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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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.)
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
(Address of principal executive offices)
Registrant's telephone number, including area code: (805) 981-8655
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Stock Name of each exchange on which registered
-------------- -----------------------------------------
<S> <C>
Common stock, $.01 Par Value New York Stock Exchange
9.75% Convertible Subordinated Debentures due 2004 New York Stock Exchange
8.50% Convertible Subordinated Debentures due 2000 New York Stock Exchange
8.50% Convertible Subordinated Debentures due 2001 New York Stock Exchange
7.75% Convertible Subordinated Debentures due 2002 New York Stock Exchange
8.25% Convertible Subordinated Debentures due 2001 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Company (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any amendment to this Form
10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
Company is approximately $400,532,793 as of January 31, 1997.
22,098,361
(Number of shares of common stock outstanding as of January 31, 1997)
Part III is incorporated by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on May 19, 1997.
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Item 1. BUSINESS
General
LTC Properties, Inc. (the "Company"), a health care real estate investment
trust (a "REIT"), was organized on May 12, 1992 in the State of Maryland and
commenced operations on August 25, 1992. The Company invests in long-term care
and other health care related facilities through mortgage loans, facility lease
transactions and other investments. The primary objective of the Company is to
provide current income for distribution to stockholders through real estate
investments in long-term care facilities and other health care related
facilities managed by experienced operators providing quality care. To meet this
objective, the Company attempts to invest in properties that provide opportunity
for additional returns to its stockholders and diversify its investment
portfolio by geographic location, operator and form of investment.
The Company was organized to qualify, and intends to continue to qualify,
as a REIT. So long as the Company so qualifies, with limited exceptions, the
Company will not be taxed under federal income tax laws at the corporate level
on its taxable income as long as it distributes at least 95 percent of that
amount to its stockholders. The Company has distributed, and intends to continue
to make distributions to its stockholders, in order to eliminate any federal tax
liability.
At December 31, 1996, the Company had investments in 248 skilled nursing
facilities with 28,628 beds and 35 assisted living facilities with 1,456 units
in 32 states operated by 84 healthcare providers.
Owned Properties
During 1996, the Company acquired for approximately $113,858,000 22
assisted living facilities and 20 skilled nursing facilities. Sixteen of the
skilled nursing facilities were acquired by six newly formed limited
partnerships of which the Company, through certain of its subsidiaries, is the
general partner and were purchased subject to mortgage loans of approximately
$9,641,000. Under the partnership agreements, the Company has guaranteed payment
of a 10% preferred return to the holders of $8,932,000 in limited partnership
interests. Under certain circumstances, the limited partnership interests can be
exchanged, at the option of the holders, into 628,511 shares of the Company's
common stock at exercise prices ranging from $13.00 to $15.00 beginning in 1997.
Also during 1996, the Company sold four assisted living facilities for their
approximate net book value of $7,589,000. The Company's long-term facilities are
leased to operators pursuant to long-term "triple net" leases and provide for
increases in the rent based upon specified rent increases or, to a lesser
extent, upon participation in revenue increases over defined base periods or
increases based on consumer price indices.
Mortgage Loans
During 1996, the Company provided mortgage loan financing of $99,440,000
for 31 skilled nursing facilities and five assisted living facilities.
Approximately $9,825,000 of the loans will be paid off once the Company
completes a sale-leaseback transaction for the same amount on assisted living
facilities that are being constructed. The Company's mortgage loans are secured
by first mortgages on long-term care facilities and generally provide for
escalations in the interest rate based upon specified rate increases.
Mortgage-backed Securities
On March 29, 1996, the Company securitized mortgage loans with an aggregate
outstanding principal balance of approximately $112,487,000 by creating a Real
Estate Mortgage Investment Conduit ("REMIC") which, in turn, issued mortgage
pass-through certificates ("Certificates") aggregating
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approximately the same amount. A total of approximately $90,552,000 of
Certificates were subsequently sold to third parties by the Company. The Company
retained the remaining $21,935,000 face amount of the Certificates, which are
effectively subordinated in right of payment to the Certificates sold to third
parties. A portion of the other Certificates the Company retained, which have no
principal amount, are interest-only certificates and entitle the Company to
receive cash flows designated as interest. The proceeds from the sale were used
to pay down outstanding borrowings under the Company's lines of credit. At
December 31, 1996, the Company had investments in mortgage-backed securities
with a carrying value of approximately $92,545,000 secured by 148 long-term care
facilities with a total of 16,064 beds in 24 states. See "Part 1, Item 2 --
Properties --Mortgage-backed Securities."
Financing and Other Transactions
In February 1996, the Company sold, through a public offering, $30,000,000
aggregate principal amount of 7.75% Convertible Subordinated Debentures due
2002. The debentures are convertible at any time prior to maturity into shares
of the Company's common stock at a conversion price of $16.50 per share. The net
proceeds were used to repay borrowings under the Company's lines of credit. In
March 1996, the Company filed a shelf-registration statement with the Securities
and Exchange Commission covering up to $125,000,000 of debt and equity
securities to be sold from time to time in the future. The registration
statement was declared effective on April 4, 1996. Pursuant to the shelf
registration, the Company, in August 1996, completed the sale of $30,000,000 of
8.25% Convertible Subordinated Debentures due 2001. The debentures are
convertible into shares of the Company's common stock at a price of $17.25 per
share. Net proceeds from the offering were used to repay short-term borrowings.
Also in 1996, the Company repurchased and retired 120,000 shares of common stock
for an aggregate purchase price of approximately $1,831,000.
Investment and Other Policies
Objectives and Policies
The Company currently invests in income-producing long-term care
facilities. The Company invests either (1) directly in mortgage loans secured by
long-term care facilities (2) in the fee ownership of long-term care facilities
which are leased to operators (3) or may participate in such investments
indirectly through investments in partnerships, joint ventures or other entities
that themselves make direct investments in such loans or facilities.
In evaluating potential investments, the Company considers such factors as
(i) type of property, (ii) the location, construction quality, condition and
design of the property, (iii) the property's current and anticipated cash flow
and its adequacy to meet operational needs and lease obligations or debt service
obligations, (iv) the quality and reputation of the property's operator, (v) the
growth, tax and regulatory environments of the communities in which the
properties are located, (vi) the occupancy and demand for similar long-term care
facilities in the area surrounding the property and (vii) the Medicaid
reimbursement policies and plans of the state in which the property is located.
The Company places primary emphasis on investing in long-term care
facilities that have low investment per bed ratios and do not have to rely on a
high percentage of private pay patients or ancillary services to cover debt
service or lease obligations. The Company seeks to invest in facilities that are
located in suburban and rural areas of states with improving reimbursement
climates. Prior to every investment, the Company conducts a facility site review
to assess the general physical condition of the facility, the potential of
additional sub-acute services and the quality of care the operator provides. In
addition, the Company reviews the environmental reports, state survey and
financial statements of the facility before the investment is made.
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The Company prefers to invest in facilities that have a significant market
presence in its community and where state licensing procedures limit the entry
of competing facilities. To date, most of the Company's investments have been
made in the form of mortgage loans secured by skilled nursing facilities. Due to
management's belief that assisted living facilities are an increasingly
important sector in the long-term care market, a larger portion of the Company's
future investments will be made in the form of direct ownership of assisted
living facilities. Management believes that assisted living facilities represent
a lower cost of long-term care alternative for senior adults than skilled
nursing facilities. The Company invests in assisted living facilities that
attract the moderate-income private pay patients in smaller communities,
preferably in states that have adopted Medicaid waiver programs or are in the
process of adopting or reviewing their policies and reimbursement program to
provide funding for assisted living residences. The Company believes that
locating residences in a state with a favorable regulatory reimbursement climate
should provide a stable source of residents eligible for Medicaid reimbursement
to the extent private-pay residents are not available, and should provide
alternative sources of income for residents when their private funds are
depleted and they become Medicaid eligible.
There are no limitations on the amount or percentage of the Company's total
assets that may be invested in any one property or joint venture, except for
investments in assisted living facilities ("ALFs"). The Board of Directors
authorized the Company to invest up to 20% of the Company's adjusted gross real
estate investment portfolio (adjusted to include approximately $278,881,000 of
mortgage loans to third parties underlying the $92,545,000 December 31, 1996
balance of investment in mortgage-backed securities ) in ALFs, with a 10% limit
on investments in properties operated by Assisted Living Concepts, Inc. ("ALC").
ALC is an owner, operator and developer of assisted living facilities. Three
executive officers of the Company own approximately 5.5% of ALC's common stock
as of December 31, 1996 and two of the Company's executive officers serve as
members of the Board of Directors of ALC. The Company has discussed with its
Board of Directors and anticipates increasing the percentage of its adjusted
gross real estate investment portfolio that can be invested in ALFs and
properties operated by ALC to 30% and 15%, respectively during 1997. Except for
ALFs, no other limits have been set on the number of properties in which the
Company will seek to invest, or of the concentration of investments in any one
facility or any one city or state, or the type or form of investment.
Borrowing Policies
The Company may incur additional indebtedness when, in the opinion of the
directors, it is advisable. The Company may incur such indebtedness to make
investments in additional long-term care facilities or to meet the distribution
requirements imposed upon REITs under the Internal Revenue Code of 1986, as
amended (the "Code") (see Taxation of the Company -- Requirements for
Qualifications). For other short-term purposes, the Company may, from time to
time, negotiate lines of credit, or arrange for other short-term borrowings from
banks or otherwise. The Company may also arrange for long-term borrowings
through public offerings or from institutional investors.
In addition, the Company may incur mortgage indebtedness on real estate
which it has acquired through purchase, foreclosure or otherwise. The Company
may also obtain mortgage financing for unleveraged or underleveraged properties
in which it has invested or may refinance properties acquired on a leveraged
basis. There is no limitation on the number or amount of mortgages which may be
placed on any one property, and the Company has no policy with respect to
limitations on borrowing, whether secured or unsecured.
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Prohibited Investments and Activities
The policies of the Company, subject to change by the Board of Directors
without stockholder approval, impose certain prohibitions and restrictions on
various investment practices or activities of the Company including prohibition
against:
(i) acquiring any real property unless the consideration paid for such
real property is based on the fair market value of the property;
(ii) investing in any junior mortgage loan unless by appraisal or other
method, the directors determine that (a) the capital invested in any such
loan is adequately secured on the basis of the equity of the borrower in
the property underlying such investment and the ability of the borrower to
repay the mortgage loan or (b) such loan is a financing device entered into
by the Company to establish the priority of its capital investment over the
capital invested by others investing with the Company in a real estate
project;
(iii) investing in commodities or commodity futures contracts (other than
interest rate futures, when used solely for hedging purposes);
(iv) investing more than 1% of the Company's total assets in contracts for
sale of real estate unless such contracts are recordable in the chain of
title;
(v) holding equity investments in unimproved, non-income producing real
property, except such properties as are currently undergoing development or
are presently intended to be developed within one year, together with
mortgage loans on such property (other than first mortgage development
loans), aggregating to more than 10% of the Company's assets.
Competition
The Company competes with other REITs, real estate partnerships, health
care providers and other investors, including commercial banks, institutional
banks and insurance companies, many of which will have greater financial
resources and lower cost of funds than the Company, in the acquisition, leasing
and financing of long-term care facilities. The operators compete on a local and
regional basis with operators of facilities that provide comparable services.
Operators compete for patients based on quality of care, reputation, physical
appearance of facilities, services offered, family preferences, physician
referrals, staff and price.
Employees
The Company currently employs 13 persons.
Government Financing and Regulation of Health Care
General
Medicaid programs or the equivalent are currently in existence in all of
the states in which the Company has nursing facility investments. While these
programs differ in certain respects from state to state,
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they are all subject to certain federally imposed requirements, as a substantial
portion of the funds available under these programs is provided by the federal
government. Medicaid programs provide for payments to participating health care
facilities on behalf of the indigent and certain other eligible persons.
California and Texas provide for reimbursement at flat daily rates, as
determined by the responsible state agency and depending on certain levels of
care. In all other states, payments are based upon specific cost reimbursement
formulas established by the applicable state.
Medicare and most state Medicaid programs utilize a cost-based
reimbursement system for nursing facilities which reimburses facilities for the
reasonable direct and indirect allowable costs incurred in providing routine
services (as defined by the programs) plus, in certain states, a return on
equity, subject to certain cost ceilings. These costs normally include
allowances for administrative and general costs as well as the costs of property
and equipment (depreciation and interest, fair rental allowance or rental
expense). In certain states, cost-based reimbursement is typically subject to
retrospective adjustment through cost report settlement, and for certain states,
payments made to a facility on an interim basis that are subsequently determined
to be less than or in excess of allowable costs may be adjusted through future
payments to the affected facility and to other facilities owned by the same
owner. State Medicaid reimbursement programs vary as to the methodology used to
determine the level of allowable costs which are reimbursed to operators.
The Medicaid and Medicare programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy, intermediary
determinations and governmental funding restrictions, all of which may
materially increase or decrease program reimbursement to health care facilities.
No assurance can be given as to whether the future funding of such programs will
remain at levels comparable to the present levels.
Both the Medicaid and Medicare programs contain specific requirements which
must be adhered to at all times by health care facilities in order to qualify
under the programs. Based upon such information as periodically received by the
Company from the operators over the term of the loan, the Company believes that
the nursing facilities in which it has investments are in substantial compliance
with the various regulatory requirements applicable to them, although there can
be no assurance that the operators are in compliance or will be so at any time.
In addition to the requirements to be met by the nursing facilities for
participation in the Medicaid and Medicare programs, the nursing facilities are
subject to regulatory and licensing requirements of federal, state and local
authorities. The operator of each long-term care facility is licensed annually
by the board of health or other applicable agency in each state. In granting
and renewing licenses, regulatory agencies consider, among other things, the
physical buildings and equipment, the qualifications of the administrative
personnel and nursing staff, the quality of care and continuing compliance with
the laws and regulations relating to the operation of the facilities. State
licensing of facilities is a prerequisite to certification under Medicaid and
Medicare programs. In the ordinary course of business, the operators receive
notices of deficiencies for failure to comply with various regulatory
requirements and take appropriate corrective and preventive actions. The
Company believes that the nursing facilities in which it has investments are in
compliance with the applicable licensing or other regulation although there can
be no assurance that the operators are or will be in compliance at any time.
The Company has increased its investments in ALFs during 1996. ALFs are
subject to certain state regulations and licensing requirements. In order to
qualify as a state licensed facility, ALFs must comply with regulations which
address, among other things, staffing, physical design, required services and
resident characteristics. ALFs are also subject to various local building codes
and other ordinances, including fire
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safety codes. These requirements vary from state to state and are monitored to
varying degrees by state agencies.
Currently, ALFs are not regulated as such by the federal government. State
standards required for ALF providers are less stringent than those required of
other licensed health care operators. There can be no assurance that federal
regulations governing the operation of ALFs will not be implemented in the
future or that existing state regulations will not be expanded. In addition,
only certain states have adopted laws or regulations permitting individuals with
higher acuity levels to remain in assisted living communities who may otherwise
qualify for placement in a nursing facility. While only certain states
presently provide for any Medicaid reimbursement for assisted living residences,
several states are currently reviewing their policies and reimbursement programs
to provide funding for assisted living residences. There can be no assurance
that such states will adopt the Medicaid waiver program.
Health Care Reform
The health care industry is facing various challenges, including increased
government and private payor pressure on health care providers to control costs,
the migration of patients from acute care facilities into extended care and home
care settings and the vertical and horizontal consolidation of health care
providers. The pressure to control health care costs intensified during 1993
and 1994 as a result of the national health care reform debate and will continue
with renewed efforts in 1997 to balance the federal budget. The need to slow
the growth rate in federal health care expenditures will be a priority.
President Clinton's current budget proposal, for example, seeks $138 billion
dollars in reductions in Medicare expenditures needed to address the short term
solvency of the federal program, including significant limitations on growth in
provider reimbursement. It is anticipated that further debate on overall
structural reform of federal health care programs will affect additional
legislative action on cost-containment.
The Company believes that government and private efforts to contain and
reduce health care costs will continue. These trends are likely to lead to
reduced or slower growth in reimbursement for certain services provided by some
of the Company's borrowers and lessees. The Company believes that the vast
nature of the health care industry, the financial strength and operating
flexibility of its operators and the diversity of its portfolio will mitigate
against the impact of any such diminution in reimbursement. However, the Company
cannot predict whether any of the above proposals or any other proposals will be
adopted and, if adopted, no assurance can be given that the implementation of
such reforms will not have a material adverse effect on the Company's financial
condition or results of operations.
Taxation of the Company
General
The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ended December 31,
1992. The Company believes, that commencing with such taxable year, it has been
organized and has operated in such a manner as to qualify for taxation as a REIT
under the Code, and the Company intends to continue to operate in such a manner.
However, no assurance can be given that the Company has operated or will be able
to continue to operate in a manner to so qualify or remain qualified.
If the Company qualifies for taxation as a REIT, it will generally not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially
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eliminates the "double taxation" (at the corporate and stockholder levels) that
generally results from investment in a regular corporation. However, under
certain circumstances, the Company will continue to be subject to federal income
tax.
The following is a general summary of the provisions that govern the
federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
Requirements for Qualifications
The Code defines a REIT as a corporation, trust or association (i) which is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) which would be taxable as a domestic corporation but
for Sections 856 through 859 of the Code; (iv) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi)
during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, actually or constructively, by five or
fewer individuals (as defined in the Code to include certain entities); and
(vii) which meets certain other tests, described below. The Code provides that
conditions (i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year of less than 12
months.
To qualify as a REIT for a taxable year under the Code, the Company must
elect or previously have elected to be so treated and must meet other
requirements, certain of which are summarized below, including percentage tests
relating to the sources of its gross income, the nature of the Company's assets
and the distribution of its income to stockholders.
Income Tests
In order to maintain its qualification as a REIT, the Company annually must
satisfy three gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from certain sales of property held
primarily for sale) for each taxable year must be derived directly or indirectly
from investments in real property (other than gains from property held primarily
for sale), mortgages on real property, or certain qualified temporary investment
income. Second, at least 95% of the Company's gross income (excluding gross
income form certain sales of property held primarily for sale) for each taxable
year must be derived from such real property investments described with respect
to the 75% test, dividends, interest and gain from the sale or disposition of
stock or securities (other than gain from property held primarily for sale).
Third, short-term gain from the sale or other disposition of stock or
securities, gain from certain sales of property held primarily for sale, and
gain from the sale or other disposition of real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
must represent less than 30% of the Company's gross income for each taxable
year.
Asset Test
At the close of each quarter of its taxable year, the Company must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets (including the assets held by its
subsidiaries and its allocable share of the assets held by partnerships in which
it or its subsidiaries is a partner) must be represented by real estate assets
(including interests in a qualifying REMIC and shares in a REIT), cash, cash
items and government securities. Second, no more than 25% of the Company's total
assets (including the assets held by its subsidiaries and its allocable share of
the assets held by partnerships in which it
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or its subsidiaries is a partner) may be represented by securities other than
those includable in the 75% asset class. Third, of theinvestments included in
the 25% asset class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of the Company's total assets and the
Company may not own more than 10% of any one issuer's outstanding voting
securities.
Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (A) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and by excluding the
Company's net capital gain) and (ii) 95% of the net income (after tax), if any,
from foreclosure property, minus (B) the excess of the sum of certain items of
non-cash income over 5% of "REIT taxable income" as described in clause (A)(i)
above. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year, if paid on or before the first regular dividend
payment date after such declaration and if the Company so elects and specifies
the dollar amount in its tax return. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income", as adjusted, it will be subject to tax
thereon at regular corporate tax rates. Furthermore, if the Company should fail
to distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain income for such
year, and (iii) any undistributed taxable income from prior periods, the Company
would be generally subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Failure to Qualify
If the Company should fail to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
However, it is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief. If the relief provisions do not
apply, the Company would be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made. Unless entitled
to relief under specific statutory provisions, the Company would also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification is lost. Failure to qualify for even one year
could result in the Company's incurring substantial indebtedness (to the extent
borrowings are feasible) or liquidating substantial investments in order to pay
the resulting taxes.
Taxation of Stockholders - General
As long as the Company qualifies as a REIT, distributions made to the
Company's stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income (which will not be eligible for the dividends received deduction
for corporations). Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains to the extent they do not exceed the
Company's actual net capital gain for the taxable year, although corporate
stockholders may be required to treat up to 20% of any such capital gain
dividend as ordinary income. Distributions in excess of current or accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's common stock, but
rather will reduce the adjusted basis of such shares. To the extent such
distributions exceed the adjusted basis of a stockholder's common stock, they
will be included in income as long-term capital gain (or short-term
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capital gain if the shares have been held for one year or less) assuming the
shares are held as a capital asset in the hands of the stockholder. Under
special tax rules for REITs, dividends declared in the last quarter of the
calendar year and paid by January 31 of the following year are treated as paid
on December 31 of the year declared. Stockholders may not include in their
individual income tax returns any net operating losses or capital losses of the
Company.
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. Other federal, state and local tax considerations
may apply depending on the Company's and its stockholders' circumstances.
Factors That May Affect Future Results
Many of the statements herein are forward-looking in nature, and,
accordingly, whether they prove to be accurate is subject to many risks and
uncertainties. The actual results that the Company achieves may differ
materially from many forward-looking statements herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed below and those contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as those discussed
elsewhere herein.
Government Regulation
Health Care Reform. The health care industry is facing various challenges,
including increased government and private payor pressure on health care
providers to control costs, the migration of patients from acute care facilities
into extended care and home care settings and the vertical and horizontal
consolidation of health care providers. The pressure to control health care
costs intensified during 1993 and 1994 as a result of the national health care
reform debate and will continue with renewed efforts in 1997 to balance the
federal budget. The need to slow the growth rate in federal health care
expenditures will be a priority. President Clinton's current budget proposal,
for example, seeks $138 billion in reductions in Medicare expenditures needed to
address the short term solvency of the federal program, including significant
limitations on growth in provider reimbursement. It is anticipated that further
debate on overall structural reform of federal health care programs will affect
additional legislative action on cost-containment.
The Company believes that government and private efforts to contain and
reduce health care costs will continue. These trends are likely to lead to
reduced or slower growth in reimbursement for certain services provided by
some of the Company's borrowers and lessees. The Company believes that the vast
nature of the health care industry, the financial strength and operating
flexibility of its operators and the diversity of its portfolio will mitigate
against the impact of any such diminution in reimbursement. However, the Company
cannot predict whether any of the above proposals or any other proposals will be
adopted, and if adopted, no assurance can be given that the implementation of
such reforms will not have a material adverse effect on the Company's financial
condition or results of operations.
Potential Operator Loss of Licensure or Certification. The health care
industry is highly regulated by federal, state and local law, and is directly
affected by state and local licensure, fines, and loss of certification to
participate in the Medicare and Medicaid programs, as well as potential criminal
penalties. The failure of any borrower or lessee to comply with such laws,
requirements and regulations could affect its ability to operate the facility or
facilities and could adversely affect such borrower's or lessee's ability to
make debt or lease payments to the Company.
10
<PAGE>
In the past several years, due to rising health care costs, there has been
an increased emphasis on detecting and eliminating fraud and abuse in the
Medicare and Medicaid programs. Payment of any consideration in exchange for
referral of Medicare and Medicaid patients is generally prohibited by federal
statute, which subjects violators to severe penalties, including exclusion from
the Medicare and Medicaid programs, fines, and even prison sentences. In recent
years, both federal and state governments have significantly increased
investigation and enforcement activity to detect and punish wrongdoers. In
addition, legislation has been adopted at both state and federal levels that
severly restricts the ability of physicians to refer patients to entities in
which they have a financial interest.
It is anticipated that the trend toward increased investigation and
informant activity in the area of fraud and abuse, as well as self-referral,
will continue in future years. In the event that any borrower or lessee were to
be found in violation of laws regarding fraud, abuse or self-referral, that
borrower's or lessee's ability to operate a health care facility could be
jeopardized, which could adversely affect the borrower's or lessee's ability to
make debt or lease payments to the Company and, thereby, adversely affect the
Company.
Reliance on Government Reimbursement. A significant portion of the revenue
of the Company's borrowers and lessees is derived from governmentally-funded
reimbursement programs, such as Medicare and Medicaid. These programs are highly
regulated and subject to frequent and substantial changes resulting from
legislation, adoption of rules and regulations, and administrative and judicial
interpretations of existing law. In recent years, there have been fundamental
changes in the Medicare program which have resulted in reduced levels of payment
for a substantial portion of health care services. Moreover, health care
facilities have experienced increasing pressures from private payers attempting
to control health care costs, and reimbursement from private payers has in many
cases effectively been reduced to levels approaching those of government payers.
In many instances, revenues from Medicaid programs are already insufficient
to cover the actual costs incurred in providing care to those patients.
Governmental and popular concern regarding health care costs may result in
significant reductions in payment to health care facilities, and there can be no
assurance that future payment rates for either governmental or private health
care plans will be sufficient to cover cost increases in providing services to
patients. Any changes in reimbursement policies which reduce reimbursement to
levels that are insufficient to cover the cost of providing patient care could
adversely affect revenues of the Company's borrowers and lessees and thereby
adversely affect those borrowers' and lessees' abilities to make their debt or
lease payments to the Company. Failure of the borrowers or lessees to make their
debt or lease payments would have a direct and material adverse impact on the
Company.
Competition
The Company competes with other REITs, real estate partnerships, health
care providers and other investors, including but not limited to banks and
insurance companies, many of which will have greater financial resources than
the Company, in the acquisition, leasing and financing of health care
facilities. There can be no assurance that suitable investments will be
identified or that investments can be consummated on commercially reasonable
terms.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real property or a secured lender (such as the Company)
may be liable in certain circumstances for the costs of removal or remediation
of certain hazardous or toxic substances at, under or disposed of in connection
with such property, as well as certain other potential costs relating to
hazardous or toxic substances
11
<PAGE>
(including government fines and damages for injuries to persons and adjacent
property). Such laws often impose such liability without regard to whether the
owner knew of, or was responsible for, the presence or disposal of such
substances and may be imposed on the owner in connection with the activities of
an operator of the property. The cost of any required remediation, removal,
fines or personal or property damages and the owner's liability therefore could
exceed the value of the property, and/or the assets of the owner. In addition,
the presence of such substances, or the failure to properly dispose of or
remediate such substances, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral which, in
turn, would reduce the Company's revenues.
Although the Company's mortgage loans and leases require the borrower and
the lessee to indemnify the Company for certain environmental liabilities, the
scope of such obligations may be limited and there can be no assurance that any
such borrower or lessee would be able to fulfill its indemnification
obligations.
Health Care Real Estate Investment Risks
Volatility of Value of Real Estate. Real property investments in the health
care industry are subject to varying degrees of risk. The economic performance
and values of health care real estate can be affected by many factors including
governmental regulation, economic conditions, and demand for health care
services. There can be no assurance that the value of any property acquired by
the Company will appreciate or that the value of property securing any of the
Company's mortgage loans or any property acquired by the Company will not
depreciate.
Volatility of Income and Returns. The possibility that the health care
facilities will not generate income sufficient to meet operating expenses, will
generate income and capital appreciation, if any, at rates lower than those
anticipated or will yield returns lower than those available through investments
in comparable real estate or other investments are additional risks of investing
in health care related real estate. Income from properties and yields from
investments in such properties may be affected by many factors, including
changes in governmental regulation (such as zoning laws), general or local
economic conditions (such as fluctuations in interest rates and employment
conditions), the available local supply of and demand for improved real estate,
a reduction in rental income as the result of an inability to maintain occupancy
levels, natural disasters (such as earthquakes and floods) or similar factors.
Illiquidity of Real Estate Investments. Real estate investments are
relatively illiquid and, therefore, tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. All of the Company's properties are "special purpose" properties
that could not be readily converted to general residential, retail or office
use. Transfers of operations of nursing homes and other health care-related
facilities are subject to regulatory approvals not required for transfers of
other types of commercial operations and other types of real estate. Thus, if
the operation of any of the Company's properties becomes unprofitable due to
competition, age of improvements or other factors such that the borrower or
lessee becomes unable to meet its obligations on the debt or lease, the
liquidation value of the property may be substantially less -- relative to the
amount owing on the mortgage loan -- than would be the case if the property were
readily adaptable to other uses. The receipt of liquidation proceeds could be
delayed by the approval process of any state agency necessary for the transfer
of the property. In addition, certain significant expenditures associated with
real estate investment (such as real estate taxes and maintenance costs) are
generally not reduced when circumstances cause a reduction in income from the
investment. Should such events occur, the Company's income and funds available
for distribution would be adversely affected.
12
<PAGE>
Uninsured Loss. The Company currently requires, and it is the intention of
the Company to continue to require, all borrowers and lessees to secure adequate
comprehensive property and liability insurance that covers the Company as well
as the borrower and/or lessee. Certain risks may, however, be uninsurable or not
economically insurable and there can be no assurance the Company or a lessee
will have adequate funds to cover all contingencies itself. Should such an
uninsured loss occur, the Company could lose its invested capital.
Dependence on Lease Income and Mortgage Payments from Real Property. Since
a substantial portion of the Company's income is derived from mortgage payments
and lease income from real property, the Company's income would be adversely
affected if a significant number of the Company's borrowers were unable to meet
their obligations to the Company or if the Company were unable to lease its
properties or make mortgage loans on economically favorable terms. There can be
no assurance that any lessee will exercise its option to renew its lease upon
the expiration of the initial term or that if such failure to renew were to
occur, the Company could lease the property to others on favorable terms.
Item 2. PROPERTIES
Portfolio
As of December 31, 1996, the Company had investments in 248 skilled nursing
facilities with a total of 28,628 beds and 35 assisted living facilities with a
total of 1,456 units in 32 states. The Company's real estate investment
portfolio consisted of approximately $223,578,000 (before accumulated
depreciation of $11,640,000) invested in long-term care facilities owned by the
Company and leased to operators, approximately $178,262,000 invested in mortgage
loans (before allowance for doubtful accounts of $1,000,000), and approximately
$92,545,000 invested in mortgage-backed securities.
OWNED PROPERTIES
At December 31, 1996, the Company owned and leased to health care operators
49 skilled nursing facilities with a total of 6,520 beds and 24 assisted living
facilities with a total of 868 units in 17 states, representing a net investment
of approximately $211,938,000. These long-term care facilities are leased
pursuant to non-cancelable leases generally with an initial term of ten to
twelve years. Many of the leases contain renewal options and some contain
options that permit the operators to purchase the facilities.
The following table sets forth certain information regarding the Company's
owned properties as of December 31, 1996:
<TABLE>
<CAPTION>
Number of Number of Current Annual Rent
Location Facilities Beds/Units Purchase Price Payments
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama 9 912 $ 29,287,996 $ 3,274,779
Arizona 3 587 18,486,509 2,335,600
California 3 473 7,378,468 896,172
Florida 9 1,116 39,064,291 4,061,847
Georgia 1 100 2,500,000 248,750
Idaho 1 39 2,550,000 266,220
Illinois 1 148 6,627,159 746,640
Iowa 6 448 9,401,943 1,073,564
Kansas 4 134 6,700,000 633,820
Montana 1 278 3,830,608 420,365
New Mexico 2 236 6,898,696 785,951
Oklahoma 1 37 1,750,000 168,525
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
(Continued)
Number of Number of Current Annual Rent
Location Facilities Beds/Units Purchase Price Payments
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oregon 2 71 4,550,000 463,410
Tennessee 2 224 5,550,000 552,225
Texas 16 1685 45,630,908 4,980,779
Virginia 3 443 11,012,655 1,211,748
Washington 9 457 22,358,630 2,185,380
- -------------------------------------------------------------------------------------------------
TOTAL 73 7,388 $223,577,863 $24,305,775
=================================================================================================
</TABLE>
The leases provide for a fixed minimum base rent during the initial and
renewal periods. Most of the leases provide for annual fixed rent increases or
increases based on consumer price indices over the term of the lease. In
addition, certain of the Company's leases provide for additional rent through
revenue participation (as defined in the lease agreement) in incremental
revenues generated by the facilities, over a defined base period, effective at
various times during the term of the lease. Each lease is a triple net lease
which requires the lessee to pay additional charges including all taxes,
insurance, assessments, maintenance and repair (capital and non-capital
expenditures), and other costs necessary in the operation of the facility.
MORTGAGE LOANS
At December 31, 1996, the Company had 67 mortgage loans secured by first
mortgages on 73 skilled nursing facilities with a total of 8,672 beds and 11
assisted living residences with 588 units located in 23 states. The mortgage
loans, which individually range from $302,500 to $11,240,000 in principal
amount, have current interest rates ranging from 9.16% to 13.2% generally have
25-year amortization schedules, have balloon payments due from 1997 to 2017 and
provide for certain facility fees. Almost all of the mortgage loans provide for
annual increases in the interest rate based upon a specified increase of 10 to
12.5 basis points. Approximately $9,825,000 of the loans due in 1997 will be
paid off once the Company completes a sale leaseback transaction for the same
amount on assisted living facilities that are being constructed.
The following table sets forth certain information regarding the Company's
mortgage loans as of December 31, 1996:
<TABLE>
<CAPTION>
Number of Number. of Face Amount of Current Amount of Current Annual
Location Facilities Beds/Units Mortgage Loans Mortgage Loans Debt Service (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alabama 1 142 $ 4,100,000 $ 4,060,562 $ 489,706
Arizona 3 479 10,650,000 10,599,851 1,238,740
Arkansas 2 274 3,400,000 3,361,692 396,918
California 11 1,587 22,805,000 23,501,020 2,888,344
Colorado 4 373 6,330,000 5,284,620 615,460
Florida 9 1,106 30,944,862 31,726,985 3,644,254
Georgia 3 287 8,050,000 8,030,186 929,512
Illinois 2 322 6,200,000 6,185,008 643,244
Iowa 3 214 4,000,000 3,940,365 493,338
Kansas 4 233 4,320,000 3,995,045 474,810
Louisiana 1 127 1,600,000 1,600,000 196,745
Mississippi 3 400 11,250,000 11,240,003 1,216,767
Missouri 1 174 2,801,000 2,872,520 375,658
Nebraska 5 266 5,348,980 5,434,382 601,749
Nevada 1 100 1,200,000 1,173,996 142,523
North Carolina 2 201 3,770,000 3,728,490 449,556
Ohio 1 150 5,200,000 5,173,773 575,408
Oklahoma 1 161 1,300,000 1,292,252 159,961
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
(Continued)
Number of Number. of Face Amount of Current Amount of Current Annual
Location Facilities Beds/Units Mortgage Loans Mortgage Loans Debt Service (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oregon 4 261 8,160,000 8,157,238 810,999
South Carolina 5 509 11,250,000 11,229,957 1,357,532
Tennessee 3 201 5,861,000 4,826,639 561,609
Texas 11 1383 16,650,000 16,364,741 1,998,690
Washington 4 310 4,500,000 4,482,365 551,282
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 84 9,260 $179,690,842 $178,261,690 $20,812,805
===================================================================================================================================
</TABLE>
(1) Includes principal and interest payments.
In general, the Company's mortgage loans may not be prepaid except in the
event of the sale of the facility to a third party that is not affiliated with
the borrower. The Company's mortgage loans impose a penalty upon prepayment of
the loans depending upon the period in which the prepayment occurs, whether such
prepayment was permitted or required, and certain other conditions such as upon
the sale of the facility under pre-existing purchase option, destruction or
condemnation, or other circumstances as approved by the Company. Such prepayment
amount is based upon a percentage of the then outstanding balance declining
ratably each year. In addition to a lien on the mortgaged property, the loans
are generally secured by certain non-real estate assets of the facilities and
contain certain other security provisions in the form of letters of credit,
pledged collateral accounts, security deposits, cross-default and cross-
collateralization features and certain guarantees. During 1996, the Company
received a $941,000 payment with respect to the prepayment of one loan.
MORTGAGE-BACKED SECURITIES
At December 31, 1996, the Company had investments of $92,545,000 in
subordinated mortgage-backed pass through certificates collateralized by three
pools consisting of 85 first mortgage loans secured by 148 skilled nursing
facilities with a total of 16,064 beds in 24 states. Each mortgage loan, all of
which were originated by the Company, is evidenced by a promissory note and
secured by a mortgage, deed of trust, or other similar instrument that creates a
first mortgage lien on a fee simple estate in real property (a "Mortgaged
Property"). The $278,881,000 current principal amount of mortgage loans
represented by the Certificates have individual principal balances ranging from
approximately $297,000 to $13,760,000, have a weighted average interest rate of
approximately 11.21%, and have remaining terms to scheduled maturities ranging
from 28 months to 220 months.
The following table sets forth certain information regarding the three
pools of mortgage loans securing the Certificates as of December 31, 1996:
<TABLE>
<CAPTION>
Original Principal Current Principal
Number of Number of Amount of Remaining Amount of Remaining Current Annual
Location Facilities Beds Mortgage Loans Mortgage Loans (1) Debt Service
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alabama 8 1,069 $ 18,425,800 $ 18,074,641 $ 2,253,561
Arizona 5 955 26,018,000 25,708,985 2,863,918
California 16 1,705 27,404,786 25,753,046 3,588,009
Connecticut 4 499 10,656,000 10,478,251 1,297,858
Florida 3 330 13,160,000 12,875,952 1,533,085
Georgia 10 1,078 20,822,000 20,566,473 2,498,370
Illinois 6 679 12,426,000 12,150,073 1,495,306
Iowa 10 750 13,531,000 13,782,238 1,493,545
Kansas 1 66 1,200,000 1,191,133 140,033
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
(Continued)
Original Principal Current Principal
Number of Number of Amount of Remaining Amount of Remaining Current Annual
Location Facilities Beds Mortgage Loans Mortgage Loans (1) Debt Service
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kentucky 1 67 726,000 711,348 88,862
Michigan 3 444 6,800,000 6,698,413 828,043
Mississippi 1 120 2,800,000 2,773,733 332,810
Missouri 5 545 9,489,000 9,297,497 1,161,454
Montana 5 658 14,278,000 14,073,620 1,536,239
Nebraska 4 378 6,614,000 6,545,787 770,105
New Mexico 5 350 9,007,000 8,757,245 1,127,306
North Carolina 2 256 5,350,000 5,217,532 649,726
Ohio 3 243 7,000,000 6,732,363 815,867
Oklahoma 1 112 1,300,000 1,262,522 167,409
S. Dakota 1 50 585,000 574,982 64,189
Tennessee 4 297 6,952,000 6,884,490 822,951
Texas 45 5,020 64,280,000 62,341,306 7,773,876
Washington 4 289 4,583,000 4,502,040 544,601
Wisconsin 1 104 2,075,000 1,927,543 264,000
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL 148 16,064 $285,482,586 $278,881,213 $34,111,123
=================================================================================================================================
</TABLE>
(1) Included in the balances of the mortgages underlying the mortgage-backed
securities are $54,205,000 of non-recourse mortgages payable by the
Company. These mortgages are secured by 22 skilled nursing facilities
containing a total of 2,634 beds that are owned by the Company and included
in the "Owned Properties" described previously.
Such mortgage loans generally have 25-year amortization schedules with
balloon payments due from 1999 to 2015, unless prepaid prior thereto.
Contractual principal and interest distributions with respect to the $92,545,000
of Certificates retained by the Company are subordinated to distributions of
interest and principal with respect to the $192,210,000 Certificates held by
third parties. Thus, based on the terms of the underlying mortgages and assuming
no unscheduled prepayments occur, contractual principal reductions on the
Certificates retained by the Company will commence in August 2004 with final
maturity in April 2015. Distributions on any of the Certificates will depend, in
large part, on the amount and timing of payments, collections, delinquencies and
defaults with respect to the mortgage loans represented by the Certificates,
including the exercise of certain purchase options under existing facility
leases or the sale of the Mortgaged Properties. Each of the mortgage loans
securing the Certificates contain similar prepayment and certain security
provisions with respect to the Company's mortgage loans.
As part of the REMIC transactions discussed above, the Company serves as
the sub-servicer and, in such capacity, is responsible for performing
substantially all of the servicing duties relating to the mortgage loans
represented by the Certificates. The Company receives monthly fees equal to a
fixed percentage of the then outstanding mortgage loans in the REMIC which, in
management's opinion, represent currently prevailing terms for similar
transactions. In addition, the Company will act as the special servicer to
restructure any mortgage loans in the REMIC that become in default.
At December 31, 1996, the mortgage-backed securities held by the Company
have an effective interest rate of approximately 15.84% based on the expected
future cash flows with no unscheduled prepayments.
16
<PAGE>
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4a. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Andre C. Dimitriadis 56 Chairman, Chief Executive Officer and Director
William McBride III 36 President, Chief Operating Officer and Director
James J. Pieczynski 33 Senior Vice President and Chief Financial Officer
</TABLE>
Mr. Dimitriadis co-founded the Company in 1992 and was employed by Beverly
Enterprises, Inc., an owner/operator of long-term care facilities, retirement
living facilities and pharmacies, from October 1989 to May 1992, where he served
as Executive Vice President and Chief Financial Officer. Prior to that, he was
employed by American Medical International, Inc., an owner/operator of
hospitals, from 1985 to 1989, where he served as Executive Vice President -
Finance, Chief Financial Officer and Director. Mr. Dimitriadis serves as
Chairman of the board of directors of Health Management, Inc. and a member of
the board of directors of Assisted Living Concepts, Inc. and Magellan Health
Services.
Mr. McBride co-founded the Company in 1992 and was employed by Beverly
Enterprises, Inc., an owner/operator of long-term care facilities, retirement
living facilities and pharmacies, from April 1988 to July 1992, where he served
as Vice President, Controller and Chief Accounting Officer from April 1988.
Prior to that, he was employed by Ernst & Young LLP, an international accounting
firm, from 1982 to 1988. Mr. McBride serves as Chairman of the board of
directors of Assisted Living Concepts, Inc. and a member of the board of
directors of Malan Realty Investors, Inc.
Mr. Pieczynski has served as Senior Vice President and Chief Financial
Officer of the Company since May 1994. He joined the Company in December 1993 as
Vice President and Treasurer. Prior to that, he was employed by American Medical
International, Inc., an owner/operator of hospitals, from May 1990 to December
1993, where he served as Assistant Controller and Director of Development. From
1984 to 1990, he was employed by Arthur Andersen & Co. LLP, an international
accounting firm.
17
<PAGE>
Item 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Company's common stock is listed on the New York Stock Exchange. Set
forth below are the high and low reported sale prices for the Company's common
stock as reported on the New York Stock Exchange.
<TABLE>
<CAPTION>
Price Per Share
High Low
------ ------
<S> <C> <C>
1995
- ----
First Quarter 13.625 12.500
Second Quarter 13.750 12.625
Third Quarter 15.250 13.125
Fourth Quarter 15.500 14.000
1996
- ----
First Quarter 17.125 14.875
Second Quarter 16.625 15.125
Third Quarter 17.250 15.875
Fourth Quarter 18.875 16.250
1997
- ----
First Quarter 18.250 17.750
(through February 1, 1997)
</TABLE>
(b) As of January 31, 1997, there were approximately 675 stockholders of record
of the Company's common stock. At the date of filing of this Annual Report
on Form 10-K, the Company is unable to estimate the number of additional
stockholders whose shares are held for them in street name or nominee
accounts.
(c) The Company has declared total cash distributions for the two years 1995
and 1996 as set forth below:
<TABLE>
<CAPTION>
Distributions Declared Per Share
--------------------------------
<S> <C>
1995
- ----
Quarter ended March 31 $ .29
Quarter ended June 30 .29
Quarter ended September 30 .315
Quarter ended December 31 .315
------
$ 1.21
======
1996
- ----
Quarter ended March 31 $ .315
Quarter ended June 30 .34
Quarter ended September 30 .34
Quarter ended December 31 .34
------
$1.335
======
</TABLE>
The Company intends to distribute to its stockholders a majority of its
funds from operations and, in any event, an amount at least sufficient to
satisfy the distribution requirements of a REIT. Cash flows from operating
activities available for distribution to stockholders will be derived primarily
from interest and rental payments from its real estate investments. All
distributions will be made by the Company subject to approval of the Board of
Directors and will depend on the earnings of the Company, its financial
condition and such other factors as the Board of Directors deem relevant. In
order to qualify for the beneficial tax treatment accorded to REITs by Sections
856 through 860 of the Code, the Company is required to make distributions to
holders of its shares equal to at least 95% of the Company's "REIT taxable
income."
18
<PAGE>
Item 6. SELECTED FINANCIAL INFORMATION
The following table of selected financial information for the twelve months
ended December 31, 1996, 1995, 1994 and 1993 and for the period from August 25,
1992 (commencement of operations) to December 31, 1992 should be read in
conjunction with the Company's financial statements and related notes thereto
included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1996 1995 1994 1993 1992(1)
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Operating Information:
Revenues $ 54,930 $ 35,569 $ 27,641 $ 15,847 $ 4,012
Expenses:
Interest expense 20,604 9,407 6,563 6,400 2,597
Depreciation and amortization 6,298 3,072 1,781 799 41
Amortization of Founders' stock 114 221 372 481 281
Provision for loan losses - - 550 372 75
Minority interest 898 57 - - -
Operating and other expenses 4,479 2,772 3,037 948 255
-------- -------- -------- -------- --------
Total expenses 32,393 15,529 12,303 9,000 3,249
-------- -------- -------- -------- --------
Net Income $ 22,537 $ 20,040 $ 15,338 $ 6,847 $ 763
======== ======== ======== ======== ========
Weighted average shares outstanding 19,257 18,257 15,443 9,169 7,962
======== ======== ======== ======== ========
Per share Information:
Net income $1.17 $1.10 $ 0.99 $ 0.75 $ 0.10
Distributions declared (2) $1.335 $1.21 $ 1.10 $ 1.02 $ 0.35
Balance Sheet Information:
Real estate investments, net $481,745 $340,225 $220,025 $147,269 $ 94,802
Total assets 494,149 357,162 239,369 154,303 148,562
Total debt 283,472 174,083 55,835 61,804 73,192
Total liabilities 299,207 185,458 66,148 69,156 78,250
Minority interest 10,528 1,098 - - -
Total stockholders' equity 184,414 170,606 173,221 85,147 70,312
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Other Information:
Funds from Operations (3) $ 28,793 $ 23,944 $ 17,078 $ 7,605 $ 791
Weighted average shares outstanding 19,257 18,257 15,443 9,169 7,962
</TABLE>
(1) From August 25, 1992 (commencement of operations) to December 31, 1992.
(2) Distributions may exceed current or accumulated net income.
(3) Funds from Operations ("FFO") represents net income (computed in accordance
with GAAP) excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation of real property and after adjustments for
unconsolidated entities in which a REIT holds an interest. FFO is computed
in accordance with the definition adopted by the National Association of
Real Estate Investment Trusts ("NAREIT"). FFO should not be considered as
an alternative to net income or any other GAAP measurement of performance
as an indicator of operating performance or as an alternative to cash flows
from operations, investing, and financing activities as a measure of
liquidity. The Company believes that FFO is helpful in evaluating a real
estate investment portfolio's overall performance considering the fact that
historical cost accounting implicitly assumes that the value of real estate
assets diminishes predictably over time. FFO provides an alternative
measurement criteria, exclusive of certain non-cash charges included in
GAAP income, by which to evaluate the performance of such investments. In
March 1995, NAREIT modified the definition of FFO to eliminate amortization
of deferred financing costs and depreciation of non-real estate assets as
items added back to net income when computing FFO. The Company implemented
the new method of calculating FFO effective as of the NAREIT-suggested
adoption date of January 1, 1996. For the above schedule, FFO has been
restated for the new method for all periods.
19
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Results
Year ended December 31, 1996 compared to the year ended December 31, 1995
Total revenues for the twelve months ended December 31, 1996 increased by
$19,361,000 or 54% to $54,930,000 from $35,569,000. The increase was primarily
due to increased rental income of $10,594,000, increased mortgage interest
income of $4,382,000 and increased interest income from mortgage-backed
securities of $3,480,000. Rental income increased primarily as a result of
$113,858,000 of gross investments in new properties during 1996 and the full
year impact of investments made in 1995. The increase in mortgage interest
income related to the higher overall mortgage investment base that impacted 1996
earnings as compared to the investment base that impacted 1995 earnings.
Interest from mortgage-backed securities increased as a result of the third
securitization transaction which closed in March 1996. During 1996, the Company
completed over $205,000,000 of net investments. The remaining increase in
income of $905,000 was primarily due to fees the Company received in 1996 from
prepayments of one mortgage loan and eight loans underlying the mortgage-backed
securities.
Total expenses for the twelve months ended December 31, 1996 increased by
$16,864,000 or 109% to $32,393,000 from $15,529,000 a year ago. The increase
resulted primarily from increases in interest expense of $11,197,000,
depreciation and amortization expense of $3,119,000, and from operating and
other expense of $1,707,000. Interest expense increased primarily due to a
higher borrowing base in 1996. In 1996, the Company issued two convertible debt
securities totaling $60,000,000 offset by a decrease of $18,813,000 due to
conversions of debentures. Net bank borrowings increased by $30,930,000 while
net mortgage financing increased by $37,498,000 from new acquisitions in 1996.
During 1996, the Company acquired 22 assisted living facilities and 20 skilled
nursing facilities resulting in an increase in depreciation and amortization
expense. Operating and other expenses increased by $1,707,000 or 62%; however,
as a percentage of revenues, such expenses increased only 5%, due to
approximately $1,445,000 in additional salaries and bonuses in 1996. The
remaining portion of the increase in operating expense was due to higher
administrative costs. Minority interest expense increased $841,000 due to the
addition of six new partnership transactions in 1996.
As a result of the foregoing, net income for the twelve months ended
December 31, 1996 increased $2,497,000 over the same period a year earlier.
Year ended December 31, 1995 compared to the year ended December 31, 1994
Total revenues increased $7,928,000 primarily as a result of increased
rental income of $4,292,000 and increased interest income on mortgage loans and
mortgage-backed securities of $3,260,000. These increases were primarily
attributable to investments of approximately $145,724,000 in long-term care
facilities the Company made during 1995 and the full year impact of investments
made in 1994. Revenue also increased as a result of increases in rents and
interest at those facilities that are required to pay such rents and interest.
The remaining increase of $376,000 was primarily due to an increase of $158,000
in prepayment fees received by the Company in 1995 and increases in facility
fees and other income of $218,000.
Total expenses for the twelve months ended December 31, 1995 were
$15,529,000 versus $12,303,000 for the same period in 1994. The increase was due
in large part to an increase in interest expense of approximately $3,581,000 due
to the issuance of $30,000,000 of convertible debentures in September 1994
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
and $61,500,000 of convertible debentures in September 1995. Interest expense
also increased by approximately $899,000 due to increased levels of bank
borrowings and by approximately $954,000 due to the assumption of non-recourse
mortgages. These increases were offset by a decrease of $2,590,000 in interest
expense in connection with the conversion of a portion of the Company's 9.75%
convertible debentures in 1995. Increased expenses were also attributable to
increased depreciation and amortization totaling $1,140,000 as a result of
acquisitions in 1995 and 1994. During 1995, the Company acquired 11 skilled
nursing facilities and six assisted living residences. Reduction in operating
and other expenses resulted primarily from a decrease in bonus expense of
$764,000 offset by increased staffing and administrative costs.
As a result of the foregoing, net income for the twelve months ended
December 31, 1995 increased $4,702,000 over the same period a year earlier.
Liquidity and Capital Resources
As of December 31, 1996, the Company had investments in 248 skilled nursing
facilities with a total of 28,628 beds and 35 assisted living facilities with a
total of 1,456 units in 32 states. The Company's real estate investment
portfolio consisted of approximately $178,262,000 invested in mortgage loans
(before allowance for doubtful accounts of $1,000,000), approximately
$92,545,000 invested in mortgage-backed securities, and approximately
$223,578,000 (before accumulated depreciation of $11,640,000) invested in long-
term care facilities owned by the Company and leased to operators.
During 1996, the Company completed investments totaling over $205,000,000
which consisted of purchases of 42 long-term care facilities for approximately
$113,858,000 and mortgage loans of $99,440,000 net of the sale of four
properties in Texas for $7,589,000. The Company financed its investments through
the sale of $60,000,000 aggregate principal amount of convertible debentures in
February and August 1996, the sale of $90,552,000 of mortgage-backed securities
in March 1996, the assumption of non-recourse mortgage loans totaling
$9,641,000, the issuance of $8,932,000 in limited partnership interests, short-
term borrowings and cash on hand. During 1996, the Company repurchased and
retired 120,000 shares of common stock for an aggregate price of approximately
$1,831,000. The Company also paid off one of its outstanding mortgage loans
totaling $3,331,000.
Under the Credit Agreement, the Company has an unsecured line of credit in
the amount of $45,000,000 which expires on May 31, 1998. Borrowings under the
credit line bear interest at LIBOR plus 1.5% and are subject to standard
affirmative and negative covenants. As of February 1, 1997, the Company had
$38,700,000 in borrowings outstanding under the Credit Agreement bearing a
weighted average interest rate of approximately 7.2%. In addition, the Company
has entered into the Repurchase Agreement with a financial institution under
which it can borrow up to $84,000,000. The scheduled maturity of the Repurchase
Agreement is November 15, 1997; however, the Company has historically been able
to renew the Repurchase Agreement. Borrowings under the Repurchase Agreement
bear interest at LIBOR plus 2% and are secured by a pledge of certain mortgage
loans. At February 1, 1997, $50,000,000 was outstanding under the Company's
Repurchase Agreement bearing an average interest rate of approximately 7.7%.
The credit and repurchase agreements (collectively "lines of credit") limit
the amount of borrowings available to between 50% and 60% of the Company's
borrowing base. Under the Credit Agreement, the Company's borrowing base is
comprised of certain owned properties and mortgage loans. At December 31, 1996,
the borrowing base under the Credit Agreement is limited to 50% of the cost of
the total applicable value of the properties and 60% of the total applicable
value of eligible mortgage loans in the borrowing base or approximately
$45,000,000. Under the Repurchase Agreement, the borrowing base consists of
various loans
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
which have been assigned to the financial institution. The Company can borrow up
to 60% of the loans which have been assigned. Based on the current level of
collateral and borrowings at February 1, 1997, there was approximately
$28,451,000 available under the Company's Repurchase Agreement which the Company
anticipates will be increased to $34,000,000 when additional collateral is
accepted. In addition, the Company had registered in a shelf registration but
had not issued up to $77,250,000 of additional securities for future issuance
from time to time.
In July 1996, in connection with obtaining a $50,180,000 commitment to
enter into a sale leaseback transaction with Assisted Living Concepts, Inc.
("ALC"), the Company agreed to sell four assisted living facilities ("ALFs") it
acquired during 1996 in Texas to ALC for approximately $7,589,000. There was no
gain or loss recognized on the sale; however, the Company received an
administration fee of approximately $214,000 in conjunction with the sale of the
four ALFs. In connection with the commitment, the Company entered into a one-
year forward ten-year interest rate swap agreement (the "November 1996
Agreement"). Under the November 1996 Agreement, the Company will be credited
interest at a three-month LIBOR and will incur interest at a fixed rate of
6.835% on a $40,000,000 notional amount beginning on November 7, 1997. The
November 1996 Agreement will be terminated on or before November 7, 1998 which
is the latest date by which the Company anticipates having long-term financing
in place on these ALFs. At December 31, 1996, the Company had an unrealized
gain of $251,000 under the November 1996 Agreement.
The Company also anticipates completing a securitization transaction
within the next year, the proceeds of which will be used to repay borrowings
outstanding under its Repurchase Agreement and its Credit Agreement. In
connection with such securitization, the Company, in September 1995, entered
into a seven-year forward interest rate swap agreement (the "September 1995
Agreement"), which effectively locked-in the net interest margin on $60,000,000
principal amount of senior certificates that the Company anticipates will be
sold. The September 1995 Agreement has a stated termination date of the earlier
of (i) the completion of the securitization or (ii) November 17, 1997 and has
been accounted for as a hedging transaction. As of December 31, 1996, the
Company had an unrealized loss of $253,000 under the September 1995 Agreement.
In June 1996, the Financial Accounting Standards Board issued Statement
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Pursuant to the Statement, the Company will be
required to reclassify to "available-for-sale" status its investments in
mortgage-backed securities that can contractually be prepaid and measure them
like investments in debt securities consistent with Statement 115. Adoption of
Statement No. 125 is not required until January 1, 1997. Management does not
believe that the result of this reclassification will have a material effect on
the financial position of the Company.
The Company has the option to redeem, without penalty, its currently
outstanding $843,000 aggregate principal amount of 9.75% Convertible
Subordinated Debentures at any time. Since such debentures are convertible into
common stock of the Company at a conversion price of $10.00 per share, the
Company anticipates that substantially all of such debentures will be converted
if it elects to redeem the debentures.
During January 1997, the Company provided mortgage loans totaling
approximately $18,530,000 and acquired one skilled nursing facility for
$2,556,000. Included in the mortgage loans are approximately $17,330,000 of
mortgage loans on assisted living facilities which will be paid off once the
Company completes a sale leaseback transaction for the same amount on assisted
living facilities that are
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
being constructed. As of February 1, 1997, the Company had outstanding
investment commitments totaling $82,790,000, consisting of approximately
$22,650,000 in commitments to make mortgage loans and commitments for the
acquisition of one nursing and 25 assisted living facilities for an aggregate
purchase price of approximately $60,140,000, including the remaining $35,330,000
commitment to Assisted Living Concepts, Inc. discussed previously. The Company
expects to fund substantially all of these commitments by the end of 1997. In
addition, in January 1997, the Company sold 1,000,000 shares of common stock at
$17.75 per share through a public offering. Of the net proceeds, $17,300,000 was
used to pay borrowings under the unsecured line of credit.
The Company expects its future income and ability to make distributions
from cash flows from operations to depend on the collectibility of its mortgage
loans receivable, mortgage-backed securities and rents. The collection of these
loans, certificates and rents will be dependent, in large part, upon the
successful operation by the operators of the skilled nursing and assisted living
facilities owned by or pledged to the Company. The operating results of the
facilities will depend on 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 long-term care facilities,
ability to control rising operating costs, and the potential for significant
reforms in the long-term care industry. In addition, the Company's 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 long-
term care industry. The Company cannot presently predict what impact these
proposals may have, if any. The Company believes that an adequate provision has
been made for the possibility of loans proving uncollectible but will
continually evaluate the status of the operations of the skilled nursing and
assisted living facilities, the Company's borrowers and the underlying
collateral for mortgage loans and make future revisions to the provision, if
considered necessary.
The Company's investments, principally its investments in mortgage loans,
mortgage-backed securities, and owned properties, are subject to the possibility
of loss of their carrying values as a result of changes in market prices,
interest rates and inflationary expectations. The effects on interest rates may
affect the Company's costs of financing its operations and the fair market value
of its financial assets. The Company generally makes loans which have
predetermined increases in interest rates and leases which have agreed upon
annual increases. Inasmuch as the Company initially funds its investments with
its revolving bank line and repurchase agreement, the Company is at risk of net
interest margin deterioration if medium and long-term rates were to increase
between the time the Company originates the investment and the time it
securitizes the loans or replaces the short-term variable rate borrowings with a
fixed rate financing. To help reduce the negative impact of changes in interest
rates, the Company partially hedges, or locks in, its net interest rate spread
on its investments with interest rate swaps, as previously described.
The Company believes that its current cash flow from operations available
for distribution or reinvestment, its remaining borrowing capacity under its
lines of credit and anticipated securitization transaction are sufficient to
provide for payment of its operating costs, fund investments and provide funds
for distribution to its stockholders. In addition to its borrowing capacity, the
Company is considering various other proposals for additional long-term
financing to meet the needs of the Company.
23
<PAGE>
Item 8. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors................................. 25
Consolidated Balance Sheets as of December 31, 1996 and 1995.... 26
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994............................. 27
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994....................... 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994............................. 29
Notes to Consolidated Financial Statements...................... 30
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LTC Properties, Inc.
We have audited the accompanying consolidated balance sheets of LTC
Properties, Inc. as of December 31, 1996 and 1995 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedules listed in the index at Item 14(a). These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LTC Properties,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Los Angeles, California
January 13, 1997, except Note 10, as to
which the date is February 1, 1997
25
<PAGE>
LTC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------- ------------
(In thousands)
<S> <C> <C>
ASSETS
Real Estate Investments:
Buildings and improvements, net of accumulated depreciation and
amortization: 1996 - $11,640; 1995 - $5,487 $199,591 $104,546
Land 12,347 7,236
Mortgage loans receivable, net of allowance for doubtful accounts:
1996 - $1,000; 1995 - $997 177,262 161,059
Mortgage-backed securities 92,545 67,384
-------- --------
Real estate investments, net 481,745 340,225
Other Assets:
Cash and cash equivalents 3,148 1,434
Restricted cash - 8,300
Debt issue costs, net 4,150 3,331
Interest receivable 2,817 2,093
Prepaid expenses and other assets 2,289 1,779
-------- --------
12,404 16,937
-------- --------
Total assets $494,149 $357,162
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible subordinated debentures due 1999 - 2004 $135,828 $ 94,641
Bank borrowings 79,400 48,470
Mortgage loans payable 54,205 16,707
Bonds payable and capital lease obligations 14,039 14,265
Accrued interest 6,015 3,196
Accrued expenses and other liabilities 3,041 2,415
Distributions payable 6,679 5,764
-------- --------
Total liabilities 299,207 185,458
Minority interest 10,528 1,098
Commitments - -
Stockholders' equity:
Preferred stock $0.01 par value: 10,000,000 shares - -
authorized; none issued and outstanding
Common stock $0.01 par value; 40,000,000 shares authorized;
shares issued and outstanding: 1996 - 19,484,208;
1995 - 18,297,254 195 183
Capital in excess of par value 195,297 178,453
Cumulative net income 65,525 42,988
Cumulative distributions (76,603) (51,018)
-------- --------
Total stockholders' equity 184,414 170,606
-------- --------
Total liabilities and stockholders' equity $494,149 $357,162
======== ========
</TABLE>
See accompanying notes
26
<PAGE>
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amount)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Revenues:
Rental income $20,529 $ 9,935 $ 5,643
Interest income from mortgage loans 17,498 13,116 12,836
Interest income from mortgage-backed 14,383 10,903 7,923
securities
Interest and other income 2,520 1,615 1,239
------- ------- -------
Total revenues 54,930 35,569 27,641
Expenses:
Interest expense 20,604 9,407 6,563
Depreciation and amortization 6,298 3,072 1,781
Amortization of Founders' stock 114 221 372
Provision for loan losses - - 550
Minority interest 898 57 -
Operating and other expenses 4,479 2,772 3,037
------- ------- -------
Total expenses 32,393 15,529 12,303
------- ------- -------
Net income $22,537 $20,040 $15,338
======= ======= =======
Net income per share $ 1.17 $ 1.10 $ 0.99
======= ======= =======
Weighted average shares outstanding 19,257 18,257 15,443
======= ======= =======
</TABLE>
See accompanying notes
27
<PAGE>
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Stock Capital in Cumulative Cumulative Total
Shares Amount excess of par Net Income Distributions Stockholders'
value Equity
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 9,737 $ 97 $ 89,698 $ 7,610 $(12,258) $ 85,147
Amortization of Founders'
stock - - 372 - - 372
Issuance of common stock, net 4,800 48 59,570 - - 59,618
Conversions of debentures,
net of unamortized issue costs
of $1,237 3,330 34 32,261 - - 32,295
Repurchase of common stock (209) (2) (2,666) - - (2,668)
Net income - - - 15,338 - 15,338
Distributions ($1.10 per share) - - - - (16,881) (16,881)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1994 17,658 177 179,235 22,948 (29,139) 173,221
Amortization of Founders' stock - - 221 - - 221
Exercise of stock options 2 - 24 - - 24
Conversions of debentures,
net of unamortized issue costs
of $651 1,936 19 18,924 - - 18,943
Repurchase of common stock (1,299) (13) (18,076) - - (18,089)
Repurchase of warrants - - (1,875) - - (1,875)
Net income - - - 20,040 - 20,040
Distributions ($1.21 per share) - - - - (21,879) (21,879)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1995 18,297 183 178,453 42,988 (51,018) 170,606
---------------------------------------------------------------------------------------------------
Amortization of Founders' stock - - 114 - - 114
Exercise of options 3 - 39 - - 39
Conversions of debentures,
net of unamortized issue costs
of $576 1,304 13 18,521 - - 18,534
Repurchase of common stock (120) (1) (1,830) - - (1,831)
Net income - - - 22,537 - 22,537
Distributions ($1.335 per share) - - - - (25,585) (25,585)
---------------------------------------------------------------------------------------------------
Balances at December 31, 1996 19,484 $195 $195,297 $65,525 $(76,603) $184,414
===================================================================================================
</TABLE>
See accompanying notes
28
<PAGE>
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 22,537 $ 20,040 $ 15,338
Depreciation, amortization and non-cash charges 8,181 5,014 2,810
Amortization of Founders' stock 114 221 372
-------- --------- ---------
CASH FROM OPERATING ACTIVITIES AVAILABLE
FOR DISTRIBUTION OR REINVESTMENT 30,832 25,275 18,520
Net change in other assets and liabilities 2,957 (1,078) 722
-------- --------- ---------
Net cash provided by operating activities 33,789 24,197 19,242
INVESTING ACTIVITIES:
Investment in real estate mortgages (99,440) (101,908) (120,472)
Acquisitions of real estate properties, net (95,285) (23,403) (41,136)
Sale of real estate properties, net 7,589 - -
Deferred facility fees, net 233 251 558
Proceeds from sale of mortgage-backed securities, net 86,674 19,216 80,203
Principal payments on real estate mortgages 2,272 2,634 8,550
Restricted cash 8,300 (8,300) -
Principal payments on mortgage loans payable (3,893) (37) -
Other (660) 88 (1,249)
-------- --------- ---------
Net cash used in investing activities (94,210) (111,459) (73,546)
FINANCING ACTIVITIES:
Proceeds from issuance of convertible debenture offerings, net 57,833 59,091 28,899
Proceeds from issuance of common stock, net 39 - 59,618
Proceeds from issuance of bonds - 8,300 -
Repurchase of warrants - (1,875) -
Distributions paid (24,670) (21,237) (14,388)
Borrowings under the lines of credit, net 30,930 48,470 (6,000)
Repurchase of common stock (1,831) (18,089) (2,668)
Other (166) (230) 4
-------- --------- ---------
Net cash provided by (used in) financing activities 62,135 74,430 65,465
-------- --------- ---------
(Decrease) increase in cash and cash equivalents 1,714 (12,832) 11,161
Cash and cash equivalents, beginning of year 1,434 14,266 3,105
-------- --------- ---------
Cash and cash equivalents, end of year $ 3,148 $ 1,434 $ 14,266
======== ========= =========
Supplemental disclosure of cash flow information:
Interest paid during the year $ 16,631 $ 7,428 $ 6,909
======== ========= =========
</TABLE>
See accompanying notes
29
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
LTC Properties, Inc. (the "Company") was incorporated on May 12, 1992 in
the State of Maryland and commenced operations on August 25, 1992. The Company,
which is organized as a real estate investment trust, invests in long-term care
facilities through mortgage loans, facility lease transactions and other
investments. As of December 31, 1996, the Company had investments in 248
properties ("the Properties") located in 32 states and operated by 84 health
care providers. The Properties include 248 skilled nursing facilities with a
total of 28,628 beds and 35 assisted living residences with a total of 1,456
units. At December 31, 1996, the Company's real estate investment portfolio
consisted of approximately $223,578,000 (before accumulated depreciation of
$11,640,000) invested in 73 long-term care facilities owned by the Company and
leased to operators, approximately $178,262,000 (before allowance for doubtful
accounts of $1,000,000) invested in 67 mortgage loans secured by 73 skilled
nursing facilities and 11 assisted living facilities ("ALFs") and approximately
$92,545,000 invested in mortgage-backed securities secured by 148 skilled
nursing facilities.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and controlled partnerships. All
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of
three months or less and are stated at cost which approximates market.
Land, Buildings and Improvements
Land, buildings and improvements are recorded at cost. Depreciation is
provided on a straight-line basis over the estimated useful lives of the related
assets which range from 7 years for equipment to 40 years for buildings. During
the year, the Company adopted Financial Accounting Standards Board ("FASB")
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" and determined that no impairment write-
downs were necessary. Depreciation expense on buildings and improvements,
including facilities owned under capital leases, was $6,214,000, $2,996,000 and
$1,740,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
30
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Hedging of Anticipated Transactions
The Company enters into forward interest rate swap agreements to hedge
certain firm commitments and to hedge anticipated securitization transactions.
Any gains or losses related to qualifying hedges of firm commitments and
anticipated transactions are ultimately recognized upon completion of the hedged
transaction.
Revenue Recognition
Interest income on mortgage loans and mortgage-backed securities is
recognized on the accrual basis using the effective interest method. The total
amount of the base rent payments from operating leases is accrued as earned over
the term of the lease. Contingent rental income, which is generated by a
percentage of increased revenue over a specified base period revenue of the
long-term care facilities, is recognized as earned.
Federal Income Taxes
No provision has been made for federal income taxes. The Company qualifies
as a real estate investment trust under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended. As such, the Company is not taxed on its
income which is distributed to stockholders, provided that such distribution is
at least 95 percent of its taxable income.
Concentration of Credit Risks
The Company's credit risks primarily relate to cash and cash equivalents,
the investment in mortgage-backed securities, mortgage loans receivable,
facility leases and interest rate swaps. Cash and cash equivalents are primarily
held in bank accounts and overnight investments. The mortgage-backed securities
relate to participating interests in real estate mortgage investment conduits
("REMICs") as discussed in Note 4. The Company's mortgage loans receivable
relate primarily to loans secured by long-term care facilities as discussed in
Note 4. The facility leases relate to the long-term care facilities the Company
owns and leases to third party operators.
The Company's financial instruments, principally its investment in
mortgage-backed securities and mortgage loans receivable, are subject to the
possibility of loss of the carrying values as a result of either the failure of
other parties to perform according to their contractual obligations or changes
in market prices which may make the instrument less valuable. The Company
obtains various collateral and other protective rights, and continually monitors
these rights, in order to reduce such possibilities of loss. In addition, the
Company provides reserves for potential losses based upon management's periodic
review of its portfolio.
Net Income Per Share
Computation of net income per share is based on weighted average number of
shares of common stock outstanding and dilutive common stock equivalents
(principally stock options).
31
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Debt Securities
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). Management determines the appropriate
classification of debt securities at the time of purchase or origination and
reevaluates such designation as of each balance sheet date. Debt securities,
principally mortgage-backed securities, are classified as held-to-maturity as
the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" (Statement 123) which provides companies an alternative to
accounting for stock-based compensation as prescribed under APB Opinion No. 25
(APB 25). Statement 123 encourages, but does not require companies to recognize
expense for stock-based awards based on their fair value at date of grant.
Statement 123 allows companies to continue to follow existing accounting rules
(intrinsic value method under APB 25) provided that pro-forma disclosures are
made of what net income and earnings per share would have been had the new fair
value method been used. The Company has elected to adopt the disclosure
requirements of Statement 123 but will continue to account for stock-based
compensation under APB 25. Statement 123's disclosure requirements are
applicable to stock-based awards granted in fiscal years beginning after
December 15, 1994.
New Accounting Pronouncement
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(Statement 125) which is effective beginning January 1, 1997, Statement 125
amends SFAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (Statement 115) to include interest-only strips as securities which
must be classified as investments that are either available-for-sale or for
trading. Accordingly, effective January 1, 1997, the Company will reclassify the
portion of its REMIC certificate investments that represent interest-only strips
to "available-for-sale" status and account for them consistent with the
provisions of Statement No. 115. Management does not believe that the result of
this reclassification will have a material effect on the financial position of
the Company.
3. Supplemental Cash Flow Information
Details of net changes in other assets and liabilities for the years ended
December 31, 1996, 1995 and 1994 follow:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
(Increase) in interest receivable $ (875) $ (741) $ (462)
(Increase) decrease in prepaid, other assets and allowance (99) (285) 475
Increase (decrease) in accrued interest 2,819 1,224 (755)
Increase (decrease) in accrued expenses and other liabilities 1,112 (1,276) 1,464
------- ------- --------
Net change $ 2,957 $(1,078) $ 722
======= ======= ========
</TABLE>
32
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Non-cash investing and financing transactions:
Securitization of mortgage loans for mortgage-
backed securities $80,962 $ - $127,640
Issuance of mortgage loans payable for mortgage-backed securities 31,525 - -
Conversion of debentures into common stock 18,813 19,357 33,306
Assumption of mortgage loans payable relating to
acquisitions of real estate properties 9,641 13,407 3,337
Assumption of capital lease obligations - 5,965 -
Minority interest 8,932 1,041 -
</TABLE>
Cash flow from operations available for distribution or reinvestment is
defined as net income (computed in accordance with generally accepted accounting
principles) plus depreciation and amortization and non-cash charges. Non-cash
charges in the Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 include the effective interest method of income
on the mortgage-backed securities, interest expense recorded but not paid on the
debentures which converted and amortization of debt issuance costs.
4. Real Estate Investments
Mortgage Loans
During 1996, the Company invested $99,440,000 in mortgage loans secured by,
among other things, first mortgages on 31 skilled nursing facilities with a
total of 4,077 beds and five assisted living residences with a total of 177
units and certain borrower guarantees. The mortgage loans, which individually
range from $305,000 to $11,250,000 in principal amount, have an initial weighted
average interest rate of 10.42%, have stated maturities of 5 to 20 years,
generally have 25-year amortization schedules, and provide for certain facility
fees. Most of the loans provide for annual interest rate increases in the
initial rate based upon a specified increase, which range from 10 to 12.5 basis
points. Approximately $9,825,000 of the loans due in 1997 will be paid off once
the Company completes a sale-leaseback transaction for the same amount on
assisted living facilities that are being constructed.
In March 1996, the Company provided non-recourse mortgage loans secured by
long-term care facilities to three of its wholly owned subsidiaries and to
certain partnerships in which the Company was a general partner totaling
$31,525,000. Concurrent with the closing of the loans, the Company completed a
real estate investment conduit ("REMIC") transaction in which loans totaling
$112,487,000, including the $31,525,000 originated in 1996, were exchanged for
mortgage pass-through certificates for an equal amount. See "Mortgage-Backed
Securities." See Note 5 - Other Long-term Obligations.
At December 31, 1996, the Company had 67 mortgage loans receivable secured
by first mortgage loans on 73 skilled nursing facilities with a total of 8,672
beds and 11 assisted living residences with 588 units located in 23 states. The
mortgage loans, which have a carrying amount of approximately $177,262,000 at
December 31, 1996, are reflected in the Company's financial statements net of
$1,000,000 of loan loss reserves. The mortgage loans, which individually range
from $302,500 to $11,240,000 in principal amount, have current interest rates
ranging from 9.16% to 13.2% with final payments due from 1997 to 2017. The
minimum future principal payments from the mortgage loans at
33
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 are as follows: $11,617,000 in 1997, $3,035,000 in 1998,
$5,095,000 in 1999, $7,189,000 in 2000, $7,327,000 in 2001 and $143,999,000
thereafter.
Mortgage-Backed Securities
On March 29, 1996, the Company securitized approximately $112,487,000 of
loans by creating a REMIC which, in turn, issued mortgage pass-through
certificates for the same amount in the form of various classes of certificates
(the "Certificates"). As part of the securitization, the Company sold
approximately $90,552,000 of Certificates to third parties at an effective
interest rate of 7.19%. The Company retained the remaining $21,935,000 face
amount of such Certificates which are effectively subordinated in right of
payment to the Certificates sold to third parties. Included in the mortgage-
backed securities are interest-only certificates which have no face amount but
are entitled to receive cash flows designated as interest. The net proceeds
from the REMIC transaction were used to repay borrowings outstanding under the
Company's lines of credit. The mortgage loans represented by the Certificates
consisted of 34 mortgage loans, including the loans provided to the Company's
wholly owned subsidiaries and to the limited partnerships totaling $31,525,000,
and were secured by 55 skilled nursing facilities in 17 states. The mortgage
loans in the REMIC pool had an initial weighted average mortgage interest rate
of 10.69% and a weighted average remaining term to stated maturity of
approximately 107 months. Concurrently with the closing of the REMIC
transaction, the Company's interest rate swap agreement entered into in May 1995
was terminated at a cost of approximately $1,500,000 and recognized in the
securitization transaction which resulted in no gain or loss.
The mortgage-backed securities owned by the Company, which at December 31,
1996 had a carrying value of $92,545,000, are subordinated to approximately
$192,210,000 of senior Certificates which carry a weighted average interest rate
of 7.79%. The Company's mortgage-backed securities had a weighted average
effective yield of approximately 15.84% at December 31, 1996.
As part of the REMIC transaction discussed above, the Company serves as the
sub-servicer and, in such capacity, is responsible for performing substantially
all of the servicing duties relating to the mortgage loans represented by the
Certificates. The Company receives monthly fees equal to a fixed percentage of
the then outstanding mortgage loans in the REMIC which, in management's opinion,
represent currently prevailing terms for similar transactions. In addition, the
Company will act as the special servicer to restructure any mortgage loans in
the REMIC that are in default. At December 31, 1996, all of the payments
currently due on its mortgage-backed securities were received.
Interest Rate Swap Agreements
In November 1996, the Company entered into a one-year forward ten-year
interest rate swap agreement (the "November 1996 Agreement") to hedge a
$50,180,000 commitment to purchase ALFs. Interest rate swaps are contractual
agreements between the Company and third parties to exchange fixed and floating
interest payments periodically without the exchange of the underlying principal
amounts (notional amounts). Under the November 1996 Agreement, the Company will
be credited interest at a three-month LIBOR and will incur interest at a fixed
rate of 6.835% on a $40,000,000 notional amount beginning on November 7, 1997.
The November 1996 Agreement will be terminated on or before
34
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
November 7, 1998. At December 31, 1996, the Company had an unrealized gain of
$251,000 under the November 1996 Agreement. See Note 8.
In September 1995, the Company entered into a seven-year forward interest
rate swap agreement (the "September 1995 Agreement") in conjunction with an
anticipated securitization transaction to be completed in 1997. Under the
September 1995 Agreement, the Company was credited interest at the six month
LIBOR and incurred interest at a fixed rate of 6.64% on a notional amount of
$60,000,000 which is being accounted for as a hedge. This effectively locked in
the net interest margin on $60,000,000 principal amount of senior certificates
the Company anticipates will be sold in the securitization transaction.
Concurrent with the closing of the hedged transaction, any gains and losses
associated with the interest rate swap will be included as a component of the
fair market value of the assets received in the transaction. The September 1995
Agreement will be terminated at the earlier of (i) an anticipated securitization
transaction to be completed during the second half of 1997 or (ii) November 17,
1997. At December 31, 1996, the Company had an unrealized loss of $253,000 under
the September 1995 Agreement.
At December 31, 1996, the total notional amount of the interest rate swap
agreements with off-balance sheet risk was $100,000,000.
Real Estate Properties and Lease Commitments
During 1996, the Company acquired for approximately $45,345,000 22 assisted
living facilities ("ALFs") in Alabama, Idaho, Oklahoma, Oregon, Texas and
Washington with a total of 820 units. Eighteen of these ALFs were purchased for
a total of $38,495,000 and have been leased to Assisted Living Concepts, Inc.
("ALC") for a total annual rent of approximately $3,758,000 (subject to annual
increases) pursuant to long-term non-cancelable agreements. Included in the
leases to ALC were five ALFs in Washington which were purchased for $11,280,000
and had been financed by the Company through the issuance of $8,300,000 of
multi-family tax-exempt revenue bonds in December 1995 that have a total cost of
funds of approximately 5.9%. As of December 31, 1996, the Company had acquired
all five of the Washington ALFs and had leased them to ALC generating an initial
annual rent of approximately $948,000. The Company also acquired for
$14,450,000 four skilled nursing facilities in Alabama, Georgia and Tennessee
with a total of 472 beds. See Note 5- Other Long-term obligations.
During the twelve months ended December 31, 1996, six newly formed limited
partnerships, of which the Company, through certain of its subsidiaries, is the
general partner, acquired 16 skilled nursing facilities in Alabama, Arizona,
Iowa and Texas for a total of approximately $54,063,000. These facilities were
purchased subject to mortgage loans of approximately $9,641,000. Under the
partnership agreements, the Company has guaranteed payment of a 10% preferred
return to the holders of the $8,932,000 in limited partnership interests. Under
certain circumstances, the limited partnership interests can be exchanged, at
the option of the holders, into 628,511 shares of the Company's common stock at
exercise prices ranging from $13.00 to $15.00 commencing in January and July
1997. The mortgage loans of $9,641,000 assumed by the Company have an initial
average interest rate of 11.64%, are due in 2002-2005 and are currently owned by
REMICs formed by the Company in 1993 and 1994. In conjunction with these REMICs,
the Company sold senior certificates to third parties in 1993 and 1994 at a
blended
35
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
interest rate of approximately 7.1% and 8.9%, respectively, and retained the
remaining certificates. See Note 5- Other Long-term obligations.
The Company leases its owned long-term facilities under operating leases
generally with an initial term of ten to twelve years. Many of the leases
contain renewal options and some contain options that permit the operators to
purchase the facilities. The leases provide for a fixed minimum base rent
during the initial and renewal periods. Most of the leases provide for annual
fixed rent increases or increases based on increases in consumer price indices
over the term of the lease. Certain of the Company's leases provide for
additional rent through participation in incremental revenues generated by the
facilities, over a defined base period, effective at various times during the
term of the lease. Each lease is a triple net lease which requires the lessee
to provide for the payment of all taxes, insurance, maintenance and other costs
of the facilities by the lessee. Contingent rent income for the years ended
December 31, 1996, 1995 and 1994 was immaterial.
Future minimum base rents receivable under the remaining non-cancelable
terms of operating leases are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1997 $ 24,520
1998 24,083
1999 24,503
2000 23,553
2001 22,893
Thereafter 100,103
</TABLE>
5. Debt Obligations
Short Term Borrowings
The Company has a repurchase agreement with an institution (the "Repurchase
Agreement") whereby it may borrow up to $84,000,000 for general corporate and
real estate investment purposes at LIBOR plus 2.0%. Under the Repurchase
Agreement, the Company may borrow an amount based on the Company's existing
mortgage loans with no additional commitment or unused fees. At December 31,
1996, there were $38,000,000 outstanding borrowings under the Repurchase
Agreement. Under the terms of the agreement, borrowings are secured by the
mortgage loans of the Company and mature on or before November 15, 1997.
However, the Company has historically been able to renew the Repurchase
Agreement.
The Company entered into a $25,000,000 unsecured revolving credit agreement
(the "Credit Agreement" as amended) with certain banks to provide the Company
with short term borrowings. In May 1996, the terms of the Credit Agreement were
amended, including certain financial covenants, to increase the amount of the
line to $45,000,000 and to extend the expiration date from December 31, 1996 to
May 31, 1998. Revolving credit borrowings, at the option of the Company,
accrued interest at the agent bank's base rate or LIBOR plus 1.50%. Under the
Credit Agreement, the Company pays a commitment fee equal to .25% per annum of
the average unused commitment, an annual agency fee of $25,000 plus a one-time
commitment fee. The Credit Agreement contains, among other things, certain
financial covenants including an interest coverage ratio, ratio of total
liabilities to net worth, and ratio of
36
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
funded debt to total net worth. At December 31, 1996, the Company had
$41,400,000 outstanding under the Credit Agreement bearing an interest rate of
approximately 7.2%.
Convertible Subordinated Debentures
The following is a summary of Convertible Subordinated Debentures
outstanding at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Conversion
Price per
Issue Date Interest Rate Maturity share 1996 1995
- ------------- -------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1992 9.75% June 2004 $10.00 $ 843,000 $ 3,141,000
1994 8.50% January 2000 $15.00 22,023,000 30,000,000
1995 8.50% January 2001 $15.50 45,157,000 51,500,000
1995 8.25% January 1999 $15.50 10,000,000 10,000,000
1996 7.75% January 2002 $16.50 27,840,000 -
1996 8.25% July 2001 $17.25 29,965,000 -
------------ -----------
$135,828,000 $94,641,000
============ ===========
</TABLE>
The 9.75% debentures due 2004 are redeemable by the Company at any time at
100% of the principal plus accrued interest. During the year ended December 31,
1996 and 1995, $2,298,000 and $19,357,000 in principal amount of such debentures
converted into 229,800 and 1,935,700 shares of common stock, respectively.
The 8.5% debentures due 2000 are not redeemable by the Company prior to
January 1, 1998. During the year ended December 31, 1996, $7,977,000 of
debentures converted into 531,794 shares of common stock. No debentures were
converted in 1995.
The 8.5% debentures due 2001 and the 8.25% debentures due 1999 are not
redeemable by the Company. During the year ended December 31, 1996, $6,343,000
of debentures converted into 409,224 shares of common stock. No debentures were
converted in 1995.
On February 5, 1996, the Company sold, through a public offering,
$30,000,000 aggregate principal amount of 7.75% Convertible Subordinated
Debentures due January 1, 2002. The debentures are convertible at any time prior
to maturity into shares of the Company's common stock at a conversion price of
$16.50 per share, subject to adjustments under certain circumstances. The
debentures are not redeemable by the Company prior to January 1, 2001. The net
proceeds were used to repay borrowings outstanding under the Company's lines of
credit. During the year ended December 31, 1996, $2,160,000 of debentures
converted into 130,908 shares of common stock.
On March 15, 1996, the Company filed a shelf-registration statement with
the Securities and Exchange Commission covering up to $125,000,000 of debt and
equity securities to be sold from time to time in the future. The registration
statement was declared effective on April 4, 1996. Pursuant to the shelf
registration, the Company, in August 1996, completed the sale of $30,000,000 of
8.25% Convertible Subordinated Debentures due 2001. The debentures are
convertible into shares of the Company's common stock at a price of $17.25 and
are not redeemable by the Company. Net proceeds from the offering were used to
repay short-term borrowings. During the
37
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
year ended December 31, 1996, $35,000 of debentures converted into 2,028 shares
of common stock.
Other Long-Term Obligations
The following information relates to other long-term obligations as of December
31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Mortgage loans payable, interest rates from 9.25%
to 12.00%, maturing 2002 to 2006 $54,205,000 $16,707,000
Multi-family tax-exempt revenue bonds, variable interest (4.35%
at 12/31/96), maturing at various dates to 2015 8,300,000 8,300,000
Obligations under capital leases, effective interest rates
from 7.49% to 7.92%, maturing at various dates to 2013 5,739,000 5,965,000
----------- -----------
Totals $68,244,000 $30,972,000
=========== ===========
</TABLE>
In 1996, the Company provided non-recourse mortgage loans to three of its
wholly owned subsidiaries and to certain newly formed limited partnerships in
which the Company is a general partner totaling $31,525,000. During 1996, the
Company acquired, through the newly formed limited partnerships, 16 skilled
nursing facilities. These facilities were purchased subject to mortgage loans
of approximately $9,641,000. Also during 1996, the Company paid off one of its
outstanding mortgage loans totaling $3,331,000.
Aggregate maturities of other long-term obligations, including capitalized
leases, are as follows: $630,000 in 1997, $931,000 in 1998, $1,009,000 in 1999,
$1,098,000 in 2000, $1,197,000 in 2001 and $63,379,000 thereafter. These
obligations are secured by 31 long-term care facilities with a total net book
value of $81,915,000. Five of the mortgage loans provide for annual increases
in the interest rate in an amount equal to 10 basis points with the interest
rates capped at 12%.
6. Fair Value of Financial Instruments
The following estimated fair value amounts have been determined using
available market information and other valuation methods. However, considerable
judgment is required to interpret market data and, therefore, the estimates
presented below are not necessarily indicative of the amounts the Company could
realize in a current market.
Mortgage loans receivable are estimated by discounting future cash flow
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. At December 31,
1996, the fair value of real estate mortgages amounted to approximately
$189,483,000. The fair value of the mortgage-backed securities was estimated at
approximately $98,934,000 based upon expected future cash flows without
unscheduled prepayments discounted at an estimated current market rate of
interest for similar rated securities. At December 31, 1996, the September 1995
interest rate swap had an unrealized loss of $253,000 while the November 1996
interest rate swap had an unrealized gain of $251,000 based on valuations from
an investment bank. Based on the quoted market price of the Company's common
stock and the conversion price of the convertible debentures, the fair value of
the debentures was estimated at $159,365,000 at December 31, 1996.
38
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Stockholders' Equity
Repurchase of Common Stock
During 1996, the Company repurchased and retired 120,000 shares of common
stock for an aggregate price of approximately $1,831,000.
Option Plan
The Company has a Stock Option Plan (the "Plan") in which options may be
granted as either incentive or nonqualified options. Incentive options may be
granted only to officers and employees of the Company, while nonqualified
options may be granted to directors, officers, consultants, and other key
persons who provide services to the Company. In 1995, the Plan was amended
("Amended and Restated Option Plan) to provide for issuance of restricted shares
to officers, employees, directors and other key persons. Under the Amended and
Restated Plan, options vest over two to five years and are exercisable within
seven years from the date of vesting. In general, each option shall expire on
the date specified in the option agreement, but not later than the tenth
anniversary of the date on which the option was granted.
The following summarizes transactions regarding the nonqualified options
for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Shares Option Price Per Share ($)
-------- --------------------------
<S> <C> <C>
Outstanding at December 31, 1993 624,000 10.000 to 12.250
Granted 215,500 12.200 to 13.250
Exercised -
Canceled - -
-------
Outstanding at December 31, 1994 839,500 10.000 to 13.250
Granted 27,000 12.000 to 12.250
Exercised (2,000) 12.250
Canceled (3,000) 12.250
-------
Outstanding at December 31, 1995 861,500 10.000 to 13.250
Granted 18,000 15.125
Exercised (3,200) 12.000 to 12.250
Canceled (3,000) 12.250
-------
Outstanding at December 31, 1996 873,300 10.000 to 15.125
=======
Exercisable at December 31, 1994 170,500 10.000 to 12.250
Exercisable at December 31, 1995 272,333 10.000 to 13.250
Exercisable at December 31, 1996 436,466 10.000 to 13.250
Available for grant at December 31, 1994 557,000
Available for grant at December 31, 1995 533,000
Available for grant at December 31, 1996 358,000
</TABLE>
In 1996, the Company's Board of Directors approved the issuance of 160,000
shares of restricted stock to certain employees and non-employee directors
pursuant to the Company's Amended and Restated Option Plan. The restricted
shares will vest over five years, beginning January 1998.
39
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dividends are payable on the restricted shares to the extent and on the same
date as dividends are paid on all of the Company's common stock.
In 1996, the Company adopted the disclosure-requirement provision of SFAS
123 in accounting for stock-based compensation issued to employees. As of
December 31, 1996 and 1995, there were 44,000 and 27,000 options outstanding,
respectively, that are subject to SFAS 123 disclosure requirements. The fair
value of these options was estimated utilizing prescribed valuation models and
assumptions as of each respective grant date. Based on the results of such
estimates, management determined that there was no material effect on net income
or earnings per share for the years ended December 31, 1996 and 1995. The
weighted average exercise price of the options were $13.55 and $12.45 and the
weighted average remaining contractual lives were 7.7 and 8.3 years as of
December 31, 1996 and 1995, respectively.
Founders' Stock
In May 1992, prior to the completion of the initial public offering, the
Company issued 300,000 shares of common stock, subject to certain restrictions
or forfeitures, to the Founders of the Company. The market value of shares
awarded (estimated at $5.00 per share) has been recorded as unearned stock grant
compensation and has been recorded as a reduction in capital in excess of par
value. The unearned compensation is being charged to expense over a vesting
period ranging from two to five years.
For the years ended December 31, 1996, 1995 and 1994, the Company recorded
an expense totaling $114,000, $221,000, and $372,000, respectively.
8. Distributions
The Company must distribute at least 95% of its taxable income in order to
continue to qualify as a real estate investment trust. Distributions in a given
year may exceed the Company's earnings and profits due to non-cash expenses such
as depreciation and amortization. Under special tax rules for real estate
investment trusts, dividends declared in the last quarter of the calendar year
and paid by January 31 of the following year are treated as paid on December 31
of the year declared. Distributions per share are broken down according to the
following categories for income tax purposes:
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- ------
<S> <C> <C> <C>
Ordinary income $1.228 $1.05 $1.10
Non-taxable distribution 0.107 .16 -
------ ----- -----
Total $1.335 $1.21 $1.10
====== ===== =====
</TABLE>
9. Transactions with Assisted Living Concepts, Inc.
In 1996, the Company's Board of Directors authorized an increase in the
Company's investment in assisted living facilities ("ALFs") from 10% to 20% of
its adjusted gross real estate investment portfolio (adjusted to include the
mortgage loans to third parties underlying the $92,545,000 investment in
mortgage-backed securities). In addition, the Board of Directors also
authorized an increase in the Company's investment in properties operated by
Assisted Living Concepts, Inc. ("ALC"), an owner, operator and developer of ALFs
whose securities are listed on
40
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the American Stock Exchange, from 5% to 10% of its adjusted gross real estate
investment portfolio (which was approximately $626,516,000 as of December 31,
1996). Currently, two of the Company's executive officers serve as members of
the Board of Directors of ALC. As of December 31, 1996, three executive officers
of the Company own approximately 5.5% of ALC's common stock. The Company has
discussed with its Board of Directors and anticipates increasing the percentage
of its adjusted gross real estate investment portfolio that can be invested in
ALFs and properties operated by ALC to 30% and 15%, respectively, during 1997.
At December 31, 1996, the Company had investments in ALFs and properties
operated by ALC of approximately 10.64% and 6.48%, respectively of the Company's
total adjusted gross real estate investment portfolio.
In July 1996, in connection with obtaining a $50,180,000 commitment to
enter into a sale leaseback transaction with ALC, the Company agreed to sell
back four ALFs it acquired during 1996 in Texas to ALC for approximately
$7,589,000. There was no gain or loss recognized on the sale, however, the
Company received an administration fee of approximately $214,000 in conjunction
with the sale of the four ALF facilities. In connection with the commitment,
the Company entered into a one-year forward ten-year interest rate swap
agreement (the "Agreement"). Under the Agreement, the Company will be credited
interest at a three-month LIBOR and will incur interest at a fixed rate of
6.835% on a $40,000,000 notional amount beginning on November 7, 1997. The
Agreement will be terminated on or before November 7, 1998 which is the latest
date by which the Company anticipates having long-term financing in place on
these residences.
10. Subsequent Events
On January 15, 1997, the Company sold, through a public offering, 1,000,000
shares of common stock at $17.75 per share. Of the total net proceeds,
$17,300,000 was used to pay borrowings under the Company's unsecured line of
credit.
During January 1997, the Company provided mortgage loans totaling
approximately $18,530,000 and acquired one skilled nursing facility for
$2,556,000. As of February 1, 1997, the Company had outstanding investment
commitments totaling $82,790,000, consisting of approximately $22,650,000 in
commitments to make mortgage loans and commitments for the acquisition of one
nursing and 25 assisted living facilities for an aggregate purchase price of
approximately $60,140,000, including the remaining $35,330,000 commitment to
Assisted Living Concepts, Inc. discussed in Note 8. The Company expects to fund
substantially all of these commitments by the end of 1997.
During January 1997, an additional $26,358,000 in principal amount of
debentures converted into 1,614,153 shares of the Company's common stock.
41
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Quarterly Financial Information (Unaudited)
The following quarterly financial data summarizes the unaudited quarterly
results for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1996 (In thousands, except per share amounts)
- ----
<S> <C> <C> <C> <C>
Revenues $12,363 $12,920 $14,292 $15,355
Net income 5,455 5,617 5,618 5,847
Net income per share 0.29 0.30 0.29 0.29
Dividends per share 0.315 0.34 0.34 0.34
<CAPTION>
Quarter ended
-----------------------------------------------
1995 March 31 June 30 September 30 December 31
- ---- -------- ------- ------------ -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 7,505 $ 8,560 $ 9,232 $10,272
Net income 4,718 5,199 4,971 5,152
Net income per share 0.26 0.29 0.27 0.28
Dividends per share 0.29 0.29 0.315 0.315
</TABLE>
42
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 19, 1997, to be
filed pursuant to Regulation 14A.
Item 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 19, 1997, to be
filed pursuant to Regulation 14A.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 19, 1997, to be
filed pursuant to Regulation 14A.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 19, 1997, to be
filed pursuant to Regulation 14A.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) 1 and 2. Consolidated Financial Statements and Consolidated Financial
Statement Schedules
The consolidated financial statements and consolidated financial statement
schedules listed in the accompanying index to consolidated financial statements
and consolidated financial statement schedules are filed as part of this annual
report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed as part
of this annual report.
(b) Reports on Form 8-K
A report on Form 8-K was filed on January 30, 1996 reporting the Company's
financial results for the year ended December 31, 1995.
43
<PAGE>
LTC PROPERTIES, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Financial Statements:
--------------------
Report of Independent Auditors............................................... 25
Consolidated Balance Sheets at December 31, 1996 and 1995.................... 26
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994............................................................. 27
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994.......................................... 28
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994....................................................... 29
Notes to Consolidated Financial Statements................................... 30
2. Financial Statement Schedules:
-----------------------------
VIII. Valuation and Qualifying Accounts...................................... 45
XI. Real Estate and Accumulated Depreciation............................... 46
XII. Mortgage Loans on Real Estate.......................................... 49
</TABLE>
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule.
44
<PAGE>
LTC PROPERTIES, INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance ---------------------------------- Balance
at Beginning Charged to Charged to at end
Description of period Operations other accounts Deductions of period
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Allowance for doubtful
accounts $447 550 - - $997
======== ======== ======== ======== ========
1995
Allowance for doubtful
accounts $997 - - - $997
======== ======== ======== ======== ========
1996
Allowance for doubtful
accounts $997 3 - - $1,000
======== ======== ======== ======== ========
</TABLE>
45
<PAGE>
LTC PROPERTIES, INC.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to Gross Amount at which Carried
Company At Close of period
---------------------------- Cost Capitalized -----------------------------------------
Building and Subsequent to Building and
Description Encumbrances Land Improvements Acquisition Land Improvements Total (1)
- ------------- -------------------- ----------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term care nursing facilities:
Nursing Homes:
Demopolis, AL $ 10,668,066.99 (3) $ 70,786 $ 2,141,276 $ - $ 70,786 $ 2,141,276 $ 2,212,062
Fort Payne, AL (3) 37,178 3,587,724 - 37,178 3,587,724 3,624,903
Jackson, AL (3) 63,641 2,620,000 - 63,641 2,620,000 2,683,640
Madison, AL (3) 30,083 2,327,808 - 30,083 2,327,808 2,357,891
Phoenix, AL (3) 59,089 2,122,670 - 59,089 2,122,670 2,181,760
Phoenix, AZ 7,797,583.12 431,750 6,764,084 - 431,750 6,764,084 7,195,834
Tucson, AZ 6,592,231.54 145,614 3,931,592 - 145,614 3,931,592 4,077,206
East Whittier, CA - 169,929 1,741,775 - 169,929 1,741,775 1,911,704
West Whittier, CA - 726,448 1,185,257 - 726,448 1,185,257 1,911,705
Yuba City, CA - 521,083 3,033,975 - 521,083 3,033,975 3,555,058
Bradenton, FL - 330,498 2,720,250 - 330,498 2,720,250 3,050,748
Clearwater, FL - 454,114 2,902,381 - 454,114 2,902,381 3,356,495
Crestview, FL - 140,000 2,305,979 - 140,000 2,305,979 2,445,979
San Destin, FL - 175,155 3,874,653 - 175,155 3,874,653 4,049,808
Gulf Breeze, FL - 600,000 6,020,146 - 600,000 6,020,146 6,620,146
Lecanto, FL - 350,795 2,664,455 2,251,990 350,795 4,916,445 5,267,240
Pensacola, FL - 190,000 4,295,297 - 190,000 4,295,297 4,485,297
Pensacola, FL 230,000 4,663,032 - 230,000 4,663,032 4,893,032
Starke, FL - 113,000 4,782,546 - 113,000 4,782,546 4,895,546
Chicago Heights, IL - 220,905 6,406,254 - 220,905 6,406,254 6,627,159
Alamagordo, NM - 314,215 3,567,268 - 314,215 3,567,268 3,881,483
Roswell, NM - 85,000 2,932,213 - 85,000 2,932,213 3,017,213
Great Falls, MT 4,335,297.45 397,217 3,433,391 397,217 3,433,391 3,830,608
Rusk, TX - 34,174 2,399,045 - 34,174 2,399,045 2,433,219
Chesapeake, VA - 372,667 3,298,218 372,667 3,298,218 3,670,885
Richmond, VA - 372,667 3,298,218 - 372,667 3,298,218 3,670,885
Tappahannock, VA - 372,667 3,298,218 - 372,667 3,298,218 3,670,885
Toppanish, WA 2,628,853 (4) 132,152 2,653,758 - 132,152 2,653,758 2,785,910
Vancouver, WA (4) 60,000 3,032,720 - 60,000 3,032,720 3,092,720
Jefferson, IA 10,554,832 (5) 36,272 1,932,778 - 36,272 1,932,778 1,969,050
Houston, TX 201,744 4,457,951 - 201,744 4,457,951 4,659,695
Houston, TX 361,655 3,771,839 - 361,655 3,771,839 4,133,493
Montgomery, AL 3,939,977 (6) 143,724 5,425,566 - 143,724 5,425,566 5,569,290
Carroll, IA (5) 60,016 1,020,271 - 60,016 1,020,271 1,080,287
Houston, TX 201,744 4,457,951 - 201,744 4,457,951 4,659,695
Woodbury, TN 100,000 2,900,000 - 100,000 2,900,000 3,000,000
Whiteright, TX 1,126,791 100,000 2,922,653 - 100,000 2,922,653 3,022,653
Granger, IA (5) 92,725 1,325,421 - 92,725 1,325,421 1,418,146
Bedford, TX (5) 344,683 3,195,303 - 344,683 3,195,303 3,539,985
Midland, TX 2,041,265 32,446 2,285,110 - 32,446 2,285,110 2,317,556
Tiptonville, TN 100,000 2,450,000 - 100,000 2,450,000 2,550,000
Gardendale, AL 83,660 6,316,340 - 83,660 6,316,340 6,400,000
Polk City, IA (5) 88,238 1,351,428 - 88,238 1,351,428 1,439,666
</TABLE>
<TABLE>
<CAPTION>
Accum. Orig. Construc-
Deprec tion/renovation Date
Description (2) (3) Date Acquired
- ------------- ---------- ------------- ----------
<S> <C> <C> <C>
Long-term care nursing facilities:
Nursing Homes:
Demopolis, AL $112,246 1972 Jun. 1995
Fort Payne, AL 202,835 1967/1973 Jun. 1995
Jackson, AL 133,842 1964 Jun. 1995
Madison, AL 127,640 1964/1974 Jun. 1995
Phoenix, AL 119,802 1969 Jun. 1995
Phoenix, AZ 655,290 1985/1992 May 1994
Tucson, AZ 504,450 1985 Mar. 1993
East Whittier, CA 161,433 1964 Sep. 1994
West Whittier, CA 124,898 1964 Sep. 1994
Yuba City, CA 555,383 1970 Jan. 1993
Bradenton, FL 305,559 1989 Sep. 1993
Clearwater, FL 387,360 1965/1993 Sep. 1993
Crestview, FL 198,998 1988 Jun. 1994
San Destin, FL 262,305 1986 Feb. 1995
Gulf Breeze, FL 518,010 1984 Jun. 1994
Lecanto, FL 445,201 1988 Sep. 1993
Pensacola, FL 375,378 1972 Jun. 1994
Pensacola, FL 401,645 1991 Jun. 1994
Starke, FL 410,182 1989 Jun. 1994
Chicago Heights, IL 524,818 1988 Sep. 1994
Alamagordo, NM 485,440 1985 Mar. 1993
Roswell, NM 511,603 1979 Nov. 1992
Great Falls, MT 604,046 1960/1990 Dec. 1992
Rusk, TX 279,030 1969 Mar. 1994
<CAPTION>
Accum. Orig. Construc-
Deprec tion/renovation Date
Description (2) (3) Date Acquired
- ------------- ---------- ------------- ----------
<S> <C> <C> <C>
Chesapeake, VA 173,090 1977 Oct. 1995
Richmond, VA 173,090 1970/1975/1980 Oct. 1995
Tappahannock, VA 173,090 1977/1978 Oct. 1995
Toppanish, WA 146,429 1960/1970 Jun. 1995
Vancouver, WA 172,831 1952/1994 Jun. 1995
Jefferson, IA 64,105 1968/1972 Jan. 1996
Houston, TX 90,254 1961 Jun. 1996
Houston, TX 75,971 1964/1968 Jun. 1996
Montgomery, AL 183,761 1967/1974 Jan. 1996
Carroll, IA 35,324 1969 Jan. 1996
Houston, TX 79,880 1967 Jun. 1996
Woodbury, TN 62,200 1972/75/90 May 1996
Whiteright, TX 106,990 1962/64/65 Jan. 1996
Granger, IA 45,973 1979 Jan. 1996
Bedford, TX 114,291 1960 Jan. 1996
Midland, TX 82,770 1973 Feb. 1996
Tiptonville, TN 56,833 1975 May 1996
Gardendale, AL 121,781 1976/1984 May 1996
Polk City, IA 44,981 1976 Jan. 1996
</TABLE>
46
<PAGE>
LTC PROPERTIES, INC.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to
Company
---------------------------------------- Cost Capitalized
Building and Subsequent to
Description Encumbrances Land Improvments Acquisition
- ----------------------------- --------------- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Atmore, AL (6) 23,142 2,985,308 -
Mesa, AZ 4,519,902 304,707 6,908,762 -
Houston, TX 571,889 5,964,457 -
Roberta, GA 100,000 2,400,000 -
Norwalk, IA (5) 45,486 1,034,802 -
Altoona, IA (5) 102,152 2,312,354 -
----------- ----------- ------------ ----------
Sub-total 54,204,799 10,295,110 163,422,497 2,251,990
----------- ----------- ------------ ----------
Assisted-living facilities:
Dodge City, KS 1,678,763 87,500 1,662,500 -
Great Bend, KS 1,415,908 86,842 1,563,159 -
McPherson, KS 1,231,666 75,000 1,575,000 -
Salina, KS 1,413,023 71,739 1,578,261 -
Longview, TX - 38,256 1,568,492 -
Marshall, TX - 38,256 1,568,492 -
Walla Walla, WA 8,300,000 (7) 100,000 1,940,000 -
Greenville, TX 42,098 1,565,286 -
Camas, WA (7) 100,000 2,175,000 -
Grandview, WA (7) 100,000 1,940,000 -
Vancouver, WA (7) 100,000 2,785,000 -
Athens, TX 95,678 1,511,707 -
Lufkin, TX 100,000 1,950,000 -
Kennewick. WA (7) 100,000 1,940,000 -
Gardendale, AL 16,340 1,233,660 -
Jacksonville, TX 100,000 1,900,000 -
Kelso, WA 100,000 2,500,000 -
Battleground, WA 100,000 2,500,000 -
Hayden, ID 100,000 2,450,000 -
Klamath Falls, OR 100,000 2,300,000 -
Newport, OR 100,000 2,050,000 -
Tyler, TX 100,000 1,800,000 -
Wichita Falls, TX 100,000 1,850,000 -
Ada, OK 100,000 1,650,000 -
----------- ----------- ------------ ----------
Subtotal 14,039,359 2,051,709 45,556,557 -
----------- ----------- ------------ ----------
Grand total $68,244,158 $12,346,818 $208,979,053 $2,251,990
=========== =========== ============ ==========
<CAPTION>
Gross Amount at which Carried
At Close of Period
-------------------------------------------- Accum. Orig. Construc-
Building and Deprec tion/renovation Date
Description Land Improvments Total (1) (2)(3) Date Acquired
- ---------------------------- -------------------------------------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Atmore, AL 23,142 2,985,308 3,008,450 98,518 1967/1974 Jan. 1996
Mesa, AZ 304,707 6,908,762 7,213,468 110,103 1975/1996 Jun. 1996
Houston, TX 571,889 5,964,457 6,536,346 131,548 1967 Jun. 1996
Roberta, GA 100,000 2,400,000 2,500,000 53,333 1964 May 1996
Norwalk, IA 45,486 1,034,802 1,080,287 35,548 1975 Jan. 1996
Altoona, IA 102,152 2,312,354 2,414,509 75,619 1973 Jan. 1996
----------- ------------ ------------ -----------
Sub-total 10,295,110 165,674,487 175,969,597 10,915,707
----------- ------------ ------------ -----------
Assisted-living facilities:
Dodge City, KS 87,500 1,662,500 1,750,000 49,896 1995 Dec. 1995
Great Bend, KS 86,842 1,563,158 1,650,000 46,921 1995 Dec. 1995
McPherson, KS 75,000 1,575,000 1,650,000 47,259 1994 Dec. 1995
Salina, KS 71,739 1,578,261 1,650,000 47,352 1994 Dec. 1995
Longview, TX 38,256 1,568,492 1,606,749 50,482 1995 Oct. 1995
Marshall, TX 38,256 1,568,492 1,606,748 50,482 1995 Oct. 1995
Walla Walla, WA 100,000 1,940,000 2,040,000 39,981 1996 Apr. 1996
Greenville, TX 42,098 1,565,286 1,607,384 43,192 1995 Jan. 1996
Camas, WA 100,000 2,175,000 2,275,000 34,524 1996 May 1996
Grandview, WA 100,000 1,940,000 2,040,000 44,424 1996 Mar. 1996
Vancouver, WA 100,000 2,785,000 2,885,000 44,043 1996 Jun. 1996
Athens, TX 95,678 1,511,707 1,607,384 41,435 1995 Jan. 1996
Lufkin, TX 100,000 1,950,000 2,050,000 40,169 1996 Apr. 1996
Kennewick. WA 100,000 1,940,000 2,040,000 48,866 1996 Feb. 1996
Gardendale, AL 16,340 1,233,660 1,250,000 23,786 1988 May 1996
Jacksonville, TX 100,000 1,900,000 2,000,000 44,003 1996 Mar. 1996
Kelso, WA 100,000 2,500,000 2,600,000 11,218 1996 Nov. 1996
Battleground, WA 100,000 2,500,000 2,600,000 5,609 1996 Nov. 1996
Hayden, ID 100,000 2,450,000 2,550,000 5,505 1996 Dec. 1996
Klamath Falls, OR 100,000 2,300,000 2,400,000 5,192 1996 Dec. 1996
<CAPTION>
Gross Amount at which Carried
At Close of Period
-------------------------------------------- Accum. Orig. Construc-
Building and Deprec tion/renovation Date
Description Land Improvments Total (1) (2)(3) Date Acquired
- ---------------------------- -------------------------------------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Newport, OR 100,000 2,050,000 2,150,000 0 1996 Dec. 1996
Tyler, TX 100,000 1,800,000 1,900,000 0 1996 Dec. 1996
Wichita Falls, TX 100,000 1,850,000 1,950,000 0 1996 Dec. 1996
Ada, OK 100,000 1,650,000 1,750,000 0 1996 Dec. 1996
----------- ------------ ------------ -----------
Subtotal 2,051,709 45,556,557 47,608,266 724,339
----------- ------------ ------------ -----------
Grand total $12,346,818 $211,231,043 $223,577,863 $11,640,046
=========== ============ ============ ===========
</TABLE>
47
<PAGE>
LTC PROPERTIES, INC.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(1) The aggregate cost for federal income tax purposes.
(2) Depreciation for building is calculated using a 35 year depreciation life
for nursing facilities and 40 year life for assisted living facilities and
additions to facilities (Lecanto, Florida). Depreciation for furniture and
fixtures is calculated based on a 7- year life for all facilities.
(3) This is a single note backed by five facilities in Alabama.
(4) This is a single note backed by two facilities in Washington.
(5) This is a single note backed by a total of seven facilities: Six in Iowa
and one in Texas
(6) This is a single note backed by two facilities in Alabama.
(7) This is a single note backed by five facilities in Washington.
(8) The activities for the years ended December 31, 1994, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
Real Estate Accumulated
& Equipment Depreciation
------------ ------------
<S> <C> <C>
Beginning balance $ 28,560,689 $ 768,213
Additions during period -
Additions 44,557,538 1,722,148
Deductions during period -
Cost of real estate sold - -
------------ -----------
Balance at December 31, 1994 73,118,227 2,490,361
Additions during period -
Additions 44,150,274 2,996,167
Deductions during period -
Cost of real estate sold - -
------------ -----------
Balance at December 31, 1995 117,268,501 5,486,528
Additions during period -
Additions 113,959,361 6,214,190
Deductions during period -
Cost of real estate sold (7,650,000) (60,672)
------------ -----------
Balance at December 31, 1996 $223,577,862 $11,640,046
============ ===========
</TABLE>
48
<PAGE>
LTC PROPERTIES, INC.
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Final
Number of Number of Interest Maturity Balloon
STATE Facilities Beds Rate (A) Date Amount (B)
- --------- ---------- --------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Long-term care facilities:
FL 2 251 10.750% Mar. 2006 $ 7,326,841
FL 1 180 9.158% Dec. 2006 6,212,944
MS 3 400 10.320% Oct. 2006 10,656,431
SC 5 509 11.700% Feb. 2003 11,118,772
Various (2) 73 7,920 9.75%-13.2% Jun. 1997 - 134,891,128
Oct. 2017
-------- -------- ----------- --------- ------------
84 9,260 $170,206,116
======== ======== ============
<CAPTION>
Loan Subject
Carrying Amount to Delinquent Current
Face Amount of Mortgages at Principal Monthly
STATE of Mortgages December 31, 1995 or Interest Debt Service
- -------- ------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C>
Long-term care facilities:
FL $ 8,200,000 $ 8,154,021 $ - 78,891.60
FL 7,200,000 7,200,000 - 61,203.05
MS 11,250,000 11,240,003 - 101,397.29
SC 11,250,000 11,229,957 - 113,127.66
Various (2) 141,790,842 140,437,709 1,666,420 1,379,781.10
------------ --------------- ------------ ------------
$179,690,842 $ 178,261,690 (1)(3)(4) $ 1,666,420 1,734,401.00
============ =============== ============ ============
</TABLE>
(A) Represents current stated interest rate. Generally, the loans have 25-year
amortization with principal and interest payable at varying amounts over the
life to maturity with annual interest adjustments through specified fixed rate
increases effective either on the first anniversary or calendar year of the
loan.
(B) Balloon payment is due upon maturity, principally on the 10th year of the
loan, wtih various prepayment penalties (as defined in the loan agreement).
(1) The aggregate cost for federal income tax purposes.
(2) Includes 63 first-lien mortgage loans secured by skilled nursing facilities
and assisted living facilities as follows:
<TABLE>
<CAPTION>
No. of loans Original loan amounts:
<S> <C>
37 $ 305,000 - $2,000,000
12 $2,000,001 - $3,000,000
5 $3,000,001 - $4,000,000
5 $4,000,001 - $5,000,000
4 $5,000,001 - $5,861,000
</TABLE>
49
<PAGE>
LTC PROPERTIES, INC.
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
The loans (each of which is less than 3% of the total carrying amount) are
secured by properties located in Alabama, Arizona, Arkansas, California,
Colorado, Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Missouri,
Nebraska, Nevada, North Carolina, Ohio, Oklahoma, Oregon, Tennessee,Texas and
Washington.
(3) Mortgage loans on real estate reconciliation:
<TABLE>
<S> <C>
Balance at December 31, 1993 $ 78,499,874
Additions during period:
New Mortgage loans 120,472,000
Deletions during period:
Sales of notes to REMIC (127,639,788)
Collections of principal (8,549,726)
-------------
Balance at December 31, 1994 62,782,360
Additions during period:
New Mortgage loans 101,907,720
Deletions during period:
Collections of principal (2,633,765)
-------------
Balance at December 31, 1995 $ 162,056,315
Additions during period:
New Mortgage loans 130,964,857
Deletions during period:
Sales of notes to REMIC (112,487,255)
Collections of principal $ (2,272,227)
-------------
Balance at December 31, 1996 178,261,690
=============
</TABLE>
4) None of the Company's mortgage loans have any prior liens. One mortgage loan
with a principal amount of $1,666,420 is subject to delinquent principal of
$11,095 and interest of $221,984 as of December 31, 1995. No loan has been
renewed or extended.
5) The Company has established a general reserve totaling $1,000,000. No loan
has been written off against this reserve.
50
<PAGE>
INDEX TO EXHIBITS
Item 12(a))
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
3.1 Amended and restated Articles of Incorporation of LTC Properties, Inc.
(incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment
No. 4 to LTC Properties, Inc.'s Registration Statement on Form S-11
filed on August 7, 1992 (File No. 33-48085)
3.2 By-Laws of LTC Properties, Inc. (incorporated by reference to Exhibit
3.2 to LTC Properties, Inc.'s initial Registration Statement on Form
S-11 filed on May 22, 1992 (File No. 33-48085)
3.3 Amended and Restated By-Laws of the Company (incorporated by reference
to Exhibit 3.1 to LTC Properties, Inc.'s form 10-Q for the quarter
ended June 30, 1996)
4.1 Indenture dated August 25, 1992 between LTC Properties, Inc. and
Harris Trust and Savings Bank, as trustee with respect to 9.75%
Convertible Subordinated Debentures due 2004 (incorporated by
reference to Exhibit 4.1 to LTC Properties, Inc.'s Form 10-K for the
year ended December 31, 1992)
4.2 Indenture dated September 23, 1994 between LTC Properties, Inc. and
Harris Trust and Savings Bank, as trustee (incorporated by reference
to Exhibit 4.2 to LTC Properties, Inc.'s Form 10-K for the year ended
December 31, 1994)
4.3 First Supplemental Indenture dated as of September 23, 1994 to
Indenture dated September 23, 1994 between LTC Properties, Inc. and
Harris Trust and Savings Bank, as trustee with respect to $30,000,000
in principal amount of 8.5% Convertible Subordinated Debentures due
2000 (incorporated by reference to Exhibit 4.3 to LTC Properties,
Inc.'s Form 10-K for the year ended December 31, 1994)
4.4 Second Supplemental Indenture dated as of September 21, 1995 to
Indenture dated September 23, 1994 between LTC Properties, Inc. and
Harris Trust and Savings Bank, as trustee with respect to $51,500,000
in principal amount of 8.5% Convertible Subordinated Debentures due
2001 (incorporated by reference to Exhibit 10.17 to LTC Properties,
Inc.'s Form 10-Q for the quarter ended September 30, 1995)
4.5 Third Supplemental Indenture dated as of September 26, 1995 to
Indenture dated September 23, 1994 between LTC Properties, Inc. and
Harris Trust and Savings Bank, as trustee with respect to $10,000,000
in principal amount of 8.25% Convertible Subordinated Debentures due
1999 (incorporated by reference to Exhibit 10.19 to LTC Properties,
Inc.'s Form 10-Q for the quarter ended September 30, 1995)
4.6 Fourth Supplemental Indenture dated as of February 5, 1996 to
Indenture dated September 23, 1994 between LTC Properties, Inc. and
Harris Trust and Savings Bank, as trustee with respect to $30,000,000
in principal amount of 7.75% Convertible Subordinated Debentures due
2002 (incorporated by reference to Exhibit 4.6 to LTC Properties,
Inc.'s Form 10-K for the year ended December 31, 1995)
10.1 Employment contract with Andre C. Dimitriadis (incorporated by
reference to Exhibit 10.2 to Pre-Effective Amendment No. 4 to LTC
Properties, Inc.'s Registration Statement on Form S-11 filed on August
7, 1992 (File No. 33-48085)
10.2 Employment contract with William McBride III (incorporated by
reference to Exhibit 10.3 to Pre-Effective Amendment No. 4 to LTC
Properties, Inc.'s Registration Statement on Form S-11 filed on August
7, 1992 (File No. 33-48085)
10.3 1992 Stock Option Plan (incorporated by reference to Exhibit 10.4 to
Post-Effective Amendment No. 4 to LTC Properties, Inc.'s Registration
Statement on Form S-11 filed on August 7, 1992 (File No. 33-48085)
</TABLE>
51
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INDEX TO EXHIBITS (Continued)
<TABLE>
<C> <S>
10.4 Master Repurchase Agreement dated May 14, 1993 between LTC Properties,
Inc. and Goldman Sachs Mortgage Company (incorporated by reference to
Exhibit 10.5 to LTC Properties, Inc.'s Form 10-Q for the quarter ended
June 30, 1993)
10.5 Purchase Agreement dated July 28, 1993 between LTC Properties, Inc.,
LTC REMIC Corporation and Goldman Sachs Mortgage Company (incorporated
by reference to Exhibit 10.6 to LTC Properties, Inc.'s Form 10-Q for
the quarter ended June 30, 1993)
10.6 Master Repurchase Agreement dated December 15, 1993 between LTC
Properties, Inc. and Goldman Sachs Mortgage Company (incorporated by
reference to Exhibit 10.7 to LTC Properties, Inc.'s Form 10-K for the
year ended December 31, 1994)
10.7 Amended and Restated 1992 Stock Option Plan (incorporated by reference
to Exhibit 10.8 to LTC Properties, Inc.'s Form 10-K for the year ended
December 31, 1994)
10.8 Revolving Credit Agreement dated as of January 18, 1995 among LTC
Properties, Inc., the lenders named therein and Sanwa Bank California,
as agent for such lenders (incorporated by reference to Exhibit 10.9
to LTC Properties, Inc.'s Form 10-K for the year ended December 31,
1994)
10.9 Transfer and Repurchase Agreement, dated as of July 20, 1993, between
LTC Properties, Inc. and LTC REMIC Corporation (incorporated by
reference to Exhibit 10.10 to LTC Properties, Inc.'s Form 10-K for the
year ended December 31, 1994)
10.10 Pooling and Servicing Agreement, dated as of July 20, 1993, among LTC
REMIC Corporation, as depositor, Bankers Trust Company, as master
servicer, LTC Properties, Inc., as special servicer and originator and
Union Bank, as trustee (incorporated by reference to Exhibit 10.11 to
LTC Properties, Inc.'s Form 10-K for the year ended December 31, 1994)
10.11 Transfer and Repurchase Agreement, dated as of November 1, 1994,
between LTC Properties, Inc. and LTC REMIC Corporation (incorporated
by reference to Exhibit 10.12 to LTC Properties, Inc.'s Form 10-K for
the year ended December 31, 1994)
10.12 Pooling and Servicing Agreement, dated as of November 1, 1994, among
LTC REMIC Corporation, as depositor, Bankers Trust Company, as master
servicer, LTC Properties, Inc., as special servicer and originator and
Marine Midland Bank, as trustee (incorporated by reference to Exhibit
10.13 to LTC Properties, Inc.'s Form 10-K dated December 31, 1994)
10.13 Deferred Compensation Plan of LTC Properties, Inc. (incorporated by
reference to Exhibit 10.14 to LTC Properties, Inc.'s Form 10-Q for the
quarter ended June 30, 1995)
10.14 Swap Agreement by and between Goldman Sachs Capital Markets, L.P.,
Goldman Sachs Group, L.P. and LTC Properties, Inc. dated May 23, 1995
(incorporated by reference to Exhibit 10.15 to LTC Properties, Inc.'s
Form 10-Q for the quarter ended June 30, 1995)
10.15 Swap Agreement by and between Goldman Sachs Capital Markets, L.P.,
Goldman Sachs Group, L.P. and LTC Properties, Inc. dated September 12,
1995 (incorporated by reference to Exhibit 10.16 to LTC Properties,
Inc.'s Form 10-Q for the quarter ended September 30, 1995)
10.16 Amended and Restated Revolving Credit Agreement dated as of October
17, 1995 among LTC Properties, Inc., the lenders named therein and
Sanwa Bank California, as agent for such lenders (incorporated by
reference to Exhibit 10.19 to LTC Properties, Inc.'s Form 10-Q for the
quarter ended September 30, 1995)
10.17 Amended Deferred Compensation Plan (incorporated by reference to
Exhibit 10.17 to LTC Properties, Inc.'s Form 10-K for the year ended
December 31, 1995)
</TABLE>
52
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INDEX TO EXHIBITS (Continued)
<TABLE>
<C> <S>
10.18 Pooling and Servicing Agreement dated as of March 1, 1996, among LTC
REMIC Corporation, as depositor, GMAC Commercial Mortgage Corporation,
as Master Servicer, LTC Properties, Inc., as Special Servicer and
Originator, LaSalle National Bank, as Trustee and ABN AMRO Bank, N.V.,
as fiscal agent (incorporated by reference to Exhibit 10.1 to LTC
Properties, Inc.'s Form 10-Q for the quarter ended March 31, 1996)
10.19 Transfer and Repurchase Agreement by and between LTC Properties, Inc.
and LTC REMIC Corporation dated as of March 1, 1996 (incorporated by
reference to Exhibit 10.2 to LTC Properties, Inc.'s Form 10-Q for the
quarter ended March 31, 1996)
10.20 Second Amended and Restated Revolving Credit Agreement between LTC
Properties, Inc. and Sanwa Bank California, as agent, dated as of May
21, 1996 (incorporated by reference to Exhibit 10.1 to LTC Properties,
Inc.'s Form 10-Q for the quarter ended June 30, 1996)
10.21 Guarantee Agreement between Kansas-LTC Corporation, L-Tex GP, Inc.,
and L-Tex LP, Inc., Rusk-Tex, LP, Inc., Texas-LTC Limited Partnership,
as guarantors, and Sanwa Bank California, as the agent, dated as of
May 21, 1996 (incorporated by reference to LTC Properties, Inc.'s Form
10-Q for the quarter ended June 30, 1996)
10.22 Amended and Restated 1992 Stock Option Plan as filed herewith
10.23 Swap Agreement by and between Goldman Sachs Capital Markets, L.P.,
Goldman Sachs Group, L.P. and LTC Properties, Inc. dated November 15,
1996 as filed herewith
10.24 Swap Agreement by and between Goldman Sachs Capital Markets, L.P.,
Goldman Sachs Group, L.P. and LTC Properties, Inc. dated February 11,
1997 as filed herewith
11.1 Computation of Net Income (loss) Per Share for the years ended
December 31, 1996, 1995 and 1994 as filed herewith
21.1 List of Subsidiaries as filed herewith
23.1 Consent of Ernst & Young LLP with respect to the financial information
of the Company as filed herewith
27 Financial Schedules
</TABLE>
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LTC Properties, Inc.
Registrant
Dated: February 12, 1997 By: /s/ JAMES J. PIECZYNSKI
--------------------------
JAMES J. PIECZYNSKI
Senior Vice President and Chief Financial Officer
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ ANDRE C. DIMITRIADIS
- ------------------------
ANDRE C. DIMITRIADIS Chairman of the Board, Chief Executive February 12, 1997
Officer and Director
/s/ WILLIAM McBRIDE III
- -----------------------
WILLIAM McBRIDE III President, Chief Operating Officer and February 12, 1997
Director
/s/ NEAL M. ELLIOTT
- -------------------
NEAL M. ELLIOTT Director February 12, 1997
/s/ EDMUND C. KING
- ------------------
EDMUND C. KING Director February 12, 1997
/s/ WENDY L. SIMPSON
- --------------------
WENDY L. SIMPSON Director February 12, 1997
/s/ SAM YELLEN
- -------------------
SAM YELLEN Director February 12, 1997
</TABLE>
54
<PAGE>
EXHIBIT 10.22
LTC PROPERTIES, INC.
AMENDED AND RESTATED 1992 STOCK OPTION PLAN
-------------------------------------------
1. PURPOSE
This Stock Option Plan (the "Plan") is intended as a performance incentive for
officers, employees, consultants and other key persons of LTC Properties, Inc.
(the "Company") or its Subsidiaries (as hereinafter defined) to enable the
persons to whom options or restricted stock are granted (the "Optionees") to
acquire or increase a proprietary interest in the success of the Company. The
Company intends that this purpose will be effected by the granting of "incentive
stock options" ("Incentive Options") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options
("Nonqualified Options") and restricted stock ("Restricted Stock"). The term
"Subsidiaries" includes any corporations in which at the time of the grant of
any option hereunder, stock possessing fifty percent or more of the total
combined voting power, or fifty percent or more of the value, of all classes of
stock is owned directly or indirectly by the Company. For purposes of Section
422 of the Internal Revenue Code only, the portion of the Plan providing for the
grant of Restricted Stock is a separate plan.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options or
Nonqualified Options, and shall be designated as such at the time of grant.
Each option intended to qualify as an "incentive stock option" under the Code
shall be labeled as an "Incentive Stock Option" at the time of grant and, if
such option shall fail so to qualify, it shall be deemed to be a Nonqualified
Option.
(b) The Plan shall be administered by a committee (the "Option
Committee") of not less than two directors of the Company appointed by the Board
of Directors of the Company (the "Board of Directors"). None of the members of
the Option Committee shall be an officer or other full-time employee of the
Company. It is the intention of the Company that each member of the Option
Committee shall be a "disinterested person" as that term is defined and
interpreted pursuant to Rule 16b-3(c) (2) or any successor rule thereto
promulgated under the Securities Exchange Act of 1934, as amended (the "Act").
Action by the Option Committee shall require the affirmative vote of a majority
of all its members.
(c) Subject to the terms and conditions of the Plan, the Option
Committee shall have the power:
(i) To determine from time to time the options and Restricted Stock
to be granted to eligible persons under the Plan and to
prescribe the terms and provisions (which need not be identical)
of options and Restricted Stock granted under the Plan to such
persons;
(ii) To construe and interpret the Plan and grants thereunder and to
establish, amend, and revoke rules and regulations for
administration of the Plan. In this connection, the Option
Committee may correct any defect or supply any omission, or
reconcile any inconsistency in the Plan, in any option agreement
or restricted stock agreement, or in any related agreements, in
the manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective. All decisions and
determinations by the Option Committee in the exercise of this
power shall be final and binding upon the Company and the
Optionees; and
(iii) Generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best interests
of the Company with respect to the Plan.
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<PAGE>
3. STOCK
(a) The stock granted under the Plan, or subject to the options and
Restricted Stock granted under the Plan, shall be shares of the Company's
authorized but unissued common stock, par value $.01 per share (the "Common
Stock"). The total number of shares that may be issued under the Plan shall not
exceed an aggregate of 1,400 ,000 shares of Common Stock. Such number shall be
subject to adjustment as provided in Section 7 hereof.
(b) Whenever any outstanding option under the Plan expires, is canceled
or is otherwise terminated (other than by exercise), or any shares of Restricted
Stock are repurchased by the Company pursuant to Section 14(f) or forfeited
pursuant to Section 14(e) the shares of Common Stock allocable to the
unexercised portion of such option and such shares of Restricted Stock may again
be the subject of options or Restricted Stock under the Plan.
(c ) The Option Committee also is authorized to grant a new option to
an eligible person under the Plan upon the surrender for cancellation of an
option previously granted to such person under the Plan. Provided that the
provisions of Section 5(a) are satisfied, this new option may have a lower
exercise price per share than the option previously granted to such person.
4. ELIGIBILITY
(a) Incentive Options may be granted only to officers or other full-
time employees of the Company or its Subsidiaries, including members of the
Board of Directors who are also full-time employees of the Company or its
Subsidiaries.
Nonqualified Options or Restricted Stock may be granted to directors, officers
or other employees of the Company or its Subsidiaries and to consultants and
other key persons who provide services to the Company or its Subsidiaries
(regardless of whether they are also employees).
(b) No person shall be eligible to receive any Incentive Option under
the Plan if, at the date of grant, such person beneficially owns stock
representing in excess of ten percent of the voting power of all outstanding
capital stock of the Company, unless notwithstanding anything in this Plan to
the contrary (i) the purchase price for stock subject to such option is at least
110% of the fair market value of such stock at the time of the grant and (ii)
the option by its terms is not exercisable more than 5 years from the date of
grant thereof.
(c) Notwithstanding any other provision of the Plan, the aggregate
fair market value (determined as of the time the option is granted) of the stock
with respect to which Incentive Options are exercisable for the first time by
any individual during any calendar year (under all plans of the Company and any
parent and Subsidiaries) shall not exceed $100,000.
(d) Each current Director of the Company who is not also a full-time
employee of the Company or any of its Subsidiaries shall automatically be
granted a Nonqualified Option to purchase 15,000 shares of Common Stock upon the
consummation of the initial public offering of securities of the Company that is
the subject of a registration statement filed with the Securities and Exchange
Commission (the "Public Offering") at a purchase price equal to the per share
price for Common Stock in the Public Offering. At the time that any other
person who is not also a full-time employee of the Company or any of its
Subsidiaries is first elected as a Director of the Company, such person shall
automatically be granted a Nonqualified Option to purchase 15,000 shares of
Common Stock, at a purchase price per share equal to the fair market value of
the Common Stock on the date of such person's election, as determined pursuant
to Section 5(d) hereof. Each option granted pursuant to this Section 4(d)
shall vest with respect to 5,000 shares on each of the first, second and third
anniversary of the grant and shall expire on the earlier of the seventh
anniversary of the date of vesting or one year following the Director's ceasing
to be a Director for any reason; provided that no option shall vest more than
one year following the Director's ceasing to be a Director. The
2
<PAGE>
additional terms and conditions of such options shall be as set forth in the
Plan and in the option agreement with each such Director. The provisions of this
Section 4(d) shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act,
as amended, or the rules thereunder.
5. TERMS OF THE OPTION AGREEMENTS AND RESTRICTED STOCK AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement
shall contain such provisions as the Option Committee shall from time to time
deem appropriate. Option agreements need not be identical, but each option
agreement and with respect to subsection (f), each restricted stock agreement,
by appropriate language shall include the substance of all of the following
provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
--------------------------------------
provision of the Plan or of any option agreement, each option shall expire on
the date specified in the option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the option was granted. The option agreement may provide that any
outstanding option granted to such Optionee under the Plan shall be exercisable
for such period following termination of employment as may be specified in the
option agreement, subject to the expiration date of such option.
(b) Minimum Shares Exercisable. The minimum number of shares with
--------------------------
respect to which an option may be exercised at any one time shall be one hundred
(100) shares, or such lesser number as is subject to exercise under the option
at the time.
(c) Exercise. Except as provided in Section 4(d) hereof with respect
--------
to options granted pursuant to that Section, each option shall be exercisable in
such installments (which need not be equal) and at such times as may be
designated by the Option Committee. No option shall first be exercisable,
either in whole or in part, until the expiration of six months from the date of
grant. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the option expires.
(d) Purchase Price. Except as set forth in Section 4(d) with respect
--------------
to options granted pursuant to that Section, the purchase price per share of
Common Stock subject to each option shall be determined by the Option Committee;
provided, however, that the purchase price per share of Common Stock subject to
each Incentive Option shall be not less than the fair market value of the Common
Stock on the date such Incentive Option is granted. For the purposes of the
Plan (including as to options granted pursuant to Section 4(d)), the fair market
value of the Common Stock shall be determined in good faith by the Option
Committee; provided, however, that if the Common Stock is listed on the New York
Stock Exchange ("NYSE") on the date the option is granted, the fair market value
shall be the closing price reported for the Common Stock on the NYSE for such
date or, if no sales were reported for such date, for the last date preceding
such date for which a sale was reported.
(e) Rights of Optionees. No Optionee shall be deemed for any purpose
-------------------
to be the owner of any shares of Common Stock subject to any option unless and
until (i) the option shall have been exercised pursuant to the terms thereof,
(ii) all requirements under applicable law and regulations shall have been
complied with to the satisfaction of the Company, (iii) the Company shall have
issued and delivered the shares to the Optionee, and (iv) the Optionee's name
shall have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such shares of Common Stock.
(f) Transfer. No option or Restricted Stock granted hereunder shall be
--------
transferable by the Optionee other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, as amended,
or the rules thereunder; unless and until such option has been exercised, the
shares underlying such options or Restricted Stock have been issued,
3
<PAGE>
and all restrictions applicable to such shares have lapsed or been removed and
such option may be exercised during the Optionee's lifetime only by the
Optionee, or his or her guardian or legal representative.
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any option granted under the Plan may be exercised by the Optionee
in whole or, subject to Section 5(b) hereof, in part by delivering to the
Company on any business day a written notice specifying the number of shares of
Common Stock the Optionee then desires to purchase (the "Notice").
(b) Payment for the shares of the Common Stock purchased pursuant to the
exercise of an option shall be made either: (i) in cash, or by certified or bank
check or other payment acceptable to the Company, equal to the option exercise
price for the number of shares specified in the Notice (the "Total Option
Price"); (ii) if authorized by the applicable option agreement and if permitted
by law, by delivery of shares of Common Stock that the Optionee may freely
transfer having a fair market value, determined by reference to the provisions
of Section 5(d) hereof, equal to or less than the Total Option Price, plus cash
in an amount equal to the excess, if any, of the Total Option Price over the
fair market value of such shares of Common Stock; or (iii) by the Optionee
delivering the Notice to the Company together with irrevocable instructions to a
broker to promptly deliver the Total Option Price to the Company in cash or by
other method of payment acceptable to the Company; provided, however, that the
Optionee and the broker shall comply with such procedures and enter into such
agreements of indemnity or other agreements as the Company shall prescribe as a
condition of payment under this clause (iii).
(c) The delivery of certificates representing shares of Common Stock to
be purchased pursuant to the exercise of an option will be contingent upon the
Company's receipt of the Total Option Price and of any written representations
from the Optionee required by the Option Committee, and the fulfillment of any
other requirements contained in the option agreement or applicable provisions of
law.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the shares of the Company's Common stock as a whole are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or the
like, an appropriate and proportionate adjustment shall be made in the number
and kind of shares subject to the Plan, and in the number, kind, and per share
exercise price of shares subject to unexercised options or portions thereof
granted prior to any such change. In the event of any such adjustment in an
outstanding option, the Optionee thereafter shall have the right to purchase the
number of shares under such option at the per share price, as so adjusted, which
the Optionee could purchase at the total purchase price applicable to the option
immediately prior to such adjustment.
(b) Adjustments under this Section 7 shall be determined by the Option
Committee and such determinations shall be conclusive. The Option Committee
shall have the discretion and power in any such event to determine and to make
effective provision for acceleration of the time or times at which any option or
portion thereof shall become exercisable and for acceleration of the time or
times at which any restrictions on any Restricted Stock shall lapse or be
removed. No fractional shares of Common Stock shall be issued under the Plan on
account of any adjustment specified above.
4
<PAGE>
8. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
reorganization, merger, consolidation or other business combination in which the
Company is acquired by another entity or in which the Company is not the
surviving entity, or (iii) the sale of all or substantially all of the assets of
the Company to another entity, the Plan and the options issued hereunder shall
terminate upon the effectiveness of any such transaction or event, unless
provision is made in connection with such transaction for the assumption of
options theretofore granted, or the substitution for such options of new options
of the successor entity or parent thereof, with appropriate adjustment as to the
number and kind of shares and the per share exercise prices, as provided in
Section 7. In the event of such termination, all outstanding options shall be
exercisable in full for at least fifteen days prior to the date of such
termination whether or not otherwise exercisable during such period. In the
case of any event described in clause (i), (ii) or (iii) above, in its
discretion, and on such terms and conditions as it deems appropriate, the
Committee may provide either by the terms of a restricted stock agreement or by
a resolution adopted prior to the occurrence of such event that, for a specified
period of time prior to such event, the restrictions imposed under a restricted
stock agreement or upon some or all shares of Restricted Stock may be
terminated, and some or all shares of such Restricted Stock may cease to be
subject to repurchase under Section 14(f) or forfeiture under Section 14(e)
after such event.
9. TAX WITHHOLDING
(a) Payment by Optionee. Each Optionee shall, no later than the date
-------------------
as of which the value of any option or Restricted Stock granted hereunder or of
any Common Stock issued upon the exercise of such option first becomes
includable in the gross income of the Optionee for federal income tax purposes
(the "Tax Date"), pay to the Company, or make arrangements satisfactory to the
Company regarding payment of any federal, state, or local taxes of any kind
required by law to be withheld with respect to such income.
(b) Payment in Shares. An Optionee may elect to have such tax
-----------------
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from shares of Common Stock to be issued pursuant to an
option exercise a number of shares with an aggregate fair market value
(determined by the Option Committee in accordance with Section 5(d) as of the
date the withholding is effected) that would satisfy the withholding amount due,
or (ii) transferring to the Company shares of Common Stock owned by the Optionee
with an aggregate fair market value (determined by the Option Committee in
accordance with Section 5(d) as of the date the withholding is effected) that
would satisfy the withholding amount due. With respect to any Optionee who is
subject to Section 16(b) of the Act, the following additional restrictions shall
apply:
(A) the election to satisfy tax withholding obligations in the
manner permitted by this Section 11(b) shall be made either
(1) during the period beginning on the third business day
following the date of release of quarterly or annual summary
statements of sales and earnings of the Company and ending
on the twelfth business day following such date, or (2) at
least six months prior to the Tax Date;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or disapproval
of the Option Committee; and
(D) such election shall not be made within six months of the
date of grant of the option or Restricted Stock.
10. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any time,
and from time to time, subject to any required regulatory approval and provided
that any such amendments that require stockholder approval
5
<PAGE>
under applicable laws and regulations shall also be approved by shareholders of
the Company at an annual or special meeting of such shareholders to the extent
required by and in accordance with any such laws or regulations. Except as
provided in Sections 5, 7, and 8 hereof, rights and obligations under any option
or Restricted Stock granted before any amendment of the Plan shall not be
altered or impaired by such amendment, except with the consent of the Optionee.
11. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the plan by the Board of Directors nor the submission
of the Plan to the stockholders of the Company for approval shall be construed
as creating any limitations on the power of the Board of Directors to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock or stock options otherwise than under the
Plan, and such arrangements may be either applicable generally or only in
specific cases. None of the Plan, any option or any Restricted Stock granted
hereunder shall be deemed to confer upon any employee or any other individual
any right to continued employment or service with the Company or its
subsidiaries.
12. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
(a) The obligation of the Company to sell and deliver shares of Common
Stock with respect to options and as Restricted Stock granted under the Plan
shall be subject to all applicable laws, rules and regulations, including all
applicable federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or appropriate by
the Option Committee.
(b) The Plan shall be governed by Maryland law, except to the extent
that such law is preempted by federal law.
13. EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL
The Plan shall become effective upon the date that it is approved by the Board
of Directors of the Company; provided, however, that the Plan shall be subject
to the approval of the Company's shareholders in accordance with applicable laws
and regulations at an annual or special meeting held within twelve months of
such effective date or by written consent of all of the shareholders of the
Company. No options granted under the Plan prior to such shareholder approval
may be exercised until such approval has been obtained. No options may be
granted under the Plan after the tenth anniversary of the effective date of the
Plan.
14. AWARD OF RESTRICTED STOCK
(a) Award of Restricted Stock
-------------------------
(i) The Option Committee shall from time to time, in its absolute
discretion:
a. Select from among the officers, directors, employees,
consultants or other key persons (including officers, directors,
employees, consultants or other key persons who have previously
received other awards under this Plan) such of them as in its
opinion should be awarded Restricted Stock; and
6
<PAGE>
b. Determine the purchase price, if any, and other terms
and conditions applicable to such Restricted Stock, consistent
with this Plan.
(ii) The Option Committee shall establish the purchase price, if any,
and form of payment for Restricted Stock. In all cases, legal
consideration shall be required for each issuance of Restricted
Stock.
(iii) Upon the selection of an officer, director, employee, consultant
or other key person to be awarded Restricted Stock, the Option
Committee shall instruct the Secretary of the Company to issue
such Restricted Stock and may impose such conditions on the
issuance of such Restricted Stock as it deems appropriate.
(b) Restricted Stock Agreement. Restricted Stock shall be issued only
--------------------------
pursuant to a written restricted stock agreement, which shall be executed by the
selected officer, director, employee, consultant or other key person and an
authorized officer of the Company and which shall contain such terms and
conditions as the Option Committee shall determine, consistent with this Plan.
(c) Consideration. As consideration for the issuance of Restricted
-------------
Stock, in addition to payment of the purchase price, if any, the Restricted
Stockholder shall agree, in the written restricted stock agreement, to remain in
the employ of (or to consult for or continue to serve as a key person or to
serve as Director of, as applicable) the Company or any Subsidiary for a period
of at least one year after the Restricted Stock is issued (or such shorter
period as may be fixed in the restricted stock agreement or by action of the
Option Committee following grant of the Restricted Stock). Nothing in this Plan
or in any restricted stock agreement hereunder shall confer on any Restricted
Stockholder any right to continue in the employ of, or as a consultant for or as
a key person or director of, the Company or any Subsidiary or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge any Restricted Stockholder at any
time for any reason whatsoever, with or without good cause.
(d) Rights as Stockholders. Upon delivery of the shares of Restricted
----------------------
Stock to the escrow holder pursuant to subsection (g), the Restricted
Stockholder shall have, unless otherwise provided by the Option Committee, all
the rights of a stockholder with respect to said shares, subject to the
restrictions in his restricted stock agreement, including the right to receive
all dividends and other distributions paid or made with respect to the shares;
provided, however, that in the discretion of the Option Committee, any
- -------- -------
extraordinary distributions with respect to the Common Stock shall be subject to
the restrictions set forth in subsection (e)
(e) Restriction. All shares of Restricted Stock issued under this Plan
-----------
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual restricted stock
agreement, be subject to such restrictions as the Option Committee shall
provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on duration
of employment with the Company, Company performance and individual performance;
provided, however, that by a resolution adopted after the Restricted Stock is
- -------- -------
issued, the Option Committee may, on such terms and conditions as it may
determine to be appropriate, remove any or all of the restrictions imposed by
the terms of the restricted stock agreement. Restricted Stock may not be sold
or encumbered until all restrictions are removed or lapse. Unless provided
otherwise by the Option Committee, if no consideration was paid by the
Restricted Stockholder upon issuance, a Restricted Stockholder's rights in
unvested Restricted Stock shall lapse upon termination of employment,
termination of directorship or termination of service, as applicable, with the
Company or a Subsidiary.
(f) Repurchase of Restricted Stock. The Option Committee shall provide in
------------------------------
the terms of each individual restricted stock agreement that the Company shall
have the right to repurchase from the Restricted Stockholder the Restricted
Stock then subject to restrictions under the restricted stock agreement
immediately upon the Restricted Stockholder's termination of employment,
termination of directorship or termination of service, as applicable, from
7
<PAGE>
the Company or a Subsidiary at a cash price per share equal to the price paid by
the Restricted Stockholder for such Restricted Stock; provided, however, that
-------- -------
provision may be made that no such right of repurchase shall exist in the event
of a termination of employment, termination of directorship or termination of
service without cause, or following a change in control of the Company or
because of the Restricted Stockholder's retirement, death or disability, or
otherwise.
(g) Escrow. The Secretary of the Company or such other escrow holder as
------
the Option Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the restricted stock agreement with respect to the shares evidenced by
such certificate lapse or shall have been removed.
(h) Legend. In order to enforce the restrictions imposed upon shares of
------
Restricted Stock hereunder, the Option Committee shall cause a legend or legends
to be placed on certificates representing all shares of Restricted Stock that
are still subject to restrictions under restricted stock agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.
Effective as of December 2, 1995
/s/ JAMES J. PIECZYNSKI
--------------------------
By: JAMES J. PIECZYNSKI
Secretary
* * *
8
<PAGE>
EXHIBIT 10.23
CONFIRMATION
<TABLE>
<CAPTION>
DATE: November 5, 1996
<S> <C>
TO: LTC Properties, Inc.
Location : Oxnard
Telephone No. : 805 981 8663
Facsimile No. : 805 981 8663
Attention : Andre Dimitriadis
</TABLE>
FROM: Goldman Sachs Capital Markets, L.P.
CC: Goldman Sachs Capital Markets, L.P.
Swap Administration
SUBJECT: Swap Transaction
REF NO: NUUO611100 (600000000)
The purpose of this communication is to set forth the terms and conditions of
the above referenced transaction entered into on the Trade Date specified below
(the "Transaction") between Goldman Sachs Capital Markets, L.P. ("GSCM"),
guaranteed by The Goldman Sachs Group, L.P. ("Goldman Group"), and LTC
Properties Inc. ("Counterparty"). This communication constitutes a
"Confirmation" as referred to in the Swap Agreement specified below.
1. This Confirmation is subject to, and incorporates, the 1991 ISDA Definitions
(the "1991 Definitions"), published by the International Swaps and Derivatives
Association, Inc. ("ISDA"). If GSCM and Counterparty are parties to an Interest
Rate and Currency Exchange Agreement, ISDA Master Agreement or other form of
master agreement that sets forth general terms and conditions applicable to swap
transactions between GSCM and Counterparty (the "Swap Agreement"), this
Confirmation supplements, forms a part of, and is subject to, the Swap
Agreement. If GSCM and Counterparty are not yet parties to the Swap Agreement,
this Confirmation shall supplement, form part of, and be subject to, the Swap
Agreement upon its execution and delivery by GSCM and Counterparty. Prior to
the execution and delivery of such Swap Agreement, this Confirmation alone shall
constitute a complete and binding agreement with respect to the Transaction.
This Confirmation will be read and construed as one with the executed Swap
Agreement and all other outstanding Confirmations between the parties, so that
all such Confirmations and the executed Swap Agreement constitute a single
agreement between the parties.
If the Swap Agreement has not yet been executed and delivered by GSCM and
Counterparty, this Confirmation is also subject to, and incorporates, the
definitions contained in Section 14 of the form of ISDA Master Agreement
(Multicurrency-Cross Border), but without any Schedule or other modifications
thereto (the "ISDA Agreement"), Paragraph (4) of the May 1989 Addendum to
Schedule to Interest Rate and Currency Exchange Agreement (the "Cap Addendum")
and Paragraph (5) of the July 1990 Addendum to Schedule to Interest Rate and
Currency Exchange Agreement (the "Options Addendum"), all as published by ISDA
(except that all references to "Swap Transactions" in the 1991 Definitions, the
Cap Addendum and the Options Addendum will be deemed to be references to
"Transactions").
All provisions contained in, or incorporated by reference to, The Swap Agreement
will govern this Confirmation except as expressly modified herein. In the event
of any inconsistency between this Confirmation and the 1991 Definitions, the
Swap Agreement, the definitions contained in Section 14 of the ISDA Agreement,
Paragraph (4)
<PAGE>
of the Cap Addendum, or Paragraph (5) of the Options Addendum, as the case may
be, this Confirmation will control for the purpose of the Transaction to which
this Confirmation relates.
2. Each party will make each payment specified in this Confirmation as being
payable by it, not later than the due date for value on that date in the place
of the account specified below or otherwise specified in writing, in freely
transferable funds and in the manner customary for payments in the required
currency. If on any date amounts would otherwise be payable in the same
currency by each party to the other in respect of this Transaction, then, on
such date each party's obligation to make payment of any such amount will be
automatically satisfied and discharged and, if the aggregate amount that would
otherwise have been payable by one party exceeds the aggregate amount that
would otherwise have been payable by the other party, replaced by an obligation
upon the party by whom the larger aggregate amount would have been payable to
pay to the other party the excess of the larger aggregate amount over the
smaller aggregate amount.
3. The following provisions will govern this Transaction until such time as the
Swap Agreement is executed and delivered by GSCM and Counterparty, whereupon
they shall be replaced by the terms of the Swap Agreement. If at any time, a
party (the "Defaulting Party") or its guarantor, if any, shall (i) fail to make,
when due, any payment under this Confirmation if such failure is not remedied
within three New York Business Days following written notice of such failure or
(ii) become subject to a Bankruptcy (as defined in Section 5(a)(vii) of the ISDA
Agreement), then the other party (the "Non-defaulting Party") shall have the
right to early terminate and liquidate this Transaction and all other Specified
Transactions then outstanding between the parties (the "Terminated
Transactions") and determine a net amount due in respect of the Terminated
Transactions in accordance with the early termination payment calculation
provisions of Section 6(e)(i) of the ISDA Agreement based on a payment measure
of Market Quotation and a payment method of the Second Method. The Non-
defaulting Party may exercise its right to early terminate and liquidate the
Terminated Transactions by written notice to the Defaulting Party, which notice
shall set forth the amount of the termination payment determined by the Non-
defaulting Party as set forth above. Such termination payment shall be due and
payable by no later than 1 New York Business Day following receipt of written
notice by the Defaulting Party. The Non-defaulting Party shall have the right to
set off the value of any collateral in its possession securing the obligations
of the Defaulting Party against amounts owed by the Defaulting Party to it as
determined above.
4. The terms of the particular Transaction to which this Confirmation relates
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Notional Amount: USD 40,000,000
Trade Date: November 5, 1996
Effective Date: November 7, 1997
Termination Date: The earlier of (i) November 7, 2007, or (ii)
in the event of early termination, the
Effective Date of Cancellation as set forth
below under "Additional Provisions".
<CAPTION>
Floating Amounts:
- ----------------
Floating Rate Payer: GSCM
Floating Rate Payer Semiannually, on each November 7 and May 7,
Payment Dates: commencing on May 7, 1998 and ending on the
Termination Date, subject to adjustment in
accordance with the Modified Following
Business Day Convention.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Floating Rate Option: USD-LIBOR-BBA
Floating Rate Designated 3 months
Maturity:
Floating Rate Spread: None
Floating Rate Reset The first day of each Compounding Period
Dates:
Floating Rate Day Count Actual/360
Fraction:
Floating Rate Period End Adjusted in accordance with the Modified
Dates: Following Business Day Convention.
Compounding: Applicable
Compounding Dates: Quarterly, on the 7th day of each February,
May, August and November, subject to
adjustment in accordance with the Modified
Following Business Day Convention.
Fixed Amounts:
- -------------
Fixed Rate Payer: Counterparty
Fixed Rate Payer Payment Semiannually, on each November 7 and May 7,
Dates: commencing on May 7, 1998 and ending on the
Termination Date, subject to adjustment in
accordance with the Modified Following
Business Day Convention.
Fixed Rate: 6.83%
Fixed Rate Day Count 30/360
Fraction:
Fixed Rate Period End Not adjusted
Dates:
Business Days: New York
Calculation Agent: GSCM, unless otherwise specified in the Swap
Agreement.
Governing Law: New York law, unless otherwise specified in
the Swap Agreement.
5. Documentation: ISDA Master Agreement with GSCM Schedule
6. Additional Provisions:
</TABLE>
Mandatory Termination in Whole with Cash Settlement:
- ----------------------------------------------------
This Transaction shall early terminate, cancel and Cash Settle, in whole
but not in part, effective on the November 1998 Payment Date (the "Effective
Date of Cancellation"). Following any such early termination and cancellation
and payment of the Cash Settlement Amount as calculated below, the parties shall
be relieved of all
<PAGE>
further payment obligations hereunder except for payment of all accrued but yet
unpaid amounts calculated to but excluding the Effective Date of Cancellation
(unless otherwise included in the Cash Settlement Amount as calculated below).
Cash Settlement Amount:
The Calculation Agent will determine a U.S. Dollar value for the terminated
portion of this Transaction (the "Settlement Value") at Counterparty's option in
accordance with either (i) or (ii) below:
(i) Such Settlement Value will be mutually agreed upon by the parties on
the day that is two (2) Business Days prior to the Effective Date of
Cancellation (the "Determination Date").
(ii) Such Settlement Value will be determined based on Market Quotations
obtained from at least five (5) Reference Market-makers selected in good faith
by the Calculation Agent. Such Reference Market-makers will be polled by the
Calculation Agent at approximately 11:00 a.m. (New York time) two (2) Business
Days prior to the Effective Date of Cancellation. The Cash Settlement Amount
will be the arithmetic mean of such quotations, after discarding the highest and
lowest quote; provided, however, that in the event one or more of the highest
or lowest quotations is identical, then only one such highest or lowest quote
will be discarded. If three Market Quotations or fewer are provided, the Cash
Settlement Amount will be the arithmetic mean of the quotations obtained,
without discarding the highest and lowest of quote, or the single Market
Quotation, as the case may be. Such Reference Market-makers will be polled by
the Calculation Agent on the Determination Date. Such Cash Settlement Amount
will be payable on the Effective Date of Cancellation.
Market Quotations shall be based on the U.S. Dollar value of this
Transaction, calculated as if each of the Reference Market-makers were
fulfilling the obligations of the Fixed Rate Payer under this Transaction and
the Settlement Amount shall be payable by the Floating Rate Payer to the Fixed
Rate Payer only if the Market Quotations obtained in the manner described above
result in a positive number. The absolute value of the Settlement Amount shall
be payable by the Fixed Rate Payer to the Floating Rate Payer only if the Market
Quotations obtained in the manner described above result in a negative number.
<TABLE>
<S> <C>
7. Credit Support Documents: Standard Guaranty of The Goldman Sachs Group,
L.P.
8. Account Details:
USD Payments to GSCM:
For the Account of : Goldman Sachs Capital Markets, L.P.
Name of Bank: Citibank, N.A. New York
Account No. 40670834
Fed ABA No: 021000089
GSCM Inquiries James T. Gavin, Vice President
Goldman Sachs Capital Markets, L.P.
Telephone No.: 212-902-1000
Facsimilie No.: 212-902-0996
Payments to Counterparty: In accordance with Counterparty's written
instructions as set forth below or otherwise
delivered to GSCM. GSCM shall make no payments
without having received (i) such written
instructions and (ii) a fully executed
facsimile copy of this Confirmation or other
written acceptance of the terms hereof.
</TABLE>
<PAGE>
For the Account of:
Name of Bank:
Account No:
Attention:
ABA No.:
SWIFT Code:
9. Offices:
(a) The Office of GSCM for this Transaction is 85 Broad Street, New York,
New York 10004.
(b) The Office of the Counterparty for this Transaction is (please
provide):
300 Esplanade Drive, Suite # 1860
Oxnard, CA 93030
10. Counterparty hereby agrees (a) to check this Confirmation (Reference No.:
NUUO611100 (600000000)) carefully and immediately upon receipt so that errors
or discrepancies can be promptly identified and rectified and (b) to confirm
that the foregoing correctly sets forth the terms of the agreement between GSCM
and Counterparty with respect to the particular Transaction to which this
Confirmation relates, by manually signing this Confirmation and providing the
other information requested herein and immediately returning an executed copy to
Swap Administration, facsimile No. 212-902-5692.
Very truly yours,
GOLDMAN SACHS CAPITAL MARKETS, L.P.
By: Goldman Sachs Capital Markets, Inc.,
General Partner
By: /Marcia J. Riveglia/
--------------------
Name: Marcia J. Riveglia
Title: Vice President
Agreed and Accepted By:
LTC Properties, Inc.
By: /Christopher T. Ishikawa/
Name: Christopher T. Ishkikawa
Title: Vice President & Treasurer
<PAGE>
EXHIBIT 10.24
REVISED CONFIRMATION
--------------------
DATE: February 11, 1997
TO: LTC Properties, Inc.
Telephone No. : 805 981 8639
Facsimile No. : 805 981 8663
Attention : Chris Ishikawa
FROM: Goldman Sachs Capital Markets, L.P.
CC: Goldman Sachs Capital Markets, L.P.
Swap Administration
SUBJECT: Swap Transaction
REF NO: NUUS509080 (O10000000)
- --------------------------------------------------------------------------------
Ladies and Gentlemen:
The purpose of this revised communication is to set forth the terms and
conditions of the above referenced transaction entered into on the Trade Date
specified below (the "Transaction") between Goldman Sachs Capital Markets, L.P.
("GSCM"), guaranteed by The Goldman Sachs Group, L.P. ("Goldman Group"), and LTC
Properties Inc. ("Counterparty"). THIS COMMUNICATION SUPERSEDES AND REPLACES
ALL PRIOR COMMUNICATIONS BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
TRANSACTION DESCRIBED BELOW. This communication constitutes a "Confirmation" as
referred to in the Swap Agreement specified below.
1. This Confirmation is subject to, and incorporates, the 1991 ISDA Definitions
(the "1991 Definitions"), published by the International Swaps and Derivatives
Association, Inc. ("ISDA"), except that, for purposes of this Confirmation, all
references to "Swap Transactions" in the 1991 Definitions will be deemed to be
references to "Transactions". This Confirmation supplements, forms a part of,
and is subject to the ISDA Master Agreement dated as of May 23, 1995 (the "Swap
Agreement") between GSCM and Counterparty. All provisions contained in, or
incorporated by reference to, the Swap Agreement shall govern this Confirmation
except as expressly modified below. In the event of any inconsistency between
this Confirmation, the 1991 Definitions, or the Swap Agreement, as the case may
be, this Confirmation will control for purposes of the Transaction to which this
Confirmation relates.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:
<TABLE>
<S> <C>
Notional Amount: USD 60,000,000
Trade Date: September 6, 1995
Effective Date: September 30, 1996
Termination Date: September 30, 2003
Fixed Amounts:
- -------------
Fixed Rate Payer: Counterparty
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Fixed Rate Payer Payment
Dates: Semiannually, on the 30th day of each March
and September, commencing on March 30, 1997
and ending on the Termination Date, subject to
adjustment in accordance with the Modified
Following Business Day Convention.
Fixed Rate for initial
Calculation Period: 6.64%
Fixed Rate for all
subsequent Calculation
Periods: 6.655%
Fixed Rate Day Count
Fraction: 30/360
Fixed Rate Period End
Dates: Not adjusted
Floating Amounts:
Floating Rate Payer: GSCM
Floating Rate Payer
Payment Dates: Semiannually, on the 30th day of each March
and September, commencing March 30, 1997 and
ending on the Termination Date, subject to
adjustment in accordance with the Modified
Following Business Day Convention
Floating Rate Option: USD-LIBOR-BBA
Floating Rate Designated
Maturity: 6 months
Floating Rate Spread: None
Floating Rate Reset
Dates: The first day of each Calculation Period
Floating Rate Day Count
Fraction: Actual/360
Floating Rate Period End
Dates: Adjusted in accordance with the Modified
Following Business Day Convention.
Business Days: New York
Calculation Agent: GSCM
Governing Law: New York law, unless otherwise specified in
the Swap Agreement.
3. Additional Provisions:
</TABLE>
Mandatory Termination in Whole with Cash Settlement:
- ----------------------------------------------------
This Transaction shall early terminate, cancel and Cash Settle, in whole
but not in part, effective on the November 17, 1997 (the "Effective Date of
Cancellation"). Following any such early termination and cancellation and
payment of the Cash Settlement Amount as calculated below, the parties shall be
relieved of all
<PAGE>
further payment obligations hereunder except for payment of all accrued but yet
unpaid amounts calculated to but excluding the Effective Date of Cancellation
(unless otherwise included in the Cash Settlement Amount as calculated below).
Cash Settlement Amount:
- ----------------------
The Calculation Agent will determine a U.S. Dollar value for the terminated
portion of this Transaction (the "Settlement Value") at Counterparty's option in
accordance with either (i) or (ii) below:
(i) Such Settlement Value will be mutually agreed upon by the parties on
the day that is two (2) Business Days prior to the Effective Date of
Cancellation (the "Determination Date").
(ii) Such Settlement Value will be determined based on Market Quotations
obtained from at least five (5) Reference Market-makers selected in good faith
by the Calculation Agent. Such Reference Market-makers will be polled by the
Calculation Agent at approximately 11:00 a.m. (New York time) two (2) Business
Days prior to the Effective Date of Cancellation. The Cash Settlement Amount
will be the arithmetic mean of such quotations, after discarding the highest and
lowest quote; provided, however, that in the event one or more of the highest
or lowest quotations is identical, then only one such highest or lowest quote
will be discarded. If three Market Quotations or fewer are provided, the Cash
Settlement Amount will be the arithmetic mean of the quotations obtained,
without discarding the highest and lowest of quote, or the single Market
Quotation, as the case may be. Such Reference Market-makers will be polled by
the Calculation Agent on the Determination Date. Such Cash Settlement Amount
will be payable on the Effective Date of Cancellation.
Market Quotations shall be based on the U.S. Dollar value of this
Transaction, calculated as if each of the Reference Market-makers were
fulfilling the obligations of the Fixed Rate Payer under this Transaction and
the Settlement Amount shall be payable by the Floating Rate Payer to the Fixed
Rate Payer only if the Market Quotations obtained in the manner described above
result in a positive number. The absolute value of the Settlement Amount shall
be payable by the Fixed Rate Payer to the Floating Rate Payer only if the Market
Quotations obtained in the manner described above result in a negative number.
4. Credit Support Documents:
(a) Standard Guaranty of The Goldman Sachs Group, L.P.
5. Account Details:
Payments to GSCM:
For the Account of: Goldman Sachs Capital Markets, L.P.
Account No. 4067-0834
Name of Bank: Citibank, N.A., N.Y.
Fed. ABA No.: 0210-0008-9
GSCM Inquiries: James T. Gavin, Vice President
Goldman Sachs Capital Markets, L.P.
Telephone No.: 212-902-1000
Facsimile No.: 212-902-0996
Payments to Counterparty: In accordance with Counterparty's written
instructions as set forth below or otherwise
delivered to GSCM. GSCM shall make no payments
without having received (i) such written
instructions and (ii) a fully executed facsimile
copy of this Confirmation or other written
acceptance of the terms hereof.
<PAGE>
For the Account of:
Name of Bank:
Account No.:
Attention:
ABA No.:
6. Offices:
(a) The Office of GSCM for this Transaction is 85 Broad Street, New York,
New York 10004.
(b) The Office of the Counterparty for this Transaction is (please
provide):
300 Esplanade Drive, Suite # 1860
Oxnard, CA 93030
7. Counterparty hereby agrees (a) to check this revised Confirmation
(Reference No.: NUUS509080 (010000000)) carefully and immediately upon receipt
so that errors or discrepancies can be promptly identified and rectified and
(b) to confirm that the foregoing correctly sets forth the terms of the
agreement between GSCM and Counterparty with respect to the particular
Transaction to which this Confirmation relates, by manually signing this
Confirmation and providing the other information requested herein and
immediately returning an executed copy to Swap Administration, Goldman Sachs
Capital Markets, L.P., facsimile No. 212-902-5692.
Very truly yours,
GOLDMAN SACHS CAPITAL MARKETS, L.P.
By: Goldman Sachs Capital Markets, Inc.,
General Partner
By: /s/ Marcia J. Riveglia
----------------------
Name: Marcia J. Riveglia
Title: Vice President
Agreed and Accepted By:
LTC Properties, Inc.
By: /s/ Christopher T. Ishikawa
---------------------------
Name: Christopher T. Ishkikawa
Title: Vice President & Treasurer
<PAGE>
LTC PROPERTIES, INC.
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve months ended December 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Primary:
Net income applicable to common shares $22,537 $20,040 $15,338
======= ======= =======
Applicable common shares:
Weighted average outstanding shares during the period 18,823 18,030 15,241
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the treasury
stock method) 434 227 202
Less contingent shares - - -
------- ------- -------
Total 19,257 18,257 15,443
======= ======= =======
Net income per share of common stock $ 1.17 $ 1.10 $ 0.99
======= ======= =======
Fully diluted:
Net income $22,537 $20,040 $15,338
Add back minority interest -(a) 57 n/a
Reduction of interest and amortization expenses resulting from
assumed conversion of 9.75% convertible subordinated debentures 145 1,239 -(a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 8.5% convertible subordinated debentures -(a) -(a) -
Reduction of interest and amortization expenses resulting from
assumed conversion of 8.25% convertible subordinated debentures -(a) -(a) n/a
Reduction of interest and amortization expense resulting from
assumed conversion of 7.75% convertible subordinated debentures -(a) n/a n/a
Less applicable income taxes - -
------- ------- -------
Adjusted net income applicable to common shares $22,682 $21,336 $15,338
======= ======= =======
Applicable common shares:
Weighted average outstanding shares during the period 18,823 18,030 15,241
Weighted average shares sizable upon exercise of common stock
equivalents outstanding (principally stock options using the treasury
stock method) 499 250 216
Assumed conversion of 9.75% convertible subordinated debentures 145 1,225 -(a)
Assumed conversion of 8.5% convertible subordinated debentures -(a) -(a) -(a)
Assumed conversion of 8.25% convertible subordinated debentures -(a) -(a) n/a
Assumed conversion of 7.75% convertible subordinated debentures -(a) n/a n/a
Less contingent shares - - -
------- ------- -------
Total 19,467 19,505 15,457
======= ======= =======
Net income per share of common stock $ 1.17 $ 1.09 $ 0.99
======= ======= =======
</TABLE>
(a) Conversion would be anti-dilutive and is therefore not assumed in the
computation of fully diluted net income per share of common stock.
<PAGE>
LTC PROPERTIES, INC.
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY STATE OF INCORPORATION
- ------- ----------------------
<S> <C>
LTC REMIC Corporation Delaware
LTC GP I, Inc. Delaware
LTC GP II, Inc. Delaware
LTC GP III, Inc. Delaware
LTC GP IV, Inc. Delaware
Coronado Corporation Delaware
LTC Partners I, L.P. Delaware
LTC Partners II, L.P. Delaware
LTC Partners III, L.P. Delaware
LTC Partners IV, L.P. Delaware
LTC Partners V, L.P. Delaware
LTC Partners VI, L.P. Delaware
LTC Partners VII, L.P. Delaware
L-Tex GP, Inc. Delaware
L-Tex LP Corporation Delaware
Texas-LTC Limited Partnership Texas
Missouri River Corporation Delaware
Park Villa Corporation Delaware
Kansas-LTC Corporation Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-2444) and in the Registration Statement (Form S-8 No. 33-85252) of
LTC Properties, Inc. of our report dated January 13, 1997, except Note 10, as to
which the date is February 1, 1997, with respect to the consolidated financial
statements and schedules of LTC Properties, Inc. included in its Annual Report
(Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,148
<SECURITIES> 92,545
<RECEIVABLES> 178,262
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 223,578
<DEPRECIATION> 11,640
<TOTAL-ASSETS> 494,149
<CURRENT-LIABILITIES> 0
<BONDS> 8,300
0
0
<COMMON> 195
<OTHER-SE> 184,219
<TOTAL-LIABILITY-AND-EQUITY> 494,149
<SALES> 0
<TOTAL-REVENUES> 54,930
<CGS> 0
<TOTAL-COSTS> 32,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,604
<INCOME-PRETAX> 22,537
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,537
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
