
Totals

$
74,975

$
519

$
75,494

5

376

⁽¹⁾

Represents cost associated with our acquisitions; however, depending on the accounting treatment of our acquisitions, transaction costs may be capitalized to the properties’ basis and, for our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Additionally, we expense transaction costs related to the prior year due to timing and terminated transactions.

⁽²⁾

~~We acquired a newly constructed 126-bed skilled nursing center~~two MC in Texas.

⁽³⁾

We ~~acquired~~entered into a ~~newly constructed memory care community~~joint venture (“JV”) to develop, purchase and own senior housing properties. During the second quarter of 2018, the JV purchased land for the development of a 78-unit ALF/MC in ~~Kentucky~~Oregon for ~~$14,250 including~~ a ~~$2,000 holdback,~~total anticipated project cost of $18,108. The non-controlling partner contributed $1,081 of cash and we committed to fund the remaining $17,027 project cost. During the third quarter of 2018, in a ~~newly constructed assisted living~~sale-leaseback transaction, the JV purchased an existing operational 89-unit ILF adjacent to the 78-unit ALF/MC we are developing for $14,400. The non-controlling partner contributed $2,857 of equity and ~~memory care community~~we contributed $11,543 in ~~Georgia~~cash. Upon completion of the development project, our combined economic interest in the JV will be approximately 88%. We account for ~~$14,300~~the JV on a consolidated basis. See Note 7. Equity for further discussion related to our partnerships and ~~two memory care communities in Kansas for an aggregate purchase price of $25,000.~~non-controlling interests.

⁽⁴⁾

We acquired an ALF and a ~~parcel of land and improvements and entered into~~MC in California. Additionally, we acquired a ~~development commitment of up to $24,325, including the land and bed rights purchase, for the development of a 143-bed skilled nursing center~~MC in ~~Kentucky.~~Ohio.

During the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, we invested the following in development and improvement projects (in thousands):


	Nine months ended September 30, 2017				Nine months ended September 30, 2016				Nine months ended September 30, 2018				Nine months ended September 30, 2017
	Development		Improvements		Development		Improvements
Type of Property									Developments		Improvements		Developments			Improvements
Assisted Living Communities	$	10,366	$	951	$	35,623	$	2,134	$	19,251	$	1,131	$	10,366	$	951
Skilled Nursing Centers		3,573		1,357		-		3,432		6,466		500		3,573		1,357
	$	13,939	$	2,308	$	35,623	$	5,566
Other										—		432		—		—
Total									$	25,717	$	2,063	$	13,939	$	2,308

~~During~~Completed Developments. The following table summarizes our completed developments during the nine months ended September 30, ~~2017, we sold four assisted living communities with a carrying value of $8,726,000 for an aggregate price of $14,250,000. These properties are located~~2018 (dollar amounts in thousands):


	Number	Type	Number
	of	of	of			Total
Type of Project	Properties	Property	Beds/Units	State	Investment
Development	1	MC	66	Illinois	$	13,974

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~~Indiana and Iowa with a total~~

Properties held-for-sale. The following table summarizes our properties held-for-sale as of ~~175 units. As a result of this sale, we recognized a net gain on sale of $5,054,000.~~September 30, 2018 (dollar amounts in thousands):


	Type	Number					Number
	of	of		Gross		Accumulated	of
State	Property	Properties		Investment		Depreciation	Beds/units
Florida (1)	SNF	1	$	2,497	$	971	60
Texas	ILF	1		5,746		1,916	140
Totals		2	$	8,243	$	2,887	200

⁽¹⁾

Subsequent to September 30, 2018, we sold this 60-bed SNF for $5,000 and will recognize a gain of approximately $3,400.

~~During~~Properties sold. The following table summarizes property sales during the nine months ended September 30, ~~2016, we sold two assisted living communities located~~2018 and 2017(dollar amounts in Florida and two skilled nursing centers in Texas with an aggregate carrying value of $9,791,000 for an aggregate price of $13,600,000. As a result of these sales, we recognized a net gain on sale of $3,775,000. Also, we sold a school in New Jersey for $3,850,000 with a carrying value of $3,997,000 and recorded a loss on sale of $193,000.thousands):


		Type		Number	Number
		of		of	of		Sales		Carrying		Net
Year	State	Properties		Properties	Beds		Price		Value		Gain
2018	Alabama	SNF		2	285	$	17,525	$	3,272	$	14,253
	Kansas	ALF	(1)	—	—		350		346		—
	Ohio and Pennsylvania	ALF		6	320		67,500		16,352		48,445
Total 2018				8	605	$	85,375	$	19,970	$	62,698

2017	Indiana and Iowa	ALF		4	175	$	14,250	$	8,726	$	5,054
Total 2017				4	175	$	14,250	$	8,726	$	5,054

⁽¹⁾

We sold land adjacent to an existing ALF community in Kansas.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at September 30, ~~2017~~2018 (dollar amounts in thousands):

Number of

Investment

Gross

SNF

per

Type of Property

Investments

Loans

Properties(1)

Beds

Bed/Unit

Skilled Nursing

$
224,095

5

21

2,764

$
81.08


				Type	Percentage		Number of			Investment
		Gross		of	of				SNF	per
Interest Rate (1)	Maturity	Investment		Property	Investment		Loans (2)	Properties (3)	Beds	Bed/Unit
9.5%	2043	$	186,495	SNF	76.1	%	1	15	2,029	$	91.91
9.2%	2045		33,028	SNF	13.5	%	1	4	501	$	65.92
9.4%	2045		14,797	SNF	6.0	%	1	1	157	$	94.25
9.5%	2020		10,733	SNF	4.4	%	1	2	205	$	52.36
Total		$	245,053		100.0	%	4	22	2,892	$	84.73

⁽¹⁾

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

⁽²⁾

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

⁽³⁾

We have investments in properties located in ~~two states~~one state that ~~include~~includes mortgages to ~~two operators.~~one operator.

At September 30, 2017, the mortgage loans had interest rates ranging from 9.4% to 11.2% and maturities ranging from 2019 to 2045. 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.

~~The following table summarizes our mortgage loan activity for the nine months ended September 30, 2017 and 2016~~ ~~(in thousands):~~

Nine months ended September 30,

2017

2016

Origination/Funding

Origination/Funding

Originations and fundings under mortgage loans receivable

$
9,333

$
19,113

Pay-offs received

(16,665)

(746)

Scheduled principal payments received

(686)

(1,371)

Net (decrease) increase in mortgage loans receivable

$
(8,018)

$
16,996

~~3.Investment in Unconsolidated Joint Ventures~~

~~Our investment in unconsolidated joint ventures consists of a preferred equity investment and two mezzanine loans which are accounted for as an unconsolidated joint venture in accordance with GAAP.~~

~~Preferred Equity Investment:~~ We provided a total preferred capital contribution commitment of $25,650,000 to an entity (or the JV) that owns four properties in Arizona that provides independent, assisted living and memory care services. The JV is intended to be self-financing and other than our preferred capital contributions, we are not required to provide any direct support and we are not entitled to share in the JV’s earnings or losses. As a result, we believe our maximum exposure to loss related to our investment in the JV would be limited to our preferred capital contributions plus any unpaid accrued preferred return. We have concluded that the JV meets the accounting criteria to be considered a variable

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(Unaudited)

interest entity (or VIE). However, because we do not control the entity, nor do we have any role in the day-to-day management, we are not the primary beneficiary of the JV. Therefore, we account for our JV investment using the equity method.

As the preferred member of the JV, we are entitled to receive a 15% preferred return, a portion of which is paid in cash and a portion of which is deferred. The unpaid preferred return will be accrued to the extent of the common member’s capital account balance in the underlying JV. Since the common member’s capital account balance is currently $0, we did not record the deferred portion of the preferred return during the nine months ended September 30, 2017. During the nine months ended September 30, 2017 and 2016, we funded $1,100,000 and $481,000, respectively, of the preferred capital contribution. Accordingly, we have a remaining preferred capital contribution commitment of $2,636,000. At September 30, 2017 and December 31, 2016, our preferred equity investment was $23,421,000 and $22,321,000, respectively. During the nine months ended September 30, 2017 and 2016, we recognized $1,134,000 and $839,000, respectively, in income and received $1,020,000 and $1,409,000, respectively, of cash interest from our preferred equity investment in the JV.

~~Mezzanine Loans:~~ During 2016, we entered into a $3,400,000 seven-year term mezzanine loan commitment for the development of a 127-unit senior housing community in Florida which will provide a combination of assisted living, memory care and independent living services. The loan agreement provides us a 15% preferred return, a portion of which is paid in cash and the remaining unpaid portion is deferred and subsequently paid to us at times set forth in the loan agreement. During 2017, we funded $2,747,000 under this mezzanine loan and withheld $653,000 which will be applied to interest. During the nine months ended September 30, 2017, we recognized $118,000 in income from unconsolidated joint ventures related to this loan.

We also have a $2,900,000 mezzanine loan to develop a 99-unit senior housing community in Florida which will provide a combination of assisted living, memory care and independent living services. The loan bears interest at 10% and will escalate to 15%. Interest payments were deferred and no interest was recorded between the time of the commencement of the loan and February 1, 2017, the first payment date per the terms of the loan agreement. We used the effective interest method to recognize interest income and recorded the difference between the effective interest income and cash interest income to the loan principal balance. During the nine months ended September 30, 2017, we recognized $383,000 in income from unconsolidated joint ventures and received $216,000 of cash interest related to this loan. At September 30, 2017 and December 31, 2016, the outstanding balance under this loan was $3,041,000 and $2,900,000, respectively.

4.~~Notes Receivable~~

~~Notes receivable consists of mezzanine loans and other loan arrangements.~~ The following table summarizes our ~~notes receivable activities~~mortgage loan activity for the nine months ended September 30, 2018 and 2017 (in thousands):


	Nine months ended September 30,
	2018			2017
Originations and funding under mortgage loans receivable	$	20,530	(1)	$	9,333
Pay-offs received		(1,086)			(16,665)
Scheduled principal payments received		(550)			(686)
Net increase (decrease) in mortgage loans receivable	$	18,894		$	(8,018)

⁽¹⁾

During 2018, we funded an additional $7,400 under an existing mortgage loan for the purchase of a 112-bed skilled nursing center in Michigan. The incremental funding bears interest at 8.7%, fixed for five years, and escalating by 2.25% thereafter. Also, we funded additional loan proceeds of $7,125 under an existing mortgage loan for the purchase of a 126-bed skilled nursing center in Michigan. This incremental funding bears interest at 9.41%, fixed for five years, and escalating by 2.25% thereafter.

3.Investment in Unconsolidated Joint Ventures

Our investment in unconsolidated joint ventures consists of a preferred equity investment and ~~2016~~two mezzanine loans which are accounted for as unconsolidated joint ventures in accordance with GAAP. The following table summarizes our investment in unconsolidated joint ventures (dollar amounts in thousands):

Nine months ended September 30,

2017

2016

Advances and originations under notes receivable
$
-

$
2,328

Principal payments received under notes receivable

(25)

(90)

Net (decrease) increase in notes receivable
$
(25)

$
2,238


	Type	Type		Total		Currently		Number
	of	of		Preferred		Paid in		of		Investment			Carrying
State	Properties	Investment		Return		Cash		Beds/ Units		Commitment			Value
Arizona	ALF/MC/ILF	Preferred Equity	(1)	15	%	7	%	585	$	25,650		$	23,942
Florida	ALF/IL/MC	Mezzanine	(2)	15	%	12	%	99		2,900	(3)		3,169	(3)
Florida	UDP-ALF/MC	Mezzanine	(2)	15	%	10	%	127		3,400			3,400
Total								811	$	31,950		$	30,511

⁽¹⁾

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

⁽²⁾

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

⁽³⁾

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

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


	Nine Months Ended September 30,
Type	2018							2017
of		Capital		Income		Cash Interest			Capital		Income		Cash Interest
Properties		Contribution		Recognized		Received			Contribution		Recognized		Received
ALF/MC/ILF	$	580	$	1,490	$	1,436		$	1,100	$	1,134	$	1,020
ALF/IL/MC		—		383		291			—		383		216
UDP-ALF/MC		—		230		—	(1)		2,747		118		—	(1)
Total	$	580	$	2,103	$	1,727		$	3,847	$	1,635	$	1,236

(1) We withheld $653 at the time of loan origination which is being applied to interest. As of September 30, 2018, we still hold $257 which will be applied to future interest.

4.Notes Receivable

Notes receivable consists of mezzanine loans and other loan arrangements. The following table is a summary of our notes receivable components as of September 30, 2018 and December 31, 2017 (in thousands):


		At September 30, 2018		At December 31, 2017
Mezzanine loans	$	9,869	$	13,700
Other loans		2,901		2,868
Notes receivable reserve		(128)		(166)
Total	$	12,642	$	16,402

The following tables summarizes our notes receivable activity for the nine months ended September 30, 2018 and 2017 (dollar amounts in thousands):


	Nine months ended September 30,
		2018		2017
Advances under notes receivable	$	50	$	—
Principal payments received under notes receivable		(3,848)		(25)
Total	$	(3,798)	$	(25)

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(Unaudited)

5.Lease Incentives

The following summarizes lease incentives by component as of September 30, 2018 and December 31, 2017 (in thousands):


		At September 30, 2018		At December 31, 2017
Non-contingent lease incentives	$	14,883	$	14,904
Contingent lease incentives		6,219		6,577
Total	$	21,102	$	21,481

The following table summarizes our lease incentive activity for the nine months ended September 30, 2018 and 2017(in thousands):


	Nine months ended September 30,
	2018				2017
		Funding		Amortization		Funding		Amortization		Write off
Non-contingent lease incentives	$	1,272	$	(1,292)	$	5,713	$	(1,181)	$	(1,205)	(1)
Contingent lease incentives (3)		—		(359)		—		(500)		(2,634)	(2)
Total	$	1,272	$	(1,651)	$	5,713	$	(1,681)	$	(3,839)

⁽¹⁾

Represents the write-off of lease incentives related to two MC communities due to negotiations to transition these properties to another operator in our portfolio.

⁽²⁾

Represents the write-off of lease incentive related to an ALF community due to change to the business model at the property that resulted in lower net operating income and the improbability of paying the earn-out.

⁽³⁾

Subsequent to September 30, 2018, we entered into an amended master lease agreement with Senior Lifestyle Management, LLC (“Senior Lifestyle”). Among the provisions of the amendment, the contingent lease incentive payable to Senior Lifestyle was removed. Therefore, subsequent to September 30, 2018, we will write-off the Senior Lifestyle contingent lease incentive of $6,219 and the related earn-out liability of $9,292 which will result in income of approximately $3,000.

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

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(Unaudited)

6.Debt Obligations

Bank Borrowings. ~~We have an Unsecured Credit Agreement that provides for a revolving line of~~During 2018, weamended and restated our unsecured credit upagreement to ~~$600,000,000. The Unsecured Credit Agreement matures~~replace the previous unsecured credit agreement, prior to its expiration on October 14, ~~2018~~2018. The amended credit agreement maintains the $600,000,000 aggregate commitment of the lenders under the prior agreement and provides for the opportunity to increase the commitment size of the credit agreement up to a total of $1,000,000,000. The amended credit agreement extends the maturity of the credit agreement to June 27, 2022 and provides for a one-year extension option at our discretion, subject to customary conditions. Additionally, the amended credit agreement decreases the interest rate margins and converts from the payment of unused commitment fees to a facility fee. Based on our leverage at September 30, ~~2017,~~2018, the facility provides for interest annually at LIBOR plus ~~150~~115 basis points and ~~an unused commitment~~a facility fee of 3520 basis points. At September 30, ~~2017,~~2018, we were in compliance with all covenants.

Senior Unsecured Notes. During ~~the nine months ended September 30,~~ 2017, we amended our shelf agreement with affiliates and managed accounts of Prudential Investment Management, Inc. ~~(or Prudential)~~(“Prudential”) to increase our shelf commitment to $337,500,000.

The debt obligations by component as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 are as follows (dollar amounts in thousands):



		At September 30, 2017				At December 31, 2016					At September 30, 2018				At December 31, 2017
	Applicable			Available				Available		Applicable			Available				Available
	Interest	Outstanding		for		Outstanding		for		Interest	Outstanding		for		Outstanding		for
Debt Obligations	Rate(1)	Balance		Borrowing		Balance		Borrowing		Rate (1)	Balance		Borrowing		Balance		Borrowing
Bank borrowings (2)	2.98%	$	55,000	$	545,000	$	107,100	$	492,900	3.38%	$	120,000	$	480,000	$	96,500	$	503,500
Senior unsecured notes, net of debt issue costs	4.49%		582,950		51,667		502,291		22,500	4.49%		550,986		79,833		571,002		63,667
Total	4.36%	$	637,950	$	596,667	$	609,391	$	515,400	4.29%	$	670,986	$	559,833	$	667,502	$	567,167

⁽¹⁾

Represents weighted average of interest rate as of September 30, ~~2017.~~2018.

⁽²⁾

Subsequent to September 30, ~~2017,~~2018, we ~~had an additional net borrowing of $15,000~~paid down $20,000 under our unsecured revolving line of credit. Accordingly, we have ~~$70,000~~$100,000 outstanding under our unsecured revolving line of credit with ~~$530,000~~$500,000 available for borrowing.

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


	Nine months ended September 30,										Nine months ended September 30,
	2017					2016					2018				2017
	Borrowings			Repayments		Borrowings			Repayments
Debt Obligations												Borrowings		Repayments	Borrowings			Repayments
Bank borrowings	$	64,500		$	(116,600)	$	83,500		$	(127,000)	$	96,500	$	(73,000)	$	64,500		$	(116,600)
Senior unsecured notes		100,000	(1)		(19,167)		77,500	(2)		(16,667)		—		(20,166)		100,000	(1)		(19,167)
Total	$	164,500		$	(135,767)	$	161,000		$	(143,667)	$	96,500	$	(93,166)	$	164,500		$	(135,767)

⁽¹⁾

During ~~the nine months ended September 30,~~ 2017, we sold 15-year senior unsecured notes in the aggregate amount of $100,000 to a group of investors, which included Prudential, in a private placement transaction. The notes bear interest at an annual rate of 4.5%, have scheduled principal payments and mature on February 16, 2032.

⁽²⁾

During the nine months ended September 30, 2016, we sold 10-year senior unsecured term notes in the amount of $37,500 to Prudential. The notes bear interest at an annual fixed rate of 4.15%, have scheduled principal payments and will mature in 2028. Additionally, we sold 10-year senior unsecured notes in the amount of $40,000 to affiliated insurance company investment advisory clients of AIG Asset Management (U.S.) LLC. The notes bear interest at a coupon of 3.99%, have scheduled principal payments and will mature in 2031.

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(Unaudited)

~~6.Equity~~7.Equity

~~Equity activity was as follows (in thousands):~~

Total

Equity

Balance at December 31, 2016

$
740,048

Net income

67,506

Proceeds from common stock issued, net of issuance costs

14,529

Stock-based compensation expense

3,967

Performance based stock units

(6)

Stock option exercise

202

Common stock dividends

(67,664)

Other

(1,947)

Balance at September 30, 2017

$
756,635

Common Stock. We have an equity distribution agreement to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our company common ~~share.~~shares. During the nine months ended September 30, 2018 and 2017, under our equity distribution agreement, we sold 22,244 shares of common stock for $1,005,000 in net proceeds and 312,881 shares of common stock for $14,578,000 in net proceeds, ~~under our equity distribution agreement. The proceeds were used to pay down our unsecured revolving line of credit.~~respectively. In conjunction with the sale of common stock, during the nine months ended September 30, 2018 and 2017, we paid $18,000 and $260,000, respectively, as compensation to our sales agents and we reclassified $76,000 and $49,000, respectively, of accumulated costs associated with this agreement to ~~additional paid~~capital in ~~capital. Accordingly, at~~excess of par value. At September 30, 2018, and 2017, we had $184,139,000 and $185,162,000, respectively, available under our ~~Equity Distribution Agreements.~~ equity distribution agreement.

~~Also,during~~During the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, we acquired ~~41,592~~31,326 shares and ~~49,094~~41,592 shares, respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Non-controlling Interests. During 2018 and 2017, we entered into partnerships to develop and/or own real estate. Given that our limited members do not have the substantive kick-out rights, liquidation rights, or participation rights, we have concluded that the partnerships are VIEs. And since we exercise power over and receive benefits from the VIEs, we are considered the primary beneficiary. Accordingly, we consolidate the VIEs and record the non-controlling interests at cost.

As of September 30, 2018, we have the following consolidated VIEs (dollar amounts in thousands):


					Gross
Investment		Property			Consolidated			Non-Controlling
Year	Purpose	Type	State		Assets			Interests
2018	Owned real estate	ILF	OR	$	14,400	(1)	$	2,857	(1)
2018	Owned real estate and development	UDP	OR		2,881	(1)		1,081	(1)
2017	Owned real estate and development	UDP	WI		10,316	(2)		2,272	(2)
2017	Owned real estate	ALF	SC		10,571			1,241
Total				$	38,168		$	7,451

⁽¹⁾

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

⁽²⁾

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

Available Shelf Registrations. ~~In 2016, we filed a new~~We have an automatic shelf registration statement on file with the SEC, and currently have the ability to file additional automatic shelf registration statements, to provide us with ~~additional~~ capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under ~~the~~our automatic shelf registration statement ~~we filed in 2016 (until its expiration on January 29, 2019)~~ 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.

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

Nine Months Ended

September 30, 2017

September 30, 2016

Declared

Paid

Declared

Paid

Common Stock

$
67,664
(1)
$
67,664
(1)
$
62,211
(2)
$
62,211
(2)

⁽¹⁾

~~Represents $0.19 per share per month for the nine months ended September 30, 2017.~~

⁽²⁾

~~Represents $0.18 per share per month for the nine months ended September 30, 2016.~~

In October 2017, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of October, November and December, payable on October 31, November 30, and December 29, 2017, respectively, to stockholders of record on October 23, November 22, and December 21, 2017, respectively.

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


	Nine Months Ended September 30,
	2018						2017
	Declared			Paid			Declared			Paid
Common Stock	$	67,768	(1)	$	67,768	(1)	$	67,664	(1)	$	67,664	(1)

⁽¹⁾

Represents $0.19 per share per month for the nine months ended September 30, 2018 and 2017.

In October 2018, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of October, November and December 2018, payable on October 31, November 30, and December 31, 2018, respectively, to stockholders of record on October 23, November 21, and December 21, 2018, respectively.

Stock-Based Compensation. ~~During 2015, we adopted and~~Under our ~~shareholders approved the~~ 2015 Equity Participation Plan ~~(or~~ (“the 2015 ~~Plan) which replaced the 2008 Equity Participation Plan (or the 2008 Plan). Under the 2015 Plan,~~Plan”), 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2015 Plan are set by our compensation committee at its discretion.

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(Unaudited)

During the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, no stock options were granted. The stock options exercised during the nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 were as follows:


		Weighted							Weighted
		Average							Average
	Options	Exercise		Option		Market		Options	Exercise		Option		Market
	Exercised	Price		Value		Value(1)		Exercised	Price		Value		Value (1)
2018								5,000	$	24.65	$	123,000	$	205,000
2017	8,334	$	24.31	$	202,566	$	410,797	8,334	$	24.31	$	202,566	$	410,797
2016	6,667	$	23.79	$	159,000	$	311,000

⁽¹⁾

As of exercise date.

At September 30, ~~2017,~~2018, we had ~~25,000~~20,000 stock options outstanding and exercisable. Compensation expense related to the vesting of stock options was ~~$2,000~~$0 and ~~$11,000~~$2,000 for the nine months ended September 30, 2018 and 2017, respectively.

The following table summarizes our restricted stock and ~~2016, respectively.~~ performance-based stock units activity for the nine months ended September 30, 2018 and 2017:


	Nine months ended September 30,
	2018		2017
Outstanding, January 1		244,181		210,573
Granted		156,718		143,057
Vested		(75,149)		(84,363)
Cancelled		—		(24,106)
Outstanding, September 30		325,750		245,161

During the nine months ended September 30, ~~2017~~2018 and ~~2016, we cancelled 15,400 and 640 shares of restricted stock, respectively, under the 2015 Plan and 2008 Plan. Additionally, during the nine months ended September 30,~~ 2017, ~~we cancelled 8,706 performance-based stock units. During the nine months ended September 30, 2017 and 2016,~~ we granted restricted stock and performance-based stock units under the 2015 Plan as follows:


	No. of	Price per			No. of	Price per
Year	Shares/Units	Share		Vesting Period	Shares/Units	Share		Vesting Period
2018					81,819	$	38.18	ratably over 3 years
					66,171	$	38.18	TSR targets (1)
					8,728	$	41.25	ratably over 1 year
					156,718

2017	74,760	$	45.76	ratably over 3 years	74,760	$	45.76	ratably over 3 years
	57,881	$	45.76	TSR targets (1)	57,881	$	45.76	TSR targets (1)
	7,416	$	48.55	June 1, 2018	7,416	$	48.55	ratably over 1 year
	3,000	$	50.50	ratably over 3 years	3,000	$	50.55	ratably over 3 years
	143,057				143,057

2016	65,300	$	43.24	ratably over 3 years
	54,107	$	46.87	TSR targets (2)
	7,680	$	46.87	June 1, 2017
	127,087

⁽¹⁾

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

⁽²⁾

~~Vesting is based on achieving certain TSR targets in 3.7 years with acceleration opportunity in 2.7 years.~~

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(Unaudited)

Compensation expense recognized related to the vesting of restricted common stock and performance-based stock units for the nine months ended September 30, 2018 and 2017 ~~was~~were $4,384,000 and $3,965,000, ~~compared to $3,138,000 for the same period in 2016.~~respectively. At September 30, ~~2017,~~2018, the remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock and performance-based stock units are as follows:


	Remaining		Remaining
	Compensation		Compensation
Vesting Date	Expense		Expense
2017	$	1,282,000
2018		3,947,000	$	1,486,000
2019		2,149,000		4,250,000
2020		259,000		2,210,000
	$	7,637,000
2021				238,000
Total			$	8,184,000

7.8.Commitments and Contingencies

At September 30, ~~2017,~~2018, we had commitments as follows ~~(in~~(in thousands):

Total




Investment

2017

Commitment

Remaining


Commitment

Funding

Funded

Commitment

Real estate properties (See Note 2. Real Estate Investments)

$
60,274
(1)
$
12,120

$
28,456

$
31,818

Accrued incentives and earn-out liabilities (2)

14,000

—

—

14,000

Lease incentives

7,113

438

438

6,675

Mortgage loans (See Note 2.Real Estate Investments)

51,000
(1)

9,333

14,672

36,328

Joint venture investments (See Note 3. Investments in Unconsolidated Joint Ventures)

25,650

1,101

23,014

2,636

Notes receivable (See Note 4. Notes Receivable)

500

—

—

500

Totals

$
158,537

$
22,992

$
66,580

$
91,957


						Total
	Investment			2018		Commitment		Remaining
	Commitment			Funding		Funded		Commitment
Real estate properties (Note 2. Real Estate Investments)	$	77,882	(1)	$	17,973	$	35,417	$	42,465
Accrued incentives and earn-out liabilities		23,000	(3)		—		—		23,000
Mortgage loans (Note 2. Real Estate Investments)		65,700	(2)		6,005		23,256		42,444
Joint venture investments (Note 3. Investments in Unconsolidated Joint Ventures)		25,650			580		23,594		2,056
Notes receivable (Note 4. Notes Receivable)		700			50		50		650
Total	$	192,932		$	24,608	$	82,317	$	110,615

⁽¹⁾

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

⁽²⁾

~~During~~$39,700 represents commitments to expand and renovate the ~~three~~seniors housing and ~~nine months ended September 30, 2017, we recorded non‑cash interest expense of $125~~health care properties securing the mortgage loans and ~~$476, respectively, related to these~~$26,000 represents contingent ~~liabilities. At September 30, 2017,~~funding upon the ~~fair value of our contingent payments was $8,790.~~ borrower achieving certain coverage ratios.

⁽³⁾

Subsequent to September 30, 2018, we entered into an amended master lease agreement with Senior Lifestyle. Among the provisions of the amendment, the contingent lease incentive payable to Senior Lifestyle was removed. Therefore, subsequent to September 30, 2018, we wrote-off the Senior Lifestyle contingent lease incentive of $6,219 and the related earn-out liability of $9,292 which will result in income of approximately $3,000.

As part of a lease arrangement, we committed to provide the lessee a lease incentive payment upon the properties covered under the lease achieving a certain rent coverage ratios. Based on the projected performance at lease commencement, the lease incentive payment was deemed probable and estimable; therefore, we recorded the contingent lease incentive liability and the related lease incentive asset. The contingent lease incentive liability was accreting up to the settlement amount of the estimated payment date and the related lease incentive asset was amortizing as a yield adjustment over the life of the lease. During the third quarter of 2017, upon reviewing the current projections of the properties, we concluded that as a result of the lessee changing its business model, the payment of the contingent lease incentive was not probable and the current projections do not support the properties achieving the required rent coverage ratios within the exercisable period. Accordingly, we wrote off the accrued incentive liability of $3,476,000 and the related lease incentive asset of $2,634,000 resulting in income of $842,000 which was included in the interest and other income line item in our consolidated statement of income.

We are a party from time to time to various general and professional liability claims and lawsuits asserted against the lessees or borrowers of our properties, which in our opinion are not singularly or in

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~~(Unaudited)~~

the aggregate material to our results of operations or financial condition. These types of claims and lawsuits may include matters involving general or professional liability, which we believe under applicable legal principles are not our responsibility as a non-possessory landlord or mortgage holder. We believe that these matters are the responsibility of our lessees and borrowers pursuant to general legal principles and pursuant to insurance and indemnification provisions in the applicable leases or mortgages. We intend to continue to vigorously defend such claims.

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(Unaudited)

9.Major Operators

We have four operators from each of which we derive approximately 10% or more of our combined rental revenue and interest income from mortgage loans. The following table sets forth information regarding our major operators as of September 30, ~~2017:~~2018:


	Number of		Number of		Percentage of				Number of		Number of		Percentage of
			SNF	ALF	Total		Total				SNF	ALF	Total		Total
Operator	SNF	ALF	Beds	Units	Revenue (1)		Assets		SNF	ALF	Beds	Units	Revenue (1)		Assets
Prestige Healthcare	22	—	2,798	93	16.7	%	16.1	%	24	—	3,010	93	18.0	%	16.4	%
Senior Lifestyle Corporation	—	23	—	1,457	11.9	%	11.5	%	—	23	—	1,457	11.9	%	10.4	%
Brookdale Senior Living	—	37	—	1,702	9.7	%	5.1	%	—	37	—	1,702	10.1	%	4.6	%
Senior Care Centers	11	—	1,444	—	9.6	%	7.9	%	11	—	1,444	—	9.8	%	7.1	%
Totals	33	60	4,242	3,252	47.9	%	40.6	%
Total									35	60	4,454	3,252	49.8	%	38.5	%

⁽¹⁾

Includes rental income and interest income from mortgage ~~loans.~~loans and excludes income from properties sold and mortgage loans paid off during 2018.

Our financial position and ability to make distributions may be adversely affected if Prestige Healthcare, Senior Lifestyle Corporation, Brookdale Senior Living, Senior Care Centers, or any of our lessees and borrowers face financial difficulties, including any bankruptcies, inability to emerge from bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew and/or extend its relationship with us.

10.Earnings per Share

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net income	$	34,937	$	20,616	$	124,232	$	67,506
Less net income allocated to non-controlling interests		(17)		—		(17)		—
Less net income allocated to participating securities:
Non-forfeitable dividends on participating securities		(89)		(80)		(268)		(269)
Income allocated to participating securities		(49)		—		(236)		(12)
Total net income allocated to participating securities		(138)		(80)		(504)		(281)
Net income available to common stockholders		34,782		20,536		123,711		67,225
Effect of dilutive securities:
Participating securities		138		80		504		281
Net income for diluted net income per share	$	34,920	$	20,616	$	124,215	$	67,506

Shares for basic net income per share		39,487		39,428		39,470		39,403
Effect of dilutive securities:
Stock options		4		9		3		11
Performance-based stock units		217		170		217		170
Participating securities		157		141		155		154
Total effect of dilutive securities		378		320		375		335
Shares for diluted net income per share		39,865		39,748		39,845		39,738

Basic net income per share	$	0.88	$	0.52	$	3.13	$	1.71
Diluted net income per share	$	0.88	$	0.52	$	3.12	$	1.70

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

9.~~Earnings per Share~~

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net income

$
20,616

$
22,411

$
67,506

$
64,449


Less net income allocated to participating securities:

Non-forfeitable dividends on participating securities

(80)

(85)

(269)

(284)

Income allocated to participating securities

—

(5)

(12)

(12)

Total net income allocated to participating securities

(80)

(90)

(281)

(296)

Net income available to common stockholders

20,536

22,321

67,225

64,153

Effect of dilutive securities:

Participating securities

80

90

281

296

Net income for diluted net income per share

$
20,616

$
22,411

$
67,506

$
64,449

Shares for basic net income per share

39,428

39,057

39,403

38,161

Effect of dilutive securities:

Stock options

9

13

11

13

Performance-based stock units

170

108

170

108

Participating securities

141

157

154

173

Total effect of dilutive securities

320

278

335

294

Shares for diluted net income per share

39,748

39,335

39,738

38,455

Basic net income per share

$
0.52

$
0.57

$
1.71

$
1.68

Diluted net income per share

$
0.52

$
0.57

$
1.70

$
1.68

~~Table of Contents~~

~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

~~10.~~11.Fair Value Measurements

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

The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. We do not invest our cash in auction rate securities. The carrying value and fair value of our financial instruments as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 assuming election of fair value for our financial assets and financial liabilities were as follows (in thousands):


	At September 30, 2017					At December 31, 2016					At September 30, 2018					At December 31, 2017
	Carrying		Fair			Carrying		Fair			Carrying		Fair			Carrying		Fair
	Value		Value			Value		Value			Value		Value			Value		Value
Mortgage loans receivable	$	221,861	$	271,666	(1)	$	229,801	$	294,319	(1)	$	242,609	$	274,698	(1)	$	223,907	$	278,224	(1)
Bank borrowings		55,000		55,000	(2)		107,100		107,100	(2)		120,000		120,000	(2)		96,500		96,500	(2)
Senior unsecured notes, net of debt issue costs		582,950		589,396	(3)		502,291		498,915	(3)		550,986		529,805	(3)		571,002		577,126	(3)
Accrued incentives and earn-outs		8,790		8,790	(4)		12,229		12,229	(4)		9,292		9,292	(4)		8,916		8,916	(4)

⁽¹⁾

Our investment in mortgage loans receivable is classified as Level 3. The fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our investments. The discount rate used to value our future cash inflows of the mortgage loans receivable at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 was ~~8.8%~~9.7% and ~~8.2%~~8.7%, respectively.

⁽²⁾

Our bank borrowings bear interest at a variable interest rate. The estimated fair value of our bank borrowings approximated their carrying values at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 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 September 30, 2018, the discount rate used to value our future cash outflow of our senior unsecured notes was 5.00% for those maturing before year 2026 and 5.25% for those maturing at or beyond year 2026. At December 31, 2017, the discount rate used to value our future cash outflow of our senior unsecured notes was 4.10% for those maturing before year 2026 and 4.30% for those maturing at or beyond year 2026. At December 31, 2016, the discount rate used to value our future cash outflow of our senior unsecured notes was 4.47% for those maturing before year 2026 and 4.60% for those maturing at or beyond year 2026.

⁽⁴⁾

Our accrued incentives and earn-outs are classified as Level 3. We estimated the fair value of the accrued incentives and earn‑out payments using a discounted cash flow analysis. The discount rate that we use consists of a risk‑free U.S. Treasury rate plus a company specific credit spread which we believe is acceptable by willing market participants. The discount rate used to value our accrued incentives and earn-outs was ~~5.9%~~ a~~t both~~6.0% at September 30, ~~2017~~2018 and 6.2% at December 31, ~~2016~~.2017.

12.Subsequent Events

Subsequent to September 30, 2018 the following events occurred:

Real Estate:We sold a 60-bed SNF in Florida for $5,000,000 with a net book value of $1,526,000 and will recognize a gain of approximately $3,400,000 in the fourth quarter.

Lease Incentives: We entered into an amended master lease agreement with Senior Lifestyle. Among the provisions of the amendment, the contingent lease incentive payable to Senior Lifestyle was

2022

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

~~11.Subsequent Events~~

~~Subsequent~~removed. Therefore, subsequent to September 30, ~~2017~~2018, we will write-off the ~~following events occurred:~~Senior Lifestyle contingent lease incentive of $6,219,000 and the related earn-out liability of $9,292,000 which will result in income of approximately $3,000,000.

~~Real Estate:~~Debt: We ~~acquired a newly constructed 73-unit assisted living and memory care community in Missouri for $16,555,000. The property was added to an existing master lease agreement at an initial cash yield of 7%.~~

~~Debt Obligations:~~ ~~We had a net borrowing of $15,000,000~~paid down $20,000,000 under our unsecured revolving line of credit. Accordingly, we have ~~$70,000,000~~$100,000,000 outstanding under our unsecured revolving line of credit with ~~$530,000,000~~$500,000,000 available for borrowing.

Equity: We declared a monthly cash dividend of $0.19 per share on our common stock for the months of October, November and December ~~2017,~~2018, payable on October 31, November 30, and December ~~29, 2017,~~31, 2018, respectively to stockholders of record on October 23, November ~~22,~~21, and December 21, ~~2017,~~2018, respectively.

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

Statement Regarding Forward Looking Disclosure

This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. You can identify some of the forward-looking statements by their use of forward-looking words, such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or the negative of those words or similar words. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to, the status of the economy; the status of capital markets (including prevailing interest rates) and our access to capital; the income and returns available from investments in health care related real estate (including our ability to re-lease properties upon expiration of a lease term); the ability of our borrowers and lessees to meet their obligations to us; our reliance on a few major operators; competition faced by our borrowers and lessees within the health care industry; regulation of the health care industry by federal, state and local governments; changes in Medicare and Medicaid reimbursement amounts (including due to federal and state budget constraints); compliance with and changes to regulations and payment policies within the health care industry; debt that we may incur and changes in financing terms; our ability to continue to qualify as a real estate investment trust; the relative illiquidity of our real estate investments; potential limitations on our remedies when mortgage loans default; and risks and liabilities in connection with properties owned through limited liability companies and partnerships. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2017 and in our publicly available filings with the Securities and Exchange Commission. We do not undertake any responsibility to update or revise any of these factors or to announce publicly any revisions to forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Overview

Business and Investment Strategy

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

Table of Contents

The below graph summarizes our gross investments as of September 30, 2018:

Our ~~primary~~ seniors housing and health care property classifications include skilled nursing centers ~~(or SNF)~~(“SNF”), assisted living communities ~~(or ALF)~~(“ALF”), independent living communities ~~(or ILF)~~(“ILF”), memory care communities ~~(or MC)~~(“MC”) and combinations thereof. ALF, ILF, MC, and combinations thereof are included in the ALF property classification. Historically, we had a property classification identified as range of care communities (or ROC) which consisted of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services. Since we only have seven ROC remaining and given that these properties derive materially all of their revenue from skilled nursing services, we elected to

~~Table of Contents~~

~~reclassify them into the SNF property classification.~~ As of September 30, ~~2017,~~2018, seniors housing and long-term health care properties comprised approximately 99.4% of our real estate investment portfolio. We have been operating since August 1992.

Substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals and interest earned on outstanding loans receivable. Our investments in owned properties and mortgage loans represent our ~~primary~~main 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 of covenant compliance.

In addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk. Some operating leases and loans are credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans ~~secure~~secured by multiple properties.

Table of Contents

Real Estate Portfolio Overview

The following ~~table summarizes~~tables summarize our real estate investment portfolio by owned properties and mortgage loans and by type, as of September 30, ~~2017~~2018 (dollar amounts in thousands):


					Nine Months Ended													Nine Months Ended
			Percentage		September 30, 2017				Percentage		Number	Number of				Percentage		September 30, 2018				Percentage		Number	Number of
	Gross		of		Rental		Interest		of		of	SNF	ALF	Gross		of		Rental		Interest		of		of	SNF	ALF
Type of Property	Investments		Investments		Income (1)		Income(2)		Revenues		Properties(3)	Beds(4)	Units(4)
Skilled Nursing(5)	$	803,853	50.8	%	$	51,293	$	19,822	57.9	%	97	12,040	274
Owned Properties														Investments		Investments		Income (5)		Income (6)		Revenues		Properties (1)	Beds (2)	Units (2)
Assisted Living		743,015	46.9	%		50,985		—	41.5	%	103	—	5,772	$	802,484	48.4	%	$	49,053	$	—	40.6	%	103	—	5,885
Skilled Nursing															569,141	34.3	%		50,111		—	41.5	%	73	8,919	261
Under Development~~(6)~~(3)		26,597	1.7	%		—		—	—	%	—	—	—		31,602	1.9	%		—		—	—	%	—	—	—
Other~~(7)~~(4)		10,216	0.6	%		716		—	0.6	%	1	118	—		11,040	0.6	%		689		—	0.6	%	1	118	—
Totals	$	1,583,681	100.0	%	$	102,994	$	19,822	100.0	%	201	12,158	6,046
Total Owned Properties															1,414,267	85.2	%		99,853		—	82.7	%	177	9,037	6,146

Mortgage Loans
Skilled Nursing															245,053	14.8	%		—		20,853	17.3	%	22	2,892	—
Total Mortgage Loans															245,053	14.8	%		—		20,853	17.3	%	22	2,892	—

Total Portfolio														$	1,659,320	100.0	%	$	99,853	$	20,853	100.0	%	199	11,929	6,146


					Nine Months Ended
			Percentage		September 30, 2018				Percentage		Number	Number of
	Gross		of		Rental		Interest		of		of	SNF	ALF
Summary of Properties by Type	Investments		Investments		Income (5)		Income (6)		Revenues		Properties (1)	Beds (2)	Units (2)
Skilled Nursing	$	814,194	49.1	%	$	50,111	$	20,853	58.8	%	95	11,811	261
Assisted Living		802,484	48.4	%		49,053		—	40.6	%	103	—	5,885
Under Development (3)		31,602	1.9	%		—		—	—	%	—	—	—
Other (4)		11,040	0.6	%		689		—	0.6	%	1	118	—
Total Portfolio	$	1,659,320	100.0	%	$	99,853	$	20,853	100.0	%	199	11,929	6,146

⁽¹⁾

~~Excludes rental income from properties sold during 2017.~~

⁽²⁾

~~Excludes interest income from mortgage loans paid off during 2017.~~

⁽³⁾

We have investments in 28 states leased or mortgaged to 2829 different operators.

⁽⁴⁾⁽²⁾

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

⁽⁵⁾

~~Includes seven communities previously classified as ROC with ALF units.~~

⁽⁶⁾⁽³⁾

Represents three development projects consisting of ~~two~~ a 143-bed SNF located in Kentucky, a 78-unit ALF/MC ~~with a total of 132 units~~located in Oregon and a ~~143-bed SNF.~~110-unit ILF/ALF/MC located in Wisconsin.

⁽⁷⁾⁽⁴⁾

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

⁽⁵⁾

Excludes rental income from properties sold.

⁽⁶⁾

Represents interest income from mortgage loans and excludes interest income from paid-off mortgage loans.

As of September 30, ~~2017~~2018, we had $1.3 billion in carrying value of net real estate investments, consisting of $1.1 billion or ~~82.7%~~82.0% invested in owned and leased properties and $0.2 billion or ~~17.3%~~18.0% invested in mortgage loans secured by first mortgages. Our investment in mortgage loans contain interest rates between 9.2% and 9.5%. Approximately 76.1% of those mortgage loans mature in 2043 and have an interest rate of 9.5%.

For the nine months ended September 30, ~~2017,~~2018, rental income and interest income from mortgage loans represented ~~82.0%~~82.1% and ~~15.9%~~16.7%, respectively, of total gross revenues. In most instances, our lease structure contains fixed annual rental escalations, which are generally recognized on a straight-line basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the property. For those certain leases, the revenue is not recognized until the appropriate contingencies have been resolved.

During the nine months ended September 30, 2018, there were no lease renewals. During 2018, we transitioned two operating skilled nursing centers to another operator in our portfolio. This transition had no economic impact on us. For the nine months ended September 30, 2018, we recorded $8.6 million in straight-line rental income and recovered a net of $0.1 million in straight-line rent receivable reserve. During the nine months ended September 30, 2018, we received $95.7 million of cash rental revenue and

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For the nine months ended September 30, 2017, we recorded $7.4 million in straight-line rental income and recovered a net of $59,000 in straight-line rent receivable reserve. During the nine months ended September 30, 2017, we received $97.9 million of cash rental revenue and recorded amortization of lease incentives cost of $1.7 million. At September 30, ~~2017,~~2018, the straight-line rent receivable balance, net of reserves, on the balance sheet was ~~$61.1~~$73.1 million.

~~During the nine months ended September 30, 2017, an existing lease was amended to extend the term for an additional five years~~Update on Anthem Memory Care and increase rent by 2%. Additionally, we amended an existing master lease, due to the sale of four assisted living communities as discussed below, resulting in a rental revenue decrease of $0.9 million on an annual basis.Preferred Care

As part of a lease arrangement, we committed to provide the lessee a lease incentive payment upon the properties covered under the lease achieving a certain rent coverage ratios. Based on the projected performance at lease commencement, the lease incentive payment was deemed probable and estimable; therefore, we recorded the contingent lease incentive liability and the related lease incentive asset. The contingent lease incentive liability was accreting up to the settlement amount of the estimated payment date and the related lease incentive asset was amortizing as a yield adjustment over the life of the lease. During the third quarter of 2017, upon reviewing the current projections of the properties, we concluded that as a result of the lessee changing its business model, the payment of the contingent lease incentive was not probable and the current projections do not support the properties achieving the required rent coverage ratios within the exercisable period. Accordingly, we wrote off the accrued incentive liability of $3.4 million and the related lease incentive asset of $2.6 million resulting in income of $0.8 million which was included in the interest and other income line item in our consolidated statement of income.

During the nine months ended September 30, 2017, we purchased a newly constructed 60-unit memory care community in Ohio for $15.7 million, as discussed below, and transitioned two memory care communities in our portfolio to a different operator. These three communities were added to a master lease with the same operator who took over the management of the two memory care communities previously mentioned. Annual rental income under the amended and restated master lease is approximately $6.4 million.

~~Additionally, during the nine months ended September 30,~~ 2017, we issued a notice of default ~~on the master lease covering two properties under development and nine additional operational memory care communities~~to Anthem Memory Care (“Anthem”) resulting from ~~lessee’s~~Anthem’s partial payment of minimum rent. Anthem operates 11 operational memory care communities under a master lease. We are currently negotiating the transition of two of the operational properties to another operator in our portfolio. Additionally, we wrote off $1.9 million of straight-line rent and other receivables related to these two properties. Subsequent to September 30, 2017, we entered into a forbearance agreement with our lessee whereby we have agreed not ~~to pursue~~pursuing enforcement of our rights and remedies pertaining to known events of default under the master lease and our guarantees, ~~through December 31, 2017,~~ with the stipulation that ~~the lessee~~Anthem Memory Care achieve certain level of performance and pay ~~$0.4~~a minimum of $5.2 million ~~per month toward their~~of cash rent for these 11 properties through December 31, 2018. We receive regular financial performance updates from Anthem and continue to monitor Anthem’s performance obligations ofunder the master lease ~~through December 31, 2017.~~agreement closely.

Also, during 2017, Preferred Care, Inc. (“Preferred Care”) and several affiliated entities filed for Chapter 11 bankruptcy as a result of a multi-million dollar judgement in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. The affiliated entities named in the lawsuit operate properties in Kentucky and New Mexico. According to Preferred Care, it is subject to the judgement because it was included in the lawsuit. Preferred Care leases 24 properties under two master leases from us and none of the 24 properties are located in Kentucky or New Mexico. Those 24 properties are in Arizona, Colorado, Iowa, Kansas, Texas and Virginia. Additionally, the Preferred Care operating entities that sublease those properties did not file for bankruptcy. Our annual rental revenue from Preferred Care represented 6.5% of total rental and interest income as of September 30, 2018. Preferred Care is current on its rent due to us and provides us updates on the bankruptcy proceedings.

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Table of Contents

~~2017~~2018 Activities Overview

~~Investment in Owned Properties~~

The following ~~table summarizes~~tables summarize our ~~acquisitions~~transactions during the nine months ended September 30, ~~2017 (dollar~~2018(dollar amounts in thousands):

Investment in Owned Properties

Total

Number

Number

Purchase

Transaction

Acquisition

of

of
Type of Property

Price

Costs(1)

Costs

Properties

Beds/Units
Assisted Living(2)

$
54,463

$
341

$
54,804

3

240


	Number		Type	Number	Initial					Total		Total
	of		of	of	Cash			Purchase		Transaction		Acquisition
State	Properties		Properties	Beds/Units	Yield			Price		Costs		Costs
Oregon	1	(1)	ILF	89	6.75	%	$	14,400	$	—	$	14,400
Oregon	—	(1)	UDP	—	—	%		600		36		636
Texas	2		MC	88	7.25	%		25,200		66		25,266
Wisconsin	—		UDP	—	—	%		95		11		106
Total	3			177			$	40,295	$	113	$	40,408

⁽¹⁾

~~Represents cost associated with our acquisitions; however, depending on~~During the ~~accounting treatment~~second quarter of ~~our acquisitions, transaction costs may be capitalized~~2018, we entered into a partnership to develop and own real estate. Under the ~~properties’ basis~~partnership agreement, we acquired a parcel of land to develop a 78-unit assisted living and memory care community in Medford, OR for ~~our land purchases with forward development commitments, transaction costs are capitalized as part~~a total commitment of ~~construction~~$18,108, and an existing operational 89-unit independent living community in ~~progress. Additionally, transaction costs may include costs related to~~Oregon for $14,400, during the ~~prior year due to timing~~second and ~~terminated transactions.~~third quarter of 2018, respectively.

Investment in Development and Improvement projects


	Developments		Improvements
Assisted Living Communities	$	19,251	$	1,131
Skilled Nursing Centers		6,466		500
Other		—		432
Total	$	25,717	$	2,063

Completed Developments


	Number	Type	Number
	of	of	of			Total
Type of Project	Properties	Property	Beds/Units	State	Investment
Development	1	MC	66	Illinois	$	13,974

Properties Sold


	Type		Number	Number
	of		of	of		Sales		Carrying		Net
State	Properties		Properties	Beds/Units		Price		Value		Gain
Alabama	SNF		2	285	$	17,525	$	3,272	$	14,253
Kansas	ALF	(1)	—	—		350		346		—
Ohio and Pennsylvania	ALF		6	320		67,500		16,352		48,445
Total			8	605	$	85,375	$	19,970	$	62,698

⁽²⁾⁽¹⁾

We ~~acquired a 107-unit assisted living~~sold land adjacent to an existing ALF community ~~and a 73-unit memory care community for an aggregate purchase price of $38,813. Additionally, we acquired a 60-unit memory care community for $15,650.~~in Kansas.

Subsequent to September 30, 2017, we acquired a newly constructed 73-unit assisted living and memory care community in Missouri for $16.6 million. The property was added to an existing master lease agreement at an initial cash yield of 7%.

~~Development Projects~~

~~During the nine months ended September 30, 2017, we invested the following in development and improvement projects~~ ~~(in thousands):~~

Development

Improvements
Assisted Living Communities

$
10,366

$
951
Skilled Nursing Centers

3,573

1,357

$
13,939

$
2,308

~~Property Sales~~

During the nine months ended September 30, 2017, we sold four assisted living communities with a carrying value of $8.7 million for an aggregate price of $14.3 million. These properties are located in Indiana and Iowa with a total of 175 units. As a result of this sale, we recognized a net gain on sale of $5.1 million.

Investment in Mortgage Loans

~~A summary of our mortgage loan origination and funding for the nine months ended September 30, 2017, is as follows~~ (~~in thousands):~~


Originations and fundings under mortgage loans receivable	$	9,333
Originations and funding under mortgage loans receivable			$	20,530	(1)
Pay-offs received		(16,665)		(1,086)
Scheduled principal payments received		(686)		(550)
Net (decrease) increase in mortgage loans receivable	$	(8,018)
Net increase in mortgage loans receivable			$	18,894

⁽¹⁾

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Investment in Unconsolidated Joint Ventures


	Type	Type	Total		Currently		Number												Cash
	of	of	Preferred		Paid in		of		Investment			Carrying			Capital		Income		Interest
State	Properties	Investment	Return		Cash		Beds/ Units		Commitment			Value			Contribution		Recognized		Received
Arizona	ALF/MC/ILF	Preferred Equity	15	%	7	%	585	$	25,650		$	23,942		$	580	$	1,490	$	1,436
Florida	ALF/IL/MC	Mezzanine	15	%	12	%	99		2,900	(1)		3,169	(1)		—		383		291
Florida	UDP-ALF/MC	Mezzanine	15	%	10	%	127		3,400			3,400			—		230		—	(2)
							811	$	31,950		$	30,511		$	580	$	2,103	$	1,727

⁽¹⁾

~~Our investment in unconsolidated joint ventures consists of a preferred equity investment~~

⁽²⁾

We withheld $653 at the time of loan origination which is being applied to interest. As of September 30, 2018, we still hold $257 which will be applied to future interest.

Notes Receivable


Advances under notes receivable	$	50
Principal payments received under notes receivable		(3,848)
Total	$	(3,798)

Debt Obligations

During 2018, we amended and ~~two mezzanine loans which are accounted for as an unconsolidated joint venture in accordance with GAAP.~~

~~Preferred Equity Investment:~~ ~~We provided a total preferred capital contribution~~restated our unsecured credit agreement to replace the previous unsecured credit agreement, prior to its expiration on October 14, 2018. The amended credit agreement maintains the $600.0 million aggregate commitment of ~~$25.7 million~~the lenders under the prior agreement and provides for the opportunity to ~~an entity (or~~increase the ~~JV) that owns four properties in Arizona that provides independent, assisted living and memory care services. During the nine months ended September 30, 2017, we funded $1.1 million~~commitment size of the preferred capital contribution with a remaining preferred capital contribution commitment of $2.6 million. At September 30, 2017, our preferred equity investment was $23.4 million. During the nine months ended September 30, 2017, we recognized $1.1 million in income from unconsolidated joint ventures and received $1.0 million of cash interest from our preferred equity investment in the JV.

~~Mezzanine Loans:~~ ~~We provided two mezzanine loan commitments for the development of two senior housing communities with~~credit agreement up to a total of ~~226 units in Florida which will provide a combination of assisted living, memory care and independent living services. Per~~$1.0 billion. The amended credit agreement extends the ~~terms~~maturity of the ~~loan agreements,~~credit agreement to June 27, 2022 and provides for a ~~portion of~~one-year extension option at our discretion, subject to customary conditions. Additionally, the amended credit agreement decreases the interest ~~is deferred for~~rate margins and converts from the payment of unused commitment fees to a ~~fixed period~~facility fee.

Table of time and repaid based on scheduled dates. We used the effective interest method to recognize interest income and recorded the difference between the effective interest income and cash interest income to the loan principal balance. During 2017, we funded $2.8 million under one of these mezzanine loans and withheld $0.6 million which will be applied to interest. During the nine months ended September 30, 2017, we recognized $0.5 million in income from unconsolidated joint ventures and received $0.2 million of cash interest related to these loans. At September 30, 2017, the outstanding balance under these loans was $6.4 million.Contents

~~Notes Receivable~~

~~Notes receivable consists of mezzanine loans and other loan arrangements. The following table summarizes our notes receivable activities for the nine months ended September 30, 2017~~ ~~(dollar amounts in thousands):~~


~~Advances under notes receivable~~	$	-
~~Principal payments received under notes receivable~~		~~(25)~~
~~Net decrease in notes receivable~~	$	~~(25)~~

Health Care Regulatory Climate

The Centers for Medicare & Medicaid Services ~~(or CMS)~~(“CMS”) annually updates Medicare skilled nursing facility prospective payment system rates and other policies. On July 29, 2016, CMS released a final rule updating fiscal year 2017 Medicare payment rates and quality programs for skilled nursing facilities. The final rule provides for a net market basket increase of 2.4 %, beginning October 1, 2016. This reflects a 2.7% market basket increase, reduced by a 0.3 percentage point multifactor productivity adjustment. CMS estimates that aggregate payments to skilled nursing facilities under the final rule will increase by approximately $920 million. CMS also adopted new measures and policies for the Skilled Nursing Facility Quality Reporting Program and the Value-Based Purchasing Program. On July 31, 2017, CMS released a final rule updating Medicare skilled nursing facility rates and policies for fiscal year 2018, which began on October 1, 2017. CMS ~~expects~~expected the rule to increase overall payments to SNFs by $370 million in fiscal year 2018, or 1.0%, compared to fiscal year 2017 levels. The 1% update for fiscal year 2018 was set by Congress in 2015 legislation. ~~In addition, the final rule updates Quality Reporting Program measures and adopts additional policies~~

On April 27, 2018, CMS released its proposed update to ~~implement the Value-Based Purchasing Program~~Medicare skilled nursing facility rates for fiscal year 2019, which CMS projected would increase overall payments to skilled nursing facilities by $850 million in fiscal year ~~2019. On April 27, 2017,~~2019 relative to fiscal year 2018 levels. The proposed rate update for fiscal year 2019 was 2.4%, as mandated by the Bipartisan Budget Act of 2018. Furthermore, CMS ~~released an advance notice of~~ proposed ~~rulemaking or pre-~~

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~~rule, to request comments on the possibility of~~ replacing the ~~skilled nursing facility prospective payment system’s~~ existing ~~case-mix classification model, the~~ Resource Utilization Groups, Version ~~4 (RUG-IV),~~IV (“RUG–IV”) case mix classification system with a new model beginning in fiscal year 2020. The new case mix classification system, called the ~~Resident Classification System, Version I (RCS-I). Among other features of this proposal, CMS anticipates that this model~~“Patient-Driven Payment Model,” would ~~more closely link facility~~base Medicare payment ~~to objective~~on resident ~~characteristics,~~needs rather than ~~minutes~~the amount of therapy ~~provided.~~a resident receives.

On July 31, 2018, CMS ~~intends~~released a final rule updating skilled nursing facility rates and policies for fiscal year 2019. The final rule adopts the proposed 2.4% payment increase, which CMS projects will increase overall payments to ~~propose case-mix refinements~~skilled nursing facilities by $820 million in ~~the~~ fiscal year 2019 as compared to fiscal year 2018 levels ($30 million less than projected in the proposed rule). CMS also finalized the Patient-Driven Payment Model, effective for fiscal year 2020. Finally, CMS confirm that, as required by statute, beginning October 1, 2018, the SNF Value-Based Purchasing (“VBP”) Program will go into effect. Under the VBP Program, CMS will reduce Medicare payments to skilled nursing ~~facility prospective payment system proposed rule; additional details regarding~~facilities by 2%. CMS will then return approximately 60% of the ~~potential reforms are expected~~withheld amount to skilled nursing facilities based on their relative performance on a readmission measure. The remaining portion of the withheld amount will be ~~available at that time.~~retained in the Medicare Trust Fund.

On September 28, 2016, CMS released a final rule revising the requirements that long-term care facilities must meet to participate in the Medicare and Medicaid programs. This major rule addresses requirements for improving quality of care and patient safety, nursing facility staffing, care planning, infection control, and residents’ rights and compliance and ethics programs, among other key provisions. While the rule also banned pre-dispute arbitration agreements, that provision was stayed due to litigation challenging the requirement. On June 8, 2017, CMS published a proposed rule that would eliminate the prohibition on pre-dispute binding arbitration agreements and otherwise modify these ~~requirements. CMS estimates that the requirements for participation will impose an average cost of $62,900 per facility in the first year and $55,000 per facility per year in subsequent years.~~requirements; this rule has not been finalized. There can be no assurance that these rules or future regulations modifying Medicare skilled nursing facility payment rates or other requirements for Medicare and/or Medicaid participation will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to us.

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

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Additional reforms affecting the payment for and availability of health care services have been proposed at the federal and state level and adopted by certain states. Increasingly, state Medicaid programs are providing coverage through managed care programs under contracts with private health plans, which is intended to decrease state Medicaid costs. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment methodologies may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by the government and other ~~third party~~third-party payors.

Key Performance Indicators, Trends and Uncertainties

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

Concentration Risk. We evaluate by gross investment our concentration risk in terms of asset mix, 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

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items and government securities. Investment mix measures the portion of our investments that relate to our various property classifications. Operator mix measures the portion of our investments that relate to our top five operators. Geographic mix measures the portion of our investment that relate to our top five states.

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


	9/30/17		6/30/17		3/31/17		12/31/16		9/30/16		9/30/18		6/30/18		3/31/18		12/31/17		9/30/17
Asset mix:
Real property	$	1,359,586	$	1,354,369	$	1,305,918	$	1,301,563	$	1,292,459	$	1,414,267	$	1,401,303	$	1,401,506	$	1,392,122	$	1,359,586
Loans receivable		224,095		222,604		225,541		232,116		236,707		245,053		236,178		235,734		226,162		224,095
Investment mix:
Skilled nursing centers~~(1)~~	$	803,853	$	802,361	$	799,298	$	796,468	$	801,397	$	814,194	$	814,208	$	813,542	$	803,691	$	803,853
Assisted living communities		743,015		742,518		703,668		711,645		706,279		802,484		787,373		795,036		789,520		759,896
Under development		26,597		21,878		17,071		14,142		10,065		31,602		25,077		17,922		14,465		9,716
Other~~(2)~~(1)		10,216		10,216		11,422		11,424		11,425		11,040		10,823		10,740		10,608		10,216
Operator mix:
Prestige Healthcare~~(2)~~(1)	$	236,105	$	234,601	$	231,657	$	227,274	$	226,204	$	258,186	$	249,311	$	247,769	$	238,184	$	236,105
Senior Lifestyle Corporation		189,025		189,025		201,862		201,862		201,227		189,945		189,945		189,226		189,226		189,025
Senior Care Centers		138,109		138,109		138,109		138,109		138,109		138,109		138,109		138,109		138,109		138,109
Anthem Memory Care												135,946		135,342		131,527		126,120		121,138
Brookdale Senior Living		126,991		126,991		126,991		126,991		126,991		126,991		126,991		126,991		126,991		126,991
Anthem Memory Care (3)		121,138		117,807		113,978		111,620		106,637
Remaining operators		772,313		770,440		718,862		727,823		729,998		810,143		797,783		803,618		799,654		772,313
Geographic mix:
Texas	$	269,279	$	269,168	$	269,067	$	274,547	$	280,486	$	292,317	$	292,317	$	267,051	$	267,051	$	269,279
Michigan		223,916		222,412		219,467		215,085		214,014		245,996		237,121		235,579		225,994		223,916
Wisconsin		126,313		126,314		126,133		126,133		125,990		137,056		133,794		130,941		129,398		126,313
Ohio		115,258		115,236		99,300		99,300		99,133
Colorado		114,923		114,923		114,923		114,923		114,924		114,923		114,923		114,923		114,923		114,923
California												102,254		102,254		102,254		102,254		102,254
Remaining states		733,992		728,920		702,569		703,691		694,619		766,774		757,072		786,492		778,664		746,996

⁽¹⁾

Historically, we had a property classification identified as ROCs which consisted of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services. Since we only have seven ROC remaining and given that these properties derive materially all of their revenue from skilled nursing services, we elected to reclassify them into the SNF property classification.

⁽²⁾

We have three parcels of land as of September 30, ~~2017.~~2018. These parcels are located adjacent to properties securing the Prestige Healthcare mortgage loan and are managed by Prestige.

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⁽³⁾

During the 2017 second quarter, we issued a default notice on the Anthem master lease. We are currently negotiating the transition of two of the operational properties under the master lease to another operator in our portfolio. Regarding the remaining properties under the master lease, we have executed a forbearance agreement with the Anthem and will continue to explore our options which may include transitioning some or all of the properties to another operator and/or a possible sale of some or all of the properties.

Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to gross asset value and debt to market capitalization. The leverage ratios indicate how much of our consolidated balance sheet capitalization is related to ~~long term~~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)~~(interest). The coverage ratios are based on ~~adjusted~~ earnings before ~~gain on sale of real estate,~~ interest, taxes, depreciation and amortization ~~(or Adjusted EBITDA)~~for real estate (“EBITDAre”) as defined by National Association of Real Estate Investment Trusts (“NAREIT”). EBITDAre is calculated as net income available to common stockholders (computed in accordance with GAAP) excluding (i) interest expense, (ii) income tax expense, (iii) real estate depreciation and amortization, (iv) impairment write-downs of depreciable real estate, (v) gains or losses on the sale of depreciable real estate, and (vi) adjustments for unconsolidated partnerships and joint ventures. Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. The following table reflects the recent historical trends for our credit strength measures:

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Balance Sheet Metrics


	Year to Date		Quarter Ended														Year to Date		Quarter Ended
	9/30/17		9/30/17			6/30/17			3/31/17			12/31/16			9/30/16		9/30/18		9/30/18		6/30/18			3/31/18			12/31/17			9/30/17
Debt to gross asset value	36.8	%	36.8	%	(1)	37.1	%	(4)	35.6	%	(6)	36.4	%	(4)	35.9	%	36.4	%	36.4	%	36.1	%	(1)	38.3	%	(3)	37.6	%	(3)	36.8	%
Debt to market capitalization ratio	25.5	%	25.5	%	(2)	24.0	%		24.0	%	(7)	24.9	%	(9)	22.4	%	27.7	%	27.7	%	27.8	%	(2)	31.4	%	(4)	27.9	%	(4)	25.5	%
Interest coverage ratio(10)	5.0	x	4.8	x	(3)	5.3	x	(5)	5.0	x	(8)	5.3	x	(10)	5.2	x
Fixed charge coverage ratio(10)	5.0	x	4.8	x	(3)	5.3	x	(5)	5.0	x	(8)	5.3	x	(10)	5.2	x
Interest coverage ratio (5)																	4.7	x	4.8	x	4.7	x		4.7	x		4.8	x		4.8	x
Fixed charge coverage ratio (5)																	4.7	x	4.8	x	4.7	x		4.7	x		4.8	x		4.8	x

⁽¹⁾

Decreased due to decrease in outstanding debt and increase in gross asset value from acquisitions partially offset by ~~decrease in gross asset value.~~sold properties and loan payoffs.

⁽²⁾

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

⁽³⁾

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

⁽⁴⁾

Increased primarily due to increase in outstanding debt partially offset by the increase in gross asset value from acquisitions, additional development and capital improvement funding.

⁽⁵⁾

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

⁽⁶⁾

~~Decreased due to decrease in outstanding debt as well as increase in gross asset value from additional developments and capital improvements.~~

⁽⁷⁾

~~Decreased primarily due to increase in market capitalization and the sale of common stock under our equity distribution agreement as well as decrease in outstanding debt.~~

⁽⁸⁾

~~Decreased primarily due to increase in interest expense resulting from the sale of senior unsecured notes in 2017 and 2016.~~

⁽⁹⁾⁽⁴⁾

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

^(10)(5)

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


	Year to Date			Quarter Ended															Year to Date			Quarter Ended
	9/30/17			9/30/17			6/30/17			3/31/17			12/31/16			9/30/16			9/30/18			9/30/18			6/30/18			3/31/18			12/31/17			9/30/17
Net income	$	67,506		$	20,616		$	25,377		$	21,513		$	20,666		$	22,411		$	124,232		$	34,937		$	68,936		$	20,359		$	19,834		$	20,616
Less: Gain on sale		(5,054)			—			(5,054)			—			—			(1,780)
(Less): gain on sale \|Add: loss on sale																				(62,698)			(14,353)			(48,345)			—			1,240			—
Add: Impairment charges		1,880			—			1,880			—			766			—			—			—			—			—			—			—
Add: Interest expense		22,266			7,644			7,151			7,471			6,856			6,836			22,981			7,497			7,655			7,829			7,683			7,644
Add: Depreciation and amortization		28,186			9,519			9,308			9,359			9,309			9,155			28,159			9,447			9,268			9,444			9,424			9,519
Total adjusted EBITDA	$	114,784		$	37,779		$	38,662		$	38,343		$	37,597		$	36,622
Total EBITDAre																			$	112,674		$	37,528		$	37,514		$	37,632		$	38,181		$	37,779

Interest expense	$	22,266		$	7,644		$	7,151		$	7,471		$	6,856		$	6,836		$	22,981		$	7,497		$	7,655		$	7,829		$	7,683		$	7,644
Add: Capitalized interest		627			256			201			170			215			251			850			298			293			259			281			256
Interest incurred	$	22,893		$	7,900		$	7,352		$	7,641		$	7,071		$	7,087		$	23,831		$	7,795		$	7,948		$	8,088		$	7,964		$	7,900

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

Interest incurred	$	22,893		$	7,900		$	7,352		$	7,641		$	7,071		$	7,087		$	23,831		$	7,795		$	7,948		$	8,088		$	7,964		$	7,900
Total fixed charges	$	22,893		$	7,900		$	7,352		$	7,641		$	7,071		$	7,087		$	23,831		$	7,795		$	7,948		$	8,088		$	7,964		$	7,900

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

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

The status of the economy;

The status of capital markets, including prevailing interest rates;

Compliance with and changes to regulations and payment policies within the health care industry;

Changes in financing terms;

Competition within the health care and seniors housing industries; and

Changes in federal, state and local legislation.

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

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Operating Results (unaudited, in thousands)


	Three Months Ended							Three Months Ended
	September 30,							September 30,
	2017		2016		Difference			2018		2017		Difference
Revenues:
Rental income	$	33,233	$	33,753	$	(520)	(1)	$	34,211	$	33,233	$	978	(1)
Interest income from mortgage loans		6,677		6,958		(281)	(2)		7,087		6,677		410	(2)
Interest and other income		1,336		131		1,205	(3)		478		1,336		(858)	(3)
Total revenues		41,246		40,842		404			41,776		41,246		530

Expenses:
Interest expense		7,644		6,836		(808)	(4)		7,497		7,644		147	(4)
Depreciation and amortization		9,519		9,155		(364)	(1)		9,447		9,519		72
(Recovery) provision for doubtful accounts		(96)		43		139	(5)
Provision (recovery) for doubtful accounts									106		(96)		(202)	(5)
Transaction costs		34		2		(32)			9		34		25
General and administrative expenses		4,144		4,464		320	(6)		4,879		4,144		(735)	(6)
Total expenses		21,245		20,500		(745)			21,938		21,245		(693)

Operating income		20,001		20,342		(341)			19,838		20,001		(163)
Income from unconsolidated joint ventures		615		289		326	(7)		746		615		131	(7)
Gain on sale of real estate, net		—		1,780		(1,780)	(8)		14,353		—		14,353	(8)
Net income		20,616		22,411		(1,795)			34,937		20,616		14,321
Income allocated to non-controlling interests									(17)		—		(17)
Net income attributable to LTC Properties, Inc.									34,920		20,616		14,304
Income allocated to participating securities		(80)		(90)		10			(138)		(80)		(58)
Net income available to common stockholders	$	20,536	$	22,321	$	(1,785)		$	34,782	$	20,536	$	14,246

⁽¹⁾

~~Decreased~~Increased due to acquisitions, capital improvement investments and higher cash rental income from Anthem partially offset by a ~~defaulted master lease, as previously discussed, that was placed on cash basis and the~~ reduction ~~of rent~~ related to properties sold during ~~the second quarter of~~ 2017 ~~partially offset by acquisitions~~ and ~~capital improvement investments.~~2018.

⁽²⁾

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

⁽³⁾

~~Increased primarily~~Decreased due to ~~mezzanine loan originations and~~ the net write-off of an earn-out liability and the related lease incentive asset during the third quarter of 2017 ~~due to change to~~resulting from the lessee’s business model ~~on a certain lease that resulted in lower net~~change, which negatively impacted the lessee’s operating ~~income~~results and caused the ~~improbability~~payment of ~~paying~~ the ~~earn-out.~~earn-out within the exercisable window improbable.

⁽⁴⁾

~~Increased primarily~~Decreased due to ~~sales of~~scheduled principal payments under our senior unsecured ~~notes.~~notes and an increase in capitalized interest related to development projects partially offset by a higher average outstanding balance on our line of credit and an increase in LIBOR rates.

⁽⁵⁾

~~Decreased~~Increased primarily due to ~~mortgage loan payoffs~~(2) above and the reversal of straight-line rent ~~reserve.~~reserve in 2017.

⁽⁶⁾

~~Decreased~~Increased primarily due to ~~decrease~~lower incentive compensation in ~~investment activity during 2017.~~the prior year related to a previously disclosed defaulted master lease.

⁽⁷⁾

Increased primarily due to income generated from additional funding under a preferred capital contribution commitment and income from a mezzanine loan accounted for as an unconsolidated joint venture in accordance with GAAP which was previously deferred.

⁽⁸⁾

~~Related to~~Represents the net gain on sale of ~~an assisted~~two senior living ~~community~~centers in ~~Florida~~Alabama during the third quarter of ~~2016, resulting in a net gain of $1,973, partially offset by the net loss on sale of $193 resulting from the sale of a school property in New Jersey.~~2018.

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	Nine Months Ended									Nine Months Ended
	September 30,									September 30,
	2017			2016			Difference			2018		2017		Difference
Revenues:
Rental income	$	103,533		$	98,705		$	4,828	(1)	$	102,646	$	103,533	$	(887)	(1)
Interest income from mortgage loans		20,050			20,347			(297)	(2)		20,910		20,050		860	(2)
Interest and other income		2,753			390			2,363	(3)		1,502		2,753		(1,251)	(3)
Total revenues		126,336			119,442			6,894			125,058		126,336		(1,278)

Expenses:
Interest expense		22,266			19,586			(2,680)	(4)		22,981		22,266		(715)	(4)
Depreciation and amortization		28,186			26,623			(1,563)	(1)		28,159		28,186		27
Impairment on receivables		1,880			—			(1,880)	(5)
(Recovery) provision for doubtful accounts		(139)			245			384	(6)
Impairment charges											—		1,880		1,880	(5)
Provision (recovery) for doubtful accounts											76		(139)		(215)	(6)
Transaction costs		56			96			40			19		56		37
General and administrative expenses		13,270			12,864			(406)	(7)		14,392		13,270		(1,122)	(7)
Total expenses		65,519			59,414			(6,105)			65,627		65,519		(108)

Operating income		60,817			60,028			789			59,431		60,817		(1,386)
Income from unconsolidated joint ventures		1,635			839			796	(8)		2,103		1,635		468	(8)
Gain on sale of real estate, net		5,054	(9)		3,582	(10)		1,472			62,698		5,054		57,644	(9)
Net income		67,506			64,449			3,057			124,232		67,506		56,726
Income allocated to non-controlling interests											(17)		—		(17)
Net income attributable to LTC Properties, Inc.											124,215		67,506		56,709
Income allocated to participating securities		(281)			(296)			15			(504)		(281)		(223)
Net income available to common stockholders	$	67,225		$	64,153		$	3,072		$	123,711	$	67,225	$	56,486

⁽¹⁾

~~Increased~~Decreased due to ~~acquisitions, development and capital improvement investments partially offset by a defaulted master lease placed on cash basis,~~Anthem’s default, as previously discussed, and the reduction of rent related to ~~the~~ properties sold ~~in the second quarter of 2017.~~during 2017 and 2018, partially offset by acquisitions and capital improvement investments.

⁽²⁾

~~Decreased~~Increased primarily due to mortgage ~~loan payoffs~~originations and capital improvement funding partially offset by ~~increase in interest income resulting from loan additions and construction loan funding.~~payoffs.

⁽³⁾

~~Increased primarily~~Decreased due to ~~mezzanine~~non-accrual of interest on a loan ~~originations,~~to Anthem and the net write-off of an earn-out liability and the related lease incentive asset during the third quarter of 2017 ~~due to change to~~resulting from the lessee’s business model ~~on a certain lease that resulted in lower net~~change, which negatively impacted the lessee’s operating results and caused the payment of the earn-out within the exercisable window improbable, partially offset by interest income ~~and the improbability of paying the earn-out.~~from mezzanine loans.

⁽⁴⁾

Increased primarily due to ~~sales~~a higher average outstanding balance on our line of credit and an increase in LIBOR rates , partially offset by scheduled principal payments under our senior unsecured notes and ~~a decrease~~an increase in capitalized interest related to development ~~projects partially offset by a decrease in borrowing under our unsecured revolving line of credit.~~projects.

⁽⁵⁾

Represents the ~~write off~~write-off of straight-line rent and other receivables in 2017 related to two properties ~~as a result of our current~~due to negotiations to transition these properties to another operator in our portfolio.

⁽⁶⁾

~~Decreased~~Increased primarily due to ~~mortgage loan payoffs~~(2) above and the reversal of straight-line rent ~~reserve.~~reserve in 2017.

⁽⁷⁾

Increased primarily due to lower incentive compensation in the ~~implementation of performance-based stock awards partially offset by decreased investment activity.~~prior year related to a previously disclosed defaulted master lease.

⁽⁸⁾

⁽⁹⁾

~~Related to~~Represents the net gain on sale of six assisted living communities in Ohio and Pennsylvania and net gain on sale of two skilled nursing centers in Alabama during 2018 partially offset by a net gain on sale of four assisted living communities in Indiana and Iowa during ~~the second quarter of~~ 2017.

⁽¹⁰⁾

Increased due to the sale of two skilled nursing centers in Texas and an assisted living community in Florida during the second and third quarter of 2016, respectively, resulting in a net gain on sale of $1,802 and $1,973, respectively, partially offset by the net loss on sale of $193 resulting from the sale of a school property in New Jersey.

Funds From Operations Available to Common Stockholders

Funds from Operations ~~(or FFO)~~(“FFO”) available to common stockholders, basic FFO available to common stockholders per share and diluted FFO available to common stockholders per share are supplemental measures of a REIT’s financial performance that are not defined by GAAP. Real estate values historically rise and fall with market conditions, but cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. We

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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.

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

We calculate and report FFO in accordance with the definition and interpretive guidelines issued by ~~the National Association of Real Estate Investment Trusts (or NAREIT).~~NAREIT. FFO, as defined by NAREIT, means net income available to common stockholders (computed in accordance with GAAP) excluding gains or losses on the sale of real estate and impairment write-downs of depreciable real estate plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that have a different interpretation of the current NAREIT definition from us; therefore, caution should be exercised when comparing our FFO to that of other REITs.

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
GAAP net income available to common stockholders	$	20,536		$	22,321		$	67,225		$	64,153		$	34,782		$	20,536		$	123,711		$	67,225
Add: Depreciation and amortization		9,519			9,155			28,186			26,623			9,447			9,519			28,159			28,186
Add: Impairment on receivables		—			—			1,880			—
Add: Impairment charges														—			—			—			1,880
Less: Gain on sale of real estate, net		—			(1,780)			(5,054)			(3,582)			(14,353)			—			(62,698)			(5,054)
NAREIT FFO attributable to common stockholders	$	30,055		$	29,696		$	92,237		$	87,194		$	29,876		$	30,055		$	89,172		$	92,237
NAREIT FFO attributable to common stockholders per share:
Basic	$	0.76		$	0.76		$	2.34		$	2.28		$	0.76		$	0.76		$	2.26		$	2.34
Diluted	$	0.76	(1)	$	0.76	(1)	$	2.33	(1)	$	2.28	(1)	$	0.75	(1)	$	0.76	(1)	$	2.25	(1)	$	2.33	(1)
Weighted average shares used to calculate NAREIT FFO per share:
Basic		39,428			39,057			39,403			38,161			39,487			39,428			39,470			39,403
Diluted		39,748	(2)		39,335	(2)		39,738	(2)		38,455	(2)		39,865	(2)		39,748	(2)		39,845	(2)		39,738	(2)

⁽¹⁾

Includes the effect of the participating securities.

⁽²⁾

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

Liquidity and Capital Resources

Sources and Uses of Cash

As of September 30, ~~2017,~~2018, we had a total of ~~$3.8~~$20.4 million of cash and cash equivalents, ~~$545.0~~$480.0 million available under our unsecured revolving line of credit, ~~$51.7~~$79.8 million available under our senior unsecured note shelf agreement and the potential ability to access the capital markets through the issuance of ~~$185.2~~$184.1 million of common stock under our equity distribution ~~agreements.~~agreement. Subsequent to September 30, ~~2017,~~2018, we ~~had a net borrowing of $15.0~~paid down $20.0 million under our unsecured revolving line of credit. Accordingly, we have ~~$530.0~~$500.0 million available under our unsecured line of credit. Furthermore, we have the ability to access the capital markets through the issuance of debt and/ or equity securities under ~~our effective~~an automatic shelf ~~registration.~~registration statement.

We believe that our current cash balance, cash flow from operations available for distribution or reinvestment, our borrowing capacity and our potential ability to access the capital markets are sufficient to provide for payment of our current operating costs, meet debt obligations and pay common dividends

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at least sufficient to maintain our REIT status and repay borrowings at, or prior to, their maturity. The

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timing, source and amount of cash flows ~~provided by~~used in financing ~~activities~~ and ~~used in~~ investing activities are sensitive to the capital markets environment, especially to changes in interest rates. We continuously evaluate the availability of cost-effective capital and believe we have sufficient liquidity for additional capital investments in ~~2017~~2018 and ~~2018.~~2019.

We expect our future income and ability to make distributions from cash flows from operations to depend on the collectibility of our rents and mortgage loans receivable. The collection of these loans and rents will be dependent, in large part, upon the successful operation by the operators of the seniors housing and health care properties we own or that are pledged to us. The operating results of the facilities will be impacted by various factors over which the operators/owners may have no control. Those factors include, without limitation, the status of the economy, changes in supply of or demand for competing seniors housing and health care facilities, ability to control rising operating costs, and the potential for significant reforms in the health care industry. In addition, our future growth in net income and cash flow may be adversely impacted by various proposals for changes in the governmental regulations and financing of the health care industry. We cannot presently predict what impact these proposals may have, if any. We believe that an adequate provision has been made for the possibility of loans proving uncollectible but we will continually evaluate the financial status of the operations of the seniors housing and health care properties. In addition, we will monitor our borrowers and the underlying collateral for mortgage loans and will make future revisions to the provision, if considered necessary.

Our investments, principally our investments in mortgage loans and owned properties, are subject to the possibility of loss of their carrying values as a result of changes in market prices, interest rates and inflationary expectations. The effects on interest rates may affect our costs of financing our operations and the fair market value of our financial assets. Generally, our loans have predetermined increases in interest rates and our leases have agreed upon annual increases. Inasmuch as we may initially fund some of our investments with variable interest rate debt, we would be at risk of net interest margin deterioration if medium and long-term rates were to increase.

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


	Nine months ended September 30,					Change	Nine months ended September 30,					Change
Cash provided by (used in):	2017		2016			$	2018		2017			$
Operating activities	$	76,134	$	79,645	$	(3,511)	$	83,438	$	76,134	$	7,304
Investing activities		(53,815)		(120,502)		66,687		(2,374)		(53,815)		51,441
Financing activities		(26,468)		31,528		(57,996)		(63,706)		(26,468)		(37,238)
Decrease in cash and cash equivalents		(4,149)		(9,329)		5,180
Increase in cash and cash equivalents								17,358		(4,149)		21,507
Cash and cash equivalents, beginning of period		7,991		12,942		(4,951)		5,213		7,991		(2,778)
Cash and cash equivalents, end of period	$	3,842	$	3,613	$	229	$	22,571	$	3,842	$	18,729

Debt Obligations

Bank Borrowings. During 2018, weamended and restated our unsecured credit agreement to replace the previous unsecured credit agreement, prior to its expiration on October 14, 2018. The amended credit agreement maintains the $600.0 million aggregate commitment of the lenders under the prior agreement and provides for the opportunity to increase the commitment size of the credit agreement

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~~Operating Activities.~~ Cash provided by operating activities for the nine months ended September 30, 2017 decreased to $76.1 million compared to $79.6 million for the nine months ended September 30, 2016 primarily due to an increase in lease incentive payments to certain operators as well as decrease in rent of a defaulted master lease placed on cash basis, as previously discussed, and the reduction of rent related to the properties sold in 2017, partially offset by increased operating cash flow from rent escalations, acquisitions, originations and completed developments and capital improvement projects.

~~Investing Activities.~~ Cash used in investing activities decreased to $53.8 million for the nine months ended September 30, 2017, compared to the cash used in investing activities of $120.5 million for the comparable 2016 period primarily due to decreased acquisitions, developments and loan originations in 2017, partially offset by cash received from mortgage loan payoffs and proceeds from sale of real estate.

~~Financing Activities.~~ Cash used by financing activities was $26.5 million for the nine months ended September 30, 2017, compared to the cash provided by financing activities of $31.5 million for the comparable 2016 period. This change was primarily dueup to a ~~decrease in shares~~total of ~~common stock sold under our equity distribution~~$1.0 billion. The amended credit agreement ~~in 2017.~~

~~Debt Obligations~~

~~Bank Borrowings.~~ ~~We have an Unsecured Credit Agreement that provides for a revolving line~~extends the maturity of the credit upagreement to ~~$600.0 million. The Unsecured Credit Agreement matures on October 14, 2018~~June 27, 2022 and provides for a one-year extension option at our discretion, subject to customary conditions. Additionally, the amended credit agreement decreases the interest rate margins and converts from the payment of unused commitment fees to a facility fee. Based on our leverage at September 30, ~~2017,~~2018, the facility provides for interest annually at LIBOR plus ~~150~~115 basis points and ~~an unused commitment~~a facility fee of 3520 basis points. At September 30, ~~2017,~~2018, we were in compliance with all covenants.

Senior Unsecured Notes. ~~During the nine months ended September 30, 2017, we amended our~~We have a $337.5 million shelf agreement with affiliates and managed accounts of Prudential Investment Management, Inc. ~~(or Prudential) to increase our shelf commitment to $337.5 million.~~(“Prudential”) with $79.8 million available for borrowing.

The debt obligations by component as of September 30, ~~2017~~2018 are as follows (dollar amounts in thousands):


	Applicable			Available		Applicable			Available
	Interest	Outstanding		for		Interest	Outstanding		for
Debt Obligations	Rate(1)	Balance		Borrowing		Rate (1)	Balance		Borrowing
Bank borrowings (2)	2.98%	$	55,000	$	545,000	3.38%	$	120,000	$	480,000
Senior unsecured notes, net of debt issue costs	4.49%		582,950		51,667	4.49%		550,986		79,833
Total	4.36%	$	637,950	$	596,667	4.29%	$	670,986	$	559,833

⁽¹⁾

Represents weighted average of interest rate as of September 30, ~~2017.~~2018.

⁽²⁾

Subsequent to September 30, ~~2017,~~2018, we ~~had a net borrowing of $15,000~~paid down $20,000 under our unsecured revolving line of credit. Accordingly, we have ~~$70,000~~$100,000 outstanding under our unsecured revolving line of credit with ~~$530,000~~$500,000 available for borrowing.

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Our debt borrowings and repayments during the nine months ended September 30, ~~2017~~2018 are as follows (in thousands):

Borrowings

Repayments

Bank borrowings

$
64,500

$
(116,600)

Senior unsecured notes

100,000
(1)

(19,167)

Total

$
164,500

$
(135,767)

⁽¹⁾

During the nine months ended September 30, 2017, we sold 15-year senior unsecured notes in the aggregate amount of $100,000 to a group of investors, which included Prudential, in a private placement transaction. The notes bear interest at an annual fixed rate of 4.5%, have scheduled principal payments and mature on February 16, 2032.


Debt Obligations		Borrowings		Repayments
Bank borrowings	$	96,500	$	(73,000)
Senior unsecured notes		—		(20,167)
Total	$	96,500	$	(93,167)

Equity

At September 30, ~~2017,~~2018, we had ~~39,570,769~~39,656,737 shares of common stock outstanding, equity on our balance sheet totaled ~~$756.6~~$823.3 million and our equity securities had a market value of ~~$1.9~~$1.7 billion. During the nine months ended September 30, ~~2017,~~2018, we declared and paid ~~$67.7~~$67.8 million of cash dividends.

Subsequent to September 30, ~~2017,~~2018, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of October, November and December ~~2017,~~2018, payable on October 31, November 30, and December ~~29, 2017,~~31, 2018, respectively, to stockholders of record on October 23, November ~~22,~~21, and December 21, ~~2017,~~2018, respectively.

At-The-Market Program. We have an equity distribution agreement with sales agents to issue and sell, from time to time, up to $200.0 million in aggregate offering price of our common shares. ~~Sales~~The equity distribution agreement provides that sales of common shares are to be made by means of ordinary brokers’ transactions, which may include block trades, or transactions that are deemed to be “at the market” offerings. During the nine months ended September 30, ~~2017,~~2018, we sold ~~312,881~~22,244 shares of common stock for ~~$14.6~~$1.0 million in net proceeds under our equity distribution agreement. ~~The proceeds were used~~In conjunction with the sale of common stock, we paid $18,000 as compensation to ~~pay down~~ our ~~unsecured revolving line~~sales agents and we reclassified $76,000 of ~~credit.~~accumulated costs associated with this agreement to additional paid in capital. At September 30, ~~2017,~~2018, we had ~~$185.2~~$184.1 million available under our equity distribution agreement.

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Available Shelf Registrations.We have an automatic shelf registration statement ~~which provides~~on file with the SEC and currently have the ability to file additional automatic shelf registration statements to provide us with ~~additional~~ capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under ~~the~~our automatic registration statement ~~(until its expiration on January 29, 2019)~~ 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.

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Stock-Based Compensation. During the nine months ended September 30, 2017, we cancelled 15,400 of restricted stock under the 2015 Plan and 2008 Plan. Additionally, during the nine months ended September 30, 2017, we cancelled 8,706 performance-based stock units. During the nine months ended September 30, 2017,2018, we granted restricted stock and performance-based stock units under the 2015 Plan as follows:

No. of

Price per

Year

Shares/Units

Share

Vesting Period

2017

74,760

$
45.76

ratably over 3 years

57,881

$
45.76

TSR targets (1)

7,416

$
48.55

June 1, 2018

3,000

$
50.50

ratably over 3 years

143,057


No. of	Price per
Shares	Share		Vesting Period
81,819	$	38.18	ratably over 3 years
66,171	$	38.18	TSR targets (1)
8,728	$	41.25	ratably over 1 year
156,718

⁽¹⁾

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

Critical Accounting Policies

There have been no material changes from the critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in our market risk during the nine months ended September 30, ~~2017.~~2018. For additional information, refer to Item 7A as presented in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Item 4. CONTROLS AND PROCEDURES

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

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

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PART II

OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017.

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

During the three months ended September 30, 2018, we did not make any unregistered sales of equity securities.

During the three months ended September 30, 2018, we acquired shares of common stock held by employees who tendered shares to satisfy tax withholding obligations. Specifically, the number of shares of common stock acquired from employees and the average prices paid per share for each month in the quarter ended September 30, 2018 are as follows:


				Total Number
				of Shares	Maximum
				Purchased as	Number of
		Average		Part of	Shares that May
	Total Number	Price		Publicly	Yet Be
	of Shares	Paid per		Announced	Purchased
Period	Purchased	Share		Plan	Under the Plan
July 1- July 31, 2018	—	$	—	—	—
August 1 - August 31, 2018	487	$	42.91	—	—
September 1 - September 30, 2018	—	$	—	—	—
Total	487			—	—

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Item 6. Exhibits

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

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

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

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

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

101	The following materials from LTC Properties, Inc.’s Form 10-Q for the quarter ended September 30, ~~2017,~~2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, ~~2017~~2018 and December 31, ~~2016;~~2017; (ii) Consolidated Statements of Income for the three and nine months ended September 30, ~~2017~~2018 and ~~2016;~~2017; (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2018 and ~~2016;~~2017; and (iv) Notes to Consolidated Financial Statements

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SIGNATURES

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

	LTC PROPERTIES, INC.
	Registrant



Dated: November ~~8, 2017~~5, 2018	By:	/s/ Pamela Kessler
		Pamela Kessler
		Executive Vice President, Chief Financial Officer and Corporate Secretary
		(Principal Financial and Accounting Officer)

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PART I -- Financial Information		Page

Item 1.	Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Income and Comprehensive Income	4
	Consolidated Statements of ~~Comprehensive Income~~Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2224
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3739
Item 4.	Controls and Procedures	3739
PART II -- Other Information

Item 1.	Legal Proceedings	3840
Item 1A.	Risk Factors	3840
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 6.	Exhibits	3941


	Total
	Equity
Balance at December 31, 2016	$	740,048
Net income		67,506
Proceeds from common stock issued, net of issuance costs		14,529
Stock-based compensation expense		3,967
Performance based stock units		(6)
Stock option exercise		202
Common stock dividends		(67,664)
Other		(1,947)
Balance at September 30, 2017	$	756,635


	Nine Months Ended
	September 30, 2017						September 30, 2016
	Declared			Paid			Declared			Paid
Common Stock	$	67,664	(1)	$	67,664	(1)	$	62,211	(2)	$	62,211	(2)