Form: 10-K405

Annual report [Sections 13 and 15(d), S-K Item 405]

February 22, 2001

Documents

10-K405: Annual report [Sections 13 and 15(d), S-K Item 405]

Published on February 22, 2001



================================================================================

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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

OR

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

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:




Title of Stock Name of each exchange on which registered
- --------------------------------------------------------- -----------------------------------------

Common stock, $.01 Par Value New York Stock Exchange
9.50% Series A Cumulative Preferred Stock, $.01 Par Value New York Stock Exchange
9.00% Series B Cumulative Preferred Stock, $.01 Par Value 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



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 non-affiliates of
the Company is approximately $110,076,000 as of January 29, 2001.

26,031,414
(Number of shares of common stock outstanding as of January 29, 2001)

Part III is incorporated by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders.
================================================================================

STATEMENT REGARDING FORWARD LOOKING DISCLOSURE

CERTAIN INFORMATION CONTAINED IN THIS ANNUAL REPORT INCLUDES STATEMENTS THAT ARE
NOT PURELY HISTORICAL AND ARE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING OUR
EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL
STATEMENTS OTHER THAN HISTORICAL FACTS CONTAINED IN THIS ANNUAL REPORT ARE
FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS INVOLVE A NUMBER OF
RISKS AND UNCERTAINTIES. ALL FORWARD LOOKING STATEMENTS INCLUDED IN THIS ANNUAL
REPORT ARE BASED ON INFORMATION AVAILABLE TO US ON THE DATE HEREOF, AND WE
ASSUME NO OBLIGATION TO UPDATE SUCH FORWARD LOOKING STATEMENTS. ALTHOUGH WE
BELIEVE THAT THE ASSUMPTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD LOOKING
STATEMENTS ARE REASONABLE, NO ASSURANCE CAN BE GIVEN THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. THE ACTUAL RESULTS ACHIEVED BY US MAY DIFFER
MATERIALLY FROM ANY FORWARD LOOKING STATEMENTS DUE TO THE RISKS AND
UNCERTAINTIES OF SUCH STATEMENTS. EXHIBIT 99 TO THIS ANNUAL REPORT CONTAINS A
MORE COMPREHENSIVE DISCUSSION OF RISKS AND UNCERTAINTIES ASSOCIATED WITH OUR
BUSINESS.

ITEM 1. BUSINESS

GENERAL

LTC Properties, Inc., 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. We invest primarily in long-term care and other health care
related facilities through mortgage loans, facility lease transactions and other
investments. During 1998, we began making investments in the education industry
by investing in private and charter schools from pre-school through eighth
grade. Our primary objectives are to sustain and enhance stockholder equity
value and 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
these objectives, we attempt to invest in properties that provide opportunity
for additional value and current returns to our stockholders and diversify our
investment portfolio by geographic location, operator and form of investment.

In accordance with "plain English" guidelines provided by the Securities and
Exchange Commission, whenever we refer to "our company" or to "us", or use the
terms "we" or "our", we are referring to LTC Properties, Inc. and its
subsidiaries.

We were organized to qualify, and intend to continue to qualify, as a REIT. So
long as we qualify, with limited exceptions, we may deduct distributions to our
stockholders from our taxable income. We have made distributions, and intend to
continue to make distributions to our stockholders, in order to eliminate any
federal tax liability.

At December 31, 2000, we had a gross investment portfolio (adjusted to include
mortgage loans to third parties underlying our investment in REMIC certificates)
of $845.5 million. Our investment portfolio consisted of $551.2 million in 249
skilled nursing facilities with 28,364 beds, $269.9 million in 94 assisted
living facilities with 4,366 units and $24.4 million in four schools. 71
healthcare providers and two education providers in 36 states operate the
properties in our portfolio.

OWNED PROPERTIES. During 2000, we acquired two skilled nursing facilities with a
total of 393 beds from a related party for a gross purchase price (based upon
independent appraisals) of $19.2 million and invested approximately


2

$4.3 million in the expansion and improvement of existing properties.
Mortgage loans with outstanding principal balances totaling $12.3 million
that were secured by eight long-term care facilities with 771 beds/units were
converted into owned properties. As of December 31, 2000, our investment in
owned properties consisted of 66 skilled nursing facilities with a total of
7,797 beds, 86 assisted living facilities with a total of 3,997 units and
four schools in 26 states, representing a gross investment of approximately
$468.5 million.

During the year ended December 31, 2000, the Company sold 11 skilled nursing
facilities, one assisted living facility and two schools. These sales resulted
in a net gain of approximately $9.0 million.

The majority of our long-term care facilities are leased to operators
pursuant to long-term operating leases that generally have an initial term of
10 to 20 years and provide for increases in the rent based upon specified
rate increases, increases in revenues over defined base periods, or increases
based on consumer price indices. Currently we have one-year leases on 21
skilled nursing facilities that expire June 30, 2001 and month-to-month
leases on two skilled nursing facilities with a related party. All leases are
triple net leases that require the lessee to pay all taxes, insurance,
maintenance and other costs of the facilities.

MORTGAGE LOANS. As part of our strategy of making long-term investments in
properties used in the provision of long-term health care services, we provide
mortgage financing on such properties based on our established investment
underwriting criteria. (See "INVESTMENT AND OTHER POLICIES" in this Section.) We
also provide construction loans that by their terms convert into purchase/lease
transactions or permanent financing mortgage loans upon completion of
construction. During 2000, we advanced $1.0 million for renovation and expansion
under a mortgage loan previously provided on a skilled nursing facility. At
December 31, 2000, we had 48 mortgage loans secured by first mortgages on 45
skilled nursing facilities with a total of 5,160 beds and eight assisted living
residences with 369 units located in 22 states.

We maintain a long-term investment interest in mortgages we originate either
through the direct retention of the mortgages or through the retention of REMIC
Certificates originated in our securitizations. We are a REIT and, as such, make
our investments with the intent to hold them for long-term purposes. However, we
may securitize a portion of our mortgage loan portfolio when a securitization
provides us with the best available form of capital to fund additional long-term
investments. In addition, we believe that the REMIC Certificates we retain from
our securitizations provide our stockholders with a more diverse real estate
investment while maintaining the returns we desire.

REMIC CERTIFICATES. We complete a securitization by transferring mortgage loans
to a newly created Real Estate Mortgage Investment Conduit ("REMIC") that, in
turn, issues mortgage pass-through certificates aggregating approximately the
same amount. A portion of the REMIC Certificates are sold to third parties and a
portion of the REMIC Certificates are retained by us. The REMIC Certificates we
retain are subordinated in right of payment to the REMIC Certificates sold to
third parties and a portion of the REMIC Certificates we retain are
interest-only certificates which have no principal amount and entitle us to
receive cash flows designated as interest. At December 31, 2000, we had
investments in REMIC Certificates with a carrying value of $95.0 million ($96.3
million, at amortized cost, prior to any adjustment of available for sale
certificates to fair market value).

FINANCING AND OTHER TRANSACTIONS. During 2000, we obtained a $185.0 million
Senior Secured Revolving Line of Credit that expires on October 2, 2004, which
bears interest between LIBOR plus 2.00% and LIBOR plus 3.00%. The Senior Secured
Revolving Line of Credit initially provides for $185.0 million of total
commitments with periodic reductions of these commitments to fully retire the
commitments as of October 2, 2004. Specifically, scheduled available commitments
as of December 31, 2000, 2001, 2002 and 2003 are $185.0 million, $157.5 million,
$95.0 million and $75.0 million, respectively. As of December 31, 2000
borrowings of $118.0 million bearing interest at LIBOR plus 2.50% were
outstanding under the revolving credit facility.

The two skilled nursing facilities acquired during 2000 were acquired subject to
the assumption of existing non-recourse mortgage debt of $13.7 million that
bears interest at a weighted average rate of 9.25%.

3

INVESTMENT AND OTHER POLICIES

OBJECTIVES AND POLICIES. We currently invest primarily in income-producing
long-term care facilities. Our investments consist of:

- mortgage loans secured by long-term care facilities;

- fee ownership of long-term care facilities which are leased to
operators; or

- participation 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, we consider such factors as:

- type of property;

- the location;

- construction quality, condition and design of the property;

- the property's current and anticipated cash flow and its adequacy to
meet operational needs and lease obligations or debt service
obligations;

- the quality, reputation and solvency of the property's operator;

- the payor mix of private, Medicare and Medicaid patients;

- the growth, tax and regulatory environments of the communities in
which the properties are located;

- the occupancy and demand for similar facilities in the area
surrounding the property; and

- the Medicaid reimbursement policies and plans of the state in which
the property is located.

We place primary emphasis on investing in long-term care facilities that have
low investment per bed/unit ratios and do not have to rely on the provision of
ancillary services to cover debt service or lease obligations. In addition, with
respect to skilled nursing facilities, we attempt to invest in facilities that
do not have to rely on a high percentage of private pay patients. We seek to
invest in facilities that are located in suburban and rural areas of states with
improving reimbursement climates. Prior to every investment, we conduct 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, we review the environmental reports, state
survey and financial statements of the facility before the investment is made.
We prefer to invest in a facility that has a significant market presence in its
community and where state certificate of need and/or licensing procedures limit
the entry of competing facilities. We believe that assisted living facilities
are an important sector in the long-term care market and our investments in
recent years have included direct ownership of assisted living facilities. We
believe that assisted living facilities represent a lower cost long-term care
alternative for senior adults than skilled nursing facilities. We invest
primarily 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. We believe that locating residences in a state with a favorable
regulatory and 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.

The terms of our existing revolving credit facility limit our investments
outside of health care real estate to $20.0 million. There are no other formal
restrictions imposed in our investment in any single type of property or joint
venture; however, difficult capital market conditions in the health care
industry have limited our access to traditional forms of growth capital. As a
result of the tight capital markets for the health care industry, we reduced


4

our investment activity in 2000 and intend to continue to limit our
investment activity in 2001. At December 31, 2000, we had no outstanding
commitments to provide mortgage or sale/leaseback financing.

BORROWING POLICIES. We may incur additional indebtedness when, in the opinion of
our Board of Directors, it is advisable. We may incur such indebtedness to make
investments in additional long-term care facilities or to meet the distribution
requirements imposed upon REITs under the Internal Revenue Code of 1986, as
amended. For other short-term purposes, we may, from time to time, negotiate
lines of credit, or arrange for other short-term borrowings from banks or
otherwise. We may also arrange for long-term borrowings through public offerings
or from institutional investors. To the extent that we receive net cash proceeds
from such borrowings, the terms of our revolving credit facility require us to
reduce the outstanding commitment and repay an equal amount of the net cash
proceeds received from such borrowings on amounts outstanding under the
revolver.

In addition, we may incur mortgage indebtedness on real estate which we have
acquired through purchase, foreclosure or otherwise. We may also obtain mortgage
financing for unleveraged or underleveraged properties in which we have invested
or may refinance properties acquired on a leveraged basis. There is no
limitation on the number or amount of mortgages that may be placed on any one
property, and we have no policy with respect to limitations on borrowing,
whether secured or unsecured.

PROHIBITED INVESTMENTS AND ACTIVITIES. Our policies, which are subject to change
by our Board of Directors without stockholder approval, impose certain
prohibitions and restrictions on various of our investment practices or
activities including prohibitions against:

- acquiring any real property unless the consideration paid for such
real property is based on the fair market value of the property;

- 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 we enter into to establish the
priority of our capital investment over the capital invested
by others investing with us in a real estate project;

- investing in commodities or commodity futures contracts (other than
interest rate futures, when used solely for hedging purposes);

- investing more than 1% of our total assets in contracts for sale of
real estate unless such contracts are recordable in the chain of
title;

- holding equity investments in unimproved, non-income producing real
property, except such properties as are currently undergoing
development or are presently intended to be developed within one
year, together with mortgage loans on such property (other than
first mortgage development loans), aggregating to more than 10% of
our assets.

COMPETITION

In the healthcare industry, we compete for real property investments with
healthcare providers, other healthcare related REITs, real estate partnerships,
banks, insurance companies and other investors. Many of our competitors are
significantly larger and have greater financial resources and lower cost of
capital than we have available to us. Our ability to compete successfully for
real property investments will be determined by numerous factors, including our
ability to identify suitable acquisition targets, our ability to negotiate
acceptable terms for any such acquisition and the availability and cost of
capital. Difficult capital market conditions for the health care industry have
limited our access to traditional forms of growth capital. As a result of the
tight capital markets for the health care industry, we reduced our investment
activity in 2000 and intend to continue to limit our investment activity in
2001.


5

The operators of our healthcare properties compete on a local, regional and, in
some instances, national basis with other healthcare operators. The ability of
our operators to compete successfully for patients at our facilities depends
upon several factors, including the quality of care and services provided at the
facilities, the operational reputation of the providers, physician referral
patterns, physical appearances of the facilities, family preferences, financial
condition of the operator and other competitive systems of healthcare delivery
within the community, population and demographics.

DIFFICULTIES EXPERIENCED BY MAJOR OPERATORS

The regulatory and reimbursement environments in which nursing homes operate
have experienced significant adverse changes in recent years. See "GOVERNMENTAL
REGULATION" below. Given the negative impact of these changes on the
financial performance of operators of nursing homes and assisted living
facilities, we evaluated our real estate investment portfolio during 2000. As a
result of our analysis, we recorded a non-cash impairment charge and costs of
foreclosure and lease terminations on certain properties in our real estate
investment portfolio totaling approximately $14.8 million. See "Item 8.
FINANCIAL STATEMENTS - NOTE 5. IMPAIRMENT CHARGE".

LTC HEALTHCARE, INC.

During 1998, we completed the spin-off of all LTC Healthcare, Inc. ("LTC
Healthcare") voting common stock through a taxable dividend distribution to
the holders of our common stock, Cumulative Convertible Series C Preferred
Stock and Convertible Subordinated Debentures. Upon completion of the
distribution, LTC Healthcare began operating as a separate public company.

As of December 31, 2000, 27 of our skilled nursing facilities with a gross
carrying value of $67.1 million were leased to LTC Healthcare. Also, as of
December 31, 2000, LTC Healthcare had mortgage loans secured by six skilled
nursing facilities with total outstanding principal balances of $16.4 million
and a weighted average interest rate of 9.25% payable to REMIC pools
originated by us. Two of the skilled nursing facilities securing the mortgage
loans payable to the REMIC pools are operated by LTC Healthcare and the
remaining four skilled nursing facilities are leased to third party
operators. Subsequent to December 31, 2000, we agreed with LTC Healthcare to
an early termination of four leases with annual rents totaling approximately
$0.7 million. Leases on 23 of the facilities currently operated by LTC
Healthcare with annual base rents totaling $3.4 million will expire on or
before June 30, 2001. The terms of these leases will be renegotiated prior to
their expiration; however, there can be no assurance that the leases will be
renewed or that if renewed, the annual base rents will remain at the current
level.

We have provided LTC Healthcare with a $20.0 million unsecured line of credit
that bears interest at 10% and matures in March 2008. As of December 31, 2000,
$16.6 million was outstanding under the line of credit. Under the terms of the
new Senior Secured Revolving Line of Credit, we are permitted to loan LTC
Healthcare up to $25.0 million. We have not increased the $20.0 million
unsecured line of credit between the companies. Should any such amendment be
proposed, it would need approval of the independent Board members of each
company's board.

As of December 31, 2000, we owned 180,000 shares of LTC Healthcare common stock.

EMPLOYEES

We currently employ 19 people.

GOVERNMENTAL REGULATION

GENERAL. The operators of our healthcare properties derive a substantial portion
of their revenue from third party payors, including the Medicare and Medicaid
programs. The Medicare program was enacted in 1965 to provide

6

a nationwide, federally funded health insurance program for the elderly and
certain disabled persons. The Medicaid program is a joint federal-state
cooperative arrangement established for the purpose of enabling states to
furnish medical assistance on behalf of aged, blind or disabled individuals,
and members of families with dependent children, whose income and resources
are insufficient to meet the costs of necessary medical services. Within the
Medicare and Medicaid statutory framework, there are substantial areas
subject to administrative regulations and rulings, interpretation and
discretion which may affect payments made to providers under these programs.
The amounts of program payments received by our operators can be changed by
legislative or regulatory actions and by determinations made by fiscal
intermediaries and other payment agents acting on behalf of the programs.

COST BASED REIMBURSEMENT. The Medicare program historically utilized a
cost-based retrospective reimbursement system for nursing facilities. These
facilities were reimbursed for reasonable direct and indirect allowable costs
incurred in providing "routine services" (as defined by the program and subject
to certain limits) as well as capital costs and ancillary costs. Pursuant to the
Balanced Budget Act of 1997 (the "Balanced Budget Act") discussed below,
Medicare is phasing in a prospective payment system ("PPS") for skilled nursing
facilities starting with cost reporting periods beginning on or after July 1,
1998.

BALANCED BUDGET ACT - MEDICARE. The Balanced Budget Act, enacted on August 5,
1997, made numerous changes to the Medicare and Medicaid programs that affect
operators of our healthcare properties. With respect to the Medicare program,
the law required the Secretary of the Department of Health and Human Services
("HHS") to establish a PPS system for Medicare Part A skilled nursing facility
services, under which facilities are paid a federal per diem rate for virtually
all covered services. Payment is determined by resource utilization groups
("RUGs"). The PPS system is being phased in over three cost reporting periods,
and started with cost reporting periods beginning on or after July 1, 1998.
Subsequent legislation (see discussion below on the Balanced Budget Refinement
Act and the Benefits Improvement and Protection Act of 2000) increased the per
diem rate for certain higher-acuity patients. The Balanced Budget Act also
instituted a consolidated billing requirement for skilled nursing facilities,
under which such facilities must submit Medicare claims to the fiscal
intermediary for all the Part A and Part B services that its residents receive,
except for certain specifically excluded services. Moreover, the law
established: (1) a $1,500 per beneficiary annual cap for all outpatient physical
therapy services and speech language pathology services; and (2) a $1,500 per
beneficiary annual cap for all outpatient occupational therapy services. As of
April 2000, these annual caps were removed.

All of our operators of skilled nursing facilities that participate in the
Medicare program are operating under PPS. PPS has resulted in more intense price
competition and lower margins for operators. There can be no assurance that
operators will be successful in reducing costs of services below the PPS
reimbursement rates, or that the failure of operators to do so will not have a
material adverse effect on their liquidity, financial condition and results of
operations which in turn could affect adversely their ability to make rental
payments or mortgage payments to us.

BALANCED BUDGET REFINEMENT ACT - MEDICARE. In the Balanced Budget Refinement
Act, enacted November 29, 1999, Congress sought to mitigate some of the
effects of the Balanced Budget Act. With respect to skilled nursing
facilities, the law temporarily increases the PPS per diem rates by 20
percent for 15 patient categories (based on acuity). This payment increase is
intended to compensate skilled nursing facilities for the provision of care
to medically complex patients, pending appropriate refinements to the PPS
system. Facilities providing care to patients falling within every
non-rehabilitation patient category above the presumptive (rebuttable)
Medicare eligibility line will benefit from this increase. Three patient
categories falling within the "high" and "medium" rehabilitation category
also are subject to the increase. The increased payments began on April 1,
2000, and will end when the Health Care Financing Administration ("HCFA")
implements a refined RUG system that better accounts for medically-complex
patients. The law also provides for a four percent increase in the federal
per diem payment rates for all patient acuity categories in both fiscal years
2001 and 2002. This increase is calculated exclusive of the 20 percent rate
increase for the 15 acuity categories subject to direct adjustments. The 20
percent rate increase for medical complexity will not be built into the base
payment

7

rates, however, and therefore future updates to the federal payment rates
will be calculated from the initial base rate. The law also provides for a
one-time waiver for skilled nursing facilities which elect to immediately
transition to the full federal rate (rather than a blend of the federal rate
and a facility-specific rate during the three year transition period) on or
after December 15, 1999, for cost reporting periods beginning on or after
January 1, 2000. In addition to the per diem rate increases for certain
patient categories, the Balanced Budget Refinement Act temporarily suspended
for years 2000 and 2001 the reimbursement caps on Part B therapy services
imposed by the Balanced Budget Act. The law also excluded certain additional
items and services from the Part A skilled nursing facility consolidated
billing requirement.

BENEFITS IMPROVEMENT AND PROTECTION ACT - MEDICARE. The Medicare, Medicaid and
SCHIP Benefits Improvement and Protection Act of 2000, signed into law December
21, 2000, includes provisions designed to further mitigate the effects of
reimbursement cuts contained in the Balanced Budget Act. Among other things, the
Benefits Improvement and Protection Act eliminates the scheduled reduction in
the skilled nursing facility market basket update in fiscal year 2001,
implemented in two phases. Specifically, the update rate for October 1, 2000
through March 31, 2001 is the market basket index ("MBI") increase minus one
percentage point; the update for the period April 1, 2001 through September 30,
2001 is the MBI increase plus one percentage point. This increase will not be
included when determining payment rates for the subsequent period. In fiscal
years 2002 and 2003, payment updates will equal the MBI increase minus 0.5
percentage points. Temporary increases in the federal per diem rates under the
Balanced Budget Refinement Act will be in addition to these payment increases.
The Benefits Improvement and Protection Act also increases payment for the
nursing component of each RUG by 16.66 percent for services furnished after
April 1, 2001 and before October 1, 2002. Moreover, the Benefits Improvement and
Protection Act further refines the consolidated billing requirements.
Specifically, effective January 1, 2001, the law limits consolidated billing
requirements to items and services furnished to skilled nursing facility
residents in a Medicare Part A covered stay and therapy services covered under
Part B. In other words, for residents not covered under a Part A stay, SNFs may
choose to bill for non-therapy Part B services and supplies, or they may elect
to have suppliers continue to bill Medicare directly for these services. The
Benefits Improvement and Protection Act also modifies the treatment of the
rehabilitation patient categories to ensure that Medicare payments for skilled
nursing facility residents with "ultra high" and "high" rehabilitation therapy
needs are appropriate in relation to payments for residents needing "medium" or
"low" levels of therapy. Specifically, effective for services furnished on or
after April 1, 2002 and before implementation of the refined RUG system
(discussed above), the law increases by 6.7 percent the federal per diem
payments for 14 rehabilitation categories. The 20 percent additional payment
under the Balanced Budget Refinement Act for the three rehabilitation categories
is removed to make this provision budget neutral. The Benefits Improvement and
Protection Act also permits the Secretary of HHS to establish a process for
geographic reclassification of skilled nursing facilities based upon the method
used for inpatient hospitals. In addition, the law extends the moratorium on the
physical therapy and occupational therapy payment caps for one year, through
2002.

BALANCED BUDGET ACT - MEDICAID. The Balanced Budget Act also contains a
number of changes affecting the Medicaid program. Among other things, the law
repealed the Boren Amendment, which required state Medicaid programs to
reimburse nursing facilities for the costs that are incurred by efficiently
and economically operated nursing homes. It is unclear at this time whether
state Medicaid programs will adopt changes in their Medicaid reimbursement
systems, or, if adopted and implemented, what effect such initiatives would
have on operators. In any event, there can be no assurance that future
changes in Medicaid reimbursement rates to nursing facilities will not have
an adverse effect on the operators, and thus, us. Further, the Balanced
Budget Act allows states to mandate enrollment in managed care systems
without seeking approval from the Secretary of HHS for waivers from certain
Medicaid requirements as long as certain standards are met. These managed
care programs have historically exempted institutional care although some
states have instituted pilot programs to provide such care under managed care
programs. Effective for Medicaid services provided on or after October 1,
1997, states have considerable flexibility in establishing payment rates. We
are not able to predict whether any states' waiver provisions will change the
Medicaid reimbursement systems for long-term care facilities from cost-based
or fee-for-service to managed care negotiated or capitated rates or otherwise
affect the level of payments to operators.

8

Significant limits on the scope of services reimbursed and on rates of
reimbursement under the Medicaid program could have a material adverse effect
on the operators' liquidity, financial condition and results of operations,
which in turn could affect adversely their ability to make rental payments or
mortgage payments to us.

On January 12, 2001, the Secretary of HHS issued final regulations to implement
changes to the Medicaid "upper payment limit" requirements. The purpose of the
rule is to stop states from using certain accounting techniques to
inappropriately obtain extra federal Medicaid matching funds that are not
necessarily spent on health care services for Medicaid beneficiaries. Although
the rule will be phased in over eight years to reduce the adverse impact on
certain states, the rule eventually could result in decreased federal funding to
state Medicaid programs, which, in turn, could prompt certain states to reduce
Medicaid reimbursements to providers, including nursing facilities.

FUTURE LEGISLATIVE CHANGES. We expect Congress to continue to consider measures
to reduce the growth in Medicare and Medicaid expenditures. Both the Medicare
and Medicaid 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 the rate of program reimbursement to healthcare facilities. We cannot
predict at this time whether any additional measures will be adopted or if
adopted and implemented, what effect such proposals would have on operators of
our healthcare properties. There can be no assurance that payments under state
and federal governmental programs will remain at levels comparable to present
levels or will be sufficient to cover the costs of patients eligible for
reimbursement pursuant to the programs.

Certain states are currently evaluating various proposals to restructure
healthcare delivery within their respective jurisdictions. It is uncertain at
this time what legislation of this type will ultimately be enacted and
implemented or whether other changes in the administration or interpretation of
governmental healthcare programs will occur. We anticipate that state
legislatures will continue to review and assess various healthcare reform
proposals and alternative healthcare systems and payment methodologies. We are
unable to predict the ultimate impact of any future state restructuring of the
healthcare delivery system, but such changes could have a material adverse
effect on the operators' liquidity, financial condition and results of
operations, which in turn could affect adversely their ability to make rental
payments or mortgage payments to us.

LICENSURE. Our healthcare properties are subject to extensive state and local
laws and regulations relating to licensure, conduct of operations, ownership of
facilities, and services provided within the facilities. The nursing facilities
of our operators are subject to regulation and licensing by state and local
health and social services agencies and other regulatory authorities. In order
to maintain their operating licenses, healthcare facilities must comply with
standards concerning medical care, equipment and hygiene. Although regulatory
requirements vary from state to state, these requirements generally address
among other things: personnel education and training; staffing levels; patient
records; facility services; quality of care provided; physical residence
specifications; food and housekeeping services; and residents' rights and
responsibilities. These facilities are subject to periodic survey and inspection
by governmental authorities. Our facilities are also subject to various state
and local building codes and other ordinances, including zoning and safety
codes.

CERTIFICATE OF NEED. Certificate of Need ("CON") statutes and regulations
control the development and expansion of healthcare services and facilities
in certain states. The CON process is intended to promote quality healthcare
and to avoid the unnecessary duplication of services, equipment and
facilities. CON or similar laws generally require that approval be obtained
from the designated state health planning agency for certain acquisitions and
capital expenditures, and that such agency determine that a need exists prior
to the expansion of existing facilities, construction of new facilities,
addition of beds, acquisition of major items of equipment or introduction of
new services. Additionally, several states have instituted moratoria on new
CONs or the approval of new beds. CONs or other similar approvals may be
required in connection with our future

9

acquisitions and/or expansions. There can be no assurance that our operators
or we will be able to obtain the CONs or other approvals necessary for any or
all such projects.

SURVEY AND CERTIFICATION. Long-term care facilities must comply with certain
requirements to participate either as a skilled nursing facility under Medicare
or a nursing facility under Medicaid. Regulations promulgated pursuant to the
Omnibus Budget Reconciliation Act of 1987 obligate facilities to demonstrate
compliance with requirements relating to resident rights, resident assessment,
quality of care, quality of life, physician services, nursing services, pharmacy
services, dietary services, rehabilitation services, infection control, physical
environment and administration. Regulations governing survey, certification, and
enforcement procedures to be used by state and federal survey agencies to
determine facilities' level of compliance with the participation requirements
for Medicare and Medicaid were adopted by HCFA effective July 1, 1995. These
regulations require that surveys focus on resident outcomes. They also state
that all deviations from participation requirements will be considered
deficiencies, but a facility may have certain minor deficiencies and be in
substantial compliance with the regulations. The regulations identify various
remedies that may be imposed against facilities and specify the categories of
deficiencies for which they will be applied. These remedies include, but are not
limited to: civil money penalties of up to $10,000 per day or "per instance";
facility closure and/or transfer of residents in emergencies; denial of payment
for new or all admissions; directed plans of correction; and directed in-service
training. Failure to comply with applicable requirements for participation may
also result in termination of the provider's Medicare and Medicaid provider
agreements. Termination of an operator's Medicare or Medicaid provider agreement
could have a material adverse effect on the operator's liquidity, financial
condition and results of operations, which, in turn, could affect adversely its
ability to make rental payments or mortgage payments to us.

The Clinton administration implemented several initiatives designed to improve
the quality of care in nursing homes and to reduce fraud in the Medicare
program. These initiatives include tougher enforcement measures by state
surveying authorities, empowering specialized contractors to track down Medicare
scams and program waste, and the creation of a Medicare financial management
team made up of 100 "fraud fighters" to be located in the offices of every
Medicare contractor nationwide.

REFERRAL RESTRICTIONS AND FRAUD AND ABUSE. The Medicare and Medicaid
anti-kickback statute, 42 U.S.C. Section 1320a-7b(b), prohibits the knowing and
willful solicitation or receipt of any remuneration "in return for" referring an
individual, or for recommending or arranging for the purchase, lease, or
ordering, of any item or service for which payment may be made under Medicare or
a state healthcare program. In addition, the statute prohibits the offer or
payment of remuneration "to induce" a person to refer an individual, or to
recommend or arrange for the purchase, lease, or ordering of any item or service
for which payment may be made under the Medicare or state healthcare programs.
The statute and the so-called safe harbor regulations establish numerous
exceptions by defining conduct, which are not subject to prosecution or other
enforcement remedies. Violation of the anti-kickback statute could result in
criminal conviction, as well as civil money penalties and exclusions.

The Ethics in Patient Referrals Act ("Stark I"), effective January 1, 1992,
generally prohibits physicians from referring Medicare patients to clinical
laboratories for testing if the referring physician (or a member of the
physician's immediate family) has a "financial relationship," through
ownership or compensation, with the laboratory. The Omnibus Budget
Reconciliation Act of 1993 contains provisions commonly known as "Stark II"
("Stark II") expanding Stark I by prohibiting physicians from referring
Medicare and Medicaid patients to an entity with which a physician has a
"financial relationship" for the furnishing of certain items set forth in a
list of "designated health services," including physical therapy,
occupational therapy, home health services, and other services. Subject to
certain exceptions, if such a financial relationship exists, the entity is
generally prohibited from claiming payment for such services under the
Medicare or Medicaid programs, and civil monetary penalties may be assessed
for each prohibited claim submitted. On January 4, 2001, HCFA released the
first part of the long-awaited Stark II final rule. This final rule will be
divided into two phases. Phase I focuses on the provisions related to
prohibited referrals, the general exception to ownership and compensation
arrangement prohibitions and the related definitions. Most of Phase I of the
rulemaking will become effective

10

January 4, 2002, one year after the date of its publication in the FEDERAL
REGISTER. Phase II of the final rule is expected to be released in early
2001. Phase II will cover the remaining portions of the statute, including
those pertaining to Medicaid. Phase I of the final rule eases certain of the
restrictions in the proposed rule, including the criteria for qualifying as a
group practice. The final rule also, among other things: conforms the
supervision requirements to HCFA coverage and payment policies for the
specific services; clarifies the definitions of designated health services
and indirect financial relationships; and creates new exceptions for indirect
compensation arrangements and compensation of faculties in academic medical
centers.

Other provisions in the Social Security Act and in other federal and state laws
authorize the imposition of penalties, including criminal and civil fines and
exclusions from participation in Medicare and Medicaid, for false claims,
improper billing and other offenses.

We are unable to predict the effect of future administrative or judicial
interpretations of the laws discussed above, or whether other legislation or
regulations on the federal or state level in any of these areas will be adopted,
what form such legislation or regulations may take, or their impact on operators
of our healthcare properties. We endeavor to structure our arrangements with our
facilities' operators and others to comply with applicable regulatory
requirements, but there can be no assurance that statutory or regulatory
changes, or subsequent administrative rulings or interpretations, will not
require us to modify or restructure certain arrangements, or that we will not be
required to expend significant amounts to maintain compliance.

HEALTH INFORMATION PRACTICES. The Health Insurance Portability and
Accountability Act of 1996 ("HIPAA") mandates, among other things, the adoption
of standards for the exchange of electronic health information in an effort to
encourage overall administrative simplification and enhance the effectiveness
and efficiency of the healthcare industry. Among the standards that HHS will
adopt pursuant to the Health Insurance Portability and Accountability Act are
standards for the following:

*electronic transactions and code sets;
*unique identifiers for providers, employers, health plans and
individuals;
*security and electronic signatures;
*privacy; and
*enforcement.

Although HIPAA was intended ultimately to reduce administrative expenses and
burdens faced within the healthcare industry, we believe the law will initially
bring about significant and, in some cases, costly changes. HHS has released two
rules to date mandating the use of new standards with respect to certain
healthcare transactions and health information. The first rule requires the use
of uniform standards for common healthcare transactions, including healthcare
claims information, plan eligibility, referral certification and authorization,
claims status, plan enrollment and disenrollment, payment and remittance advice,
plan premium payments and coordination of benefits, and it establishes standards
for the use of electronic signatures.

Second, HHS has released new standards relating to the privacy of individually
identifiable health information. These standards not only require our operators'
compliance with rules governing the use and disclosure of protected health
information, but they also require entities to impose those rules, by contract,
on any business associate to whom such information is disclosed. Rules governing
the security of health information have been proposed but have not yet been
issued in final form.

HHS finalized the new transaction standards on August 17, 2000, and covered
entities, such as our operators, will be required to comply with them by
October 16, 2002. The privacy standards were issued on December 28, 2000, and
become effective on February 26, 2001 with a compliance date of February 26,
2003. On January 20, 2001, the Bush Administration issued a memorandum
directing federal executive departments and agencies to delay by 60 days the
effective date of regulations that have been issued, but which have not yet
taken effect. The memorandum contains an exception for congressionally
mandated regulations that appears to exempt these

11

privacy standards from the directive. Even if the directive is determined to
be applicable to these standards, it may not result in changes to the
regulations or in a delay in the compliance date. The Bush Administration and
Congress are taking a careful look at the existing regulations, but it is
uncertain whether there will be changes to the privacy standards or their
compliance date. With respect to the security regulation, once they are
issued in final form, affected parties will have approximately two years to
be fully compliant. Sanctions for failing to comply with HIPAA include
criminal penalties and civil sanctions.

We believe the operators of our healthcare properties are aware of and should be
evaluating the effect of HIPAA. We believe our operators cannot at this time
estimate the cost of such compliance, nor estimate the cost of compliance with
standards that have not yet been finalized. The new and proposed health
information standards are likely to have a significant effect on the manner in
which the operators of our healthcare properties handle health data and
communicate with payors. However, based on our current knowledge, we cannot
currently estimate the cost of compliance or if there will be a material adverse
effect on our business, financial condition or results of operations as a result
of our operators experiencing increased costs for compliance.

COMPLIANCE PROGRAM. On March 16, 2000, the Office of Inspector General of HHS
("OIG") issued guidance to help nursing facilities design effective voluntary
compliance programs to prevent fraud, waste, and abuse in health care programs,
including Medicare and Medicaid. The guidance, COMPLIANCE PROGRAM GUIDANCE FOR
NURSING FACILITIES, was published as a notice in the FEDERAL REGISTER.

TAXATION OF OUR COMPANY

GENERAL. Our management believes that we have been organized and have operated
in such a manner as to qualify for taxation as a REIT under Sections 856 to 860
of the Internal Revenue Code of 1986, as amended, commencing with our taxable
year ended December 31, 1992, and we intend to continue to operate in such a
manner. No assurance can be given that we have operated or will be able to
continue to operate in a manner so as to qualify or to remain so qualified. This
summary is qualified in its entirety by the applicable Internal Revenue Code
provisions, rules and regulations, and administrative and judicial
interpretations.

If we qualify for taxation as a REIT, we will generally not be subject to
federal corporate income taxes as long as we distribute all of our taxable
income as dividends. This treatment substantially eliminates the "double
taxation" (I.E., at the corporate and stockholder levels) that generally results
from investment in a corporation. However, we will continue to be subject to
federal income tax under certain circumstances.

REQUIREMENTS FOR QUALIFICATION. The Internal Revenue Code defines a REIT as a
corporation, trust or association:

(1) which is managed by one or more trustees or directors;

(2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest;

(3) which would be taxable, but for Sections 856 through 860 of the
Internal Revenue Code, as a domestic corporation;

(4) which is neither a financial institution; nor, an insurance company
subject to certain provisions of the Internal Revenue Code;

(5) the beneficial ownership of which is held by 100 or more persons;

(6) during the last half of each taxable year not more than 50% in value
of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (including specified
entities); and

(7) which meets certain other tests, described below, regarding the
amount of its distributions and the nature of its income and assets.


12

The Internal Revenue Code provides that conditions (1) to (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months.

INCOME TESTS. There presently are two gross income requirements that we must
satisfy to qualify as a REIT:

- First, at least 75% of our gross income (excluding gross
income from "prohibited transactions," as defined below)
for each taxable year must be derived directly or
indirectly from investments relating to real property or
mortgages on real property, including rents from real
property, or from certain types of temporary investment
income.

- Second, at least 95% of our gross income (excluding
gross income from prohibited transactions) for each
taxable year must be derived from income that qualifies
under the 75% test and all other dividends, interest and
gain from the sale or other disposition of stock or
securities.

Cancellation of indebtedness income generated by us is not taken into account in
applying the 75% and 95% income tests discussed above. A "prohibited
transaction" is a sale or other disposition of property (other than foreclosure
property) held for sale to customers in the ordinary course of business. Any
gain realized from a prohibited transaction is subject to a 100% penalty tax.

ASSET TESTS. We, at the close of each quarter of our taxable year, must also
satisfy four tests relating to the nature of our assets.

- First, at least 75% of the value of our total assets
must be represented by real estate assets (including
stock or debt instruments held for not more than one
year purchased with the proceeds of a stock offering or
long-term (at least five years) public debt offering of
our company), cash, cash items and government
securities.

- Second, not more than 25% of our total assets may be
represented by securities other than those in the 75%
asset class.

- Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by
us may not exceed 5% of the value of our total assets
and we may not own more than 10% of any one issuer's
outstanding voting securities.

- Fourth, the recently enacted Tax Relief Extension Act of
1999 ("99 Act"), provides that, subject to certain
exceptions, for taxable years commencing after December
31, 2000, we may not own more than 10 percent of the
total value of the securities of any corporation. See
the 99 Act description contained at page 15.


OWNERSHIP OF A PARTNERSHIP INTEREST OR STOCK IN A CORPORATION. We own interests
in various partnerships. In the case of a REIT that is a partner in a
partnership, Treasury regulations provide that for purposes of the REIT income
and asset tests the REIT will be deemed to own its proportionate share of the
assets of the partnership, and will be deemed to be entitled to the income of
the partnership attributable to such share. The ownership of an interest in a
partnership by a REIT may involve special tax risks, including the challenge by
the Internal Revenue Service of the allocations of income and expense items of
the partnership, which would affect the computation of taxable income of the
REIT, and the status of the partnership as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes.

We also own interests in a number of subsidiaries which are intended to be
treated as qualified real estate investment trust subsidiaries. The Internal
Revenue Code provides that such subsidiaries will be ignored for federal
income tax purposes and all assets, liabilities and items of income,
deduction and credit of such subsidiaries will be treated as assets,
liabilities and such items of our company.

13


If any partnership or qualified real estate investment trust subsidiary in
which we own an interest were treated as a regular corporation (and not as a
partnership or qualified real estate investment trust subsidiary) for federal
income tax purposes, we would likely fail to satisfy the REIT asset test
prohibiting a REIT from owning greater than 10% of the voting power of the
stock of any issuer, as described above, and would therefore fail to qualify
as a REIT. We believe that each of the partnerships and subsidiaries in which
we own an interest will be treated for tax purposes as a partnership or
qualified real estate investment trust subsidiary, respectively, although no
assurance can be given that the Internal Revenue Service will not
successfully challenge the status of any such organization.

REMIC. A regular or residual interest in a REMIC will be treated as a real
estate asset for purposes of the REIT asset tests, and income derived with
respect to such interest will be treated as interest on an obligation secured by
a mortgage on real property, assuming that at least 95% of the assets of the
REMIC are real estate assets. If less than 95% of the assets of the REMIC are
real estate assets, only a proportionate share of the assets of and income
derived from the REMIC will be treated as qualifying under the REIT asset and
income tests. We believe that our REMIC interests fully qualify for purposes of
the REIT income and asset tests.

ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, we are required
to distribute dividends (other than capital gain dividends) to our stockholders
annually in an amount at least equal to

(1) the sum of:

(A) 95% (90% for taxable years beginning after December 31, 2000)
of our "real estate investment trust taxable income" (computed
without regard to the dividends paid deduction and our net capital
gain); and

(B) 95% (90% for taxable years beginning after December 31, 2000)
of the net income, if any (after tax), from foreclosure property;
minus

(2) the excess of certain items of non-cash income over 5% of our real
estate investment trust taxable income.

These annual distributions must be paid in the taxable year to which they
relate. Alternatively, they must be declared and payable to shareholders of
record in either October, November, or December and paid during January of the
following year. In addition, if we elect, the dividends may be declared before
the due date of the tax return (including extensions) and paid on or before the
first regular dividend payment date after such declaration, and we must specify
the dollar amount in our tax returns.

Amounts distributed must not be preferential; that is, every stockholder of the
class of stock with respect to which a distribution is made must be treated the
same as every other stockholder of that class, and no class of stock may be
treated otherwise than in accordance with its dividend rights as a class.

To the extent that we do not distribute all of our net long-term capital gain or
distribute at least 95% (90% for taxable years beginning after December 31,
2000), but less than 100%, of our "real estate investment trust taxable income,"
as adjusted, it will be subject to tax on such amounts at regular corporate tax
rates. Furthermore, if we should fail to distribute during each calendar year
(or, in the case of distributions with declaration and record dates in the last
three months of the calendar year, by the end of the following January) at least
the sum of:

(1) 85% of our real estate investment trust ordinary income for such
year;

(2) 95% (90% for taxable years beginning after December 31, 2000) of our
real estate investment trust capital gain income for such year; and

(3) any undistributed taxable income from prior periods;

14

we would be subject to a 4% excise tax on the excess of such required
distributions over the amounts actually distributed. Any real estate
investment trust taxable income and net capital gain on which this excise tax
is imposed for any year is treated as an amount distributed during that year
for purposes of calculating such tax.

FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any taxable
year, and certain relief provisions do not apply, we will be subject to tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify as a REIT will not be deductible by us, nor will any
distributions be required to be made. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
the statutory relief. Failure to qualify for even one year could substantially
reduce distributions to stockholders and could result in our incurring
substantial indebtedness (to the extent borrowings are feasible) or liquidating
substantial investments in order to pay the resulting taxes.

99 ACT. The 99 Act has made a number of substantial changes to the qualification
and tax treatment of REITs. The REIT changes are generally effective for taxable
years commencing after December 31, 2000. The following is a brief summary of
certain of the significant REIT provisions contained in the 99 Act.

1) INVESTMENT LIMITATIONS AND TAXABLE REIT SUBSIDIARIES

The 99 Act modifies the REIT asset test by adding a requirement that except for
(I) "Safe Harbor Debt" and (II) the ownership of stock in "taxable REIT
subsidiaries", a REIT can not own more than 10 percent of the total value of the
securities of any corporation ("10% Rule"). The 10% Rule becomes effective for
taxable years commencing after December 31, 2000. "Safe Harbor debt" is
non-contingent, non-convertible debt ("straight-debt") which satisfies one of
the following three requirements: (a) the straight-debt is issued by an
individual, or (b) all of the securities of the issuer owned by the REIT is
"straight debt" or (c) the issuer is a partnership in which the REIT owns at
least 20 percent of its profits.

For a corporation to qualify as a taxable REIT subsidiary the following
requirements must be satisfied.

(1) The REIT must own stock in the subsidiary corporation.

(2) Both the REIT and the subsidiary corporation must join
in an election that the subsidiary corporation be
treated as a "taxable REIT subsidiary" of the REIT.

(3) The subsidiary corporation can not directly or
indirectly operate or manage a healthcare facility.

(4) The subsidiary corporation generally cannot provide to
any person rights to any brand name under which hotels
or healthcare facilities are operated.

A taxable REIT subsidiary can provide a limited amount of services to tenants of
REIT property (even if such services were not considered customarily furnished
in connection with the rental of real property) and can manage or operate
properties, generally for third parties, without causing the rents received by
the REIT from such parties not to be treated as rent from real properties. The
rule that rents paid to a REIT do not qualify as rental from real property if
the REIT owns more than 10 percent of the corporation paying the rent is
modified by excepting rents paid by taxable REIT subsidiaries provided that 90
percent of the space is leased to third parties at comparable rents for
comparable space.

Interest paid by a taxable REIT subsidiary to the related REIT is subject to the
earnings stripping rules contained in Section 163(j) of the Code and therefore
the taxable REIT subsidiary cannot deduct interest in any year that would exceed
50 percent of the subsidiary's adjusted gross income. If any amount of interest,
rent, or other deductions of the taxable REIT subsidiary to be paid to the REIT
is determined not to be at arm's length, an excise tax of 100 percent is imposed
on the portion that is determined to be excessive. However, rent received by

15

a REIT shall not fail to qualify as rents from real property by reason of the
fact that all or any portion of such rent is redetermined for purposes of the
excise tax.

The Act permits a REIT to own up to 100 percent of the stock of a "taxable REIT
subsidiary". However, the value of all of the securities of taxable REIT
subsidiaries owned by the REIT cannot exceed 20 percent of the value of the
REIT's assets.

The 10% Rule generally will not apply to securities owned by a REIT on July 12,
1999 ("Transition Rule"). However, the Transition Rule would cease to apply to
securities of a corporation if, after July 12, 1999, the REIT acquires
additional securities of such corporation or if such corporation engages in a
substantial new line of business, or acquires any substantial assets, other than
in a reorganization or in a transaction qualifying under Section 1031 or 1033 of
the Code.

2) OWNERSHIP OF HEALTHCARE FACILITIES. The 99 Act permits a REIT to own and
operate a healthcare facility for at least two years, and treat it as
permitted "foreclosure" property, if the facility is acquired by the
termination or expiration of a lease of the property.

3) REIT DISTRIBUTION REQUIREMENTS. The 99 Act reduces the requirement that a
REIT must distribute at least 95 percent of its income as deductible
dividends to 90 percent of its income.

4) RENTS FROM PERSONAL PROPERTY. A REIT may treat rent from personal property
as rent from real property so long as the rent from personal property does
not exceed 15 percent of the total rent from both real and personal
property for the taxable year. This rule is currently determined by
comparing the basis of the personal property to the total basis of the
real and personal property. The Act provides that this determination will
be made by comparing the fair market value of the personal property to the
fair market value of the real and personal property.

STATE AND LOCAL TAXATION. We may be subject to state or local taxation in
various state or local jurisdictions, including those in which we transact
business or reside. The state and local tax treatment of our company may not
conform to the federal income tax consequences discussed above.


16

ITEM 2. PROPERTIES

INVESTMENT PORTFOLIO

At December 31, 2000, our real estate investment portfolio consisted of
investments in 249 skilled nursing facilities with 28,364 beds, 94 assisted
living facilities with 4,366 units and four schools in 36 states. We had
approximately $468.5 million (before accumulated depreciation of $47.2 million)
invested in facilities we own and lease to operators, approximately $107.4
million invested in mortgage loans (before allowance for doubtful accounts of
$1.3 million), and investments in REMIC certificates with a carrying value of
approximately $95.0 million ($96.3 million at amortized cost, prior to any
adjustment of available for sale certificates to fair market value).

Skilled nursing facilities provide restorative, rehabilitative and nursing care
for people not requiring the more extensive and sophisticated treatment
available at acute care hospitals. Many skilled nursing facilities provide
ancillary services that include occupational, speech, physical, respiratory and
IV therapies, as well as provide sub-acute care services which are paid either
by the patient, the patient's family, or through federal Medicare or state
Medicaid programs. Assisted living facilities serve elderly persons who require
assistance with activities of daily living, but do not require the constant
supervision skilled nursing facilities provide. Services are usually available
24-hours a day and include personal supervision and assistance with eating,
bathing, grooming and administering medication. The facilities provide a
combination of housing, supportive services, personalized assistance and health
care designed to respond to individual needs.

The schools in our real estate investment portfolio are charter and private
schools. Charter schools provide an alternative to the traditional public
school. Charter schools are generally autonomous entities authorized by the
state or locality to conduct operations independent from the surrounding public
school district. Laws vary by state, but generally charters are granted by state
boards of education either directly or in conjunction with local school
districts or public universities. Operators are granted charters to establish
and operate schools based on the goals and objectives set forth in the charter.
Upon receipt of a charter, schools receive an annuity from the state for each
student enrolled. Unlike public or charter schools, private schools receive a
majority of their revenues from the students' parents.


17

OWNED PROPERTIES. At December 31, 2000, we owned 66 skilled nursing facilities
with a total of 7,797 beds, 86 assisted living facilities with a total of 3,997
units and four schools in 26 states, representing a gross investment of
approximately $468.5 million. With the exception of certain properties leased to
LTC Healthcare under one year or month-to-month leases, the properties are
leased pursuant to non-cancelable leases generally with an initial term of 10 to
20 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 our owned
properties as of December 31, 2000 (DOLLAR AMOUNTS IN THOUSANDS) :




No. of No. of No. of No. of Beds Current Current Annual
Location SNFs ALFs Schools /Units(1) Encumbrances (2) Lease Term (3) Investment Rent Payments
- --------------------------------------------------------------------------------------------------------------------------------

Alabama 8 1 912 $ 14,121 150 $ 29,288 $ 4,064
Arizona 4 3 2 1,026 20,927 86 58,076 5,927
California 1 2 254 144 13,941 1,375
Colorado 1 6 325 6,881 117 20,128 2,080
Florida 6 6 1,385 1,632 68 43,845 3,715
Georgia 6 1 654 13,901 23 13,433 1,139
Idaho 4 148 102 9,756 1,019
Illinois 3 283 968 30 8,223 805
Indiana 2 78 114 5,070 506
Iowa 7 1 645 8,813 27 15,007 877
Kansas 6 4 571 4,901 64 16,581 1,359
Minnesota 1 - 151 3,814 394
Nebraska 4 156 103 9,332 999
New Jersey 1 1 39 153 12,195 1,299
New Mexico 1 109 146 8,432 775
N. Carolina 5 210 96 13,091 1,383
Ohio 7 301 121 23,109 2,361
Oklahoma 6 221 4,894 80 12,315 1,225
Oregon 1 4 324 4,126 92 17,454 1,862
Pennsylvania 1 69 208 8,327 801
South Carolina 3 128 96 7,610 819
Tennessee 3 201 22 3,832 425
Texas 15 13 2,632 28,653 65 68,698 5,575
Virginia 3 443 20 9,172 337
Washington 2 8 497 10,101 146 24,959 2,636
Wyoming 3 183 146 12,810 1,160
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 66 86 4 11,794 $119,918(4) $468,498(5) $44,917
================================================================================================================================


(1) Number of beds/units applies to skilled nursing facilities and assisted
living residences only.

(2) In addition to these encumbrances, 11 skilled nursing facilities with
1,124 beds and 49 assisted living facilities with 2,328 units with a gross
investment value of $188,475,000 are pledged as collateral for our Senior
Secured Revolving Line of Credit.

(3) Weighted average remaining months in lease term.

(4) Consists of: i) $103,341,000 of non-recourse mortgages payable by the
Company secured by 37 skilled nursing facilities containing a total of
4,576 beds, 10 assisted living facilities with 420 units, ii)
$7,550,000 of tax-exempt bonds secured by five assisted living
facilities in Washington with 188 units, iii) $4,901,000 of capital
lease obligations on four assisted living facilities in Kansas with 134
units, and iv) $4,126,000 of multi-unit housing tax-exempt revenue
bonds on one assisted living facility in Oregon with 112 units. As of
December 31, 2000, the Company's gross investment in properties
encumbered by mortgage loans, bonds and capital leases was $171,363,000.

(5) Of the total, $195,137,000 relates to investments in skilled nursing
facilities, $248,943,000 relates to investments in assisted living
facilities and $24,418,000 relates to investments in schools.


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

18

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, 2000, we had 48 mortgage loans secured by first
mortgages on 45 skilled nursing facilities with a total of 5,160 beds and eight
assisted living residences with 369 units located in 22 states. At December 31,
2000, the mortgage loans had a weighted average interest rate of 11.52%,
generally have 25-year amortization schedules, have balloon payments due from
2001 to 2018 and provide for certain facility fees. The majority of the mortgage
loans provide for annual increases in the interest rate based upon a specified
increase of 10 to 25 basis points.

The following table sets forth certain information regarding our mortgage loans
as of December 31, 2000 (DOLLAR AMOUNTS IN THOUSANDS) :



No. of Average Current Amount Current
No. of No. of Beds Interest Months to Face Amount of of Mortgage Annual Debt
Location SNFs ALFs /Units Rate % Maturity Mortgage Loans Loans Service (1)
- --------------------------------------------------------------------------------------------------------------------------------

Alabama 1 40 10.25 212 $ 500 $ 481 $ 59
Arizona 2 400 10.96-12.00 30 7,650 5,145 308
Arkansas 2 274 10.50-10.70 123 3,400 3,091 409
California 6 886 10.03-13.60 143 12,771 12,106 1,582
Colorado 3 263 11.63-13.12 62 6,600 6,375 826
Florida 5 1 582 10.15-13.50 79 16,690 14,361 2,039
Georgia 2 173 11.24-11.43 75 3,950 3,848 478
Illinois 1 120 9.83 92 1,950 1,901 210
Iowa 1 1 143 11.22-12.08 84 4,400 4,321 535
Mississippi 1 180 11.32 69 5,465 5,363 662
Missouri 1 90 9.13 210 1,500 1,425 163
Montana 1 34 11.44 154 2,346 2,323 277
Nebraska 4 163 10.43-11.22 94 10,911 10,761 1,259
Nevada 1 100 10.88 116 1,200 1,074 147
N. Carolina 1 101 12.50 2 2,100 1,976 273
Ohio 1 150 10.59 64 5,200 4,972 596
Oklahoma 1 161 11.40 127 1,300 1,201 165
S. Carolina 5 509 12.67 26 11,250 10,828 1,449
S. Dakota 1 34 11.22 100 2,346 2,328 273
Texas 6 701 10.50-13.35 135 7,945 7,174 910
Washington 4 310 11.60-12.00 119 4,500 4,271 576
Wisconsin 1 115 11.00 195 2,200 2,074 273
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 45 8 5,529 $116,174 $107,399(2) $13,469
================================================================================================================================


(1) Includes principal and interest payments.

(2) Of the total current principal balance, $86,416,000 and $20,983,000
relates to investments in skilled nursing facilities and assisted living
facilities, respectively. All mortgage loans are pledged as collateral for
our Senior Secured Revolving Line of Credit.

In general, the mortgage loans may not be prepaid except in the event of the
sale of the collateral facility to a third party that is not affiliated with the
borrower, although partial prepayments (including the prepayment premium) are
often permitted where a mortgage loan is secured by more than one facility upon
a sale of one or more, but not all, of the collateral facilities to a third
party which is not an affiliate of the borrower. The terms of the mortgage loans
generally impose a premium 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 us. On certain loans, such prepayment amount is
based upon a percentage of the then outstanding balance of the loan, usually
declining ratably each year. For other loans, the prepayment premium is based on
a yield maintenance formula. In addition to a lien on the mortgaged property,
the loans are generally secured by certain non-real estate


19

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.

REMIC CERTIFICATES. At December 31, 2000, the carrying value of the REMIC
certificate investments was $95.0 million ($96.3 million at amortized cost,
prior to any adjustment of available for sale certificates to fair market
value). These certificates are pledged as collateral for our Senior Secured
Revolving Line of Credit. The REMIC certificates we retain are subordinate in
rank and right of payment to the REMIC certificates sold to third-party
investors and as such would bear the first risk of loss in the event of an
impairment to any of the underlying mortgages. The REMIC certificates are
collateralized by four pools consisting of 118 first mortgage loans secured by
172 skilled nursing facilities with a total of 19,680 beds in 24 states. Each
mortgage loan, all of which we originated, 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. The $348.2 million
current principal amount of mortgage loans represented by the REMIC certificates
have a weighted average interest rate of approximately 11.14%, and scheduled
maturities ranging from 2001 to 2028.

The following table sets forth certain information regarding the mortgage loans
securing the REMIC certificates as of December 31, 2000 (DOLLAR AMOUNTS IN
THOUSANDS):




Original Principal Current Principal
Number of Number Amount of Remaining Amount of Remaining Current Annual
Location Facilities of Beds Mortgage Loans Mortgage Loans (1) Debt Service
- --------------------------------------------------------------------------------------------------------------------------------

Alabama 9 1,189 $ 22,526 $ 21,395 $ 2,786
Arizona 5 955 26,018 24,590 2,896
California 22 2,433 46,645 35,709 5,098
Colorado 1 177 2,000 1,927 240
Connecticut 1 150 2,276 2,164 281
Florida 7 945 32,310 30,646 3,771
Georgia 12 1,318 27,272 25,972 3,361
Illinois 3 282 5,126 4,928 621
Iowa 11 810 16,731 16,446 1,913
Kansas 1 66 1,200 1,148 146
Louisiana 1 127 1,600 1,503 202
Michigan 3 444 6,800 6,372 853
Mississippi 3 400 14,050 10,395 1,200
Missouri 6 645 10,989 10,477 1,329
Montana 6 547 15,508 14,856 1,803
Nebraska 6 573 10,014 9,497 1,221
New Mexico 8 673 20,833 19,551 2,207
N. Carolina 1 168 2,950 2,820 411
Ohio 2 150 4,100 3,505 484
Oklahoma 1 112 1,300 1,159 171
S. Dakota 1 50 585 557 66
Tennessee 6 550 16,827 16,218 2,067
Texas 52 6,627 88,491 81,995 10,520
Washington 4 289 4,583 4,371 553
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 172 19,680 $380,734 $348,201 $44,200
================================================================================================================================


(1) Included in the balances of the mortgages underlying the REMIC
certificates are $78,540,000 of non-recourse mortgages payable by our
subsidiaries. We originated these mortgages which were subsequently
transferred to the REMIC. The properties and the mortgage debt are
reflected in our balance sheet.

20

The mortgage loans underlying the REMIC certificates generally have 25-year
amortization schedules with final maturities due from 2001 to 2028, unless
prepaid prior thereto. Contractual principal and interest distributions with
respect to the $96.3 million amortized cost basis of REMIC certificates
(excluding unrealized losses on changes in estimated fair value of $1.3 million)
we retained are subordinated to distributions of interest and principal with
respect to the $268.3 million of REMIC certificates held by third parties. Thus,
based on the terms of the underlying mortgages and assuming no unscheduled
prepayments occur, scheduled principal distributions on the REMIC certificates
we retained will commence in August 2003 with final distributions in April 2028.
Distributions on any of the REMIC 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 REMIC 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 REMIC
certificates contains similar prepayment and security provisions as our mortgage
loans.

As part of the REMIC transactions discussed above, we serve as the sub-servicer
and, in such capacity, are responsible for performing substantially all of the
servicing duties relating to the mortgage loans represented by the REMIC
certificates. We receive monthly fees equal to a fixed percentage of the then
outstanding mortgage loan balance in the REMIC which, in management's opinion,
represent currently prevailing terms for similar transactions. In addition, we
will act as the special servicer to restructure any mortgage loans in the REMIC
that default.

At December 31, 2000, the REMIC certificates we held had an effective interest
rate of approximately 17.11% based on the expected future cash flows with no
unscheduled prepayments.


21

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are a party to various claims and lawsuits
arising in the ordinary course of business which, in our opinion, are
not singularly or in the aggregate material to our results of
operations or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 4A. EXECUTIVE OFFICERS





NAME AGE POSITION
- ------------------------- --- ------------------------------------------------------

Andre C. Dimitriadis 60 Chairman, Chief Executive Officer and Director
Wendy L. Simpson 51 Vice Chairman, Chief Financial Officer, and Director
James J. Pieczynski 38 Chief Strategic Planning Officer, and Director
Christopher T. Ishikawa 37 Executive Vice President and Chief Investment Officer
Julia L. Kopta 51 Executive Vice President and General Counsel
Alex J. Chavez 36 Senior Vice President and Treasurer


Mr. Dimitriadis founded LTC 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 is a member of
the board of Magellan Health Services, and LTC Healthcare, Inc.

Ms. Simpson has served as Vice Chairman since April 2000 and Chief Financial
Officer since July 2000. Prior to that she was a financial advisor to Coram
Healthcare Corporation, a healthcare organization, from November 1999 through
March 31, 2000. Ms. Simpson joined Coram as Executive Vice President and Chief
Financial Officer in March 1998 and resigned as an officer of Coram in November
1999. Prior to joining Coram, Ms. Simpson was Executive Vice President, Chief
Financial Officer, Chief Operating Officer and director of Transitional
Hospitals Corporation from December 1994 to August 1997 and Senior Vice
President and Chief Financial Officer from July 1994 to December 1994. Coram
Healthcare Corporation commenced bankruptcy proceedings in August 2000.

Mr. Pieczynski has served as Chief Strategic Planning Officer since July 2000.
Prior to that he served as President and Director since September 1997 and Chief
Financial Officer of LTC since May 1994. From May 1994 to September 1997, he
also served as Senior Vice President of LTC. He joined LTC 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. Mr.
Pieczynski is a member of the board of LTC Healthcare, Inc.

Mr. Ishikawa has served as Executive Vice President and Chief Investment Officer
since February 2001 and Senior Vice President and Chief Investment Officer since
September 1997. Prior to that, he served as Vice President and Treasurer of LTC
since April 1995. Prior to joining LTC, he was employed by MetroBank from
December 1991 to March 1995, where he served as First Vice President and
Controller. From December 1989 to November 1991, he was employed by Mercantile
National Bank where he served as Assistant Treasurer. Mr. Ishikawa is a member
of the board of LTC Healthcare, Inc.

Ms. Kopta has served as Executive Vice President and General Counsel since
February 2001 and Senior Vice President and General Counsel since January 1,
2000. Prior to that, she served as Special Counsel to the Chief

22

Executive Officer of Coram Healthcare Corporation from September 1999 through
November 1999. From October 1993 to October 1997, she served as Executive
Vice President, General Counsel and Corporate Secretary of Transitional
Hospital Corporation.

Mr. Chavez has served as Senior Vice President and Treasurer since February 2001
and Vice President and Treasurer since December 1999. Prior to that, he served
as Director of Finance since June 1996 and became Vice President in September
1997. Prior to joining LTC, he was employed by the international accounting firm
of Ernst & Young, LLP, where he served as Audit Manager specializing in the
healthcare and real estate industries from 1990 to 1996.


23

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

(a) Our common stock is listed on the New York Stock Exchange. Set forth below
are the high and low reported sale prices for our common stock as reported
on the NYSE.





2000 1999
-------------------------- ------------------------------
HIGH LOW HIGH LOW
---- --- ---- ---

First Quarter $9.375 $5.1875 $17.1250 $10.5625
Second Quarter 7.750 4.0000 13.9375 10.7500
Third Quarter 6.375 2.9375 13.3125 10.7500
Fourth Quarter 4.500 3.0625 10.8750 7.7500


(b) As of December 31, 2000 we had approximately 750 stockholders of record of
our common stock.

(c) We declared total cash distributions on common stock as set forth below:




2000 1999
---- ----

First Quarter $. 29 $.39
Second Quarter .29 .39
Third Quarter .29 .39
Fourth Quarter .00 .39
------- -------
$0.87 $1.56
======= =======


We intend to distribute to our stockholders an amount at least sufficient to
satisfy the distribution requirements of a REIT. Cash flows from operating
activities available for distribution to stockholders will be derived primarily
from interest and rental payments from our real estate investments. Provisions
of our Senior Secured Revolving Line of Credit Agreement limit common and
preferred cash dividends to no more than 110% of consolidated taxable income.
All distributions will be made subject to approval of the Board of Directors and
will depend on the earnings of LTC, 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
Internal Revenue Code, we are required to make distributions to holders of our
shares equal to at least 95% (90% for years ending after December 31, 2000) of
our "REIT taxable income."


24

ITEM 6. SELECTED FINANCIAL INFORMATION

The following table of selected financial information should be read in
conjunction with LTC's financial statements and related notes thereto included
elsewhere in this Annual Report on Form 10-K.





2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

OPERATING INFORMATION:
Revenues $ 87,130 $ 87,662 $ 89,391 $ 73,434 $ 54,930
Expenses:
Interest expense 27,426 21,836 22,267 23,795 20,604
Depreciation and amortization 15,259 13,483 12,561 9,132 6,298
Amortization of founders' stock - - - 31 114
Provision for loan losses - - 600 - -
Minority interest 982 1,018 1,415 1,205 898
Impairment charge 14,822 14,939 - 1,866 -
Operating and other expenses 5,994 5,863 5,084 4,393 4,479
---------- ---------- ---------- ---------- ----------
Total expenses 64,483 57,139 41,927 40,422 32,393
---------- ---------- ---------- ---------- ----------
Other income (loss) - 1,304 (6,797) (48) 6,173
Gain on sale of real estate assets, net 8,990 - 9,926 2,799 -
---------- ---------- ---------- ---------- ----------
Net income 31,637 31,827 50,593 35,763 28,710
Preferred dividends (15,087) (15,087) (12,896) (6,075) -
---------- ---------- ---------- ---------- ----------
Net income available to common stockholders $ 16,550 $ 16,740 $ 37,697 $ 29,688 $ 28,710
========== ========== ========== ========== ==========

PER SHARE INFORMATION:
Basic net income $ 0.63 $ 0.61 $ 1.390 $ 1.260 $ 1.510
========== ========== ========== ========== ==========
Diluted net income $ 0.63 $ 0.61 $ 1.390 $ 1.250 $ 1.440
========== ========== ========== ========== ==========
Distributions declared $ 0.87 $ 1.56 $ 1.535 $ 1.435 $ 1.335
========== ========== ========== ========== ==========

BALANCE SHEET INFORMATION:
Real estate investments, net $ 622,428 $ 683,736 $ 663,996 $ 640,733 $ 488,134
Total assets 676,585 721,811 689,814 656,664 500,538
Total debt 262,560 292,274 229,695 249,724 283,472
Total liabilities 272,546 303,300 237,900 259,378 299,207
Minority interest 9,912 9,894 10,514 11,159 10,528
Total stockholders' equity 394,127 408,617 441,400 386,127 190,803

OTHER INFORMATION:
Cash flows provided by operating activities $ 45,307 $ 60,785 $ 61,885 $ 43,230 $ 33,789
Cash flows provided by (used in) investing activities 45,697 (48,156) (51,529) (150,800) (90,317)
Cash flows provided by (used in) financing activities (91,789) (11,477) (13,827) 109,396 58,242

Funds from operations $ 37,641 $ 45,162 $ 47,559 $ 38,735 $ 28,793
Basic funds from operations per share $ 1.44 $ 1.65 $ 1.76 $ 1.65 $ 1.52
Diluted funds from operations per share $ 1.44 $ 1.64 $ 1.71 $ 1.57 $ 1.44



25

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OPERATING RESULTS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Revenues for the year ended December 31, 2000 were $87.1 million compared to
$87.7 million for the same period in 1999. The net decrease in revenues resulted
from decreases in interest from mortgage loans and notes receivable of $4.5
million and interest income from REMIC certificates of $0.7 million and other
income of $0.2 million which was offset by increases in rental income of $4.9
million.

Rental income increased $4.9 million primarily as a result of the conversion of
mortgage loans into owned properties and the acquisition of two properties.
"Same store" rental income (rental income from properties owned for both twelve
months ended December 31, 1999 and 2000) increased $0.3 million due to rental
rate increases as provided for in the lease agreements, partially offset by the
new rental rate discussed in the footnotes (See "Item 8. FINANCIAL STATEMENTS -
NOTE 8. LTC HEALTHCARE, INC."). Interest income from mortgage loans and notes
receivable decreased due to the conversion of mortgage loans into owned
properties. Interest income from REMIC certificates decreased due to the
amortization of the related asset. Interest and other income decreased primarily
as a result of certain one-time investment gains that were realized in the first
half of 1999.

During 2000 and 1999, the Company performed a comprehensive evaluation of its
real estate investment portfolio. As a result of recent adverse changes in the
long-term care industry, the Company identified certain investments in skilled
nursing facilities and certain other assets that it determined to be impaired.
During 2000 and 1999, the Company recorded impairment charges of $14.8 million
and $14.9 million, respectively. (See "Item 8. FINANCIAL STATEMENTS - NOTE 5.
IMPAIRMENT CHARGE.") Excluding the impairment charges, total expenses as a
percent of total revenues in 2000 were 57% compared to 48% in 1999. Interest
expense increased due to higher average outstanding balances on the revolving
line of credit combined with higher average interest rates and the assumption of
two mortgage loans related to the acquisition of two properties. Depreciation
and amortization increased as a result of a larger average investment base in
owned properties in 2000 as compared to 1999.

During the year ended December 31, 2000, the Company sold 11 skilled nursing
facilities, one assisted living facility and two schools. These sales resulted
in a net gain of approximately $9.0 million.

During the year ended December 31, 1999, the Company repurchased an aggregate of
$21.6 million face amount of its convertible subordinated debentures at a
discount on the open market. A gain of $1.3 million on the repurchase is
included in other non-operating income.

On January 1, 1999, in accordance with recently issued accounting standards, the
Company reclassified its investment in REMIC certificates from trading
securities to available-for-sale and held-to-maturity securities. As a result of
the change in accounting for REMIC certificates, the Company no longer
recognizes the change in unrealized gains or losses in current period earnings.

Net income available to common shareholders decreased to $16.6 million for the
year ended December 31, 2000 from $16.7 million for the same period in 1999.
Excluding the impairment charge and gain on the sale of real estate assets
recorded in 2000 and the impairment charge and the gain on the repurchase of
convertible subordinated debentures recorded in 1999, net income available to
common shareholders was $22.4 million for the year ended December 31, 2000
compared to $30.4 million for the year ended December 31, 1999.


26

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Revenues for the year ended December 31, 1999 were $87.7 million compared to
$89.4 million for the same period in 1998. The net decrease in revenues resulted
from decreases in interest from mortgage loans and notes receivable of $3.5
million and interest and other income of $1.4 million which was offset by
increases in rental income of $2.6 million and interest income from REMIC
certificates of $0.7 million.

Rental income increased $7.5 million as a result of property acquisitions and
the conversion of mortgage loans into owned properties. "Same-store" rents
decreased $1.1 million due to the transitional impact of the change in operators
for certain skilled nursing facilities. The decrease in rental income due to the
change of operators was partially mitigated by the receipt of contingent rents
and rental increases as provided for in the lease agreements. Also reducing the
net increase in rental income were decreases of $3.3 million related to the
contribution of properties to LTC Healthcare in September 1998 and $0.5 million
resulting from the disposition of properties. Interest income from mortgage
loans and notes receivable decreased due to the sale of mortgage loans in
connection with a REMIC securitization that was completed in May 1998 and the
conversion of mortgage loans into owned properties. The decrease in interest
income from mortgage loans and notes receivable was partially offset by interest
income on the unsecured line of credit provided to LTC Healthcare. Partially
reducing the decrease in interest income from mortgage loans was an increase in
interest income from REMIC certificates from the retention of certificates
originated in the May 1998 securitization. Interest and other income also
decreased due to a reduction in commitment fees.

During 1999, the Company performed a comprehensive evaluation of its real estate
investment portfolio. As a result of recent adverse changes in the long-term
care industry, the Company identified certain investments in skilled nursing
facilities that it determined to be impaired. During the fourth quarter of 1999,
the Company recorded an impairment charge of $14.9 million. (See "Item 8.
FINANCIAL STATEMENTS - NOTE 5. IMPAIRMENT CHARGE".) Excluding the impairment
charge, total expenses as a percent of total revenues were 48% in 1999 compared
to 47% in 1998. Depreciation and amortization increased as a result of a larger
average investment base in owned properties in 1999 as compared to 1998. The
increase in general and administrative expenses is due to the reorganization of
the Company's legal department and the settlement of an employee related
dispute.

During the year ended December 31, 1999, the Company repurchased an aggregate of
$21.6 million face amount of its convertible subordinated debentures at a
discount on the open market. A gain of $1.3 million on the repurchase is
included in other non-operating income. Other non-operating income for the year
ended December 31, 1998 includes a gain of approximately $9.9 million on the
sale of three skilled nursing facilities. Offsetting the increase in other
income attributable to the gain on the sale of real estate was a decrease in the
estimated fair value of REMIC certificates that resulted in an unrealized loss
of $6.8 million.

On January 1, 1999, in accordance with recently issued accounting standards, the
Company reclassified its investment in REMIC certificates from trading
securities to available-for-sale and held-to-maturity securities. As a result of
the change in accounting for REMIC certificates, on a prospective basis, the
Company no longer recognizes the change in unrealized gains or losses in current
period earnings.

Preferred dividends increased as a result of dividends on the Series C
Convertible Preferred Stock, which was issued in September 1998.

Net income available to common shareholders decreased to $16.7 million for the
year ended December 31, 1999 from $37.7 million for the same period in 1998.
Excluding the impairment charge and the gain on the repurchase of convertible
subordinated debentures recorded in 1999 and the gain on the sale of real estate
investments and the unrealized loss on REMIC Certificates recorded in 1998, net
income available to common shareholders was $30.4 million for the year ended
December 31, 1999 compared to $34.6 million for the year ended December 31,
1998.

27

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000, the Company's real estate investment portfolio (before
accumulated depreciation and allowance for doubtful accounts) consisted of
$468.5 million invested primarily in owned long-term care facilities, mortgage
loans of approximately $107.4 million and subordinated REMIC certificates of
approximately $95.0 million with a weighted average effective yield of 17.11%.
At December 31, 2000, the outstanding certificate principal balance and the
weighted average pass-through rate for the senior REMIC certificates (all held
by outside third parties) was $268.3 million and 7.21%.

During the year ended December 31, 2000, the Company entered into a new
Senior Secured Revolving Line of Credit agreement that initially provides for
$185.0 million of total commitments with periodic reductions of these
commitments to fully retire the commitments as of October 2, 2004.
Specifically, scheduled available commitments as of December 31, 2000, 2001,
2002 and 2003 are $185.0 million, $157.5 million, $95.0 million and $75.0
million, respectively. An additional provision of this agreement requires
certain amounts of commitment reductions as a result of asset sales, debt
issuances or other types of financing. At inception, $183.3 million of owned
properties, $113.8 million of mortgage loans receivable and $96.3 million of
REMIC certificates were pledged as collateral. At December 31, 2000
commitment availability was $174.0 million and as of January 2, 2001
commitment availability was $171.7 million. These commitment reductions from
$185.0 million to $171.7 million were due to asset sales.

At December 31, 2000, the Company had $118.0 million outstanding under the
Senior Secured Revolving Line of Credit agreement. Subsequent to December 31,
2000, the Company borrowed $12.0 million to retire the 8.50% Convertible
Subordinated Debentures that matured in January 2001.

During the year ended December 31, 2000, the Company had net cash provided by
operating activities of $45.3 million. The Company advanced $1.0 million for
renovation and expansion under a mortgage loan previously provided on a skilled
nursing facility. During 2000, the Company acquired two skilled nursing
facilities from a related party for a purchase price (based upon independent
appraisals) of $19.2 million and invested approximately $4.3 million in the
expansion and improvement of existing properties. The Company sold 11 skilled
nursing facilities, one assisted living facility and two schools. These sales
resulted in net proceeds of $51.6 million and a net gain of $9.0 million. In
addition, the Company provided Healthcare with an additional $11.2 million in
borrowings, net of repayments, under the $20.0 million unsecured line of credit
that bears interest at 10% and matures in March 2008. Principal payments of $8.8
million were received on mortgage loans receivable, including $7.7 million
related to the early payoff of four loans. Mortgage loans with outstanding
principal balances totaling $12.3 million that were secured by eight long-term
care facilities were converted into owned properties.

During the year ended December 31, 2000, the Company had additional bank
borrowings of $125.0 million and repaid $167.0 million. In addition, the Company
paid $2.8 million in debt issue costs related to its new Senior Secured
Revolving Line of Credit and paid $1.4 million of principal on mortgage loans
payable, bonds payable and capital lease obligations. Two of the skilled nursing
facilities acquired during 2000 were acquired subject to the assumption of
existing non-recourse mortgage debt of $13.7 million that bears interest at a
weighted average rate of 9.25%. During the year ended December 31, 2000, the
Company repurchased and retired 1,005,600 shares of common stock for an
aggregate purchase price of approximately $8.0 million.

During the same period, the Company declared and paid cash dividends on its
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
totaling $7.3 million, $4.5 million, $3.3 million, respectively. In addition,
the Company paid three quarterly cash dividends on its common stock totaling
$22.7 million.

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, REMIC Certificates 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 facilities,
assisted living residences and schools 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.

28

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 facilities,
assisted living facilities and schools. In addition, the Company will monitor
its borrowers and the underlying collateral for mortgage loans and will make
future revisions to the provision, if considered necessary.

The Company's investments, principally its investments in mortgage loans, REMIC
Certificates, 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.
In as much as the Company initially funded some its investments with revolving
credit facilities, the Company is at risk of net interest margin deterioration
if medium and long-term rates were to increase between the time the Company
originated the investment and replaces the short-term variable rate borrowings
with a fixed rate financing.

The REMIC certificates retained by the Company are subordinate in rank and right
of payment to the certificates sold to third-party investors and as such would,
in most cases, bear the first risk of loss in the event of an impairment to any
of the underlying mortgages. The returns on the Company's investment in REMIC
certificates are subject to certain uncertainties and contingencies including,
without limitation, the level of prepayments, estimated future credit losses,
prevailing interest rates, and the timing and magnitude of credit losses on the
underlying mortgages collateralizing the securities that are a result of the
general condition of the real estate market or long-term care industry. As these
uncertainties and contingencies are difficult to predict and are subject to
future events that may alter management's estimations and assumptions, no
assurance can be given that current yields will not vary significantly in future
periods. To minimize the impact of prepayments, the mortgage loans underlying
the REMIC certificates generally prohibit prepayment unless the property is sold
to an unaffiliated third party (with respect to the borrower).

Certain of the REMIC certificates retained by the Company have designated
certificate principal balances and a stated certificate interest
"pass-through" rate. These REMIC certificates are subject to credit risk to
the extent that there are estimated or realized credit losses on the
underlying mortgages, and as such their effective yield would be negatively
impacted by such losses. The Company also retains the interest-only (I/O)
Certificates, which provide cash flow (interest-only) payments that result
from the difference between the interest collected from the underlying
mortgages and interest paid on all the outstanding pass-through rate
certificates. In addition to the risk from credit losses, the I/O
Certificates are also subject to prepayment risk, in that prepayments of the
underlying mortgages reduce future interest payments of which a portion flows
to the I/O Certificates, thus, reducing their effective yield. The
Certificates' fair values are estimated, in part, based on a spread over the
applicable U.S Treasury rate, and consequently, are inversely affected by
increases or decreases in such interest rates. There is no active market in
these securities from which to readily determine their value. The estimated
fair values of both classes of Certificates are subject to change based on
the estimate of future prepayments and credit losses, as well as fluctuations
in interest rates and market risk. Although the Company is required to report
its REMIC Certificate investments available for sale at fair value, many of
the factors considered in estimating their fair value are difficult to
predict and are beyond the control of the Company's management, consequently,
changes in the reported fair values may vary widely and may not be indicative
of amounts immediately realizable if the Company was forced to liquidate any
of the Certificates. (See "Exhibit 99 -RISK FACTORS" for a more comprehensive
discussion of risks and uncertainties.)

The Company believes that its current cash flow from operations available for
distribution or reinvestment and its current borrowing capacity are
sufficient to provide for payment of its operating costs and provide funds
for

29

distribution to its stockholders in amounts sufficient to maintain its REIT
status. Difficult capital market conditions in the health care industry have
limited the Company's access to traditional forms of growth capital. As a
result of the tight capital markets for the health care industry, the Company
has reduced its investment activity in 2000 and intends to continue to limit
its investment activity in 2001. At December 31, 2000, the Company had $118.0
million outstanding under a secured credit agreement that matures in October
2004 and convertible subordinated debentures maturing in 2001 totaling $22.2
million.

FUNDS FROM OPERATIONS

The Company has adopted the definition of Funds From Operations ("FFO")
prescribed by the National Association of Real Estate Investment Trusts
("NAREIT"). FFO is defined as net income applicable to common stockholders
(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.
In addition, the Company excludes any unrealized gains or losses resulting from
temporary changes in the estimated fair value of its REMIC Certificates from the
computation of FFO.

The Company believes that FFO is an important supplemental measure of operating
performance. FFO should not be considered as an alternative to net income or any
other GAAP measurement of performance as indicator of operating performance or
as an alternative to cash flows from operations, investing or 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. FFO,
as used by the Company in accordance with the NAREIT definition may not be
comparable to similarly entitled items reported by other REITs that have not
adopted the NAREIT definition.

The following table reconciles net income available to common stockholders to
FFO available to common stockholders (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):




2000 1999 1998
---------- ---------- ----------

Net income available to common stockholders $ 16,550 $ 16,740 $ 37,697
Real estate depreciation 15,259 13,483 12,561
Impairment charge on real estate investments 14,822 14,939 -
Real estate depreciation included in equity earnings - - 430
Gain on sale of real estate (8,990) - (9,926)
Unrealized (gain) loss on REMIC Certificates - - 6,797
---------- ---------- ----------
FFO available to common stockholders $ 37,641 $ 45,162 $ 47,559
========== ========== ==========

Diluted FFO available to common stockholders $ 39,194 $ 51,582 $ 55,871
========== ========== ==========

Basic FFO per share $ 1.44 $ 1.65 $ 1.76
========== ========== ==========
Diluted FFO per share $ 1.44 $ 1.64 $ 1.71
========== ========== ==========

Shares for basic FFO per share 26,108 27,412 27,077
Shares for diluted FFO per share 27,213 31,548 32,762



30


YEAR 2000

In prior years, we discussed the nature and progress of our plans to become Year
2000 ready. In late 1999, we completed the remediation and testing of our
systems. As a result of our planning and implementation efforts, we experienced
no significant disruptions in mission critical information technology and
non-information technology systems and we believe our systems successfully
responded to the Year 2000 date change. We are not aware of any significant
adverse effects on our operators computer systems or operations resulting from
Year 2000 date change. We will continue to monitor our mission critical computer
applications and those of our operators throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.


31

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Readers are cautioned that statements contained in this section "Quantitative
and Qualitative Disclosures About Market Risk" are forward looking and should be
read in conjunction with the disclosure under the heading "-Statement Regarding
Forward Looking Disclosure" set forth above.

We are exposed to market risks associated with changes in interest rates as they
relate to our mortgage loans receivable, investments in REMIC certificates 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.

To modify and manage the interest characteristics of our outstanding debt and
limit the effects of interest rates on our operations, we may utilize a variety
of financial instruments, including interest rate swaps, caps, floors and other
interest rate exchange contracts. The use of these types of instruments to hedge
our exposure to changes in interest rates carries additional risks such as
counter-party credit risk and legal enforceability of hedging contracts. We do
not enter into any transactions for speculative or trading purposes. We had no
such financial investments outstanding in 2000.

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, our investment in REMIC certificates and fixed rate debt. 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, 2000, based on the prevailing interest rates for comparable
loans and estimates made by management, the fair value of our mortgage loans
receivable was approximately $107.7 million. A 1% increase in such rates would
decrease the estimated fair value of our mortgage loans by approximately $4.7
million while a 1% decrease in such rates would increase their estimated fair
value by approximately $5.0 million. A 1% increase or decrease in applicable
interest rates would not have a material impact on the fair value of our
investment in REMIC certificates or fixed rate debt.

Assuming the borrowings outstanding under our revolving line of credit at
December 31, 2000 and taking into effect our draw under the revolving line of
credit in January 2001 remain constant for the remainder of 2001, a 1% increase
in interest rates would increase annual interest expense on our revolving line
of credit by approximately $1.3 million. Conversely, a 1% decrease in interest
rates would decrease annual interest expense on our revolving line of credit by
$1.3 million.

These 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.

32

ITEM 8. FINANCIAL STATEMENTS





PAGE
----

Report of Independent Auditors .......................................................34

Consolidated Balance Sheets as of December 31, 2000 and 1999 .........................35

Consolidated Statements of Income and Comprehensive Income for
the years ended December 31, 2000, 1999 and 1998 ..................................36

Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998 ............................................37

Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998...................................................38

Notes to Consolidated Financial Statements ...........................................39



33


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, 2000 and 1999 and the related consolidated statements of
income and comprehensive income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LTC Properties,
Inc. at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States. 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 19, 2001,
except for Note 12, which date is
February 1, 2001

34

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)




DECEMBER 31,
----------------------------
2000 1999
------------ ------------

ASSETS
Real Estate Investments:
Buildings and improvements, net of accumulated depreciation and
amortization: 2000 - $47,181; 1999 - $39,975 $ 397,833 $ 430,776
Land 23,484 24,162
Mortgage loans receivable, net of allowance for doubtful accounts:
2000 - $1,250; 1999 - $1,250 106,149 131,193
REMIC Certificates 94,962 97,605
------------ ------------
Real estate investments, net 622,428 683,736
Other Assets:
Cash and cash equivalents 1,870 2,655
Debt issue costs, net 3,396 1,699
Interest receivable 4,558 4,050
Prepaid expenses and other assets 11,878 9,144
Marketable debt securities 15,873 14,190
Note receivable from LTC Healthcare, Inc. 16,582 6,337
------------ ------------
54,157 38,075
------------ ------------
Total assets $ 676,585 $ 721,811
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible subordinated debentures $ 24,642 $ 24,642
Bank borrowings 118,000 160,000
Mortgage loans payable 103,341 90,536
Bonds payable and capital lease obligations 16,577 17,096
Accrued interest 2,260 2,794
Accrued expenses and other liabilities 6,741 7,247
Distributions payable 985 985
------------ ------------
Total liabilities 272,546 303,300

Minority interest 9,912 9,894


Stockholders' equity:
Preferred stock $0.01 par value; 10,000 shares authorized;
shares issued and outstanding: 2000 - 7,080; 1999 - 7,080 165,500 165,500
Common stock $0.01 par value; 40,000 shares authorized; shares issued
and outstanding: 2000 - 26,031; 1999 - 27,036 260 270
Capital in excess of par value 296,568 304,527
Cumulative net income 221,734 190,097
Notes receivable from stockholders (10,126) (10,258)
Accumulated comprehensive loss (1,746) (1,246)
Cumulative distributions (278,063) (240,273)
------------ ------------
Total stockholders' equity 394,127 408,617
------------ ------------
Total liabilities and stockholders' equity $ 676,585 $ 721,811
============ ============


See accompanying notes.


35

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)




YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------

Revenues:
Rental income $ 49,958 $ 45,086 $ 42,534
Interest income from mortgage loans and
notes receivable 15,025 19,506 23,030
Interest income from REMIC Certificates 16,852 17,598 16,945
Interest and other revenue 5,295 5,472 6,882
------------ ------------ ------------

Total revenues 87,130 87,662 89,391
------------ ------------ ------------

Expenses:
Interest expense 27,426 21,836 22,267
Depreciation and amortization 15,259 13,483 12,561
Provision for loan losses - - 600
Minority interest 982 1,018 1,415
Impairment charge 14,822 14,939 -
Operating and other expenses 5,994 5,863 5,084
------------ ------------ ------------

Total expenses 64,483 57,139 41,927
------------ ------------ ------------

Operating income 22,647 30,523 47,464

Other income, net - 1,304 (6,797)
Gain on sale of real estate assets, net 8,990 - 9,926
------------ ------------ ------------

Net income 31,637 31,827 50,593

Preferred dividends 15,087 15,087 12,896
------------ ------------ ------------
Net income available to common stockholders $ 16,550 $ 16,740 $ 37,697
============ ============ ============

Net Income Per Common Share:
Basic net income per common share $ 0.63 $ 0.61 $ 1.39
============ ============ ============
Diluted net income per common share $ 0.63 $ 0.61 $ 1.39
============ ============ ============

Comprehensive Income:
Net income available to common stockholders $ 16,550 $ 16,740 $ 37,697
Unrealized loss on available-for-sale
equity securities (500) (1,246) -
------------ ------------ ------------
Total comprehensive income $ 16,050 $ 15,494 $ 37,697
============ ============ ============


See accompanying notes.

36

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share amounts)




SHARE
------------------------- CAPITAL IN
PREFERRED COMMON PREFERRED COMMON EXCESS OF
STOCK STOCK STOCK STOCK PAR VALUE
------------------------- -------------------------------------

Balance - December 31, 1997 5,080 25,025 $127,000 $250 $277,732
------------------------- -------------------------------------
Issuance of Series C Preferred Stock 2,000 - 38,500 - (895)
Exercise of stock options - 147 - 2 1,557
Payments on stockholder notes - - - - -
Conversion of debentures - 2,283 - 23 34,622
Repurchase of common stock - (200) - (2) (3,343)
Issuance of restricted stock - 406 - 4 (4)
Amortization of restricted stock - - - - 1,491
Conversion of partnership units - - - - (47)
Net income - - - - -
Preferred stock dividends - - - - -
Common stock cash distributions
($1.535 per share) - - - - -
Distribution of investment in
LTC Healthcare, Inc. - - - - -
($0.469 per share)
------------------------- -------------------------------------
Balance - December 31, 1998 7,080 27,661 165,500 277 311,113
------------------------- -------------------------------------

Payments on stockholder notes - - - - -
Conversion of debentures - 25 - - 430
Repurchase of common stock - (650) - (7) (7,032)
Conversion of partnership units - - - - 16
Net income - - - - -
Preferred stock dividends - - - - -
Common stock cash distributions
($1.56 per share) - - - - -
------------------------- -------------------------------------
Balance - December 31, 1999 7,080 27,036 $165,500 $270 $304,527
------------------------- -------------------------------------

Payments on stockholder notes - - - - -
Repurchase of common stock - (1,005) - (10) (7,959)
Conversion of partnership units - - - - -
Net income - - - - -
Preferred stock dividends - - - - -
Common stock cash distributions
($.087 per share) - - - - -
------------------------- -------------------------------------
Balance - December 31, 2000 7,080 26,031 $165,500 $260 $296,568
========================= =====================================
























NOTES
CUMULATIVE RECEIVABLE
NET FROM CUMULATIVE
INCOME STOCKHOLDERS DISTRIBUTION
--------------------------------------------

Balance - December 31, 1997 $107,677 $(9,429) $(117,103)
--------------------------------------------
Issuance of Series C Preferred Stock - - -
Exercise of stock options - (2,313) -
Payments on stockholder notes - 542 -
Conversion of debentures - - -
Repurchase of common stock - - -
Issuance of restricted stock - - -
Amortization of restricted stock - - -
Conversion of partnership units - - -
Net income 50,593 - -
Preferred stock dividends - - (12,896)
Common stock cash distributions
($1.535 per share) - - (41,837)
Distribution of investment in
LTC Healthcare, Inc. - - (10,724)
($0.469 per share)
--------------------------------------------
Balance - December 31, 1998 158,270 (11,200) (182,560)
--------------------------------------------

Payments on stockholder notes - 942 -
Conversion of debentures - - -
Repurchase of common stock - - -
Conversion of partnership units - - -
Net income 31,827 - -
Preferred stock dividends - - (15,087)
Common stock cash distributions
($1.56 per share) - - (42,626)
--------------------------------------------
Balance - December 31, 1999 $190,097 $(10,258) $(240,273)
--------------------------------------------

Payments on stockholder notes - 132 -
Repurchase of common stock - - -
Conversion of partnership units - - -
Net income 31,637 - -
Preferred stock dividends - - (15,087)
Common stock cash distributions
($.087 per share) - - (22,703)
--------------------------------------------
Balance - December 31, 2000 $221,734 $(10,126) $(278,063)
============================================


ACCUMULATED
COMPREHENSIVE LOSS
---------------------

Balance at December 31, 1997 -
=====================

Balance at December 31, 1998 -
=====================

Balance at December 31, 1999 $(1,246)
=====================

Unrealized loss on available for-sale
securities (500)
---------------------
Balance at December 31, 2000 $(1,746)
=====================


See accompanying notes.

37

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)




YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------

OPERATING ACTIVITIES:
Net income $ 31,637 $ 31,827 $ 50,593
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 15,259 13,483 12,561
Unrealized holding loss on estimated fair value of REMIC Certificates - - 6,797
Gain on sale of real estate investments, net (8,990) - (9,926)
Gain on repurchase of convertible subordinated debentures - (1,304) -
Expense related to vesting of restricted stock - - 1,491
Non-cash impairment charge 14,822 14,939 -
Other non-cash charges 1,700 1,627 2,220
(Increase) decrease in interest receivable (632) (296) 512
(Increase) in prepaid, other assets and allowance (5,407) (410) (122)
(Decrease) in accrued interest (640) (341) (1,118)
(Decrease) increase in accrued expenses and other liabilities (2,442) 1,260 (1,123)
------------ ------------ ------------
Net cash provided by operating activities 45,307 60,785 61,885
INVESTING ACTIVITIES:
Investment in real estate mortgages (964) (8,568) (47,452)
Acquisition of real estate properties and capital improvements, net (4,288) (34,655) (142,668)
Proceeds from sale of real estate properties, net 51,632 - 16,706
Proceeds from sale of REMIC Certificates, net - - 108,613
Principal payments on mortgage loans receivable 8,789 6,729 10,758
Investment in debt securities - (13,097) -
Investment in LTC Healthcare, Inc. - - (2,001)
Advances to LTC Healthcare, Inc. (14,753) (13,336) (12,800)
Repayment of advances to LTC Healthcare, Inc. 3,540 23,527 17,668
Other 1,741 (8,756) (353)
------------ ------------ ------------
Net cash provided by (used in) investing activities 45,697 (48,156) (51,529)
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net - - 37,605
Debt issue costs (2,751) (1,129) -
Distributions paid (37,790) (57,713) (54,520)
Bank borrowings 125,000 147,500 276,000
Repayment of bank borrowings (167,000) (87,500) (263,500)
Mortgage loan borrowings - 24,985 -
Principal payments on mortgage loans, notes payable and capital leases (1,410) (976) (5,077)
Redemption of convertible subordinated debentures - (29,992) -
Repurchase of common stock (7,969) (7,039) (3,345)
Other 131 387 (990)
------------ ------------ ------------
Net cash used in financing activities (91,789) (11,477) (13,827)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (785) 1,152 (3,471)
Cash and cash equivalents, beginning of year 2,655 1,503 4,974
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,870 $ 2,655 $ 1,503
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 27,012 $ 21,011 $ 22,478

Non-cash investing and financing transactions:
See Note 4: Supplemental Cash Flow Information



See accompanying notes.

38

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

LTC Properties, Inc. (the "Company"), a Maryland corporation, commenced
operations on August 25, 1992. The Company is a real estate investment trust
("REIT") that invests primarily in long-term care facilities through mortgage
loans, facility lease transactions and other investments.

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 its
controlled partnerships. All intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
prior period financial statements to conform to the current year presentation.

USE OF ESTIMATES. 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 when purchased and are stated at cost which
approximates market.

LAND, BUILDINGS AND IMPROVEMENTS. Land, buildings and improvements are recorded
at cost. Impairment losses are recorded when events or changes in circumstances
indicate the asset is impaired and the estimated undiscounted cash flows to be
generated by the asset are less than its carrying amount. Management assesses
the impairment of properties individually and impairment losses are calculated
as the excess of the carrying amount of the real estate over its fair value less
cost to sell. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets ranging from 3 years on computers, 7 years
for equipment to 40 years for buildings.

SECURITIZATION TRANSACTIONS. The Company is a REIT and, as such, makes its
investments with the intent to hold them for long-term purposes. However,
mortgage loans may be transferred to a Real Estate Mortgage Investment Conduit
("REMIC"), a qualifying special-purpose entity, when a securitization provides
the Company with the best available form of capital to fund additional long-term
investments. When contemplating a securitization, consideration is given to the
Company's current and expected future interest rate posture and liquidity and
leverage position, as well as overall economic and financial market trends.

A securitization is completed in a two-step process. First, a wholly owned
special-purpose bankruptcy remote corporation (the "REMIC Corp.") is formed
and selected mortgage loans are sold to the REMIC Corp. without recourse.
Second, the REMIC Corp. transfers the loans to a trust (the "REMIC Trust") in
exchange for commercial mortgage pass-through certificates (the "REMIC
Certificates") which represent beneficial ownership interests in the REMIC
Trust assets (the underlying mortgage loans). Under this structure, the REMIC
Trust is a qualifying special purpose entity from which the mortgages are
isolated from REMIC Corp. and the Company. Holders of REMIC Certificates
issued by the REMIC Trust have the right free of any conditional constraints
to pledge or exchange those interests, and neither the REMIC Corp. nor the
Company maintains effective control over the transferred assets (the
mortgages). The REMIC Trust is administered by a third-party trustee solely
for the benefit of the REMIC Certificate holders.

Under the securitization structure described above, the Company accounts for
the transfer of the mortgages as a sale and any gain or loss is recorded in
earnings. The gain or loss is equal to the excess or deficiency of the cash
proceeds and fair market value of any subordinated certificates received when
compared with the carrying value of the mortgages sold, net of any
transaction costs incurred and any gains or losses associated with an
underlying hedge. Subordinated certificates received by the Company are
recorded at their fair value at the date of the transaction. The Company has
no controlling interest in the REMIC since the majority of the beneficial
ownership interests (in the form of REMIC Certificates) are sold to
third-party investors. Consequently, the financial statements of the REMIC
Trust are not consolidated with those of the Company for financial reporting
purposes.

REMIC Certificates retained by the Company as consideration for the mortgages
sold are accounted for at fair value. In determining fair value on the date
of sale, management considers various factors including, pricing of the
certificates sold relative to the certificates retained as evaluated by the
underwriters, discount rates and applicable spreads at the time of issuance
for similar securities (or adjustments thereto if no comparable securities
are available), assumptions regarding prepayments including the
weighted-average life of prepayable assets, if any, and estimates relating to
potential realized credit losses.

The REMIC Certificates issued by the REMIC Trust include various levels of
senior, subordinated, interest only and residual classes. The subordinated
REMIC Certificates generally provide a level of credit enhancement to the
senior REMIC Certificates. The senior and residual REMIC Certificates (which
historically have represented between 66% and 81% of the total REMIC
Certificates) are then sold to outside third-party investors through a
private placement under Rule 144A of the Securities Act of 1933, as amended.
The subordinated REMIC Certificates along with the cash proceeds from the
sale of the senior REMIC Certificates are retained by the REMIC Corp. as
consideration for the initial transfer of the mortgage loans to the REMIC
Trust. Neither the Company nor the REMIC Corp. is obligated to purchase any
of the REMIC Trust assets or assume any liabilities.

39


LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DESCRIPTION OF THE REMIC CERTIFICATES. REMIC Certificates represent beneficial
ownership interests in the REMIC Trust and can be grouped into three categories;
senior, subordinated and subordinated interest-only ("I/O"). The REMIC
Certificates sold to third-party investors are the senior certificates and those
retained by the Company are the subordinated certificates. The senior and the
subordinated certificates have stated principal balances and stated interest
rates ("pass-through rates"). The I/O REMIC Certificates have no stated
principal but are entitled to interest distributions. Interest distributions on
the I/O REMIC Certificates are typically based on the spread between the monthly
interest received by the REMIC Trust on the underlying mortgage collateral and
the monthly pass-through interest paid by the REMIC Trust on the outstanding
pass-through rate REMIC Certificates. After payment of the pass-through interest
on the outstanding REMIC Certificates and interest distributions on the I/O
Certificates, the REMIC Trust distributes the balance of the payments received
on the underlying mortgages as a distribution of principal. Interest and
principal distributions are made in order of REMIC Certificate seniority. As
such, to the extent there are defaults or unrecoverable losses on the underlying
mortgages resulting in reduced cash flows, the subordinated certificates held by
the Company would in general bear the first risk of loss. Management
evaluates the realizability of expected future cash flows periodically. A
permanent impairment would be recorded in current period earnings when
management believes that it is likely that a portion of the underlying
mortgage collateral would not be realized by the REMIC Trust.

On January 1, 1999, the Company adopted SFAS No. 134 "ACCOUNTING FOR
MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS
HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE". Upon adoption of SFAS No. 134,
the Company, based on its ability and intent to hold its investments in REMIC
Certificates, transferred its I/O REMIC Certificates and certificates with an
investment rating of "BB" or higher from the trading category to the
available-for-sale category and its certificates with an investment rating of
"B" or lower to the held-to-maturity category. The transfer was recorded at fair
value on the date of the transfer.

MORTGAGE LOANS RECEIVABLE. Historically, the Company has sold its mortgage loans
solely in connection with its REMIC securitizations. Since certain mortgage
loans may be securitized or sold in the future, direct investments in mortgage
loans are classified as held for sale and carried at the lower of cost or
market. If the mortgage loans aggregate cost basis exceeds their aggregate
market value, a valuation allowance is established and the resulting amount is
included in the determination of net income. Changes in the valuation allowance
are included in current period earnings. In determining the estimated market
value for mortgage loans, the Company considers estimated prices and yields,
based in part on a spread over the applicable U.S. Treasury Note Rate, sought by
qualified institutional buyers of the REMIC Certificates originated in the
Company's securitizations.

40


LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


MORTGAGE SERVICING RIGHTS. The Company sub-services mortgage loans that are
collateral for REMIC Certificates issued in its securitization transactions for
which it receives servicing fees, based on market rates for such services at the
time the securitization is completed, equal to a fixed percentage of the
outstanding principal on the collateral loans. A separate asset for servicing
rights is not recognized since the servicing fees received only adequately
compensate the Company for the cost of servicing the loans. The fair value of
servicing rights for mortgage loans originated and retained by the Company are
estimated based on the fees received for servicing mortgage loans that serve as
collateral for REMIC Certificates. All costs to originate mortgage loans are
allocated to the mortgage loans since the fair value of servicing rights only
sufficiently covers the servicing costs.

INTEREST RATE CONTRACTS. Firm commitments subject the Company to interest rate
risk to the extent that debt or other fixed rate financing will be used to
finance the commitments. The Company may elect to enter into interest rate
contracts to hedge such financing thereby reducing its exposure to interest rate
risk. Interest rate contracts are designated as hedges of assets intended for
securitization when the significant characteristics and expected terms of the
securitization are identified and it is probable the securitization will occur.
These contracts are entered into in notional amounts that generally correspond
to the principal amount of the assets to be securitized. The Company effectively
locks in its net interest margin on the securitization when the interest rate
contract is entered into since changes in the market value of these contracts
respond inversely to changes in the market value of the hedged assets. Gains or
losses on interest rate contracts designated as hedges of assets to be
securitized are deferred and recognized upon the completion of the
securitization. The Company may also manage interest rate risk by entering into
interest rate swap agreements whereby the Company effectively fixes the interest
rate on variable rate debt. The differential between interest paid and received
on interest rate swaps is recognized as an adjustment to interest expense. No
interest rate contracts were outstanding as of December 31, 2000.

REVENUE RECOGNITION. Interest income on mortgage loans and REMIC Certificates
is recognized using the effective interest method. Base rents under operating
leases are accrued as earned over the terms of the leases. Contingent rental
income provided for in certain leases, equal to a percentage of increased
revenue over defined base period revenue of the long-term care facility
operations, is recognized when the stated conditions upon which contingent
rent is based occur.

FEDERAL INCOME TAXES. The Company qualifies as a REIT under the Internal Revenue
Code of 1986, as amended and as such, no provision for Federal income taxes has
been made. A REIT may deduct distributions to its stockholders from its taxable
income. If at least 95% (90% for taxable years beginning after December 31,
2000) of a REIT's taxable income is distributed to its stockholders and it
complies with other Internal Revenue Code requirements, a REIT generally is not
subject to Federal income taxation.

For Federal tax purposes, depreciation is generally calculated at a rate of 3.6%
based on the assets' tax basis (which approximates cost) using the straight-line
method over a period of 27.5 years. Earnings and profits, which determine the
taxability of dividends to stockholders, differ from net income for financial
statement purposes due to the treatment of certain interest income and expense
items and depreciable lives and basis of assets under the Internal Revenue Code.

CONCENTRATIONS OF CREDIT RISKS. Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents, REMIC Certificates, mortgage loans receivable, operating leases on
owned properties and interest rate swaps. The Company's financial instruments,
principally REMIC Certificates, mortgage loans receivable and operating leases,
are subject to the possibility of loss of carrying value as a result of the
failure of other parties to perform according to their contractual obligations
or changes in market prices which may make the instrument less valuable. The
Company obtains various collateral and other protective


41




LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

The Company's REMIC Certificates are subordinate in rank and right of payment
to the certificates sold to third-party investors and as such, in most cases,
would bear the first risk of loss in the event of an impairment to any of the
underlying mortgages. The returns on the REMIC Certificates are subject to
certain uncertainties and contingencies including, without limitation, the
level of prepayment, prevailing interest rates and the timing and magnitude
of credit losses on the mortgages underlying the securities that are a result
of the general condition of the real estate market or long-term care
industry. These uncertainties and contingencies are difficult to predict and
are subject to future events that may alter management's estimations and
assumptions therefore, no assurance can be given that current yields will not
vary significantly in future periods. In general, the mortgage loans
underlying the REMIC Certificates generally prohibit prepayment unless the
property is sold to an unaffiliated third party (with respect to the
borrower).

Certain of the REMIC Certificates retained by the Company have designated
certificate principal balances and a stated certificate interest
"pass-through" rate. These REMIC Certificates are subject to credit risk to
the extent that there are estimated or realized credit losses on the
underlying mortgages, and as such their effective yield would be negatively
impacted by such losses. The Company also retains the I/O REMIC Certificates.
In addition to the risk from credit losses, the I/O REMIC Certificates are
also subject to prepayment risk, in that prepayments of the underlying
mortgages reduce future interest payments of which a portion flows to the I/O
REMIC Certificates, thus, reducing their effective yield. The I/O REMIC
Certificates' fair values are estimated, in part, based on a spread over the
applicable U.S. Treasury Rate, and consequently, are inversely affected by
increases or decreases in such interest rates. There is no active market in
these securities from which to readily determine their value. The estimated
fair values of both classes of certificates are subject to change based on
the estimate of the current interest rate environment, estimated spreads over
the U.S. Treasury Rate at which the retained certificates might trade,
expectations regarding credit losses, if any, expected weighted-average life
of the underlying collateral and discount rates commensurate with the risks
involved.

NET INCOME PER SHARE. Basic earnings per share is calculated using the
weighted-average shares of common stock outstanding during the period
excluding common stock equivalents. Diluted earnings per share includes the
effect of all dilutive common stock equivalents.

STOCK-BASED COMPENSATION. The Company has adopted the disclosure requirements of
SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" but continues to account
for stock-based compensation using the intrinsic value method prescribed by APB
Opinion No. 25, as permitted by SFAS No. 123.

NEW ACCOUNTING PRONOUNCEMENTS. In 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES". In June 1999, the FASB issued SFAS No. 137 "DEFERRAL
OF EFFECTIVE DATE OF FASB STATEMENT 133" which defers the effective date for
SFAS No. 133 to all quarters of all fiscal years beginning after June 15,
2000. SFAS No. 133 requires all derivatives to be recorded at fair value and
establishes unique accounting for fair value hedges. Because of the Company's
limited use of derivatives, management does not anticipate that the adoption
of SFAS No. 133 will have a significant effect on the Company's financial
position or results of operations. As of December 31, 2000 the Company had no
derivative instruments in place.

In September 2000, the FASB issued SFAS No. 140, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which
replaces in its entirety SFAS No. 125. The guidance in SFAS No. 140, while
not changing most of the guidance originally issued in SFAS No. 125, revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral, and requires certain additional disclosures
related to transferred assets. SFAS No. 140 provides guidance with respect to
securitization transactions including, among other things, whether a transfer
of assets qualifies for a sale or secured borrowing and whether a liability
has been extinguished, accounting for servicing of financial assets and
receipt and pledging of collateral. Additionally, SFAS No. 140 requires
additional disclosures about securitized financial assets and interests
retained in those securitizations including, accounting policies, volume,
cash flows, key assumptions in estimating fair values and sensitivity
analysis on the fair values relative to changes in the key assumptions.
Certain provisions of SFAS No. 140 such as the disclosure relating to
securitization transactions and retained interests therein, became effective
for the Company for 2000 year-end reporting. Other provisions of SFAS No. 140
are effective for securitizations completed after March 31, 2001. Other than
the additional disclosures required under SFAS No. 140, the Company does not
believe that the adoption will have any significant impact on its financial
statements. To the extent that the new provisions under SFAS No. 140 would
require modifications, if any, to the structure of future securitization
transactions, the necessary modifications would be made to allow such
securitizations to be accounted for as sales. At this time, however,
management does not anticipate the completion of any additional
securitization in the foreseeable future.

3. MAJOR OPERATORS

As of December 31, 2000, Sun Healthcare Group, Inc. ("Sun") operated 34
facilities with 3,874 beds/units representing approximately 12%, or
$100,907,000, of the Company's adjusted gross real estate investment portfolio
(adjusted to include the mortgage loans to third parties underlying the
investment in REMIC certificates). During 1999, Sun filed for reorganization
under Chapter 11 of the Bankruptcy Code. The facilities operated by Sun at
December 31, 2000 consisted of approximately $62,202,000 of direct investments
to Sun and approximately $38,705,000 of investments in facilities owned by
independent parties that lease the property to


42


LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Sun or contract with Sun to manage the property. Sun is currently operating
its business as a debtor-in-possession subject to the jurisdiction of the
Bankruptcy Court.

Alterra Healthcare Corporation ("Alterra") and Assisted Living Concepts, Inc.
("ALC") each operate facilities representing approximately 10% of the Company's
adjusted gross real estate investment portfolio. Alterra operates 35 assisted
living facilities with 1,416 units representing $84,189,000 of the Company's
adjusted gross real estate investment portfolio. ALC operates 37 assisted living
facilities with 1,434 units representing $88,105,000 of the Company's adjusted
gross real estate investment portfolio.

ALC, Alterra and Sun are publicly traded companies, and as such are subject to
the filing requirements of the Securities and Exchange Commission. The Company's
financial position and its ability to make distributions may be adversely
affected by financial difficulties experienced by ALC, Alterra, Sun, or any of
its other major operators, including bankruptcy, insolvency or general downturn
in business of any such operator, or in the event any such operator does not
renew and/or extend its relationship with us or the Company's borrowers when it
expires.

4. SUPPLEMENTAL CASH FLOW INFORMATION





2000 1999 1998
------------ ------------ ------------
(in thousands)

Non-cash investing and financing transactions:
Exchange of mortgage loans for REMIC Certificates $ - $ - $129,300
Exchange of previously issued REMIC Certificates for REMIC Certificates $ - $ 435 $ 20,700
Conversion of debentures into common stock $ - $ - $ 35,046
Assumption of mortgage loans payable relating to acquisitions of real estate
properties $13,696 $10,595 $ 11,224
Distribution of investment in LTC Healthcare, Inc. $ - $ - $ 10,724
Notes receivable related to exercise of stock options $ - $ - $ 2,313
Conversion of mortgage loans into owned properties $12,255 $47,554 $ 7,301
Minority interest $ - $ - $ 3,432
Reduction in receivables from LTC Healthcare, Inc. relating to the
acquisitions of real estate properties $ 5,346 $ - $ -
Increase in short term notes receivable related to the disposition of real
estate properties $ 3,055 $ - $ -



5. IMPAIRMENT CHARGE

The Company periodically performs a comprehensive evaluation of its real estate
investment portfolio. The long-term care industry has experienced significant
adverse changes which have resulted in continued operating losses by certain of
the Company's operators and in some instances the filing by certain operators
for bankruptcy protection. As a result of the adverse changes in the long-term
care industry, the Company has identified certain investments in skilled nursing
facilities that it determined to be impaired. These assets were determined to be
impaired primarily because the expected future cash flows to be received from
these investments are not expected to recover the carrying values of the
investments.

During 2000 the Company recorded an impairment charge of approximately
$14,822,000. The impairment charge included the write-down of the carrying value
to the estimated fair value, less cost to sell, of six owned skilled nursing
facilities of $7,529,000, mortgage loans secured by skilled nursing facilities
of $5,088,000 and notes receivable of $1,259,000 and the costs of foreclosure
and lease terminations of approximately $946,000.


43

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair values were based on current appraisals or other third-party
opinions of value and other estimates of fair value such as estimated
undiscounted future cash flows.

During 1999, the Company recorded an impairment charge of $14,939,000. The
impairment charge included the write down of the carrying value to the estimated
fair value, less cost to sell, of seven owned skilled nursing facilities of
$7,428,000, two mortgage loans secured by skilled nursing facilities of
$2,806,000, notes receivable of $3,329,000 and other assets and the cost of
foreclosure and lease terminations of approximately $1,376,000. The fair values
were based on current appraisals or other third-party opinions of value and
other estimates of fair value such as estimated undiscounted future cash flows.

During 1998, the Company performed a comprehensive evaluation of its real estate
investment portfolio. Based on this review, no assets were deemed to be
impaired.

6. REAL ESTATE INVESTMENTS

MORTGAGE LOANS. During the year ended December 31, 2000, the Company advanced
$964,000 for renovation and expansion under a mortgage loan previously provided
on a skilled nursing facility. The Company received prepayments totaling
$7,650,000 on four mortgage loans originally scheduled to mature in 2001, 2003,
2006 and 2007, and scheduled principal payments of $1,139,000. Mortgage loans
with outstanding principal balances totaling $12,255,000 that were secured by
eight long-term care facilities were converted into owned properties.

During 1999, the Company originated mortgage loans of $6,678,000 secured by
three assisted living facilities with 106 beds and advanced $1,890,000 for
renovation and expansion under a mortgage loan previously provided on an
educational facility. Mortgage loans with outstanding principal balances
totaling $47,554,000 that were secured by 15 long-term care facilities with
1,116 beds/units and one educational facility were converted into owned
properties. Prepayments totaling $5,178,000 on two mortgage loans originally
scheduled to mature in 2000 and 2006 and scheduled principal payments of
$1,551,000 were received.

At December 31, 2000, the Company had 48 mortgage loans secured by first
mortgages on 45 skilled nursing facilities with a total of 5,160 beds and eight
assisted living residences with 369 units located in 22 states. At December 31,
2000, the mortgage loans had interest rates ranging from 9.1% to 13.6% and
maturities ranging from 2001to 2018. In addition, the loans contain certain
guarantees, provide for certain facility fees and generally have 25-year
amortization schedules. The majority of the mortgage loans provide for annual
increases in the interest rate based upon a specified increase of 10 to 25 basis
points. At December 31, 2000 and 1999, the fair value of mortgage loans was
approximately $107,727,000 and $132,912,000, respectively. Scheduled principal
payments on mortgage loans are $9,400,000, $2,549,000, $12,234,000, $7,421,000,
$3,806,000 and $71,989,000 in 2001, 2002, 2003, 2004, 2005, and thereafter.

OWNED PROPERTIES AND LEASE COMMITMENTS. During 2000, $12,255,000 of mortgage
loans converted into owned properties. In addition, the Company acquired, from a
related party, two skilled nursing facilities with a total of 393 beds for a
gross purchase price (based upon independent appraisals) of $19,200,000, and
invested approximately $4,288,000 in the expansion and improvement of existing
properties. The skilled nursing facilities acquired during 2000 were acquired
subject to the assumption of existing non-recourse mortgage debt of $13,696,000
that bears interest at a weighted average rate of 9.25%

With the exception of certain properties leased to LTC Healthcare, Inc. under
one year and month-to-month leases, owned facilities are leased pursuant to
non-cancelable operating leases generally with an initial term of 10 to 20
years. Many of the leases contain renewal options and some contain options that
permit the operators to purchase the facilities. The leases provide for 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


44

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

indices over the term of the lease. Certain of the leases provide for
additional rent through revenue participation (as defined in the lease
agreements) 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 all taxes,
insurance, maintenance and repairs, capital and non-capital expenditures and
other costs necessary in the operations of the facilities. Contingent rent
income for the years ended December 31, 2000, 1999 and 1998 was not
significant in relation to contractual base rent income.

Depreciation expense on buildings and improvements, including facilities owned
under capital leases, was $15,145,000, $13,237,000 and $11,959,000 for the years
ended December 31, 2000, 1999 and 1998.

Future minimum base rents receivable under the remaining non-cancelable terms of
operating leases are: $44,400,000, $41,424,000, $41,111,000, $38,903,000,
$36,299,000 and $204,642,000 for the years ending December 31, 2001, 2002, 2003,
2004, 2005 and thereafter.

REMIC CERTIFICATES. The outstanding principal balance and the weighted-average
pass through rate for the senior certificates (held by third parties) and the
carrying value of the subordinated certificates (held by the Company) as of
December 31, 2000 and 1999 were as follows (DOLLAR AMOUNTS IN THOUSANDS):




2000 1999
-------------------------------------------- ----------------------------------------------
Subordinated Subordinated
Senior Certificates Certificates Senior Certificates Certificates
------------------------ -------------- ------------------------ ---------------

Principal Rate Carrying Value Principal Rate Carrying Value
--------- ---- -------------- --------- ---- --------------
1993-1 Pool $46,120 7.7% $ 3,599 $50,709 7.6% $ 5,191
1994-1 Pool 25,414 9.4% 38,066 28,299 9.4% 37,810
1996-1 Pool 81,534 7.5% 15,013 82,916 7.5% 15,510
1998-1 Pool 115,223(1) 6.3% 38,284 117,112(1) 6.3% 39,094
------- -------
$94,962 $97,605
======= =======



(1) Included in the 1998-1 Pool assets are $26,382,000 of certificates
originated in the 1993-1 Pool that are excluded from the amount outstanding
presented for the 1993-1 Pool.


At December 31, 2000 and 1999, the aggregate effective yield of the subordinated
certificates, based on expected future cash flows with no unscheduled
prepayments, was 17.11% and 17.35%, respectively. Income on the subordinated
certificates was as follows for the years ended December 31, 2000, 1999 and 1998
(DOLLAR AMOUNTS IN THOUSANDS) :




2000 1999 1998
------------ ------------ ------------

1993-1 Pool $ 465 $ 1,504 $ 2,656
1994-1 Pool 5,361 4,943 4,898
1996-1 Pool 3,334 3,447 3,908
1998-1 Pool 7,692 7,704 5,483
------------ ------------ ------------
$16,852 $17,598 $16,945
============ ============ ============



As sub-servicer for all of the above REMIC pools, the Company is responsible for
performing substantially all of the servicing duties relating to the mortgage
loans underlying the REMIC Certificates and will act as the special servicer to
restructure any mortgage loans that default.

The REMIC Certificates retained by the Company, represent the non-investment
grade certificates issued in the securitizations. Furthermore, because of the
highly specialized nature of the underlying collateral (long-term care
facilities), there is an extremely limited market for these securities.
Because REMIC Certificates of this nature trade infrequently, if at all,
market comparability to the certificates the Company retains is very limited.

The Company uses certain assumptions and estimates in determining the fair
value allocated to the retained interest at the time of initial sale and each
subsequent measurement date in accordance with SFAS No. 125. These
assumptions and estimates include projections concerning the expected level
and timing of future cash flows, current interest rate environment, estimated
spreads over the U.S. Treasury Rate at which the retained certificates might
trade, expectations regarding credit losses, if any, expected
weighted-average life of the underlying collateral and discount rates
commensurate with the risks involved. These assumptions are reviewed
periodically by management. If these assumptions change, the related asset
and income would be affected. Key economic assumptions used in measuring the
retained interest at December 31, 2000 were as follows: a U.S. Treasury Rate
of 5%, an average market spread on "BB" and "B" rated certificates of 765
basis points over the applicable U.S. Treasury rate, an average discount rate
on unrated and interest-only certificates of 28.5%, weighted-average life of
156 months and no expected annual credit losses. At December 31, 2000, key
economic assumptions and the sensitivity of the current fair value of cash
flows on the REMIC Certificates retained by the Company to immediate 10% and
20% adverse changes in those assumptions are as follows: (dollar amounts in
thousands)



-----------------------------------------
Estimated Fair Value Carrying Amount
-------------------- ---------------


RETAINED INTERESTS IN REMIC SECURITIZATIONS:
Available-for-sale REMIC Certificates $42,362 $42,362
Held-to-maturity REMIC Certificates 32,241 52,600
------- -------
Totals $74,603 $94,962
======= =======

10% Adverse Change 20% Adverse Change
------------------ ------------------
KEY ASSUMPTION SENSITIVITY ANALYSIS Decline in Fair Value Decline in Fair Value
--------------------- ---------------------

AVERAGE SPREAD AND DISCOUNT RATE ASSUMPTION:

Average Spread on "BB" and "B" rated certificates - 765
basis points $ 699 $ 1,385
Average discount rate on Unrated and I/O certificates - 28.5% 3,053 5,890
------- -------
Total $ 3,752 $ 7,275
======= =======

U.S. TREASURY RATE ASSUMPTION (5.0%): $ 896 $ 1,935
------- -------
WEIGHTED-AVERAGE LIFE ASSUMPTION (156 MONTHS): $ 452 $ 957
------- -------
EXPECTED CREDIT LOSS ASSUMPTION (NO EXPECTED LOSSES): $ 4,484 $ 9,135
------- -------



As of December 31, 2000 and 1999, available-for-sale certificates were
recorded at their fair value of approximately $42,362,000 and $45,651,000,
respectively. Unrealized holding losses on available-for-sale certificates of
$315,000 and $1,065,000 were included in comprehensive income for the years
ended December 31, 2000 and 1999, respectively. At December 31, 2000 and 1999
held-to-maturity certificates had a book value of $52,600,000 and
$51,954,000, respectively, and a fair value of $32,241,000 and $43,698,000,
respectively. As of December 31, 2000 none of the REMIC pools had experienced
any realized losses nor had any of the Company's REMIC Certificate
investments been determined to be permanently impaired.

45

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7. ASSET SECURITIZATIONS

The Company is a REIT and, as such, makes its investments with the intent to
hold them for long-term purposes. However, mortgage loans may be transferred
to a REMIC (securitization) when a securitization provides the Company with the
best available form of capital to fund additional long-term investments. When
contemplating a securitization, consideration is given to the Company's
current and expected future interest rate posture and liquidity and leverage
position, as well as overall economic and financial market trends. As of
December 31, 2000 the Company has completed four securitization transactions,
however, no securitizations occurred during 1999 or 2000, nor is the Company
under commitment to complete any securitization in the future.

From its past securitizations, the Company receives annual sub-servicing fees
which range from 2.0 to 3.0 basis points of the outstanding mortgage loan
balances in each of the REMIC pools. Additionally, through the REMIC
Certificates retained by the Company from past securitizations, LTC receives
cash flows and the rights to future cash flows resulting from cash received
on the underlying mortgage loans in the REMIC pools. All of the investors in
the REMIC Certificates and the REMIC Trusts themselves have no recourse to
the Company's assets for failure by any obligor to the REMIC Trust assets
(the mortgages) to pay when due, or comply with any provisions of the
mortgage contracts. The REMIC Certificates are classified separately on the
balance sheet and interest income earned shown separately on the income
statement. Sub-servicing fees and related fees associated with the REMIC
certificates are included in other income.

Certain cash flows received from and paid to REMIC Trusts are as follows:
(dollar amounts in thousands)



Year Ended
-----------------------------
2000 1999
----------- -----------

Cash flow received on retained REMIC Certificates $18,940 $19,361
Servicing and related fees received $ 336 $ 211
Servicing advances made $ 2,052 $ 1,519
Repayments of servicing advances $ 2,282 $ 881


At December 31, 2000, scheduled distributions of principal on REMIC
Certificates retained by the Company are: $0, $0, $6,530,000; $20,428,000;
$10,112,000; and, $45,592,000; for the years ending December 31, 2001, 2002,
2003, 2004, 2005 and thereafter. These amounts are based upon the scheduled
remaining amortization periods of the underlying mortgages, which may be
subject to change. Currently, the Company has no mortgage loans in its
portfolio held for securitization. Quantitative information relating to
subserviced mortgage loans, including, delinquencies and net credit losses is
as follows: (dollar amounts in thousands)



2000 1999 1998
----------- ----------- -----------

Average balance of loans in REMIC pools $ 353,300 $ 372,292 $ 354,511
Year-end balance of loans in REMIC pools 348,201 361,896 381,894

Net credit losses $ 0 $ 0 $ 0
Net credit losses to average REMIC pool loans 0% 0% 0%

Delinquencies (greater than 30 days) to
year-end REMIC pool loans 2.0% 2.2% 1.2%




8. LTC HEALTHCARE, INC.

As of December 31, 2000, 29 real estate properties with a gross carrying
value of $70,376,000 or 8% of the Company's gross real estate investment
portfolio (adjusted to include two mortgage loans underlying the REMIC
Certificates) were operated by LTC Healthcare, Inc. ("Healthcare"). During
the twelve months ended December 31, 2000, the Company recorded rental income
of approximately $6,176,000 from Healthcare. The Company leased 25
properties, on a short-term basis, to Healthcare. These leases expire on June
30, 2001, at which time the Company and Healthcare will reevaluate all
leases. The Company also leases two properties on a month-to-month basis to
Healthcare. On July 1, 2000, the independent members of the Board of
Directors of both Healthcare and the Company approved new rental rates.
Annual rental income from Healthcare under the new rates is approximately
$4,100,000. Effective January 1, 2001, the Company and Healthcare agreed to
early termination of four leases, which would have expired on June 30, 2001,
one each in Florida, Illinois, Texas and Virginia (See Note 5). These
facilities had gross carrying value of $8,126,000 or 1% of the Company's
gross real estate investment portfolio (adjusted to include mortgage loans
underlying the REMIC Certificates). Annual rental from Healthcare in 2001
under the 23 remaining leases is approximately $3,405,000. Also, as of
December 31, 2000, Healthcare had mortgage loans secured by six skilled
nursing facilities with total outstanding principal balances of $16,433,000
and a weighted average interest rate of 9.25% payable to REMIC pools
originated by the Company. Two of the skilled nursing facilities securing the
mortgage loans payable to the Company's REMIC pools are operated by
Healthcare and the remaining four skilled nursing facilities are leased to
third party operators.

As of December 31, 2000 and 1999, the Company owned 180,000 and 239,000 shares,
respectively, of Healthcare common stock. At December 31, 2000 and 1999, the
Company's investment in Healthcare common stock is recorded at its fair value of
$236,000 and $480,000, respectively, in the accompanying balance sheet. An
unrealized holding loss of $185,000 and $181,000, respectively, is included in
comprehensive income for the years ended December 31, 2000 and 1999.

During the third quarter of 2000 the Company purchased 100% of the common stock
of Coronado Corporation and Park Villa Corporation from Healthcare for a total
purchase price (based on independent appraisals) of $19,200,000. As a result of
the purchase, the Company assumed $13,696,000 of mortgage debt and reduced
receivables from Healthcare by $5,346,000.

The Company has provided Healthcare with a $20,000,000 unsecured line of credit
that bears interest at 10% and matures in March 2008. As of December 31, 2000
and 1999, $16,582,000 and $6,337,000, respectively, was outstanding under the
line of credit. Under the terms of the new Senior Secured Revolving Line of
Credit, the Company is permitted to loan Healthcare up to $25,000,000. The
Company and Healthcare have not increased the $20,000,000 unsecured line of
credit between the companies. Should any such amendment be proposed, it would
need approval of the independent Board members of each company's board. During
the years ended December 31, 2000 and 1999, the Company recorded interest income
of $1,713,000 and $1,514,000, respectively on the average outstanding principal
balance under the line of credit.

On June 23, 2000, the Company's Board of Directors appointed Healthcare as the
Company's exclusive sales agent for all skilled nursing facilities for a period
of one year and approved a commission agreement with Healthcare. Pursuant to the
agreements, during 2000, the Company paid Healthcare sales commissions of
$1,600,000. During 1999, the Company had an administrative services agreement
with Healthcare. Accordingly, Healthcare reimbursed the Company for
administrative and management advisory services in the


46

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

amount of $740,000 for the year. The administrative services agreement was
terminated effective January 1, 2000 since Healthcare has its own management
and administrative staff. The Company received no reimbursement for
administrative and management advisory services in 2000.

During 1999, the Company acquired from Healthcare, 100% of the stock of two
companies that each own an assisted living facility, for a total purchase price
of $16,050,000. Both facilities are leased to a third party operator. Healthcare
used the proceeds to repay borrowings under the unsecured line of credit.

As of December 31,1999, 17 skilled nursing facilities with a gross carrying
value of $36,055,000 were leased to Healthcare. Also, as of December 31, 1999,
Healthcare had mortgage loans secured by eight skilled nursing facilities with
total outstanding principal of $30,424,000 and a weighted average interest rate
of 9.18% payable to the Company's REMIC pools. During 1999, the Company recorded
rental income of approximately $779,000 on properties leased to Healthcare.

During 1998, the Company acquired 4,002 shares of LTC Healthcare, Inc.
("Healthcare") non-voting common stock for $2,001,000 in cash. The Company also
contributed net assets with a book value of $21,619,000 in exchange for 36,000
additional shares of Healthcare non-voting common stock and a note receivable
from Healthcare. On September 30, 1998, the 40,002 shares of Healthcare
non-voting common stock held by the Company were converted into 3,335,882 shares
of Healthcare voting common stock. Concurrently, the Company completed the
spin-off of all Healthcare voting common stock through a taxable dividend
distribution to the holders of Company common stock, Cumulative Convertible
Series C Preferred Stock and Convertible Subordinated Debentures. The Company
incurred costs of approximately $500,000 in connection with the distribution.
For book purposes, no gain was recognized on the distribution of Healthcare
common stock which had a net book value of approximately $10,724,000. The
distribution was a taxable dividend distribution and accordingly, for tax
purposes, the net assets were transferred at their net fair market value of
approximately $15,650,000 ($4.69 per share of Healthcare common stock -
unaudited) which resulted in a taxable gain to the Company of approximately
$4,900,000 (unaudited). Upon completion of the distribution, Healthcare began
operating as a separate public company.

9. OTHER ASSETS

During 2000, the Company received short term notes receivable of $3,055,000 in
conjunction with the sale of one skilled nursing facility, one assisted living
facility and one school. The notes mature on various dates in 2001 and have a
combined weighted average interest rate of 9.5%. Additionally, the Company
received a three year $2,000,000 note with an interest rate of 10%. This note is
a deposit on a skilled nursing facility in Florida. The gross sales price of
this facility is approximately $6,000,000.

During 1999, the Company provided one of its operators with a line of credit
secured by patient accounts receivable to fund working capital requirements. The
line of credit bears interest at the prime rate of interest plus 2% and matures
in February 2004. The Company performed a comprehensive evaluation of the
accounts receivable securing the line of credit at December 2000 and 1999 and
determined that approximately $1,259,000 and $3,329,000, respectively, of the
amounts advanced were not recoverable. See Note. 5 - Impairment Charge. At
December 31, 2000 and 1999, advances of $1,500,000 and $4,954,000 were estimated
to be recoverable.

10. MARKETABLE DEBT SECURITIES

During 1999, the Company acquired $4,195,000 face amount of Assisted Living
Concepts, Inc. ("ALC") 5.625% convertible subordinated debentures due May 2003
and $15,645,000 face amount of ALC 6.0% convertible subordinated debentures due
November 2002 for an aggregate purchase price of $13,097,000. As of December 31,
2000 and 1999, our investment in ALC convertible debentures had a weighted
average cash yield of 8.3%

47

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and a weighted average effective yield of 19.1%. The Company accounts for its
investment in ALC convertible subordinated debentures at amortized cost as
held-to-maturity securities. At December 31, 2000 and 1999, the Company's
investment in ALC convertible subordinated debentures had an amortized cost
of $15,873,000 and $14,190,000 and a fair value of $8,696,000 and
$12,207,000, respectively.

11. DEBT OBLIGATIONS

BANK BORROWINGS. On October 31, 2000, the Company entered into a new Senior
Senior Secured Revolving Line of Credit Agreement (the "Senior Secured Revolving
Line of Credit") that expires on October 2, 2004 and replaces the Revolving
Credit Facility and the term loan discussed below. The Senior Secured Revolving
Line of Credit initially provided for $185,000,000 of total commitments with
periodic reductions of these commitments to fully retire the commitments as of
October 2, 2004. Specifically scheduled available commitments as of December 31,
2000, 2001, 2002 and 2003 are $185,000,000, $157,500,000, $95,000,000 and
$75,000,000 respectively. An additional provision of this agreement requires
certain amounts of commitment reductions as a result of asset sales. As a result
of sales of assets prior to year end, the available commitment balance at
December 31, 2000 was $173,960,000. Subsequent to year end 2000, the Company
further reduced commitments to $171,676,000 as a result of additional asset
sales.

The Senior Secured Revolving Line of Credit pricing varies between LIBOR plus
2.00% and LIBOR plus 3.00% depending on the Company's leverage ratio. At
December 31, 2000 the Company's interest rate was 9.215%, reflecting a pricing
of LIBOR plus 2.50%.

The Senior Secured Revolving Line of Credit contains financial covenants
including, but not limited to a collateral value ratio, funded debt ratio,
senior leverage ratio, interest coverage ratio and a tangible net worth
ratio. As of December 31, 2000, the Company was in compliance with financial
covenants as required by the Senior Secured Revolving Line of Credit. Under
the terms of the Senior Secured Revolving Line of Credit the Company is
limited in any fiscal year from paying total common and preferred cash
dividends of no more than 110% of consolidated taxable income. At inception,
$183,290,000 of owned properties, $113,842,000 of mortgage loans receivable
and $96,332,000 of REMIC certificates were pledged as collateral. Additional
provisions in the Senior Secured Revolving Line of Credit provide for the
release of certain collateral when the commitments are reduced to
$100,000,000 or less and $60,000,000 or less and allows the Company to buy
back its stock once the commitments are $135,000,000 or less. In addition to
a fee paid to the lenders at the time of signing the Senior Secured Revolving
Line of Credit, the Company has agreed to pay an additional fee to the
lenders based on total commitments, if any, outstanding as of October 2, 2002.

As of December 31, 1999, $135,000,000 was outstanding under the Company's prior
$170,000,000 Senior Unsecured Revolving Line of Credit (the "Revolving Credit
Facility"), which expired on October 31, 2000. The Revolving Credit Facility
pricing varied between LIBOR plus 1.25% and LIBOR plus 1.5% depending on the
Company's leverage ratio. During the year ended December 31, 1999, pricing under
the Revolving Credit Facility was LIBOR plus 1.25%. During 1999, the Company
obtained a $25,000,000 term loan with interest at LIBOR plus 1.25% and that
matured October 31, 2000.

On November 2, 1998, the Company entered into an interest rate swap agreement
whereby the Company effectively fixed the interest rate on LIBOR based variable
rate debt. Under this agreement, which expired in November 2000, the Company was
credited interest at three month LIBOR and paid interest at a fixed rate of
4.74% on a notional amount of $50,000,000. The differential paid or received on
the interest rate swap was recognized as an adjustment to interest expense.
During 1999, the Company received $657,000 upon early termination of the
interest rate swap that was amortized over the term of the original swap
agreement.


48

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CONVERTIBLE SUBORDINATED DEBENTURES (DOLLAR AMOUNTS IN THOUSANDS):



Outstanding Principal at
December 31,
Interest Conversion --------------------------
Rate Maturity Price per share 2000 1999
-------- ------------ --------------- ------------ ----------

8.50% January 2001 $15.50 $11,849 $11,849
7.75% January 2002 $16.50 2,408 2,408
8.25% July 2001 $17.25 10,385 10,385
$24,642 $24,642


On January 2, 2001, the Company borrowed $12,000,000 under its Senior Secured
Revolving Line of Credit Facility to pay in full the 8.50% Convertible
Subordinated Debentures.

On September 30, 1999, $10,000,000 outstanding principal amount of 8.25%
Convertible Subordinated Debentures matured and were repaid. During 1999, the
Company repurchased an aggregate of $21,590,000 face amount of its convertible
debentures on the open market for an aggregate purchase price of $19,992,000. A
gain of $1,304,000 on the repurchase of convertible debentures is included in
other income, net in the accompanying income statement.

Neither the 8.25% debentures due July 2001 nor the 7.75% debentures due January
2002 were redeemable by the Company prior to January 1, 2001.

As of December 31, 2000, giving effect to the January 2, 2001 redemption of the
8.50% Convertible Subordinated Debentures, the remaining convertible
subordinated debentures outstanding were convertible into 747,968 shares of
common stock. Based on quoted market prices the fair value of the debentures
approximated $23,136,000 and $21,907,000 at December 31, 2000 and 1999,
respectively.

MORTGAGE LOANS PAYABLE. During 2000, the Company acquired two skilled nursing
facilities that were subject to the assumption of existing non-recourse mortgage
debt of $13,696,000 that bears interest at a weighted average rate of 9.25% and
matures in 2006.

Mortgage loans and weighted average interest rates for loans payable to REMIC's
formed by the Company were (DOLLAR AMOUNTS IN THOUSANDS):



December 31, 2000 Rate December 31, 1999 Rate
----------------- ---- ----------------- ----

1993-1 Pool $21,908 12.0% $22,107 12.0%
1994-1 Pool 5,965 11.7 6,042 11.5
1996-1 Pool 37,063 10.0 23,672 10.3
1998-1 Pool 13,604 9.3 13,730 9.3
------- -------
$78,540 $65,551
======= =======


Mortgage loans and weighted average interest rates for mortgage loans payable to
others were (DOLLAR AMOUNTS IN THOUSANDS):



MATURITY December 31, 2000 Rate December 31, 1999 Rate
- -------- ----------------- ---- ----------------- ----

2002 $6,500 9.50% $6,500 8.50%
2009 18,301 8.81 18,485 8.81
---------------- -----------------
$24,801 $24,985
================ =================


49


LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2000 and 1999, the aggregate carrying value of real estate
properties securing the Company's mortgage loans payable was $145,644,000 and
$128,636,000, respectively.

BONDS PAYABLE AND CAPITAL LEASES. At December 31, 2000 and 1999, the Company had
outstanding principal of $7,550,000 and $7,815,000, respectively on multifamily
tax-exempt revenue bonds. These bonds bear interest at a variable rate that is
reset weekly and matures during 2015. For the year ended December 31, 2000, the
weighted average interest rate, including letter of credit fees, on the
outstanding bonds was 6.0%. At December 31, 2000 and 1999, the Company had
outstanding principal of $4,127,000 and $4,162,000, respectively on a multi-unit
housing tax-exempt revenue bond that bears interest at 10.9% and matures in
2025.

At December 31, 2000 and 1999, the Company had outstanding principal of
$4,900,000 and $5,119,000, respectively, under capital lease obligations. The
capital leases are secured by four assisted living residences, have a weighted
average interest rate of 7.6% and mature at various dates through 2013.

As of December 31, 2000 and 1999, the aggregate gross investment in real estate
properties securing the Company's bonds payable and capital leases was
$25,719,000.

SCHEDULED PRINCIPAL PAYMENTS. Total scheduled principal payments for the
mortgage loans payable, bonds payable and capital lease obligations as of
December 31, 2000 were $1,747,000, $16,150,000, $17,452,000, $5,572,000,
$12,206,000 and $66,791,000 in 2001, 2002, 2003, 2004, 2005 and thereafter.

12. STOCKHOLDERS' EQUITY

ISSUANCE OF STOCK. On September 2, 1998, the Company issued 2,000,000 shares of
8.5% Series C Convertible Preferred Stock (the "Series C Preferred Stock") at
$19.25 per share for net proceeds of $37,605,000. The Series C Preferred Stock
is convertible into 2,000,000 shares of the Company's common stock, has a
liquidation value of $19.25 per share and has an annual coupon of 8.5%, payable
quarterly. Total shares reserved for issuance of common stock related to the
conversion of Series C Preferred Stock were 2,000,000 shares at December 31,
2000 and 1999.

At December 31, 2000, 3,080,000 shares of 9.5% Series A Cumulative Preferred
Stock ("Series A Preferred Stock") and 2,000,000 shares of 9.0% Series B
Cumulative Preferred Stock ("Series B Preferred Stock") were outstanding.
Dividends on the Series A Preferred Stock and Series B Preferred Stock are
cumulative from the date of original issue and are payable monthly to
stockholders of record on the first day of each month. Dividends on the
Series A Preferred Stock and the Series B Preferred Stock accrue at 9.5% and
9.0% per annum, respectively, on the $25 liquidation value per share
(equivalent to a fixed annual amount of $2.375 and $2.25 per share,
respectively). The Series A Preferred Stock is not redeemable prior to April
1, 2001 and the Series B Preferred Stock is not redeemable prior to January
1, 2002, except in certain circumstances relating to preservation of the
Company's qualification as a REIT.

The liquidation preferences of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock are pari passu. Neither the Series A
Preferred Stock, Series B Preferred Stock nor the Series C Preferred Stock
have any voting rights.

REPURCHASE OF COMMON STOCK. During 2000 and 1999 the Company repurchased and
retired 1,005,600 and 649,800 shares of common stock, respectively, for an
aggregate purchase price of $7,969,000 and $7,039,000, respectively.

STOCK BASED COMPENSATION PLANS. During 1998, the Company adopted and its
stockholders approved the 1998 Equity Participation Plan under which 500,000
shares of common stock have been reserved for stock based compensation awards.
The 1998 Equity Participation Plan and the Company's Restated 1992 Stock Option
Plan under which 500,000 shares of common stock were reserved (collectively "the
Plans") provide for the issuance of incentive and nonqualified stock options,
restricted stock and other stock based awards to officers, employees,
non-employee directors and consultants. The terms of awards granted under the
Plans are set by the Company's compensation committee at its discretion however,
in the case of incentive stock options, the term may not exceed ten years from
the date of grant. Total shares available for grant under the Plans as of
December 31, 2000, 1999 and 1998 were 19,880, 507,040 and 507,000, respectively.
All options outstanding vest over five years from the original date of grant.
Unexercised options expire seven years after the date of vesting.

50


LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Nonqualified stock option activity for the years ended December 31, 2000, 1999
and 1998 was as follows:




Shares Weighted Average Price
---------------------------------------------- -----------------------------------
2000 1999 1998 2000 1999 1998
-------------- ---------------- -------------- ------------ ----------- ----------

Outstanding, January 1 23,000 23,000 169,500 $14.86 $14.86 $11.21
Granted 517,500 - - $5.41
- -
Exercised - - (146,500) - $10.64
-
Canceled (31,500) - - $7.04
- -
-------------- ---------------- --------------
Outstanding, December 31 509,000 23,000 23,000 $5.74 $14.86 $14.86
============== ================ ==============
Exercisable, December 31 16,500 18,000 12,000 $15.41 $14.26 $13.83
============== ================ ==============


Restricted stock activity for the years ended December 31, 2000, 1999 and 1998
was as follows:




2000 1999 1998
------------ ------------ ------------

Outstanding, January 1 264,400 393,000 382,000
Granted 23,000 448,800 24,000
Vested - (128,560) (13,000)
Canceled (21,840) (448,840) -
------------ ------------ ------------
Outstanding, December 31 265,560 264,400 393,000
------------ ------------ ------------
Compensation Expense $ - $ - $ 1,492,000
============ ============ ============


In 2000, restricted stock awards aggregating 23,000 shares with a weighted
average fair value on the dates of grant of $8.07 per share were granted to
employees. These grants vest evenly over four or five years with the first
vesting in January 2001.

In March 1999, all outstanding shares of restricted stock as of that date were
cancelled. Subsequently, restricted stock awards aggregating 448,800 shares with
a weighted average fair value on the date of grant of $11.50 per share were
granted to employees and non-employee directors. Each grantee will vest shares
equal to 10% of their total grant per year if the Company meets certain
financial objectives and the grantee remains employed by the Company. If, in any
given year, the Company does not meet the stated financial objectives then the
shares scheduled to vest in that year will not vest and the vesting period will
be extended by one year. During 1999, certain recipients of restricted stock
awarded in 1999 immediately vested in a portion of such shares. Compensation
expense related to the vested shares approximated compensation expense
recognized in prior years on the unvested shares that were cancelled in 1999.
Future compensation expense will be recognized over the service period at the
market price per share on the date of vesting. None of these shares of
restricted stock vested in 2000.

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.

As of December 31, 2000, 1999 and 1998, there were 509,000, 23,000, and 23,000
options outstanding, respectively, subject to the disclosure requirements of
SFAS No. 123. The fair value of these options was estimated utilizing the
Black-Scholes valuation model and assumptions as of each respective grant date.
In determining the estimated fair values for the options granted in 2000, the
weighted average expected life assumption was five years, the weighted average
volatility was 0.48 and the weighted average risk free interest rate was 6.47%.
The weighted average fair value of the options granted was estimated to be
$0.65. There was no material pro-forma effect on net income or earnings per
share for the years ending December 31, 2000, 1999 and 1998. The weighted
average exercise price of the options was $5.38, $15.65 and $15.65 and the
weighted average remaining contractual life was 4.3, 5.9 and 6.9 years as of
December 31, 2000, 1999 and 1998, respectively.

51


LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTES RECEIVABLE FROM STOCKHOLDERS. In 1997, the Board of Directors adopted a
loan program designed to encourage executives, key employees, consultants and
directors to acquire common stock through the exercise of options. Under the
program, the Company made full recourse, secured loans to participants equal to
the exercise price of vested options plus up to 50% of the taxable income
resulting from the exercise of options. Such loans bear interest at the then
current Applicable Federal Rate. In January 2000, the Board of Directors
approved a new loan agreement for current executives and directors in the
amounts of the remaining principal balance of the original loans.

The new loan agreements provide that the interest rate is 6.07% and interest
payments are due quarterly equal to the most recent dividend received on the
shares pledged as security for the notes. If the dividend does not fully pay the
interest due or if no dividend is paid, the unpaid interest is added to the
principal balance. The notes also require the borrower to reduce principal by
one-half of the most recent dividend received on the pledged shares less the
interest paid on the loans from that dividend.

The maturity date of the new notes is December 31, 2008 and at that time the
remaining principal amount is due in full. Additionally, the new notes contain a
provision that allows the borrower the option of fully discharging the then
remaining principal balance of the loan by tendering the pledged shares as full
payment upon the event of a change of control of the Company or upon the death
of the borrower.

Unless the Board of Directors approves otherwise, loans must be repaid within 90
days after termination of employment for any reason, other than in connection
with a change of control of the Company.

The remaining original notes provide for the same calculation of the periodic
principal reductions; however, interest is payable every quarter, regardless of
receipt of a dividend. The original notes will convert to fully amortizing loans
with 16 quarterly payments beginning in year six. The original notes bear
interest rates ranging from 5.77% to 6.63%.

In 2000 and 1999, no options were exercised under this program. At December 31,
2000 and 1999, loans totaling $10,126,000 and $10,258,000, respectively were
outstanding. At December 31, 2000 and 1999, the market value of the common stock
securing these loans was approximately $2,968,000 and $6,691,000, respectively.

13. SUBSEQUENT EVENTS

Subsequent to December 31, 2000, the Company entered into two separate purchase
and sale agreements with two unrelated third parties for the sale of two schools
in Arizona for a combined gross sales price of $15,185,000. Additionally, the
Company entered into a purchase and sale agreement with an unrelated third party
for the sale of three assisted living facilities in Wyoming for a gross sales
price of $12,850,000. The transaction is scheduled to close escrow on November
30, 2001, however the agreement provides for extensions of the scheduled closing
date with corresponding increases in the gross sales price.

14. DISTRIBUTIONS

The Company must distribute at least 95% (90% for years ending after December
31, 2000) of its taxable income in order to continue to qualify as a REIT.
Annual distributions may exceed the Company's earnings and profits due to
non-cash expenses such as depreciation and amortization. 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. Distributions for 2000 and 1999 were cash distributions. The 1998
distribution consisted of $1.535 per share in cash and $.469 per share
(unaudited) in the form of Healthcare common stock.


52

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The Federal income tax classification of the per share common stock
distributions are (unaudited):




2000 1999 1998
---------------- --------------- ----------------

Ordinary income $0.701 $1.185 $1.355
Non-taxable distribution - 0.375 0.397
Section 1250 capital gain 0.146 - 0.051
Long term capital gain 0.023 - 0.201
---------------- --------------- ----------------
Total $0.870 $1.560 $2.004
================ =============== ================


15. NET INCOME PER SHARE

Basic and diluted net income per share were as follows (IN THOUSANDS EXCEPT PER
SHARE AMOUNTS):




2000 1999 1998
------------ ------------ ------------

Net income $ 31,637 $ 31,827 $ 50,593
Preferred dividends (15,087) (15,087) (12,896)
------------ ------------ ------------
Net income for basic net income per share 16,550 16,740 37,697
7.75%debentures due 2002 - - 516
8.5%debentures due 2000 - - 684
8.25%debentures due 1999 - - 860
Other dilutive securities - - 192
------------ ------------ ------------
Net income for diluted net income per share $ 16,550 $ 16,740 $ 39,949
============ ============ ============

Shares for basic net income per share 26,108 27,412 27,077
Stock options - - 11
7.75%debentures due 2002 - - 417
8.5%debentures due 2000 - - 497
8.25%debentures due 1999 - - 645
Other dilutive securities - - 176
------------ ------------ ------------
Shares for diluted net income per share 26,108 27,412 28,823
============ ============ ============
Basic net income per share $ 0.63 $ 0.61 $ 1.39
============ ============ ============
Diluted net income per share $ 0.63 $ 0.61 $ 1.39
============ ============ ============


The conversion of subordinated debentures and stock options were anti-dilutive
in 2000 and 1999.

53

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)





Quarter ended
--------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------------ ------------------- -------------------- --------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

2000
- ----
Revenues $22,506 $22,717 $21,536 $20,371
Net income (loss) available to
common stockholders(1) 6,903 6,081 6,518 (2,952)
Basic net income (loss) per share 0.26 0.23 0.25 (0.11)
Diluted net income (loss) per share 0.26 0.23 0.25 (0.11)
Dividends per share 0.29 0.29 0.29 0.00


1999
- ----
Revenues $22,204 $22,766 $21,959 $20,733
Net income (loss) available to
common stockholders(2) 8,768 9,112 8,174 (9,314)
Basic net income (loss) per share 0.32 0.33 0.30 (0.34)
Diluted net income (loss) per share 0.32 0.33 0.30 (0.34)
Dividends per share 0.39 0.39 0.39 0.39


(1) Includes an impairment charge of $14.8 million.
See Note 5 - Impairment Charge.

(2) Includes an impairment charge of $14.9 million.
See Note 5 - Impairment Charge.


54

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.


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 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 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 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 filed pursuant to Regulation 14A.

ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS
ON FORM 8-K.

(a) Financial Statement Schedules

The financial statement schedules listed in the accompanying index to
financial statement schedules are filed as part of this annual
report.

(b) Exhibits

The exhibits listed in the accompanying index to exhibits are filed
as part of this annual report.

(c) Reports on Form 8-K

None.

55

INDEX TO FINANCIAL STATEMENT SCHEDULES
(ITEM 14(a))




II. Valuation and Qualifying Accounts ........................ 57
III. Real Estate and Accumulated Depreciation ................. 58
IV. Mortgage Loans on Real Estate ............................ 59


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.


56

LTC PROPERTIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)



Balance at Charge to Balance at
Beginning of Period Operations End of Period
------------------- ---------- -------------

Allowance for
Doubtful Accounts:

2000 $1,250 $ - $1,250

1999 $1,250 $ - $1,250

1998 $1,000 $250 $1,250



57

LTC PROPERTIES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)



Initial Cost to Costs Gross Amount at which Carried
Company Capitalized at December 31, 2000
------------------- ----------------------------- Construction/
Building and After Building and Accum. Renovation Acquisition
Encumbrance Land Improvements Acquisition Land Improvements Total Deprec.(1) Date Date
----------- ------------------------------ ------------------------- ---------- ------------- -----------

Skilled Nursing
Facilities:
Bradenton, FL $ - $330 $2,720 $ - $330 $2,720 $3,050 $671 1989 Sep-93
Clearwater, FL - 454 2,902 - 454 2,902 3,356 547 1965/93 Sep-93
Lecanto, FL - 351 2,665 2,251 351 4,916 5,267 900 1988 Sep-93
Rusk, TX - 34 2,399 14 34 2,413 2,447 673 1969 Mar-94
Chicago Heights, IL - 221 6,406 - 221 6,406 6,627 1,426 1988 Sep-94
Demopolis, AL 10,351 (2) 71 2,141 - 71 2,141 2,212 435 1972 Jun-95
Fort Payne, AL - (2) 37 3,588 - 37 3,588 3,625 713 1967/73 Jun-95
Jackson, AL - (2) 64 2,620 - 64 2,620 2,684 528 1964 Jun-95
Madison, AL - (2) 30 2,328 - 30 2,328 2,358 464 1964/74 Jun-95
Phoenix, AL - (2) 59 2,123 - 59 2,123 2,182 429 1969 Jun-95
Toppanish, WA 2,551 (3) 132 2,654 - 132 2,654 2,786 548 1960/70 Jun-95
Vancouver, WA - (5) 60 3,031 2 60 3,033 3,093 608 1952/94 Jun-95
Chesapeake, VA - 656 3,201 34 656 3,235 3,891 758 1977 Oct-95
Richmond, VA - 354 3,182 43 354 3,225 3,579 695 1970/75/80 Oct-95
Tappahannock, VA - (14) 209 1,493 - 209 1,493 1,702 702 1977/78 Oct-95
Jefferson, IA 10,282 (4) 36 1,933 163 36 2,096 2,132 324 1968/72 Jan-96
Montgomery, AL 3,771 (5) 144 5,426 - 144 5,426 5,570 903 1967/74 Jan-96
Carroll, IA - (4) 60 1,020 38 60 1,058 1,118 197 1969 Jan-96
Whiteright, TX 1,093 100 2,923 - 100 2,923 3,023 535 1962/64/65 Jan-96
Granger, IA - (4) 93 1,325 59 93 1,384 1,477 251 1979 Jan-96
Bedford, TX - (4) 345 3,195 404 345 3,599 3,944 597 1960 Jan-96
Polk City, IA - (3) 88 1,351 15 88 1,366 1,454 264 1976 Jan-96
Atmore, AL - (4) 23 2,985 - 23 2,985 3,008 498 1967/74 Jan-96
Norwalk, IA - (4) 45 1,035 46 45 1,081 1,126 197 1975 Jan-96
Altoona, IA - (4) 102 2,312 121 102 2,433 2,535 400 1973 Jan-96
Midland, TX 1,988 32 2,285 - 32 2,285 2,317 414 1973 Feb-96
Gardendale, AL - 84 6,316 - 84 6,316 6,400 957 1976/84 May-96
Roberta, GA - 100 2,400 59 100 2,459 2,559 445 1964 May-96
Houston, TX 6,976 (8) 202 4,458 456 202 4,914 5,116 779 1961 Jun-96
Houston, TX 6,628 (9) 361 3,773 248 361 4,021 4,382 736 1964/68 Jun-96
Houston, TX (8) 202 4,458 449 202 4,907 5,109 779 1967 Jun-96
Mesa, AZ 4,385 305 6,909 1,695 305 8,604 8,909 1,172 1975/96 Jun-96
Houston, TX - (9)(14) 572 2,997 824 572 3,821 4,393 1,193 1967 Jun-96
Sacramento, CA - 220 2,929 - 220 2,929 3,149 436 1968 Feb-97
Coffeyville, KS - - - - - - - - 1962 May-97
Salina, KS - 100 1,153 445 100 1,598 1,698 626 1985 May-97
South Haven, KS - - - - - - - - 1969 May-97
Portland, OR - 100 1,925 457 100 2,382 2,482 306 1956/74 Jun-97
Nacogdoches, TX - 100 1,738 37 100 1,775 1,875 239 1973 Oct-97
Cushing, TX - 100 1,679 24 100 1,703 1,803 230 1973/84 Oct-97
Mesa, AZ 2,921 420 4,258 32 420 4,290 4,710 397 1972 Oct-97
Wells, TX 2,226 (6) 100 1,649 7 100 1,656 1,756 198 1980 Jan-98
Corrigan, TX - (6) 100 1,649 7 100 1,656 1,756 198 1985 Jan-98
Groesbeck, TX 1,301 100 1,649 7 100 1,656 1,756 198 1972 Jan-98
Tampa, FL - 100 6,402 41 100 6,443 6,543 612 1970 Jun-98





58

LTC PROPERTIES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(in thousands)




Initial Cost to Costs Gross Amount at which Carried
Company Capitalized at December 31, 2000
---------------------- ----------------------------- Construction/
Building and After Building and Accum. Renovation Acquisition
Encumbrance Land Improvements Acquisition Land Improvements Total Deprec.(1) Date Date
-------------- --------------------------------- ------------------------- ----------- ---------- ---------

Jonesboro, GA 2,659 150 2,573 3 150 2,576 2,726 144 1970 Sep-99
Griffin, GA 4,742 (10) 500 2,900 - 500 2,900 3,400 160 1969 Sep-99
Atlanta, GA - (10) 175 1,282 3 175 1,285 1,460 96 1968 Sep-99
Des Moines, IA - 100 2,111 142 100 2,253 2,353 137 1972 Sep-99
Olathe, KS - 520 1,872 5 520 1,877 2,397 84 1968 Sep-99
Crawfordville, FL - 522 1,815 1,202 522 3,017 3,539 166 1974 Sep-99
Venice, FL - (14) 236 346 838 236 1,184 1,420 318 1969/72 Sep-99
Sumner, IL 968 100 877 7 100 884 984 57 1968 Oct-99
Topeka, KS - (14) - 400 12 - 412 412 16 1957 Oct-99
Carlinville, IL - (14) 100 486 25 100 511 611 61 1965 Oct-99
Fort Worth, TX 2,076 100 1,534 - 100 1,534 1,634 90 1974 Dec-99
Jessup, GA 6,500 (13) 35 465 38 35 503 538 18 1953 Dec-99
Fort Valley, GA - (13) 230 770 86 230 856 1,086 34 1965 Dec-99
Gardner, KS - (13) 729 4,478 149 729 4,627 5,356 152 1961/74 Dec-99
Canyon, TX (14) 196 1,093 211 196 1,304 1,500 32 1985/86 Jun-00
Phoenix, AX 7,381 300 9,703 - 300 9,703 10,003 162 1985 Aug-00
Tuscon, AZ 6,241 276 8,924 - 276 8,924 9,200 149 1985/92 Aug-00
Holyoke, CO - 184 1,541 2 184 1,543 1,727 16 1963 Nov-00
Manchester, TN - 50 954 58 50 1,012 1,062 11 1957/67/78 Nov-00
Dresden, TN - 31 1,529 149 31 1,678 1,709 23 1966 Nov-00
Ripley, TN - 20 985 56 20 1,041 1,061 11 1951 Nov-00
-------------- ------------------------------ ---------------------------- ----------
Skilled Nursing
Facilities 85,040 11,950 172,223 10,964 11,950 183,187 195,137 26,115
-------------- ------------------------------ ---------------------------- ----------




59

LTC PROPERTIES, INC.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(in thousands)




Initial Cost to Costs Gross Amount at which Carried
Company Capitalized at December 31, 2000
------------------- ----------------------------- Construction/
Building and After Building and Accum. Renovation Acquisition
Encumbrance Land Improvements Acquisition Land Improvements Total Deprec.(1) Date Date
----------- ------------------------------ ------------------------- ---------- ------------- -----------

Assisted Living
Residences:
Longview, TX - 38 1,568 - 38 1,568 1,606 224 1995 Oct-95
Marshall, TX - 38 1,568 450 38 2,018 2,056 271 1995 Oct-95
Dodge City, KS 1,435 88 1,662 - 88 1,662 1,750 250 1995 Dec-95
Great Bend, KS 1,209 87 1,563 17 87 1,580 1,667 243 1995 Dec-95
McPherson, KS 1,044 75 1,575 - 75 1,575 1,650 235 1994 Dec-95
Salina, KS 1,213 72 1,578 - 72 1,578 1,650 235 1994 Dec-95
Greenville, TX - 42 1,565 - 42 1,565 1,607 147 1995 Jan-96
Athens, TX - 96 1,511 - 96 1,511 1,607 229 1995 Jan-96
Kennewick, WA (7) 100 1,940 - 100 1,940 2,040 262 1996 Feb-96
Grandview, WA - (7) 100 1,940 - 100 1,940 2,040 258 1996 Mar-96
Jacksonville, TX - 100 1,900 - 100 1,900 2,000 255 1996 Mar-96
Walla Walla, WA 7,550 (7) 100 1,940 - 100 1,940 2,040 234 1996 Apr-96
Lufkin, TX - 100 1,950 - 100 1,950 2,050 254 1996 Apr-96
Camas, WA - (7) 100 2,175 - 100 2,175 2,275 271 1996 May-96
Gardendale, AL - 16 1,234 - 16 1,234 1,250 192 1988 May-96
Vancouver, WA - (7) 100 2,785 - 100 2,785 2,885 346 1996 Jun-96
Kelso, WA - 100 2,500 - 100 2,500 2,600 280 1996 Nov-96
Battleground, WA - 100 2,500 - 100 2,500 2,600 280 1996 Nov-96
Hayden, ID - 100 2,450 243 100 2,693 2,793 289 1996 Dec-96
Klamath Falls, OR - 100 2,300 - 100 2,300 2,400 264 1996 Dec-96
Newport, OR - 100 2,050 - 100 2,050 2,150 224 1996 Dec-96
Tyler, TX 11,420 (12) 100 1,800 - 100 1,800 1,900 199 1996 Dec-96
Wichita Falls, TX - 100 1,850 - 100 1,850 1,950 204 1996 Dec-96
Ada, OK - 100 1,650 - 100 1,650 1,750 184 1996 Dec-96
Nampa, ID - 100 2,240 23 100 2,263 2,363 245 1997 Jan-97
Tulsa, OK - (12) 200 1,650 - 200 1,650 1,850 182 1997 Feb-97
Durant, OK - 100 1,769 - 100 1,769 1,869 185 1997 Apr-97
San Antonio, TX - (12) 100 1,900 - 100 1,900 2,000 197 1997 May-97
Troy,OH - 100 2,435 306 100 2,741 2,841 279 1997 May-97
Waco, TX - 100 2,235 - 100 2,235 2,335 217 1997 Jun-97
Tulsa, OK - (12) 100 2,395 - 100 2,395 2,495 232 1997 Jun-97
San Antonio, TX - (12) 100 2,055 - 100 2,055 2,155 216 1997 Jun-97
Norfolk, NE - 100 2,123 - 100 2,123 2,223 218 1997 Jun-97
Wahoo, NE - 100 2,318 - 100 2,318 2,418 224 1997 Jul-97
York, NE - 100 2,318 - 100 2,318 2,418 224 1997 Aug-97
Hoquiam, WA - 100 2,500 - 100 2,500 2,600 230 1997 Aug-97
Tiffin, OH - 100 2,435 - 100 2,435 2,535 227 1997 Aug-97
Millville, NJ - 100 2,825 - 100 2,825 2,925 258 1997 Aug-97
Fremont,OH - 100 2,435 - 100 2,435 2,535 227 1997 Aug-97
Lake Havasu, AZ - 100 2,420 - 100 2,420 2,520 225 1997 Aug-97
Greeley, CO - 100 2,310 270 100 2,580 2,680 232 1997 Aug-97
Springfield, OH - 100 2,035 270 100 2,305 2,405 224 1997 Aug-97
Watauga, TX - 100 1,668 - 100 1,668 1,768 175 1996 Aug-97
Bullhead Ctiy, AZ - 100 2,500 - 100 2,500 2,600 229 1997 Aug-97
Arvada, CO 6,881 (11) 100 2,810 276 100 3,086 3,186 289 1997 Aug-97



60

LTC PROPERTIES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(in thousands)



Initial Cost to Costs Gross Amount at which Carried
Company Capitalized at December 31, 2000
------------------- ----------------------------- Construction/
Building and After Building and Accum. Renovation Acquisition
Encumbrance Land Improvements Acquisition Land Improvements Total Deprec.(1) Date Date
----------- ------------------------------ ------------------------- ---------- ------------- -----------

Edmond, OK - (12) 100 1,365 526 100 1,891 1,991 176 1996 Aug-97
Wetherford, OK - 100 1,669 592 100 2,261 2,361 196 1996 Aug-97
Eugene, OR - 100 2,600 - 100 2,600 2,700 233 1997 Sep-97
Caldwell, ID - 100 2,200 - 100 2,200 2,300 199 1997 Sep-97
Burley, ID - 100 2,200 - 100 2,200 2,300 199 1997 Sep-97
Wheelersburg, OH - 100 2,435 - 100 2,435 2,535 213 1997 Sep-97
Loveland, CO - (11) 100 2,865 270 100 3,135 3,235 266 1997 Sep-97
Wichita Falls, TX - 100 2,750 - 100 2,750 2,850 245 1997 Sep-97
Beatrice, NE - 100 2,173 - 100 2,173 2,273 187 1997 Oct-97
Madison, IN - 100 2,435 - 100 2,435 2,535 208 1997 Oct-97
Newark, OH - 100 2,435 - 100 2,435 2,535 208 1997 Oct-97
Elkhart, IN - 100 2,435 - 100 2,435 2,535 197 1997 Dec-97
Newport Richey, FL - 100 5,845 294 100 6,139 6,239 523 1986/95 Jan-98
Fremont, CA - 100 3,080 212 100 3,292 3,392 225 1998 Mar-98
RioRancho, NM - 100 8,300 32 100 8,332 8,432 586 1998 Mar-98
Ft. Meyers, FL - 100 2,728 9 100 2,737 2,837 201 1998 Mar-98
Tallahassee, FL - (12) 100 3,075 - 100 3,075 3,175 218 1998 Apr-98
Niceville, FL - 100 2,680 - 100 2,680 2,780 180 1998 Jun-98
Longmont, CO - (11) 100 2,640 - 100 2,640 2,740 177 1998 Jun-98
Shelby, NC - 100 2,805 - 100 2,805 2,905 187 1998 Jun-98
Spring Hill, FL - 100 2,650 - 100 2,650 2,750 178 1998 Jun-98
Portland, OR 0 100 7,622 - 100 7,622 7,722 488 1986 Jun-98
Tuscon, AZ - 100 8,700 - 100 8,700 8,800 556 1998 Jun-98
Denison, IA - 100 2,713 - 100 2,713 2,813 182 1998 Jun-98
Roseville, CA - 100 7,300 - 100 7,300 7,400 468 1998 Jun-98
Cheyenne, WY - 100 5,290 - 100 5,290 5,390 343 1998 Jun-98
Casper, WY - 100 3,610 - 100 3,610 3,710 238 1998 Jun-98
Laramie, WY - 100 3,610 - 100 3,610 3,710 230 1998 Jul-98
Ft. Collins, CO - 100 2,961 - 100 2,961 3,061 156 1998 Mar-99
Greenwood, SC - 100 2,638 - 100 2,638 2,738 137 1998 Mar-99
Greenville, NC - 100 2,478 - 100 2,478 2,578 127 1998 Mar-99
Sumter, SC - 100 2,351 - 100 2,351 2,451 113 1998 Mar-99
Central, SC - 100 2,321 - 100 2,321 2,421 109 1998 Mar-99
Rocky Mount, NC - 100 2,494 - 100 2,494 2,594 113 1998 Mar-99
New Bern, NC - 100 2,428 - 100 2,428 2,528 99 1998 Mar-99
Goldsboro, NC - 100 2,386 - 100 2,386 2,486 96 1998 Mar-99
Ft. Collins, CO - 100 3,400 - 100 3,400 3,500 156 1999 Jul-99
Rocky River, OH - 760 6,963 - 760 6,963 7,723 279 1998 Oct-99
Erie, PA - 850 7,477 - 850 7,477 8,327 313 1998 Oct-99
Lakeland, FL - 519 2,313 57 519 2,370 2,889 45 1968/74/96 Jun-00
Cordele, GA - 153 1,455 57 153 1,512 1,665 28 1987/88 Jun-00
------ ------------------------------------------------------------ -------
Assisted Living
Residences 34,888 10,234 234,805 3,904 10,234 238,709 248,943 19,843
------ ------------------------------------------------------------ -------



61

LTC PROPERTIES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(in thousands)



Gross Amount at which Carried
Initial Cost to Company Costs at December 31, 2000
------------------------ Capitalized ---------------------------------
Building and After Building and Accum.
Encumbrance Land Improvements Acquisition Land Improvements Total Deprec.(1)
-------------- ------------------------------------- --------------------------------- -----------

Schools
Phoenix, AZ - 100 1,834 - 100 1,834 1,934 149

Egan, MN - 100 3,688 26 100 3,714 3,814 309

Trenton, NJ - 100 6,000 3,170 100 9,170 9,270 485

Scottsdale, AZ - 1,000 8,400 - 1,000 8,400 9,400 280
-------------- ------------------------------------- --------------------------------- -----------
Schools - 1,300 19,922 3,196 1,300 23,118 24,418 1,223
-------------- ------------------------------------- --------------------------------- -----------

$119,928 $23,484 $426,950 $18,064 $23,484 $445,014 $468,498 $47,181
============== ===================================== ================================= ===========






Construction/
Renovation Acquisition
Date Date
- -------------- ----------

1980/97/98 May-98

1987/97 Jun-98

1930/98 Dec-98

1999 Dec-99



(1) Depreciation for building is calculated using a 35 year life for skilled
nursing facilities and 40 year life for assisted living residences and
additions to facilities. Depreciation for furniture and fixtures is
calculated based on a 7-year life for all facilities.
(2) Single note backed by five facilities in Alabama
(3) Single note backed by two facilities in Washington
(4) Single note backed by six facilities in Iowa and one facility in Texas
(5) Single note backed by two facilities in Alabama
(6) Single note backed by two facilities in Texas
(7) Single note backed by five facilities in Washington
(8) Single note backed by two facilities in Texas
(9) Single note backed by two facilities in Texas
(10) Single note backed by two facilities in Georgia
(11) Single note backed by three facilities in Colorado
(12) Single note backed by one facility in Florida, three facilities in
Oklahoma, and three facilities in Texas
(13) Single note backed by one facility in Kansas and two facilities in
Georgia
(14) An impairment charge totaling $7,529,000 was taken against 6 facilities












Activity for the years ended December 31, 1998, 1999 and 2000 is as follows:




Real Estate Accumulated
& Equipment Depreciation
------------ ------------

Balance at December 31, 1997 $ 318,870 $ 20,042
Additions 157,324 11,959
Conversion of mortgage loans into owned properties 7,301 -
Cost of real estate sold (7,654) (1,309)
Cost of real estate in spin-off (65,182) (3,720)
------------ ------------
Balance at December 31, 1998 410,659 26,972
Additions 44,362 13,237
Conversion of mortgage loans into owned properties 47,554 -
Impairment charge (7,662) (234)
------------ ------------
Balance at December 31, 1999 494,913 39,975
Additions 22,495 15,145
Conversion of mortgage loans into owned properties 12,255 -
Impairment charge (7,529) -
Cost of real estate sold (53,636) (7,939)
------------ ------------
Balance at December 31, 2000 $ 468,498 $ 47,181
============ ============



62


LTC PROPERTIES, INC.
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
(dollars in thousands)



Final Carrying Amount
Number of Number of Maturity Balloon Face Amount of Mortgages
State Facilities Units/Beds Interest Rate(1) Date Amount(2) of Mortgages December 31, 2000
- ----- ---------- ---------- ------------------ ------------- ---------- ------------ ------------------

SC 5 509 12.67% 2003 $10,754 $ 11,250 $ 10,828
CO 2 230 11.63% 2007 5,412 6,000 5,844
MS 1 180 11.32% 2006 5,033 5,465 5,363
AZ 1 256 10.96% 2001 5,033 5,250 2,860
OH 1 150 10.59% 2006 4,579 5,200 4,972
FL 1 191 11.88% 2017 0 4,500 4,262
CA 1 212 10.28% 2018 0 3,500 3,364
FL 1 94 10.15% 2007 2,879 3,290 3,190
NE 1 47 11.22% 2008 3,071 3,243 3,213
Various(3) 39 3,660 9.13%-13.6% 2001-2018 44,210 68,476 63,503
--------------- ---------- ------------ ------------------
53 5,529 $80,971 $116,174 $107,399
=============== ========== ============ ==================






Principal Amount of
Current Loans Subject to
Monthly Delinquent
Debt Service Principal or Interest
- ----------- --------------------

$ 121 $ -
62 -
55 -
- 5,907
50 -
49 -
34 -
30 -
31 -
690 3,133
----------- ---------------------
$1,122 $9,040
=========== =====================




(1) Represents current stated interest rate. Generally, the loans have 25-year
amortization with principal and interest payable at varying amounts over
the life to maturity with annual interest adjustments through specified
fixed rate increases effective either on the first anniversary or calendar
year of the loan.
(2) Balloon payment is due upon maturity, generally the 10th year of the loan,
with various prepayment penalties (as defined in the loan agreement).
(3) Includes 48 first-lien mortgage loans as follows:





# of Loans Original loan amounts:
- -------------- -------------------------

26 $ 247 - $2,000
10 $2,001 - $3,000
6 $3,001 - $4,000
1 $4,001 - $5,000
4 $5,001 - $6,000
1 $6,001 - $11,250



Activity for the years ended December 31, 1998, 1999 and 2000 is as follows:



Balance at December 31, 1997 $255,094
New mortgage loans 47,452
Sales of notes to REMIC (103,523)
Conversion of notes to owned
properties (7,301)
Collections of principal (10,758)
------------
Balance at December 31, 1998 180,964
New mortgage loans 6,678
Additional funding of existing loans 1,890
Conversion of notes to owned
properties (47,554)
Impairment charges (2,806)
Collections of principal (6,729)
------------
Balance at December 31, 1999 132,443
Additional funding of existing loans 964
Conversion of notes to owned
properties (12,131)
Impairment charges (5,088)
Collections of principal (8,789)
------------
Balance at December 31, 2000 $107,399
============




63

INDEX TO EXHIBITS
(ITEM 14(b))

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of LTC
Properties, Inc. (incorporated by reference to Exhibit 3.1 to
LTC Properties, Inc.'s Current Report on Form 8-K dated June 19,
1997)
3.2 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)
3.3 Articles Supplementary Classifying 3,080,000 shares of 9.5%
Series A Cumulative Preferred Stock of LTC Properties, Inc.
(incorporated by reference to Exhibit 3.2 to LTC Properties,
Inc.'s Current Report on Form 8-K dated June 19, 1997)
3.4 Articles of Amendment of LTC Properties, Inc. (incorporated by
reference to Exhibit 3.3 to LTC Properties, Inc.'s Current
Report on Form 8-K dated June 19, 1997)
3.5 Articles Supplementary Classifying 2,000,000 Shares of 9.0%
Series B Cumulative Preferred Stock of LTC Properties, Inc.
(incorporated by reference to Exhibit 2.5 to LTC Properties,
Inc.'s Registration Statement on Form 8-A filed on December 15,
1997)
3.6 Certificate of Amendment to Amended and Restated Bylaws of LTC
Properties, Inc. (incorporated by reference to Exhibit 3.1 to
LTC Properties, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998)
3.7 Articles Supplementary Classifying 2,000,000 Shares of 8.5%
Series C Cumulative Convertible Preferred Stock of LTC
Properties, Inc. (incorporated by reference to Exhibit 3.2 to
LTC Properties, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998)
3.8 Articles Supplementary Classifying 40,000 shares of Series D
Junior Participating Preferred Stock of LTC Properties, Inc.
(incorporated by reference to Exhibit 4.7 to LTC Properties,
Inc.'s Registration Statement on Form 8-A filed on May 9, 2000)
4.1 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)
4.2 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)
4.3 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)
4.4 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)
4.5 Fifth Supplemental Indenture dated as of August 23, 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 8.25% Convertible
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4.5 to LTC Properties, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998)
4.6 Sixth Supplemental Indenture dated as of December 30, 1998 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 4.6 to LTC Properties, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998)
4.7 Seventh Supplemental Indenture dated as of January 14, 1999 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 4.7 to LTC Properties, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998)
4.8 Rights Agreement dated as of May 2, 2000 (incorporated by
reference to Exhibit 4.1 to LTC Properties, Inc.'s Registration
Statement on Form 8-A filed on May 9, 2000)


64

INDEX TO EXHIBITS (CONTINUED)
(ITEM 14(b))

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 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)
10.2 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)
10.3 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)
10.4 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)
10.5 Amended and Restated 1992 Stock Option Plan (incorporated by
reference to Exhibit 10.22 to LTC Properties, Inc.'s Form 10-K
for the year ended December 31, 1996)
10.6 Subservicing Agreement dated as July 20, 1993 by and between
Bankers Trust Company, as Master Servicer and LTC Properties,
Inc., as Special Servicer (incorporated by reference to Exhibit
10.25 to LTC Properties, Inc.'s Form 10-K/A for the year ended
December 31, 1996)
10.7 Custodial Agreement dated as of July 20, 1993 by and among Union
Bank, as Trustee, LTC REMIC Corporation, as Depositor, and
Bankers Trust Company as Master Servicer and Custodian
(incorporated by reference to Exhibit 10.26 to LTC Properties,
Inc.'s Form 10-K/A for the year ended December 31, 1996)
10.8 Form of Certificates as Exhibit as filed herewith to the 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)
10.9 Form of Certificates, Form of Custodial Agreement and Form of
Subservicing Agreement as Exhibits as filed herewith to the
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
for the year ended December 31, 1994)
10.10 Form of Certificates, Form of Custodial Agreement and Form of
Subservicing Agreement as Exhibits as filed herewith to the
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 and 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)
10.11 Subservicing Agreement dated as of May 14, 1998, by and between
GMAC Commercial Mortgage Corporation, as Master Servicer, LTC
Properties, Inc. as Subservicer (incorporated by reference to
Exhibit 10.3 to LTC Properties, Inc.'s Quarterly Report on Form
10-Q for the quarter ended September 30, 1998)
10.12 Pooling and Servicing Agreement dated as of April 20, 1998 among
LTC REMIC IV Corporation, LaSalle National Bank and LTC
Properties, Inc. (incorporated by reference to Exhibit 10.4 to
LTC Properties, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998)
10.13 Distribution Agreement, dated as of September 30, 1998, by and
between LTC Properties, Inc. and LTC Healthcare, Inc.
(incorporated by reference to Exhibit 10.5 to LTC Properties,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)


65

INDEX TO EXHIBITS (CONTINUED)
(ITEM 14(b))

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.14 Intercompany Agreement, dated as of September 30, 1998, by and
between LTC Properties, Inc. and LTC Healthcare, Inc.
(incorporated by reference to Exhibit 10.7 to LTC Properties,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)
10.15 Tax Sharing Agreement, dated as of September 30, 1998, by and
between LTC Properties, Inc. and LTC Healthcare, Inc.
(incorporated by reference to Exhibit 10.8 to LTC Properties,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)
10.16 Amended and Restated Promissory Note, dated as of May 19, 1998,
between LTC Properties, Inc. and LTC Healthcare, Inc.
(incorporated by reference to Exhibit 10.9 to LTC Properties,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)
10.17 LTC Properties, Inc. 1998 Equity Participation Plan (incorporated
by reference to Exhibit 10.28 to LTC Properties, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998)
10.18 Second Amended and Restated Employment Agreement between Andre C.
Dimitriadis and LTC Properties, Inc. dated March 26, 1999
(incorporated by reference to Exhibit 10.28 to LTC Properties,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998), as amended by Amendment No. 1 thereto dated June 23, 2000
10.19 Amended and Restated Employment Agreement between James J.
Pieczynski and LTC Properties, Inc. dated March 26, 1999
(incorporated by reference to Exhibit 10.28 to LTC Properties,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998), as superceded by Separation Agreement effective July 1,
2000
10.20 Amended and Restated Employment Agreement between Christopher T.
Ishikawa and LTC Properties, Inc. dated March 26, 1999
(incorporated by reference to Exhibit 10.28 to LTC Properties,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998), as amended by Amendment No. 1 thereto dated June 23, 2000
10.21 Employment Agreement between Julia L. Kopta and LTC Properties,
Inc. dated January 1, 2000 (incorporated by reference to Exhibit
10.33 to LTC Properties, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1999), as amended by Amendment No. 1
thereto dated June 23, 2000
10.22 Employment Agreement between Wendy L. Simpson and LTC Properties,
Inc. dated April 10, 2000, as amended by Amendment No. 1 thereto
dated June 23, 2000
10.23 Promissory Note dated January 1, 2000, executed by Andre C.
Dimitriadis in favor of LTC Properties, Inc.
10.24 Promissory Note dated January 1, 2000, executed by James J.
Pieczynski in favor of LTC Properties, Inc.
10.25 Promissory Note dated January 1, 2000, executed by Wendy L.
Simpson in favor of LTC Properties, Inc.
10.26 Promissory Note dated January 1, 2000, executed by Christopher T.
Ishikawa in favor of LTC Properties, Inc.
10.27 Promissory Note dated January 1, 2000, executed by Edmund C. King
in favor of LTC Properties, Inc.
10.28 Promissory Note dated January 1, 2000, executed by Sam Yellen in
favor of LTC Properties, Inc.
10.29 Senior Secured Revolving Credit Agreement dated October 31, 2000
(incorporated by reference to Exhibit 10 to LTC Properties,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999)
21.1 List of subsidiaries
23.1 Consent of Ernst & Young LLP with respect to the financial
information of the Company
99.0 Risk Factors

66



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 21, 2000 By: /s/ WENDY L. SIMPSON
-------------------------------
WENDY L. SIMPSON
Vice Chairman, Chief Financial
Officer and Director






/s/ ANDRE C. DIMITRIADIS
- -------------------------------------------
ANDRE C. DIMITRIADIS Chairman of the Board, Chief Executive Officer and Director February 5, 2001

/s/ WENDY L. SIMPSON
- -------------------------------------------
WENDY L. SIMPSON Vice Chairman, Chief Financial Officer and Director February 5, 2001

/s/ JAMES J. PIECZYNSKI
- -------------------------------------------
JAMES J. PIECZYNSKI Chief Strategic Planning Officer and Director February 5, 2001

/s/ EDMUND C. KING
- -------------------------------------------
EDMUND C. KING Director February 5, 2001

/s/ TIMOTHY TRICHE
- -------------------------------------------
TIMOTHY TRICHE Director February 5, 2001

/s/ SAM YELLEN
- -------------------------------------------
SAM YELLEN Director February 5, 2001




67