LTC PROPERTIES INC - Quarter Report: 2003 June (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20459

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2003

OR

For the Transition period from ________________ to ________________

Commission file number 1-11314

LTC PROPERTIES, INC.

(Exact name of Registrant as specified in its charter)

22917 Pacific Coast Highway, Suite 350
Malibu, California 90265
(Address of principal executive offices)

(310) 455-6010
(Registrant’s telephone number, including area code)

Indicate by check mark whether Registrant (1) has filed all reports 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

Shares of Registrant’s common stock, $.01 par value, outstanding at August 8, 2003 – 17,802,351

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LTC PROPERTIES, INC.

FORM 10-Q

June 30, 2003

INDEX

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LTC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)

See accompanying notes.

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LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)

See accompanying notes.

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LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

See accompanying notes.

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.          General

LTC Properties, Inc., a Maryland corporation, is a real estate investment trust (“REIT”) that invests primarily in long term care facilities through mortgage loans, facility lease transactions and other investments.

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/or its subsidiaries.

We have prepared consolidated financial statements included herein without audit and in the opinion of management include all adjustments necessary for a fair presentation of the results of operations for the three and six months ended June 30, 2003 and 2002 pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying consolidated financial statements include the accounts of our company, its wholly-owned subsidiaries and controlled partnerships. All significant intercompany accounts and transactions have been eliminated in consolidation. Control over those partnerships is based on the provisions of the partnership agreements that provide us with a controlling financial interest in the partnerships. Under the terms of the partnership agreements, our company, as general partner, is responsible for the management of the partnerships’ assets, business and affairs. Our rights and duties in management of the partnerships include making all operating decisions, setting the capital budgets, executing all contracts, making all employment decisions, and the purchase and disposition of assets, among others. The general partner is responsible for the ongoing, major, and central operations of the partnership and makes all management decisions. In addition, the general partner assumes the risk for all operating losses, capital losses, and is entitled to substantially all capital gains (appreciation).

The limited partners have virtually no rights and are precluded from taking part in the operation, management or control of the partnership. The limited partners are also precluded from transferring their partnership interests without the express permission of the general partner. However, we can transfer our interest without consultation or permission of the limited partners.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations; however, we believe that the disclosures in the accompanying financial statements are adequate to make the information presented not misleading.

Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation as required by Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results for a full year.

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

2.          Real Estate Investments

Owned Properties. At June 30, 2003, we owned 58 skilled nursing facilities with a total of 6,723 beds, 88 assisted living facilities with 4,182 units and one school located in 23 states.

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)

During the three months ended June 30, 2003, we sold three skilled nursing facilities in Texas, one of which was formerly operated by Sun Healthcare Group, Inc. (“Sun”). We recognized a $679,000 gain on the sale and used the $2,595,000 of net proceeds to repay outstanding borrowings under our Senior Secured Revolving Line of Credit (“Secured Revolving Credit”). Also during the second quarter 2003, we acquired two skilled nursing facilities in New Mexico with a total of 98 beds from CLC Healthcare, Inc. (“CLC”). We paid cash of $1,215,000 for the two facilities which CLC used to repay the outstanding loan balance due to a REMIC pool we originated. We leased these facilities, along with two other facilities in New Mexico previously operated by Sun, to a third party operator under a master lease beginning July 1, 2003. This master lease provides for rents of $763,000 in the initial year with 2.0% increases annually for 15 years. We also leased to a third party operator four skilled nursing facilities in Georgia formerly operated by CLC for $720,000 in the initial year beginning July 1, 2003 with 3.0% increases annually for 15 years.

In October 2001, the Financial Accounting Standards Board issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” which was required to be adopted in fiscal years beginning after December 15, 2001. SFAS No. 144 on asset impairment supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and provides a single accounting model for long-lived assets to be disposed of. Subsequent to January 1, 2002, and in accordance with SFAS No. 144, properties held for sale on the balance sheet includes only those properties available for immediate sale in their present condition and for which management believes that it is probable that a sale of the property will be completed within one year. Properties held for sale are carried at the lower of cost or fair value less estimated selling costs. No depreciation expense is recognized on properties held for sale once they have been classified as such. In accordance with the implementation provisions of SFAS No. 144, the operating results of real estate assets designated as held for sale subsequent to January 1, 2002 are included in discontinued operations in the consolidated statement of operations. In addition, all gains and losses from real estate sold are also included in discontinued operations.

Set forth in the table below are the components of the net loss from discontinued operations for the three and six months ended June 30, 2003 and 2002 (unaudited, in thousands):

Mortgage Loans. At June 30, 2003 we had 39 mortgage loans secured by first mortgages on 36 skilled nursing facilities with a total of 4,264 beds and eight assisted living facilities with a total of 369 units located in 20 states. At June 30, 2003, the mortgage loans had interest rates ranging from 9.4% to 12.9% and maturities ranging from 2003 to 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.

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)

REMIC Certificates. As of June 30, 2003, the outstanding certificate principal balance and the weighted average pass-through rate for the senior REMIC Certificates (all held by outside third parties) was $165,133,000 and 7.16%. As of June 30, 2003, the carrying value of the subordinated REMIC Certificates we held was $62,933,000. The effective yield on the subordinated REMIC Certificates we held, based on expected future cash flows discounted to give effect to potential risks associated with prepayments and unanticipated credit losses was 16.18% at June 30, 2003. During the second quarter of 2003, the 1993-1 REMIC was retired as the last loan in the pool was repaid.

Interest only certificates and certificates with an investment rating of “BB” or higher are classified as available-for-sale and unrated certificates and certificates with an investment rating of “B” or lower are classified as held-to-maturity. As of June 30, 2003, available-for-sale certificates were recorded at their fair value of approximately $11,453,000. An unrealized holding loss on available-for-sale certificates of $451,000 was included in comprehensive income for the three months and six months ended June 30, 2003. An unrealized holding gain of $28,000 was recognized in the six months ended June 30, 2002. During the six months ended June 30, 2003, a $1,303,000 impairment charge was recorded related to certain interest-only REMIC Certificates we held. The impairment charge resulted from the changes in assumptions relating to the likelihood of occurrence of prepayments on mortgages underlying the REMIC Certificates. As such, the $1,303,000 impairment charge was reclassified from unrealized losses (related to fair market value adjustments on available-for-sale certificates) previously recorded in comprehensive income when we determined that the change in assumptions may result in declines in certificate values that would be other than temporary. See Note 3. Impairment Charge for further discussion.

At June 30, 2003 held-to-maturity certificates had a book value of $51,480,000 and a fair value of $37,128,000. As of June 30, 2003, the effective yield on the available-for-sale certificates and the held-to-maturity certificates, based on expected future cash flows discounted to give effect to potential risks associated with prepayments and unanticipated credit losses, was 35.01% and 11.94%, respectively.

3.          Impairment Charge

We periodically perform a comprehensive evaluation of our real estate investment portfolio. During 2002, we adopted SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” and therefore calculate the impairment losses as the excess of the carrying value over the fair value of assets to be held and used, and the carrying value over the fair value less cost to sell in instances where management has determined that we will dispose of the property. Prior to 2002, we calculated impairment losses using the same methodology as per SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” The long-term care industry has experienced significant adverse changes, which have resulted in continued operating losses by certain of our lessees and borrowers and in some instances the filing by certain lessees and borrowers for bankruptcy protection. As a result of the adverse changes in the long-term care industry, we have identified certain investments in skilled nursing properties that it determined had been impaired. These assets were determined to be impaired primarily because the estimated undiscounted future cash flows to be received from these investments are less than the carrying values of the investments.

We did not record an impairment charge during the second quarter of 2003; however, during the six months ended June 30, 2003, we recorded an impairment charge of $1,260,000. Of this charge, $31,000 was to fully reserve a mortgage loan on one skilled nursing facility that was closed in 2002 and not reopened or sold. Additionally, we recorded $1,303,000 impairment related to certain interest-only REMIC Certificates net of a $74,000 adjustment of an impairment loss, recognized in the fourth quarter

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)

of 2002, related to our investment in REMIC Certificates. $1,303,000 of the net impairment charge had been previously recognized in comprehensive income as a fair market value adjustment on available-for-sale REMIC Certificates as described in Note 2. Real Estate Investments. As more fully described in Note 2. Summary of Significant Accounting Policies of our 10-K for the year ending December 31, 2002, to the extent there are defaults, unrecoverable losses or prepayments of principal on the underlying mortgages resulting in reduced cash flows, the subordinated REMIC Certificates we held would bear the first risk of loss. During management’s periodic evaluation of the realizability of expected future cash flows from the mortgages underlying our REMIC Certificates, there were indications that certain expected future cash flows would not be realized by the REMIC Trust. Accordingly, we recorded a net $1,229,000 impairment charge during the six months ended June 30, 2003 to reflect the estimated impact on future cash flows from loan prepayments occurring during, or expected to occur subsequent to, the first quarter of 2003 related to certain subordinated REMIC Certificates we held.

During the six months ended June 30, 2002, we recorded an impairment charge of $4,882,000. Of this charge, $600,000 related to a loan on a skilled nursing facility that had ceased operating and $1,000,000 related to a loan on a skilled nursing facility whose owner requested financing modifications which were subsequently not granted. An additional $1,000,000 related to a valuation adjustment on one skilled nursing facility resulting from entering into a new lease with a new operator taking over the facility from the bankrupt previous operator and $2,282,000 related to two defaulted loans in two separate REMIC pools we originated.

We believe we have recorded valuation adjustments on all assets for which there are other than temporary impairments. However, the long-term care industry has experienced significant adverse changes, which have resulted in, continued operating losses by certain of our operators and in some instances the filing by certain operators for bankruptcy protection. Thus, we cannot predict what, if any, impairment charge may be needed in the future.

4.          CLC Healthcare, Inc.

As of June 30, 2003, 19 skilled nursing facilities with 2,255 beds and a net book value of $40,043,000 or 6.8% of our total assets were operated by CLC Healthcare, Inc. (“CLC”). In 2002, we sold a wholly-owned subsidiary, LTC-Fort Tucum, Inc. to CLC for a $500,000 note bearing no interest for one year and thereafter interest at 8% annually for two years. LTC-Fort Tucum, Inc. then acquired two skilled nursing facilities in New Mexico subject to a mortgage loan payable to a REMIC pool we originated. During the quarter ended June 30, 2003, we acquired these two facilities for $1,215,000 in cash and forgave the $500,000 note, which we had fully reserved. CLC used the $1,215,000 cash to repay the outstanding loan balance that was due to a REMIC pool we originated. We leased these facilities, along with two other facilities in New Mexico previously operated by Sun, to a third party operator under a master lease beginning July 1, 2003. This master lease provides for rents of $763,000 in the initial year with 2.0% increases annually for 15 years. We also leased to a third party operator four skilled nursing facilities in Georgia formerly operated by CLC for $720,000 in the initial year beginning July 1, 2003 with 3.0% increases annually for 15 years. During the three and six months ended June 30, 2003, we were due rental income of approximately $0 (due to a forbearance agreement effective March 1, 2003) and $667,000, respectively, from CLC as compared to $750,000 and $1,275,000 during the same periods in 2002. For the three and six months ended June 30, 2003 and 2002, we classified the rents due from CLC as non-accrual rents.

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)

CLC’s Form 10-K for the year ended December 31, 2002 and Form 10-Q for the quarter ended March 31, 2003 contain “going concern” disclosures. CLC has sustained operating losses and net losses every year since inception and in the first quarter of 2003, currently has no outside financing availability other than the line of credit with us, discussed below, and at March 31, 2003 had recorded an actuarially based accrual for general and professional liability of approximately $13,234,000.

The independent directors of CLC’s Board have agreed to permit us to solicit other lessees for properties CLC leases from us. We also agreed to give CLC a rent abatement effective March 1, 2003 on properties CLC leases from us. As discussed above, we entered into a lease with a third party operator for four skilled nursing facilities in Georgia previously operated by CLC and purchased the equipment, furniture and fixtures in these four facilities from CLC for $256,000 (CLC’s net book value).

We have consented to allow CLC to enter into an at-risk, month-to-month management agreement beginning August 1, 2003 with a third party operator for the remaining 19 facilities. It is possible that we will purchase from CLC, for CLC’s net book value, the equipment, furniture and fixtures in these 19 facilities should CLC forgo its leases with us in favor of a new operator.

Effective October 1, 2002, our company and CLC amended the secured line of credit we extended to CLC. The amendment reduced the line from $20,000,000 to $10,000,000 and added certain restrictions as to the use of funds drawn under the agreement. The line of credit continues to bear interest at 10%, mature on April 1, 2008 and contains a provision for acceleration should there be a change of control of CLC. The independent Board members of each company’s board approved this amendment. At June 30, 2003 and December 31, 2002, there was $5,245,000 and $4,741,000, respectively, outstanding under the line of credit. During the three and six months ended June 30, 2003, we advanced CLC $500,000 and $1,450,000, respectively, under the line of credit and CLC paid $946,000 for rent and interest which we applied to reduce the line of credit. During the three and six months ended June 30, 2003 and 2002, we did not record interest income under the line of credit.

Additionally, we hold a Promissory Note (“Note”) issued by Healthcare Holdings, Inc. (“Holdings”), a wholly owned subsidiary of CLC, in the face amount of $7,000,000. The Note was received in December 2001 in exchange for our right to receive 1,238,076 shares of Assisted Living Concepts, Inc. (“ALC”) common stock distributed concurrently with ALC’s emergence from bankruptcy on December 31, 2002. The Note is for a term of five years and bears interest at 5.0% compounded annually and accruing to the principal balance plus interest at 2.0% on the original principal of $7,000,000 payable in cash annually. We did not accrue any interest income on the Note during the first six months of 2003 or 2002. The Note is a full recourse obligation of Holdings and is secured by all the assets owned now or in the future by Holdings and contains a provision for acceleration should there be a change of control of Holdings or CLC. During the quarter ended June 30, 2003, we purchased from Holdings $1,177,000 face value of ALC Senior Subordinated Debentures for $1,177,000 plus accrued interest and $567,000 face value of ALC Junior Subordinated Debentures for $567,000. At June 30, 2003 Holdings owned 1,452,794 shares of ALC common stock with a fair market value based on the closing price of the stock

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)

on June 30, 2003 of $8,354,000. At June 30, 2003, the book value of the Note was $3,095,000, which represented the fair market value of the 1,238,076 shares acquired by Holdings on December 31, 2001. Subsequent to June 30, 2003, we loaned Holdings an additional $2,000,000 and allowed Holdings to upstream the funds to CLC. Our company and Holdings are amending the Note to reflect this additional loan. The interest rate and payment terms will not be modified. CLC returned $1,200,000 to us, which was applied as a reduction in the line of credit with CLC.

Our Chairman, President and Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and Vice President, Taxes served as officers of CLC and have resigned as officers of CLC. Our Chairman, President and Chief Executive Officer, Chief Financial Officer and Chief Investment Officer remain as Board members of CLC. Additionally, we have an indemnification agreement covering these officers who also serve as Board members of CLC and one current CLC independent director.

5.          Debt Obligations

At June 30, 2003, $49,557,000 was outstanding under our Secured Revolving Credit and commitments were $68,300,000. During the six months ended June 30, 2003, pricing under the Secured Revolving Credit was LIBOR plus 2.25%. At June 30, 2003, the weighted average interest rate on the Secured Revolving Credit was 3.75%.

At maturity, January 2, 2002, we redeemed $2,408,000 of convertible subordinated debentures. During the six months ended June 30, 2003, we paid off $6,396,000 in mortgage notes payable to REMIC pools we originated.

6.          Senior Mortgage Participation Payable

On August 1, 2002, we completed a loan participation transaction whereby we issued a $30,000,000 senior participating interest in 22 of our first mortgage loans that had a total unpaid principal balance of $58,627,000 (the “Participation Loan Pool”) to a private bank. The Participation Loan Pool had a weighted average interest rate of 11.6% and a weighted average scheduled term to maturity of 77 months. The $30,000,000 senior participation is secured by the entire Participation Loan Pool. We received net proceeds from the issuance of the senior participation of $29,750,000 that were used to reduce commitments and amounts outstanding under our Secured Revolving Credit.

The senior participation receives interest at a rate of 9.25% per annum, payable monthly in arrears, on the then outstanding principal balance of the senior participation. In addition, the senior participation receives all mortgage principal collected on the Participation Loan Pool until the senior participation balance has been reduced to zero. We retain interest received on the Participation Loan Pool in excess of the 9.25% paid to the senior participation. The ultimate extinguishments of the senior participation are tied to the underlying maturities of loans in the Participation Loan Pool, which range from 1 to 182 months. We have accounted for the participation transaction as a secured borrowing under SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

During the three and six months ended June 30, 2003, the senior participation received principal payments of $216,000 and $428,000, respectively. At June 30, 2003, $29,239,000 was outstanding under the senior mortgage participation.

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)

7.          Stockholders’ Equity

Other equity consists of the following (unaudited, amounts in thousands):

Effective June 23, 2003, our Board of Directors reclassified 5,000,000 authorized but unissued shares of common stock to authorized but unissued preferred stock. As a result, our authorized capital now consists of 15,000,000 shares of preferred stock and 35,000,000 shares of common stock.

During the quarter ended June 30, 2003, one note receivable from a stockholder with a balance of $452,000 was repaid.

During the six months ended June 30, 2003, we declared and paid cash dividends on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock totaling $3,641,000, $2,239,000 and $1,636,000, respectively. During the first and second quarters of 2003 we declared and paid cash dividends of $0.10 per share and $0.15 per share, respectively, on our common stock totaling $4,486,000. During the first and second quarters of 2002 we declared and paid cash dividends of $0.10 per share on our common stock totaling $3,686,000.

Subsequent to June 30, 2003 we declared a cash dividend of $0.15 per share on our common stock payable on September 30, 2003 to stockholders of record on September 19, 2003.

During the six months ended June 30, 2003, a total of 228,000 stock options were exercised at a total option value of approximately $1,232,000 and a total market value as of the dates of exercise of approximately $1,574,000. Additionally, 2,500 restricted shares previously issued were cancelled as a result of an employee’s resignation.

Subsequent to June 30, 2003, an additional 8,000 options were exercised for a total of approximately $40,000 and a market value of approximately $71,000.

For the six months ended June 30, 2003, we repurchased and retired 485,500 shares of our common stock for a total price of approximately $3,264,000, 5,000 shares of our Series A Preferred stock for a total purchase price of approximately $100,000 and 5,000 of our Series B Preferred stock for a total purchase of approximately $97,000.

The common shares were purchased under a Board authorization to purchase up to 5,000,000 common shares. A total of 2,350,900 shares have been purchased under this authorization. Therefore, we continue to have an open Board authorization to purchase an additional 2,649,100 common shares.

The preferred shares were purchased on the open market under a February 2003 Board authorization to purchase up to 100,000 shares each of our Series A and Series B Preferred Stock.

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)

On July 18, 2003, we announced a postponement of a previously announced proposed offering of 3,000,000 shares of Series E Preferred Stock. At this time, we are reviewing our options regarding a possible restructuring of a preferred offering. No assurances can be given that we will proceed with this or any alternative financing at this time.

Prior to January 1, 2003, we accounted for stock option grants in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related Interpretations. Historically, we granted stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. Under APB 25, because the exercise price of our employee stock options equaled the market price of the underlying stock on the date of grant, no compensation expense was recognized. Effective January 1, 2003, we adopted SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” on a prospective basis for all employee awards granted, modified or settled on or after January 1, 2003. We did not grant any options during the three or six months ended June 30, 2003.

The following table illustrates the effect on net income and earnings per share as if the fair value method had been applied to all outstanding and unvested awards in each period (unaudited, in thousands):

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

We have two operators that lease properties directly from us that each represent between 10% and 20% of our total assets. The following table summarizes our major lessees’ assets, stockholders’ equity, annual revenue and net income (loss) from continuing operations as of or for the three months ended March 31, 2003 per the lessees’ public filings:

Assisted Living Concepts, Inc. (“ALC”) leases 37 assisted living properties with a total of 1,434 units we own representing approximately 12.5%, or $73,599,000, of our total assets at June 30, 2003.

Additionally, as of June 30, 2003 we own $7,979,000 face value of ALC’s new Senior Subordinated Debentures bearing interest at 10% per annum, payable semi-annually in arrears, and $3,839,000 face value of new Junior Subordinated Debentures bearing interest payable in additional new Junior Subordinated Debentures for three years at 8% and thereafter payable in cash at 12% per annum, payable semiannually in arrears. See Note 4. CLC Healthcare, Inc. for a discussion of a note we have with Holdings which is secured by 1,452,794 shares of ALC’s common stock owned by Holdings.

Alterra Healthcare Corporation (“Alterra”) leases 35 assisted living properties with a total of 1,416 units we own representing approximately 12.3%, or $72,350,000, of our total assets at June 30, 2003. Alterra announced on January 22, 2003 that it had filed a voluntary petition with the U.S. Bankruptcy Court for the District of Delaware to reorganize under Chapter 11 of the US Bankruptcy Code. On July 17, 2003, Alterra conducted an auction to obtain a new equity investor in the company. The auction process was completed, and on July 23, 2003, the Bankruptcy Court approved the winning bidder as the new investor in Alterra, subject to the Merger Agreement and confirmation of a Plan of Reorganization filed with the Bankruptcy Court. While there can be no certainty that our leases with Alterra will be assumed pursuant to Alterra’s Plan of Reorganization, we expect such leases will be assumed consistent with Alterra management’s representations to us. Such assumption would have no adverse impact on us. Alterra is current on all rents due to us through August 2003.

These two companies are publicly traded companies, and as such are subject to the filing requirements of the Securities and Exchange Commission. Our financial position and our ability to make distributions may be adversely affected by further financial difficulties experienced by ALC and Alterra or any of our other lessees and borrowers, including additional bankruptcies, inability to emerge from bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew and/or extend its relationship with us or our borrowers when it expires.

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LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)

9.          Earnings per Share

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