LTC US Equity☆

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Business and Investment Strategy

We are a real estate investment trust (“REIT”) that invests in seniors housing and health care properties through sale-leasebacks, mortgage financing, joint ventures, construction financing and structured finance solutions. We seek to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators. Our primary seniors housing and health care property classifications include skilled nursing facilities (“SNF”), assisted living facilities (“ALF”), independent living facilities (“ILF”), memory care communities (“MC”) and combinations thereof. We conduct and manage our business as one operating segment for internal reporting and internal decision-making purposes. For purposes of this Annual Report on Form 10-K and other presentations, we generally include ALF, ILF, and MC in the ALF property classification. We have been operating since August 1992.

The following graph summarizes our gross investments as of December 31, 2020:

Substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals, interest earned on outstanding loans receivable and income from investments in unconsolidated joint ventures. Our investments in owned properties and mortgage loans represent our primary source of liquidity to fund distributions and are dependent upon the performance of the operators on their lease and loan obligations and the rates earned thereon.

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To the extent that the operators experience operating difficulties and are unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by property type and operator. Our monitoring process includes periodic review of financial statements for each facility, periodic review of operator credit, scheduled property inspections and review of covenant compliance.

In addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk. Some operating leases and loans are credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other loans, operating leases or agreements between us and the operator and its affiliates.

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

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

COVID-19

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

The operations and occupancy levels at our properties have been adversely affected by COVID-19 and could be further adversely affected by COVID-19 or another pandemic especially if there are infections on a large scale at our properties. The impact of COVID-19 has included, and another pandemic could include, early resident move-outs, our operators delaying accepting new residents due to quarantines, potential occupants postponing moves to our operators’ facilities, and/or hospitals cancelling or significantly reducing elective surgeries thereby creating fewer people in need of skilled nursing care. Additionally, as our operators have responded to the pandemic, operating costs have begun to rise. A decrease in occupancy, ability to collect rents from residents and/or increase in operating costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent. In recognition of the pandemic impact affecting our operators, we have agreed to rent abatements totaling $1.1 million and rent deferrals for certain operators totaling $2.5 million between April and December 2020, of which $1.5 million subsequently has been paid. The $2.1 million in rent abatements and deferrals, net with repayments, represented approximately 2% of our April through December 2020 contractual rent. The remaining balance of deferred rent is due to LTC over the next 24 months or upon receipt of government funds from the U.S. Coronavirus Aid, Relief, and Economic Security (the “CARES Act”).

Subsequent to December 31, 2020, we proactively provided additional financial support to the majority of our operators by reducing by 50% 2021 rent escalations. This support is provided in the form of a credit to the majority of our operating partners. The one time rent escalation reduction is expected to have an approximate $0.5 million impact on our 2021 GAAP revenue.

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Portfolio Overview

The following tables summarize our real estate investment portfolio as of December 31, 2020 (dollar amounts in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Twelve Months Ended ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Percentage ​ December 31, 2020 ​ Percentage ​ ​ Number ​ Number of

​ ​ Gross ​ of ​ Rental ​ Interest ​ of ​ ​ of ​ SNF ​ ALF

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Mortgage Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Twelve Months Ended ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Percentage ​ December 31, 2020 ​ Percentage ​ ​ Number ​ Number of

​ ​ Gross ​ of ​ Rental ​ Interest ​ of ​ ​ of ​ SNF ​ ALF

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(3) See Item 2. Properties for discussion of bed/unit count.

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As of December 31, 2020, we had $1.4 billion in carrying value of net real estate investments, consisting of $1.1 billion or 81.1% invested in owned and leased properties and $0.3 billion or 18.9% invested in mortgage loans secured by first mortgages.

For the year ended December 31, 2020, rental income and interest income from mortgage loans represented 79.1% and 19.7%, respectively, of total gross revenues. In most instances, our lease structure contains annual rental escalations. Our leases that contain fixed annual rental escalations and/or have annual rental escalations that are contingent upon changes in the Consumer Price Index, are generally recognized on a straight-line basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved. During the years ended December 31, 2020, we recognized $0.1 million of contingent rental income. For the year ended December 31, 2020, we recognized $1.8 million in straight-line rental income and $0.6 million in amortization of lease incentives. For the remaining leases in place at December 31, 2020, assuming no modification or replacement of existing leases and no new leased investments are added to our portfolio, except for the subsequent lease extensions and the leases reported below under Update on Certain Operators, we currently expect that the non-cash straight-line rent portion of rental income will decrease from $1.8 million in 2020 to $0.2 million for projected annual 2021. Our cash rental income is projected to increase from $148.0 million in 2020 to $153.1 million for projected annual 2021. At December 31, 2020, the straight-line rent receivable balance on the consolidated balance sheet was $24.5 million.

Many of our existing leases contain renewal options that, if exercised, could result in the amount of rent payable upon renewal being greater or less than that currently being paid. During the year ended December 31, 2020, there were no lease renewals. During the year ended December 31, 2020, we consolidated four separate lease agreements into a single consolidated master lease with Brookdale Senior Living Communities, Inc (“Brookdale”) and extended the lease maturity date by one year to December 31, 2021. Also, during year ended December 31, 2020, we consolidated our two

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master leases with an operator into one combined master lease. See Update on Certain Operators below for more information related to our consolidated master leases with this operator and Brookdale.Some of our lease agreements provide purchase options allowing the lessees to purchase the properties they currently lease from us. See Item 8. FINANCIAL STATEMENTS— Note 5. Real Estate Investments. Owned Properties for a table that includes information about purchase options included in our lease agreements.

Update on Certain Operators

An affiliate of Senior Lifestyle Corporation (“Senior Lifestyle”) operates 23 properties under a master lease with a combination of independent living, assisted living and memory care units. Senior Lifestyle was provided deferred rent in the amount of $0.4 million in April 2020 which has since been fully repaid, however, they failed to pay full rent during the second quarter of 2020. In accordance with ASC 842, we evaluated the collectibility of receiving substantially all of our lease payments from the Senior Lifestyle master lease through maturity and determined that we did not have the level of certainty required by the standard. Accordingly, we wrote-off a total $17.7 million of straight-line rent receivable and lease incentives related to this master lease during the second quarter of 2020 and accounted for the Senior Lifestyle master lease on a cash basis effective July 2020. During April through December 2020, we received $9.2 million of Senior Lifestyle’s $13.8 million contractual rent due and applied their letter of credit and deposits totaling $3.7 million to the remaining $0.8 million balance of fourth quarter rent, $0.2 million to unaccrued past due third quarter rent, $2.5 million to accrued second quarter rent receivable and $0.1 million to notes receivable. At December 31, 2020, Senior Lifestyle owed us $1.0 million in past due unaccrued rent. Also, during the fourth quarter of 2020, we recorded an impairment charge of $3.0 million related to a memory care community that was operated by Senior Lifestyle. Subsequent to December 31, 2020, we transitioned 11 assisted living communities previously leased to Senior Lifestyle to two operators. These communities are located in Illinois, Ohio and Wisconsin. Total cash rent expected under these master lease agreements is $5.3 million for the first lease year, $7.1 million for the second lease year and $7.3 million for the third lease year, escalating 2% annually thereafter. We are currently evaluating our options for the remaining 12 assisted communities operated by Senior Lifestyle, which may include re-leasing or selling some or all of the properties.

During the third quarter of 2020, an operator paid $0.5 million of its contractual rent of $1.3 million. In accordance with ASC 842, we evaluated the collectibility of receiving substantially all of our lease payments form the operator master lease through maturity and determined that we did not have the level of certainty required by the standard. Accordingly, we wrote-off $1.2 million of straight-line rent receivable related to this master lease during the third quarter of 2020. Effective September 1, 2020, we consolidated our two master leases with the operator into one combined master lease. Under the new combined master lease, we agreed to abate $0.6 million of third quarter rent along with $0.1 million that had been deferred in second quarter of 2020. Additionally, the new combined master lease allows the operator to defer rent as needed through March 31, 2021. During the fourth quarter of 2020, we granted a $1.1 million deferral of rent of the operator’s $1.3 million contractual rent. The remaining deferred balance due from the operator is $0.4 million as of December 31, 2020. We also recorded an impairment charge of $0.9 million related to an assisted living community that was operated by the operator. The community was closed in October 2020. We are currently evaluating our options to sell this property.

On August 10, 2020, in its Quarterly Report on Form 10-Q, Genesis Healthcare, Inc. (“Genesis”) reported doubt regarding its ability to continue as a going concern. Accordingly, we evaluated the collectibility of receiving substantially all of our lease payments from the Genesis master lease through maturity in accordance with ASC 842, and determined that we did not have the level of certainty required by the standard. As a result, we wrote-off $4.3 million of straight-line rent receivable related to this master lease during the third quarter of 2020 and transitioned rental revenue recognition to cash basis in third quarter of 2020. Genesis is current on rent payments through February 2021.

Anthem Memory Care (“Anthem”) operates 11 memory care communities under a master lease and was placed in default in 2017 resulting from Anthem’s partial payment of its minimum rent. However, we did not enforce our rights and remedies pertaining to the event of default, under the stipulation that Anthem achieves sufficient performance and pays agreed upon rent. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Anthem and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance. Anthem paid us annual cash rent of $9.9 million in 2020. We receive regular financial performance updates from Anthem and

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continue to monitor their performance obligations under the master lease agreement. Anthem has paid their agreed upon rent through February 2021.

Preferred Care, Inc. (“Preferred Care”) and affiliated entities filed for Chapter 11 bankruptcy in 2017 as a result of a multi-million-dollar judgment in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. Preferred Care leased 24 properties under two master leases from us and the Preferred Care operating entities that subleased those properties did not file for bankruptcy. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Preferred Care and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance. Preferred Care did not affirm our master leases and subsequently filed for Chapter 7 bankruptcy in 2019.

During the fourth quarter of 2019, we entered into multiple contracts to sell the 24 properties leased by Preferred Care and completed the sales by the end of the first quarter of 2020. The combined net proceeds from the sales, including the 2019 transactions, was approximately $77.9 million resulting in a total gain of approximately $44.0 million. The 24 properties leased by Preferred Care had a combined net book value of $35.6 million. The 21 properties sold in the first quarter of 2020, which included 2,411 beds in Arizona, Colorado, Iowa, Kansas and Texas, were sold through multiple transactions and generated net proceeds of $72.1 million. These 21 properties had a combined net book value of $29.1 million and resulted in total gain on sale of $44.1 million.

Senior Care Centers, LLC and affiliates and subsidiaries (“Senior Care”) filed for Chapter 11 bankruptcy as a result of lease terminations from certain landlords and on-going operational challenges in December 2018. Senior Care did not pay us December 2018 rent and accordingly, in December 2018, we placed Senior Care on a cash basis. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of the straight-line rent receivable and lease incentive balance related to Senior Care and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance. During 2019, we received the December 2018 unpaid rent, late fees and legal cost reimbursement totaling $1.6 million from Senior Care. In March 2020, Senior Care emerged from bankruptcy and affirmed our master lease. We continue to evaluate the collectibility of our Senior Care master lease on a quarterly basis. Senior Care is current on rent payments through February 2021.

During the year ended December 31, 2020, we consolidated four separate lease agreements into a single consolidated master lease with Brookdale and extended the lease maturity date by one year to December 31, 2021. The new master lease provides three renewal options consisting of a four-year renewal option, a five-year renewal option and a 10-year renewal option. The notice period for the first renewal option is January 1, 2021 to April 30, 2021. The economic rent terms remain the same as the consolidated rent terms under the previous four separate lease agreements. In addition, we have extended a $4.0 million capital commitment to Brookdale, which is available through December 31, 2021 at a 7% yield. As of December 31, 2020, we funded $1.7 million under this commitment with a remaining commitment of $2.3 million. Brookdale is current on rent payments through February 2021.

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2020 Transactions Overview

The following tables summarizes our transactions in 2020 (dollar amounts in thousand):

Investment in Owned Properties

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Number ​ Type ​ Number ​ Initial ​ ​ ​ ​ ​ ​ Total ​ ​ Total ​

​ ​ of ​ of ​ of ​ Cash ​ ​ ​ Purchase ​ ​ Transaction ​ ​ Acquisition ​

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Sold Properties

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Type ​ Number ​ Number ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ of ​ of ​ of ​ ​ Sales ​ ​ Carrying ​ ​ Net ​

State ​ Properties ​ Properties ​ Beds/Units ​ ​ Price ​ ​ Value ​ ​ Gain ​

N/A ​ N/A ​ — ​ — ​ $ — ​ $ — ​ $ 129 (1)​

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(3) Properties sold within the Preferred Care portfolio.

Development Projects

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​ ​ ​ ​ ​ ​ ​

​ ​ Developments ​ Improvements

Assisted Living Communities ​ $ 4,491 ​ $ 6,842

Skilled Nursing Centers ​ ​ 12,208 ​ ​ 71

Completed Developments

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Number ​ Type ​ Number ​ ​ ​ ​ ​

​ of ​ of ​ of ​ ​ ​ ​ Total

​ Properties ​ Property ​ Beds/Units ​ State ​ Investment

Investment in Mortgage Loans

​ ​ ​ ​ ​

Originations and funding under mortgage loans receivable ​ $ 4,253 ​

Scheduled principal payments received ​ ​ (1,065) ​

Mortgage loan premium amortization ​ ​ (4) ​

Provision for loan loss reserve ​ ​ (32) ​

Net increase in mortgage loans receivable ​ $ 3,152 ​

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Investments in Unconsolidated Joint Ventures

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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Investment in Notes Receivable

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Advances under notes receivable $ 2,078 (1)​

Principal payments received under notes receivable ​ ​ (5,275) (2)​ ​

Reclassed to real estate under development ​ ​ (300) (3)​ ​

Notes receivable reserve ​ ​ 35 ​ ​

Net decrease in notes receivable ​ $ (3,462) ​ ​

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Key Performance Indicators, Trends and Uncertainties

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

Concentration Risk. We evaluate by gross real estate investment our concentration risk in terms of asset mix, real estate investment mix, operator mix and geographic mix. Concentration risk is valuable to understand what portion of our real estate investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our real estate investments that are real property or mortgage loans. Investment mix measures the portion of our investments that relate to our various property types. Operator mix measures the portion of our real estate investments that relate to our top five operators. Geographic mix measures the portion of our real estate investment that relate to our top five states.

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

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Asset mix: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Real estate investment mix: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operator mix: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Geographic mix: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

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Balance Sheet Metrics

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ Quarter Ended ​

Interest coverage ratio (6) ​ 4.9 x 5.3 x (3)​ 4.8 x ​ 4.9 x ​ 4.7 x ​ 4.9 x

Fixed charge coverage ratio (6) ​ 4.9 x 5.3 x (3)​ 4.8 x ​ 4.9 x ​ 4.7 x ​ 4.9 x

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(3) Increased due to decrease in interest expense and increase in rental income.

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(5) Decreased due to increase in market capitalization.

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​ ​ Year to Date ​ Quarter Ended ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Add: Capitalized interest ​ ​ 354 ​ ​ — ​ ​ 77 ​ ​ 86 ​ ​ 191 ​ ​ 167 ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest coverage ratio ​ ​ 4.9 x ​ 5.3 x ​ 4.8 x ​ 4.9 x ​ 4.7 x ​ 4.9 x

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Fixed charge coverage ratio ​ ​ 4.9 x ​ 5.3 x ​ 4.8 x ​ 4.9 x ​ 4.7 x ​ 4.9 x

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

● The status of the economy;

● The status of capital markets, including prevailing interest rates;

● Changes in financing terms;

● Competition within the health care and seniors housing industries;

● Changes in federal, state and local legislation;

● The duration, spread and severity of the COVID-19 outbreak.

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

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Operating Results

Year ended December 31, 2020 compared to year ended December 31, 2019 (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years ended December 31, ​ ​ ​

Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Impairment loss from real estate investments ​ ​ 3,977 ​ ​ — ​ ​ (3,977) (5)​

(Recovery) provision for doubtful accounts ​ ​ (3) ​ ​ 166 ​ ​ 169 ​

Transaction costs ​ ​ 299 ​ ​ 365 ​ ​ 66 ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other operating income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gain from property insurance proceeds ​ ​ 373 (10)​ ​ 2,111 (10)​ ​ (1,738) ​

Loss on unconsolidated joint ventures ​ ​ (758) (11)​ ​ — ​ ​ (758) ​

Income from unconsolidated joint ventures ​ ​ 432 ​ ​ 2,388 ​ ​ (1,956) (13)​

Income allocated to non-controlling interests ​ ​ (384) ​ ​ (346) ​ ​ (38) ​

Income allocated to participating securities ​ ​ (422) ​ ​ (391) ​ ​ (31) ​

Net income available to common stockholders ​ $ 94,871 ​ $ 80,135 ​ $ 14,736 ​

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(3) Decreased primarily due to the partial paydown of a mezzanine loan.

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(10) Relates to insurance proceeds related to properties sold.

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Year ended December 31, 2019 compared to year ended December 31, 2018 (in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years ended December 31, ​ ​ ​ ​

Revenues: ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Provision for doubtful accounts ​ ​ 166 ​ ​ 87 ​ ​ (79) ​

Transaction costs ​ ​ 365 ​ ​ 84 ​ ​ (281) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other operating income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gain from property insurance proceeds ​ ​ 2,111 ​ ​ — ​ ​ 2,111 (9)​

Income from unconsolidated joint ventures ​ ​ 2,388 ​ ​ 2,864 ​ ​ (476) ​

Income allocated to non-controlling interests ​ (346) ​ (95) ​ (251) ​

Income allocated to participating securities ​ (391) ​ (625) ​ 234 ​

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

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(9) Relates to insurance proceeds from a property sold in 2019.

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Funds From Operations

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

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may be of limited relevance in evaluating current performance, FFO facilitates comparisons of operating performance between periods.

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

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

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the year ended December 31,

Add: Impairment loss from investments ​ ​ 3,977 ​ ​ 5,500 ​ ​ — ​

Add: Loss on unconsolidated joint ventures ​ ​ 758 ​ ​ — ​ ​ — ​

Less: Gain on sale of real estate, net ​ (44,117) ​ (2,106) ​ (70,682) ​

NAREIT FFO attributable to common stockholders per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(1) Includes the effect of participating securities.

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Critical Accounting Policies

See Item 8. FINANCIAL STATEMENTS—Note 2. Summary of Significant Accounting Policies.

Liquidity and Capital Resources

Sources and Uses of Cash

As of December 31, 2020, we had a total of$7.8 million of cash and cash equivalents, $510.1 million available under our unsecured revolving line of credit and the potential ability to access the capital markets through the issuance of $200.0 million of common stock under our Equity Distribution Agreements. Furthermore, we have the ability to access the capital markets through the issuance of debt and/or equity securities under an automatic shelf registration statement.

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

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and repay borrowings at, or prior to, their maturity. The timing, source and amount of cash flows used by financing and investing activities are sensitive to the capital markets’ environment, especially to changes in interest rates. In addition, COVID-19 has adversely affected and is expected to continue to adversely affect our operators’ business, results of operations, cash flows and financial condition which could, in turn, adversely affect our financial position.

The operating results of the properties will be impacted by various factors over which the operators/owners may have no control. Those factors include, without limitation, the health of the economy, changes in supply of or demand for competing seniors housing and health care properties, ability to control rising operating costs, the potential for significant reforms in the health care industry, and the impact of COVID-19. In addition, our future growth in net income and cash flow may be adversely impacted by various proposals for changes in the governmental regulations and financing of the health care industry, and the impact of COVID-19 or other pandemic level viruses. We cannot presently predict what impact these potential events may have, if any. We believe that adequate provision has been made for the possibility of loans proving uncollectible but we will continually evaluate the financial status of the operations of the seniors housing and health care properties. In addition, we will monitor our borrowers and the underlying collateral for mortgage loans and will make future revisions to the provision, if considered necessary.

Depending on the duration, spread and the severity of the COVID-19 outbreak, our borrowing capacity, compliance with financial covenants, ability to access the capital markets, and the payment of dividends may be negatively impacted. We continuously evaluate the availability of cost-effective capital and believe we have sufficient liquidity for corporate expenses and additional capital investments in 2021.

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

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

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​ ​ Year Ended December 31, ​ ​ Change ​

Cash provided by (used in): ​ 2020 ​ 2019 ​ ​ $ ​

Debt Obligations

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

Senior Unsecured Notes. We have senior unsecured notes held by institutional investors with interest rates ranging from 3.85% to 5.03%. The senior unsecured notes mature between 2021 and 2032.

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The debt obligations by component as of December 31, 2020 are as follows (dollar amounts in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Applicable ​ ​ ​ ​ Available

​ ​ Interest ​ Outstanding ​ for

Debt Obligations ​ Rate (1) ​ Balance ​ Borrowing

Senior unsecured notes, net of debt issue costs (2) ​ 4.37% ​ ​ 559,482 ​ ​ —

(1) Represents weighted average of interest rate as of December 31, 2020.

​

​

Our debt borrowings and repayments during the year ended December 31, 2020, are as follows (in thousands):

​

​ ​ ​ ​ ​ ​ ​

Debt Obligations ​ ​ Borrowings ​ ​ Repayments

Senior unsecured notes ​ ​ — ​ ​ (40,160)

Equity

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

At December 31, 2020, we had 39,242,225 shares of common stock outstanding, equity on our balance sheet totaled $775.8 million and our equity securities had a market value of $1.5 billion. During the year ended December 31, 2020, we declared and paid $90.3 million of cash dividends.

Common Stock. We have an equity distribution agreement with sales agents to issue and sell, from time to time, up to $200.0 million in aggregate offering price of our common shares. The equity distribution agreement provides for sales of common shares to be made by means of ordinary brokers’ transactions, which may include block trades, or transactions that are deemed to be “at the market” offerings. At December 31, 2020, we had $200.0 million available under our equity distribution agreement.

During 2020, we acquired 76,574 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. Subsequent to December 31, 2020, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of January, February and March 2021, payable on January 29, February 26 and March 31, 2021, respectively, to stockholders of record on January 21, February 18, and March 23, 2021, respectively.

Stock Repurchase Plan. During the first quarter of 2020, our Board of Directors authorized the repurchase of up to 5,000,000 outstanding shares of common stock. During the year ended December 31, 2020, we purchased 615,827 shares at an average price of $29.25 per share, including commissions, for a total purchase price of $18.0 million. Due to the rising level of uncertainty in financial markets and the adverse effects of COVID-19 on the public health and our operators, our Board of Directors terminated the stock repurchase plan on March 25, 2020.

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

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discretion.

Restricted Stock and Performance-based Stock Units. During 2020, we granted 167,375 shares of restricted common stock and performance-based stock units under the 2015 Plan as follows:

​ ​ ​ ​ ​ ​ ​

No. of ​ Price per ​ ​ ​

Shares ​ Share ​ Vesting Period ​

At December 31, 2020, the total number of restricted common stock shares that are scheduled to vest, and performance-based stock units that could possibly vest and remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock and performance-based stock units are as follows (dollar amounts in thousands):

​

​ ​ ​ ​ ​ ​

​ ​ Number ​ Remaining

​ ​ of ​ Compensation

Vesting Date ​ Awards Expense

​

​

Stock Options. We did not issue any stock options during the year ended December 31, 2020. At December 31, 2020, we have 15,000 stock options outstanding and exercisable.

Contractual Obligations

We monitor our contractual obligations and commitments detailed above to ensure funds are available to meet obligations when due. The following table represents our long-term contractual obligations (scheduled principal payments and amounts due at maturity) as of December 31, 2020, excluding the effects of interest and debt issue costs (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Bank borrowings ​ $ 89,900 (1)​ $ — ​ $ 89,900 ​ $ — ​ $ — ​ $ — ​ $ — ​

​

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The following table represents our projected interest expense, excluding capitalized interest, amortization of debt issue costs and bank fees, as of December 31, 2020 (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Bank borrowings ​ $ 3,706 ​ $ 2,478 ​ $ 1,228 ​ $ — ​ $ — ​ $ — ​ $ — ​

Also, see Item 8. FINANCIAL STATEMENTS— Note 11. Commitments and Contingencies for additional information regarding our contractual commitments.

Off-Balance Sheet Arrangements:

We had no off-balance sheet arrangements as of December 31, 2020.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

You are cautioned that statements contained in this section are forward looking and should be read in conjunction with the disclosure under the heading “Cautionary Statement on Forward-Looking Statements” and Item 1A Risk Factors set forth above.

We are exposed to market risks associated with changes in interest rates as they relate to our mortgage loans receivable and debt. Interest rate risk is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.

We do not utilize interest rate swaps, forward or option contracts, or foreign currencies or commodities, or other types of derivative financial instruments nor do we engage in “off-balance sheet” transactions. The purpose of the following disclosure is to provide a framework to understand our sensitivity to hypothetical changes in interest rates as of December 31, 2020.

Our future earnings, cash flows and estimated fair values relating to financial instruments are dependent upon prevalent market rates of interest, such as LIBOR or term rates of U.S. Treasury Notes. Changes in interest rates generally impact the fair value, but not future earnings or cash flows, of mortgage loans receivable and fixed rate debt. Our mortgage loans receivable and debt, such as our senior unsecured notes, are primarily fixed-rate instruments. For variable rate debt, such as our revolving line of credit, changes in interest rates generally do not impact the fair value, but do affect future earnings and cash flows.

At December 31, 2020, the fair value of our mortgage loans receivable using a 10.0% discount rate was approximately $299.8 million. A 1% increase in such rate would decrease the estimated fair value of our mortgage loans by approximately $25.4 million while a 1% decrease in such rate would increase their estimated fair value by approximately $29.4 million. At December 31, 2020, the fair value of our senior unsecured notes using a 3.25% discount rate for those maturing before year 2026 and 3.50% discount rate for those maturing at or beyond year 2026 was approximately $581.2 million. A 1% increase in such rate would decrease the estimated fair value of our senior unsecured notes by approximately $27.9 million while a 1% decrease in such rate would increase their estimated fair value by approximately $29.9 million. These discount rates were measured based upon management’s estimates of rates currently prevailing for comparable loans available to us and instruments of comparable maturities.

The estimated impact of changes in interest rates discussed above are determined by considering the impact of the hypothetical interest rates on our borrowing costs, lending rates and current U.S. Treasury rates from which our financial instruments may be priced. We do not believe that future market rate risks related to our financial instruments will be material to our financial position or results of operations. These analyses do not consider the effects of industry specific events, changes in the real estate markets, or other overall economic activities that could increase or decrease the fair value of our financial instruments. If such events or changes were to occur, we would consider taking actions to mitigate and/or reduce any negative exposure to such changes. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure.

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ITEM 8. FINANCIAL STATEMENTS

LTC Properties, Inc.

Index to Consolidated Financial Statements

and Financial Statements Schedules

​ ​

​ ​

​ Page ​

Report of Independent Registered Public Accounting Firm ​ 47 ​

Consolidated Balance Sheets as of December 31, 2020 and 2019 ​ 49 ​

Notes to Consolidated Financial Statements ​ 53 ​

Consolidated Financial Statement Schedules ​ ​ ​

Schedule II—Valuation and Qualifying Accounts ​ 80 ​

Schedule III—Real Estate and Accumulated Depreciation ​ 81 ​

Schedule IV—Mortgage Loans on Real Estate ​ 86 ​

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of LTC Properties, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of LTC Properties, Inc. (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income and comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2021, expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases effective January 1, 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842) and the related amendments.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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​​

​ Impairment of Real Property Investments

​

​​

​ Collectibility of Lease Payments

​

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1992.

Los Angeles, California

February 18, 2021

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​

​

LTC PROPERTIES, INC.

​

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​

​ December 31,

ASSETS ​ ​ ​ ​ ​ ​ ​

Investments: ​ ​ ​ ​ ​ ​ ​

Accumulated depreciation and amortization ​ (349,643) ​ (312,642) ​

​ ​ ​ ​ ​ ​ ​ ​

Investments in unconsolidated joint ventures ​ ​ 11,340 ​ ​ 19,003 ​

​ ​ ​ ​ ​ ​ ​ ​

Other assets: ​ ​ ​ ​ ​ ​ ​

Cash and cash equivalents ​ 7,772 ​ 4,244 ​

Debt issue costs related to bank borrowings ​ 1,324 ​ 2,164 ​

Prepaid expenses and other assets ​ 5,316 ​ 5,115 ​

LIABILITIES ​ ​ ​ ​ ​ ​ ​

Accrued expenses and other liabilities ​ 30,082 ​ 30,412 ​

EQUITY ​ ​ ​ ​ ​ ​ ​

Stockholders’ equity: ​ ​ ​ ​ ​ ​ ​

Total LTC Properties, Inc. stockholders’ equity ​ 767,402 ​ 776,943 ​

Non-controlling interests ​ 8,404 ​ 8,483 ​

​

See accompanying notes.

​

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LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​

​ ​ Year Ended December 31, ​

Revenues: ​ ​ ​ ​ ​ ​ ​ ​

Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Impairment charges ​ ​ 3,977 ​ ​ — ​ ​ — ​

(Recovery) provision for doubtful accounts ​ (3) ​ 166 ​ 87 ​

Transaction costs ​ ​ 299 ​ ​ 365 ​ ​ 84 ​

Other operating income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gain from property insurance proceeds ​ ​ 373 ​ ​ 2,111 ​ ​ — ​

Loss on unconsolidated joint ventures ​ ​ (758) ​ ​ — ​ ​ — ​

Income from unconsolidated joint ventures ​ ​ 432 ​ ​ 2,388 ​ ​ 2,864 ​

Income allocated to non-controlling interests ​ (384) ​ (346) ​ (95) ​

Income allocated to participating securities ​ (422) ​ (391) ​ (625) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Earnings per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive Income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

See accompanying notes.

​

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LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Capital in ​ Cumulative ​ ​ ​ ​ Total ​ Non- ​ ​ ​

​ shares Amount Par Value Income Distributions Equity Interests Equity

Issuance of common stock 22 ​ — ​ 929 ​ — ​ — ​ 929 ​ — ​ 929 ​

Issuance of restricted stock 91 ​ 1 ​ (9) ​ — ​ — ​ (8) ​ — ​ (8) ​

Stock-based compensation expense — ​ — ​ 5,870 ​ — ​ — ​ 5,870 ​ — ​ 5,870 ​

Stock option exercises 5 ​ — ​ 123 ​ — ​ — ​ ​ 123 ​ ​ — ​ ​ 123 ​

Non-controlling interest contributions — ​ — ​ — ​ — ​ — ​ — ​ 3,963 ​ 3,963 ​

Non-controlling interest distributions — ​ — ​ — ​ — ​ — ​ — ​ (65) ​ (65) ​

Issuance of restricted stock 86 ​ ​ ​ ​ ​ (7) ​ ​ — ​ ​ — ​ (7) ​ — ​ (7) ​

Stock option exercises 5 ​ ​ 1 ​ ​ 122 ​ ​ — ​ ​ — ​ 123 ​ — ​ 123 ​

Issuance of restricted stock 101 ​ ​ 1 ​ ​ (9) ​ ​ — ​ ​ — ​ (8) ​ — ​ (8) ​

​

See accompanying notes.

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LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

OPERATING ACTIVITIES: ​ ​ ​ ​ ​ ​ ​

Impairment charges ​ ​ 3,977 ​ ​ 5,500 ​ ​ — ​

Loss on unconsolidated joint ventures ​ ​ 758 ​ ​ — ​ ​ — ​

Income from unconsolidated joint ventures ​ (432) ​ (2,388) ​ (2,864) ​

Insurance proceeds for damaged property ​ ​ — ​ ​ — ​ ​ 2,619 ​

Payment for remediation of damaged property ​ ​ — ​ ​ — ​ ​ (508) ​

Straight-line rental income ​ ​ (1,778) ​ (4,487) ​ ​ (9,550) ​

Lease incentives funded ​ ​ (220) ​ ​ (387) ​ ​ (1,272) ​

Amortization of lease incentives ​ ​ 426 ​ ​ 385 ​ ​ 2,092 ​

(Recovery) provision for doubtful accounts ​ (3) ​ 166 ​ 87 ​

Non-cash interest related to contingent liabilities ​ — ​ — ​ 377 ​

Increase in interest receivable ​ (6,161) ​ (5,854) ​ (5,682) ​

(Decrease) increase in accrued interest payable ​ (767) ​ 803 ​ (1,096) ​

Net change in other assets and liabilities ​ (2,021) ​ (1,750) ​ 3,036 ​

INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Investment in real estate capital improvements ​ (6,913) ​ (2,839) ​ (3,249) ​

Capitalized interest ​ ​ (354) ​ ​ (608) ​ ​ (1,248) ​

Investments in unconsolidated joint ventures ​ (8,520) ​ (472) ​ ​ (670) ​

Advances and originations under notes receivable ​ (2,078) ​ (8,967) ​ (124) ​

Principal payments received on notes receivable ​ 5,275 ​ 3,503 ​ 3,848 ​

FINANCING ACTIVITIES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Proceeds from issuance of senior unsecured notes ​ — ​ 100,000 ​ — ​

Stock repurchase plan ​ ​ (18,012) ​ ​ — ​ ​ — ​

Proceeds from common stock issued ​ — ​ — ​ 1,005 ​

Stock option exercises ​ — ​ 123 ​ 123 ​

Contribution from non-controlling interests ​ — ​ 965 ​ 3,963 ​

Distributions paid to non-controlling interests ​ (463) ​ (309) ​ (65) ​

Financing costs paid ​ (35) ​ (61) ​ (3,162) ​

Other ​ (8) ​ (6) ​ (8) ​

Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

See accompanying notes.

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1. The Company

LTC Properties, Inc. (“LTC”), a Maryland corporation, commenced operations on August 25, 1992. LTC is a real estate investment trust (“REIT”) that invests primarily in seniors housing and health care properties primarily through sale-leaseback transactions, mortgage financing, joint ventures construction financing and structured finance solutions including preferred equity, bridge, mezzanine and unitranche lending. We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal decision-making purposes. Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators. Our primary seniors housing and health care property classifications include skilled nursing centers (“SNF”), assisted living communities (“ALF”), independent living communities (“ILF”), memory care communities (“MC”) and combinations thereof. ILF, ALF, MC and combinations thereof are included in the ALF classification.

2. Summary of Significant Accounting Policies

Basis of Presentation. The accompanying consolidated financial statements include the accounts of LTC, our wholly-owned subsidiaries, and our consolidated companies. All intercompany investments, accounts and transactions have been eliminated.

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

Consolidation. At inception, and on an ongoing basis, as circumstances indicate the need for reconsideration, we evaluate each legal entity that is not wholly-owned by us for consolidation, first under the variable interest entity (“VIE”), then under the voting model. Our evaluation considers all of our variable interests, including common or preferred equity ownership, loans, and other participating instruments. The variable interest model applies to entities that meet both of the following criteria:

If an entity does meet the above criteria and does not qualify for a scope exception from the VIE model, we will determine whether the entity is a VIE.

A legal entity is determined to be a VIE if it has any of the following three characteristics:

● The obligation to absorb the entity's expected losses;

● The right to receive the entity's expected residual returns; or

If any of the three characteristics of a VIE are met, we conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.

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If an entity is determined to be a VIE, we evaluate whether we are the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and benefits. We consolidate a VIE if we have both power and benefits - that is (i) we have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance (power), and (ii) we have the obligation to absorb losses of the VIE that could potentially be significant to the VIE, or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). If we have a variable interest in a VIE but we are not the primary beneficiary, we account for our investment using the equity method of accounting.

If a legal entity fails to meet any of the three of the characteristics of a VIE, we evaluate such entity under the voting interest model. Under the voting interest model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting shares or if we are the general partner or managing member of the entity and the limited partners or non-managing members do not have substantive participating, liquidation, or kick-out rights that preclude our presumption of control.

The Financial Accounting Standards Board (“FASB”) created a framework for evaluating whether a general partner or a group of general partners controls a limited partnership or a managing member or a group of managing members can exercise power over a limited liability company, and therefore should consolidate the entity. The guidance states that the presumption of general partner or managing member control would be overcome only when the limited partners or non-managing members have certain specific rights as described in the guidance. The limited members have virtually no rights and are precluded from taking part in the operation, management or control of the company. The limited members are also precluded from transferring their interests without the expressed permission of the general member. However, general partners could transfer their interest without consultation or permission of the limited members. We consolidated the companies in accordance with the guidance.

The FASB requires the classification of non-controlling interests as a component of consolidated equity in the consolidated balance sheet subject to the provisions of the rules governing classification and measurement of redeemable securities. The guidance requires consolidated net income to be reported at the amounts attributable to both the controlling and non-controlling interests. The calculation of earnings per share will be based on income amounts attributable to the controlling interest.

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

Use of Estimates. Preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for our borrowing instruments which use the London Interbank Offered Rate (“LIBOR”) as a reference rate and is effective immediately, however is only available through December 31, 2022. We are currently evaluating the impact of this ASU; however, we do not expect that the adoption of ASU 2020-04 will have a material impact on our financial statements.

Cash Equivalents. Cash equivalents consist of highly liquid investments with a maturity of three months or less when purchased and are stated at cost which approximates market.

Owned Properties. We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the fair value of each component. In determining fair value, we use current appraisals or other third-party opinions of value. The most significant components of our allocations are typically the allocation of fair value to land and buildings and, for certain of our acquisitions, in-place leases and other intangible

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assets. In the case of the fair value of buildings and the allocation of value to land and other intangibles, the estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in-place leases, we make best estimates based on the evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. These assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases. We evaluate each purchase transaction to determine whether the acquired assets meet the definition of an asset acquisition or a business combination. Transaction costs related to acquisitions that are not deemed to be businesses are included in the cost basis of the acquired assets, while transaction costs related to acquisitions that are deemed to be businesses are expensed as incurred.

We capitalize direct construction and development costs, including predevelopment costs, interest, property taxes, insurance and other costs directly related and essential to the acquisition, development or construction of a real estate asset. We capitalize construction and development costs while substantive activities are ongoing to prepare an asset for its intended use. We consider a construction project as substantially complete and held available for occupancy upon the issuance of the certificate of occupancy. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as incurred. For redevelopment, renovation and expansion of existing operating properties, we capitalize the cost for the construction and improvement incurred in connection with the redevelopment, renovation and expansion. Costs previously capitalized related to abandoned acquisitions or developments are charged to earnings. Expenditures for repairs and maintenance are expensed as incurred.

Depreciation is computed principally by the straight-line method for financial reporting purposes over the estimated useful lives of the assets, which range from 3 to 5 years for computers, 5 to 15 years for furniture and equipment, 35 to 50 years for buildings, 10 to 20 years for site improvements, 10 to 50 years for building improvements and the respective lease term for acquired lease intangibles.

During the fourth quarter of 2019 we sold a 170-bed skilled nursing center in our portfolio which was under a triple net master lease agreement. The property was evacuated in 2017 due to damages caused by hurricane and our operator provided us with insurance proceeds for remediation of the property. Upon sale of the property, we released our operator from its contractual obligation under the master lease to return the property back to its original condition, took possession of the remaining insurance proceeds of $2,111,000 and recorded this amount as Gain from property insurance proceeds on the Consolidated Statements of Income and Comprehensive Income at December 31, 2019. Additionally, during 2020, we sold a 114-bed skilled nursing center in Texas and recorded a gain of $373,000 from insurance proceeds related to the property’s roof damage.

Mortgage Loans Receivable, Net of Loan Loss Reserve. Mortgage loans receivable we originate are recorded on an amortized cost basis.

Mezzanine Loans. In 2015 we strategically decided to allocate a portion of our capital deployment toward mezzanine loans to grow relationships with operating companies that have not typically utilized sale leaseback financing as a component of their capital structure. Mezzanine financing sits between senior debt and common equity in the capital structure, and typically is used to finance development projects or value-add opportunities on existing operational properties. We seek market-based, risk-adjusted rates of return typically between 8-12% with the loan term typically four to five years. Security for mezzanine loans can include all or a portion of the following credit enhancements; secured second mortgage, pledge of equity interests and personal/corporate guarantees. Mezzanine loans are recorded for GAAP purposes as either a loan, under notes receivable, or joint venture, under investment in unconsolidated JVs, depending upon specifics of the loan terms and related credit enhancements.

Investments in unconsolidated joint ventures. From time to time, we provide funding to third-party operators for the acquisition, development and construction (“ADC”) of a property. Under an ADC arrangement, we may participate in the residual profits of the project through the sale or refinancing of the property. These ADC arrangements can have characteristics similar to a loan or similar to a joint venture (“JV”) or partnership such as participating in the risks and rewards of the project as an owner or an investment partner. If the ADC arrangement characteristics are more similar to a

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jointly-owned investment or partnership, we account for the ADC arrangement as an investment in an unconsolidated JV under the equity method of accounting or a direct investment (consolidated basis of accounting) instead of applying loan accounting.

We evaluate our ADC arrangements first pursuant to ASC 805, Consolidation, to determine whether the ADC arrangement meets the definition of a VIE, as explained above, and whether we are the primary beneficiary. If the ADC arrangement is deemed to be a VIE but we are not the primary beneficiary, or if it is deemed to be a voting interest entity but we do not have a controlling financial interest, we account for our investment in the ADC arrangement using the equity method. Under the equity method, we initially record our investment at cost and subsequently recognize our share of net earnings or losses and other comprehensive income or loss, cash contributions made and distributions received, and other adjustments, as appropriate. Allocations of net income or loss may be subject to preferred returns or allocation formulas defined in operating agreements and may not be according to percentage ownership interests. In certain circumstances where we have a substantive profit-sharing arrangement which provides a priority return on our investment, a portion of our equity in earnings may consist of a change in our claim on the net assets of the underlying JV. Distributions of operating profit from the JVs are reported as part of operating cash flows, while distributions related to a capital transaction, such as a refinancing transaction or sale, are reported as investing activities. Currently we do not have any ADC arrangements.

We periodically perform evaluation of our investment in unconsolidated JVs to determine whether the fair value of each investment is less than the carrying value, and, if such decrease in value is deemed to be other-than-temporary, we write the investment down to its estimated fair value as of the measurement date.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts. The allowance for doubtful accounts depends on the expected collectibility of our receivables which is based on considerations including the certainty of payment, payment history and other relevant factors. The allowance for doubtful accounts is maintained at a level believed adequate to absorb potential losses in our receivables. In 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires a new forward looking “expected loss” model to be used for receivables, held-to-maturity debt, loans, and other instruments. When shared risk characteristics exist, ASU 2016-13 requires a collective basis measurement of expected credit losses of the financial assets. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.

We adopted ASU 2016-13 on January 1, 2020 and determined our Mortgage loans receivable and Notes receivable are within the scope of this ASU. We utilize the probability of default and discounted cash flow methods to estimate expected credit losses. Additionally, we stress-tested the results to reflect the impact of unknown adverse future events including recessions. We concluded that the adoption of ASU 2016-13 did not have a material impact on our financial statements. The expected credit losses for our financial instruments that are within the scope of ASU 2016-13 are as follows (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Increase ​ ​ ​ ​

​ ​ ​ ​ ​ ​ /(Decrease) ​ ​ ​

​ ​ ​ ​ Balance ​ in Expected ​ Balance ​

​ ​ Balance Sheet ​ at ​ Credit Loss ​ at ​

​

We elected not to measure an allowance for expected credit losses on accrued interest receivable under the expected credit loss standard as we have a policy in place to reserve or write off accrued interest receivable in a timely manner through our quarterly review of the loan and property performance. Therefore, we elected the policy to write off accrued interest receivable by reversing interest income and/or recognizing credit loss expense. As of December 31, 2020, the total balance of accrued interest receivable of $32,746,000 was not included in the measurement of expected credit loss. For the years ended December 31, 2020 and 2019, Company did not recognize any write-off related to accrued interest receivable.

Accrued incentives. As part of our acquisitions and/or amendments, we may commit to provide contingent

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payments to our sellers or lessees, upon the properties achieving certain rent coverage ratios. Typically, when the contingent payments are funded, cash rent will increase by the amount funded multiplied by a rate stipulated in the agreement. If it is deemed probable, the contingent payment is recorded as a liability at the estimate fair value calculated using a discounted cash flow analysis and accreted to the settlement amount of the estimated payment date. If the contingent payment is provided to the lessee, the estimated fair value is recorded as a lease incentive included in the prepaid and other assets line item in our consolidated balance sheet and is amortized as a yield adjustment over the life of the lease. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The fair value of these contingent liabilities are evaluated on a quarterly basis based on changes in estimates of future operating results and changes in market discount rates.

Impairments. Assets that are classified as held-for-use are periodically evaluated for impairment when events or changes in circumstances indicate that the asset may be impaired or the carrying amount of the asset may not be recoverable through future undiscounted cash flows. Where indicators of impairment exist, the estimation required in the undiscounted future cash flow assumption includes management’s probability-weighting of various scenarios including whether the management modifies the lease with the existing operator versus identifying a replacement operator and the assumed market lease rate underlying projected future rental cash flows. In determining fair value, we use current appraisals or other third-party opinions of value and other estimates of fair value such as estimated discounted future cash flows. Based on our assessment, during the years ended December 31, 2020, 2019 and 2018, we recognized impairment charges of $3,977,000, $0 and $0 respectively, related to our real property investments.

Fair Value of Financial Instruments. The FASB requires the disclosure of fair value information about financial instruments for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Accordingly, the aggregate fair market value amounts presented in the notes to these consolidated financial statements do not represent our underlying carrying value in financial instruments.

The FASB provides guidance for using fair value to measure assets and liabilities, the information used to measure fair value, and the effect of fair value measurements on earnings. The FASB emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the FASB establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices).

The fair value guidance issued by the FASB excludes accounting pronouncements that address fair value measurements for purposes of lease classification or measurement. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value, regardless of whether those assets and liabilities are related to leases.

In accordance with the accounting guidance regarding the fair value option for financial assets and financial liabilities, entities are permitted to choose to measure certain financial assets and liabilities at fair value, with the change in unrealized gains and losses on items for which the fair value option has been elected reported in earnings. We have not elected the fair value option for any of our financial assets or liabilities.

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The FASB requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. See Note 15. Fair Value Measurements for the disclosure about fair value of our financial instruments.

Revenue Recognition. Rental income from operating leases is generally recognized on a straight-line basis over the terms of the leases. Substantially all of our leases contain provisions for specified annual increases over the rents of the prior year and are generally computed in one of four methods depending on specific provisions of each lease as follows:

(ii) a calculation based on the Consumer Price Index;

(iii) as a percentage of facility revenues in excess of base amounts or

(iv) specific dollar increases.

The FASB does not permit recognition of contingent revenue until all possible contingencies have been resolved. Historically, we have not included contingent rents as income until received and will we continue our historical policy. During the years ended December 31, 2020, 2019 and 2018, we received $111,000, $464,000 and $470,000, respectively, of contingent rental income. We follow a policy related to rental income whereby we consider a lease to be non-performing after 60 days of non-payment of past due amounts and do not recognize unpaid rental income from that lease until the amounts have been received.

Interest income on mortgage loans is recognized using the effective interest method. We follow a policy related to mortgage interest whereby we consider a loan to be non-performing after 60 days of non-payment of amounts due and do not recognize unpaid interest income from that loan until the past due amounts have been received. Effective interest method, as required by GAAP, is a technique for calculating the actual interest rate for the term of a mortgage loan based on the initial origination value. Similar to the accounting methodology of straight-line rent, the actual interest rate is higher than the stated interest rate in the early years of the mortgage loan thus creating an effective interest receivable asset included in the interest receivable line item in our consolidated balance sheet and begins reducing down to zero when, at some point during the mortgage loan, the stated interest rate is higher than the actual interest rate.

Payments made to or on behalf of our lessees represent incentives that are deferred and amortized as a yield adjustment over the term of the lease on a straight-line basis. Net loan fee income and commitment fee income are amortized over the life of the related loan.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers: Topic 606. ASU 2014-09 provides for a single comprehensive principles based standard for the recognition of revenue across all industries through the application of the following five-step process:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In doing so, companies may need to use more judgment and make more estimates. While this ASU specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate. Additionally, the FASB has issued targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. ASU 2014-09 and its amendments have now formally entered into the FASB codification as Accounting Standard Codification (“ASC”) Topic 606, Contracts with Customers (“ASC 606”). The new standard and its amendments are effective on January 1, 2018, and permit reporting entities to apply the standard using either a modified retrospective approach, by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal

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year of adoption or full retrospective approach. We have adopted this standard using the modified retrospective adoption method on January 1, 2018. We concluded that this standard did not have a material impact on our results of operations or financial condition, as a substantial portion of our revenues consists of rental income from leasing arrangements and interest income from loan arrangements, both of which are specifically excluded from ASU 2014-09.

Leases: In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 (“ASU 2016-02”), Leases, which is codified under Accounting Standards Codification (“ASC”) as ASC Topic 842, Leases. Among other changes, ASU 2016-02 amends the previous accounting for lessors to:

● Modify the accounting and lease classification criteria;

As a result of adopting ASU 2016-02 on January 1, 2019, using the modified retrospective transition approach, we evaluated the collectibility of our lease payments and determined that the level of collectibility certainty cannot be achieved for certain operators. Accordingly, we recognized a cumulative effect adjustment to equity of $42,808,000. Additionally, we now report real estate taxes that are reimbursed by our operators as Rental income with a corresponding Property tax expense in the Consolidated Statements of Income and Comprehensive Income. Furthermore, we assess the collectibility of substantially all of our lease payments through maturity and if collectibility is not probable, all or a portion of our straight-line rent receivable and other lease receivables may be written off and the rental income during the period would be limited to the lesser of the income that would have been recognized if collection were probable, and the lease payments received. Our assessment of collectibility of leases includes evaluating the data and assumptions used in determining whether substantially all of the future lease payments were probable based on the lessee’s payment history, the financial strength of the lessees, future contractual rents, and the timing of expected payments.