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, 2019~~March 31, 2020

☐

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)

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



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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ◻

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


Large accelerated filer þ	Accelerated filer ◻	Non-accelerated filer ◻	Smaller reporting company ☐	Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No þ

The number of shares of common stock outstanding on ~~October~~April 24, ~~2019~~2020 was ~~39,751,704.~~39,217,848.

Table of Contents

LTC PROPERTIES, INC.

FORM 10-Q

~~September 30, 2019~~March 31, 2020

INDEX


PART I -- Financial Information		Page

Item 1.	Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Income and Comprehensive Income	4
	Consolidated Statements of Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2723
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4338
Item 4.	Controls and Procedures	4339
PART II -- Other Information

Item 1.	Legal Proceedings	4440
Item 1A.	Risk Factors	4440
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4441
Item 6.	Exhibits	4542

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)



	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(unaudited)		(audited)		(unaudited)		(audited)
ASSETS
Investments:
Land	$	129,403	$	125,358	$	127,774	$	126,703
Buildings and improvements		1,339,543		1,290,352		1,310,403		1,295,899
Accumulated depreciation and amortization		(340,505)		(312,959)		(320,332)		(312,642)
Operating real estate property, net		1,128,441		1,102,751		1,117,845		1,109,960
Properties held-for-sale, net of accumulated depreciation: 2019—$1,916; 2018—$1,916		3,830		3,830
Properties held-for-sale, net of accumulated depreciation: 2020—$0; 2019—$35,113						—		26,856
Real property investments, net		1,132,271		1,106,581		1,117,845		1,136,816

Mortgage loans receivable, net of loan loss reserve: 2019—$2,551; 2018—$2,447		253,186		242,939
Mortgage loans receivable, net of loan loss reserve: 2020—$2,563; 2019—$2,560						254,396		254,099
Real estate investments, net		1,385,457		1,349,520		1,372,241		1,390,915
Notes receivable, net of loan loss reserve: 2019—$177; 2018—$128		17,552		12,715
Notes receivable, net of loan loss reserve: 2020—$179; 2019—$181						17,769		17,927
Investments in unconsolidated joint ventures		24,426		30,615		19,061		19,003
Investments, net		1,427,435		1,392,850		1,409,071		1,427,845

Other assets:
Cash and cash equivalents		3,960		2,656		30,888		4,244
Restricted cash		2,108		2,108
Debt issue costs related to bank borrowings		2,380		2,989		1,948		2,164
Interest receivable		25,099		20,732		28,097		26,586
Straight-line rent receivable, net of allowance for doubtful accounts: 2019—$0; 2018—$746		44,814		73,857
Straight-line rent receivable						46,541		45,703
Lease incentives		2,590		14,443		2,764		2,552
Prepaid expenses and other assets		3,845		3,985		5,476		5,115
Total assets	$	1,512,231	$	1,513,620	$	1,524,785	$	1,514,209
LIABILITIES
Bank borrowings	$	165,400	$	112,000	$	89,900	$	93,900
Senior unsecured notes, net of debt issue costs: 2019—$831; 2018—$938		518,469		533,029
Senior unsecured notes, net of debt issue costs: 2020—$773; 2019—$812						599,527		599,488
Accrued interest		3,996		4,180		3,503		4,983
Accrued expenses and other liabilities		30,472		31,440		25,800		30,412
Total liabilities		718,337		680,649		718,730		728,783
EQUITY
Stockholders’ equity:
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2019—39,752; 2018—39,657		398		397
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2020—39,218; 2019—39,752						392		398
Capital in excess of par value		865,721		862,712		847,572		867,346
Cumulative net income		1,280,940		1,255,764		1,357,115		1,293,482
Cumulative distributions		(1,361,625)		(1,293,383)		(1,407,450)		(1,384,283)
Total LTC Properties, Inc. stockholders’ equity		785,434		825,490		797,629		776,943
Non-controlling interests		8,460		7,481		8,426		8,483
Total equity		793,894		832,971		806,055		785,426
Total liabilities and equity	$	1,512,231	$	1,513,620	$	1,524,785	$	1,514,209

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
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
Revenues:
Rental income	$	38,665	$	34,211	$	114,566	$	102,646	$	38,035	$	37,624
Interest income from mortgage loans		7,646		7,087		22,308		20,910		7,777		7,311
Interest and other income		808		478		1,967		1,502		598		521
Total revenues		47,119		41,776		138,841		125,058		46,410		45,456
Expenses:
Interest expense		7,827		7,497		23,004		22,981		7,710		7,467
Depreciation and amortization		9,932		9,447		29,399		28,159		9,669		9,607
(Recovery) provision for doubtful accounts		(14)		106		153		76
Provision for doubtful accounts										1		83
Transaction costs		75		9		275		19		70		—
Property tax expense		4,270		—		12,566		—		4,223		4,386
General and administrative expenses		4,745		4,879		13,912		14,392		5,100		4,571
Total expenses		26,835		21,938		79,309		65,627		26,773		26,114
Other operating income:
Gain on sale of real estate, net		6,236		14,353		6,736		62,698		43,854		—
Operating income		26,520		34,191		66,268		122,129		63,491		19,342
Income from unconsolidated joint ventures		760		746		1,973		2,103		231		1,085
Net income		27,280		34,937		68,241		124,232		63,722		20,427
Income allocated to non-controlling interests		(88)		(17)		(257)		(17)		(89)		(81)
Net income attributable to LTC Properties, Inc.		27,192		34,920		67,984		124,215		63,633		20,346
Income allocated to participating securities		(112)		(138)		(298)		(504)		(263)		(92)
Net income available to common stockholders	$	27,080	$	34,782	$	67,686	$	123,711	$	63,370	$	20,254

Earnings per common share:
Basic	$	0.68	$	0.88	$	1.71	$	3.13	$	1.60	$	0.51
Diluted	$	0.68	$	0.88	$	1.69	$	3.12	$	1.60	$	0.51

Weighted average shares used to calculate earnings per common share:
Basic		39,586		39,487		39,565		39,470		39,539		39,532
Diluted		39,965		39,865		39,944		39,845		39,541		39,874

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

Comprehensive Income:
Net income	$	27,280	$	34,937	$	68,241	$	124,232	$	63,722	$	20,427
Comprehensive income	$	27,280	$	34,937	$	68,241	$	124,232	$	63,722	$	20,427

See accompanying notes.

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)


					Capital in		Cumulative				Total		Non-							Capital in		Cumulative				Total		Non-
	Common Stock				Excess of		Net		Cumulative		Stockholder's		Controlling		Total	Common Stock				Excess of		Net		Cumulative		Stockholder's		Controlling		Total
	Shares		Amount		Par Value		Income		Distributions		Equity		Interests		Equity	Shares		Amount		Par Value		Income		Distributions		Equity		Interests		Equity
Balance—December 31, 2017	39,570	$	396	$	856,992	$	1,100,783	$	(1,203,011)	$	755,160	$	3,488	$	758,648
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,578)		(22,578)		—		(22,578)
Issuance of restricted stock	82		—		—		—		—		—		—		—
Stock option exercises	5		—		123		—		—		123		—		123
Stock-based compensation expense	—		—		1,376		—		—		1,376		—		1,376
Net income	—		—		—		20,359		—		20,359		—		20,359
Other	(28)		—		(1,065)		—		—		(1,065)		—		(1,065)
Balance—March 31, 2018	39,629	$	396	$	857,426	$	1,121,142	$	(1,225,589)	$	753,375	$	3,488	$	756,863
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,590)		(22,590)		—		(22,590)
Issuance of restricted stock	9		—		(8)		—		—		(8)		—		(8)
Stock-based compensation expense	—		—		1,521		—		—		1,521		—		1,521
Net income	—		—		—		68,936		—		68,936		—		68,936
Non-controlling interest contributions	—		—		—		—		—		—		1,081		1,081
Other	(3)		—		(107)		—		—		(107)		—		(107)
Balance—June 30, 2018	39,635	$	396	$	858,832	$	1,190,078	$	(1,248,179)	$	801,127	$	4,569	$	805,696
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,600)		(22,600)		—		(22,600)
Proceeds from common stock issued, net of issuance costs	22		1		928		—		—		929		—		929
Stock-based compensation expense	—		—		1,487		—		—		1,487		—		1,487
Net income	—		—		—		34,920		—		34,920		17		34,937
Non-controlling interest contributions	—		—		—		—		—		—		2,882		2,882
Non-controlling interest distributions	—		—		—		—		—		—		(17)		(17)
Other	—		—		(21)		—		—		(21)		—		(21)
Balance—September 30, 2018	39,657	$	397	$	861,226	$	1,224,998	$	(1,270,779)	$	815,842	$	7,451	$	823,293
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,604)		(22,604)		—		(22,604)
Stock-based compensation expense	—		—		1,486		—		—		1,486		—		1,486
Net income	—		—		—		30,766		—		30,766		78		30,844
Non-controlling interest distributions	—		—		—		—		—		—		(48)		(48)
Balance—December 31, 2018	39,657	$	397	$	862,712	$	1,255,764	$	(1,293,383)	$	825,490	$	7,481	$	832,971	39,657	$	397	$	862,712	$	1,255,764	$	(1,293,383)	$	825,490	$	7,481	$	832,971
Cumulative effect of the adoption of the ASC 842	—		—		—		(42,808)		—		(42,808)		—		(42,808)
Cumulative Effect of the adoption of the ASC 842																—		—		—		(42,808)		—		(42,808)		—		(42,808)
As Adjusted Balance at January 1, 2019	39,657	$	397	$	862,712	$	1,212,956	$	(1,293,383)	$	782,682	$	7,481	$	790,163	39,657	$	397	$	862,712	$	1,212,956	$	(1,293,383)	$	782,682	$	7,481	$	790,163
Common Stock cash distributions ($0.57 per share)	48		—		—		—		(22,931)		(22,931)		—		(22,931)	—		—		—		—		(22,631)		(22,631)		—		(22,631)
Vesting of performance-based stock units																48		—		—		—		(300)		(300)		—		(300)
Issuance of restricted stock	78				(1)						(1)				(1)	78		—		(1)		—		—		(1)		—		(1)
Stock-based compensation expense	—		—		1,689		—		—		1,689		—		1,689	—		—		1,689		—		—		1,689		—		1,689
Net income	—		—		—		20,346		—		20,346		81		20,427	—		—		—		20,346		—		20,346		81		20,427
Non-controlling interest contributions	—		—		—		—		—		—		919		919	—		—		—		—		—		—		919		919
Non-controlling interest distributions	—		—		—		—		—		—		(89)		(89)	—		—		—		—		—		—		(89)		(89)
Other	(44)		—		(2,024)		—		—		(2,024)		—		(2,024)	(44)		—		(2,024)		—		—		(2,024)		—		(2,024)
Balance—March 31, 2019	39,739	$	397	$	862,376	$	1,233,302	$	(1,316,314)	$	779,761	$	8,392	$	788,153	39,739	$	397	$	862,376	$	1,233,302	$	(1,316,314)	$	779,761	$	8,392	$	788,153
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,653)		(22,653)		—		(22,653)	—		—		—		—		(22,653)		(22,653)		—		(22,653)
Issuance of restricted stock	8		—		(6)		—		—		(6)		—		(6)	8		—		(6)		—		—		(6)		—		(6)
Stock-based compensation expense	—		—		1,623		—		—		1,623		—		1,623	—		—		1,623		—		—		1,623		—		1,623
Net income	—		—		—		20,446		—		20,446		88		20,534	—		—		—		20,446		—		20,446		88		20,534
Non-controlling interest contributions	—		—		—		—		—		—		46		46	—		—		—		—		—		—		46		46
Non-controlling interest distributions	—		—		—		—		—		—		(87)		(87)	—		—		—		—		—		—		(87)		(87)
Balance—June 30, 2019	39,747	$	397	$	863,993	$	1,253,748	$	(1,338,967)	$	779,171	$	8,439	$	787,610	39,747	$	397	$	863,993	$	1,253,748	$	(1,338,967)	$	779,171	$	8,439	$	787,610
Common Stock cash distributions ($0.57 per share)	—		—		—		—		(22,658)		(22,658)		—		(22,658)	—		—		—		—		(22,658)		(22,658)		—		(22,658)
Stock option exercises	5		1		122		—		—		123		—		123	5		1		122		—		—		123		—		123
Stock-based compensation expense	—		—		1,626		—		—		1,626		—		1,626	—		—		1,626		—		—		1,626		—		1,626
Net income	—		—		—		27,192		—		27,192		88		27,280	—		—		—		27,192		—		27,192		88		27,280
Non-controlling interest distributions	—		—		—		—		—		—		(67)		(67)	—		—		—		—		—		—		(67)		(67)
Other	—		—		(20)		—		—		(20)		—		(20)	—		—		(20)		—		—		(20)		—		(20)
Balance—September 30, 2019	39,752	$	398	$	865,721	$	1,280,940	$	(1,361,625)	$	785,434	$	8,460	$	793,894	39,752	$	398	$	865,721	$	1,280,940	$	(1,361,625)	$	785,434	$	8,460	$	793,894
Common Stock cash distributions ($0.57 per share)																—		—		—		—		(22,658)		(22,658)		—		(22,658)
Stock-based compensation expense																—		—		1,625		—		—		1,625		—		1,625
Net income																—		—		—		12,542		—		12,542		89		12,631
Non-controlling interest distributions																—		—		—		—		—		—		(66)		(66)
Balance—December 31, 2019																39,752	$	398	$	867,346	$	1,293,482	$	(1,384,283)	$	776,943	$	8,483	$	785,426
Common Stock cash distributions ($0.57 per share)																—		—		—		—		(22,581)		(22,581)		—		(22,581)
Vesting of performance-based stock units																82		—		—		—		(586)		(586)		—		(586)
Issuance of restricted stock																76		1		(1)		—		—		—		—		—
Repurchase of common stock																(616)		(6)		(18,006)		—		—		(18,012)		—		(18,012)
Stock-based compensation expense																—		—		1,777		—		—		1,777		—		1,777
Net income																—		—		—		63,633		—		63,633		89		63,722
Non-controlling interest distributions																—		—		—		—		—		—		(146)		(146)
Other																(76)		(1)		(3,544)		—		—		(3,545)		—		(3,545)
Balance—March 31, 2020																39,218	$	392	$	847,572	$	1,357,115	$	(1,407,450)	$	797,629	$	8,426	$	806,055

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, unaudited)


	Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2020		2019
OPERATING ACTIVITIES:
Net income	$	68,241	$	124,232	$	63,722	$	20,427
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		29,399		28,159		9,669		9,607
Stock-based compensation expense		4,938		4,384		1,777		1,689
Gain on sale of real estate, net		(6,736)		(62,698)		(43,854)		—
Income from unconsolidated joint ventures		(1,973)		(2,103)		(231)		(1,085)
Income distributions from unconsolidated joint ventures		2,577		1,727		231		1,105
Insurance proceeds for damaged property		—		2,619
Payment for remediation of damaged property		—		(455)
Straight-line rental income		(3,598)		(8,629)		(839)		(1,238)
Adjustment for collectibility of rental income		1,926		—		—		1,926
Lease incentives funded		(322)		(1,272)		(13)		—
Amortization of lease incentives		281		1,651		101		87
Provision for doubtful accounts		153		76		1		83
Non-cash interest related to contingent liabilities		—		377
Other non-cash items, net		760		923		256		252
Increase in interest receivable		(4,367)		(4,240)		(1,511)		(1,444)
Decrease in accrued interest payable		(184)		(1,808)
(Decrease) increase in accrued interest payable						(1,480)		13
Net change in other assets and liabilities		(1,003)		495		(3,975)		(4,635)
Net cash provided by operating activities		90,092		83,438		23,854		26,787
INVESTING ACTIVITIES:
Investment in real estate properties		(38,334)		(40,408)		(13,581)		(15,971)
Investment in real estate developments		(15,052)		(25,717)		(4,854)		(6,957)
Investment in real estate capital improvements		(2,121)		(2,063)		(1,119)		(259)
Capitalized interest		(441)		(850)		(191)		(260)
Proceeds from sale of real estate, net		8,068		82,340		71,905		225
Investment in real estate mortgage loans receivable		(10,919)		(20,530)		(366)		(1,454)
Principal payments received on mortgage loans receivable		565		1,636		65		65
Investments in unconsolidated joint ventures		(394)		(580)		(58)		(293)
Proceeds from dissolution of unconsolidated joint ventures		6,601		—		—		3,400
Advances and originations under notes receivable		(8,531)		(50)		(141)		(6,953)
Principal payments received on notes receivable		3,446		3,848		—		41
Net cash used in investing activities		(57,112)		(2,374)
Net cash provided by (used in) investing activities						51,660		(28,416)
FINANCING ACTIVITIES:
Bank borrowings		73,400		96,500		24,000		36,900
Repayment of bank borrowings		(20,000)		(73,000)		(28,000)		(2,000)
Principal payments on senior unsecured notes		(14,667)		(20,166)		—		(4,167)
Proceeds from common stock issued		—		1,005
Stock option exercises		123		123
Stock repurchase plan						(18,012)		—
Distributions paid to stockholders		(68,241)		(67,768)		(23,167)		(22,931)
Contribution from non-controlling interests		46		3,963
Distributions paid to non-controlling interests		(243)		—		(146)		(90)
Financing costs paid		(41)		(3,162)
Other		(2,053)		(1,201)		(3,545)		(2,024)
Net cash used in financing activities		(31,676)		(63,706)
Net cash (used in) provided by financing activities						(48,870)		5,688
Increase in cash, cash equivalents and restricted cash		1,304		17,358		26,644		4,059
Cash, cash equivalents and restricted cash, beginning of period		4,764		5,213		4,244		4,764
Cash, cash equivalents and restricted cash, end of period	$	6,068	$	22,571	$	30,888	$	8,823

Supplemental disclosure of cash flow information:
Interest paid	$	22,431	$	23,869	$	8,935	$	7,202
Non-cash investing and financing transactions:
Right of use asset					$	—	$	1,445
Lease liability					$	—	$	1,445
Reclassification of notes receivable to lease incentives	$	200	$	—	$	300	$	—
Contribution from non-controlling interests	$	919	$	—

See accompanying notes.

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	General

LTC Properties, Inc., a health care real estate investment trust (“REIT”), was incorporated on May 12, 1992 in the State of Maryland and commenced operations on August 25, 1992. We invest primarily in seniors housing and health care properties primarily through sale-leaseback transactions, mortgage financing and structured finance solutions including mezzanine lending. We conduct and manage our business as 1 operating segment, rather than multiple operating segments, for internal reporting and internal decision-making purposes. Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators. Our primary seniors housing and health care property classifications include skilled nursing centers (“SNF”), assisted living communities (“ALF”), independent living communities (“ILF”), memory care communities (“MC”) and combinations thereof. To meet these objectives, we attempt to invest in properties that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location, operator, property classification and form of investment.

We have prepared consolidated financial statements included herein without audit and in the opinion of management have included all adjustments necessary for a fair presentation of the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to rules and regulations governing the presentation of interim financial statements. The accompanying consolidated financial statements include the accounts of our company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ are not necessarily indicative of the results for a full year.

NaN provision has been made for federal or state income taxes. Our company qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As such, we generally are not taxed on income that is distributed to our stockholders.

New Accounting Pronouncements

New Accounting Standards Adopted by Our Company

In ~~August~~February 2016, the Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) No. ~~2016-15~~2016-02 (“ASU ~~2016-15”~~2016-02”), ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the Emerging Issues Task Force)~~Leases~~. 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~~, which is ~~effective for fiscal periods beginning after December 15, 2017. We adopted this standard on January 1, 2018. The adoption of this guidance did not have a material impact on our financial statements.~~

~~Revenue Recognition ASC Topic 606~~~~. On January 1, 2018, we adopted~~codified under Accounting ~~Standard codification~~Standards Codification (“ASC”) as ASC Topic ~~606~~, ~~Revenue From Contracts With Customers~~ ~~(“ASC 606”) using~~842, Leases. Among other changes, ASU 2016-02 amends the ~~modified retrospective adoption method. ASC 606 outlines a comprehensive model for entities to use in~~previous accounting for ~~revenue arising from contracts with customers. We evaluated the impact of this standard by assessing our revenue streams to identify any differences in the timing, measurement or presentation~~lessors to:

●	Modify the accounting and lease classification criteria;

●

On a quarterly basis, on an individual lease basis, assess the collectibility of substantially all of the lease payments through maturity. If collectibility is not probable, the lease income recorded during the period would be limited to lesser of the income that would have been recognized if collection were probable, and the lease payments received; and

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

●	Exclude the lessor costs that are directly paid by the lessee to third parties on lessor’s behalf from variable payments. However, the lessor costs that are paid by the lessor and reimbursed by the lessee are required to be included in variable payments.

~~revenue recognition. We concluded that adoption~~As a result of this standard did not have an impact on our results of operations or financial condition, as our revenue consists of rental income from leasing arrangements and interest income from loan arrangements, both of which are specifically excluded from ASC 606.

~~Leases~~ ~~ASC~~ ~~Topic 842.~~ ~~In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02 (“ASU 2016-02”),~~ ~~Leases~~.adopting ASU 2016-02 on January 1, 2019, using the modified retrospective transition approach, we evaluated the collectibility of our lease payments and ~~its amendments have~~determined that the level of collectibility certainty cannot be achieved for certain operators. Accordingly, we recognized a cumulative effect adjustment to equity of $42,808,000. Additionally, we now ~~formally entered into the FASB codification~~report real estate taxes that are reimbursed by our operators as ~~ASC~~ ~~Topic 842, Leases~~Rental income ~~(“ASC 842”). The objective of ASC~~842 is to establish the principles for lessees and lessors to apply for reporting useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.

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

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

~~Further, per ASC 842, lessors are required to~~Comprehensive Income. Furthermore, we assess the ~~probability of collecting substantially all of the lease payments. The standard defines collectibility as lessee’s ability and intent to pay. If~~ collectibility of substantially all of ~~the~~our lease payments through maturity and if collectibility is not probable, all or a portion of our straight-line rent receivable and other lease receivables may be written off and the ~~lease~~rental income ~~recorded~~ during the period would be limited to the lesser of the income that would have been recognized if collection were probable, and the lease payments received. ~~If the~~Our assessment of collectibility ~~changes, any difference between~~of leases includes evaluating the ~~lease income that would have been recognized~~data and the lease payments should be recognized as an adjustment to lease income. At adoption, lessors are required to perform a lease-by-lease analysis for collectibility of all lease payments through maturity. If at adoption, it is not probable thatassumptions used in determining whether substantially all of the future lease ~~obligations through maturity will be collected, a cumulative adjustment to equity should be made to reflect all~~payments were probable based on the lessee’s payment history, the financial strength of the lessees, future contractual rents, and the timing of expected payments.

In April 2020, the FASB staff released a set of four questions and answers to provide guidance regarding accounting for lease ~~obligations which are not probable~~concessions in response to ~~be collected.~~

~~Additionally, ASC 842 provides~~the novel coronavirus (“COVID-19”) pandemic. The FASB staff guidance indicates that lessors ~~with the option to~~could elect ~~a practical expedient allowing them~~an accounting policy to not ~~separate~~evaluate whether rent concessions provided in response to the COVID-19 pandemic are lease ~~and non-lease components and instead,~~modifications. When only the timing of payments is impacted by the rent deferrals, but the amount of the consideration is substantially the same as required by the original lease agreement, the FASB listed two methods for lessors 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~~rent deferrals. We are the same for the non-lease component and the related lease component and (ii) the lease component, if accounted for separately, would be classified as an operating lease. This practical expedient causes an entity to assess whether a contract is predominantly lease-based or service-based and recognize the entire contract under the relevant accounting guidance (i.e., predominantly lease-based would be accounted for under ASC 842 and predominantly service-based would be accounted for under the ASC 606). This practical expedient option is available as a single election that must be consistently applied to all existing leases at the date of adoption. Also, ASC 842 provides a practical expedient that allows companies to use an optional transition method. Under the optional transition method, a cumulative adjustment to equity during the period of adoption is recorded and prior periods would not require restatement. Consequently, entities that elect both the practical expedient and the optional transitional method will apply the new lease ASC prospectively to leases commencing or modified after January 1, 2019 and will not be required to apply the disclosures under the new lease standard to comparative periods.still evaluating these methods:

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~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

●	Account for the rent deferrals as if there were no changes made to the lease agreement. Accordingly, increase the lease receivable and continue to recognize income.

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

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

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

●

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

●

~~No reassessment of~~Account for the rent deferrals as variable lease ~~classification for any expired or existing leases;~~

●

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

●

~~No separation of lease and non-lease components.~~payments.

As a lessee, we have an office lease agreement with a 5-year remaining term which was classified as an operating lease under ASC 840. Due to election of the package of practical expedients, upon adoption of ASC 842 this lease agreement will continue to be classified as operating lease. For the nine months ended September 30, 2019, we recorded $224,000 of rent expense related to this lease agreement. Adoption of ASC 842 resulted in recording a right-of use asset and a lease liability which represents the present value of the remaining minimum lease payments using our incremental borrowing rate. At September 30, 2019, the balance of the right-of use asset and the lease liability related to our office lease agreement were $1,354,000.

As a lessor, our properties are leased subject to non-cancelable operating leases. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Upon adoption of ASC 842, we recorded real estate taxes that are reimbursed by our operators as ~~Rental Income~~ ~~with a corresponding~~ ~~Property tax expense~~ ~~in the~~ ~~Consolidated Statements of Income and Comprehensive Income~~~~. For the nine months ended September 30, 2019, we have recognized $12,094,000 in~~ ~~Rental Income~~ ~~related to reimbursement of real estate taxes from our operators.~~

Furthermore, upon adoption of ASC 842, we assessed the probability of collecting substantially all of our lease payments through maturity. As previously reported, we have been monitoring Anthem Memory Care (“Anthem”), Thrive Senior Living, LLC (“Thrive”), Preferred Care, Inc. (“Preferred Care”) and Senior Care Centers, LLC. (“Senior Care”) due to cash flow concerns, performance concerns and/or bankruptcy filing. In conjunction with adoption of ASC 842, we evaluated our straight-line rent receivable and lease incentive balances related to the noted operators and determined that we do not have

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~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

the level of collectibility certainty required by the standard to record the straight-line rent receivable. Accordingly, we wrote-off the straight-line rent receivable and lease incentive balances associated with these leases. Also, we wrote-off our 1% general straight-line rent receivable reserve. These balances totaled $42,808,000 and were written-off to equity effective January 1, 2019 as required by ASC 842.

During the nine months ended September 30, 2019, we received cash rent from Anthem, Thrive, Preferred Care and Senior Care. The total amount of rental income received from these operators was $26,135,000 and is included in ~~Rental Income~~ ~~on the~~ ~~Consolidated Statements of Income and Comprehensive Income~~. Of the $26,135,000 received, $5,571,000 and $22,542,000 are comprised of cash payments received for amounts previously written-off in transition to ASC 842 (“Recoveries”) during the three and nine months ended September 30, 2019, respectively.

~~New Accounting Standards Not Yet Adopted by Our Company~~

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. When shared risk characteristics exist, ASU 2016-13 requires a collective basis measurement of expected credit losses of the financial assets. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, ~~2019,~~2019.

We adopted ASU 2016-13 on January 1, 2020 and ~~early adoption is permitted for fiscal years beginning after December 15, 2018.~~determined our Mortgage loans receivable and Notes receivable are within the scope of this ASU. We ~~are currently evaluating~~deem delinquency a credit quality indicator and consider delinquency to be60 days of non-payment of amounts due. We utilize the probability of default and discounted cash flow methods to estimate expected credit losses. Additionally, we stress-tested the results to reflect the impact of unknown adverse future events including recessions, public health outbreaks and pandemics or epidemics, such as the coronavirus pandemic (“COVID-19”). We concluded that the ~~standard will~~adoption of ASU 2016-13 did not have a material impact on our ~~consolidated~~ financial ~~statements.~~statements at March 31, 2020 given that the historical reserves we had previously established approximated the expected credit losses computed by the models we utilized in the adoption of ASU 2016-13.

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

The expected credit losses for our financial instruments that are within the scope of ASU 2016-13 are as follows (in thousands):


				Increase
				/(Decrease)
		Balance		in Expected		Balance
	Balance Sheet	at		Credit Loss		at
Description	Location	12/31/2019		During the Quarter		3/31/2020
Expected credit losses for mortgage loans receivable	Mortgage loans receivable, net of loan loss reserve	$	2,560	$	3	$	2,563
Expected credit losses for notes receivable	Notes receivable, net of loan loss reserve	$	181	$	(2)	$	179

We elected not to measure an allowance for expected credit losses on accrued interest receivables as we have a policy in place to reserve or write off accrued interest receivables in a timely manner through our quarterly review of the loan and property performance. Therefore, we elected the policy to write off accrued interest receivables by reversing interest income and/or recognizing credit loss expense. As of March 31, 2020, total balance of accrued interest receivables of $28,097,000 was not included in the measurement of expected credit loss. For the three months ended March 31, 2020 and 2019, Company did not recognize any write-off of accrued interest receivables.

2.	Real Estate Investments

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

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

Owned Properties. Our Owned properties are leased pursuant to non-cancelable operating leases 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 4 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%~~2.5%;

(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.

Our leases that contain fixed annual rental escalations and/or have annual rental escalations that are contingent upon changes in the Consumer Price Index, are generally recognized on a straight-line

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~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved.

~~The following table summarizes our investments in owned properties at September 30, 2019~~ ~~(dollar amounts in thousands)~~:

Average

Percentage

Number

Number of

Investment

Gross

of

of

SNF

ALF

per

Type of Property

Investment

Investment

Properties ⁽¹⁾

Beds

Units

Bed/Unit

Assisted Living

$
844,635

57.3
%
105

—

6,070

$
139.15

Skilled Nursing

605,763

41.1
%
72

8,835

261

$
66.60

Under Development ⁽²⁾

12,934

0.9
%
—

—

—

—

Other ⁽³⁾

11,360

0.7
%
1

118

—

—

Total

$
1,474,692

100.0
%
178

8,953

6,331

~~(1)~~

~~We own properties in 28 states that are leased to 30 different operators.~~

~~(2)~~

~~Represents a 78-unit ALF/MC located in Oregon and a 90-bed SNF located in Missouri.~~

~~(3)~~

~~Includes 3 parcels of land held-for-use, and 1 behavioral health care hospital.~~

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

Cash

Rent ⁽¹⁾

2019

$
32,265

2020

132,387

2021

124,338

2022

125,420

2023

127,027

Thereafter

731,116

~~(1)~~

~~Represents contractual cash rent, except for 4 master leases which are based on cash rents. See below for more information.~~

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

During 2017, Preferred Care, Inc. (“Preferred Care”) and affiliated entities filed for Chapter 11 bankruptcy as a result of a multi-million-dollar judgment in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. The affiliated entities named in the lawsuit operate properties in Kentucky and New Mexico. Preferred Care leased 24 properties under 2 master leases from us and none of the 24 properties are located in Kentucky or New Mexico. Those 24 properties are in Arizona, Colorado, Iowa, Kansas and Texas. The Preferred Care operating entities that sublease those properties did not file for

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~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

bankruptcy. The court ordered deadline for affirmation or rejection of the lease passed without action by Preferred Care. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Preferred Care and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance. During the third quarter of 2019, Preferred Care began paying only $55,000 of monthly rent. The rental obligation under unconfirmed lease was approximately $1,000,000. We applied all of their security deposit to rental income during the third quarter and recorded only the $55,000 cash received in October 2019 to rental income. We are working with Preferred Care on options for the portfolio which likely will include selling the majority of the properties. In October of 2019, we entered into multiple contracts to sell a portion of the properties and are negotiating contracts to sell the remainder of the properties. The contracts are subject to standard due diligence and other contingencies to close. Should these conditions be met, we anticipate reclassifying these properties to held-for-sale.

On December 4, 2018, Senior Care Centers, LLC. and affiliates and subsidiaries (“Senior Care”) filed for Chapter 11 bankruptcy as a result of lease terminations from certain landlords and on-going operational challenges. Senior Care did not pay us December 2018 rent, but has paid us January to October 2019 rent, real estate property tax and maintenance deposits. In December 2018, we placed Senior Care on a cash basis. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Senior Care and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance.

Pursuant to the U.S. Bankruptcy Code, Senior Care had an initial period of 120 days from the petition date to assume or reject the lease. However, the Bankruptcy Code also provides that the court may extend this initial 120-day period for an additional 90 days. Accordingly, Senior Care requested, and the court approved an additional 90 days, which ended on July 2, 2019, to assume or reject the lease. In July 2019, Senior Care filed a motion attempting to affirm the lease. We subsequently filed an objection in opposition to Senior Care’s motion. During the fourth quarter of 2019, the court rejected our motion and accordingly, our master lease with Senior Care was affirmed. At October 4, 2019, as of court filing, the court has ordered Senior Care to pay us unpaid rent from December 2018, late fees and legal costs totaling $1,596,000 by the earlier of the bankruptcy plan effective date or December 16, 2019.

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

~~(Unaudited)~~

~~We completed the following for all of the properties in the Thrive portfolio. As of September 30, 2019, Thrive does not operate any property in our portfolio:~~

●

Transitioned 2 memory care communities located in Ohio and Kentucky with a total of 120-units to an operator new to our portfolio during the second quarter of 2019. The memory care communities are under a 10-year lease term with initial cash rent of $1,250,000 in year one, $1,500,000 in year two, $1,975,000 in year three and $2,150,000 in year four. Rent may increase subject to a contingent escalation formula commencing in year five and annually thereafter. The lease provides the lessee with a purchase option available between 2028-2029;

●

Transitioned a 56-unit memory care community located in Texas to an existing operator and added the memory care community to an existing master lease during the second quarter of 2019. As a result of this transition, annual cash rent under the existing master lease was increased by $400,000 effective June 1, 2019 and will increase by an additional $300,000 on June 1, 2020 and 2.5% annually thereafter. Additionally, LTC will be entitled to incremental rent calculated as a percentage of increases in gross revenues generated by the property above an established threshold;

●

Transitioned 2 memory care communities in Georgia and South Carolina with a total of 159-units to an existing operator during the third quarter of 2019. The new 2-year lease agreement has an initial annual cash rent of $1,762,000. The lease provides the lessee one month free rent and the option to defer up to 50% of contractual rent through December 2019. Rent increases 3.5% in year two; and

●

Transitioned the remaining 60-unit memory care community located in Florida to an existing operator effective August 1, 2019. The new 10-year lease provides the lessee twelve months free rent, rent of $450,000 in year two and $600,000 in year three and thereafter. In year two the lessee has the option to defer rent in an amount not to exceed $150,000. Rent may increase subject to a contingent escalation formula commencing in year three and annually thereafter. Additionally, the lease provides the lessee with a purchase option available between 2028 and 2029.

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~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

~~The following table summarizes components of our rental income for the three and nine months ended September 30, 2019 and 2018~~ ~~(in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

Rental Income

2019

2018

2019

2018

Base cash rental income

$
33,754
⁽¹⁾
$
31,506

$
100,687
⁽¹⁾
$
95,273

Variable cash rental income

3,926
⁽²⁾

76
⁽²⁾

12,488
⁽²⁾

395
⁽²⁾
Straight-line rent

1,085
⁽³⁾

3,189

3,598
⁽³⁾

8,629

Adjustment for collectibility of rental income

—

—

(1,926)
⁽⁴⁾

—

Amortization of lease incentives

(100)

(560)

(281)

(1,651)

Total

$
38,665

$
34,211

$
114,566

$
102,646

~~(1)~~

~~Increased due to acquisitions, developments and capital improvements partially offset due to reduced rent from sold properties and properties transitioned to other operators~~.

~~(2)~~

The three months ended September 30, 2019 variable rental income includes $77 related to contingent rental income and $3,849 related to our real estate taxes which were reimbursed by our operators. The nine months ended September 30, 2019 variable rental income includes $394 related to contingent rental income and $12,094 related to our real estate taxes which were reimbursed by our operators. Per the provisions of ASC 842, any lessor cost, paid by the lessor and reimbursed by the lessee, must be included as a lease payment. As discussed above, we adopted ASC 842 using a modified retrospective approach as of the adoption date of January 1, 2019. Accordingly, we are not required to report this revenue stream for periods prior to January 1, 2019.

~~(3)~~

In accordance with ASC 842 lease accounting guidance, we evaluated the collectibility of lease payments through maturity and determined that it was not probable that we would collect substantially all of the contractual obligations from Anthem, Thrive, Preferred Care and Senior Care leases through maturity. Decreased due to these leases being accounted for on cash-basis as of January 1, 2019.

~~(4)~~

During the first quarter of 2019, we terminated a lease agreement and transitioned 2 operating seniors housing communities under the lease agreement to a new operator. As a result of the lease termination, we wrote-off $1,926 straight-line rent receivable to contra-revenue in accordance with ASC 842.

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

Type

Number

of

of

Gross

Carrying

Option

State

Property

Properties

Investments

Value

Window

California

ALF/MC

2

$
38,895

$
36,777

2024-2029

California

ALF

2

28,246

15,551

2021-TBD
⁽¹⁾
Florida

MC

1

14,201

12,845

2028-2029

Kentucky and Ohio

MC

2

30,087

28,007

2028-2029

Texas

MC

2

25,265

24,490

2025-2027

South Carolina

ALF/MC

1

11,680

10,939

2028-2029

Total

$
148,374

$
128,609

~~(1)~~

~~The option window ending date will be either 24 months or 48 months after the option window commences, based on certain contingencies.~~

149

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(Unaudited)

~~Acquisitions and Developments:~~The following table summarizes our ~~acquisitions for the nine months ended September 30, 2019 and 2018~~ investments in owned properties at March 31, 2020 (dollar amounts in thousands):


						Total		Number	Number								Average
		Purchase		Transaction		Acquisition		of	of			Percentage		Number	Number of		Investment
Year	Type of Property	Price		Costs ⁽¹⁾		Costs		Properties	Beds/Units
2019	Skilled Nursing ⁽²⁾	$	19,500	$	77	$	19,577	1	90
	Assisted Living ⁽³⁾		16,719		176		16,895	1	74	Gross		of		of	SNF	ALF	per
	Land ⁽⁴⁾		2,732		49		2,781	—	—
Type of Property										Investment		Investment		Properties ⁽¹⁾	Beds	Units	Bed/Unit
Assisted Living										$	876,319	60.9	%	107	—	6,164	$	142.17
Skilled Nursing											543,814	37.8	%	50	6,283	212	$	83.73
Under Development ⁽²⁾											6,684	0.5	%	—	—	—		—
Other ⁽³⁾											11,360	0.8	%	1	118	—		—
Total		$	38,951	$	302	$	39,253	2	164	$	1,438,177	100.0	%	158	6,401	6,376

2018	Assisted Living ^{(5) (6)}	$	39,600	$	65	$	39,665	3	177
	Land ⁽⁶⁾		695		48		743	—	—
Total		$	40,295	$	113	$	40,408	3	177

(1)

~~Represents cost associated with our acquisitions; however, upon adoption of ASU 2017-01, our acquisitions meet the definition of an asset acquisition resulting~~We own properties in ~~capitalization of transaction costs~~27 states that are leased to ~~the properties’ basis. For our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Transaction costs per our~~ ~~Consolidated Statements of Income and Comprehensive Income~~ ~~represents current and prior year transaction costs due to timing and terminated transactions.~~29 different operators.

(2)	~~We acquired~~Represents a ~~newly constructed~~ 90-bed SNF development project located in Missouri.

(3)	~~We entered into a joint venture~~Includes 3 parcels of land held-for-use, and 1 behavioral health care hospital.


	Cash
	Rent ⁽¹⁾
2020	$	101,584
2021		127,050
2022		128,250
2023		129,900
2024		126,374
Thereafter		625,531

(1)

Represents contractual cash rent, except for Anthem Memory Care (“~~JV”~~Anthem”) ~~(consolidated~~lease which is based on ~~our financial statements) to purchase an existing operational 74-unit ALF/MC community. The non-controlling partner contributed $919 of equity and we contributed $15,971 in cash. Our economic interest~~cash rent received. See below for more information.

Anthem operates 11 operational memory care communities under a master lease and was placed in default in 2017 resulting from Anthem’s partial payment of its minimum rent. However, we did not enforce our rights and remedies pertaining to the event of default, under the stipulation that Anthem achieves sufficient performance and pays agreed upon rent. We currently anticipate that Anthem will pay $9,900,000 of annual cash rent during 2020. However, COVID-19 may adversely impact Anthem’s operating cash flow and ability to pay rent. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Anthem and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance.

Preferred Care, Inc. (“Preferred Care”) and affiliated entities filed for Chapter 11 bankruptcy in 2017 as a result of a multi-million-dollar judgment in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. Preferred Care leased 24 properties (“Properties”) under 2 master leases from us and the Preferred Care operating entities that sublease those Properties did not file for bankruptcy. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Preferred Care and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

842 transition guidance. Preferred Care did not affirm our master leases and subsequently filed for Chapter 7 bankruptcy in 2019. The monthly contractual obligation under the master leases was approximately $1,000,000, however, during the third quarter of 2019, Preferred Care began paying only $55,000 of monthly rent.

During the fourth quarter of 2019, we entered into multiple contracts to sell the Properties, all of which were completed during the first quarter of 2020. The combined net proceeds from the sales, including the 2019 transactions, was approximately $77,900,000 resulting in a total gain of approximately $44,000,000. The Properties had a combined net book value of $35,600,000. The 21 properties sold in the first quarter of 2020, which included 2,411 beds in Arizona, Colorado, Iowa, Kansas and Texas, were sold through multiple transactions and generated net proceeds of approximately $71,900,000. These 21 properties had a combined net book value of $29,100,000 and resulted in total gain on sale of $43,900,000 in the first quarter of 2020 which was recorded as Gain on sale of real estate, net in theconsolidated statements of income and comprehensive income.

Senior Care Centers, LLC and affiliates and subsidiaries (“Senior Care”) filed for Chapter 11 bankruptcy as a result of lease terminations from certain landlords and on-going operational challenges in December 2018. Senior Care did not pay us December 2018 rent and accordingly, in December 2018, we placed Senior Care on a cash basis. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balance related to Senior Care and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance. During 2019, we received a court ordered reimbursement from Senior Care for the December 2018 unpaid rent, late fees and legal costs totaling $1,596,000. In March 2020, Senior Care emerged from bankruptcy and affirmed our master lease. Senior Care is current on all its rent, real estate property tax escrow and maintenance deposits.

The following table summarizes components of our rental income for the three months ended March 31, 2020 and 2019 (in thousands):


Rental Income		2020			2019
Base cash rental income	$	33,015		$	33,914
Variable cash rental income		4,282	⁽¹⁾		4,485	⁽¹⁾
Straight-line rent		839			1,238
Adjustment for collectibility of rental income		—			(1,926)	⁽²⁾
Amortization of lease incentives		(101)			(87)
Total	$	38,035		$	37,624

(1)

The variable rental income for the three months ended March 31, 2020, includes $60 related to contingent rental income and $4,222 related to our real estate ~~JV is approximately 95%.~~taxes which were reimbursed by our operators. The variable rental income for the three months ended March 31, 2019 includes $150 related to contingent rental income and $4,335 related to our real estate taxes which were reimbursed by our operators. Per the provisions of ASC 842, any lessor cost, paid by the lessor and reimbursed by the lessee, must be included as a lease payment.

~~(4)~~(2)

~~We acquired~~During the first quarter of 2019, we terminated a ~~parcel~~lease agreement and transitioned 2 operating seniors housing communities under the lease agreement to a new operator. As a result of ~~land adjacent~~the lease termination, we wrote-off $1,926 straight-line rent receivable to ~~an existing SNF~~contra-revenue in ~~California. Additionally, we acquired a parcel of land and development of a 90-bed SNF in Missouri. The commitment totals approximately $17,400.~~

~~(5)~~

~~We acquired 2 MC properties in Texas.~~

~~(6)~~

~~We entered into a JV (consolidated on our financial statements) to purchase an existing operational 89-unit ILF and to own the real estate and develop a 78-unit ALF/MC for $18,108 in Oregon.~~accordance with ASC 842.

~~During~~ ~~the nine months ended September 30, 2019 and 2018, we invested the following in development and improvement projects~~ ~~(in thousands)~~:

Nine Months Ended September 30,

2019

2018
Type of Property

Developments

Improvements

Developments

Improvements

Assisted Living Communities

$
10,266

$
1,826

$
19,251

$
1,131

Skilled Nursing Centers

4,786

—

6,466

500

Other

—

295

—

432

Total

$
15,052

$
2,121

$
25,717

$
2,063

~~Completed Developments.~~ ~~The following table summarizes our completed developments during the nine months ended September 30, 2019 and 2018~~ ~~(dollar amounts in thousands):~~

Number

Type

Number

of

of

of

Total
Year

Type of Project

Properties

Property

Beds/Units

State

Investment
2019

Development

1

SNF

143

Kentucky

$
24,496

Development

1

ILF/ALF/MC

110

Wisconsin

21,893
Total

2

253

$
46,389

2018

Development

1

MC

66

Illinois

$
13,974
Total

1

66

$
13,974

1511

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(Unaudited)


	Type	Number
	of	of		Gross		Carrying	Option
State	Property	Properties		Investments		Value	Window
California	ALF/MC	2	$	38,895	$	36,307	2024-2029
California	ALF	2		29,655		16,588	2021-TBD	⁽¹⁾
Florida	MC	1		14,201		12,670	2028-2029
Kentucky and Ohio	MC	2		30,152		27,698	2028-2029
Texas	MC	2		25,265		24,180	2025-2027
South Carolina	ALF/MC	1		11,680		10,648	2028-2029
Total			$	149,848	$	128,091

(1)	The option window ending date will be either 24 months or 48 months after the option window commences, based on certain contingencies.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and on March 13, 2020, the United States declared a national emergency with regard to COVID-19. As required by ASC 842, we assess the collectibility of our lease payments through maturity on a quarterly basis. At March 31, 2020, in conjunction with the rising levels of uncertainty related to the adverse effects of COVID-19, we assessed the probability of collecting substantially all of our lease payments through maturity and concluded that we did not have sufficient information available to evaluate the impact of COVID-19 on the collectibility of our lease payments. The extent to which COVID-19 could impact our operators and the collectibility of our future lease payments will depend on the future developments including the financial impact significance and the duration of the pandemic. We will continue to evaluate the collectibility of our lease payments through maturity on a quarterly basis, including the financial impact of COVID-19. If we determine that we do not have the level of collectibility certainty required by ASC 842 related to certain operators, all or a portion of our straight-line rent receivable and other lease receivables will be written-off. In recognition of the unique conditions affecting our operators, we have agreed to rent deferrals for certain operators totaling $772,000 for April 2020, of which $137,000 was returned back to us. The $772,000 April rent deferrals represent approximately 7% of our April contractual rent.

~~Properties held-for-sale~~Acquisitions and Developments:. The following table summarizes our ~~property held-for-sale as of September 30,~~acquisitions for the three months ended March 31, 2020 and 2019 (dollar amounts in thousands):


	Type	Number					Number						Total		Number	Number
	of	of		Gross		Accumulated	of		Purchase		Transaction		Acquisition		of	of
State	Property	Properties		Investment		Depreciation	Beds/units
Texas	ILF	1	$	5,746	$	1,916	140
Year								Type of Property	Price		Costs ⁽¹⁾		Costs		Properties	Beds/Units
2020								Skilled Nursing ⁽²⁾	$	13,500	$	81	$	13,581	1	140

2019								Assisted Living ⁽³⁾	$	16,719	$	171	$	16,890	1	74

(1)

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

(2)	We acquired a SNF located in Texas.

(3)

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

During the three months ended March 31, 2020 and 2019, we invested the following in development and improvement projects (in thousands):


	2020				2019
Type of Property	Developments		Improvements		Developments		Improvements
Assisted Living Communities	$	2,386	$	1,116	$	4,507	$	256
Skilled Nursing Centers		2,468		3		2,450		—
Other		—		—		—		3
Total	$	4,854	$	1,119	$	6,957	$	259

Completed Developments. The following table summarizes our completed developments during the three months ended March 31, 2020 and 2019 (dollar amounts in thousands):

Number

Type

Number

Total

Year

Type of Project

Properties

Property

Beds/Units

State

Investment

2020

Development ⁽¹⁾

ALF/MC

Oregon

16,341

2019

Development

SNF

143

Kentucky

24,974

(1)	Certificate of occupancy was received in March 2020, however, due to the COVID-19 pandemic, we have consented to delay the opening of this community to a later date to be determined.

Properties Sold. The following table summarizes property sales during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (dollar amounts in thousands):


		Type		Number	Number						Net			Type		Number		Number										��
		of		of	of		Sales		Carrying		Gain			of		of		of			Sales			Carrying			Net
Year	State	Properties		Properties	Beds/Units		Price		Value		(Loss)		State	Properties		Properties		Beds/Units			Price			Value			Gain
2019	N/A	N/A		—	—	$	—	$	—	$	500	⁽¹⁾
	Georgia	SNF		1	148		7,920		1,639		6,236
Total 2019				1	148	$	7,920	$	1,639	$	6,736

2018	Alabama	SNF		2	285	$	17,525	$	3,272	$	14,253
2020													Arizona	SNF		1		194		$	12,550		$	2,229		$	10,293
	Kansas	ALF	⁽²⁾	—	—		350		346		—		Colorado	SNF		3		275			15,000			4,271			10,365
	Ohio and Pennsylvania	ALF	⁽¹⁾	6	320		67,500		16,352		48,445		Iowa	SNF	⁽¹⁾	7		544			14,500			4,886			8,914
Total 2018				8	605	$	85,375	$	19,970	$	62,698
													Kansas	SNF		3		250			9,750			7,438			1,994
													Texas	SNF		7		1,148			23,000			10,260			12,288
Total 2020 ⁽²⁾																21	⁽²⁾	2,411	⁽²⁾	$	74,800	⁽²⁾	$	29,084	⁽²⁾	$	43,854	⁽²⁾

2019													N/A	N/A		—		—		$	—		$	—		$	—

(

(1)

~~Gain recognized due to the receipt~~This transaction includes a holdback of ~~funds~~$838 which is held in an interest-bearing account with an escrow ~~related to a portfolio~~holder on behalf of ~~6 ALFs sold during~~ the ~~second quarter~~buyer for potential specific losses. Using the expected value model per ASC Topic 606, Contracts with Customers, we estimated and recorded the holdback value of ~~2018.~~$471.

(2)	WeProperties sold ~~land adjacent to an existing ALF community in Kansas.~~within the Preferred Care portfolio.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at ~~September 30, 2019~~March 31, 2020 (dollar amounts in thousands):


				Type	Percentage		Number of			Investment					Type	Percentage		Number of			Investment
		Gross		of	of				SNF	per			Gross		of	of				SNF	per
Interest Rate ⁽¹⁾	Maturity	Investment		Property	Investment		Loans ⁽²⁾	Properties ⁽³⁾	Beds	Bed/Unit		Maturity	Investment		Property	Investment		Loans ⁽²⁾	Properties ⁽³⁾	Beds	Bed/Unit
9.7%	2043	$	186,510	SNF	72.9	%	1	15	2,029	$	91.92
9.9%												2043	$	186,159	SNF	72.4	%	1	15	1,941	$	95.91
9.2%	2045		34,886	SNF	13.6	%	1	4	501	$	69.63	2045		36,362	SNF	14.2	%	1	4	501	$	72.58
9.4%	2045		19,391	SNF	7.6	%	1	2	205	$	94.59	2045		19,513	SNF	7.6	%	1	2	205	$	95.19
9.4%	2045		14,950	SNF	5.9	%	1	1	157	$	95.22
9.6%												2045		14,925	SNF	5.8	%	1	1	157	$	95.06
Total		$	255,737		100.0	%	4	22	2,892	$	88.43		$	256,959		100.0	%	4	22	2,804	$	91.64

(1)	The majority of the mortgage loans provide for annual increases in the interest rate after a certain time period based upon a specified increase 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)	The properties securing these mortgage loans are located in 1 state and are operated by 1 operator.

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

~~(Unaudited)~~

The following table summarizes our mortgage loan activity for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

Nine Months Ended September 30,

2019

2018

Originations and funding under mortgage loans receivable

$
10,919
⁽¹⁾
$
20,530
⁽²⁾
Pay-offs received

—

(1,086)

Scheduled principal payments received

(565)

(550)

Mortgage loan premium amortization

(3)

(3)

Provision for loan loss reserve

(104)

(189)

Net increase in mortgage loans receivable

$
10,247

$
18,702

~~(1)~~

~~During 2019, we funded an additional $7,500 under an existing mortgage loan. The incremental funding bears interest at 9.41%, fixed for two years, and escalating by 2.25% thereafter.~~



	2020		2019
Originations and funding under mortgage loans receivable	$	366	$	1,454
Scheduled principal payments received		(65)		(65)
Mortgage loan premium amortization		(1)		—
Provision for loan loss reserve		(3)		(14)
Net increase in mortgage loans receivable	$	297	$	1,375

~~(2)~~

During 2018, we funded an additional $7,400 under an existing mortgage loan for the purchase of a 112-bed SNF 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

The following table summarizes our investment in an unconsolidated joint venture as of March 31, 2020 (dollar amounts in thousands):

Type

Total

Currently

Number

Type

Total

Contractual

Number

Preferred

Paid in

Investment

Carrying

Preferred

Cash

Investment

Carrying

State

Properties

Investment

Return

Cash

Beds/ Units

Commitment

Value

Properties

Investment

Return

Portion

Beds/ Units

Commitment

Value

Arizona

ALF/MC/ILF

Preferred Equity

⁽¹⁾

⁽²⁾

585

25,650

24,426

ALF/MC/ILF

Preferred Equity

⁽¹⁾

⁽²⁾

585

—

19,061

⁽³⁾

Total

585

25,650

24,426

585

—

19,061

(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)	Effective second quarter of 2019, this JV was placed on the cash basis due to delinquency of our preferred return.

(3)	During the fourth quarter of 2019, we recorded an impairment loss of $5,500 to write-down our preferred equity investment to its estimated fair value. See below for more detail.

~~Subsequent to September 30,~~During the fourth quarter of 2019, the JV in which we hold our preferred equity investment signed a ~~letter of intent for the sale of~~contract to sell the 4 properties comprising the ~~JV. Concurrently, the JV is pursuing a refinancing alternative~~JV(“Properties”). The contract was subject to ~~take advantage~~standard due diligence and other contingencies to close, all of ~~lower interest rates~~which were met in ~~today’s market. Based upon~~January 2020. Accordingly, based on the information available to us regarding ~~available~~ alternatives and courses of action, ~~as of September 30, 2019,~~ we performed a recoverability test on the carrying ~~amount~~value of our preferred equity investment and concluded ~~the preferred equity investment was not impaired.~~

1714

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(Unaudited)

that a portion of our preferred equity investment will not be recoverable. Therefore, we recorded an impairment loss from investment in unconsolidated joint ventures of $5,500,000 and wrote our preferred equity investment down to its estimated fair value. In April 2020, the Properties were sold and we received partial liquidation proceeds of $17,200,000. We anticipate receiving additional proceeds of approximately $1,300,000 and expect to recognize a loss on liquidation of unconsolidated joint ventures of approximately $600,000 in the second quarter of 2020 related to the dissolution of this joint venture.

The following table summarizes our capital contributions, income recognized, and cash interest received related to our investments in unconsolidated joint ventures for the three months ended March31, 2020 and 2019 (in thousands):


	Type											Type
	of			Capital			Income			Cash Interest		of			Capital			Income			Cash Interest
Year	Properties			Contribution			Recognized			Received		Properties			Contribution			Recognized			Received
2020												ALF/MC/ILF		$	58		$	231		$	231
Total														$	58		$	231		$	231

2019	ALF/MC/ILF		$	394		$	614		$	1,166		ALF/MC/ILF		$	293		$	553		$	552
	ALF/ILF/MC	⁽¹⁾		—	⁽¹⁾		955	⁽¹⁾		979	⁽¹⁾	ALF/ILF/MC	⁽¹⁾		—	⁽¹⁾		128	⁽¹⁾		121	⁽¹⁾
	ALF/MC	⁽²⁾		—	⁽²⁾		404	⁽²⁾		432	⁽²⁾	ALF/MC	⁽²⁾		—	⁽²⁾		404	⁽²⁾		432	⁽²⁾
Total			$	394		$	1,973		$	2,577				$	293		$	1,085		$	1,105

2018	ALF/MC/ILF		$	580		$	1,490		$	1,436
	ALF/ILF/MC	⁽¹⁾		—	⁽¹⁾		383	⁽¹⁾		291	⁽¹⁾
	ALF/MC	⁽²⁾		—	⁽²⁾		230	⁽²⁾		—	⁽²⁾
Total			$	580		$	2,103		$	1,727

(1)

We had a $2,900 mezzanine loan commitment for a 99-unit seniors housing community in Florida with a total preferred return of 15%. The mezzanine loan was an ADC arrangement which we determined it to have characteristics similar to a jointly-owned arrangement and recorded it as an unconsolidated joint venture. 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. During the third quarter of 2019, the mezzanine loan was paid off.

(2)

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

4.	Notes Receivable

Notes receivable consists of mezzanine loans and other loan arrangements. The following table is a summary of our notes receivable components as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	At September 30, 2019		At December 31, 2018		March 31, 2020		December 31, 2019
Mezzanine loans	$	13,284	$	9,868	$	13,284	$	13,284
Other loans		4,445		2,975		4,664		4,824
Notes receivable reserve		(177)		(128)		(179)		(181)
Total	$	17,552	$	12,715	$	17,769	$	17,927

1815

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

The following ~~tables~~table summarizes our notes receivable activity for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (~~dollar amounts~~ in ~~thousands~~thousands):):


	Nine Months Ended September 30,					Three Months Ended March 31,
		2019			2018		2020			2019
Advances under notes receivable	$	8,531	⁽¹⁾	$	50	$	141		$	6,953
Principal payments received under notes receivable		(3,446)			(3,848)		—			(41)
Reclassified to lease incentives ⁽²⁾		(200)	⁽²⁾		—		(300)	⁽¹⁾		—
Notes receivable reserve		(48)			38		1			(69)
Total	$	4,837		$	(3,760)	$	(158)		$	6,843

(1)

We originated a $6,800 mezzanine loan commitment for the development of a 204-unit ILF/ALF/MC in Georgia. The mezzanine loan has a five-year term and a 12.0% return, a portion of which is paid in cash, and the remaining portion of which is deferred during the first 46 months. Additionally, we originated a $1,400 note agreement, funding $1,124 with a commitment to fund $276. The note bears interest at 7.0%. Further, we originated a $550 note agreement, funding $400 with a commitment to fund $150. The note bears interest at 7.5%.

~~(2)~~

Represents an interim working capital loan related to a development project which matured upon completion of the development project and commencement of the lease.

5.
Lease Incentives
Our lease ~~incentives~~incentive balances at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows (in thousands):

September 30, 2019

December 31, 2018

March 31, 2020

December 31, 2019
Non-contingent lease incentives

$
2,590

$
14,443

$
2,764

$
2,552

The following table summarizes our lease ~~incentive~~incentives activity for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~(in thousands):

Nine Months Ended September 30,

2019

2018

2020

2019

Funding

Amortization

Reclassification

Funding

Amortization

Funding

Amortization

Reclassification

Funding

Amortization

Write-off

Non-contingent lease incentives

$
322

$
(281)

$
(11,893)
⁽¹⁾
$
1,272

$
(1,292)

$
13

$
(101)

$
300
⁽¹⁾
$
—

$
(87)

$
(12,093)
⁽²⁾
Contingent lease incentives

—

—

—

—

(359)

Net increase (decrease) in lease incentives

$
322

$
(281)

$
(11,893)

$
1,272

$
(1,651)

(1) We reclassified a $300 interim working capital loan as lease incentive. See Note 4. Notes Receivable for further discussion.

(2) In accordance with ASC 842 lease standard adopted on January 1, 2019, we wrote-off $12,093 of lease incentives related to leases for which we determined it is not probable we will collect substantially all of the contractual lease obligation through maturity. See Note 1. General for further discussion. ~~Additionally, we reclassified a $200 interim working capital loan as lease incentive. See~~ ~~Note 4. Notes Receivable for further discussion.~~
Non-contingent lease incentives represent payments made to our lessees for various reasons including entering into a new lease or lease amendments and extensions. Contingent lease incentives represent potential contingent earn-out payments that may be made to our lessees in the future, as part of our lease agreements. From time to time, we may commit to provide contingent payments to our lessees, upon our properties achieving certain rent coverage ratios. Once the contingent payment becomes probable and estimable, the contingent payment is recorded as a lease incentive. Lease incentives are amortized as a yield adjustment to rental income over the remaining life of the lease.

1916

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

6.
Debt Obligations
Bank Borrowings. ~~During 2018, weamended and restated our~~We have an unsecured credit agreement ~~to replace the previous unsecured credit agreement, prior to its expiration on October 14, 2018. The amended credit agreement maintains the $600,000,000~~that provides for a revolving aggregate commitment of the lenders ~~under the prior agreement and provides for~~of up to $600,000,000 with the opportunity to increase the commitment size of the credit agreement up to a total of $1,000,000,000. The ~~amended~~unsecured credit agreement ~~extends the maturity of the credit agreement to~~matures on 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, 2019,~~March 31, 2020, the facility provides for interest annually at LIBOR plus 115 basis points and a facility fee of 20 basis points. At ~~September 30, 2019,~~March 31, 2020, we were in compliance with all covenants.
Senior Unsecured Notes. We ~~have~~had a $337,500,000 shelf agreement with availability of $21,500,000 with affiliates and managed accounts of PGIM, Inc. (“Prudential”) which ~~expires~~expired on February 16, 2020.
The debt obligations by component as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows (dollar amounts in thousands):

At September 30, 2019

At December 31, 2018

At March 31, 2020

At December 31, 2019

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⁾

3.39%

$
165,400

$
434,600

$
112,000

$
488,000

2.22%

$
89,900

$
510,100

$
93,900

$
506,100

Senior unsecured notes, net of debt issue costs ⁽³⁾

4.48%

518,469

107,500

533,029

93,833

4.39%

599,527

—

599,488

21,500

Total

4.22%

$
683,869

$
542,100

$
645,029

$
581,833

4.10%

$
689,427

$
510,100

$
693,388

$
527,600

(1) Represents weighted average of interest rate as of ~~September 30, 2019.~~March 31, 2020.

~~(2)~~ Subsequent to September 30, 2019, we paid down $100,000 under our unsecured revolving line of credit, using the proceeds from the sale of $100,000 senior unsecured notes as explained below. Accordingly, we have $65,400 outstanding under our revolving line of credit with $534,600 available for borrowing.

~~(3)~~ Subsequent to September 30, 2019, we sold $100,000 aggregate principal amount of 3.85% senior unsecured notes maturing in 2031 to Prudential. Accordingly, we have $618,469 outstanding and $7,500 available under our senior unsecured notes.

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

Nine Months Ended September 30,

Three Months Ended March 31,

2019

2018

2020

2019

Debt Obligations

Borrowings

Repayments

Borrowings

Repayments

Borrowings

Repayments

Borrowings

Repayments

Bank borrowings

$
73,400

$
(20,000)

$
96,500

$
(73,000)

$
24,000

$
(28,000)

$
36,900

$
(2,000)

Senior unsecured notes

—

(14,667)

—

(20,166)

—

—

—

(4,167)

Total

$
73,400

$
(34,667)

$
96,500

$
(93,166)

$
24,000

$
(28,000)

$
36,900

$
(6,167)

7.
Equity
Common Stock. We have separate equity distribution agreements (collectively, “Equity Distribution Agreements”) to offer and sell, from time to time, up to $200,000,000 in aggregate offering price of shares of our common stock. As of March 31, 2020, 0 shares had been issued under the Equity Distribution Agreements. Accordingly, at March 31, 2020, we had $200,000,000 available under the Equity Distribution Agreements.
During the three months ended March 31, 2020 and 2019, we acquired 76,067 shares and 44,543 shares, respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

2017

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

7.
~~Equity~~
~~Common Stock.~~Stock Repurchase Plan. ~~We have separate equity distribution agreements (collectively, “Equity Distribution Agreements”) to offer and sell, from time to time,~~During the first quarter of 2020, our Board of Directors authorized the repurchase of up to ~~$200,000,000 in aggregate offering~~5,000,000 outstanding shares of common stock.During the three months ended March 31, 2020, we purchased 615,827 shares at an average price of ~~shares~~$29.25 per share, including commissions, for a total purchase price of approximately $18,000,000. Due to the rising level of uncertainty in financial markets and the adverse effects of COVID-19 on the public health and our ~~common stock. As~~operators, our Board of ~~September 30, 2019, 0 shares had been issued under~~Directors terminated the ~~Equity Distribution Agreements. Accordingly, at September 30, 2019, we had $200,000,000 available under the Equity Distribution Agreements.~~
~~During the nine months ended September 30, 2019 and 2018, we acquired 45,030 shares and 31,326 shares, respectively, of common~~ stock ~~held by employees who tendered owned shares to satisfy tax withholding obligations.~~repurchase plan on March 25, 2020.
Non-controlling Interests. We have entered into partnerships to develop and/or own real estate. Given that our limited members do not have the substantive kick-out rights, liquidation rights, or participation rights, we have concluded that the partnerships are VIEs. As we exercise power over and receive benefits from the VIEs, we are considered the primary beneficiary. Accordingly, we consolidate the VIEs and record the non-controlling interests at cost.
As of ~~September 30, 2019,~~March 31,2020, we have the following consolidated VIEs (~~dollar amounts~~ in thousands):

Gross

Investment

Property

Consolidated

Non-Controlling

Year

Purpose

Type

State

Assets

Interests

2019

Owned real estate

ALF/MC

VA

$
16,895

$
919

2018

Owned real estate

ILF

OR

14,400
⁽¹⁾

2,857
⁽¹⁾
2018

Owned real estate and development

UDP

OR

9,987
⁽¹⁾

1,081
⁽¹⁾
2017

Owned real estate and development

ILF/ALF/MC

WI

21,893
⁽²⁾

2,318
⁽²⁾
2017

Owned real estate

ALF/MC

SC

11,680

1,285

Total

$
74,855

$
8,460

~~(1)~~ We entered into a JV to develop, purchase and own seniors 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%.

Gross

Investment

Property

Consolidated

Non-Controlling

Year

Purpose

Type

State

Assets

Interests

2019

Owned real estate

ALF/MC

VA

$
16,895

$
919

2018

Owned real estate

ILF

OR

14,400

2,857

2018

Owned real estate and development

ALF/MC

OR

16,341

1,081

2017

Owned real estate and development

ILF/ALF/MC

WI

22,009

2,305

2017

Owned real estate

ALF/MC

SC

11,680

1,264

Total

$
81,325

$
8,426

~~(2)~~ ~~We entered into a JV to own the real estate and develop a 110-unit ILF/ALF/MC community in Wisconsin. This development project completed during the second quarter of 2019.~~

Available Shelf Registration. We have an automatic shelf registration statement on file with the SEC, and currently have the ability to file additional automatic shelf registration statements, to provide us with capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under our automatic shelf registration statement in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering. Our shelf registration statement expires on February 28, 2022.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

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

Nine Months Ended September 30,

Three Months Ended March 31,

2019

2018

2020

2019

Declared

Paid

Declared

Paid

Declared

Paid

Declared

Paid

Common Stock ⁽¹⁾

$
68,241

$
68,241

$
67,768

$
67,768

$
23,167
⁽²⁾
$
23,167
⁽²⁾
$
22,931
⁽³⁾
$
22,931
⁽³⁾

(1) Represents $0.19 per share per month for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

(2) Includes $586 related to the vesting of performance-based stock units.

(3) Includes $300 related to the vesting of performance-based stock units.
In ~~October 2019,~~April 2020, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of ~~October, November~~April, May and ~~December 2019,~~June 2020, payable on ~~October 31, November~~April 30, May 29, and ~~December 31, 2019,~~June 30, 2020, respectively, to stockholders of record on ~~October 23, November~~April 22, May 21, and ~~December 23, 2019,~~June 22, 2020, respectively.
Stock-Based Compensation. Under our 2015 Equity Participation Plan (“the 2015 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.
At ~~September 30, 2019,~~March 31, 2020, we had 15,000 stock options outstanding and exercisable. During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 0 stock options were ~~granted. The stock options exercised during the nine months ended September 30, 2019 and 2018 were as follows:~~granted or exercised.

Weighted

Average

Options

Exercise

Option

Market

Exercised

Price

Value

Value ⁽¹⁾

2019

5,000

$
24.65

$
123,000

$
233,000

2018

5,000

$
24.65

$
123,000

$
205,000

~~(1)~~ ~~As of exercise date.~~
The following table summarizes our restricted stock and performance-based stock units activity for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Nine Months Ended September 30,

Three Months Ended March 31,

2019

2018

2020

2019

Outstanding, January 1

325,750

244,181

345,633

325,750

Granted

147,608

156,718

142,491

139,112

Vested

(127,725)
⁽¹⁾

(75,149)

(156,555)
⁽¹⁾

(117,997)
⁽²⁾
Outstanding, September 30

345,633

325,750

Outstanding, March 31

331,569

346,865

(1) Includes 81,574 performance-based stock units.

(2) Includes 48,225 performance-based stock units.
During the three months ended March 31, 2020 and 2019, 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

2020

76,464

$
48.95

ratably over 3 years

66,027

$
49.98

TSR targets ⁽¹⁾

142,491

2019

78,276

$
46.54

ratably over 3 years

60,836

$
46.54

TSR targets ⁽¹⁾

139,112

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

2219

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

~~During the nine months ended September 30, 2019 and 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

2019

78,276

$
46.54

ratably over 3 years

60,836

$
46.54

TSR targets ⁽¹⁾

8,496

$
44.73

May 29, 2020

147,608

2018

81,819

$
38.18

ratably over 3 years

66,171

$
38.18

TSR targets ⁽¹⁾

8,728

$
41.25

May 30, 2019

156,718

~~(1)~~ ~~Vesting is based on achieving certain total shareholder return (“TSR”) targets in 4 years with acceleration opportunity in 3 years.~~
Compensation expense recognized related to the vesting of restricted common stock and performance-based stock units for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 were $1,777,000 and ~~2018 were $4,938,000 and $4,384,000,~~$1,689,000, respectively. At ~~September 30, 2019,~~March 31, 2020, the remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock and performance-based stock units are as follows (in thousands):

Remaining

Compensation
Vesting Date

Expense
2020

$
4,993
2021

4,851
2022

2,536
2023

196
Total

$
12,576

Remaining

Compensation
Vesting Date

Expense
2019

$
1,627
2020

4,619
2021

2,503
2022

189
Total

$
8,938

8.
Commitments and Contingencies
At ~~September 30, 2019,~~March 31, 2020, we had commitments as follows (in thousands):

Total

Total

Investment

2019

Commitment

Remaining

Investment

2020

Commitment

Remaining

Commitment

Funding

Funded

Commitment

Commitment

Funding

Funded

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

$
50,647
⁽¹⁾
$
9,450

$
18,959

$
31,688

$
41,336
⁽¹⁾
$
5,602

$
23,963

$
17,373
Accrued incentives and earn-out liabilities (Note 5. Lease Incentives)

9,000

—

—

9,000

10,500

—

—

10,500
Mortgage loans (Note 2. Real Estate Investments)

56,200
⁽²⁾

3,419

22,009

34,191

27,200
⁽²⁾

326

6,271

20,929
Joint venture investments (Note 3. Investments in Unconsolidated Joint Ventures)

25,650

394

24,078

1,572
Notes receivable (Note 4. Notes Receivable)

2,850

1,603

1,627

1,223

1,354

50

50

1,304
Total

$
144,347

$
14,866

$
66,673

$
77,674

$
80,390

$
5,978

$
30,284

$
50,106
(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) Represents ~~$35,700~~$9,200 of commitments to expand and renovate the seniors housing and health care properties securing the mortgage loans and ~~$20,500~~$18,000 represents contingent funding upon the borrower achieving certain coverage ratios.

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~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

Also, some of our lease agreements provide purchase options allowing the lessee to purchase the properties they currently lease from us. See Note 2. Real Estate Investments for a table summarizing information about our purchase options.

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

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

9.
Major Operators
We have 2 operators from each of which we derive 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, 2019:~~March 31, 2020:

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

24

—

3,010

93

17.0
%

17.3
%

24

—

2,922

93

17.7
%

17.3
%

Senior Lifestyle Corporation

—

23

—

1,457

10.8
%

10.3
%

—

23

—

1,457

10.9
%

10.1
%

Total

24

23

3,010

1,550

27.8
%

27.6
%

24

23

2,922

1,550

28.6
%

27.4
%

(1) Includes rental income from owned properties and interest income from mortgage loans as of ~~September 30, 2019~~March 31, 2020 and excludes rental income ~~due to~~from lessee reimbursement ~~of our real estate taxes~~ and ~~adjustment for collectability of rental income.~~sold properties.
Our financial position and ability to make distributions may be adversely affected if Prestige Healthcare, Senior Lifestyle Corporation, 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, impact upon services or occupancy levels due to COVID-19, or in the event any such operator does not renew and/or extend its relationship with us.

~~Table of Contents~~

~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

10.
Earnings per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

September 30,

September 30,

March 31,

2019

2018

2019

2018

2020

2019

Net income

$
27,280

$
34,937

$
68,241

$
124,232

$
63,722

$
20,427

Less income allocated to non-controlling interests

(88)

(17)

(257)

(17)

(89)

(81)

Less income allocated to participating securities:

Non-forfeitable dividends on participating securities

(93)

(89)

(279)

(268)

(94)

(92)

Income allocated to participating securities

(19)

(49)

(19)

(236)

(169)

—

Total net income allocated to participating securities

(112)

(138)

(298)

(504)

(263)

(92)

Net income available to common stockholders

27,080

34,782

67,686

123,711

63,370

20,254

Effect of dilutive securities:

Participating securities

—
⁽¹⁾

138

—
⁽¹⁾

504

—

92

Net income for diluted net income per share

$
27,080

$
34,920

$
67,686

$
124,215

$
63,370

$
20,346

Shares for basic net income per share

39,586

39,487

39,565

39,470

39,539

39,532

Effect of dilutive securities:

Stock options

4

4

4

3

2

4

Performance-based stock units

375

217

375

217

—
⁽¹⁾

181

Participating securities

—
⁽¹⁾

157

—
⁽¹⁾

155

—
⁽²⁾

157

Total effect of dilutive securities

379

378

379

375

2

342

Shares for diluted net income per share

39,965

39,865

39,944

39,845

39,541

39,874

Basic net income per share

$
0.68

$
0.88

$
1.71

$
3.13

$
1.60

$
0.51

Diluted net income per share

$
0.68

$
0.88

$
1.69

$
3.12

$
1.60

$
0.51

(1) At March 31, 2020, 0 performance-based stock units would be earned based on TSR targets.

(2) For the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, the participating securities have been excluded from the computation of diluted net income per share as such inclusion would be anti-dilutive.

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

11.
Fair Value Measurements
In accordance with the accounting guidance regarding the fair value option for financial assets and financial liabilities, entities are permitted to choose to measure certain financial assets and liabilities at fair value, with the change in unrealized gains and losses reported in earnings. We did not elect the fair value option for any of our financial assets and financial liabilities.

~~Table of Contents~~

~~LTC PROPERTIES, INC.~~

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

~~(Unaudited)~~

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, 2019~~March 31, 2020 and December 31, ~~2018~~2019 assuming election of fair value for our financial assets and financial liabilities were as follows (in thousands):

At September 30, 2019

At December 31, 2018

At March 31, 2020

At December 31, 2019

Carrying

Fair

Carrying

Fair

Carrying

Fair

Carrying

Fair

Value

Value

Value

Value

Value

Value

Value

Value

Mortgage loans receivable

$
253,186

$
310,842
⁽¹⁾
$
242,939

$
295,492
⁽¹⁾

$
254,396

$
316,295
⁽¹⁾
$
254,099

$
312,824
⁽¹⁾
Bank borrowings

165,400

165,400
⁽²⁾

112,000

112,000
⁽²⁾

89,900

89,900
⁽²⁾

93,900

93,900
⁽²⁾
Senior unsecured notes, net of debt issue costs

518,469

537,739
⁽³⁾

533,029

508,613
⁽³⁾

599,527

564,050
⁽³⁾

599,488

612,375
⁽³⁾
(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, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was 9.0%.

(2) Our bank borrowings bear interest at a variable interest rate. The estimated fair value of our bank borrowings approximated their carrying values at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 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,~~March 31, 2020, the discount rate used to value our future cash outflow of our senior unsecured notes was 5.25% for those maturing before year 2026 and 5.50% for those maturing at or beyond year 2026. At December 31, 2019, the discount rate used to value our future cash outflow of our senior unsecured notes was ~~3.50%~~3.70% for those maturing before year 2026 and 3.70% for those maturing at or beyond year 2026. At December 31, 2018, the discount rate used to value our future cash outflow of our senior unsecured notes was 5.15% for those maturing before year 2026 and 5.40%3.90% for those maturing at or beyond year 2026.

12.
Subsequent Events
Subsequent to ~~September 30, 2019~~March 31, 2020 the following events occurred:
~~Debt.~~Investment in Unconsolidated Joint Ventures: The JV in which we hold our preferred equity investment completed a transaction to sell the 4 properties comprising the JV and we received partial liquidation proceeds of $17,200,000. We ~~sold $100,000,000 aggregate principal amount~~anticipate receiving additional proceeds of ~~3.85% senior unsecured notes due~~approximately $1,300,000 and expect to recognize a loss on liquidation of unconsolidated joint ventures of approximately $600,000 in ~~2031~~the second quarter of 2020 related to ~~Prudential. Accordingly, we have $618,469,000 outstanding and $7,500,000 available under our senior unsecured notes. Additionally, we paid down $100,000,000 under our unsecured revolving line~~the dissolution of credit using the proceeds from the sale of senior unsecured noted explained above. Accordingly, we have $65,400,000 outstanding under our revolving line of credit with $534,600,000 available for borrowing.this JV.
Equity: We declared a monthly cash dividend of $0.19 per share on our common stock for the months of ~~October, November~~April, May and ~~December 2019,~~June 2020, payable on ~~October 31, November~~April 30, May 29, and ~~December 31, 2019,~~June 30, 2020, respectively to stockholders of record on ~~October 23, November~~April 22, May 21, and ~~December 23, 2019,~~June 22, 2020, 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,” “could,” “would,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or the negative of those words or similar words. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to, the status of the economy; the status of capital markets (including prevailing interest rates) and our access to capital; the income and returns available from investments in health care related real estate (including our ability to re-lease properties upon expiration of a lease term); the ability of our borrowers and lessees to meet their obligations to us; our reliance on a few major operators; our dependence on operators for revenue and cash flow; the bankruptcy, insolvency or financial deterioration of our lessees; potential limitations on our remedies when mortgage loans default; competition faced by our borrowers and lessees within the health care ~~industry;~~industry, public health epidemics such as coronavirus (COVID-19); 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; 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, ~~2018~~2019 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 (“REIT”) that invests in seniors housing and health care properties 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.

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Table of Contents

The following graph summarizes our gross investments as of ~~September 30, 2019:~~March 31, 2020:

Our primary seniors housing and health care property classifications include skilled nursing centers (“SNF”), assisted living communities (“ALF”), independent living communities (“ILF”), memory care communities (“MC”) and combinations thereof. ALF, ILF, MC, and combinations thereof are included in the ALF classification. As of ~~September 30, 2019,~~March 31, 2020, seniors housing and long-term health care properties comprised approximately 99.3% of our real estate investment portfolio. We have been operating since August 1992.
Substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals, interest earned on outstanding loans receivable and income from investments in unconsolidated joint ventures. Our investments in owned properties and mortgage loans represent our primary source of liquidity to fund distributions and are dependent upon the performance of the operators on their lease and loan obligations and the rates earned thereon. To the extent that the operators experience operating difficulties and are unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by property type and operator. Our monitoring process includes periodic review of financial statements for each facility, periodic review of operator credit, scheduled property inspections and review of covenant compliance.
In addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk. Some operating leases and loans are credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other loans, operating leases or agreements between us and the operator and its affiliates.

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COVID-19

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

The operations and occupancy levels at our properties will be adversely affected if COVID-19 or another pandemic results in infections on a large scale at our properties, early resident move-outs, our operators delay accepting new residents due to quarantines, and/or potential occupants postpone moving to a senior housing facility. Additionally, as our operators have responded to the pandemic, operating costs have begun to rise. A decrease in occupancy, ability to collect rents from residents and/or increase in operating costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent. In recognition of the unique conditions affecting our operators, we have agreed to rent deferrals for certain operators totaling $0.8 million for April 2020, of which $0.1 million was returned back to us. The $0.8 million April rent deferrals represent approximately 7% of our April contractual rent.

The extent to which COVID-19 could impact our operations and those of our operators will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, spread and severity of the outbreak and the actions taken to contain the virus or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures.

Table of Contents

Real Estate Portfolio Overview

The following tables summarize our real estate investment portfolio by owned properties and mortgage loans and by type, as of ~~September 30, 2019~~March 31, 2020 (dollar amounts in thousands):

Nine Months Ended

Percentage

September 30, 2019

Percentage

Number

Number of

Gross

of

Rental

Interest

of

of

SNF

ALF
Owned Properties

Investments

Investments

Income ⁽¹⁾

Income

Revenues

Properties ⁽²⁾

Beds ⁽³⁾

Units ⁽³⁾
Assisted Living

$
844,635

48.8
%
$
51,023

$
—

40.3
%

105

—

6,070
Skilled Nursing

605,763

35.0
%

52,662

—

41.5
%

72

8,835

261
Under Development ⁽⁴⁾

12,934

0.7
%

—

—

—
%

—

—

—
Other ⁽⁵⁾

11,360

0.7
%

713

—

0.6
%

1

118

—
Total Owned Properties

1,474,692

85.2
%

104,398

—

82.4
%

178

8,953

6,331

Mortgage Loans

Skilled Nursing

255,737

14.8
%

—

22,308

17.6
%

22

2,892

—
Total Mortgage Loans

255,737

14.8
%

—

22,308

17.6
%

22

2,892

—

Total Portfolio

$
1,730,429

100.0
%
$
104,398

$
22,308

100.0
%

200

11,845

6,331

Three Months Ended

Percentage

March 31, 2020

Percentage

Number

Number of

Gross

of

Rental

Interest

of

of

SNF

ALF
Owned Properties

Investments

Investments

Income ⁽¹⁾

Income

Revenues

Properties ⁽²⁾

Beds ⁽³⁾

Units ⁽³⁾
Assisted Living

$
876,319

51.7
%
$
18,139

$
—

43.7
%

107

—

6,164
Skilled Nursing

543,814

32.0
%

15,321

—

37.0
%

50

6,283

212
Under Development ⁽⁴⁾

6,684

0.4
%

—

—

—
%

—

—

—
Other ⁽⁵⁾

11,360

0.7
%

242

—

0.6
%

1

118

—
Total Owned Properties

1,438,177

84.8
%

33,702

—

81.3
%

158

6,401

6,376

Mortgage Loans

Skilled Nursing

256,959

15.2
%

—

7,777

18.7
%

22

2,804

—
Total Mortgage Loans

256,959

15.2
%

—

7,777

18.7
%

22

2,804

—

Total Portfolio

$
1,695,136

100.0
%
$
33,702

$
7,777

100.0
%

180

9,205

6,376

Nine Months Ended

Percentage

September 30, 2019

Percentage

Number

Number of

Gross

of

Rental

Interest

of

of

SNF

ALF
Summary of Properties by Type

Investments

Investments

Income ⁽¹⁾

Income

Revenues

Properties ⁽²⁾

Beds ⁽³⁾

Units ⁽³⁾
Skilled Nursing

$
861,500

49.8
%
$
52,662

$
22,308

59.2
%

94

11,727

261
Assisted Living

844,635

48.8
%

51,023

—

40.3
%

105

—

6,070
Under Development ⁽⁴⁾

12,934

0.7
%

—

—

—
%

—

—

—
Other ⁽⁵⁾

11,360

0.7
%

713

—

0.5
%

1

118

—
Total Portfolio

$
1,730,429

100.0
%
$
104,398

$
22,308

100.0
%

200

11,845

6,331

Three Months Ended

Percentage

March 31, 2020

Percentage

Number

Number of

Gross

of

Rental

Interest

of

of

SNF

ALF
Summary of Properties by Type

Investments

Investments

Income ⁽¹⁾

Income

Revenues

Properties ⁽²⁾

Beds ⁽³⁾

Units ⁽³⁾
Assisted Living

$
876,319

51.7
%
$
18,139

$
—

43.7
%

107

—

6,164
Skilled Nursing

800,773

47.2
%

15,321

7,777

55.7
%

72

9,087

212
Under Development ⁽⁴⁾

6,684

0.4
%

—

—

—
%

—

—

—
Other ⁽⁵⁾

11,360

0.7
%

242

—

0.6
%

1

118

—
Total Portfolio

$
1,695,136

100.0
%
$
33,702

$
7,777

100.0
%

180

9,205

6,376
(1) Excludes variable rental income ~~of $12,094 related to our real estate taxes which were reimbursed by our operators~~from lessee reimbursement and ~~adjustment for collectability of rental income.~~sold properties.

(2) We have investments in 2827 states leased or mortgaged to 3029 different operators.

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

(4) Represents a 90-bed SNF development project ~~consisting of a 78-unit ALF/MC located in Oregon and a 90-bed SNF~~ located in Missouri.

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

As of ~~September 30, 2019,~~March 31, 2020, we had $1.4 billion in net carrying value of real estate investments, consisting of $1.1 billion or ~~81.7%~~81.5% invested in owned and leased properties and $0.3 billion or ~~18.3%~~18.5% invested in mortgage loans secured by first mortgages. Our investment in mortgage loans mature in 2043 and beyond and contain interest rates between 9.2% and ~~9.7%~~9.9%.
For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, rental income and interest income from mortgage loans represented ~~82.5%~~82.0% and ~~16.1%~~16.8%, respectively, of total gross revenues. In most instances, our lease structure contains fixed annual rental escalations and/or annual rental escalations that are contingent upon changes in the Consumer Price Index, 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 gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved.
During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, there were no lease renewals. For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we recorded ~~$3.6~~$0.8 million in straight-line rental income and amortization of lease incentive cost of ~~$0.3~~$0.1 million. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we received ~~$113.2~~$37.3 million of cash rental income, which includes ~~$12.1~~$4.2 million of operator reimbursements for our real estate taxes. At ~~September 30, 2019,~~March 31, 2020, the straight-line rent receivable balance, net of reserves, on the balance sheet was ~~$44.8~~$46.5 million.

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Update on Certain Operators

~~During 2017, we issued a notice of default to~~ Anthem Memory Care (“Anthem”) operates 11 operational memory care communities under a master lease and was placed in default in 2017 resulting from Anthem’s partial payment of its minimum rent. However, we did not enforce our rights and remedies pertaining to the event of default, under the stipulation that Anthem ~~operates 11 memory care communities under a master lease.~~achieves sufficient performance and pays agreed upon rent. We currently ~~estimate~~anticipate that Anthem will pay ~~$7.5~~$9.9 million of annual cash rent during ~~2019. This amount represents approximately 50% of the contractual amount due under the lease in 2019.~~2020. However, COVID-19 may adversely impact Anthem’s operating cash flow and ability to pay rent. In accordance with ~~Accounting Standard codification (“ASC”)~~ ~~Topic~~ASC 842 ~~Leases~~ ~~(“ASC 842”)~~ lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Anthem and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance.

~~During 2017,~~ Preferred Care, Inc. (“Preferred Care”) and affiliated entities filed for Chapter 11 bankruptcy in 2017 as a result of a multi-million-dollar judgment in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. ~~The affiliated entities named in the lawsuit operate properties in Kentucky and New Mexico.~~ Preferred Care leased 24 properties (“Properties”) under two master leases from us and ~~none of~~ the ~~24 properties are located in Kentucky or New Mexico. Those 24 properties are in Arizona, Colorado, Iowa, Kansas and Texas. The~~ Preferred Care operating entities that sublease those ~~properties~~Properties did not file for bankruptcy. ~~The court ordered deadline for affirmation or rejection of the lease passed without action by Preferred Care.~~ In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Preferred Care and determined ~~that~~ it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance. ~~Furthermore, we placed~~ Preferred Care ~~on a cash basis on January 1,~~did not affirm our master leases and subsequently filed for Chapter 7 bankruptcy in 2019. ~~In October~~The monthly contractual obligation under the master leases was approximately $1.0 million, however, during the third quarter of 2019, Preferred Care began paying only $55,000 of monthly rent. The rental obligation under unconfirmed lease was approximately $1.0 million. We applied all of their security deposit to rental income during the third quarter and recorded only the $55,000 cash received in October 2019 to rental income. We are working with Preferred Care on options for the portfolio which likely will include selling the majority of the properties.

During the fourth quarter of 2019, we entered into multiple contracts to sell the Properties, all of which were completed during the first quarter of 2020. The combined net proceeds from the sales, including the 2019 transactions, was approximately $77.9 million resulting in a ~~portion~~total gain of approximately $44.0 million. The Properties had a combined net book value of $35.6 million. The 21 properties sold in the first quarter of 2020, which included 2,411 beds in Arizona, Colorado, Iowa, Kansas and Texas, were sold through multiple transactions and generated net proceeds of approximately $71.9 million. These 21 properties had a combined net book value of $29.1 million and ~~are negotiating contracts to sell~~resulted in total gain on sale of $43.9 million in the ~~remainder~~first quarter of 2020 which was recorded as Gain on sale of real estate, net in the ~~properties. The contracts are subject to standard due diligence~~consolidated statements of income and ~~other contingencies to close. Should these conditions be met, we anticipate reclassifying these properties to held-for-sale.~~comprehensive income.

~~On December 4, 2018,~~ Senior Care Centers, ~~LLC.~~LLC and affiliates and subsidiaries (“Senior Care”) filed for Chapter 11 bankruptcy as a result of lease terminations from certain landlords and on-going operational ~~challenges.~~challenges in December 2018. Senior Care did not pay us December 2018 rent ~~but has paid us January to October 2019 rent, real estate property tax~~ and ~~maintenance deposits. In~~accordingly, in December 2018, we placed Senior Care on a cash basis. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive ~~balances~~balance related to Senior Care and determined ~~that~~ it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance.
~~Pursuant to the U.S. Bankruptcy Code,~~ During 2019, we received a court ordered reimbursement from Senior Care ~~had an initial period of 120 days from~~for the ~~petition date to assume or reject the lease. However, the Bankruptcy Code also provides that the court may extend this initial 120-day period for an additional 90 days. Accordingly,~~December 2018 unpaid rent, late fees and legal costs totaling $1.6 million. In March 2020, Senior Care ~~requested,~~emerged from bankruptcy and ~~the court approved an additional 90 days, which ended on July 2, 2019, to assume or reject the~~affirmed our master lease. ~~In July 2019,~~ Senior Care ~~filed a motion attempting to affirm the lease. We subsequently filed an objection in opposition to Senior Care’s motion. During the fourth quarter of 2019, the court rejected our motion~~is current on all its rent, real estate property tax escrow and ~~accordingly, our master lease with Senior Care was affirmed. At October 4, 2019, as of court filing,~~maintenance deposits.

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Table of Contents

~~the court has ordered Senior Care to pay us unpaid rent from December 2018, late fees and legal costs totaling $1.6 million by the earlier of the bankruptcy plan effective date or December 16, 2019.~~2020 Activities Overview

During the three months ended March 31, 2019, we placed Thrive Senior Living, LLC. (“Thrive”) on a cash basis due to short-payment of contractual rent in November 2018 and non-payment of rent in December 2018 totaling $0.7 million. This rent was subsequently received in 2019. Thrive did not pay 2019 contractual rent. In April 2019, we issued a notice of default to Thrive. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Thrive and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019 as required by the ASC 842 transition guidance.
~~We completed the following for all of the properties in the Thrive portfolio. As of September 30, 2019, Thrive does not operate any property in our portfolio:~~
● Transitioned two memory care communities located in Ohio and Kentucky with a total of 120-units to an operator new to our portfolio during the second quarter of 2019. The memory care communities are under a 10-year lease term with initial cash rent of $1.3 million in year one, $1.5 million in year two, $2.0 million in year three and $2.2 million in year four. Rent may increase subject to a contingent escalation formula commencing in year five and annually thereafter. The lease provides the lessee with a purchase option available between 2028-2029;
● Transitioned a 56-unit memory care community located in Texas to an existing operator and added the memory care community to an existing master lease during the second quarter of 2019. As a result of this transition, annual cash rent under the existing master lease was increased by $0.4 million effective June 1, 2019 and will increase by an additional $0.3 million on June 1, 2020 and 2.5% annually thereafter. Additionally, LTC will be entitled to incremental rent calculated as a percentage of increases in gross revenues generated by the property above an established threshold;
● Transitioned two memory care communities in Georgia and South Carolina with a total of 159-units to an existing operator during the third quarter of 2019. The new 2-year lease agreement has an initial annual cash rent of $1.8 million. The lease provides the lessee one month free rent and the option to defer up to 50% of contractual rent through December 2019. Rent increases 3.5% in year two; and
● Transitioned the remaining 60-unit memory care community located in Florida to an existing operator effective August 1, 2019. The new 10-year lease provides the lessee twelve months free rent, rent of $0.5 million in year two and $0.6 million in year three and thereafter. In year two the lessee has the option to defer rent in an amount not to exceed $0.2 million. Rent may increase subject to a contingent escalation formula commencing in year three and annually thereafter. Additionally, the lease provides the lessee with a purchase option available between 2028 and 2029.

~~Table of Contents~~

~~2019 Activities Overview~~

The following tables summarize our transactions during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 (dollar amounts in thousands):

Investment in Owned Properties

Number

Type

Number

Initial

Total

Total

of

of

of

Cash

Purchase

Transaction

Acquisition

State

Properties

Properties

Beds/Units

Yield

Price

Costs

Costs

California

—
⁽¹⁾
Land

—

N/A

$
110

$
27

$
137

Missouri

1
⁽²⁾
SNF/Land

90

⁽²⁾
%

22,122

99

22,221

Virginia

1
⁽³⁾
ALF/MC

74

7.4
%

16,719

176

16,895

Total

2

164

$
38,951

$
302

$
39,253

~~(1)~~ ~~We acquired a parcel of land adjacent to an existing SNF in California.~~

~~(2)~~ We acquired a newly constructed 90-bed SNF located in Missouri for approximately $19,500. The initial cash yield is 8.3% with annual escalation of 2% effective December 2019 and thereafter. Additionally, we acquired a parcel of land and development of a 90-bed SNF in Missouri. The commitment totals approximately $17,400. The initial cash yield upon completion of the development will be 9.3%.

~~(3)~~ We entered into a joint venture (“JV”) to purchase an existing operational 74-unit ALF/MC community. The non-controlling partner contributed $919 of equity and we contributed $15,971 in cash. Our economic interest in the real estate JV is approximately 95%.

Number

Type

Number

Initial

Total

Total

of

of

of

Cash

Purchase

Transaction

Acquisition

State

Properties

Properties

Beds/Units

Yield

Price

Costs

Costs

Texas

1

SNF

140

8.5
%

$
13,500

$
81

$
13,581

Investment in Development and Improvement projects

Developments

Improvements
Assisted Living Communities

$
10,266

$
1,826
Skilled Nursing Centers

4,786

—
Other

—

295
Total

$
15,052

$
2,121

Developments

Improvements
Assisted Living Communities

$
2,386

$
1,116
Skilled Nursing Centers

2,468

3
Total

$
4,854

$
1,119
Completed Developments

Number

Type

Number

of

of

of

Total
Type of Project

Properties

Property

Beds/Units

State

Investment
Development

1

SNF

143

Kentucky

$
24,493
Development

1

ILF/ALF/MC

110

Wisconsin

21,872

2

253

$
46,365

Number

Type

Number

of

of

of

Total

Properties

Property

Beds/Units

State

Investment

1

ALF/MC ⁽¹⁾

78

Oregon

$
16,341
(1) Certificate of occupancy was received in March 2020, however, due to the COVID-19 pandemic, we have consented to delay the opening of this community to a later date to be determined.
Investment in Mortgage Loans

Originations and funding under mortgage loans receivable

$
10,919
⁽¹⁾
Scheduled principal payments received

(565)

Mortgage loan premium amortization

(3)

Provision for loan loss reserve

(104)

Net increase in mortgage loans receivable

$
10,247

~~(1)~~ ~~During 2019, we funded an additional $7,500 under an existing mortgage loan. The incremental funding bears interest at 9.41%, fixed for two years, and escalating by 2.25% thereafter.~~

Originations and funding under mortgage loans receivable

$
366

Scheduled principal payments received

(65)

Mortgage loan premium amortization

(1)

Provision for loan loss reserve

(3)

Net increase in mortgage loans receivable

$
297

~~Table of Contents~~

Investment in Unconsolidated Joint Ventures

Type

Type

Total

Currently

Number

Received

of

of

Preferred

Paid in

of

Investment

Carrying

Capital

Recognized

Cash

State

Properties

Investment

Return

Cash

Beds/ Units

Commitment

Value

Contribution

Income

Interest

Arizona

ALF/MC/ILF

Preferred Equity

15
%

8
%
⁽¹⁾
585

$
25,650

$
24,426

$
394

$
614

$
1,166

Florida ⁽²⁾

ALF/ILF/MC

Mezzanine

N/A

N/A

N/A

—
⁽²⁾

—
⁽²⁾

—

955
⁽²⁾

979
⁽²⁾
Florida ⁽³⁾

UDP/ALF/MC

Mezzanine

N/A

N/A

N/A

—

—

—

404
⁽³⁾

432
⁽³⁾

585

$
25,650

$
24,426

$
394

$
1,973

$
2,577

Type

Type

Total

Contractual

Number

Cash

of

of

Preferred

Cash

of

Investment

Carrying

Capital

Income

Interest

State

Properties

Investment

Return

Portion

Beds/ Units

Commitment

Value

Contribution

Recognized

Received

Arizona

ALF/MC/ILF

Preferred Equity

15
%

8
%
⁽¹⁾
585

$
—

$
19,061
⁽¹⁾
$
58

$
231

$
231

(1) Effective second quarter of 2019, this JV was placed on the cash basis due to delinquency of our preferred return. ~~Subsequent~~During the fourth quarter of 2019, we recorded an impairment loss of $5,500 to ~~September 30, 2019, the JV signed a letter of intent for the sale of~~write-down our preferred equity investment to its estimated fair value. In April 2020, the four properties comprising the ~~JV. Concurrently, the~~ JV ~~is pursuing a refinancing alternative to take advantage~~were sold and we received partial liquidation proceeds of ~~lower interest rates in today’s market. Based upon the information available to us regarding available alternatives~~$17,200. We anticipate receiving additional proceeds of approximately $1,300 and ~~courses of action as of September 30, 2019, we performed a recoverability test on the carrying amount of our preferred equity investment and concluded the preferred equity investment was not impaired.~~

~~(2)~~ We had a $2,900 mezzanine loan commitment for a 99-unit seniors housing community in Florida with a total preferred return of 15%. 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 GAAPexpect to recognize ~~interest income and recorded~~a loss on liquidation of unconsolidated joint ventures of approximately $600 in the ~~difference between the effective interest income and cash interest income~~second quarter of 2020 related to the ~~loan principal balance. During the third quarter~~dissolution of ~~2019, the mezzanine loan was paid off.~~this joint venture. See
Item I. Note 3. Investment in Unconsolidated Joint Ventures
~~(3)~~ ~~We had a $3,400 mezzanine loan commitment~~ for ~~the development of a 127-unit seniors housing community in Florida with a total preferred return of 15%. During the first quarter of 2019, the mezzanine loan was paid off.~~more detail.
Notes Receivable

Advances under notes receivable

$
8,531
⁽¹⁾

Principal payments received under notes receivable

(3,446)

Reclassed to real estate under development

(200)
⁽²⁾

Notes receivable reserve

(48)

Net decrease in notes receivable

$
4,837

Advances under notes receivable

$
141

Reclassed to real estate under development

(300)
⁽¹⁾

Notes receivable reserve

1

Net increase in notes receivable

$
(158)

(1) We originated a $6,800 mezzanine loan commitment for the development of a 204-unit ILF/ALF/MC in Georgia. The mezzanine loan has a five-year term and a 12.0% return, a portion of which is paid in cash, and the remaining portion of which is deferred during the first 46 months. Additionally, we originated a $1,400 note agreement, funding $1,124 with a commitment to fund $276. The note bears interest at 7.0%. Further, we originated a $550 note agreement, funding $400 with a commitment to fund $150. The note bears interest at 7.5%.

~~(2)~~ Represents an interim working capital loan related to a development project which matured upon completion of the development project and commencement of the lease.

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Health Care Regulatory Climate

The Centers for Medicare & Medicaid Services (“CMS”) annually updates Medicare skilled nursing facility prospective payment system rates and other policies. On July 30, 2019, CMS issued its final fiscal year 2020 Medicare skilled nursing facility update. Under the final rule, CMS projects aggregate payments to skilled nursing facilities will increase by $851 million, or 2.4%, for fiscal year 2020 compared with fiscal year 2019. The final rule also addresses implementation of the new Patient-Driven Payment Model case mix classification system that became effective on October 1, 2019, changes to the group therapy definition in the skilled nursing facility setting, and various skilled nursing facility Value-Based Purchasing and quality reporting program policies. On April 10, 2020, CMS issued a proposed rule to update skilled nursing facility rates and policies for fiscal year 2021, which starts October 1, 2020. CMS estimates that payments to skilled nursing facilities would increase by $784 million, or 2.3%, for fiscal year 2021 compared to fiscal year 2020. CMS also proposes to revise the geographic wage index and apply a cap on wage index decreases used in setting skilled nursing facility rates. The proposal would also make changes to the patient classifications under the Patient Driven Payment Model and certain minor policy changes to the Value-Based Purchasing program. CMS is expected to release the final rule by August 1, 2020.

Since the announcement of the COVID-19 pandemic and beginning as of March 13, 2020, CMS has issued numerous temporary regulatory waivers and new rules to assist health care providers, including skilled nursing facilities, respond to the COVID-19 pandemic. These include, waiving the skilled nursing facility’s 3-day qualifying inpatient hospital stay requirement, flexibility in calculating a new Medicare benefit period, waiving timing for completing functional assessments, waiving requirements for health care professional licensure, survey and certification, provider enrollment, and reimbursement for services performed by telehealth, among many others. CMS also announced a temporary expansion of its Accelerated and Advance Payment Program to allow skilled nursing facilities and certain other Medicare providers to request accelerated or advance payments in an amount up to 100% of the Medicare Part A payments they received from October–December 2019; this expansion was suspended April 26, 2020 in light of other CARES Act funding relief. In addition, CMS has also enhanced requirements for nursing facilities to report COVID-19 infections to local, state and federal authorities.

On March 26, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), sweeping legislation intended to bolster the nation’s response to the COVID-19 pandemic. In addition to offering economic relief to individuals and impacted businesses, the law expands coverage of COVID-19 testing and preventative services, addresses health care workforce needs, eases restrictions on telehealth services during the crisis, and increases Medicare regulatory flexibility, among many other provisions. Notably, the CARES Act temporarily suspends the 2% across-the-board “sequestration” reduction during the period May 1, 2020 through December 31, 2020, and extends the current Medicare sequester requirement through fiscal year 2030. In addition, the law provides $100 billion in grants to eligible health care providersfor health care related expenses or lost revenues that are attributable to COVID-19. On April 10, 2020, CMS announced the distribution of $30 billion in funds to Medicare providers based upon their 2019 Medicare fee for service revenues. Eligible providers must agree to certain terms and conditions in receiving these grants. In addition, the Department of Health and Human Services (“HHS”) has authorized $20 billion of additional funding for providers that have already received funds from the initial distribution of $30 billion. Unlike the first round of funds, which came automatically, providers have to apply for these additional funds and submit the required supporting documentation, using the online portal provided by HHS. Providers must attest to and agree to specific terms and conditions for the use of such funds. HHS will make the additional distributions with the goal of allocating the whole $50 billion proportionally across all providers based on those providers’ proportional share of 2018 net Medicare fee-for-service revenue. CMS is expected to

Table of Contents

distribute additional funding to Medicaid and potentially other providers, but the details are not yet known.

On July 18, 2019, CMS published a final rule that eliminates the prohibition on pre-dispute binding arbitration agreements between long-term care facilities and their residents. The rule also strengthens the transparency of arbitration agreements and makes other changes to arbitration requirements for long-term care facilities. 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

~~Table of Contents~~

Medicaid participation will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to us.

Congress periodically considers legislation revising Medicare and Medicaid policies, including legislation that could have the impact of reducing Medicare reimbursement for skilled nursing facilities and other Medicare providers, limiting state Medicaid funding allotments, encouraging home and community-based long-term care services as an alternative to institutional settings, or otherwise reforming payment policy for post-acute care services. Congress continues to consider further legislative action in response to the COVID-19 pandemic. There can be no assurances that enacted or future legislation will not have an adverse impact on the financial condition of our lessees and borrowers, which subsequently could materially adversely impact our company.

Additional reforms affecting the payment for and availability of health care services have been proposed at the federal and state level and adopted by certain states. Increasingly, state Medicaid programs are providing coverage through managed care programs under contracts with private health plans, which is intended to decrease state Medicaid costs. State Medicaid budgets may experience shortfalls due to increased costs in addressing the COVID-19 pandemic. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment methodologies may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by the government and other third-party payors.

Key Performance Indicators, Trends and Uncertainties

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

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

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

9/30/19

6/30/19

3/31/19

12/31/18

9/30/18

Asset mix:











Real property

$
1,474,692

$
1,452,669

$
1,445,596

$
1,421,456

$
1,414,267

Loans receivable

255,737

254,555

246,775

245,386

245,053

Real estate investment mix:

Skilled nursing centers

$
861,500

$
844,136

$
834,185

$
830,485

$
832,599

Assisted living communities

844,635

843,682

840,926

820,686

812,800

Under development

12,934

8,167

6,193

4,606

2,881

Other ⁽¹⁾

11,360

11,239

11,067

11,065

11,040

Operator mix:

Prestige Healthcare ⁽¹⁾

$
268,869

$
267,688

$
259,907

$
258,519

$
258,186

Senior Lifestyle Corporation

191,283

190,758

190,368

190,368

189,945

Senior Care Centers

138,109

138,109

138,109

138,109

138,109

Anthem Memory Care

136,483

136,397

136,397

136,397

135,946

Carespring Health Care Management

102,042

102,038

99,997

97,461

95,951

Remaining operators

893,643

872,234

867,593

845,988

841,183

Geographic mix:

Texas

$
292,238

$
292,159

$
292,091

$
292,317

$
292,317

Michigan ⁽¹⁾

256,680

255,498

247,718

246,329

245,996

Wisconsin

149,184

149,064

146,750

143,657

137,056

Colorado

114,923

114,923

114,923

114,923

114,923

California

102,561

102,412

102,254

102,254

102,254

Remaining states

814,843

793,168

788,635

767,362

766,774

3/31/20

12/31/19

9/30/19

6/30/19

3/31/19

Asset mix:











Real property

$
1,438,177

$
1,484,571

$
1,474,692

$
1,452,669

$
1,445,596

Loans receivable

256,959

256,659

255,737

254,555

246,775

Real estate investment mix:

Skilled nursing centers

$
800,773

$
853,029

$
861,500

$
844,136

$
834,185

Assisted living communities ⁽¹⁾

876,319

872,683

854,622

851,849

847,119

Under development ⁽¹⁾

6,684

4,158

2,947

—

—

Other ⁽²⁾

11,360

11,360

11,360

11,239

11,067

Operator mix:

Prestige Healthcare ⁽²⁾

$
270,091

$
269,792

$
268,869

$
267,688

$
259,907

Senior Lifestyle Corporation

191,622

191,283

191,283

190,758

190,368

Senior Care Centers

138,109

138,109

138,109

138,109

138,109

Anthem Memory Care

136,483

136,484

136,483

136,397

136,397

Carespring Health Care Management

102,520

102,520

102,042

102,038

99,997

Remaining operators

856,311

903,042

893,643

872,234

867,593

Geographic mix:

Michigan ⁽²⁾

$
277,063

$
276,742

$
256,680

$
255,498

$
247,718

Texas

273,075

284,697

292,238

292,159

292,091

Wisconsin

149,405

149,290

149,184

149,064

146,750

Colorado

106,879

114,923

114,923

114,923

114,923

California

103,970

103,240

102,561

102,412

102,254

Remaining states

784,744

812,338

814,843

793,168

788,635

(1) During the three months ended March 31, 2020, we completed the construction of a 78-unit ALF/MC located in Oregon. Accordingly, this property was reclassified from “Under development” to “Assisted living communities” for all periods presented.

(2) We have three parcels of land located adjacent to properties securing the Prestige Healthcare mortgage loan and are managed by Prestige.
Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to gross asset value and debt to market capitalization. The leverage ratios indicate how much of our consolidated balance sheet capitalization is related to long-term obligations. Our coverage ratios include interest coverage ratio and fixed charge coverage ratio. The coverage ratios indicate our ability to service interest and fixed charges (interest). The coverage ratios are based on earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) as defined by NAREIT. EBITDAre is calculated as net income available to common stockholders (computed in accordance with GAAP) excluding (i) interest expense, (ii) income tax expense, (iii) real estate depreciation and amortization, (iv) impairment write-downs of depreciable real estate, (v) gains or losses on the sale of depreciable real estate, and (vi) adjustments for unconsolidated partnerships and joint ventures. Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. The following table reflects the recent historical trends for our credit strength measures:

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Balance Sheet Metrics

Year to Date

Quarter Ended

9/30/19

9/30/19

6/30/19

3/31/19

12/31/18

9/30/18

Debt to gross asset value

36.8
%
36.8
%

36.8
%
⁽²⁾
37.1
%
⁽³⁾
35.2
%
⁽⁵⁾
36.4
%
Debt to market capitalization ratio

25.1
%
25.1
%
⁽¹⁾
27.1
%

27.1
%
⁽¹⁾
28.1
%
⁽⁶⁾
27.7
%
Interest coverage ratio ⁽⁸⁾

4.9
x
4.9
x

4.8
x

4.9
x
⁽⁴⁾
5.2
x
⁽⁷⁾
4.8
x
Fixed charge coverage ratio ⁽⁸⁾

4.9
x
4.9
x

4.8
x

4.9
x
⁽⁴⁾
5.2
x
⁽⁷⁾
4.8
x

Quarter Ended

3/31/20

12/31/19

9/30/19

6/30/19

3/31/19

Debt to gross asset value

37.3
%

37.2
%
⁽²⁾
36.8
%

36.8
%
⁽⁵⁾
37.1
%
Debt to market capitalization ratio

36.3
%
⁽¹⁾
28.0
%
⁽³⁾
25.1
%
⁽⁴⁾
27.1
%

27.1
%
Interest coverage ratio ⁽⁶⁾

4.7
x

4.9
x

4.9
x

4.8
x

4.9
x
Fixed charge coverage ratio ⁽⁶⁾

4.7
x

4.9
x

4.9
x

4.8
x

4.9
x
(1) Increased due to decrease in market capitalization, partially offset by decrease in outstanding debt.

(2) Increased due to increase in outstanding debt partially offset by increase in gross asset value. The increase in asset value was primarily due to acquisitions, developments and capital improvement funding partially offset by property sales.

(3) Increased due to decrease in market capitalization and increase in outstanding debt.

(4) Decreased due to increase in market capitalization.

~~(2)~~(5) Decreased due to increase in gross asset value from additional mortgage loan, development and capital improvement funding.

~~(3)~~ Increased due to increase in outstanding debt and decrease in gross asset value. The decrease in gross asset value was primarily due to adoption of ASC 842 during the three months ended March 31, 2019. ASC 842 requires a lease-by-lease collectibility analysis of receivables and related balances. Based on our assessment, we determined that it was not probable that we would collect substantially all of the contractual lease obligations for certain leases through maturity. Accordingly, we wrote-off the balance of straight-line rent receivable and lease incentives related to these leases as a cumulative adjustment to equity, as required by the transition guidance.

~~(4)~~ ~~Decreased due to decrease in other income compared to the fourth quarter of 2018. See (7) below for explanation.~~

~~(5)~~ ~~Decreased due to decrease in outstanding debt partially offset by decrease in gross asset value.~~

(6) ~~Increased due to decrease in market capitalization, partially offset by decrease in outstanding debt.~~

~~(7)~~ ~~Increased due to decrease in interest expense and increase in other income from the net write-off of Senior Lifestyle contingent lease incentive and the related earn-out liability.~~

~~(8)~~ In calculating our interest coverage and fixed charge coverage ratios above, we use EBITDAre, which is a financial measure not derived in accordance with GAAP (non-GAAP financial measure). EBITDAre is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with GAAP. You should not rely on EBITDAre as a substitute for any such GAAP financial measures or consider it in isolation, for the purpose of analyzing our financial performance, financial position or cash flows. Net income is the most directly comparable GAAP measure to EBITDAre.

Year to Date

Quarter Ended

9/30/19

9/30/19

6/30/19

3/31/19

12/31/18

9/30/18

Net income

$
68,241

$
27,280

$
20,534

$
20,427

$
30,844

$
34,937

Less: Gain on sale

(6,736)

(6,236)

(500)

—

(7,984)

(14,353)

Add: Interest expense

23,004

7,827

7,710

7,467

7,215

7,497

Add: Depreciation and amortization

29,399

9,932

9,860

9,607

9,396

9,447

Total EBITDAre

$
113,908

$
38,803

$
37,604

$
37,501

$
39,471

$
37,528

Interest expense

$
23,004

$
7,827

$
7,710

$
7,467

$
7,215

$
7,497

Add: Capitalized interest

441

108

73

260

398

298

Interest incurred

$
23,445

$
7,935

$
7,783

$
7,727

$
7,613

$
7,795

Interest coverage ratio

4.9
x

4.9
x

4.8
x

4.9
x

5.2
x

4.8
x

Interest incurred

$
23,445

$
7,935

$
7,783

$
7,727

$
7,613

$
7,795

Total fixed charges

$
23,445

$
7,935

$
7,783

$
7,727

$
7,613

$
7,795

Fixed charge coverage ratio

4.9
x

4.9
x

4.8
x

4.9
x

5.2
x

4.8
x

Quarter Ended

3/31/20

12/31/19

9/30/19

6/30/19

3/31/19

Net income

$
63,722

$
12,631

$
27,280

$
20,534

$
20,427

Less: (Gain)/ loss on sale

(43,854)

4,630

(6,236)

(500)

—

Add: Impairment loss from investment in unconsolidated joint ventures

—

5,500

—

—

—

Add: Interest expense

7,710

7,578

7,827

7,710

7,467

Add: Depreciation and amortization

9,669

9,817

9,932

9,860

9,607

EBITDAre

$
37,247

$
40,156

$
38,803

$
37,604

$
37,501

Less: Non-recurring one-time items

—

(2,111)

—

—

576

Adjusted EBITDAre

$
37,247

$
38,045

$
38,803

$
37,604

$
38,077

Interest expense

$
7,710

$
7,578

$
7,827

$
7,710

$
7,467

Add: Capitalized interest

191

167

108

73

260

Interest incurred

$
7,901

$
7,745

$
7,935

$
7,783

$
7,727

Interest coverage ratio

4.7
x

4.9
x

4.9
x

4.8
x

4.9
x

Interest incurred

$
7,901

$
7,745

$
7,935

$
7,783

$
7,727

Total fixed charges

$
7,901

$
7,745

$
7,935

$
7,783

$
7,727

Fixed charge coverage ratio

4.7
x

4.9
x

4.9
x

4.8
x

4.9
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.

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

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

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Operating Results (unaudited, in thousands)

Three Months Ended

September 30,

2019

2018

Difference

Revenues:

Rental income

$
38,665

$
34,211

$
4,454
^{(1) (2)}
Interest income from mortgage loans

7,646

7,087

559
⁽³⁾
Interest and other income

808

478

330
⁽⁴⁾
Total revenues

47,119

41,776

5,343

Expenses:

Interest expense

7,827

7,497

(330)
⁽⁵⁾
Depreciation and amortization

9,932

9,447

(485)
⁽⁶⁾
(Recovery) provision for doubtful accounts

(14)

106

120

Transaction costs

75

9

(66)

Property tax expense

4,270

—

(4,270)
⁽²⁾
General and administrative expenses

4,745

4,879

134

Total expenses

26,835

21,938

(4,897)

Other operating income:

Gain on sale of real estate, net

6,236
⁽⁷⁾

14,353
⁽⁸⁾

(8,117)

Operating income

26,520

34,191

(7,671)

Income from unconsolidated joint ventures

760

746

14

Net income

27,280

34,937

(7,657)

Income allocated to non-controlling interests

(88)

(17)

(71)

Net income attributable to LTC Properties, Inc.

27,192

34,920

(7,728)

Income allocated to participating securities

(112)

(138)

26

Net income available to common stockholders

$
27,080

$
34,782

$
(7,702)

Three Months Ended

March 31,

2020

2019

Difference

Revenues:

Rental income

$
38,035

$
37,624

$
411
⁽¹⁾
Interest income from mortgage loans

7,777

7,311

466
⁽²⁾
Interest and other income

598

521

77

Total revenues

46,410

45,456

954

Expenses:

Interest expense

7,710

7,467

(243)
⁽³⁾
Depreciation and amortization

9,669

9,607

(62)

Provision for doubtful accounts

1

83

82

Transaction costs

70

—

(70)

Property tax expense

4,223

4,386

163

General and administrative expenses

5,100

4,571

(529)
⁽⁴⁾
Total expenses

26,773

26,114

(659)

Other operating income:

Gain on sale of real estate, net

43,854
⁽⁵⁾

—

43,854

Operating income

63,491

19,342

44,149

Income from unconsolidated joint ventures

231

1,085

(854)

Net income

63,722

20,427

43,295

Income allocated to non-controlling interests

(89)

(81)

(8)

Net income attributable to LTC Properties, Inc.

63,633

20,346

43,287

Income allocated to participating securities

(263)

(92)

(171)

Net income available to common stockholders

$
63,370

$
20,254

$
43,116

(1) Increased primarily due to ~~(2) below and~~an adjustment for collectibility of rental income during the first quarter of 2019, increased rent from acquisitions and ~~developments~~lease transitions, partially offset by ~~decreased~~a reduction in rent received from ~~sold properties and properties transitioned to other operators~~.

~~(2)~~ ~~Increased due to~~ ~~recording $3,849 real estate taxes that are reimbursed by our operators as rental income with a corresponding property tax expense.~~ We adopted ASC 842 using a modified retrospective approach as of the adoption date of January 1, 2019. Accordingly, we are not required to report the expense and revenue stream for periods prior to January 1, 2019. Additionally, we recorded $421 of property tax expense related to Preferred ~~Care. See~~ ~~Update on Certain Operators~~ ~~under~~ ~~Item 2. Real Estate Portfolio Overview~~.Care between July 2019-March 2020.

~~(3)~~(2) Increased primarily due to mortgage originations and capital improvement funding.

(3) Increased primarily due to the increased interest from sale of $100.0 million senior unsecured notes during the fourth quarter of 2019, partially offset by decreased interest due to lower line of credit outstanding balance and interest rates on our line of credit in 2020. lower line of credit interest rates during 2020.

(4) Increased primarily due to ~~mezzanine and other loan originations.~~lower incentive compensation in 2019.

(5) ~~Increased due to a higher average outstanding balance on our line of credit partially offset by scheduled principal payments under our senior unsecured notes and decrease in capitalized interest.~~

~~(6)~~ ~~Increased due to acquisitions and completed developments partially offset by sold properties.~~

~~(7)~~ Represents the net gain on sale of ~~a SNF in Georgia.~~

~~(8)~~ ~~Represents~~21 SNFs within the ~~net gain on sale of two SNFs in Alabama.~~Preferred Care portfolio.

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Nine Months Ended

September 30,

2019

2018

Difference

Revenues:

Rental income

$
114,566

$
102,646

$
11,920
^{(1) (2)}
Interest income from mortgage loans

22,308

20,910

1,398
⁽³⁾
Interest and other income

1,967

1,502

465
⁽⁴⁾
Total revenues

138,841

125,058

13,783

Expenses:

Interest expense

23,004

22,981

(23)

Depreciation and amortization

29,399

28,159

(1,240)
⁽⁵⁾
Provision for doubtful accounts

153

76

(77)

Transaction costs

275

19

(256)

Property tax expense

12,566

—

(12,566)
⁽²⁾
General and administrative expenses

13,912

14,392

480
⁽⁶⁾
Total expenses

79,309

65,627

(13,682)

Other operating income:

Gain on sale of real estate, net

6,736
⁽⁷⁾

62,698
⁽⁸⁾

(55,962)

Operating income

66,268

122,129

(55,861)

Income from unconsolidated joint ventures

1,973

2,103

(130)

Net income

68,241

124,232

(55,991)

Income allocated to non-controlling interests

(257)

(17)

(240)

Net income attributable to LTC Properties, Inc.

67,984

124,215

(56,231)

Income allocated to participating securities

(298)

(504)

206

Net income available to common stockholders

$
67,686

$
123,711

$
(56,025)

~~(1)~~ ~~Increased due to~~ ~~(2) below and increased rent from acquisitions and developments~~ ~~partially offset by decreased rent from sold properties and properties transitioned to other operators~~.

~~(2)~~ ~~Increased due to~~ ~~recording $12,094 real estate taxes that are reimbursed by our operators as rental income with a corresponding property tax expense.~~ We adopted ASC 842 using a modified retrospective approach as of the adoption date of January 1, 2019. Accordingly, we are not required to report the expense and revenue stream for periods prior to January 1, 2019. Additionally, we recorded $421 of property tax expense related to Preferred Care. See ~~Update on Certain Operators~~ ~~under~~ ~~Item 2. Real Estate Portfolio Overview.~~

~~(3)~~ ~~Increased primarily due to mortgage originations and capital improvement funding.~~

~~(4)~~ ~~Increased due to mezzanine and other loan originations partially offset by payoffs.~~

~~(5)~~ ~~Increased due to acquisitions and completed developments partially offset by sold properties.~~

~~(6)~~ ~~Decreased primarily due to lower accrual of incentive compensation in 2019.~~

~~(7)~~ Represents the net gain on sale of $6,236 related to a 148-bed SNF in Georgia. Additionally, during the nine months ended September 30, 2019, due to receipt of funds held in escrow related to a portfolio of six ALFs sold in 2018, we recognized an additional $500 net gain on sale. See (8) below.

~~(8)~~ ~~Represents the net gain on sale of $48,345 related to a portfolio of six ALFs in Ohio and Pennsylvania and net gain on sale of $14,353 related to two SNFs in Alabama.~~
Funds From Operations Available to Common Stockholders
Funds from Operations (“FFO”) ~~available~~attributable to common stockholders, basic FFO ~~available~~attributable to common stockholders per share and diluted FFO ~~available~~attributable to common stockholders per share are supplemental measures of a REIT’s financial performance that are not defined by GAAP. Real estate values historically rise and fall with market conditions, but cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. We believe that by excluding the effect of historical cost depreciation, which may be of limited relevance in evaluating current performance, FFO facilitates comparisons of operating performance between periods.
We use FFO as a supplemental performance measurement of our cash flow generated by operations. FFO does not represent cash generated from operating activities in accordance with GAAP,

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and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income available to common stockholders.

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

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

GAAP net income available to common stockholders

$
27,080

$
34,782

$
67,686

$
123,711

Add: Depreciation and amortization

9,932

9,447

29,399

28,159

Less: Gain on sale of real estate, net

(6,236)

(14,353)

(6,736)

(62,698)

NAREIT FFO attributable to common stockholders

$
30,776

$
29,876

$
90,349

$
89,172

NAREIT FFO attributable to common stockholders per share:

Basic

$
0.78

$
0.76

$
2.28

$
2.26

Diluted

$
0.77
⁽¹⁾
$
0.75
⁽¹⁾
$
2.26
⁽¹⁾
$
2.25
⁽¹⁾
Weighted average shares used to calculate NAREIT FFO per share:

Basic

39,586

39,487

39,565

39,470

Diluted

40,129
⁽²⁾

39,865
⁽²⁾

40,106
⁽²⁾

39,845
⁽²⁾

Three Months Ended

March 31,

2020

2019

GAAP net income available to common stockholders

$
63,370

$
20,254

Add: Depreciation and amortization

9,669

9,607

Less: Gain on sale of real estate, net

(43,854)

—

NAREIT FFO attributable to common stockholders

$
29,185

$
29,861

NAREIT FFO attributable to common stockholders per share:

Basic

$
0.74

$
0.76

Diluted

$
0.74

$
0.75
⁽¹⁾
Weighted average shares used to calculate NAREIT FFO per share:

Basic

39,539

39,532

Diluted

39,541

39,874
⁽²⁾
(1) Includes the effect of the participating securities.

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

Liquidity and Capital Resources
Sources and Uses of Cash
As of ~~September 30, 2019,~~March 31, 2020, we had a total of ~~$4.0~~$30.9 million of cash and cash equivalents, ~~$434.6~~$510.1 million available under our unsecured revolving line of credit ~~$107.5 million available under our senior unsecured note shelf agreement~~ and the potential ability to access the capital markets through the issuance of $200.0 million of common stock under our Equity Distribution Agreements. Furthermore, we have the ability to access the capital markets through the issuance of debt and/ or equity securities under an automatic shelf registration statement.

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We believe that our current cash balance, cash flow from operations available for distribution or reinvestment, our borrowing capacity and our potential ability to access the capital markets are sufficient to provide for payment of our current operating costs, meet debt obligations and pay common dividends at least sufficient to maintain our REIT status and repay borrowings at, or prior to, their maturity. The timing, source and amount of cash flows used in financing and investing activities are sensitive to the capital markets environment, especially to changes in interest rates. ~~We continuously evaluate the availability~~In addition, as described in “Item 1A. Risk Factors”, COVID-19 has adversely affected and is expected to continue to adversely affect our operators’ business, results of ~~cost-effective capital and believe we have sufficient liquidity for additional capital investments in 2019 and 2020.~~

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~~We expect our future income and ability to make distributions from~~operations, cash flows ~~from operations to depend on the collectibility of~~and financial condition which could, in turn, adversely affect 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. financial position.

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.~~industry, and the impact of COVID-19. 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.~~industry, and the impact of COVID-19. We cannot presently predict what impact these proposals may have, if any. We believe that an adequate provision has been made for the possibility of loans proving uncollectible but we will continually evaluate the financial status of the operations of the seniors housing and health care properties. In addition, we will monitor our borrowers and the underlying collateral for mortgage loans and will make future revisions to the provision, if considered necessary.

Depending on the duration, spread and severity of the outbreak, our borrowing capacity, compliance with financial covenants, ability to access the capital markets, and the payment of dividends may be negatively impacted. We continuously evaluate the availability of cost-effective capital and believe we have sufficient liquidity for corporate expenses and additional capital investments in 2020.

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

Our primary sources of cash include rent and interest receipts, borrowings under our unsecured credit facility, public and private issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (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

Cash provided by (used in):

2019

2018

$

Operating activities

$
90,092

$
83,438

$
6,654

Investing activities

(57,112)

(2,374)

(54,738)

Financing activities

(31,676)

(63,706)

32,030

Increase in cash, cash equivalents and restricted cash

1,304

17,358

(16,054)

Cash, cash equivalents and restricted cash, beginning of period

4,764

5,213

(449)

Cash, cash equivalents and restricted cash, end of period

$
6,068

$
22,571

$
(16,503)

Three Months Ended March 31,

Change

Cash provided by (used in):

2020

2019

$

Operating activities

$
23,854

$
26,787

$
(2,933)

Investing activities

51,660

(28,416)

80,076

Financing activities

(48,870)

5,688

(54,558)

Increase in cash, cash equivalents and restricted cash

26,644

4,059

22,585

Cash, cash equivalents and restricted cash, beginning of period

4,244

4,764

(520)

Cash, cash equivalents and restricted cash, end of period

$
30,888

$
8,823

$
22,065

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Debt Obligations

Bank Borrowings. We have an Unsecured Credit Agreement that provides for a revolving line of credit up to $600.0 million in aggregate commitment of the lenders and the opportunity to increase the commitment size of the credit agreement up to a total of $1.0 billion. The Unsecured Credit Agreement matures on June 27, 2022 and provides for a one-year extension option at our discretion, subject to customary conditions. Based on our leverage at ~~September 30, 2019,~~March 31, 2020, the facility provides for interest annually at LIBOR plus 115 basis points and a facility fee of 20 basis points. At ~~September 30, 2019,~~March 31, 2020, we were in compliance with all covenants.

Senior Unsecured Notes. We ~~have~~had a $337.5 million shelf agreement with availability of $21.5 million with affiliates and managed accounts of PGIM, Inc. (“Prudential”) which ~~expires~~expired on February 16, 2020.

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The debt obligations by component as of ~~September 30, 2019~~March 31, 2020 are as follows (dollar amounts in thousands):

Applicable

Available

Interest

Outstanding

for
Debt Obligations

Rate ⁽¹⁾

Balance

Borrowing
Bank borrowings ⁽²⁾

3.39%

$
165,400

$
434,600
Senior unsecured notes, net of debt issue costs ⁽³⁾

4.48%

518,469

107,500
Total

4.22%

$
683,869

$
542,100

Applicable

Available

Interest

Outstanding

for
Debt Obligations

Rate ⁽¹⁾

Balance

Borrowing
Bank borrowings

2.22%

$
89,900

$
510,100
Senior unsecured notes, net of debt issue costs

4.39%

599,527

—
Total

4.10%

$
689,427

$
510,100
(1) Represents weighted average of interest rate as of ~~September 30, 2019.~~March 31, 2020.

~~(2)~~ Subsequent to September 30, 2019, we paid down $100,000 under our unsecured revolving line of credit, using the proceeds from the sale of $100,000 senior unsecured notes as explained below. Accordingly, we have $65,400 outstanding under our revolving line of credit with $534,600 available for borrowing.

~~(3)~~ Subsequent to September 30, 2019, we sold $100,000 aggregate principal amount of 3.85% senior unsecured notes maturing in 2031 to Prudential. Accordingly, we have $618,469 outstanding and $7,500 available under our senior unsecured notes.
Our debt borrowings and repayments during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 are as follows (in thousands):

Debt Obligations

Borrowings

Repayments
Bank borrowings

$
73,400

$
(20,000)
Senior unsecured notes

—

(14,667)
Total

$
73,400

$
(34,667)

Debt Obligations

Borrowings

Repayments
Bank borrowings

$
24,000

$
(28,000)
Senior unsecured notes

—

—
Total

$
24,000

$
(28,000)
Equity
At ~~September 30, 2019,~~March 31, 2020, we had ~~39,751,704~~39,217,848 shares of common stock outstanding, equity on our balance sheet totaled ~~$793.9~~$806.1 million and our equity securities had a market value of ~~$2.0~~$1.2 billion. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we declared and paid ~~$68.2~~$23.2 million of cash dividends.
Subsequent to ~~September 30, 2019,~~March 31, 2020, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of ~~October, November~~April, May and ~~December 2019,~~June 2020, payable on ~~October 31, November~~April 30, May 29, and ~~December 31, 2019,~~June 30, 2020, respectively, to stockholders of record on ~~October 23, November~~April 22, May 21, and ~~December 23, 2019,~~June 22, 2020, respectively.
Stock Repurchase Plan. During the first quarter of 2020, our Board of Directors authorized the repurchase of up to 5,000,000 outstanding shares of common stock.During the three months ended March 31, 2020, we purchased 615,827 shares at an average price of $29.25 per share, including commissions, for a total purchase price of approximately $18.0 million. Due to the rising level of uncertainty in financial markets and the adverse effects of COVID-19 on the public health and our operators, our Board of Directors terminated the stock repurchase plan on March 25, 2020.
At-The-Market Program. On March 1, 2019, we entered into new separate equity distribution agreements (collectively, “Equity Distribution Agreements”) with four sales agents, replacing prior equity

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distribution agreements dated August 1, 2016. Under the terms of the new Equity Distribution Agreements, we may offer and sell, from time to time, up to $200.0 in aggregate offering price of shares of our common stock. As of ~~September 30, 2019,~~March 31, 2020, no shares had been issued under the Equity Distribution Agreements. Accordingly, at ~~September 30, 2019,~~March 31,2020, we had $200.0 available under the Equity Distribution Agreements.

Available Shelf Registrations. We have an automatic shelf registration statement on file with the SEC and currently have the ability to file additional automatic shelf registration statements to provide us with capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under our automatic registration statement in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering. Our shelf registration statement expires on February 28, 2022.

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Stock-Based Compensation. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we granted restricted stock and performance-based stock units under the 2015 Plan as follows:

No. of

Price per

Shares

Share

Vesting Period

78,276

$
46.54

ratably over 3 years

60,836

$
46.54

TSR targets ⁽¹⁾

8,496

$
44.73

May 29, 2020

147,608

No. of

Price per

Shares

Share

Vesting Period

76,464

$
48.95

ratably over 3 years

66,027

$
49.98

TSR targets ⁽¹⁾

142,491

(1) Vesting is based on achieving certain total shareholder return (“TSR”) targets in 4 years with an acceleration opportunity in 3 years.
Critical Accounting Policies
Our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q are prepared in conformity with U.S. generally accepted accounting principles for interim financial information set forth in the Accounting Standards Codification as published by the Financial Accounting Standards Board, which require us to make estimates and assumptions regarding future events that affect the amounts reported in our financial statements and accompanying footnotes. We base these estimates on our experience and assumptions regarding future events we believe to be reasonable under the circumstances. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. We have described our most critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.
There have been no changes to our critical accounting policies or estimates since December 31, ~~2018,~~2019, with exception of the adoption of ASC Topic ~~842, Leases~~326, Financial Instrument-Credit Losses. Please refer to Note 1. General of these unaudited consolidated financial statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q for information regarding recently adopted standards.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in our market risk during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. For additional information, refer to Item 7A as presented in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. In addition, as described in “Item 1A. Risk Factors”, coronavirus (COVID-19) may negatively impact our business and results of operations.

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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 additional risk factor below should be read in conjunction with the risk factors ~~as previously disclosed~~set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.
Risks Associated with Public Health Epidemics Such as Coronavirus (COVID-19) Is Adversely Affecting And Is Expected To Continue To Adversely Affect Our Business, Results of Operations, Cash Flows and Financial Condition.
The COVID-19 pandemic continues to have, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted public health and economic activity, and has contributed to significant volatility and negative pressure in financial markets.
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. The operators of our properties are significantly impacted by their ability to provide services and the occupancy levels at our properties. The operations and occupancy levels at our properties will be adversely affected if COVID-19 or another pandemic results in infections on a large scale at our properties, early resident move-outs, our operators delay accepting new residents due to quarantines, and/or potential occupants postpone moving to a senior housing facility. Additionally, as our operators have responded to the pandemic, operating costs have begun to rise. A decrease in occupancy and/or increase in operating costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent. In response to requests by operators, we have provided rent deferrals totaling $772,000 for April 2020, of which $137,000 was returned back to us. The $772,000 April rent deferrals represent approximately 7% of our April contractual rent. Local, state, federal or other initiatives may affect our ability to collect rent and or enforce remedies for the failure to pay rent. In some cases, we may have to restructure an operator’s long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place. Furthermore, infections at our facilities could lead to material increases in litigation costs for which our operators may be liable. These risks are heightened due to the potential enhanced danger to senior citizens from COVID-19 generally and at facilities such as those of our operators. The extent to which COVID-19 could impact our operations and those of our operators will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, spread and severity of the outbreak and the actions taken to contain

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the virus or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures.

The rapid development and fluidity of the pandemic precludes any prediction as to the full adverse impact of COVID-19. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our business, results of operations, cash flows and financial condition. Moreover, many risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

Except as described in this Item 1A, there have been no other known material changes from the risk factors since December 31, 2019.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
~~None~~The number of shares of our common stock purchased and the average prices paid per share for each month in the quarter ended March 31, 2020 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 ⁽¹⁾

Plan ⁽²⁾

Under the Plan ⁽²⁾

January 1- January 31, 2020

—

$
—

—

—

February 1 - February 28, 2020

76,067

$
46.63

—

—

March 1 -March 31, 2020

—

$
—

615,827

—

Total

76,067

615,827

—

(1) During the three months ended March 31, 2020, we acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

(2) Our Board of Directors authorized the repurchase of up to 5,000,000 outstanding shares of common stock during the three months ended March 31, 2020.During the three months ended March 31, 2020, we purchased 615,827 shares at an average price of $29.25 per share, including commissions, for a total purchase price of approximately $18.0 million. Our Board of Directors terminated the stock repurchase plan on March 25, 2020.

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Item 6. ~~Exhibits~~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)

3.2.1
First Amendment to Bylaws of LTC Properties, Inc. (incorporated by reference to Exhibit 3.2.1 to LTC Properties Inc.’s Current Report on Form 8-K (File No. 1-11314) filed April 21, 2020)

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

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

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

101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH
Inline XBRL Taxonomy Extension Schema Document

101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document

104
Cover Page Interactive Data File ~~- the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the~~(formatted as Inline XBRL ~~document.~~and contained in Exhibit 101)

4542

Table of Contents

SIGNATURES

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

	LTC PROPERTIES, INC.
	Registrant



Dated: ~~October 31, 2019~~May 4, 2020	By:	/s/ Pamela Kessler
		Pamela Kessler
		Executive Vice President, Chief Financial Officer and Corporate Secretary
		(Principal Financial ~~and Accounting~~ Officer)

4643


		At September 30, 2019				At December 31, 2018					At March 31, 2020				At December 31, 2019
	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⁾	3.39%	$	165,400	$	434,600	$	112,000	$	488,000	2.22%	$	89,900	$	510,100	$	93,900	$	506,100
Senior unsecured notes, net of debt issue costs ⁽³⁾	4.48%		518,469		107,500		533,029		93,833	4.39%		599,527		—		599,488		21,500
Total	4.22%	$	683,869	$	542,100	$	645,029	$	581,833	4.10%	$	689,427	$	510,100	$	693,388	$	527,600


		Weighted
		Average
	Options	Exercise		Option		Market
	Exercised	Price		Value		Value ⁽¹⁾
2019	5,000	$	24.65	$	123,000	$	233,000
2018	5,000	$	24.65	$	123,000	$	205,000


	No. of	Price per
Year	Shares/Units	Share		Vesting Period
2020	76,464	$	48.95	ratably over 3 years
	66,027	$	49.98	TSR targets ⁽¹⁾
	142,491

2019	78,276	$	46.54	ratably over 3 years
	60,836	$	46.54	TSR targets ⁽¹⁾
	139,112


	Remaining
	Compensation
Vesting Date	Expense
2020	$	4,993
2021		4,851
2022		2,536
2023		196
Total	$	12,576


	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	24	—	3,010	93	17.0	%	17.3	%	24	—	2,922	93	17.7	%	17.3	%
Senior Lifestyle Corporation	—	23	—	1,457	10.8	%	10.3	%	—	23	—	1,457	10.9	%	10.1	%
Total	24	23	3,010	1,550	27.8	%	27.6	%	24	23	2,922	1,550	28.6	%	27.4	%


Originations and funding under mortgage loans receivable	$	10,919	⁽¹⁾
Scheduled principal payments received		(565)
Mortgage loan premium amortization		(3)
Provision for loan loss reserve		(104)
Net increase in mortgage loans receivable	$	10,247


Advances under notes receivable	$	141
Reclassed to real estate under development		(300)	⁽¹⁾
Notes receivable reserve		1
Net increase in notes receivable	$	(158)


	9/30/19		6/30/19		3/31/19		12/31/18		9/30/18
Asset mix:
Real property	$	1,474,692	$	1,452,669	$	1,445,596	$	1,421,456	$	1,414,267
Loans receivable		255,737		254,555		246,775		245,386		245,053
Real estate investment mix:
Skilled nursing centers	$	861,500	$	844,136	$	834,185	$	830,485	$	832,599
Assisted living communities		844,635		843,682		840,926		820,686		812,800
Under development		12,934		8,167		6,193		4,606		2,881
Other ⁽¹⁾		11,360		11,239		11,067		11,065		11,040
Operator mix:
Prestige Healthcare ⁽¹⁾	$	268,869	$	267,688	$	259,907	$	258,519	$	258,186
Senior Lifestyle Corporation		191,283		190,758		190,368		190,368		189,945
Senior Care Centers		138,109		138,109		138,109		138,109		138,109
Anthem Memory Care		136,483		136,397		136,397		136,397		135,946
Carespring Health Care Management		102,042		102,038		99,997		97,461		95,951
Remaining operators		893,643		872,234		867,593		845,988		841,183
Geographic mix:
Texas	$	292,238	$	292,159	$	292,091	$	292,317	$	292,317
Michigan ⁽¹⁾		256,680		255,498		247,718		246,329		245,996
Wisconsin		149,184		149,064		146,750		143,657		137,056
Colorado		114,923		114,923		114,923		114,923		114,923
California		102,561		102,412		102,254		102,254		102,254
Remaining states		814,843		793,168		788,635		767,362		766,774



	3/31/20		12/31/19		9/30/19		6/30/19		3/31/19
Asset mix:
Real property	$	1,438,177	$	1,484,571	$	1,474,692	$	1,452,669	$	1,445,596
Loans receivable		256,959		256,659		255,737		254,555		246,775
Real estate investment mix:
Skilled nursing centers	$	800,773	$	853,029	$	861,500	$	844,136	$	834,185
Assisted living communities ⁽¹⁾		876,319		872,683		854,622		851,849		847,119
Under development ⁽¹⁾		6,684		4,158		2,947		—		—
Other ⁽²⁾		11,360		11,360		11,360		11,239		11,067
Operator mix:
Prestige Healthcare ⁽²⁾	$	270,091	$	269,792	$	268,869	$	267,688	$	259,907
Senior Lifestyle Corporation		191,622		191,283		191,283		190,758		190,368
Senior Care Centers		138,109		138,109		138,109		138,109		138,109
Anthem Memory Care		136,483		136,484		136,483		136,397		136,397
Carespring Health Care Management		102,520		102,520		102,042		102,038		99,997
Remaining operators		856,311		903,042		893,643		872,234		867,593
Geographic mix:
Michigan ⁽²⁾	$	277,063	$	276,742	$	256,680	$	255,498	$	247,718
Texas		273,075		284,697		292,238		292,159		292,091
Wisconsin		149,405		149,290		149,184		149,064		146,750
Colorado		106,879		114,923		114,923		114,923		114,923
California		103,970		103,240		102,561		102,412		102,254
Remaining states		784,744		812,338		814,843		793,168		788,635


	Year to Date		Quarter Ended
	9/30/19		9/30/19			6/30/19			3/31/19			12/31/18			9/30/18
Debt to gross asset value	36.8	%	36.8	%		36.8	%	⁽²⁾	37.1	%	⁽³⁾	35.2	%	⁽⁵⁾	36.4	%
Debt to market capitalization ratio	25.1	%	25.1	%	⁽¹⁾	27.1	%		27.1	%	⁽¹⁾	28.1	%	⁽⁶⁾	27.7	%
Interest coverage ratio ⁽⁸⁾	4.9	x	4.9	x		4.8	x		4.9	x	⁽⁴⁾	5.2	x	⁽⁷⁾	4.8	x
Fixed charge coverage ratio ⁽⁸⁾	4.9	x	4.9	x		4.8	x		4.9	x	⁽⁴⁾	5.2	x	⁽⁷⁾	4.8	x


	Nine Months Ended September 30,					Change
Cash provided by (used in):	2019		2018			$
Operating activities	$	90,092	$	83,438	$	6,654
Investing activities		(57,112)		(2,374)		(54,738)
Financing activities		(31,676)		(63,706)		32,030
Increase in cash, cash equivalents and restricted cash		1,304		17,358		(16,054)
Cash, cash equivalents and restricted cash, beginning of period		4,764		5,213		(449)
Cash, cash equivalents and restricted cash, end of period	$	6,068	$	22,571	$	(16,503)


Debt Obligations		Borrowings		Repayments
Bank borrowings	$	73,400	$	(20,000)
Senior unsecured notes		—		(14,667)
Total	$	73,400	$	(34,667)


				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 ⁽¹⁾		Plan ⁽²⁾	Under the Plan ⁽²⁾
January 1- January 31, 2020	—	$	—	—	—
February 1 - February 28, 2020	76,067	$	46.63	—	—
March 1 -March 31, 2020	—	$	—	615,827	—
Total	76,067			615,827	—

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)

3.2.1	First Amendment to Bylaws of LTC Properties, Inc. (incorporated by reference to Exhibit 3.2.1 to LTC Properties Inc.’s Current Report on Form 8-K (File No. 1-11314) filed April 21, 2020)

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

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

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

101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File ~~- the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the~~(formatted as Inline XBRL ~~document.~~and contained in Exhibit 101)