UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2009ORo

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(State or other jurisdiction of incorporation or organization)

71-0720518(I.R.S. Employer Identification No.)


31365 Oak Crest Drive Suite 200
Westlake Village, California 91361(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 Each Class

Name of Each Exchange on Which RegisteredCommon stock, $.01 Par Value

New York Stock Exchange8.50% Series E Cumulative Convertible Preferred Stock, $.01 Par Value

New York Stock Exchange8.00% Series F Cumulative Preferred Stock, $.01 Par Value

New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:NONE



Indicate
by checkmark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by checkmark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes o    No o

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 the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o

Smaller reporting company o(Do not check if a smaller reporting company)


Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý



The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant was approximately $443,296,000
as of June 30, 2009 (the last business day of the Registrant's most recently completed second fiscal quarter). For purposes of this calculation, shares of common stock held by officers and
directors of the registrant and shares of common stock held by persons who hold more than 10% of the outstanding common stock of the Registrant have been excluded from this calculation because such
persons may be deemed to be affiliates.

The
number of shares of common stock outstanding as of February 18, 2010 was 23,312,127.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement relating to its 2010 Annual Meeting of Stockholders are incorporated by reference into Part III of
this Annual Report on Form 10-K where indicated.



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CAUTIONARY STATEMENTS

This annual report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that
are not purely historical may be forward-looking. You can identify some of the forward-looking statements by their use of forward-looking words, such as "believes," "expects," "may," "will," "should,"
"seeks," "approximately," "intends," "plans," "estimates" or "anticipates," or the negative of those words or similar words. Forward- looking statements involve inherent risks and uncertainties
regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could
cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to, the status of the economy; the status of capital
markets (including prevailing interest rates) and our access to capital; the income and returns available from investments in health care related real estate; the ability of our borrowers and lessees
to meet their obligations to us; our reliance on a few major operators; competition faced by our borrowers and lessees within the health care industry; regulation of the health care industry by
federal; state and local governments; compliance with and changes to regulations and payment policies within the health care industry; debt that we may incur and changes in financing terms; ability to
continue to qualify as a real estate investment trust; the relative illiquidity of our real estate investments; potential limitations on our remedies when mortgage loans default; and risks and
liabilities in connection with properties owned through limited liability companies and partnerships. For a discussion of these and other factors that could cause actual results to differ from those
contemplated in the forward-looking statements, please see the discussion under "Risk Factors" contained in this annual report and in other information contained in this annual report and our publicly
available filings with the Securities and Exchange Commission. We do not undertake any responsibility to update or revise any of these factors or to announce publicly any revisions to forward-looking
statements, whether as a result of new information, future events or otherwise.

PART I

Item 1.    BUSINESS

General

LTC Properties, Inc., a health care real estate investment trust (or REIT), was incorporated 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 properties through mortgage loans, property lease
transactions and other investments. 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 properties and other health care related properties managed by experienced operators. 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.

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, both preferred dividends and
common dividends, 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.

Owned Properties.As of December 31, 2009, our investment in 23 states are in owned properties consisting of 62 skilled nursing
properties
with a total of 7,209 beds, 88 assisted living properties with a total of 4,076 units and one school, representing in aggregate a gross investment of approximately $519.5 million. Subsequent to
December 31, 2009, we purchased a 166-bed skilled nursing property in Texas for $7.9 million and a 120-bed skilled nursing property in Florida for
$9.0 million. We borrowed $17.0 million under our Unsecured Credit Agreement for these two acquisitions. After this borrowing,

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we
had $30.5 million outstanding under the Unsecured Credit Agreement and $49.5 million available for borrowing.

Here
and throughout this Form 10-K wherever we provide details of our properties' bed/unit count the number of beds/units applies to skilled nursing properties and
assisted living residences only. This number is based upon unit/bed counts shown on operating licenses provided to us by lessees/borrowers or units/beds as stipulated by lease/mortgage documents. We
have found during the years that these numbers often differ, usually not materially, from units/beds in operation at any point in time. The differences are caused by such things as operators
converting a patient/resident room for alternative uses, such as offices or storage, or converting a multi-patient room/unit into a single patient room/unit. We monitor our properties on a routine
basis through site visits and reviews of current licenses. In an instance where such change would cause a de-licensing of beds or in our opinion impact the value of the property, we would
take action against the lessee/borrower to preserve the value of the property/collateral. SeeItem 8. FINANCIAL
STATEMENTSNote 6. Real Estate Investmentsfor further description.

The
following operators accounted for more than 10% of our 2009 cash rental revenue:

Lessee

Percent of Rental RevenueExtendicare REIT and ALC


19.4
%Brookdale Senior Living Communities, Inc.(1)


17.9
%Preferred Care, Inc.


15.8
%


(1)During
2009, the name Alterra Healthcare Corporation was changed to Brookdale Senior Living Communities, Inc.


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 for further discussion. We have also provided construction loans that by their terms converted into purchase/lease transactions or permanent financing
mortgage loans upon completion of construction. SeeItem 8. FINANCIAL STATEMENTSNote 6. Real Estate Investmentsfor further
description. At December 31, 2009 we had 40 mortgage loans secured by first mortgages on 36 skilled nursing properties with a total of 4,110 beds, 16 assisted living residences with 714 units
and one school. These properties are located in 14 states.

Investment and Other Policies

Objectives and Policies.Our investment policy is to invest primarily in income-producing long-term care properties. Also see
"Government Regulation" below. Over the past three years (2007 through 2009), we invested approximately $15.9 million in mortgage loans and we
acquired skilled nursing and assisted living properties for approximately $14.2 million. At December 31, 2009, we had $8.9 million of cash on hand and $66.5 million
available on our $80.0 million Unsecured Credit Agreement which matures July 17, 2011. Also, during 2009, we entered into an equity distribution agreement with KeyBanc to issue and sell,
from time to time, up to $75.0 million in aggregate offering price of our common shares. During 2009 we sold 30,000 shares of common stock at an average sales price including commissions of
$25.54 per share and total proceeds of $0.8 million. At December 31, 2009 we had $74.2 million available under this agreement. In calendar year 2010, we have a mortgage debt
maturity of $7.7 million due in August 2010 at an interest rate of 8.69%. This mortgage debt may be paid 90-days early. We believe that our current cash balance, cash flow from
operations available for distribution or reinvestment, our current Unsecured Credit Agreement borrowing capacity, and availability under our equity distribution agreement are sufficient to provide for
payment of our current

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operating
costs, meet debt obligations, provide funds for distribution to the holders of our preferred stock and pay common dividends at least sufficient to maintain our REIT status and repay
borrowings at, or prior to, their maturity. The timing, source and amount of cash flows provided by financing activities and used in investing activities are sensitive to the capital markets
environment, especially to changes in interest rates. We continuously evaluate the availability of cost-effective capital and believe we have sufficient liquidity for additional capital
investments in 2010.

We
believe that during 2005 through 2008 competitive markets had created an environment of very highly priced properties and low yielding mortgages. However, the recent deterioration in
the credit markets has exerted downward pressure on prices of long term care properties which may provide opportunities for us to make investments at attractive yields and provide long term accretion
to our stockholders. Our vice president of marketing's primary focus is to increase our presence at the state and local levels through participation in various healthcare associations and trade shows.
We believe that this targeted marketing effort will increase deal flow and potentially a greater level of new investments in 2010. Since the competition from buyers in large transactions consisting of
multiple property portfolios generally results in pricing that does not meet our investment criteria, our marketing efforts primarily focus on single property transactions or small multiple property
portfolios that complement our historic investments and are priced with yields in our historical range.

Historically
our investments have consisted of:



In
evaluating potential investments, we consider factors such as:



For
investments in long-term care properties we favor low cost per bed opportunities, whether in fee simple properties or in mortgages. In addition, with respect to skilled
nursing properties, we prefer to invest in properties that do not have to rely on a high percentage of private-pay patients. We seek to invest primarily in properties that are located in
suburban and rural areas of states. Prior to every investment, we conduct a property site review to assess the general physical condition of the property and the potential of additional
sub-acute services. In addition, we review the environmental reports, site surveys and financial statements of the property before the investment is made. We prefer to invest in a property
that has a significant market presence in its community and where state certificate of need and/or licensing procedures limit the entry of competing properties.

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We
believe that assisted living facilities are an important sector in the long-term care market and our investments include direct ownership and mortgages secured by assisted
living properties. For assisted living investments we have attempted to diversify our portfolio both geographically and across product levels. Thus, we believe that although the majority of our
investments are in affordably priced units, our portfolio also includes upscale units in appropriate markets with certain operators.

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 properties 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.

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 our investment practices or activities including prohibitions against:



Competition

In the health care industry, we compete for real property investments with health care providers, other health care related REITs, real
estate partnerships, banks, private equity funds, venture capital funds 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 our cost of capital.

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The
lessees and borrowers of our properties compete on a local, regional and, in some instances, national basis with other health care providers. The ability of the lessee or borrower to
compete successfully for patients or residents at our properties depends upon several factors, including the levels of care and services provided by the lessees or borrowers, the reputation of the
providers, physician referral patterns, physical appearances of the properties, family preferences, financial condition of the operator and other competitive systems of health care delivery within the
community, population and demographics.

Government Regulation

The health care industry is heavily regulated by the government. Our borrowers and lessees who operate health care facilities are
subject to extensive regulation by federal, state and local governments. These laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and
regulations, and administrative and judicial
interpretations of existing law. These changes may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount
of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot be predicted. The failure of any
borrower of funds from us or lessee of any of our properties to comply with such laws, requirements and regulations could result in sanctions or remedies such as denials of payment for new Medicare
and Medicaid admissions, civil monetary penalties, state oversight and loss of Medicare and Medicaid participation or licensure. Such action could affect our borrower's or lessee's ability to operate
its facility or facilities and could adversely affect such borrower's or lessee's ability to make debt or lease payments to us.

The
properties owned by us and the manner in which they are operated are affected by changes in the reimbursement, licensing and certification policies of federal, state and local
governments. Properties may also be affected by changes in accreditation standards or procedures of accrediting agencies that are recognized by governments in the certification process. In addition,
expansion (including the addition of new beds or services or acquisition of medical equipment) and occasionally the discontinuation of services of health care facilities are, in some states, subjected
to state and regulatory approval through "certificate of need" laws and regulations.

The
ability of our borrowers and lessees to generate revenue and profit determines the underlying value of that property to us. Revenues of our borrowers and lessees of skilled nursing
properties are generally derived from payments for patient care. Sources of such payments for skilled nursing facilities include the federal Medicare program, state Medicaid programs, private
insurance carriers, health care service plans, health maintenance organizations, preferred provider arrangements, and self-insured employers, as well as the patients themselves.

A
significant portion of the revenue of our skilled nursing facility borrowers and lessees is derived from governmentally-funded reimbursement programs, such as Medicare and Medicaid.
Because of significant health care costs paid by such government programs, both federal and state governments have adopted and continue to consider various health care reform proposals to control
health care costs. Over the years there have been fundamental changes in the Medicare program that resulted in reduced levels of payment for a substantial portion of health care services, including
skilled nursing facility services. In many instances, revenues from Medicaid programs are already insufficient to cover the actual costs incurred in providing care to those patients. On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, which, among many other things, increases federal Medicaid payments by approximately
$87 billion to help support state Medicaid programs as they face budget shortfalls. Despite this funding, however, the Kaiser Commission on Medicaid and the Uninsured reported in September 2009
that nearly every state implemented at least one new Medicaid policy to control spending in fiscal years 2009 and 2010, with more states implementing provider cuts and benefit restrictions than in the
previous few years. In

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addition,
many states have been making changes to their long-term care delivery systems that emphasize home and community-based long-term care services, in some cases coupled
with cost controls for institutional providers. According to the Kaiser Commission, more than
half of the states expanded home and community-based programs in fiscal year 2009, and additional states plan expansion of such services in 2010. The federal government also has adopted policies to
promote community-based alternatives to institutional services. As states and the federal government continue to respond to budget pressures, future reduction in Medicaid and/or Medicare payments for
skilled nursing facility services could have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to
us. Moreover, health care facilities continue to experience pressures from private payors attempting to control health care costs, and reimbursement from private payors has in many cases effectively
been reduced to levels approaching those of government payors.

The
Centers for Medicare & Medicaid Services (or CMS) annually updates Medicare skilled nursing facility prospective payment system rates and other policies. On July 31,
2009, CMS published the final Medicare skilled nursing facility rates for fiscal year 2010, which began on October 1, 2009. The rule reduces Medicare payments by $360 million or 1.1%,
compared to fiscal year 2009 levels. The rule provides for a recalibration of the case mix weights that will reduce payments by 3.3%, which more than offsets the 2.2% market basked update. The loss of
revenues associated with changes in skilled nursing facility payment rates could have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact
the timing or level of their payments to us.

Governmental
and public concern regarding health care costs may result in significant reductions in payment to health care facilities, and there can be no assurance that future payment
rates for either governmental or private payors will be sufficient to cover cost increases in providing services to patients. Any changes in reimbursement policies which reduce reimbursement to levels
that are insufficient to cover the cost of providing patient care could adversely affect revenues of our skilled nursing property borrowers and lessees and to a much lesser extent our assisted living
property borrowers and lessees and thereby adversely affect those borrowers' and lessees' abilities to make their debt or lease payments to us. Failure of the borrowers or lessees to make their debt
or lease payments would have a direct and material adverse impact on us.

Various
federal and state laws govern financial and other arrangements between health care providers that participate in, receive payments from, or make or receive referrals for work in
connection with government funded health care programs, including Medicare and Medicaid. These laws, known as the fraud and abuse laws, include the federal anti-kickback statute, which
prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration directly or indirectly in return for, or to induce, the referral of an individual to a
person for the furnishing of an item or service for which payment may be made under federal health care programs. In addition, the federal physician self-referral law, commonly known as
Stark II (or the Stark Law), prohibits physicians and certain other types of practitioners from making referrals for certain designated health services paid in whole or in part by Medicare and
Medicaid to entities with which the practitioner or a member of the practitioner's immediate family has a financial relationship, unless the financial relationship fits within an applicable exception
to the Stark Law. The Stark Law also prohibits the entity receiving the referral from seeking payment under the Medicare and Medicaid programs for services rendered pursuant to a prohibited referral.
If an entity is paid for services rendered pursuant to a prohibited referral, it may incur civil penalties of up to $15,000 per prohibited claim and may be excluded from participating in the Medicare
and Medicaid programs. Many states have enacted similar fraud and abuse laws which are not necessarily limited to items and services for which payment is made by federal health care programs.
Violations of these laws may result in fines, imprisonment, denial of payment for services, and exclusion from federal and/or other state-funded programs. Other federal and state laws authorize the
imposition of penalties, including criminal and civil fines and exclusion from

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participation
in federal healthcare programs for submitting false claims, improper billing and other offenses. Federal and state government agencies have continued rigorous enforcement of criminal and
civil fraud and abuse laws in the health care arena. Our borrowers and lessees are subject to many of these laws, and some of them could in the future become the subject of a governmental enforcement
action.

Legislative Developments

Congress and the state legislatures regularly consider, and in some cases adopt, legislation that would impact health care providers,
including long-term care providers. For instance, the Balanced Budget Act of 1997 enacted significant changes to the Medicare and Medicaid programs designed to modernize payment and health
care delivery systems while achieving substantial budgetary savings. Among other things, the law established the prospective payment system for skilled nursing facility services to replace the
cost-based reimbursement system, which resulted in significant reductions in Medicare payments to skilled nursing facilities. In recent years, Congress has adopted legislation to somewhat
mitigate the impact of the new payment system, including a temporary payment add-on for high-acuity patients, which has subsequently expired, and a temporary payment
add-on for residents with AIDS that still is in effect through fiscal year 2010. Other legislation enacted by Congress in recent years has reduced certain Medicare skilled nursing facility
bad debt payments, strengthened Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, reduced Medicaid provider taxes that are used by
many states
to finance state health programs, and given states greater flexibility to expand access to home and community based services.

In
addition, each year legislation is proposed in Congress and in some state legislatures that would affect broader changes in the health care system, either nationally or at the state
level. In 2009, the U.S. House of Representatives and Senate approved separate health care reform bills, although a final measure has not been enacted to date. Among the proposals under consideration
are additional cost controls on the Medicare and Medicaid programs, health care provider cost-containment initiatives including reductions in Medicare payments to skilled nursing
facilities, delivery reforms such as bundling Medicare payments for hospital and post-acute services, health care coverage expansion for the uninsured, measures to tie provider
reimbursement to health care quality, and incentives to promote community-based care as an alternative to institutional long-term care services. We cannot predict whether any reform
proposals will be adopted or, if adopted, what effect, if any, such proposals would have on our borrowers and lessees or our business.

Environmental Matters

Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property or a secured lender
(such as us) may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating
to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). Such laws often impose such liability without regard to whether the owner or
secured lender knew of, or was responsible for, the presence or disposal of such substances and may be imposed on the owner or secured lender in connection with the activities of an operator of the
property. The cost of any required remediation, removal, fines or personal or property damages and the owner's or secured lender's liability therefore could exceed the value of the property, and/or
the assets of the owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner's ability to
sell or rent such property or to borrow using such property as collateral which, in turn, would reduce our revenues.

Although
the mortgage loans that we provide and leases covering our properties require the borrower and the lessee to indemnify us for certain environmental liabilities, the scope of
such

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obligations
may be limited and we cannot assure that any such borrower or lessee would be able to fulfill its indemnification obligations.

Insurance

It is our current policy, and we intend to continue this policy, that all borrowers of funds from us and lessees of any of our
properties secure adequate comprehensive property and general and professional liability insurance that covers us as well as the borrower and/or lessee. Even though that is our policy, certain
borrowers and lessees have been unable to obtain general and professional liability insurance in the specific amounts required by our leases or mortgages because the cost of such insurance has
increased substantially and some insurers have stopped offering such insurance for long-term care facilities. Additionally, in the past, insurance companies have filed for bankruptcy
protection leaving certain of our borrowers and/or lessees without coverage for periods that were believed to be covered prior to such bankruptcies. The unavailability and associated exposure as well
as increased cost of such insurance could have a material adverse effect on the lessees and borrowers, including their ability to make lease or mortgage payments. Although we contend that as a
non-possessory landlord we are not generally responsible for what takes place on real estate we do not possess, claims including general and professional liability claims, may still be
asserted against us which may result in costs and exposure for which insurance is not available. Certain risks may be uninsurable, not economically insurable or insurance may not be available and
there can be no assurance that we, a borrower or lessee will have adequate funds to cover all contingencies. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or
more of our properties, we could be subject to an adverse claim including claims for general or professional liability, could lose the capital that we have invested in the properties, as well as the
anticipated future revenue for the properties and, in the case of debt which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the
properties. Certain losses, such as losses due to floods or seismic activity if insurance is available, may be insured subject to certain limitations including large deductibles or
co-payments and policy limits.

Employees

We currently employ 13 people. The employees are not members of any labor union, and we consider our relations with our employees to be
excellent.

Taxation of our Company

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code (or the Code). We believe that
we have been organized and have operated in such a manner as to qualify for taxation as a REIT under the Code commencing with our taxable year ending December 31, 1992. We intend to continue to
operate in such a manner, but there is no
assurance that we have operated or will continue to operate in a manner so as to qualify or remain qualified.

If
we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net income that is currently distributed to our stockholders.
This treatment substantially eliminates the "double taxation" (once at the corporate level when earned and once at stockholder level when distributed) that generally results from investment in a
non-REIT corporation.

However,
we will be subject to federal income tax as follows:



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Finally,
if we own a residual interest in a real estate mortgage investment conduit (or REMIC), we will be taxed at the highest corporate rate on the portion of any excess inclusion
income that we derive from the REMIC residual interests equal to the percentage of our shares that is held in record name by "disqualified organization." A "disqualified organization" includes the
United States, any state or political subdivision thereof, any foreign government or international organization, any agency or instrumentality of any of the foregoing, any rural electrical or
telephone cooperative and any tax-exempt organization (other than a farmer's cooperative described in Section 521 of the Code) that

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is
exempt from income taxation and from the unrelated business taxable income provisions of the Code. However, to the extent that we own a REMIC residual interest through a taxable REIT subsidiary, we
will not be subject to this tax.

Requirements for Qualification.The Code defines a REIT as a corporation, trust or association:



The
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. Conditions (5) and (6) do not apply until after the first taxable year
for which an election is made to be taxed as a REIT. For purposes of condition (6), pension funds and certain other entities are treated as individuals, subject to a "look-through"
exception.

Pursuant
to the Code and applicable Treasury Regulations, in order to be able to elect to be taxed as a REIT, we must maintain certain records and request certain information from our
stockholders designed to disclose the actual ownership of our stock. Based on publicly available information, we believe we have satisfied the share ownership requirements set forth in
conditions (5) and (6). In addition, Sections 9.2 and 9.3 of our Charter provide for restrictions regarding the transfer and ownership of shares. These restrictions are intended to
assist us in continuing to satisfy the share ownership requirements described in conditions (5) and (6). These restrictions, however, may not ensure that we will, in all cases, be able to
satisfy the share ownership requirements described in conditions (5) and (6).

We
have complied with, and will continue to comply with, regulatory rules to send annual letters to certain of our stockholders requesting information regarding the actual ownership of
our stock. If despite sending the annual letters, we do not know, or after exercising reasonable diligence would not have known, whether we failed to satisfy the ownership requirement set forth in
condition (6) above, we will be treated as having satisfied such condition. If we fail to comply with these regulatory rules, we will be subject to a monetary penalty. If our failure to comply
was due to intentional disregard of the
requirement, the penalty would be increased. However, if our failure to comply was due to reasonable cause and not willful neglect, no penalty would be imposed.

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



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.

Rents
received by us will qualify as "rents from real property" for purposes of satisfying the gross income tests for a REIT only if several conditions are
met:



For
taxable years beginning after August 5, 1997, a REIT has been permitted to render a de minimus amount of impermissible services to tenants and still treat amounts received
with respect to that property as rents from real property. The amount received or accrued by the REIT during the taxable year for the impermissible services with respect to a property may not exceed
1% of all amounts received or accrued by the REIT directly or indirectly from the property. If the amount received or accrued by the REIT during the taxable year for impermissible services with
respect to a property exceeds 1% of the total amounts received or accrued with respect to such property, then none of the rents received or accrued from such property shall be treated as rents from
real property. The amount received for any service or management operation for this purpose shall be deemed to be not less than 150% of the direct cost of the REIT in furnishing or rendering the
service or providing the management or operation. Furthermore, impermissible services may be furnished to tenants by a taxable REIT subsidiary subject to certain conditions, and we may still treat
rents received with respect to the property as rent from real property.

The
term "interest" generally does not include any amount if the determination of the amount depends in whole or in part on the income or profits of any person, although an amount
generally will

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not
be excluded from the term "interest" solely by reason of being based on a fixed percentage of receipts or sales.

If
we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are eligible for relief. These
relief provisions will be generally available if our failure to meet the tests was due to reasonable cause and not due to wilful neglect and following the identification of the failure to satisfy one
or both income tests, a description of each item of gross income is filed in accordance with IRS regulations.

It
is not now possible to determine the circumstances under which we may be entitled to the benefit of these relief provisions. If these relief provisions apply, a 100% tax is imposed on
an amount equal to (a) the gross income attributable to the greater of the amount by which we failed the 75% or 95% test, multiplied by (b) a fraction intended to reflect our
profitability.

Asset Tests.At the close of each quarter of our taxable year, we must also satisfy several tests relating to the nature and
diversification of our
assets. At least 75% of the value of our total assets must be represented by real estate assets, cash, cash items (including receivables arising in the ordinary course of our operations), and
government securities and qualified temporary investments. Although the remaining 25% of our assets generally may be invested without restriction, we are prohibited from owning securities representing
more than 10% of either the vote or value of the outstanding securities of any issuer other than a qualified REIT subsidiary, another REIT or a taxable REIT subsidiary (the "10% vote and value test").
Further, no more than 25% of our total assets may be represented by securities of one or more taxable REIT subsidiaries (for tax years beginning prior to July 30, 2008, 20% of the total value
of our assets) and no more than 5% of the value of our total assets may be represented by securities of any non-governmental issuer other than a qualified REIT subsidiary, another REIT or
a taxable REIT subsidiary (or TRS). Each of the 10% vote and value test and the 20% and 5% asset tests must be satisfied at the end of any quarter. There are special rules which provide relief if the
value related tests are not satisfied due to changes in the value of the assets of a REIT.

Investments in Taxable REIT Subsidiaries.For taxable years beginning after December 1, 2000, REITs may own more than 10% of the
voting and
value of securities in a TRS. A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with the REIT to be treated as a TRS. A
TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more that 35% of the total voting power or value of the outstanding securities of such
corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary
services to tenants of its parent REIT. A TRS is subject to income tax as a regular C corporation. In addition, a TRS may be prevented from deducting interest on debt funded directly or indirectly by
its parent REIT if certain tests regarding the TRS's debt to equity ratio and interest expense are not satisfied. A REIT's ownership of a TRS will not be subject to the 10% or 5% asset tests described
above, and its operations will be subject to the provisions described above. At this time, we do not have any taxable REIT subsidiaries.

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. All of our historical REMIC certificates were secured by real estate assets, therefore we believe that our historic REMIC interests fully qualified for purposes of the REIT income and asset
tests.

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Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries.We own interests in various
partnerships and
limited liabilities companies. In the case of a REIT which is a partner in a partnership, or a member in a limited liability company treated as a partnership for federal income tax purposes, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership or limited liability company, based on its interest in partnership capital, subject to
special rules relating to the 10% REIT asset test described above. Also, the REIT will be deemed to be entitled to its proportionate share of income of that entity. The assets and items of gross
income of the partnership or limited liability company retain the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income tests
and the asset tests. Thus, our proportionate share of the assets and items of income of partnerships and limited liability companies taxed as partnerships, in which we are, directly or indirectly
through other partnerships or limited liability companies taxed as partnerships, a partner or member, are treated as our assets and items of income for purposes of applying the REIT qualification
requirements described in this Annual Report on Form 10-K (including the income and asset tests previously described).

We
also own interests in a number of subsidiaries which are intended to be treated as qualified REIT subsidiaries. The Code provides that such subsidiaries will be ignored for federal
income tax purposes and that 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. 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 or value of securities
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 REIT subsidiary, respectively, although no assurance can be given that the IRS will not successfully challenge the status of any such entity.

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:



In
addition, if we dispose of any asset we acquired from a corporation which is or has been a C corporation in a transaction in which our basis in the asset is determined by reference to
the basis of the asset in the hands of that C corporation, within the ten-year period following our acquisition of such asset, we would be required to distribute at least 90% of the
after-tax gain, if any, we recognized on the disposition of the asset, to the extent that gain does not exceed the excess of (a) the fair market value of the asset on the date we
acquired the asset over (b) our adjusted basis in the asset on the date we acquired the asset.

We
must pay these annual distributions (1) in the taxable year to which they relate or (2) in the following year if (i) we pay these distributions during January to
stockholders of record in either October, November, or December of the prior year or (ii) we elect to declare the dividend before the

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due
date of the tax return (including extensions) and pay on or before the first regular dividend payment date after such declaration.

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 90% but less than 100%, of our "real estate investment trust taxable
income," as adjusted, we 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:



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.

We
intend to make timely distributions sufficient to satisfy these annual distribution requirements and to avoid the imposition of the 4% excise 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
re-electing our REIT status for the four taxable years following the year during which qualification was lost. It is not possible to state whether we would be entitled to the statutory
relief in all circumstances. Failure to qualify as a REIT 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.

2008 Act.The Housing and Economic Recovery Act of 2008 made a number of substantial changes to the qualification and tax treatment of
REITs. The
following is a brief summary of certain significant REIT provisions on the 2008 Act.



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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.

Investor Information

We make available to the public free of charge through our internet website our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission. Our
internet website address iswww.LTCProperties.com. We are not including the information contained on our website as part of, or incorporating it by
reference into, this Annual Report on Form 10-K.

Posted
on our websitewww.LTCProperties.comunder the "Corporate Governance" heading are the charters for our Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee, our Corporate Governance Guidelines and a Code of Business Conduct, Ethics and Corporate Governance governing our directors,
officers and employees. Within the time period required by the SEC and the New York Stock Exchange (or NYSE), we will post on our website any amendment to the Code of Business Conduct, Ethics and
Corporate Governance and any waiver applicable to our Chief Executive Officer, Principal Financial Officer, Principal Accounting Officer or Directors. In addition, our website under the subheading
"SEC Filings" under the heading "Investor Relations" includes information concerning purchases and sales of our equity securities by our executive officers and directors.

You
may read and copy materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. Information on the operation of the
Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy statements and other
information we file. The address of the SEC website iswww.sec.gov.

You
also may contact our Investor Relations Department at:

LTC
Properties, Inc.
31365 Oak Crest Drive, Suite 200
Westlake Village, California 91361
Attn: Investor Relations
(805) 981-8655

Item 1A.    RISK FACTORS

The following discussion of risk factors contains "forward-looking statements" as discussed above. These risk factors may be important
to understanding any statement in this Annual Report on Form 10-K or elsewhere. The following information should be read in conjunction with Management's Discussion and Analysis,
and the consolidated financial statements and related notes in this Annual Report on Form 10-K.

A Failure to Maintain or Increase our Dividend Could Reduce the Market Price of Our Stock.In January 2010, we declared a $0.13 per
share monthly
dividend for the first quarter of calendar 2010. During calendar 2009 and 2008, we paid a $0.13 monthly dividend on our common stock. The ability to maintain or raise our common dividend is
dependent, to a large part, on growth of funds available for

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distribution.
This growth in turn depends upon increased revenues from additional investments and loans, rental increases and mortgage rate increases.

At Times, We May Have Limited Access to Capital Which Will Slow Our Growth.A REIT is required to make dividend distributions and
retains little cash
flow for growth. As a result, growth for a REIT is generally through the steady investment of new capital in real estate assets. There may be times when we will have limited access to capital from the
equity and/or debt markets. During such periods, virtually all of our available capital would be required to meet existing commitments and to reduce existing debt. We may not be able, during such
periods, to obtain additional equity and/or debt capital or dispose of assets on favorable terms, if at all, at the time we require additional capital to acquire health care properties on a
competitive basis or meet our obligations. We believe that our low debt levels, $66.5 million available under our $80.0 million Unsecured Credit Agreement, $74.2 million available
under our equity distribution agreement to issue and sell, from time to time, up to $75.0 million in aggregate offering price of our common shares and $8.9 million cash balance at
December 31, 2009, will enable us to meet our obligations and continue to make investments. Subsequent to December 31, 2009, we borrowed $17.0 million under our Unsecured Credit
Agreement for the acquisition of two skilled nursing properties with a total of 286 beds. After this borrowing, we had $30.5 million outstanding under the Unsecured Credit Agreement and
$49.5 million available for borrowing.

Income and Returns from Health Care Facilities Can be Volatile.The possibility that the health care properties in which we invest will
not generate
income sufficient to meet operating expenses, will generate income and capital appreciation, if any, at rates lower than those anticipated or will yield returns lower than those available through
investments in comparable real estate or other investments are additional risks of investing in health care related real estate. Income from properties and yields from investments in such properties
may be affected by many factors, including changes in governmental regulation (such as zoning laws and government payment), general or local economic conditions (such as fluctuations in interest rates
and employment conditions), the available local supply of and demand for improved real estate, a reduction in rental income as the result of an inability to maintain occupancy levels, natural
disasters (such as hurricanes, earthquakes and floods) or similar factors.

We Depend on Lease Income and Mortgage Payments from Real Property.Approximately 98% of our revenue for the year ended
December 31, 2009, was
derived from mortgage payments and lease income from real property. Our revenue would be adversely affected if a significant number of our borrowers or lessees were unable to meet their obligations to
us or if we were unable to lease our properties or make mortgage loans on economically favorable terms. There can be no assurance that any lessee will exercise its option to renew its lease upon the
expiration of the initial term or that if such failure to renew were to occur, we could lease the property to others on favorable terms.

We Rely on a Few Major Operators.Extendicare REIT and Assisted Living Concepts, Inc. (or ALC), collectively lease 37 assisted living
properties with
a total of 1,427 units owned by us representing approximately 12.2%, or $59.7 million, of our total assets at December 31, 2009. Brookdale Senior Living Communities, Inc., (or
Brookdale Communities), formerly known as Alterra Healthcare Corporation, a wholly owned subsidiary of Brookdale Senior Living, Inc., leases 35 assisted living properties with a total of 1,416
units owned by us representing approximately 12.1%, or $59.4 million, of our total assets at December 31, 2009. During 2009, the name Alterra Healthcare Corporation was changed to
Brookdale Senior Living Communities, Inc. Preferred Care, Inc. (or Preferred Care), through various wholly owned subsidiaries, operates 33 skilled nursing properties with a total of
4,021 beds that we own or on which we hold mortgages secured by first trust deeds. This represents approximately 12.3% or $60.4 million of our total assets at December 31, 2009. Our
financial position and ability to make distributions may be adversely affected by financial difficulties

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experienced
by any of our other lessees and borrowers, including 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.

Our Borrowers and Lessees Face Competition in the Health Care Industry.The long-term care industry is highly competitive and we expect
that it may become more competitive in the future. Our borrowers and lessees are competing with numerous other companies providing similar long-term care services or alternatives such as
home health agencies, hospices, life care at home, community-based service programs, retirement communities and convalescent centers. There can be no assurance that our borrowers and lessees will not
encounter increased competition in the future which could limit their ability to attract residents or expand their businesses and therefore affect their ability to make their debt or lease payments to
us.

The Health Care Industry is Heavily Regulated by the Government.Our borrowers and lessees who operate health care facilities are
subject to
extensive regulation by federal, state and local governments. These laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations,
and administrative and judicial interpretations of existing law. These changes may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated
with doing business and the amount of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot
be predicted. The failure of any borrower of funds from us or lessee of any of our properties to comply with such laws, requirements and regulations could affect its ability to operate its facility or
facilities and could adversely affect such borrower's or lessee's ability to make debt or lease payments to us.

Congress and the States Have Enacted Health Care Reform and Budget Measures.The health care industry continues to face various
challenges, including
increased government and private payor pressure on health care providers to control costs. Certain of these initiatives have had the result of limiting Medicare and Medicaid reimbursement for nursing
facility services. In particular, the establishment of a Medicare prospective payment system for skilled nursing facility services to replace the cost-based reimbursement system
significantly reduced Medicare reimbursement to skilled nursing facility providers. While Congress subsequently took steps to mitigate the impact of the prospective payment system on skilled nursing
facilities, other federal legislative and regulatory policies have been adopted and continue to be proposed that would reduce Medicare and/or Medicaid payments to nursing facilities. Moreover, states
are facing increasing budget pressures in light of the current economic downturn, prompting consideration and in some cases adoption of cuts in state Medicaid payments to providers. No assurances can
be given that any additional Medicare or Medicaid legislation or regulatory policies adopted by the federal government or the states would not reduce Medicare or Medicaid reimbursement to nursing
facilities or result in additional costs for operators of nursing facilities.

In
addition, comprehensive reforms affecting the payment for and availability of health care services have been proposed at the federal and state levels and major reform proposals have
been adopted by certain states. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law,
new interpretations of existing laws, or changes in payment methodology may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with
doing business and the amount of reimbursement by the government and other third party payors. Congress also has given states greater flexibility to expand access to home and community based services
as an alternative to nursing facility services. These provisions could further increase state funding for home and community based services, while prompting states to cut funding for nursing
facilities and homes for persons with disabilities. In light of continuing state Medicaid program reforms, budget cuts, and

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regulatory
initiatives, no assurance can be given that the implementation of such regulations and reforms will not have a material adverse effect on the financial condition or results of operations of
our lessees and/or borrowers which, in turn, could effect their ability to meet their contractual obligations to us.

Our Borrowers and Lessees Rely on Government and Third Party Reimbursement.The ability of our borrowers and lessees to generate
revenue and profit
determines the underlying value of that property to us. Revenues of our borrowers and lessees are generally derived from payments for patient care. Sources of such payments include the federal
Medicare program, state Medicaid programs, private insurance carriers, health care service plans, health maintenance organizations, preferred provider arrangements, self-insured employers,
as well as the patients themselves.

We Could Incur More Debt.We operate with a policy of incurring debt when, in the opinion of our Board of Directors, it is advisable.
We may incur
additional debt by borrowing under our Unsecured Credit Agreement, mortgaging properties we own and/or issuing debt securities in a public offering or in a private transaction. Accordingly, we could
become more highly leveraged. The degree of leverage could have important consequences to stockholders, including affecting our ability to obtain, in the future, additional financing for working
capital, capital expenditures, acquisitions, development or other general corporate purposes and making us more vulnerable to a downturn in business or the economy generally.

We Could Fail to Collect Amounts Due Under Our Straight-line Rent Receivable Asset.Straight-line accounting requires us to
calculate the total rent we will receive as a fixed amount over the life of the lease and recognize that revenue evenly over that life. In a situation where a lease calls for fixed rental increases
during the life of the lease, rental income recorded in the early years of a lease is higher than the actual cash rent received which creates an asset on the consolidated
balance sheet called straight-line rent receivable. At some point during the lease, depending on the rent levels and terms, this reverses and the cash rent payments received during the
later years of the lease are higher than the rental income recognized which reduces the straight-line rent receivable balance to zero by the end of the lease. We periodically assess the
collectability of the straight-line rent receivable. If during our assessment we determined that we were unlikely to collect a portion or the entire straight-line rent
receivable asset, we may provide a reserve against the previously recognized straight-line rent receivable asset for a portion or up to its full value that we estimate may not be
recoverable.

Our Assets May be Subject to Impairment Charges.We periodically but not less than quarterly evaluate our real estate investments and
other assets
for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure. If we determine that a
significant impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset which could have a material adverse affect on our results of operations and a
non-cash impact on funds from operations in the period in which the write-off occurs.

A Failure to Reinvest Cash Available to Us Could Adversely Affect Our Future Revenues and Our Ability to Increase Dividends to Stockholders; There is Considerable Competition in Our
Market for Attractive Investments.From time to time, we will have cash available from (1) proceeds of sales of shares of securities, (2) proceeds
from new debt issuances, (3) principal payments on our mortgages and other investments, (4) sale of properties, and (5) funds from operations. We may reinvest this cash in health
care investments in accordance with our investment policies, repay outstanding debt or invest in qualified short-term or long-term investments. We compete for real estate
investments with a broad variety of potential investors. The competition for attractive investments negatively affects our ability to make timely investments on acceptable terms. Delays in acquiring
properties or making loans will negatively impact revenues and perhaps our ability to increase distributions to our stockholders.

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Our Failure to Qualify as a REIT Would Have Serious Adverse Consequences to Our Stockholders.We intend to operate so as to qualify as
a REIT under
the Code. We believe that we have been organized and have operated in a manner which would allow us to qualify as a REIT under the Code beginning with our taxable year ended December 31, 1992.
However, it is possible that we have been organized or have operated in a manner which would not allow us to qualify as a REIT, or that our future operations could cause us to fail to qualify.
Qualification as a REIT requires us to satisfy numerous
requirements (some on an annual and quarterly basis) established under highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations, and
involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must
be derived from qualifying sources, and we must pay dividends to stockholders aggregating annually at least 90% (95% for taxable years ending prior to January 1, 2001) of our REIT taxable
income (determined without regard to the dividends paid deduction and by excluding capital gains). Legislation, new regulations, administrative interpretations or court decisions could significantly
change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.

If
we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular
corporate rates. Unless we are entitled to relief under statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which we lost
qualification. If we lose our REIT status, our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we
would no longer be required to make distributions to stockholders.

Provisions in Our Articles of Incorporation May Limit Ownership of Shares of Our Capital Stock.In order for us to qualify as a REIT,
no more than
50% in value of the outstanding shares of our stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year. To ensure
qualification under this test, our articles of incorporation provide that, subject to exceptions, no person may beneficially own more than 9.8% of outstanding shares of any class or series of our
stock, including our common stock. Our Board of Directors may exempt a person from the 9.8% ownership limit upon such conditions as the Board of Directors may direct. However, our Board of Directors
may not grant an exemption from the 9.8% ownership limit if it would result in the termination of our status as a REIT. Shares of capital stock in excess of 9.8% ownership limitation that lack an
applicable exemption may lose rights to dividends and voting, and may be subject to redemption. As a result of the limitations on ownership set forth in our Articles of Incorporation, acquisition of
any shares of capital stock that would result in our disqualification as a REIT may be limited or void. The 9.8% ownership limitation also may have the effect of delaying, deferring, or preventing a
change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our
capital stock.

Our Real Estate Investments are Relatively Illiquid.Real estate investments are relatively illiquid and, therefore, tend to limit our
ability to
vary our portfolio promptly in response to changes in economic or other conditions. All of our properties are "special purpose" properties that cannot be readily converted to general residential,
retail or office use. Health care facilities that participate in Medicare or Medicaid must meet extensive program requirements, including physical plant and operational requirements, which are revised
from time to time. Such requirements may include a duty to admit Medicare and Medicaid patients, limiting the ability of the facility to increase its private pay census beyond certain limits. Medicare
and Medicaid facilities are regularly inspected to determine compliance, and may be excluded from the programsin some cases without a prior hearingfor failure to meet program
requirements. Transfers of operations of nursing homes and other healthcare-

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related
facilities are subject to regulatory approvals not required for transfers of other types of commercial operations and other types of real estate. Thus, if the operation of any of our
properties becomes unprofitable due to competition, age of improvements or other factors such that our lessee or borrower becomes unable to meet its obligations on the lease or mortgage loan, the
liquidation value of the property may be substantially less than the net book value or the amount owing on any related mortgage loan, than would be the case if the property were readily adaptable to
other uses. The receipt of liquidation proceeds or the replacement of an operator that has defaulted on its lease or loan could be delayed by the approval process of any federal, state or local agency
necessary for the transfer of the property or the replacement of the operator with a new operator licensed to manage the facility. In addition, certain significant expenditures associated with real
estate investment, such as real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. Should such events occur, our income
and cash flows from operations would be adversely affected.

Our Remedies May Be Limited When Mortgage Loans Default.To the extent we invest in mortgage loans, such mortgage loans may or may not
be recourse
obligations of the borrower and generally will not be insured or guaranteed by governmental agencies or otherwise. In the event of a default under such obligations, we may have to foreclose on the
property underlying the mortgage or protect our interest by acquiring title to a property and thereafter make substantial improvements or repairs in order to maximize the property's investment
potential. Borrowers may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against such enforcement and/or bring claims for lender liability in response to actions to
enforce mortgage obligations. If a borrower seeks bankruptcy protection, the Bankruptcy Court may impose an automatic stay that would preclude us from enforcing foreclosure or other remedies against
the borrower. Declines in the value of the property may prevent us from realizing an amount equal to our mortgage loan upon foreclosure.

We are Subject to Risks and Liabilities in Connection with Properties Owned Through Limited Liability Companies and Partnerships.We
have ownership
interests in limited liability companies and/or
partnerships. We may make additional investments through these ventures in the future. Partnership or limited liability company investments may involve risks such as the
following:



We
will, however, generally seek to maintain sufficient control of our partnerships and limited liability companies to permit us to achieve our business objectives. Our organizational
documents do not limit the amount of available funds that we may invest in partnerships or limited liability companies. The occurrence of one or more of the events described above could have a direct
and adverse impact on us.

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Item 1B.    UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2.    PROPERTIES

Investment Portfolio

At December 31, 2009, our real estate investment portfolio (before accumulated depreciation and amortization) consisted of
$519.5 million invested primarily in long-term care properties we own and mortgage loans of $70.6 million (prior to deducting a $0.7 million reserve) and consisted of
investments in 98 skilled nursing properties with 11,319 beds, 104 assisted living properties with 4,790 units and two schools. These properties are located in 29 states.

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
two schools in our real estate investment portfolio are charter 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.

Owned Properties.At December 31, 2009, we owned properties in 23 states consisting of 62 skilled nursing properties with a total
of 7,209
beds, 88 assisted living properties with a total of 4,076 units and one school representing a gross investment of $519.5 million. Owned properties are leased pursuant to
non-cancelable operating leases generally with an initial term of 10 to 15 years. Many of the leases contain renewal options and two contain limited period options that permit the
operators to purchase the properties. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contains provisions for specified annual
increases over the rents of the prior year and is generally computed in one of four ways depending on specific provisions of each 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. Generally our leases provide for one or more of the following: security deposits, property tax impounds, and credit enhancements such as corporate or personal guarantees
or letters of credit. In addition, our leases are typically structured as master leases and multiple master leases with one

22

---



operator
are generally cross defaulted. SeeItem 8. FINANCIAL STATEMENTSNOTE 6. Real Estate Investmentsfor further descriptions.

The
following table sets forth certain information regarding our owned properties as of December 31, 2009 (dollars in thousands):

Location

No. of
SNFs

No. of
ALFs

No. of
Schools

No. of
Beds/Units(1)

Encumbrances

Lease
Term(2)

Gross
InvestmentAlabama


3


1





458

$



81

$
18,107Arizona


5


2





1,029





115


41,212California


1


2





343


7,685


82


29,312Colorado


4


6





562





132


27,805Florida


3


6





776





125


34,027Georgia


2


1





292





62


6,600Idaho





4





148





60


9,756Indiana





3





140





88


9,125Iowa


7


1





645





134


17,422Kansas


3


4





398





137


17,570Nebraska





4





156





60


9,332New Jersey





1


1


39





75


12,195New Mexico


7








860





106


48,876N. Carolina





5





210





132


13,096Ohio


5


11





737





78


56,804Oklahoma





6





221





132


12,315Oregon


1


3





218





65


11,927Pennsylvania





3





199





129


17,272S. Carolina





3





128





132


7,610Tennessee


2








142





106


3,075Texas


15


14





2,710





113


75,446Virginia


3








443





139


13,823Washington


1


8





431


4,225


62


26,753TOTAL


62


88


1


11,285

$
11,910
(3)

105

$
519,460
(4)


(1)SeeItem 1. Business GeneralOwned Propertiesfor discussion of bed/unit count.(2)Weighted
average remaining months in lease term as of December 31, 2009.(3)Consists
of: i) $7,685 of non-recourse mortgage payable by us secured by one assisted living property with 109 units and
ii) $4,225 of tax-exempt bonds secured by five assisted living properties in Washington with 188 units. As of December 31, 2009 our gross investment in properties encumbered
by mortgage loans and bonds was $24,599.(4)Of
the total, $241,813 relates to investments in skilled nursing properties, $268,377 relates to investments in assisted living properties and $9,270
relates to an investment in a school.


Mortgage Loans.At December 31, 2009, we had 40 mortgage loans secured by first mortgages on 36 skilled nursing properties with a
total of
4,110 beds, 16 assisted living properties with 714 units and one school. These properties are located in 14 states. SeeItem 8. FINANCIAL
STATEMENTSNote 6. Real Estate Investmentsfor further description.

23

---



The
following table sets forth certain information regarding our mortgage loans as of December 31, 2009 (dollars in thousands):

Location

No. of
SNFs

No. of
ALFs

No. of
Schools

No. of
Beds/
Units(1)

Interest
Rate

Average
Months to
Maturity

Original
Face Amount
of Mortgage
Loans

Current
Carrying
Amount of
Mortgage Loans

Current
Annual Debt
Service(3)California


2


1





348


11.00%-11.05%


53

$
6,800

$
4,169

$
844Florida


4


1





387


10.63%-14.03%


30


11,360


10,117


1,444Georgia


1








152


11.00%


15


2,000


1,756


220Iowa





1





44


11.00%


46


2,400


2,144


269Minnesota








1





7.60%


114


3,751


3,751


285Missouri


2








190


10.26%-10.73%


69


3,000


2,512


391Montana





1





34


13.68%


46


2,346


2,170


321Nebraska





4





163


11.00%-11.22%


46


10,911


9,536


1,205Oklahoma


2








273


12.53%


44


2,600


1,159


293S. Dakota





1





34


11.00%


46


2,346


2,096


262Texas


22


7





2,896


9.65%-13.25%


39


44,705


27,295


5,520Utah


1








84


10.00%


119


1,400


1,379


162Washington


1








104


13.13%


82


1,700


1,062


234Wisconsin


1








115


11.00%


86


2,200


1,441


273TOTAL


36


16


1


4,824


11.20%


45

$
97,519

$
70,587
(2)
$
11,723


(1)SeeItem 1. Business GeneralOwned Propertiesfor discussion of bed/unit count.(2)Of
the total current principal balance, $39,793 relates to investments in skilled nursing properties, $27,044 relates to investments in assisted living
properties and $3,750 relates to an investment in a school. This balance is gross of a loan loss reserve of $704 and includes discounts and premiums related to loans acquired in prior years totaling
$188.(3)Includes
principal and interest payments


In
general, the mortgage loans may not be prepaid except in the event of the sale of the collateral property 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 property upon a sale of one or more, but not all, of the collateral properties 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 property under a 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 assets of the
properties 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.

Item 3.    LEGAL PROCEEDINGS

We are a party from time to time to various general and professional liability claims and lawsuits asserted against the lessees or
borrowers of our properties, which in our opinion are not singularly or in the aggregate material to our results of operations or financial condition. These types of claims and lawsuits may include
matters involving general or professional liability, which we believe under

24

---



applicable
legal principles are not our responsibility as a non-possessory landlord or mortgage holder. We believe that these matters are the responsibility of our lessees and borrowers
pursuant to general legal principles and pursuant to insurance and indemnification provisions in the applicable leases or mortgages. We intend to continue to vigorously defend such claims.

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

None.

25

---





PART II

Item 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is listed on the NYSE under the symbol "LTC". Set forth below are the high and low reported sale prices for our common
stock as reported on the NYSE for each of the periods indicated.

2009

2008High

Low

High

LowFirst Quarter

$
23.10

$
15.74

$
27.35

$
22.51Second Quarter

$
21.99

$
17.22

$
28.30

$
25.13Third Quarter

$
26.73

$
19.13

$
31.16

$
24.57Fourth Quarter

$
28.41

$
22.50

$
28.87

$
14.70


Holders of Record

As of December 31, 2009 we had approximately 378 stockholders of record of our common stock.

Dividend Information

We declared and paid total cash distributions on common stock as set forth below:

Declared

Paid2009

2008

2009

2008First Quarter

$
0.390

$
0.390

$
0.390

$
0.390Second Quarter

$
0.390

$
0.390

$
0.390

$
0.390Third Quarter

$
0.390

$
0.390

$
0.390

$
0.390Fourth Quarter

$
0.390

$
0.390

$
0.390

$
0.390$
1.560

$
1.560

$
1.560

$
1.560


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. All distributions will be made subject to approval of our Board of Directors and will depend on our
earnings, our financial condition and such other factors as our 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 90% of our REIT taxable income. (See "Annual Distribution Requirements" beginning on
page 14.)

Issuer Purchases of Equity Securities

During the fourth fiscal quarter ended December 31, 2009, we did not repurchase any of our outstanding common stock or preferred
securities.

Since
inception of our existing share repurchase program through December 31, 2009, we have repurchased (i) 893,979 shares of our common stock at an average cost of $21.01
per share, including commissions, for an aggregate purchase price including commissions paid of $18,783,000 and (ii) 745,784 shares of our Series F preferred stock at an average cost of
$21.83 per share, including commissions, for an aggregate purchase price including commissions paid of $16,277,000.

26

---



Our
Board of Directors established the existing share repurchase program in June 2007 enabling us to repurchase up to 5,000,000 shares of our common stock on the open market. In January
2008 our Board of Directors amended the share repurchase program to include authorization to repurchase our outstanding preferred securities. This authorization does not expire until 5,000,000 shares
of our equity securities, including common and preferred securities, have been repurchased or the Board of Directors terminates its authorization.

We
continue to have authorization to purchase an additional 3,360,237 shares of common stock and/or preferred securities.

Stock Performance Graph

The National Association of Real Estate Investment Trusts (or NAREIT), an organization representing U.S. REITs and publicly traded real
estate companies, classifies a company with 75% or more of assets directly or indirectly in the equity ownership of real estate as an equity REIT. In 2009, our equity ownership of real estate assets
is more than 75%.

This
graph compares the cumulative total stockholder return on our common stock from December 31, 2004 to December 31, 2009 with the cumulative stockholder total return of
(1) the Standard & Poor's 500 Stock Index and (2) the NAREIT Equity REIT Index. The comparison assumes $100 was invested on December 31, 2004 in our common stock and in
each of the foregoing indices and assumes the reinvestment of dividends.

Total Return Stock Performance

GRAPHIC

The
stock performance depicted in the above graph is not necessarily indicative of future performance.

The stock performance graph shall not be deemed incorporated by reference into any filing by us under the Securities Act of 1933 or the Securities Exchange Act of
1934 except to the extent that we specifically incorporate such information by reference, and shall not otherwise be deemed filed under such Acts.

27

---



Item 6.    SELECTED FINANCIAL DATA

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

2009

2008

2007

2006

2005(In thousands, except per share amounts)Operating Information:Total revenues

$
69,894

$
69,357

$
74,790

$
73,163

$
72,408Income from continuing operations


44,360


43,192


48,039


45,879


51,037Income allocated to non-controlling interests


296


307


343


343


349Income allocated to participating securities


139


159


219


447


147Income allocated to preferred stockholders


14,515


14,401


16,923


17,157


17,343Net income allocable to common stockholders


29,410


28,417


30,613


61,184
(3)

35,219Per share Information:Net Income per Common Share from Continuing Operations Allocable to Common Stockholders:Basic

$
1.27

$
1.23

$
1.32

$
1.20

$
1.49Diluted

$
1.27

$
1.23

$
1.31

$
1.20

$
1.48Net Income Per Common Share Allocable to Common Stockholders:Basic

$
1.27

$
1.24

$
1.32

$
2.64
(3)
$
1.59Diluted

$
1.27

$
1.24

$
1.31

$
2.51
(3)
$
1.56Common Stock Distributions declared

$
1.56

$
1.56

$
1.50

$
1.08
(1)
$
1.65
(1)Common Stock Distributions paid

$
1.56

$
1.56

$
1.50

$
1.44

$
1.29Balance Sheet Information:Total assets

$
490,593

$
506,053

$
544,105

$
567,767

$
585,271Total debt(2)


25,410
(5)

36,753
(4)

52,295


53,811


92,361


(1)Dividends
for the first quarter of 2006 were declared in the fourth quarter of 2005.(2)Includes
bank borrowings, mortgage loans payable, bonds payable and senior participation payable.(3)Higher
due to a gain of $32.6 million relating to four assisted living properties sold in 2006 and a $0.5 million gain recognized in 2006 from
the sale of our investment in National Health Investors, Inc. (or NHI) common stock.(4)Lower
due to the pay off during 2008 of a mortgage loan in the amount of $14.2 million secured by four assisted living properties located in Ohio, as
described inItem 8. FINANCIAL STATEMENTSNote 9. Debt Obligations.(5)Lower
due to the pay off during 2009 of three mortgage loans totaling $23.9 million secured by 11 assisted living properties located in various
states partially offset by outstanding bank borrowings in the amount of $13.5 million, as described inItem 8. FINANCIAL STATEMENTSNote 9.
Debt Obligations.


28

---





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

Executive Overview

Business

We are a self-administered health care real estate investment trust (or REIT) that invests primarily in
long-term care and other health care related properties through mortgage loans, property lease transactions and other investments. In 2009, long-term care properties, which
include skilled nursing and assisted living properties, comprised approximately 98% of our investment portfolio.

The
following table summarizes our direct real estate investment portfolio which consists of properties that we own or on which we hold promissory notes secured by first mortgages as of
December 31, 2009(dollar amounts in thousands):

Type of Property

Gross
Investments

Percentage
of
Investments

For the year
ended
12/31/09
Rental Income

For the year
ended
12/31/09
Interest Income(3)

Percentage
of
Revenues(4)

Number
of
Properties

Number
of
Beds/Units(2)

Gross
Investment
per
Bed/Unit

Number
of
Operators(1)

Number
of
States(1)Assisted Living Properties

$
295,421


50.1
%
$
30,064

$
3,075


48.3
%

104


4,790

$
61.67


14


22Skilled Nursing Properties


281,606


47.7
%

28,762


5,177


49.5
%

98


11,319

$
24.88


33


19Schools


13,020


2.2
%

1,179


306


2.2
%

2


N/A


N/A


2


2Totals

$
590,047


100.0
%
$
60,005

$
8,558


100.0
%

204


16,109


(1)We
have investments in 29 states leased or mortgaged to 44 different operators.(2)SeeItem 1. Business GeneralOwned Propertiesfor discussion of bed/unit count.(3)Includes
Interest Income from Mortgage Loans.(4)Includes
Rental Income and Interest Income from Mortgage Loans.


As of December 31, 2009 we had $444.2 million in carrying value of net real estate investment, consisting of $374.3 million
or 84% invested in owned and leased properties and $69.9 million or 16% invested in mortgage loans secured by first mortgages.

For
the year ended December 31, 2009, rental income and interest income from mortgage loans represented 85.9% and 12.2%, respectively, of total gross revenues. In most instances,
our lease structure contains fixed annual rental escalations, which are generally recognized on a straight-line basis over the minimum lease period. Certain leases have annual rental
escalations that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate
contingencies have been resolved. This lease structure initially generates lower revenues and net income but enables us to generate additional growth and minimize non-cash
straight-line rent over time. For the years ended December 31, 2009, 2008, and 2007 we recorded $4.2 million, $3.5 million, and $4.8 million, respectively, in
straight-line rental income. Also during 2009 and 2008 we recorded $0.8 million and $0.1 million, respectively, of straight-line rent receivable reserve.
Straight-line rental income on a same store basis will decrease from $4.2 million for 2009 to $3.0 million for projected annual 2010 assuming no new leased investments with
fixed annual rental escalations are added to our portfolio. Conversely, our cash rental income is projected to increase from $56.5 million for 2009 to $58.9 million for projected annual
2010 assuming no modification or replacement of existing leases and no new leased investments are added to our portfolio. During the year ended December 31, 2009 we received
$56.5 million of cash rental revenue and recorded $0.7 million of lease inducement costs. At December 31, 2009 and 2008, the straight-line rent receivable balance, net
of reserves, on the consolidated balance sheet was $17.3 million and $13.9 million, respectively.

29

---



Subsequent
to December 31, 2009, we purchased two skilled nursing properties with a total of 286 beds. SeeKey Transactionsbelow
for further discussion of acquisitions. Subsequent to these acquisitions, straight-line rental income will decrease from $4.2 million for 2009 to $3.2 million for projected
annual 2010 assuming no additional new leased investments with fixed annual rental escalations are added to our portfolio. Conversely, our cash rental income is projected to increase from
$56.5 million for 2009 to $60.4 million for projected annual 2010 assuming no modification or replacement of existing leases and no additional new leased investments are added to our
portfolio.

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 properties and other health care related properties managed by experienced operators. 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. We opportunistically consider investments
in health care facilities in related businesses where the business model is similar to our existing model and the opportunity provides an attractive expected return. Consistent with this strategy, we
pursue, from time to time, opportunities for potential acquisitions and investments, with due diligence and negotiations often at different stages of development at any particular time.



Substantially
all of our revenues and sources of cash flows from operations are derived from operating lease rentals and interest earned on outstanding loans receivable. Our investments
in mortgage loans and owned properties represent our primary source of liquidity to fund distributions and are dependent upon the performance of the operators on their lease and loan obligations and
the rates earned thereon. To the extent that the operators experience operating difficulties and are unable to generate sufficient cash to make payments to us, there could be a material adverse impact
on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of health care
facility and operator. Our monitoring process includes periodic review of financial statements for each facility, periodic
review of operator credit, scheduled property inspections and review of covenant compliance relating to real estate taxes and insurance.

In
addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk. Historically we have financed up to 90 percent of the
stabilized market value of a property. Due to current market uncertainties we most likely will finance lower than our historical percentage. Some operating leases and loans are credit enhanced by
guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other loans,
operating leases or agreements between us and the operator and its affiliates.

30

---



Depending
upon the availability and cost of external capital, we anticipate making additional investments in health care related properties. New investments are generally funded from
cash on hand and temporary borrowings under our unsecured line of credit and internally generated cash flows. Our investments generate internal cash from rent and interest receipts and principal
payments on mortgage loans receivable. Permanent financing for future investments, which replaces funds drawn under our unsecured line of credit, is expected to be provided through a combination of
public and private offerings of debt and equity securities and secured and unsecured debt financing. The timing, source and amount of cash flows provided by financing activities and used in investing
activities are sensitive to the capital markets environment, especially to changes in interest rates. Changes in capital markets environment may impact the availability of cost-effective
capital. We believe our liquidity and various sources of available capital are sufficient to fund operations, meet debt service obligations (both principal and interest), make dividend distributions
and finance future investments during the current period of tightened credit conditions.

Economic Climate

Through 2009, the U.S continued to experience challenging financial markets, tight credit conditions, and slower growth. Continued
concerns about the systemic impact of inflation, energy costs, declining business and consumer confidence, and a weakened real estate market have contributed to increased market volatility and
diminished expectations for the U.S. economy. As a result, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads.
Continued turbulence in the U.S. and international markets and economies may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our operators. We
expect that the deterioration in the credit markets should exert downward pressure on prices of long term care properties.

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

At
December 31, 2009, we had $8.9 million of cash on hand and $66.5 million available on our $80.0 million Unsecured Credit Agreement which matures on
July 17, 2011. Also, during 2009, we entered into an equity distribution agreement with KeyBanc to issue and sell, from time to time, up to $75.0 million in aggregate offering price of
our common shares. During 2009, we sold 30,000 shares of common stock at an average sales price including commissions of $25.54 per share and total proceeds of $0.8 million. At
December 31, 2009 we had $74.2 million available under this agreement. In calendar year 2010, we have a mortgage debt maturity of $7.7 million due in August 2010 at an interest
rate of 8.69%. This mortgage debt may be paid 90-days early. As a result, we believe our liquidity and various sources of available capital are sufficient to fund operations, meet debt
service obligations (both principal and interest), make dividend distributions and finance some future investments should we determine such future investments are financially feasible.

Key Transactions

Owned Properties.During 2009, we acquired three assisted living properties with a total of 192 units for $13.0 million and
incurred and
expensed $0.2 million in transaction costs. These properties are leased to a third party operator under a 12-year master lease with two five-year renewal options.
Additionally, we invested $3.2 million at an average yield of 10.6% under agreements to expand and renovate eight properties operated by six different operators and we invested
$0.6 million in capital improvements to existing properties under various lease agreements whose rental rates already reflected this investment.

31

---



Subsequent
to December 31, 2009, we purchased a 166-bed skilled nursing property in Texas for $7.9 million. This property is leased to a third party operator
under a 10-year lease with two five-year renewal options. This operator previously operated the property under a lease with the seller. In addition, we paid $0.1 million
to this operator as a lease inducement
which will be amortized as a yield adjustment over the life of the lease. Also, subsequent to December 31, 2009, we purchased a 120-bed skilled nursing property in Florida for a
purchase price of $9.0 million. This property is leased to a third party operator under a 12-year lease with two 10-year renewal options.

Debt Obligations.During 2009, we paid off three mortgage loans totaling $23.9 million secured by 11 assisted living properties
located in
various states. The retired debts bore a weighted average interest rate of 8.68%. At December 31, 2009, we have one mortgage loan outstanding with a carrying value of $7.7 million at a
fixed interest rate of 8.69%. At December 31, 2009, we had $13.5 million outstanding at an interest rate of LIBOR plus 1.50% under our Unsecured Credit Agreement with
$66.5 million available for borrowing. Subsequent to December 31, 2009, we borrowed $17.0 million under our Unsecured Credit Agreement for the acquisition of two skilled nursing
properties with a total of 286 beds, as previously discussed. After this borrowing, we had $30.5 million outstanding under the Unsecured Credit Agreement and $49.5 million available for
borrowing.

Key Performance Indicators, Trends and Uncertainties

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

Concentration Risk.We evaluate our concentration risk in terms of asset mix, investment mix, operator mix and geographic mix.
Concentration risk is
valuable to understand what portion of our investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments that are real property or
mortgage loans. In order to qualify as an equity REIT, at least 75 percent of our total assets must be represented by real estate assets, cash, cash items and government securities. Investment
mix measures the portion of our investments that relate to our various property types. Operator mix measures the portion of our investments that relate to our top three operators. Geographic mix
measures the portion of our investment that relate to our top five states.

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

Period Ended12/31/09

9/30/09

6/30/09

3/31/09

12/31/08Asset mix:Real property

$
519,460

$
505,181

$
504,354

$
503,255

$
502,617Loans receivable


70,587


72,268


74,286


75,412


78,301Investment asset mix:Assisted living properties

$
295,421

$
282,209

$
282,132

$
282,084

$
282,084Skilled nursing properties


281,606


282,220


283,488


283,563


285,814Schools


13,020


13,020


13,020


13,020


13,020


32

---



Period Ended12/31/09

9/30/09

6/30/09

3/31/09

12/31/08Operator asset mix:Brookdale Communities

$
84,210

$
84,210

$
84,210

$
84,210

$
84,210Preferred Care, Inc.(1)


86,702


86,803


86,923


87,015


87,150ALC


88,034


88,034


88,034


88,034


88,034Remaining operators


331,101


318,402


319,473


319,408


321,524Geographic asset mix:Colorado

$
27,806

$
27,806

$
27,753

$
27,723

$
27,706Florida


44,144


43,941


43,887


43,836


43,884Ohio


56,804


56,804


56,804


56,804


56,804Texas


102,741


103,251


103,657


103,944


104,197Washington


27,815


27,293


27,312


27,334


27,355Remaining states


330,737


318,354


319,227


319,026


320,972


(1)Preferred
Care, Inc. leases 25 skilled nursing properties under two master leases, one skilled nursing property under a separate lease agreement and
operates seven skilled nursing properties securing six mortgage loans receivable we have with unrelated third parties and one mortgage loan receivable we have with Preferred Care. They also operate
one skilled nursing facility under a sub-lease with another lessee which is not included in the Preferred Care operator mix.


Credit Strength.We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt
to book
capitalization and debt to market capitalization. The leverage ratios indicate how much of our consolidated balance sheet capitalization is related to long-term debt. Our coverage ratios
include interest coverage ratio and fixed charge coverage ratio. The coverage ratios indicate our ability to service interest and fixed charges (interest plus preferred dividends). The coverage ratios
are based on earnings before interest, taxes, depreciation and amortization. Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation,
comparison, rating and investment recommendations of companies. The following table reflects the recent historical trends for our credit strength measures:

Year Ended

Quarter Ended12/31/09

12/31/09

09/30/09

06/30/09

03/31/09

12/31/08Debt to book capitalization ratio


5.3
%

5.3
%(1)

2.6
%(4)

5.3
%(6)

7.3
%

7.4
%Debt & Preferred Stock to book capitalization ratio


44.2
%

44.2
%(1)

42.6
%(4)

44.1
%(6)

45.2
%

45.5
%Debt to market capitalization ratio


3.0
%

3.0
%(1)

1.6
%(4)

3.8
%(6)

5.9
%(7)

5.4
%Debt & Preferred Stock to market capitalization ratio


25.1
%

25.1
%(2)

25.3
%(4)

29.5
%(6)

32.8
%(7)

30.1
%Interest coverage ratio


25.5
x

40.8
x(3)

45.2
x(5)

18.7
x(5)

17.7
x(8)

15.4
xFixed charge coverage ratio


3.5
x

3.6
x(3)

3.7
x(5)

3.3
x

3.4
x(8)

3.1
x


(1)Increase
primarily due to the increase in bank borrowing.(2)Decrease
primarily due to the increase in market capitalization partially offset by the increase in bank borrowing.(3)Decrease
primarily due to the increase in operating and other expenses relating to transaction costs incurred on the acquisition of three assisted living
properties. SeeItem 8. FINANCIAL STATEMENTSNote 6. Real Estate Investmentsfor further discussion.


33

---



(4)Decrease
primarily due to the repayment of $23.9 million of mortgage debt in June and July of 2009.(5)Increase
primarily due to the decrease in interest expense relating to the repayment of debt.(6)Decrease
primarily due to the repayment of $15.8 million on two mortgage loans secured by 10 assisted living properties located in various states.(7)Increase
primarily due to the decrease in market capitalization.(8)Increase
primarily due to increases in rental income resulting from lease restructuring and one-time interest income resulting from the
prepayment of a mortgage loan.


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



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

Operating Results

Year ended December 31, 2009 compared to year ended December 31, 2008

Revenues for the year ended December 31, 2009 increased to $69.9 million from $69.4 million for the same period in
2008 primarily due to increases in rental income partially offset by decreases in interest income from mortgage loans and decreases in interest and other income, as discussed below. Rental income
increased $2.4 million from the same period in 2008 primarily as a result of increases provided for in existing lease agreements which do not qualify under our straight-line rental
income provision, rental increases resulting from capital improvement investments, new leases on acquired properties and new leases on properties formerly operated by affiliates of Sunwest
Management, Inc. (or Sunwest), as described inItem 8. FINANCIAL STATEMENTSNotes 6. Real Estate Investments. Same
store cash rental income, properties owned for the year ended December 31, 2009 and 2008, increased $1.6 million due to rental increases provided for in existing lease agreements.

Interest
income from mortgage loans for the year ended December 31, 2009 decreased $1.2 million from the same period in 2008 primarily due to mortgage loan payoffs and the
conversion of a mortgage loan to an owned property in the fourth quarter of 2008 resulting from the non-payment of interest income from affiliates of Sunwest, as described in Item 8. FINANCIAL
STATEMENTSNotes 6. Real Estate Investments.

34

---





Interest and other income for the year ended December 31, 2009 decreased $0.8 million from the same period in 2008 primarily due to lower interest income from our
investments of cash resulting from lower interest rates and lower cash balances.

Interest
expense for the year ended December 31, 2009 was $1.7 million lower than the same period in 2008 due to a decrease in mortgage loans and bonds payable outstanding
during the period resulting from the repayment of mortgage loans and normal amortization of existing mortgage loans partially offset by increase in borrowings under our Unsecured Credit Agreement.

Depreciation
and amortization expense was comparable for each of the years ended December 31, 2009 and 2008.

Provisions
for doubtful accounts for the year ended December 31, 2009 increased $0.7 million from the same period in 2008 primarily due to an increase in
straight-line rent receivable reserve.

Operating
and other expenses were $0.5 million higher in the year ended December 31, 2009 as compared to the same period in 2008 primarily due to an increase in accounting
fees related to the implementation of new FASB accounting guidance during 2009, property tax expenses paid on behalf of one of our operators, transaction costs related to the acquisition of three
assisted living properties and the timing of certain expenditures. As required by the new FASB accounting guidance, all acquisition-related transaction costs are expensed as incurred.

Net
income allocable to common stockholders for the year ended December 31, 2009 increased $1.0 million from the same period in 2008 primarily due to the changes previously
described above partially offset by the increase in income allocated to our preferred stockholders, which includes the repurchase of preferred stock for less than redemption value and preferred stock
dividends. SeeItem 8.
FINANCIAL STATEMENTSNotes 14. Net Income Per Common Sharefor the components of income allocated to preferred stockholders.

Year ended December 31, 2008 compared to year ended December 31, 2007

Revenues for the year ended December 31, 2008 decreased to $69.4 million from $74.8 million for the same period in
2007 primarily due to decreases resulting from Sunwest non-payment of rental and interest income, decreases in interest income from mortgage loans and decreases in interest and other
income, as discussed below. SeeItem 8. FINANCIAL STATEMENTNote 6. Real Estate Investmentsfor further discussion on Sunwest
non-payment of rental income and interest income. Rental income decreased $0.3 million primarily as a result of decreases resulting from non-payment of rental income
primarily from Sunwest ($1.0 million) partially offset by increases provided for in existing lease agreements which do not qualify under our straight-line rental income provision.
Same store cash rental income, properties owned for both years ended December 31, 2008 and 2007, increased $2.0 million due to rental increases provided for in existing lease agreements.

Interest
income from mortgage loans and notes receivable decreased $2.8 million primarily as a result of mortgage loan payoffs and Sunwest non-payment of interest
income, as described inItem 8. FINANCIAL STATEMENTNote 6. Real Estate Investments.

Interest
and other income decreased $2.4 million in 2008 from the prior year primarily due to the early redemption of $3.5 million face value of the Skilled Healthcare
Group, Inc. (or SHG) Senior Subordinated Notes in 2007 and lower interest income from our investments of cash resulting from lower interest rates and lower cash balances.

Interest
expense decreased $0.8 million in 2008 from the prior year primarily due to a decrease in average debt outstanding during the period resulting from the repayment of a
$14.2 million mortgage loan and normal amortization of existing mortgage loans.

35

---



Depreciation
and amortization expense in 2008 increased $0.7 million from the prior year due to acquisitions and capital improvements made on existing properties.

Provisions
for doubtful accounts in 2008 increased $0.5 million from the prior year primarily due to an increase in straight-line rent receivable reserve.

Operating
and other expenses decreased $0.9 million primarily due to a decrease in restricted stock vesting expense, partially offset by an increase of one-time
charges in the fourth quarter of 2008 related primarily to lease/loan defaults and terminated transactions.

Net
income allocable to common stockholders for the year ended December 31, 2008 decreased $2.2 million from the same period in 2007 primarily due to the changes previously
described above partially offset a $0.1 million gain on sale of a vacant parcel of land adjacent to a skilled nursing property located in New Mexico and the decrease in income allocated to our
preferred stockholders, which includes the repurchase of preferred stock for less than redemption value and preferred stock dividends. During the year ended December 31, 2007, we recognized a
$0.1 million gain related to the sale of a closed, previously impaired, skilled nursing property located in Texas and a 59-bed skilled nursing property located in Tennessee. See Item 8. FINANCIAL
STATEMENTSNotes 14. Net Income Per Common Sharefor the components of income allocated to preferred
stockholders.

Critical Accounting Policies

Preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles
(U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ
from those estimates. SeeItem 8. FINANCIAL STATEMENTSNote 2. Summary of Significant Accounting Policiesfor a description of
the significant accounting policies we followed in preparing the consolidated financial statements for all periods presented. We have identified the following significant accounting policies as
critical accounting policies in that they require significant judgment and estimates and have the most impact on financial reporting.

Impairments.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 over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that we will dispose of the
property. In determining fair value, we use current appraisals or other third party opinions of value and other estimates of fair value such as estimated discounted future cash flows.

Also,
we evaluate the carrying values of mortgage loans receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgage loan
receivable when events or circumstances, such as the non-receipt of principal and interest payments and/or significant deterioration of the financial condition of the borrower, indicate
that the carrying amount of the mortgage loan receivable may not be recoverable. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying
amount of the mortgage loan receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the mortgage.

When
an investment is considered impaired, we determine whether that impairment is other-than-temporary and the measurement of an impairment loss. The FASB
provides accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not
been recognized as other-than-temporary impairments. Comparative information for periods prior to initial application is not required.

36

---



In
April 2009, the FASB issued new accounting guidance regarding the recognition and presentation of other-than-temporary impairments which amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt securities in the consolidated financial statements. This guidance is effective for fiscal years and interim periods beginning after
June 15, 2009. The adoption of this guidance did not have an impact on our consolidated financial statements.

Mortgage Loans Receivable.Mortgage loans receivable we originate are recorded on an amortized cost basis. Mortgage loans we acquire
are recorded at
fair value at the time of purchase net of any related premium or discount which is amortized as a yield adjustment to interest income over the life of the loan. We maintain a valuation allowance based
upon the expected collectability of our mortgage loans receivable. Changes in the valuation allowance are included in current period earnings.

Revenue Recognition.Interest income on mortgage loans is recognized using the effective interest method. We follow a policy related to
mortgage
interest whereby we consider a loan to be non-performing after 60 days of non-payment of amounts due and do not
recognize unpaid mortgage interest income from that loan until the past due amounts have been received.

Rental
income from operating leases is recognized in accordance with U.S. GAAP. Substantially all of our leases contain provisions for specified annual increases over the rents of
the prior year and are generally computed in one of four methods depending on specific provisions of each lease as follows:



The
FASB does not provide for the recognition of contingent revenue until all possible contingencies have been eliminated. We consider the operating history of the lessee and the general
condition of the industry when evaluating whether all possible contingencies have been eliminated and have historically, and expect in the future, to not include contingent rents as income until
received. We follow a policy related to rental income whereby we consider a lease to be non-performing after 60 days of non-payment of past due amounts and do not
recognize unpaid rental income from that lease until the amounts have been received.

Rental
revenues relating to non-contingent leases that contain specified rental increases over the life of the lease are recognized on the straight-line basis.
Recognizing income on a straight-line basis requires us to calculate the total non-contingent rent containing specified rental increases over the life of the lease and to
recognize the revenue evenly over that life. This method results in rental income in the early years of a lease being higher than actual cash received, creating a straight-line rent
receivable asset included in our consolidated balance sheet. At some point during the lease, depending on its terms, the cash rent payments eventually exceed the straight-line rent which
results in the
straight-line rent receivable asset decreasing to zero over the remainder of the lease term. We assess the collectability of straight-line rent in accordance with the
applicable accounting standards and our reserve policy. If the lessee becomes delinquent in rent owed under the terms of the lease, we may provide a reserve against the recognized
straight-line rent receivable asset for a portion, up to its full value, that we estimate may not be recoverable.

Net
loan fee income and commitment fee income are amortized over the life of the related loan. Costs associated with leases are deferred and allocated over the lease term in proportion
to the recognition of rental income.

37

---



Liquidity and Capital Resources

Operating Activities:

At December 31, 2009, our real estate investment portfolio (before accumulated depreciation and amortization) consisted of
$519.5 million invested primarily in owned long-term healthcare properties and mortgage loans of $70.6 million (prior to deducting a $0.7 million reserve). Our
portfolio consists of direct investments (properties that we either own or on which we hold promissory notes secured by first mortgages) in 98 skilled nursing properties with 11,319 beds, 104 assisted
living properties with 4,790 units and two schools. These properties are located in 29 states. During the year ended December 31, 2009, net cash provided by operating activities of
$60.3 million.

For
the year ended December 31, 2009 we recorded $4.2 million in straight-line rent. We currently expect that straight-line rent on a same store
basis will decrease from $4.2 million for 2009 to $3.0 million for projected annual 2010 assuming no modification or replacement of existing leases and no new leased investments are
added to our portfolio. Conversely, our cash rental income is projected to increase from $56.5 million for 2009 to $58.9 million for projected annual 2010 assuming no modification or
replacement of existing leases and no new leased investments are added to our portfolio. Also during the year ended December 31, 2009, we recorded an additional reserve of
$0.8 million on our straight-line rent receivable. During the year ended December 31, 2009 we received $56.5 million of cash rental revenue and recorded
$0.7 million of amortized lease inducement cost. At December 31, 2009 and 2008, the straight-line rent receivable balance, net of reserves, on the consolidated balance sheet
was $17.3 million and $13.9 million, respectively.

Subsequent
to December 31, 2009, we purchased two skilled nursing properties with a total of 286 beds, as described below. Subsequent to these acquisitions,
straight-line rental income will decrease from $4.2 million for 2009 to $3.2 million for projected annual 2010 assuming no additional new leased investments with fixed annual
rental escalations are added to our portfolio. Conversely, our cash rental income is projected to increase from $56.5 million for 2009 to $60.4 million for projected annual 2010 assuming
no modification or replacement of existing leases and no additional new leased investments are added to our portfolio.

Investing Activities:

During 2009, we used $9.1 million of cash in investing activities. During 2009, we acquired three assisted living properties
with a total of 192 units for $13.0 million and incurred and expensed $0.2 million in transaction costs. These properties are leased to a third party operator under a 12-year
master lease with two five-year renewal options. We also invested $3.2 million at an average yield of 10.6% under agreements to expand and renovate eight properties operated by six
different operators and we invested $0.6 million in capital improvements to existing properties under various lease agreements whose rental rates already reflected this investment. See Item 8. FINANCIAL
STATEMENTSNote 11. Commitments and Contingenciesfor further discussion about our commitment agreements.

Subsequent
to December 31, 2009, we purchased a 166-bed skilled nursing property in Texas for $7.9 million. This property is leased to a third party operator
under a 10-year lease with two five-year renewal options. This operator previously operated the property under a lease with the seller. In addition, we paid $0.1 million
to this operator as a lease inducement which will be amortized as a yield adjustment over the life of the lease. Also, subsequent to December 31, 2009, we purchased a 120-bed
skilled nursing property in Florida for a purchase price of $9.0 million. This property is leased to a third party operator under a 12-year lease with two 10-year
renewal options.

During
the year ended December 31, 2009, we invested $0.2 million under one existing mortgage loan for capital improvements. Additionally, we received $7.8 million
in principal payments on

38

---



mortgage
loans including $3.7 million related to the payoff of three mortgage receivables secured by three skilled nursing properties.

During
the year ended December 31, 2009, we invested $0.4 million and received $0.7 million in principal payments on notes receivable.

Financing Activities:

For the year ended December 31, 2009, we used $63.5 million of cash in financing activities. We paid $0.9 million
in scheduled principal payments on mortgage loans and bonds payable. Also, we paid $23.9 million related to the payoff of three mortgage loans secured by 11 assisted living properties. The
retired debt bore a weighted average interest rate of 8.68%. At December 31, 2009 we have one mortgage loan outstanding with a carrying value of $7.7 million at a fixed interest rate of
8.69%.

During
2008, we amended and extended our Unsecured Revolving Credit Agreement (or Unsecured Credit Agreement) at an initial commitment amount of $80.0 million. The Unsecured
Credit Agreement provides for the opportunity to increase the credit amount up to a total of $120.0 million. The Unsecured Credit Agreement provides a revolving line of credit with no scheduled
maturities other than the maturity date of July 17, 2011. The pricing under the Unsecured Credit Agreement based on our borrowing election is Prime Rate plus 0.50% or LIBOR plus 1.50%. At the
time of borrowing, we may elect the 1, 2, 3 or 6 month LIBOR rate. Under financial covenants contained in the Unsecured Credit Agreement which are measured quarterly we are required to
maintain, among other things:



During
the year ended December 31, 2009, we borrowed $19.0 million and repaid $5.5 million under our Unsecured Credit Agreement. At December 31, 2009, we had
$13.5 million outstanding at an interest rate of LIBOR plus 1.50% under the Unsecured Credit Agreement with $66.5 million available for borrowing. Also, at December 31, 2009, we
were in compliance with all our covenants. Subsequent to December 31, 2009, we borrowed $17.0 million under our Unsecured Credit Agreement for the acquisition of two skilled nursing
properties with a total of 286 beds, as previously discussed. After this borrowing, we had $30.5 million outstanding under the Unsecured Credit Agreement with $49.5 million available for
borrowing.

We
paid cash dividends on our Series C, Series E, and Series F preferred stocks totaling $3.3 million, $0.1 million and $11.8 million,
respectively. Additionally, we declared and paid cash dividends on our common stock totaling $36.2 million. Subsequent to December 31, 2009, we declared a monthly cash dividend of $0.13
per share on our common stock for the months of January, February and March 2010, payable on January 29, February 26 and March 31, 2010, respectively, to stockholders of record on
January 21, February 18 and March 23, 2010, respectively.

During
the year ended December 31, 2009, holders of 900 shares of our 8.5% Series E Cumulative Convertible Preferred Stock (or Series E preferred stock) elected to
convert such shares into 1,800 shares of our common stock at the Series E preferred stock conversion rate of $12.50 per share. Total shares reserved for issuance of common stock related to
conversion of Series E preferred stock were 75,632 at December 31, 2009.

In
June 2007 our Board of Directors terminated the prior existing share repurchase program and authorized a new share repurchase program enabling us to repurchase up to 5,000,000 shares
of our

39

---



common
stock. In January 2008 the Board of Directors amended the share repurchase program to include authorization to repurchase our outstanding preferred securities. This authorization does not
expire until 5,000,000 shares of our equity securities, including common and preferred securities, have been repurchased or the Board of Directors terminates its authorization.

During
2009 we repurchased and retired 900 shares of common stock for an aggregate purchase price of $16,000 or $17.33 per share, including commissions. Also, during 2009, we invested
$2.0 million to repurchase a total of 109,484 shares of our 8.0% Series F Preferred Stock at an average cost of $18.27 per share, including commissions. The liquidation value on our 8.0%
Series F Preferred Stock is $25.00 per share. As required by the accounting guidance regarding the effect on the calculation of earnings per share for the redemption or induced conversion of
preferred stock, the discounted purchase price on these shares, which is the liquidation value over the fair value, netted with the original issuance costs has been added to net income in calculating
net income allocable to common stockholders. At December 31, 2009 there were 5,894,216 shares of our 8.0% Series F Preferred Stock outstanding. The common and preferred shares were
purchased on the open market under the new Board authorization discussed above. After these repurchases, we continue to have an open Board authorization to purchase an additional 3,360,237 shares.

On
August 5, 2009 we entered into an equity distribution agreement with KeyBanc Capital Markets, Inc. (or KeyBanc) to issue and sell, from time to time, up to
$75.0 million in aggregate offering price of our common shares. During 2009 we sold 30,000 shares of common stock for net proceeds of $0.8 million or $25.54 per share, including
commissions. At December 31, 2009 we had $74.2 million available under this agreement.

During
2008 we adopted and our shareholders approved the 2008 Equity Participation Plan which replaces the 2004 Restricted Stock Plan, the 2004 Stock Option Plan and the 1998 Equity
Participation Plan. Under the 2008 Equity Participation Plan, 600,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to
officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2008 Equity Participation Plan are set by our compensation committee at its
discretion. During 2009 we granted 15,000 stock options and 3,000 shares of restricted stock at $24.65 per share under this plan. Also, we granted 3,000 shares of restricted stock at $18.34 per share
and 36,988 shares of restricted stock at $17.06 per share under this plan. These shares vest ratably over a three-year period.

During
the year ended December 31, 2009, a total of 35,000 common stock options were exercised at a total option value $0.8 million and a total market value on the date of
exercise of $0.9 million.

During
2009 one of our limited partners exercised its conversion rights and exchanged all of its interest in the limited partnership. Upon receipt of the redemption notification of
67,294 limited partnership units, we elected to convert its partnership units into 67,294 shares of our common stock. The partnership conversion price was $17.00 per partnership unit. In accordance
with FASB accounting guidance, we account for this exchange as an equity transaction because there was no change in control requiring consolidation or deconsolidation and remeasurement. Accordingly,
the $1.1 million carrying amount of the limited partner's interest in the partnership was reclassified to stockholders' equity. At December 31, 2009 we have one limited partnership and
have reserved 112,588 shares of our common stock under this partnership agreement. The carrying value of the partnership conversion rights is $2.0 million.

Available Shelf Registrations:

During 2007, we filed a Form S-3 "shelf" registration statement which became effective August 7, 2007, and
provides us with the capacity to offer up to $300.0 million in our debt and/or equity securities. On August 5, 2009, we entered into an equity distribution agreement with KeyBanc under
which we may issue and sell, from time to time, up to $75.0 million in aggregate offering price of our

40

---



common
shares through KeyBanc. Sales, if any, of common shares will be made by means of ordinary brokers' transactions at market prices, in block transactions, or as otherwise agreed between us and
KeyBanc. At December 31, 2009, we had $74.2 million availability under our equity distribution agreement with KeyBanc.

We
currently have $225.0 million of availability under our effective shelf registration. We may from time to time raise capital under our currently effective shelf registration or
a new shelf registration by issuing, in public or private transactions, our equity and debt securities, but the availability and terms of such issuance will depend upon then prevailing market and
other conditions.

Commitments:

The following table summarizes our capital improvement commitments as of December 31, 2009(dollar
amounts in thousands):

Commitment

Expiration
Date

Used
Commitment
at 12/31/09

Open
Commitment
at 12/31/09

Estimated
Yield

Property
Type

Properties

Major
Operator$
1,100


3/17/2010

$
549
(8a)
$
551


10.50%
(1)
SNF


1

N/A650


3/31/2010


598


52


13.00
%(1)
SNF


1

N/A726


3/31/2010


609


117


11.00
%(2)
SNF


1

Preferred Care2,000


3/31/2010





2,000


11.00
%(1)
SNF


1

Preferred Care875


10/7/2010


580
(8b)

295



(6)
ALF


1

N/A500


10/22/2010


460
(8c)

40


10.00
%(2)
ALF


1

N/A2,500


6/16/2010


1,528


972


10.00
%(1)
SNF


1

N/A1,600


12/1/2010


7


1,593



(5)
ALF


2

N/A4,000


12/31/2010


123


3,877


11.00
%(1)
SNF


1

Preferred Care2,000


1/18/2011





2,000



(1)(4)
SNF


1

N/A1,500


5/18/2011





1,500



(1)(9)
ALF


3

N/A5,000
(7)

12/31/2014





5,000
(7)


(3)
ALF


37

ALC$
22,451




$
4,454

$
17,997


(1)Minimum
rent will increase upon final funding and project completion or in some cases, the improvement deadline as defined in each lease agreement.(2)Minimum
rent will increase on the 1st of each month by the amount advanced in the previous month multiplied by the estimated yield.(3)9.5%
plus the positive difference, if any, between the average yield on the U.S. Treasury 10-year note for the five days prior to funding, minus
420 basis points (expressed as a percentage).(4)The
higher of one-year LIBOR plus 5.3% or 10%.(5)The
commitment is allocated in two tranches of $750,000 and $850,000. The yield for the $750,000 tranche is included in the initial lease rate; the yield
for the $850,000 tranche is 8.5% with minimum rent increases as per footnote (2).(6)The
yield is included in the initial lease rate.(7)Maximum
of $5,000,000 per year for the life of the lease.(8)Subsequent
to December 31, 2009, we committed to provide a lessee with $175,000 to invest in capital improvements to a skilled nursing property in
Texas. The yield for this commitment is included in the lease rate and matures in January 2011. Also, subsequent to December 31, 2009, we invested an additional $392,000 in the following
commitments: a) $316,000, b) $38,000, and c) $38,000.(9)The
current lease rate.


41

---






The following table summarizes our loan commitments as of December 31, 2009 (dollar amounts in
thousands):

Commitment

Expiration
Date

Used
Commitment
at 12/31/09

Open
Commitment
at 12/31/09

Yield

Property
Type

Properties

Major
Operator$
400


3/31/2010

$
327

$
73



(1)
SNF


1

N/A50


3/31/2010


20


30


10.00
%
SNF


1

N/A450


6/30/2010


250


200


10.00
%
SNF


4

N/A$
900




$
597

$
303


(1)The
principal balance of the loan will increase on the date any funds are disbursed by an amount equal to such funding and shall bear interest at the then
current interest rate of the existing loan. The monthly loan payment will increase at each increase to the principal balance. The interest rate at December 31, 2009 is 10.7%.


Contractual Obligations:

We monitor our contractual obligations and commitments detailed above to ensure funds are available to meet obligations when due. The
following table represents our long-term contractual obligations (scheduled principal payments and amounts due at maturity) as of December 31, 2009, and excludes the effects of
interest (in thousands):

Total

2010

2011  2012

2013  2014

ThereafterMortgage loans payable

$
7,685

$
7,685

$


$


$
Bonds payable


4,225


495


1,095


1,235


1,400Bank borrowings


13,500
(1)




13,500





$
25,410

$
8,180

$
14,595

$
1,235

$
1,400


---

Off-Balance Sheet Arrangements:

We had no off-balance sheet arrangements as of December 31, 2009.

Liquidity:

We have an Unsecured Credit Agreement in the amount of $80.0 million and it provides for the opportunity to increase the credit
amount up to a total of $120.0 million. The Credit Agreement provides a revolving line of credit with no scheduled maturities other than the maturity date of July 17, 2011. The pricing
under the Credit Agreement based on our borrowing election is Prime Rate plus 0.50% or LIBOR plus 1.50%. At the time of borrowing, we may elect the 1, 2, 3 or 6 month LIBOR rate.

At
December 31, 2009, we had $8.9 million of cash on hand and $66.5 million available on our $80.0 million Unsecured Credit Agreement which matures
July 17, 2011. Also, during 2009, we entered into an equity distribution agreement with KeyBanc to issue and sell, from time to time, up to $75.0 million in aggregate offering price of
our common shares. At December 31, 2009 we had $74.2 million available under this agreement. In calendar year 2010, we have a mortgage debt maturity of $7.7 million due in August
2010 at an interest rate of 8.69%. This mortgage debt may be paid

42

---



90-days
early. We believe that our current cash balance, cash flow from operations available for distribution or reinvestment, our current unsecured line of credit borrowing capacity, and
availability under our equity distribution agreement are sufficient to provide for payment of our current operating costs and debt obligations and to provide funds for distribution to the holders of
our preferred stock and pay common dividends at least sufficient to maintain our REIT status. The timing, source and amount of cash flows provided by financing activities and used in investing
activities are sensitive to the capital markets environment, especially to changes in interest rates.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

You are cautioned that statements contained in this section are forward looking and should be read in
conjunction with the disclosure under the heading "Cautionary Statements" and the "Risk Factors" set forth above.

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

We
do not utilize interest rate swaps, forward or option contracts or foreign currencies or commodities, or other types of derivative financial instruments nor do we engage in
"off-balance sheet" transactions. The purpose of the following disclosure is to provide a framework to understand our sensitivity to hypothetical changes in interest rates as of
December 31, 2009.

Our
future earnings, cash flows and estimated fair values relating to financial instruments are dependent upon prevalent market rates of interest, such as LIBOR or term rates of U.S.
Treasury Notes. Changes in interest rates generally impact the fair value, but not future earnings or cash flows, of mortgage loans receivable and fixed rate debt. 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, 2009, based on the prevailing interest rates for comparable loans and estimates made by management, the fair value of our mortgage loans receivable using a 7.5%
discount rate was approximately $80.2 million. A 1% increase in such rates would decrease the estimated fair value of our mortgage loans by approximately $2.8 million while a 1% decrease
in such rates would increase their estimated fair value by approximately $2.9 million. A 1% increase or decrease in applicable interest rates would not have a material impact on the fair value
of our fixed rate debt.

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

43

---





Item 8.    FINANCIAL STATEMENTS

Index to Consolidated Financial Statements  and Financial Statement Schedules

PageReport of Independent Registered Public Accounting Firm

45Consolidated Balance Sheets as of December 31, 2009 and 2008

46Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2009, 2008 and
2007

47Consolidated Statements of Equity for the years ended December 31, 2009, 2008 and 2007

48Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007

49Notes to Consolidated Financial Statements

50Consolidated Financial Statement SchedulesSchedule IIValuation and Qualifying Accounts

76Schedule IIIReal Estate and Accumulated Depreciation

77Schedule IVMortgage Loans on Real Estate

82Management Report on Internal Control over Financial Reporting

84Report of Independent Registered Public Accounting Firm

85


44

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the accompanying consolidated balance sheets of LTC Properties, Inc. (the "Company") as of December 31, 2009 and 2008, and the related consolidated
statements of income and comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement
schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, 2009 and 2008, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information
set forth therein.

As
discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for (1) non-controlling interests with the
adoption of the amendments to the FASB Accounting Standards Codification (ASC) Topic 810: Consolidation,effective January 1, 2009 and
retroactively applied; (2) for business combinations with the adoption of the FASB ASC Topic 805,Business Combinations, effective
January 1, 2009; and (3) participating securities with the adoption of FASB ASC Topic 260,Earnings Per Share, effective January 1,
2009 and retroactively applied.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), LTC Properties, Inc.'s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 24, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP


Los
Angeles, California
February 24, 2010

45

---





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

December 31,2009

2008ASSETSReal Estate Investments:Buildings and improvements, net of accumulated depreciation and amortization:
2009$145,180; 2008$130,475

$
337,719

$
337,171Land


36,561


34,971Mortgage loans receivable, net of allowance for doubtful accounts:
2009$704; 2008$760


69,883


77,541Real estate investments, net


444,163


449,683Other Assets:Cash and cash equivalents


8,856


21,118Debt issue costs, net


476


831Interest receivable


1,964


2,010Straight-line rent receivable,(1) net of allowance for doubtful accounts:
2009$631; 2008$140


17,309


13,900Prepaid expenses and other assets


8,663


9,148Notes receivable


2,689


2,895Marketable debt securities(2)


6,473


6,468Total assets

$
490,593

$
506,053LIABILITIES AND EQUITYBank borrowings

$
13,500

$
Mortgage loans payable


7,685


32,063Bonds payable


4,225


4,690Accrued interest


102


251Accrued expenses and other liabilities


7,801


5,015Distributions payable


2,967


3,022Total liabilities


36,280


45,041EQUITYPreferred stock $0.01 par value: 15,000 shares authorized; shares issued and outstanding:
20097,932; 20088,042


186,801


189,560Common stock: $0.01 par value; 45,000 shares authorized; shares issued and outstanding:
200923,312 ; 200823,136


233


231Capital in excess of par value


326,163


321,979Cumulative net income


577,629


533,565Other


390


735Cumulative distributions


(638,884
)

(588,192
)Total stockholders' equity


452,332


457,878Non-controlling interests


1,981


3,134Total Equity


454,313


461,012Total liabilities and equity

$
490,593

$
506,053


(1)On
December 31, 2009 and 2008, we had $2,480,000 and $2,037,000, respectively, in straight-line rent receivable from a lessee that
qualifies as a related party because the lessee's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related
Partyfor further discussion.(2)At
December 31, 2009 and 2008, we had a $6,500,000 face value investment in marketable securities issued by an entity that qualifies as a related
party because the entity's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related Partyfor further
discussion.


See accompanying notes.

46

---





LTC PROPERTIES, INC.        CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME        (In thousands, except per share amounts)

Years ended December 31,2009

2008

2007Revenues:Rental income(1)

$
60,005

$
57,562

$
57,841Interest income from mortgage loans


8,558


9,708


12,502Interest and other income(2)


1,331


2,087


4,447Total revenues


69,894


69,357


74,790Expenses:Interest expense


2,418


4,114


4,957Depreciation and amortization


14,822


14,960


14,305Provisions for doubtful accounts


775


85


(390
)Operating and other expenses


7,519


7,006


7,879Total expenses


25,534


26,165


26,751Income before non-operating income


44,360


43,192


48,039Non-operating income








Income from continuing operations


44,360


43,192


48,039Discontinued operations:Loss from discontinued operations








(47
)Gain on sale of assets, net





92


106Net income from discontinued operations





92


59Net income


44,360


43,284


48,098Income allocated to non-controlling interests


(296
)

(307
)

(343
)Net income attributable to LTC Properties, Inc.


44,064


42,977


47,755Income allocated to participating securities


(139
)

(159
)

(219
)Income allocated to preferred stockholders


(14,515
)

(14,401
)

(16,923
)Net income allocable to common stockholders

$
29,410

$
28,417

$
30,613Basic earnings per common share (See Note 14):Continuing operations

$
1.27

$
1.23

$
1.32Discontinued operations

$
0.00

$
0.00

$
0.00Net income allocable to common stockholders

$
1.27

$
1.24

$
1.32Diluted earnings per common share (See Note 14):Continuing operations

$
1.27

$
1.23

$
1.31Discontinued operations

$
0.00

$
0.00

$
0.00Net income allocable to common stockholders

$
1.27

$
1.24

$
1.31Weighted average shares used to calculate earnings per common share:Basic


23,099


22,974


23,215Diluted


23,182


23,090


23,582Comprehensive Income:Net income

$
44,360

$
43,284

$
48,098Reclassification adjustment


(345
)

(221
)

(737
)Comprehensive income

$
44,015

$
43,063

$
47,361


(1)During
2009, 2008 and 2007, we received $4,058,000, $3,917,000, and $1,267,000, respectively, in rental income and recorded $443,000, $535,000, and $206,000
respectively, in straight-line rental income from a lessee that qualifies as a related party because the lessee's Chief Executive Officer is on our Board of Directors. See Note 12. Transactions with Related
Partyfor further discussion.(2)During
2009, 2008, and 2007 we recognized $720,000, $728,000 and $1,327,000, respectively, of interest income from an entity that qualifies as a related
party because the entity's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related Partyfor further
discussion. NOTE: Computations of per share amounts from continuing operations, discontinued operations and net income are made
independently. Therefore, the sum of per share amounts from continuing operations and discontinued operations may not agree with the per share amounts from net income allocable to common stockholders.


See accompanying notes.

47

---





LTC PROPERTIES, INC.    CONSOLIDATED STATEMENTS OF EQUITY    (In thousands, except per share amounts)

SharesPreferred
Stock

Common
Stock

Preferred
Stock

Common
Stock

Capital in
Excess of
Par Value

Cumulative
Net
Income

Other

Cumulative
Distributions

Total
Stockholders'
Equity

Non-
controlling
Interests

Total
EquityBalanceDecember 31, 2006


8,834


23,569

$
209,341

$
236

$
332,149

$
442,833

$
1,693

$
(485,818
)
$
500,434

$
3,518

$
503,952Conversion of 8.5% Series E Preferred Stock


(32
)

63


(788
)

1


787

















Reclassification adjustment




















(737
)




(737
)




(737
)Stock option exercises





34








191











191





191Repurchase of stock





(893
)




(9
)

(18,759
)










(18,768
)




(18,768
)Issue restricted stock





99





1


(1
)
















Net income

















47,755








47,755


343


48,098Vested stock options














109











109





109Vested restricted stock














2,133











2,133





2,133Non-controlling interests preferred return





























(343
)

(343
)Preferred stock dividends























(16,923
)

(16,923
)




(16,923
)Common stock cash distributions ($1.50 per share)























(35,038
)

(35,038
)




(35,038
)BalanceDecember 31, 2007


8,802


22,872


208,553


229


316,609


490,588


956


(537,779
)

479,156


3,518


482,674Conversion of 8.5% Series E Preferred Stock


(124
)

247


(3,085
)

2


3,083

















Reclassification adjustment




















(221
)




(221
)




(221
)Stock option exercises





17








416











416





416Repurchase of stock


(636
)




(15,908
)




642








989


(14,277
)




(14,277
)Net income

















42,977








42,977


307


43,284Vested stock options














1,088











1,088





1,088Vested restricted stock














141











141





141Non-controlling interests conversion





























(374
)

(374
)Non-controlling interests preferred return





























(317
)

(317
)Preferred stock dividends























(15,390
)

(15,390
)




(15,390
)Common stock cash distributions ($1.56 per share)























(36,012
)

(36,012
)




(36,012
)BalanceDecember 31, 2008


8,042


23,136


189,560


231


321,979


533,565


735


(588,192
)

457,878


3,134


461,012Conversion of 8.5% Series E Preferred Stock


(1
)

2


(22
)




22

















Reclassificaton adjustment




















(345
)




(345
)




(345
)Stock option exercises





35








770











770





770Repurchase of stock


(109
)

(1
)

(2,737
)




95








626


(2,016
)




(2,016
)Issue common stock





30








766











766





766Issue restricted stock





43





1


(1
)
















Net income

















44,064








44,064


296


44,360Vested stock options














147











147





147Vested restricted stock














1,242











1,242





1,242Non-controlling interests conversion





67





1


1,143











1,144


(1,144
)

Non-controlling interests preferred return





























(305
)

(305
)Preferred stock dividends























(15,141
)

(15,141
)




(15,141
)Common stock cash distributions ($1.56 per share)























(36,177
)

(36,177
)




(36,177
)BalanceDecember 31, 2009


7,932


23,312

$
186,801

$
233

$
326,163

$
577,629

$
390

$
(638,884
)
$
452,332

$
1,981

$
454,313


See accompanying notes.

48

---





LTC PROPERTIES, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

Year ended December 31,2009

2008

2007OPERATING ACTIVITIES:Net income

$
44,360

$
43,284

$
48,098Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortizationcontinuing operations


14,822


14,960


14,305Depreciation and amortizationdiscontinued operations








47Stock-based compensation expense


1,389


1,229


2,242Gain on sale of real estate and other investments, net





(92
)

(106
)Straight-line rental income(1)


(4,241
)

(3,492
)

(4,765
)Other non-cash items, net


1,626


955


(1,213
)Decrease in interest receivable


91


152


410(Increase) decrease in prepaid, other assets and allowance


(285
)

(113
)

139Decrease in accrued interest payable


(149
)

(98
)

(9
)Increase (decrease) in accrued expenses and other liabilities


2,727


(401
)

(523
)Net cash provided by operating activities


60,340


56,384


58,625INVESTING ACTIVITIES:Investment in real estate properties and capital improvements, net


(16,984
)

(5,369
)

(5,696
)Conversion of mortgage loans to owned properties





(13
)

Proceeds from sale of real estate investments, net





555


322Principal payments on mortgage loans receivable


7,843


18,990


33,004Investment in real estate mortgages


(221
)

(9,635
)

(6,039
)Proceeds from the redemption/sale of marketable securities(2)








3,885Advances under notes receivable


(375
)

(420
)

(52
)Principal payments received on notes receivable


671


848


1,139Net cash (used in) provided by investing activities


(9,066
)

4,956


26,563FINANCING ACTIVITIES:Bank borrowings


19,000





Repayment of bank borrowings


(5,500
)




Principal payments on mortgage loans and bonds payable


(24,843
)

(15,542
)

(1,516
)Proceeds from common stock offering


766





Repurchase of common stock


(16
)




(18,768
)Repurchase of Preferred stock


(2,000
)

(14,276
)

Distributions paid to stockholders


(51,373
)

(51,786
)

(51,978
)Redemption of non-controlling interests





(510
)

Distributions paid to non-controlling interests


(305
)

(317
)

(343
)Other


735


(422
)

161Net cash used in financing activities


(63,536
)

(82,853
)

(72,444
)(Decrease) increase in cash and cash equivalents


(12,262
)

(21,513
)

12,744Cash and cash equivalents, beginning of year


21,118


42,631


29,887Cash and cash equivalents, end of year

$
8,856

$
21,118

$
42,631Supplemental disclosure of cash flow information:Interest paid

$
2,177

$
3,879

$
4,714Non-cash investing and financing transactions:SeeNote 4: Supplemental Cash Flow Informationfor further discussion.


(1)During
2009, 2008 and 2007, we recorded $443,000, $535,000 and $206,000, respectively, in straight-line rental income from a lessee that
qualifies as a related party because the lessee's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related
Partyfor further discussion.(2)During
2007, we received $3,885,000 as a result of a partial redemption of our marketable debt securities from an entity that qualifies as a related party
because the entity's Chief Executive Officer is on our Board of Directors. SeeNote 12. Transactions with Related Partyfor further discussion.


See accompanying notes.

49

---





LTC PROPERTIES, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company

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

2. Summary of Significant Accounting Policies

In June 2009, the Financial Accounting Standard Board (or FASB) issued a new accounting pronouncement regarding the FASB Accounting
Standards Codification (or Codification) and the hierarchy of U.S. generally accepted accounting principles (or U.S. GAAP). This pronouncement establishes Codification as the single source of
authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources
of authoritative U.S. GAAP for U.S. Securities and Exchange Commission (or SEC) registrants. Codification has superseded all existing non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. Codification became effective for financial
statements issued for interim and annual periods ending after September 15, 2009. The FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task
Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance;
and (c) provide the bases for conclusions on the change(s) in the Codification. Pursuant to the provisions of Codification, we have updated references to GAAP in the accompanying consolidated
financial statements.

Basis of Presentation.The accompanying consolidated financial statements include the accounts of LTC, our wholly-owned subsidiaries
and our
controlled partnership. All intercompany investments, accounts and transactions have been eliminated. Control over the partnership is based on the provisions of the partnership agreement that provides
us with a controlling financial interest in the partnership. Under the terms of the partnership agreement, we, as the general partner, are responsible for the management of the partnership's assets,
business and affairs. Our rights and duties in management of the partnership include making all operating decisions, setting the capital budget, executing all contracts, making all employment
decisions, and handling the purchase and disposition of assets, among others. We, as the general partner, are responsible for the ongoing, major, and central operations of the partnership and make all
management decisions. In addition, we, as the general partner, assume the risk for all operating losses, capital losses, and are entitled to substantially all capital gains (appreciation).

The
FASB created a framework for evaluating whether a general partner or a group of general partners controls a limited partnership or a managing member or a group of managing members
controls a limited liability company and therefore should consolidate the entity. The guidance states that the presumption of general partner or managing member control would be overcome only when the
limited partners or non-managing members have certain specific rights as described in the guidance. The limited 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 expressed permission of the general partner.
However, we can transfer our interest without consultation or permission of the limited partners. We consolidate our partnerships in accordance with the guidance.

The
FASB requires the classification of non-controlling interests (formerly minority interests) as a component of consolidated equity in the consolidated balance sheet
subject to the provisions of the

50

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

rules
governing classification and measurement of redeemable securities. The guidance requires consolidated net income to be reported at the amounts attributable to both the controlling and
non-controlling interests. The calculation of earnings per share will be based on income amounts attributable to the controlling interest. Also, this guidance addresses accounting and
reporting for a change in control of a subsidiary. This guidance is effective for fiscal years beginning December 15, 2008, and is required to be adopted prospectively, except for the
presentation and disclosure requirements, which are required to be adopted retrospectively. The required retrospective adoption is reflected in the accompanying consolidated financial statements.
Therefore, we have reclassified the non-controlling interests of our limited partnership from the mezzanine section of our consolidated balance sheet to equity. This reclassification
totaled $1,981,000 and $3,134,000 as of December 31, 2009 and December 31, 2008.

Certain
reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation, including changes as a result of the
application of accounting guidance for our non-controlling interests in consolidated entities, as described above.

The
FASB addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. The guidance requires that we consolidate a
"variable interest entity" if we are subject to a majority of the risk of loss from the "variable interest entity's" activities, or are entitled to receive a majority of the entity's residual returns,
or both. The guidance also requires disclosure about "variable interest entities" that we are not required to consolidate but in which we have a significant variable interest. We believe that as of
December 31, 2009, we do not have investments in any entities that meet the definition of a "variable interest entity."

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

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 fair value on the acquisition date. The FASB
accounting guidance
requires the acquiring entity to measure the assets acquired, liabilities assumed (including contingencies) and any non-controlling interests at their fair values on the acquisition date.
In determining fair value, we use current appraisals or other third party opinions of value. This guidance also requires that acquisition-related transaction costs be expensed as incurred and acquired
research and development value be capitalized. In addition, acquisition-related restructuring costs are to be capitalized only if they meet certain criteria.

Depreciation
is computed principally by the straight-line method for financial reporting purposes and includes depreciation associated with properties we lease that qualify
as capital leases under the FASB accounting guidance relating to accounting for leases. Estimated useful lives for financial reporting purposes generally range from 3 to 5 years for computers,
7 to 10 years for equipment, 35 to 40 years for buildings and 10 to 20 years for building improvements.

Mortgage Loans Receivable.Mortgage loans receivable we originate are recorded on an amortized cost basis. Mortgage loans we acquire are
recorded at
fair value at the time of purchase net of any related premium or discount which is amortized as a yield adjustment to interest income over the life of the loan.

51

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LTC PROPERTIES, INC.

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Allowance for Doubtful Accounts.We maintain an allowance for doubtful accounts. The allowance for doubtful accounts is based upon the
expected
collectability of our receivables and is maintained at a level believed adequate to absorb potential losses in our receivables. In determining the allowance we perform a quarterly evaluation of all
receivables. If this evaluation indicates that there is a greater risk of receivable charge-offs, additional allowances are recorded in current period earnings.

Impairments.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 over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined
that we will dispose of the property. In determining fair value, we use current appraisals or other third party opinions of value and other estimates of fair value such as estimated discounted future
cash flows.

Also,
we evaluate the carrying values of mortgage loans receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgage loan
receivable when events or circumstances, such as the non-receipt of principal and interest payments and/or significant deterioration of the financial condition of the borrower, indicate
that the carrying amount of the mortgage loan receivable may not be recoverable. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying
amount of the mortgage loan receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the mortgage.

When
an investment is considered impaired, we determine whether that impairment is other-than-temporary and the measurement of an impairment loss. The FASB
provides accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not
been recognized as other-than-temporary impairments. Comparative information for periods prior to initial application is not required.

In
April 2009, the FASB issued new accounting guidance regarding the recognition and presentation of other-than-temporary impairments which amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt securities in the consolidated financial statements. This guidance is effective for fiscal years and interim periods beginning after
June 15, 2009. The adoption of this guidance did not have an impact on our consolidated financial statements.

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

The
FASB provides guidance for using fair value to measure assets and liabilities, the information used to measure fair value, and the effect of fair value measurements on earnings. The
FASB

52

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

In
April 2009, the FASB issued new accounting guidance, which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as
well as in annual financial statements. This new guidance is effective for interim reporting periods ending after June 15, 2009. The adoption of this new guidance did not impact our
consolidated financial statements. SeeNote 16. Fair Value Measurementsfor the disclosure about fair value of our financial instruments.

Investments.Investments in marketable debt and equity securities are categorized as trading, available-for-sale or
held-to-maturity. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, reported in other comprehensive income
until realized. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in net
income. As discussed above, the FASB issued new accounting guidance regarding the recognition and presentation of
other-than-temporary impairments for debt securities to make the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt securities in the consolidated financial statements. The cost of securities sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are included in interest and other income. Our investment in marketable debt securities is classified as
held-to-maturity because we have the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized
cost, adjusted for amortization of premiums and accretion of discounts to maturity.

Revenue Recognition.Interest income on mortgage loans is recognized using the effective interest method. We follow a policy related to
mortgage
interest whereby we consider a loan to be non-performing after 60 days of non-payment of amounts due and do not recognize unpaid mortgage interest income from that loan
until the past due amounts have been received.

53

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Rental
income from operating leases is recognized in accordance with U.S. GAAP. Substantially all of our leases contain provisions for specified annual increases over the rents of
the prior year and are generally computed in one of four methods depending on specific provisions of each lease as follows:



The
FASB does not provide for the recognition of contingent revenue until all possible contingencies have been eliminated. We consider the operating history of the lessee and the general
condition of the industry when evaluating whether all possible contingencies have been eliminated and have historically, and expect in the future, to not include contingent rents as income until
received. We follow a policy related to rental income whereby we consider a lease to be non-performing after 60 days of non-payment of past due amounts and do not
recognize unpaid rental income from that lease until the amounts have been received.

Rental
revenues relating to non-contingent leases that contain specified rental increases over the life of the lease are recognized on the straight-line basis.
Recognizing income on a straight-line basis requires us to calculate the total non-contingent rent containing specified rental increases over the life of the lease and to
recognize the revenue evenly over that life. This method results in rental income in the early years of a lease being higher than actual cash received, creating a straight-line rent
receivable asset included in our consolidated balance sheet. At some point during the lease, depending on its terms, the cash rent payments eventually exceed the straight-line rent which
results in the straight-line rent receivable asset decreasing to zero over the remainder of the lease term. We assess the collectability of straight-line rent in accordance
with the applicable accounting standards and our reserve policy. If the lessee becomes delinquent in rent owed under the terms of the lease, we may provide a reserve against the recognized
straight-line rent receivable asset for a portion, up to its full value, that we estimate may not be recoverable.

Net
loan fee income and commitment fee income are amortized over the life of the related loan. Costs associated with leases are deferred and allocated over the lease term in proportion
to the recognition of rental income.

Federal Income Taxes.LTC 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 is required to distribute at least 90% of its taxable income to its stockholders and a REIT may deduct dividends in computing taxable income. If a REIT distributes 100% of its
taxable income and complies with other Internal Revenue Code requirements, it will generally not be subject to Federal income taxation.

For
Federal tax purposes, depreciation is generally calculated using the straight-line method over a period of 27.5 years. Earnings and profits, which determine the
taxability of distributions to stockholders, differs from net income for financial statement purposes principally due to the treatment of certain interest income, other expense items, impairment
charges, and depreciable lives and basis of assets. At December 31, 2009, the book basis of our net assets exceeded the tax basis (unaudited) by approximately $66,214,000, primarily due to
additional depreciation taken for tax purposes.

The
FASB clarified the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial
statements. The

54

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

guidance
utilizes a two-step approach for evaluating tax positions. Recognition (step one) occurs when a company concludes that a tax position, based solely on its technical merits, is
more likely than not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied (i.e., the position is more likely than not to be sustained).
Under step two, the tax benefit is measured as the largest amount of benefit (determined on a cumulative probability basis) that is more likely than not to be realized upon ultimate settlement. This
FASB accounting guidance, which we adopted on January 1, 2007, did not have a material effect on our consolidated financial statements.

We
may from time to time be assessed interest or penalties by certain tax jurisdictions. In the event we have received an assessment for interest and/or penalties, it has been classified
in our consolidated financial statements as operating and other expenses.

Concentrations of Credit Risks.Financial instruments which potentially subject us to concentrations of credit risk consist primarily of
cash and
cash equivalents, mortgage loans receivable, marketable debt securities and operating leases on owned properties. Our financial instruments, 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. We obtain various collateral and other protective rights, and continually monitor these rights, in order to reduce such possibilities of loss. In addition, we provide reserves for
potential losses based upon management's periodic review of our portfolio.

Discontinued Operations.Properties held-for-sale on the consolidated 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. Accordingly, we record
reclassification adjustments to reflect properties sold subsequent to the respective consolidated balance sheet date as held-for-sale in the prior period consolidated balance
sheet. 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. The operating results of real estate assets designated as held-for-sale are included in
discontinued operations in the consolidated statement of income. In addition, all gains and losses from real estate sold are also included in discontinued operations. For comparative purposes, as
required by the FASB accounting guidance, the prior year's operating results of sold and held-for-sale real estate assets
have been reclassified to discontinued operations in the consolidated income statement for the prior years. SeeNote 6. Real Estate Investments,
for a detail of the components of the net income from discontinued operations.

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.

In
June 2008, the FASB issued new accounting guidance regarding the determination of whether instruments granted in share-based payment transactions are participating securities. This
guidance clarifies that outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common stockholders and
are considered participating securities, and thus, the issuing entity is required to apply the two-class method of computing basic earnings per share. This guidance was effective
January 1, 2009 and the required retrospective adoption to all prior-period earnings per share data is included in the accompanying consolidated financial statements. Adoption of this guidance
did not have a material effect on our basic or diluted earnings per share.

55

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock-Based Compensation.The FASB requires all share-based payments to employees, including grants of employee stock options, to be
recognized in
the income statement based on their fair values. We use the Black-Scholes-Merton formula to estimate the value of stock options granted to employees. This model requires management to make certain
estimates including stock volatility, expected dividend yield and the expected term. If management incorrectly estimates these variables, the results of operations could be affected. The FASB also
requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow. Because we qualify as a REIT under the Internal Revenue Code of 1986, as
amended, we are not subject to Federal income taxation. Therefore, this reporting requirement does not have an impact on our statement of cash flows.

Segment Disclosures.The FASB accounting guidance regarding disclosures about segments of an enterprise and related information
establishes standards
for the manner in which public business enterprises report information about operating segments. Management believes that substantially all of our operations comprise one operating segment.

Impact of New Accounting Pronouncement

In May 2009, the FASB issued amended guidance regarding subsequent events. This pronouncement is intended to establish general
standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of
the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were
available to be issued. This amended guidance is effective for interim or annual financial periods ending after June 15, 2009. Adoption of this amended guidance did not impact our consolidated
financial statements.

3. Major Operators

We have three operators, based on properties subject to lease agreements and secured by mortgage loans that each represent between 10%
and 20% of our total assets and three operators from each of which we derive over 10% of our rental revenue and interest income from mortgage loans.

In
2006, Extendicare Services, Inc. (or EHSI), one of our major operators, effected a reorganization whereby it completed a spin-off of Assisted Living Concepts, Inc.
(or ALC). ALC is now a NYSE traded public company operating assisted living centers. The remaining EHSI assets and operations were converted into a Canadian REIT (or Extendicare REIT) listed on the
Toronto Stock Exchange (or TSX). Both Extendicare REIT and ALC continue to be parties to the leases with us.

Brookdale
Senior Living Communities, Inc. (or Brookdale Communities), formerly known as Alterra Healthcare Corporation, is a wholly owned subsidiary of a publicly traded company,
Brookdale Senior Living, Inc. (or Brookdale). During 2009, the name Alterra Healthcare Corporation was changed to Brookdale Senior Living Communities, Inc.

56

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes Extendicare REIT's, ALC's and Brookdale's financial information as of and for the nine months ended September 30, 2009 per
the operators' public filings (in thousands, unaudited). Our other operator is privately owned and thus no public financial information is available:

Extendicare REIT(1)

ALC

BrookdaleCurrent assets

$
441,245

$
22,074

$
406,202Non-current assets


1,213,944


433,847


4,095,480Current liabilities


314,981


36,427


653,792Non-current liabilities


1,378,002


149,843


2,746,236Stockholders' (deficit) equity


(37,794
)

269,651


1,101,654Gross revenue


1,652,368


170,986


1,504,546Operating expenses


1,496,178


164,442


1,470,374Income (loss) from continuing operations


62,718


(3,502
)

(45,456
)Net income (loss)


61,980


(4,482
)

(45,456
)Cash provided by operations


133,285


35,818


185,972Cash used in investing activities


(53,667
)

(25,390
)

(124,017
)Cash (used in) provided by financing activities


(66,305
)

(24,438
)

43,385


(1)The
numbers shown for Extendicare REIT are in Canadian dollars and are prepared in accordance with Canadian GAAP.*The
financial information contained in the foregoing table for Extendicare REIT, ALC and Brookdale is based on information we obtained from such companies'
available public filing and, therefore, we have not independently verified the accuracy of such information.


Extendicare
REIT and ALC, collectively lease 37 assisted living properties with a total of 1,427 units owned by us representing approximately 12.2%, or $59,715,000, of our total assets
at December 31, 2009 and 16.0% of rental revenue and interest income from mortgage loans recognized as of December 31, 2009.

Brookdale
Communities, a wholly owned subsidiary of Brookdale, leases 35 assisted living properties with a total of 1,416 units owned by us representing approximately 12.1%, or
$59,382,000, of our total assets at December 31, 2009 and 14.8% of rental revenue and interest income from mortgage loans recognized as of December 31, 2009.

Preferred
Care, Inc. (or Preferred Care), through various wholly owned subsidiaries, operates 33 skilled nursing properties with a total of 4,021 beds that we own or on which we
hold mortgages secured by first trust deeds. This represents approximately 12.3%, or $60,397,000, of our total assets at December 31, 2009 and 15.4% of rental revenue and interest income from
mortgage loans recognized as of December 31, 2009. They also operate one skilled nursing property under a sub-lease with another lessee we have which is not included in the
Preferred Care rental revenue and interest income from mortgage loans.

Our
financial position and ability to make distributions may be adversely affected by financial difficulties experienced by Brookdale Communities, Extendicare REIT & ALC,
Preferred Care, or any of our lessees and borrowers, including any 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)

4. Supplemental Cash Flow Information

For the year ended
December 31,2009

2008

2007(in thousands)Non-cash investing and financing transactions:Conversion of mortgage loans to owned properties

$


$
4,704

$
Increase in short term notes / mortgage loans receivable related to the disposition of real estate properties








530Conversion of preferred stock to common stock


22


3,085


788Redemption of non-controlling interest


1,144


136


Restricted stock issued, net of cancellations


1





1Capital improvement holdback from investments in notes / mortgage loans receivable








130


5. Impairment Charge

No impairment charges were recorded during 2009, 2008 or 2007. We have evaluated all assets and believe there were no
other-than-temporary impairments. However in past years, the long-term care industry experienced significant adverse changes which resulted in operating losses by
certain of our lessees and borrowers and in some instances the filing by certain lessees and borrowers for bankruptcy protection. Thus, we cannot predict what, if any, impairment charge may be needed
in the future.

6. Real Estate Investments

Mortgage Loans.The following table summarizes our investments in mortgage loans secured by first mortgages at December 31,
2009(in thousands):

Type of Property

Gross
Investments

Percentage
of
Investments

Number of
Loans

Number of
Properties(1)

Number of
Beds/Units

Investment
per
Bed/UnitAssisted Living Properties

$
27,044


38.3
%

10


16


714

$
37.88Skilled Nursing Properties


39,793


56.4
%

29


36


4,110

$
9.68Schools


3,750


5.3
%

1


1


N/A


N/ATotals

$
70,587


100.0
%

40


53


4,824


(1)We
have investments in 14 states mortgaged to 23 different operators.


At
December 31, 2009, the mortgage loans had interest rates ranging from 7.6% to 14.0% and maturities ranging from 2011 to 2019. 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, 2009 and 2008, the carrying values of the mortgage loans were $69,883,000 and $77,541,000, respectively. Scheduled principal
payments on mortgage loans are $4,045,000; $10,600,000; $5,110,000; $18,497,000; $9,247,000 and $22,384,000 in 2010, 2011, 2012, 2013, 2014 and thereafter, respectively.

During
the year ended December 31, 2009, we received $3,716,000 plus accrued interest related to the payoff of three mortgage loans secured by three skilled nursing properties.
Additionally, we

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

invested
$221,000 under one mortgage loan for capital improvements. We received $4,127,000 in regularly scheduled principal payments.

During
the year ended December 31, 2008, we invested $9,085,000, net of closing fees, in three mortgage loans secured by one skilled nursing and seven assisted living properties.
We also invested $550,000 under three mortgage loans for capital improvements at an average rate of 11.07%.

Additionally,
during the year ended December 31, 2008, we received $14,248,000 plus accrued interest related to the payoff of nine mortgage loans secured by nine skilled nursing
properties and received $4,742,000 in regularly scheduled principal payments.

During
the year ended December 31, 2007, we invested $6,039,000, net of closing fees and capital improvement holdbacks in two mortgage loans with the same borrower on two skilled
nursing properties located in Texas. We also received a $530,000 mortgage loan secured by a skilled nursing property located in Tennessee in connection with the sale of 59-bed skilled
nursing property. SeeOwned Propertiesbelow for further detail on the sale. This loan was paid off in July 2008. During the year ended
December 31, 2007 we also received $28,509,000 related to the payoff of 11 mortgage loans secured by 14 skilled nursing properties. We also received $4,495,000 in regularly scheduled principal
payments.

Owned Properties.The following table summarizes our investments in owned properties at December 31, 2009(in
thousands):

Type of Property

Gross
Investments

Percentage
of
Investments

Number of
Properties(1)

Number of
Beds/Units

Investment
per
Bed/UnitAssisted Living Properties

$
268,377


51.7
%

88


4,076

$
65.84Skilled Nursing Properties


241,813


46.5
%

62


7,209

$
33.54Schools


9,270


1.8
%

1


N/A


N/ATotals

$
519,460


100.0
%

151


11,285


(1)We
have investments in 23 states leased to 24 different operators.


Owned
properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which
requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Many of the
leases contain renewal options and two contain limited period options that permit the operators to purchase the properties. The leases provide for fixed minimum base rent during the initial and
renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific
provisions of each lease:



Contingent
rent income for the years ended December 31, 2009, 2008 and 2007 was not significant in relation to contractual base rent income.

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During
the year ended December 31, 2009, we acquired three assisted living properties with a total of 192 units for $13,000,000 and incurred and expensed $181,000 in transaction
costs. These properties are leased to a third party operator under a 12-year master lease with two five-year renewal options. We also invested $3,170,000 at an average yield of
10.6% under agreements to expand and renovate eight properties operated by six different operators and we invested $633,000 in capital improvements to existing properties under various lease
agreements whose rental rates already reflected this investment. SeeNote 11. Commitments and Contingenciesfor further discussion about our
commitment agreements.

Subsequent
to December 31, 2009, we purchased a 166-bed skilled nursing property in Texas for $7,850,000. This property is leased to a third party operator under a
10-year lease with two five-year renewal options. This operator previously operated the property under a lease with the seller. In addition, we paid $125,000 to this operator
as a lease inducement which will be amortized as a yield adjustment over the life of the lease. Also, subsequent to December 31, 2009, we purchased a 120-bed skilled nursing
property in Florida for a purchase price of $9,000,000. This property is leased to a third party operator under a 12-year lease with two 10-year renewal options.

During
the year ended December 31, 2008, we sold for $600,000 a vacant parcel of land adjacent to a skilled nursing property in New Mexico to a third party. We received net cash
proceeds of $555,000 and recognized a $92,000 gain on sale. We also acquired a 30-bed skilled nursing property located in Ohio for an aggregate price of $1,014,000 that was added to an
existing master lease. Additionally, during the twelve months ended December 31, 2008, we invested $2,996,000, at an average yield of approximately 10%, under existing commitment agreements to
expand and renovate 13 existing properties operated by seven different operators. We also invested $1,359,000 in capital improvements to existing properties under various lease agreements whose rental
rates already reflected this investment.

During
the year ended December 31, 2007 we sold a closed, previously impaired skilled nursing property located in Texas to a third party for $166,000. We also sold a
59-bed skilled nursing property located in Tennessee to a third party for $700,000. We received $322,000 in cash proceeds net
of closing costs resulting from these sold properties and received a mortgage loan of $530,000 secured by the first mortgage on the skilled nursing property located in Tennessee. As a result of these
two sales, we recognized a gain net of selling expenses of $106,000 in 2007. Additionally, we invested $4,014,000 at an average yield of approximately 10% under agreements to renovate 20 properties
operated by nine different operators. We also invested $1,682,000 in capital improvements to existing properties under various lease agreements whose rental rates already reflected this investment.

Depreciation
expense on buildings and improvements, including properties owned under capital leases and properties classified as discontinued operations, was $14,705,000 $14,709,000 and
$14,032,000 for the years ended December 31, 2009, 2008 and 2007.

Future
minimum base rents receivable under the remaining non-cancelable terms of operating leases excluding the effects of straight-line rent are: $58,642,000;
$60,718,000; $61,690,000; $62,598,000; $62,770,000 and $281,746,000 for the years ending December 31, 2010, 2011, 2012, 2013, 2014, and thereafter.

60

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Set forth in the table below are the components of the net income from discontinued operations(in thousands):

For the year ended
December 31,2009

2008

2007Rental income

$


$


$
Interest and other income








Total revenues








Interest expense








Depreciation and amortization








47Operating and other expenses








Total expenses








47(Loss) Income from discontinued operations

$


$


$
(47
)


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

Sunwest Management Inc.On August 19, 2008 we disclosed in a voluntary Current Report on Form 8-K filed with the
Securities and Exchange Commission that we had received letters from companies affiliated with Sunwest Management, Inc. (or Sunwest) explaining that Sunwest was experiencing certain negative
cash shortfalls which they attributed to properties that had not yet matured in terms of occupancy. Our relationship with Sunwest was limited to only four properties: two mortgage loans secured by
properties in Texas and a master lease covering two properties in California. We acted to preserve our investments with respect to Sunwest as described below.

During
the year ended December 31, 2008 we did not receive August or September payments on a $1,523,000 loan at an interest rate of 11.15% and matures on November 19, 2011.
This loan is secured by a first mortgage on a 165-unit assisted living property in Mesquite, Texas then operated by Sunwest. In October 2008 we received from non-Sunwest equity
investors in this property the payment of all past due interest, property tax impounds, attorney's fees and a $50,000 replacement reserve. On October 31, 2008, we completed an assignment and
assumption of the loan to an entity formed by the non-Sunwest equity investors who are currently operating the property.

During
the year ended December 31, 2008 we did not receive August or September payments on a $4,704,000 loan at an interest rate of 11.15% and secured by a first mortgage on a
140-unit assisted living property in Fort Worth, Texas then operated by Sunwest. On October 7, 2008 we acquired the property through foreclosure for $4,717,000, the amount of the
debt outstanding and capitalized fees associated with the foreclosure. The property is being operated by a third party operator under a 10-year lease with two five-year renewal
options.

During
the year ended December 31, 2008 we did not receive the August through November payments on a master lease with Sunwest covering a 109-unit assisted living
property in Vacaville, California and a 113-unit assisted living property in Bakersfield, California. The total monthly lease payment under the master lease agreement was approximately
$208,000 per month. Accordingly we wrote-off $124,000 of straight-line rent receivable in 2008 related to this lease. Our total gross

61

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

investment
in the properties under the master lease is approximately $26,156,000 or 4.5% of our gross investments in real estate as of December 31, 2008. As of December 31, 2008, single
purpose subsidiaries owned by us owed debt obligations totaling $16,054,000 secured by the master lease properties. Specifically, the outstanding principal balance on the Bakersfield property was
$8,202,000 at a rate of 8.43% which was paid off in July 2009, and the outstanding principal balance on the Vacaville property was $7,852,000 at a rate of 8.69% and is due August 1, 2010. On
December 1, 2008, we leased these properties to a third party operator under a 10-year lease with two five-year renewal options.

7. Notes Receivable

During 2009, we received $671,000 in principal payments and funded $375,000 under various loans and line of credit agreements with
certain operators. At December 31, 2009, we had seven such loans outstanding with a carrying value of $2,689,000 at a weighted average interest rate of 11.52%.

8. Marketable Securities

At December 31, 2009 and 2008, we had a $6,500,000 investment in Skilled Healthcare Group, Inc.'s (or SHG) Senior
Subordinated Notes with a face rate of 11.0% and an effective yield of 11.1%. Interest on the notes is payable semi-annually in arrears and the notes mature on January 15, 2014. One
of our board members is the chief executive officer of SHG.

During
2007, SHG redeemed $3,500,000 face value of our original investment of $10,000,000 face value Senior Subordinated Notes at a redemption price equal to 111% of the principal amount
of the notes, plus accrued and unpaid interest. As a result of this early redemption we recognized additional interest income of $385,000 in 2007.

9. Debt Obligations

Bank Borrowings.During 2008, we amended and extended our Unsecured Credit Agreement at an initial commitment amount of $80,000,000. The
Credit
Agreement provides for the opportunity to increase the credit amount up to a total of $120,000,000. The Credit Agreement provides a revolving line of credit with no scheduled maturities other than the
maturity date of July 17, 2011. The pricing under the amended Unsecured Revolving Credit Agreement is either Prime Rate plus 0.50% or LIBOR plus 1.50% depending on our borrowing election. At
the time of borrowing, we may elect the 1, 2, 3 or 6 month LIBOR rate. Under financial covenants contained in the Unsecured Credit Agreement which are measured quarterly we are required to
maintain, among other things:



At
December 31, 2009, we had $13,500,000 outstanding at an interest rate of LIBOR plus 1.50% under our Unsecured Credit Agreement with $66,500,000 available for borrowing. Also,
at December 31, 2009 we were in compliance with all covenants. Subsequent to December 31, 2009, we borrowed $17,000,000 under our Unsecured Credit Agreement for the acquisition of two
skilled nursing properties with a total of 286 beds. SeeNote 6. Real Estate Investmentsfor further discussion on these acquisitions. After this
borrowing, we had $30,500,000 outstanding under the Unsecured Credit Agreement with $49,500,000 available for borrowing.

62

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Mortgage Loans Payable.During 2009, we paid off three mortgage loans totaling $23,935,000 secured by 11 assisted living properties
located in
various states. The retired debts bore a weighted average interest rate of 8.68%. We also paid $443,000 in regularly scheduled principal payments. At December 31, 2009 we have one mortgage loan
outstanding with a carrying value of $7,685,000 at a fixed interest rate of 8.69%.

During
2008, we paid off a mortgage loan in the amount of $14,188,000 secured by four assisted living properties located in Ohio. Also during 2008, we paid $914,000 in regularly
scheduled principal payments.

As
of December 31, 2009 and 2008 the aggregate carrying value of real estate properties securing our mortgage loans payable was $10,456,000 and $38,702,000, respectively.

Bonds Payable.At December 31, 2009 and 2008 we had outstanding principal of $4,225,000 and $4,690,000, respectively, on
multifamily
tax-exempt revenue bonds that are secured by five assisted living properties in Washington. These bonds bear interest at a variable rate that is reset weekly and mature during 2015. For
the year ended December 31, 2009, the weighted average interest rate, including letter of credit fees, on the outstanding bonds was 2.20%. During 2009 and 2008 we paid $465,000 and $440,000,
respectively, in regularly scheduled principal payments. As of December 31, 2009 and 2008, the aggregate carrying value of real estate properties securing our bonds payable was $7,443,000 and
$7,707,000, respectively.

Scheduled Principal Payments.Total scheduled principal payments for our mortgage loans payable, and bonds payable as of
December 31, 2009
were $8,180,000; $530,000; $565,000; $600,000; $635,000 and $1,400,000 in 2010, 2011, 2012, 2013, 2014 and thereafter.

10. Equity

Preferred Stock.Preferred Stock is comprised of the series summarized as follows:

Shares outstanding at
December 31,





Carrying Value at
December 31,Liquidation
Value Per
share

Dividend
RateIssuance

2009

2008

2009

2008Series C Cumulative Convertible Preferred Stock


2,000,000


2,000,000

$
19.25


8.5
%
$
18.80

$
18.80Series E Cumulative Convertible Preferred Stock


37,816


38,716

$
25.00


8.5
%
$
23.84

$
23.84Series F Cumulative Preferred Stock


5,894,216


6,003,700

$
25.00


8.0
%
$
23.99

$
23.99Total Cumulative Preferred Stock


7,932,032


8,042,416


Our
Series C Cumulative Convertible Preferred Stock (or Series C Preferred Stock) is convertible into 2,000,000 shares of our common stock at $19.25 per share. Dividends
are 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, 2009 and 2008.

Our
Series E Cumulative Convertible Preferred Stock (or Series E Preferred Stock) is convertible at any time into shares of our common stock at a conversion price of $12.50
per share of common stock, subject to adjustment under certain circumstances. Series E Preferred Stock may be redeemed by us, at our option, in whole or from time to time in part, for $25.00
per Series E Preferred Stock in cash plus any accrued and unpaid dividends to the date of redemption. Dividends are payable quarterly.

63

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During
2009, holders of 900 shares of Series E Preferred Stock notified us of their election to convert such shares into 1,800 shares of common stock. During 2008, holders of 123,419 shares of
Series E Preferred Stock notified us of their election to convert such shares into 246,838 shares of common stock. During 2007, holders of 31,509 shares of Series E Preferred Stock
notified us of their election to convert such shares into 63,018 shares of common stock. Total shares reserved for issuance of common stock related to the conversion of Series E Preferred Stock
were 75,632 at December 31, 2009.

Our
Series F Cumulative Stock (or Series F Preferred Stock) may be redeemed by us, at our option, in whole or from time to time in part, for $25.00 per Series F
Preferred Stock in cash plus any accrued and unpaid dividends to the date of redemption. The dividend rate is 8.0% and the liquidation value is $25.00 per share. Dividends are cumulative from the date
of original issue and are payable quarterly to stockholders of record on the first day of each quarter. During 2009, we invested $2,000,000 to repurchase a total of 109,484 shares of our
Series F Preferred Stock at an average cost of $18.27 per share, including commissions. During 2008, we invested $14,276,000 to repurchase a total of 636,300 shares of our Series F
Preferred Stock at an average cost of $22.44 per share, including commissions. In accordance with the accounting guidance regarding the effect on the calculation of earnings per share for the
redemption or induced conversion of preferred stock, the discounted purchase price on these shares, which is the liquidation value over the fair value, netted with the original issuance costs has been
added to net income in calculating net income allocable to common stockholders.

While
outstanding, the liquidation preferences of the preferred stocks arepari passu. None have any voting rights, any stated maturity,
nor are they subject to any sinking fund or mandatory redemption.

Common Stock.In June 2007 our Board of Directors terminated the prior existing share repurchase program and authorized a new share
repurchase
program enabling us to repurchase up to 5,000,000 shares of our common stock. In January 2008 the Board of Directors amended the share repurchase program to include authorization to repurchase our
outstanding preferred securities. This authorization does not expire until 5,000,000 shares of our equity securities, including common and preferred securities, have been repurchased or the Board of
Directors terminates its authorization. During 2009 we repurchased and retired 900 shares of common stock for an aggregate purchase price of $16,000 or $17.33 per share, including commissions. During
2008 we did not repurchase shares of our common stock. During 2007 we repurchased and retired 893,079 shares of common stock for an aggregate purchase price of $18,768,000 or $21.01 per share,
including commissions. The shares were purchased on the open market under the new Board authorization discussed above. After this common stock repurchase and the Preferred stock repurchase, as
mentioned above, we continue to have an open Board authorization to purchase an additional 3,360,237 shares.

On
August 5, 2009 we entered into an equity distribution agreement with KeyBanc Capital Markets, Inc. (or KeyBanc) to issue and sell, from time to time, up to $75,000,000
in aggregate offering price of our common shares. During 2009 we sold 30,000 shares of common stock at a weighted average price, including commissions, of $25.54 per share, resulting in net proceeds
of $766,000 after $18,000 of commission. Included in the sale, during the fourth quarter ended December 31, 2009, we sold 10,000 shares of common stock at a weighted average price, including
commissions, of $27.55 per share, resulting in net proceeds of $275,000 after $6,000 of commissions. At December 31, 2009 we had $74,216,000 available under this agreement.

Non-controlling Interests.At December 31, 2009 we had one limited partnership and reserved 112,588 shares of our common stock
under this
partnership agreement. Since we exercise control, we

64

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

consolidate
the limited partnership and we carry the non-controlling interests at cost. The limited partnership agreement allows the limited partners to convert, on a
one-for-one basis, their limited partnership units into shares of common stock or the cash equivalent, at our option. If we issued shares of our common stock upon limited
partners' election to exercise their conversion rights, the carrying amount of the limited partners' interest would be reclassified to stockholders' equity. At December 31, 2009 the carrying
value and the market value of the partnership conversion rights were $1,981,000 and $3,079,000, respectively.

During
2009 one of our limited partners exercised its conversion rights and exchanged all of its interest in the limited partnership. Upon receipt of the redemption notification of
67,294 limited partnership units, we elected to convert its partnership units into 67,294 shares of our common stock. In accordance with FASB accounting guidance, we account for this exchange as an
equity transaction because there was no change in control requiring consolidation or deconsolidation and remeasurement. Accordingly, the $1,144,000 carrying amount of the limited partner's interest in
the partnership was reclassified to stockholders' equity.

During
2008 one of our limited partners exercised its conversion rights and exchanged a portion of its interest in the limited partnership. Upon receipt of the redemption notification of
22,000 limited partnership units, we elected to satisfy the redemption in cash. We paid the limited partner $510,000 in cash, which represented the closing price of our common stock on the redemption
date multiplied by the number of limited partnership units redeemed. The amount we paid upon redemption exceeded the book value of the limited partnership interest redeemed by $136,000. We recognized
this $136,000 difference as an increase in the basis of the properties.

Available Shelf Registrations.During 2007, we filed a Form S-3 "shelf" registration statement which became effective
August 7, 2007, and provides us with the capacity to offer up to $300,000,000 in our debt and/or equity securities. On August 5, 2009, we entered into an equity distribution agreement
with KeyBanc under which we may issue and sell, from time to time, up to $75,000,000 in aggregate offering price of our common shares through KeyBanc, as mentioned above. Sales, if any, of common
shares will be made by means of ordinary brokers' transactions at market prices, in block transactions, or as otherwise agreed between us and KeyBanc. At December 31, 2009, we had $74,216,000
availability under our equity distribution agreement with KeyBanc.

We
currently have $225,000,000 of availability under our effective shelf registration. We may from time to time raise capital under our currently effective shelf registration or a new
shelf registration by issuing, in public or private transactions, our equity and debt securities, but the availability and terms of such issuance will depend upon then prevailing market and other
conditions.

65

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dividend Distributions.We declared and paid the following cash dividends on our common and preferred stock(in
thousands):

Year Ended
December 31, 2009

Year ended
December 31, 2008Declared

Paid

Declared

PaidPreferred StockSeries C

$
3,272

$
3,272

$
3,272

$
3,272Series E


81


81


110


176Series F


11,788


11,843


12,008


12,326Total Preferred


15,141


15,196


15,390


15,774Common Stock(1)


36,177


36,177


36,012


36,012Total(2)

$
51,318

$
51,373

$
51,402

$
51,786


(1)Represents
$0.13 per share per month for the year ended December 31, 2009 and 2008.(2)The
difference between declared and paid is the change in distributions payable on the consolidated balance sheet.


Subsequent
to December 31, 2009, we declared a monthly cash dividend of $0.13 per share on our common stock for the months of January, February and March 2010, payable on
January 29, February 26 and March 31, 2010, respectively, to stockholders of record on January 21, February 18 and March 23, 2010, respectively.

Other Equity.At December 31, 2009 and 2008, Other Equity consisted of $390,000 and $735,000, respectively, of accumulated other
comprehensive
income.

Accumulated Other Comprehensive Income.During the years we had investments in Real Estate Mortgage Investment Conduit (or REMIC)
Certificates, we
retained the non-investment grade certificates issued in the securitizations. During 2005, a loan was paid off in the last remaining REMIC pool which caused the last third party REMIC
Certificate holders entitled to any principal payments to be paid off in full. After this transaction, we became the sole holder of the remaining REMIC Certificates and are therefore entitled to the
entire principal outstanding of the loan pool underlying the remaining REMIC Certificates. Under the FASB accounting guidance relating to accounting for changes that result in a transferor regaining
control of financial assets sold, a Special Purpose Entity (or SPE) may become non-qualified or tainted which generally results in the "repurchase" by the transferor of all the assets sold
to and still held by the SPE. Since we were the sole REMIC Certificate holder entitled to principal from the underlying loan pool, we had all the risks and were entitled to all the rewards from the
underlying loan pool. As required by the accounting guidance, the repurchase for the transferred assets was accounted for at fair value. The accumulated other comprehensive income balance represents
the fair market value adjustment offset by any previously adjusted impairment charge which is amortized to increase interest income over the remaining life of the loans that we repurchased from the
REMIC pool.

Stock Based Compensation Plans.During 2008 we adopted and our shareholders approved the 2008 Equity Participation Plan which replaces
the 2004
Restricted Stock Plan, the 2004 Stock Option Plan and the 1998 Equity Participation Plan. Under the 2008 Equity Participation Plan, 600,000 shares of common stock have been reserved for awards,
including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the

66

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

awards
granted under the 2008 Equity Participation Plan are set by our compensation committee at its discretion. During 2009 we granted 15,000 stock options and 3,000 shares of restricted stock at
$24.65 per share under this plan. Also, we granted 3,000 shares of restricted stock at $18.34 per share and 36,988 shares of restricted stock at $17.06 per share under this plan. These shares vest
ratably over a three-year period. During 2008 neither stock options nor restricted stock were granted under this plan.

During
2004 we adopted and our stockholders approved the 2004 Stock Option Plan under which 500,000 shares of common stock were reserved for incentive and nonqualified stock option
grants to officers, employees, non-employee directors and consultants. During 2008 this plan was terminated and replaced by the 2008 Equity Participation Plan, as mentioned above. During
2009 and 2008 no stock options were granted under the 2004 Stock Option Plan. During 2007 we granted 174,500 stock options at $23.79 per share and 30,000 stock options at $23.47 per share under this
plan.
All stock options outstanding that were granted under the 2004 Stock Option Plan vest over three years from the original date of grant. Unexercised stock options expire seven years after the date of
vesting.

During
2004 we adopted and our stockholders approved the 2004 Restricted Stock Plan under which 100,000 shares of common stock were reserved for restricted stock grants to officers,
employees, non-employee directors and consultants. During 2008 this plan was terminated and replaced by the 2008 Equity Participation Plan, as mentioned above. During 2009 and 2008 we did
not issue any shares of restricted stock under the 2004 Restricted Stock Plan. During 2007 we issued 8,234 shares of restricted stock at $23.47 per share under this plan. These shares vest ratably
over a three-year period.

Our
stockholders approved the 1998 Equity Participation Plan under which 500,000 shares of common stock were reserved. The plan provided for the issuance of incentive and nonqualified
stock options, restricted stock and other stock based awards to officers, employees, non-employee directors and consultants. During 2008 this plan was terminated and replaced by the 2008
Equity Participation Plan, as mentioned above. During 2009 and 2008 neither stock options nor restricted stocks were granted under the 1998 Equity Participation plan. During 2007 we issued 40,000
shares of restricted stock at $25.98 per share, 46,500 shares of restricted stock at $23.79 per share and 3,766 shares of restricted stock at $23.47 per share under this plan. These shares vest
ratably over a three-year period. All stock options and restricted stock outstanding that were granted under the 1998 Equity Participation Plan vest over three to five years from the
original date of grant. Unexercised stock options expire seven years after the date of vesting.

Restricted Stock.Restricted stock activity for the years ended December 31, 2009, 2008 and 2007 was as follows:

2009

2008

2007Outstanding, January 1


88,450


137,354


130,522Granted


42,988





98,500Vested


(46,572
)

(48,904
)

(91,668
)Canceled








Outstanding, December 31


84,866


88,450


137,354Compensation Expense for the year(1)

$
1,242,000

$
1,088,000

$
2,132,000


(1)At
December 31, 2009, the total compensation cost related to unvested restricted stock granted is $844,000, which will be recognized over the
remaining vesting period.


Dividends
are payable on the restricted shares to the extent and on the same date as dividends are paid on all of our common stock.

67

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During 2007 we extended the vesting of 27,120 shares of unvested restricted stock to align the vesting dates with the 40,000 shares of restricted stock granted
under the 1998 Equity Participation Plan, as previously discussed. The impact on compensation expense related to this vesting modification was immaterial. Additionally, during 2007 we modified the
vesting of 54,960 shares of unvested restricted stock by accelerating the vesting so that the 54,960 shares vested ratably from March through December 2007. Prior to this modification the shares were
vesting in two tranches ratably over two and three years, respectively. The accelerated compensation expense we recognized related to this vesting acceleration was $551,000 in 2007.

Stock Options.Nonqualified stock option activity for the years ended December 31, 2009, 2008 and 2007, was as follows:

Shares

Weighted Average Price2009

2008

2007

2009

2008

2007Outstanding, January 1


217,000


234,500


64,000

$
22.62

$
22.71

$
10.33Granted


15,000





204,500

$
24.65

$


$
23.74Exercised


(35,000
)

(17,500
)

(34,000
)
$
22.00

$
23.79

$
5.64Canceled










$


$


$
Outstanding, December 31


197,000


217,000


234,500

$
22.88

$
22.62

$
22.71Exercisable, December 31(1)


113,830


80,663


25,000

$
27.94

$
25.88

$
14.85


(1)The
aggregate intrinsic value of exercisable options at December 31, 2009, based upon the closing price of our common shares at December 31,
2009, amounted to approximately $821,000. Options exercisable at December 31, 2009 have a weighted average remaining contractual life of approximately 5.5 years.


During
2009 a total of 35,000 options were exercised at a total option value of $770,000 and a total market value as of the exercise dates of $924,000. During 2008 a total of 17,500
options were exercised at a total option value of $416,000 and a total market value as of the exercise dates of $519,000.

We
use the Black-Scholes-Merton formula to estimate the value of stock options granted to employees. This model requires management to make certain estimates including stock volatility,
expected dividend yield and the expected term. If management incorrectly estimates these variables, the results of operations could be affected.

The
estimates for the fair value of options granted during 2009, 2008, and 2007 were as follows:

Options
Granted

Weighted
Average
Expected
Life(in years)

Weighted
Average
Volatility

Weighted
Average
Risk Free
Interest
Rate

Expected
Dividend
Yield

Weighted
Average
Fair Value2009


15,000


3


0.323


1.73
%

6.33
%
$
3.392008
















$
2007


174,500


3


0.187


4.66
%

6.31
%
$
2.0430,000


3


0.195


5.03
%

6.39
%
$
2.18


The
weighted average exercise price of the options was $22.88, $22.62 and $22.71 and the weighted average remaining contractual life was 0.6, 1.3 and 2.5 years as of
December 31, 2009, 2008 and 2007,

68

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LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

respectively.
At December 31, 2009, the total compensation cost related to unvested stock options granted was $102,000, which will be recognized over the remaining vesting period.

11. Commitments and Contingencies

The following table summarizes our capital improvement commitments as of December 31, 2009(dollar
amounts in thousands):

Commitment

Expiration
Date

Used
Commitment
at 12/31/09

Open
Commitment
at 12/31/09

Estimated
Yield

Property
Type

Properties

Major Operator$
1,100


3/17/2010

$
549
(8a)
$
551


10.50
%(1)
SNF


1

N/A650


3/31/2010


598


52


13.00
%(1)
SNF


1

N/A726


3/31/2010


609


117


11.00
%(2)
SNF


1

Preferred Care2,000


3/31/2010





2,000


11.00
%(1)
SNF


1

Preferred Care875


10/7/2010


580
(8b)

295



(6)
ALF


1

N/A500


10/22/2010


460
(8c)

40


10.00
%(2)
ALF


1

N/A2,500


6/16/2010


1,528


972


10.00
%(1)
SNF


1

N/A1,600


12/1/2010


7


1,593



(5)
ALF


2

N/A4,000


12/31/2010


123


3,877


11.00
%(1)
SNF


1

Preferred Care2,000


1/18/2011





2,000



(1)(4)
SNF


1

N/A1,500


5/18/2011





1,500



(1)(9)
ALF


3

N/A5,000
(7)

12/31/2014





5,000
(7)


(3)
ALF


37

ALC$
22,451




$
4,454

$
17,997


(1)Minimum
rent will increase upon final funding and project completion or in some cases, the improvement deadline as defined in each lease agreement.(2)Minimum
rent will increase on the 1st of each month by the amount advanced in the previous month multiplied by the estimated yield.(3)9.5%
plus the positive difference, if any, between the average yields on the U.S. Treasury 10-year note for the five days prior to funding,
minus 420 basis points (expressed as a percentage).(4)The
higher of one-year LIBOR plus 5.3% or 10%.(5)The
commitment is allocated in two tranches of $750,000 and $850,000. The yield for the $750,000 tranche is included in the initial lease rate; the yield
for the $850,000 tranche is 8.5% with minimum rent increases as per footnote (2).(6)The
yield is included in the initial lease rate.(7)Maximum
of $5,000,000 per year for the life of the lease.(8)Subsequent
to December 31, 2009, we committed to provide a lessee with $175,000 to invest in capital improvements to a skilled nursing property in
Texas. The yield for this commitment is included in the lease rate and matures in January 2011. Also, subsequent to December 31, 2009, we invested an additional $392,000 in the following
commitments: a) $316,000, b) $38,000, and c) $36,000.(9)The
current lease rate.


69

---



LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




The
following table summarizes our loan commitments as of December 31, 2009 (dollar amounts in thousands):

Commitment

Expiration
Date

Used
Commitment
at 12/31/09

Open
Commitment
at 12/31/09

Estimated
Yield

Property
Type

Properties

Major Operator$
400


3/31/2010

$
327

$
73



(1)
SNF


1

N/A50


3/31/2010


20


30


10.00
%
SNF


1

N/A450


6/30/2010


250


200


10.00
%
SNF


4

N/A$
900




$
597

$
303


(1)The
principal balance of the loan will increase on the date any funds are disbursed by an amount equal to such funding and shall bear interest at the then
current interest rate of the existing loan. The monthly loan payment will increase at each increase to the principal balance. The interest rate at December 31, 2009 is 10.7%.


12. Transactions with Related Party

We have entered into transactions with Skilled Healthcare Group, Inc. (or SHG). One of our directors, Boyd W. Hendrickson,
serves as Chief Executive Officer of SHG.

In
December 2005, we purchased, on the open market, $10,000,000 face value of SHG Senior Subordinate Notes with a face rate of 11.0% and an effective yield of 11.1%. Our Board of
Directors, with Mr. Hendrickson abstaining, ratified the purchase of SHG Senior Subordinated Notes. In May 2007, SHG redeemed $3,500,000 face value of the $10,000,000 face value Senior
Subordinated Notes at a redemption price equal to 111% of the principal amount of the notes, plus accrued and unpaid interest. As a result of this early redemption we received $3,885,000 in proceeds
including additional interest income of $385,000 in 2007. At December 31, 2009 and 2008, we have a remaining investment in $6,500,000 face value of SHG Senior Subordinated Notes. During 2009,
2008 and 2007, we
recognized $720,000, $728,000 and $1,327,000, respectively, of interest income related to the SHG Senior Subordinated Notes. Interest on the notes is payable semi-annually in arrears and
the notes mature on January 15, 2014.

In
addition, during September 2007 SHG purchased the assets of Laurel Healthcare (or Laurel). One of the assets SHG purchased was Laurel's leasehold interests in the skilled nursing
properties Laurel leased from us under a 15-year master lease agreement dated in February 2006. Our Board of Directors, with Mr. Hendrickson abstaining, ratified our consent to the
assignment of Laurel's master lease to subsidiaries of SHG. The economic terms of the master lease agreement did not change as a result of our assignment of the master lease to SHG. During 2009, 2008,
and 2007, subsidiaries of SHG paid us $4,058,000, $3,917,000 and $1,267,000 in rent, respectively. During 2009, 2008 and 2007, we recorded $443,000, $535,000 and $206,000, respectively, of
straight-line rental income from subsidiaries of SHG. At December 31, 2009 and 2008, the straight-line rent receivable from subsidiaries of SHG was $2,480,000 and
$2,037,000, respectively.

Also
during 2007 we committed to provide subsidiaries of SHG with $800,000 to invest in capital improvements on five skilled nursing properties they lease from us. The commitment
included interest compounded at 10% on each advance made from the disbursement date until the final distribution of the commitment. Upon final distribution of the capital allowance, minimum rent
increased by the total commitment multiplied by 10%. During 2008 and 2007 we funded $674,000 and $46,000, respectively,

70

---



LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

under
this commitment. The capital improvements on this commitment were completed in 2008 and the commitment expired.

13. Distributions

We must distribute at least 90% of our taxable income in order to continue to qualify as a REIT. This distribution requirement can be
satisfied by current year distributions or, to a certain extent, by distributions in the following year.

For
federal tax purposes, distributions to stockholders are treated as ordinary income, capital gains, return of capital or a combination thereof. Distributions for 2009, 2008, and 2007
were cash distributions.

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

Year Ended December 31,2009

2008

2007Ordinary income

$
1.549

$
1.557

$
1.489Non-taxable distribution








Section 1250 capital gain








Long term capital gain


0.011


0.003


0.011Total

$
1.560

$
1.560

$
1.500


71

---



LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Net Income Per Common Share

Basic and diluted net income per share were as follows(in thousands except per share
amounts):

For the year ended December 31,2009

2008

2007Income from continuing operations

$
44,360

$
43,192

$
48,039Less income allocated to non-controlling interests


(296
)

(307
)

(343
)Less income allocated to participating securities Non-forfeitable dividends on participating securities


(139
)

(159
)

(219
)Total income allocated to participating securities


(139
)

(159
)

(219
)Less income allocated to preferred stockholders:Preferred stock dividends


(15,141
)

(15,390
)

(16,923
)Allocation of income from preferred stock buyback


626


989


Total income allocated to preferred stockholders


(14,515
)

(14,401
)

(16,923
)Income from continuing operations allocable to common stockholders


29,410


28,325


30,554Discontinued operations





92


59Total net income allocable to common stockholders


29,410


28,417


30,613Effect of dilutive securities:Convertible preferred securities


80


110


371Total effect of dilutive securities


80


110


371Net income for diluted net income per share

$
29,490

$
28,527

$
30,984Shares for basic net income per share


23,099


22,974


23,215Effect of dilutive securities:Stock options


8


12


18Convertible preferred securities


75


104


34983


116


367Shares for diluted net income per share


23,182


23,090


23,582Basic net income per common share

$
1.27

$
1.24

$
1.32Diluted net income per common share(1)

$
1.27

$
1.24

$
1.31


(1)For
each year, the Series C Cumulative Convertible Preferred Stock, the participating securities and the convertible non-controlling
interests have been excluded from the computation of diluted net income per share as such inclusion would be anti-dilutive.


72

---



LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Quarterly Financial Information (Unaudited)

For the quarter endedMarch 31,

June 30,

September 30,

December 31,(in thousands except per share amounts)2009Revenues

$
17,716

$
17,385

$
17,328

$
17,465Net income (loss) from discontinued operations











Net income available to common stockholders


7,966


6,843


7,431


7,170Net income per common share from continuing operations net of preferred dividends:Basic

$
0.35

$
0.30

$
0.32

$
0.31Diluted

$
0.35

$
0.30

$
0.32

$
0.31Net income per common share from discontinued operations:Basic

$
0.00

$
0.00

$
0.00

$
0.00Diluted

$
0.00

$
0.00

$
0.00

$
0.00Net income per common share available to common stockholders:Basic

$
0.35

$
0.30

$
0.32

$
0.31Diluted

$
0.35

$
0.30

$
0.32

$
0.31Dividends per share declared

$
0.39

$
0.39

$
0.39

$
0.39Dividend per share paid

$
0.39

$
0.39

$
0.39

$
0.392008Revenues(1)

$
17,847

$
17,851

$
16,999

$
16,660Net income from discontinued operations


92








Net income available to common stockholders


8,240


7,491


6,748


5,938Net income per common share from continuing operations net of preferred dividends:Basic

$
0.36

$
0.33

$
0.29

$
0.26Diluted

$
0.36

$
0.33

$
0.29

$
0.26Net income per common share from discontinued operations:Basic

$
0.00

$
0.00

$
0.00

$
0.00Diluted

$
0.00

$
0.00

$
0.00

$
0.00Net income per common share available to common stockholders:Basic

$
0.36

$
0.33

$
0.29

$
0.26Diluted

$
0.36

$
0.33

$
0.29

$
0.26Dividends per share declared

$
0.39

$
0.39

$
0.39

$
0.39Dividend per share paid

$
0.39

$
0.39

$
0.39

$
0.39


(1)Revenues
related to properties sold in 2008 have been reclassified to discontinued operations for all periods presented as required by the FASB accounting
guidance.NOTE:Quarterly
and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for
the quarters may not agree with the per share amounts for the year. Computations of per share amounts from continuing operations, discontinued operations and net income (loss) are made independently.
Therefore, the sum of per share amounts from continuing operations and discontinued operations may not agree with the per share amounts from net income (loss) available to common stockholders.


73

---



LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Fair Value Measurements

We did not adopt the elective fair market value option, which permitted us to choose to measure certain financial assets and
liabilities at fair value, with the change in unrealized gains and losses on items for which the fair value option has been elected reported in earnings in our consolidated financial statement.

In
April 2009, the FASB issued new guidance, which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in
annual financial statements. This new guidance is effective for interim reporting periods ending after June 15, 2009. The adoption of this new guidance did not impact our consolidated financial
statements.

The
carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. We do not invest our cash in auction rate
securities. The carrying value and fair value of our financial instruments as of December 31, 2009 and 2008 assuming election of fair value for our financial assets and financial liabilities
were as follows(in thousands):

At December 31, 2009

At December 31, 2008Carrying
Value

Fair
Value

Carrying
Value

Fair
ValueMortgage loans receivable

$
69,883

$
80,200
(1)
$
77,541

$
88,891
(1)Marketable debt securities


6,473


6,874
(2)

6,468


6,110
(2)Mortgage loans payable


7,685


7,806
(3)

32,063


32,914
(3)Bonds payable


4,225


4,225
(4)

4,690


4,690
(4)Bank borrowings


13,500


13,500
(5)





(5)


(1)Our
investment in mortgage loans receivable is classified as Level 3. The fair value is determined using a widely accepted valuation technique,
discounted cash flow analysis on the expected cash flows. The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our
investments. The discount rate used to value our future cash inflows of our mortgage loans receivable as of December 31, 2009 and 2008 was 7.5%.(2)Our
investment in marketable debt securities is classified as Level 2 and thus the fair value is measured using quoted market rates from an
independent third party source. The pricing of our marketable debt securities at December 31, 2009 and 2008 was 105.75% and 94.00%, respectively.(3)Our
obligation under our mortgage loans payable is classified as Level 3 and thus the fair value is determined using a widely accepted valuation
technique, discounted cash flow analysis on the expected cash flows. The discount rate is measured based upon management's estimates of rates currently prevailing for comparable loans available to us,
and instruments of comparable maturities. At December 31, 2009 and 2008, the discount rate used to value our future cash outflow of our mortgage loans payable was 6.25%.(4)Our
bonds payable are at a variable interest rate. The estimated fair value of our bonds payable approximated their carrying values at December 31,
2009 and 2008 based upon prevailing market interest rates for similar debt arrangements.(5)Our
bank borrowings are at a variable interest rate. The estimated fair value of our bank borrowings approximated their carrying values at
December 31, 2009. Subsequent to


74

---



LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31,
2009 we borrowed $17,000,000 under our Unsecured Credit Agreement for the acquisition of two skilled nursing properties with a total of 286 beds, as previously discussed in Note 6. Real Estate Investments. After this borrowing, we had $30,500,000 outstanding under the Unsecured Credit Agreement with $49,500,000
available for borrowing. At December 31, 2008, we had no outstanding borrowings under our Unsecured Revolving Credit Agreement and the full amount was available for borrowing


17. Subsequent Events

We evaluated subsequent events through February 24, 2010 when our consolidated financial statements were issued. During this
time, we had the following events:



Commitment

Expiration
Date

Funded
Subsequent to
12/31/09

Open
Commitment
Subsequent to
12/31/09

Estimated
Yield

Property
Type

Properties

Major
Operator$
1,100


3/17/2010

$
316

$
235


10.50%
(1)
SNF


1

N/A875


10/7/2010


38


257



(2)
ALF


1

N/A500


10/22/2010


38


2


10.00%
(3)
ALF


1

N/A


(1)Minimum
rent will increase upon final funding and project completion or in some cases, the improvement deadline as defined in each lease agreement.(2)The
yield is included in the initial lease rate.(3)Minimum
rent will increase on the 1st of each month by the amount advanced in the previous month multiplied by the estimated yield.


75

---





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

AdditionsAccount Description

Balance at
beginning of
period

Charged to
costs and
expenses

Charged to
other accounts

Deductions(1)

Balance at end
of periodYear ended December 31, 2007Allowance for doubtful accounts and other receivables

$
1,280

$
(390
)
$


$


$
890Straight-line rent receivable allowance














$
1,280

$
(390
)
$


$


$
890Year ended December 31, 2008Allowance for doubtful accounts and other receivables

$
890

$
(55
)
$


$
(75
)
$
760Straight-line rent receivable allowance





140








140$
890

$
85

$


$
(75
)
$
900Year ended December 31, 2009Allowance for doubtful accounts and other receivables

$
760

$
(56
)
$


$


$
704Straight-line rent receivable allowance


140


831





(340
)

631$
900

$
775

$


$
(340
)
$
1,335


(1)Deductions
represent uncollectible accounts written off.


76

---





LTC PROPERTIES, INC.        SCHEDULE III        REAL ESTATE AND ACCUMULATED DEPRECIATION

Gross Amount at which Carried at
December 31, 2009Initial Cost to Company

Costs
Capitalized
Subsequent
to
AcquisitionEncumbrances

Land

Building and
Improvements

Land

Building and
Improvements

Total(1)

Accum.
Deprec.

Construction/
Renovation Date

Acquisition
DateSkilled Nursing Properties:Alamogordo, NM

$


$
210

$
2,590

$
3

$
210

$
2,593

$
2,803

$
560

1985


Dec-01Albuquerque, NM





1,696


3,891


530


1,696


4,421


6,117


662

1967/2008


Sep-05Albuquerque, NM





1,950


8,910


207


1,950


9,117


11,067


1,435

1982


Sep-05Albuquerque, NM





2,463


7,647


9


2,463


7,656


10,119


1,220

1970


Sep-05Altoona, IA





105


2,309


444


105


2,753


2,858


1,232

1973


Jan-96Aransas Pass, TX





154


1,276


589


154


1,865


2,019


276

1973/2008


Dec-04Atlanta, GA





175


1,282


3


175


1,285


1,460


525

1968


Sep-99Atmore, AL





131


2,877


196


131


3,073


3,204


1,260

1967/1974


Jan-96Beaumont, TX





370


1,141


93


370


1,234


1,604


220

1950


Dec-05Beeville, TX





186


1,197


70


186


1,267


1,453


184

1974


Dec-04Benbrook, TX





503


2,121


102


503


2,223


2,726


436

1976


Jan-05Bradenton, FL





330


2,720


160


330


2,880


3,210


1,385

1989/2002


Sep-93Brownsville, TX





302


1,856


631


302


2,487


2,789


391

1968/2009


Apr-04Canyon, TX(3)





196


506


211


196


717


913


356

1985/86


Jun-00Carroll, IA





47


1,033


213


47


1,246


1,293


555

1969


Jan-96Chesapeake, VA





388


3,469


982


388


4,451


4,839


1,886

1977/2002/2007


Oct-95Clovis, NM





561


5,539


307


561


5,846


6,407


1,313

1970/2006


Dec-01Clovis, NM





598


5,902


59


598


5,961


6,559


1,371

1969/95


Dec-01Commerce City, CO





236


3,217


167


236


3,384


3,620


709

1964


Jun-04Commerce City, CO





161


2,160


95


161


2,255


2,416


462

1967


Jun-04Del Norte, CO





103


930


326


103


1,256


1,359


185

1955/2006


Jun-05Des Moines, IA(3)





115


2,096


1,433


115


3,529


3,644


1,335

1972


Sep-99Dresden, TN





31


1,529


123


31


1,652


1,683


507

1966/2002


Nov-00Gardendale, AL





84


6,316


1,569


84


7,885


7,969


2,603

1976/1984/2009


May-96Gardner, KS





896


4,478


877


896


5,355


6,251


1,793

1961/1974


Dec-99Granger, IA





62


1,356


221


62


1,577


1,639


664

1979


Jan-96Grapevine, TX





431


1,449


188


431


1,637


2,068


580

1974


Jan-02Griffin, GA





500


2,900





500


2,900


3,400


1,031

1969


Sep-99Holyoke, CO





211


1,513


283


211


1,796


2,007


775

1963


Nov-00Houston, TX





202


4,458


1,426


202


5,884


6,086


2,468

1961/2007


Jun-96Houston, TX





365


3,769


1,598


365


5,367


5,732


2,268

1964/1968


Jun-96Houston, TX





202


4,458


1,359


202


5,817


6,019


2,392

1967/2008


Jun-96Jacksonville, FL





486


1,981


30


486


2,011


2,497


587

1986-1987


Mar-02Jefferson, IA





86


1,883


296


86


2,179


2,265


907

1968/1972


Jan-96Lecanto, FL





351


2,665


2,737


351


5,402


5,753


2,372

1988/2006


Sep-93Marion, OH





119


1,156


1,142


119


2,298


2,417


360

1950/06/07


May-05Marion, OH





48


2,466





48


2,466


2,514


325

1997


May-06Marion, OH





210


804





210


804


1,014


513

1959


Jan-08Mesa, AZ





305


6,909


1,876


305


8,785


9,090


3,430

1975/1996


Jun-96Mesa, AZ





1,095


2,330





1,095


2,330


3,425


300

1979


Aug-06Midland, TX





33


2,285


26


33


2,311


2,344


1,010

1973


Feb-96Montgomery, AL





242


5,327


115


242


5,442


5,684


2,296

1967/1974


Jan-96Nacogdoches, TX





100


1,738


168


100


1,906


2,006


754

1973


Oct-97Norwalk, IA





47


1,033


239


47


1,272


1,319


534

1975


Jan-96Olathe, KS





520


1,872


313


520


2,185


2,705


770

1968


Sep-99Orrville, OH





107


1,946


108


107


2,054


2,161


296

1956


Jun-06Phoenix, AZ





334


3,383


456


334


3,839


4,173


897

1982


Apr-04Phoenix, AZ





300


9,703


92


300


9,795


10,095


3,270

1985


Aug-00Polk City, IA





63


1,376


153


63


1,529


1,592


660

1976


Jan-96Portland, OR





100


1,925


2,652


100


4,577


4,677


1,272

1956/1974/06/07


Jun-97Richland Hills, TX





144


1,656


427


144


2,083


2,227


660

1976


Dec-01Richmond, VA





356


3,180


3,350


356


6,530


6,886


2,341

1970/75/80/02/06/07


Oct-95Ripley, TN





20


985


387


20


1,372


1,392


408

1951/2002/07


Nov-00Roswell, NM





568


5,232


3


568


5,235


5,803


1,131

1975


Dec-01Rusk, TX





34


2,399


448


34


2,847


2,881


1,441

1969


Mar-94Sacramento, CA





220


2,929





220


2,929


3,149


1,234

1968


Feb-97Salina, KS(3)





100


1,153


628


100


1,781


1,881


761

1985


May-97Tacoma, WA





723


6,401


550


723


6,951


7,674


804

1993


Aug-06


77

---



LTC PROPERTIES, INC.

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

Gross Amount at which Carried at
December 31, 2009Initial Cost to Company

Costs
Capitalized
Subsequent
to
AcquisitionEncumbrances

Land

Building and
Improvements

Land

Building and
Improvements

Total(1)

Accum.
Deprec.

Construction/
Renovation Date

Acquisition
DateTappahannock, VA(3)





375


1,327


397


375


1,724


2,099


1,124

1977/1978/2009


Oct-95Tucson, AZ





276


8,924


112


276


9,036


9,312


3,012

1985/92


Aug-00Tyler, TX





300


3,071


22


300


3,093


3,393


566

1974


Mar-04Wooster, OH





118


1,711


2,223


118


3,934


4,052


462

1952/62/71/07/08


Jun-06Skilled Nursing Properties





21,744


186,645


33,424


21,744


220,069


241,813


67,536Assisted Living Properties:Ada, OK





100


1,650





100


1,650


1,750


564

1996


Dec-96Arlington, OH





629


6,973





629


6,973


7,602


1,497

1993


Dec-01Arvada, CO





100


2,810


276


100


3,086


3,186


977

1997


Aug-97Athens, TX





96


1,510


1


96


1,511


1,607


551

1995


Jan-96Bakersfield, CA





834


11,986


24


834


12,010


12,844


2,914

1998/2002


Dec-01Battleground, WA





100


2,500





100


2,500


2,600


845

1996


Nov-96Beatrice, NE





100


2,173





100


2,173


2,273


694

1997


Oct-97Bexley, OH





306


4,196





306


4,196


4,502


902

1992


Dec-01Bullhead City, AZ





100


2,500





100


2,500


2,600


799

1997


Aug-97Burley, ID





100


2,200





100


2,200


2,300


707

1997


Sep-97Caldwell, ID





100


2,200





100


2,200


2,300


707

1997


Sep-97Camas, WA



(1)

100


2,175





100


2,175


2,275


766

1996


May-96Central, SC





100


2,321





100


2,321


2,421


594

1998


Mar-99Cordele, GA





153


1,455


132


153


1,587


1,740


532

1987/88/2002


Jul-00Denison, IA





100


2,713





100


2,713


2,813


809

1998


Jun-98Dodge City, KS





84


1,666


4


84


1,670


1,754


634

1995


Dec-95Durant, OK





100


1,769





100


1,769


1,869


588

1997


Apr-97Edmond, OK





100


1,365


526


100


1,891


1,991


607

1996


Aug-97Elkhart, IN





100


2,435





100


2,435


2,535


759

1997


Dec-97Erie, PA





850


7,477





850


7,477


8,327


2,316

1998


Oct-99Eugene, OR





100


2,600





100


2,600


2,700


830

1997


Sep-97Fremont ,OH





100


2,435





100


2,435


2,535


784

1997


Aug-97Ft. Collins, CO





100


2,961





100


2,961


3,061


824

1998


Mar-99Ft. Collins, CO





100


3,400





100


3,400


3,500


916

1999


Jul-99Ft. Meyers, FL





100


2,728


9


100


2,737


2,837


833

1998


Mar-98Ft. Wayne, IN





594


3,461





594


3,461


4,055


12

1996


Nov-09Ft. Worth. TX





333


4,385


578


333


4,963


5,296


259

1985/2009


Oct-08Gardendale, AL





16


1,234





16


1,234


1,250


508

1988


May-96Goldsboro, NC





100


2,385


1


100


2,386


2,486


566

1998


Mar-99Grandview, WA



(1)

100


1,940





100


1,940


2,040


698

1996


Mar-96Great Bend, KS





80


1,570


21


80


1,591


1,671


647

1995


Dec-95Greeley, CO





100


2,310


270


100


2,580


2,680


824

1997


Aug-97Greenville, NC





100


2,478


2


100


2,480


2,580


664

1998


Mar-99Greenville, TX





42


1,565





42


1,565


1,607


570

1995


Jan-96Greenwood, SC





100


2,638





100


2,638


2,738


721

1998


Mar-99Hayden, ID





100


2,450


243


100


2,693


2,793


903

1996


Dec-96Hoquiam, WA





100


2,500





100


2,500


2,600


804

1997


Aug-97Jacksonville, TX





100


1,900





100


1,900


2,000


687

1996


Mar-96Kelso, WA





100


2,500





100


2,500


2,600


902

1996


Nov-96Kennewick. WA



(1)

100


1,940





100


1,940


2,040


701

1996


Feb-96Klamath Falls, OR





100


2,300





100


2,300


2,400


775

1996


Dec-96Lake Havasu, AZ





100


2,420





100


2,420


2,520


779

1997


Aug-97Lakeland, FL





519


2,313


1,584


519


3,897


4,416


982

1968/74/96/02/06/07/09


Jul-00Longmont, CO





100


2,640





100


2,640


2,740


793

1998


Jun-98Longview, TX





38


1,568


1


38


1,569


1,607


578

1995


Oct-95Loveland, CO





100


2,865


270


100


3,135


3,235


984

1997


Sep-97Lufkin, TX





100


1,950





100


1,950


2,050


697

1996


Apr-96Madison, IN





100


2,435





100


2,435


2,535


774

1997


Oct-97Marshall, TX





38


1,568


451


38


2,019


2,057


741

1995


Oct-95McPherson, KS





79


1,571


4


79


1,575


1,654


641

1994


Dec-95Millville, NJ





100


2,825





100


2,825


2,925


905

1997


Aug-97Monroeville, PA





526


5,334





526


5,334


5,860


10

1997


Nov-09


78

---



LTC PROPERTIES, INC.

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

Gross Amount at which Carried at
December 31, 2009Initial Cost to Company

Costs
Capitalized
Subsequent
to
AcquisitionEncumbrances

Land

Building and
Improvements

Land

Building and
Improvements

Total(1)

Accum.
Deprec.

Construction/
Renovation Date

Acquisition
DateNampa, ID





100


2,240


23


100


2,263


2,363


763

1997


Jan-97New Bern, NC





100


2,427


1


100


2,428


2,528


587

1998


Mar-99Newark, OH





100


2,435





100


2,435


2,535


774

1997


Oct-97Newport Richey, FL





100


5,845


664


100


6,509


6,609


2,208

1986/1995


Jan-98Newport, OR





100


2,050





100


2,050


2,150


838

1996


Dec-96Niceville, FL





100


2,680





100


2,680


2,780


805

1998


Jun-98Norfolk, NE





100


2,123





100


2,123


2,223


691

1997


Jun-97Pittsburg, PA





470


2,615





470


2,615


3,085


9

1994


Nov-09Rocky Mount, NC





100


2,494


1


100


2,495


2,595


623

1998


Mar-99Rocky River, OH





760


6,963





760


6,963


7,723


2,097

1998


Oct-99Salina, KS





79


1,571


4


79


1,575


1,654


641

1994


Dec-95San Antonio, TX





100


1,900





100


1,900


2,000


630

1997


May-97San Antonio, TX





100


2,055





100


2,055


2,155


674

1997


Jun-97Shelby, NC





100


2,805


2


100


2,807


2,907


842

1998


Jun-98Spring Hill, FL





100


2,650





100


2,650


2,750


796

1998


Jun-98Springfield, OH





100


2,035


270


100


2,305


2,405


734

1997


Aug-97Sumter, SC





100


2,351





100


2,351


2,451


618

1998


Mar-99Tallahassee, FL





100


3,075





100


3,075


3,175


926

1998


Apr-98Tiffin, OH





100


2,435





100


2,435


2,535


784

1997


Aug-97Troy, OH





100


2,435


306


100


2,741


2,841


887

1997


May-97Tulsa, OK





200


1,650





200


1,650


1,850


557

1997


Feb-97Tulsa, OK





100


2,395





100


2,395


2,495


781

1997


Jun-97Tyler, TX





100


1,800





100


1,800


1,900


613

1996


Dec-96Vacaville, CA


7,685


1,662


11,634


22


1,662


11,656


13,318


2,863

1998/2002


Dec-01Vancouver, WA



(1)

100


2,785





100


2,785


2,885


979

1996


Jun-96Waco, TX





100


2,235





100


2,235


2,335


731

1997


Jun-97Wahoo, NE





100


2,318





100


2,318


2,418


748

1997


Jul-97Walla Walla, WA


4,225
(1)

100


1,940





100


1,940


2,040


694

1996


Apr-96Watauga, TX





100


1,668





100


1,668


1,768


542

1996


Aug-97Wetherford, OK





100


1,669


592


100


2,261


2,361


720

1996


Aug-97Wheelersburg, OH





29


2,435





29


2,435


2,464


774

1997


Sep-97Wichita Falls, TX





100


1,850





100


1,850


1,950


629

1996


Dec-96Wichita Falls, TX





100


2,750





100


2,750


2,850


876

1997


Sep-97Worthington, OH








6,102








6,102


6,102


2,620

1993


Dec-01Worthington, OH








3,402








3,402


3,402


1,507

1995


Dec-01York, NE





100


2,318





100


2,318


2,418


748

1997


Aug-97Assisted Living Properties


11,910


14,717


247,378


6,282


14,717


253,660


268,377


74,383SchoolTrenton, NJ





100


6,000


3,170


100


9,170


9,270


3,261

1930/1998


Dec-98School





100


6,000


3,170


100


9,170


9,270


3,261$
11,910

$
36,561

$
440,023

$
42,876

$
36,561

$
482,899

$
519,460

$
145,180


(1)Single
note backed by five facilities in Washington.(2)Depreciation
for building are calculated using a 35 to 40 year life. Depreciation for building improvements are calculated using a 10 to
20 year life. Depreciation for furniture and fixtures is calculated based on a 7 to 10 year life.(3)An
impairment charge totaling $4,190 was taken against four facilities based on our estimate of the excess 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 the Company will dispose of the property.


79

---



LTC PROPERTIES, INC.

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

Activity for the years ended December 31, 2009, 2008 and 2007 is as follows(in thousands):

Real Estate
& Equipment

Accumulated
DepreciationBalance at December 31, 2006

$
488,287

$
102,091Additions


5,696


14,032Conversions of Mortgage Loans into owned properties





Impairment charges





Cost of real estate sold


(1,103
)

(357
)Balance at December 31, 2007


492,880


115,766Additions


5,347


14,655Conversions of Mortgage Loans into owned properties


4,717


50Step up in basis resulting from partnership conversions


136


4Impairment charges





Cost of real estate sold


(463
)

Balance at December 31, 2008


502,617


130,475Additions


16,843


14,705Conversions of Mortgage Loans into owned properties





Impairment charges





Cost of real estate sold





Balance at December 31, 2009

$
519,460

$
145,180


80

---





LTC PROPERTIES, INC.        SCHEDULE IV        MORTGAGE LOANS ON REAL ESTATE

Principal
Amount of
Loans
Subject to
Delinquent
Principal or
Interest(Unaudited)
Number of











Carrying
Amount of
Mortgages
December 31,
2009Current
Monthly
Debt
ServiceFinal
Maturity Date

Balloon
Amount(2)

Face
Amount of
MortgagesState

Facilities

Units/Beds(3)

Interest Rate(1)TX


6


108

9.65%

2018

$
5,095

$
64

$
6,800

$
6,641

$
FL


3


256

11.50%

2014


6,061


70


6,850


6,544


TX


1


230

10.05%

2017


2,972


39


4,000


3,851


CA


2


224

11.00%

2015


2,232


47


4,700


3,487


MN


1




7.60%

2019


3,751


24


3,751


3,751


NE


1


47

11.00%

2013


2,716


31


3,243


2,921


NE


1


44

11.00%

2013


2,537


29


3,036


2,728FL


1


90

14.03%

2012


2,221


41


3,510


2,588


NE


1


44

11.22%

2013


2,005


23


2,700


2,173MT


1


34

13.68%

2013


2,053


27


2,346


2,170IA


1


44

11.00%

2013


1,998


22


2,400


2,144TX


1


117

10.05%

2017


1,634


21


2,200


2,118


Various


33


3,586

10.00%-13.25%

2011-2019


14,370


539


51,983


28,767


53
(4)

4,824





$
49,645

$
977

$
97,519

$
69,883

$



(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.(3)This
number is based upon unit/bed counts shown on operating licenses provided to us by lessees/borrowers or units/beds as stipulated by lease/mortgage
documents. We have found during the years that these numbers often differ, usually not materially, from units/beds in operation at any point in time. The differences are caused by such things as
operators converting a patient/resident room for alternative uses, such as offices or storage, or converting a multi-patient room/unit into a single patient room/unit. We monitor our properties on a
routine basis through site visits and reviews of current licenses. In an instance where such change would cause a de-licensing of beds or in our opinion impact the value of the property,
we would take action against the lessee/borrower to preserve the value of the property/collateral.(4)Includes
40 first-lien mortgage loans as follows:


Number of Loans

Original loan amounts22

$   500 - $  2,0009

$2,001 - $  3,0005

$3,001 - $  4,0001

$4,001 - $  5,000

$5,001 - $  6,0002

$6,001 - $  7,0001

$7,001 - $10,000


81

---



LTC PROPERTIES, INC.

SCHEDULE IV

MORTGAGE LOANS ON REAL ESTATE (Continued)

Activity for the years ended December 31, 2009, 2008 and 2007 is as follows:

BalanceDecember 31, 2006

$
116,992Investment in real estate mortgages


6,854Recovery of loan losses


390Mortgage premium


46Loan prepayments/payoffs


(28,508
)Collections of principal


(4,496
)BalanceDecember 31, 2007


91,278Investment in real estate mortgages


9,783Recovery of loan losses


130Mortgage premium


44Loan prepayments/payoffs


(14,348
)Collections of principal


(4,642
)Conversion of loans into leases


(4,704
)BalanceDecember 31, 2008


77,541Investment in real estate mortgages


280Recovery of loan losses


56Mortgage discount


(151
)Loan prepayments/payoffs


(3,716
)Collections of principal


(4,127
)BalanceDecember 31, 2009

$
69,883


82

---





Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of
the fourth fiscal quarter ended December 31, 2009. Based on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the fiscal quarter our
disclosure controls and procedures were effective.

Internal Control over Financial Reporting.

Management Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon
are set forth on pages 84 and 85, respectively.

There
were no changes in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 2009 that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

Item 9B.    OTHER INFORMATION

At a meeting of the Compensation Committee (or the Committee) of our Board of Directors held on February 18, 2010, the Committee
approved the following discretionary bonuses for the following Named Executive Officers payable in cash and shares of our restricted stock:

Discretionary Bonus ValueName

Position

Cash

Restricted
Shares Value

Total
Discretionary
Bonus ValueWendy Simpson

CEO and President

$
416,000

$
2,644,000

$
3,060,000Pamela Shelley-Kessler

Senior Vice President, Chief Financial Officer and Corporate Secretary


90,000


107,600


197,600Clint Malin

Vice President and Chief Investment Officer


90,000


95,000


185,000T. Andrew Stokes

Vice President, Marketing and Strategic Planning


80,000


70,000


150,000


The
number of shares of restricted stock awarded to each Named Executive Officer will be determined on the grant date, March 1, 2010, and based upon the closing price of our
common stock on the New York Stock Exchange on that date. These shares vest ratably over a three-year period from the grant date for Ms. Shelley-Kessler and Messrs. Malin and
Stokes. The shares granted to Ms. Simpson will vest ratably over a five-year period with the first date of vesting being December 31, 2010.

83

---





MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under
the supervision of, the issuer's principal executive and principal financial officers and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those
policies and procedures that:



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect material misstatements on a timely basis. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Our
management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our internal control over financial reporting as of
December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (or COSO) in Internal
Control-Integrated Framework. Based on this assessment, our management concluded that, as of the end of the fiscal year ended December 31, 2009, our internal control over financial reporting
was effective.

The
effectiveness of our internal control over financial reporting as of December 31, 2009, has been audited by Ernst &Young LLP, independent registered public
accounting firm. Ernst & Young LLP's report on our internal control over financial reporting appears on page 85.

84

---



Report of Independent Registered Public Accounting Firm

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

We
have audited LTC Properties, Inc.'s (the "Company") internal control over financial reporting as of December 31, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). LTC Properties Inc.'s management is responsible for
maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, LTC Properties, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO
criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of LTC Properties Inc. as
of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, equity, and cash flows for each of the three years in the period ended
December 31, 2009 of LTC Properties Inc. and our report dated February 24, 2010 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLPLos Angeles, California
February 24, 2010


85

---





PART III

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to our definitive proxy statement for the 2010 Annual Meeting of
Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our December 31, 2009 fiscal year end) under the headings "Proposal 1
Election of Directors,""Corporate Governance Principles and Board Matters," and "Executive
Officers."

Item 11.    EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to our definitive proxy statement for the 2010 Annual Meeting of
Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our December 31, 2009 fiscal year end) under the
headings "Executive Compensation Discussion and Analysis," "Summary Compensation Table,"
"Director Compensation," and "Compensation Committee Report."

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to our definitive proxy statement for the 2010 Annual Meeting of
Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our December 31, 2009 fiscal year end) under the heading "Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to our definitive proxy statement for the 2010 Annual Meeting of
Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our December 31, 2009 fiscal year end) under the heading "Certain
Relationships and Related Transactions, and Director Independence."

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to our definitive proxy statement for the 2010 Annual Meeting of
Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our December 31, 2009 fiscal year end) under the heading "Independent
Registered Public Accounting Firm Fees and Services."

86

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PART IV

Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this report:

Financial Statements

PageReport of Independent Registered Public Accounting Firm


45Consolidated Balance Sheets as of December 31, 2009 and 2008


46Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2009, 2008 and 2007


47Consolidated Statements of Equity for the years ended December 31, 2009, 2008 and 2007


48Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007


49Notes to Consolidated Financial Statements


50


Financial Statement Schedules

II.

Valuation and Qualifying Accounts

76III.

Real Estate and Accumulated Depreciation

77IV.

Mortgage Loans on Real Estate

82


All
other schedules are omitted because they are not applicable or not present in amounts sufficient to require submission of the schedule or the required information is shown in the
Consolidated Financial Statements and the Notes thereto.

Exhibits

The exhibits required by Item 601 of Regulation S-K are set forth in the index to exhibits on page 88
of this annual report.

87

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LTC PROPERTIES, INC.    INDEX TO EXHIBITS

Exhibit
Number

Description3.1

LTC Properties, Inc. Articles of Restatement (incorporated by reference to Exhibit 3.1 to LTC Properties Inc.'s Form 10-Q for the quarter ended June 30, 2009)3.2

Bylaws of LTC Properties, Inc., as amended and restated August 3, 2009 (incorporated by reference to Exhibit 3.2 to LTC Properties Inc.'s Form 10-Q for the quarter ended
June 30, 2009)4.1

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)4.2

Amendment No. 1 to Rights Agreement dated as of March 19, 2004 (incorporated by reference to Exhibit 4.1 to LTC Properties, Inc.'s Current Report on Form 8-K filed on
March 19, 2004)4.3

Amended and Restated Agreement of Limited Partnership of LTC Partners IX, L.P. and Exchange Rights Agreement dated February 11, 1998 (incorporated by reference to Exhibit 4.8 to LTC
Properties, Inc.'s Registration Statement on Form S-3 filed on May 28, 2004)10.1

Second Amended and Restated Credit Agreement dated July 17, 2008 among LTC Properties, Inc. and Bank of Montreal, Chicago Branch is the Administrative Agent, BMO Capital Markets, is Co Lead
Arranger and Book Manager, Key Bank National Association is Co-Lead Arranger and Syndication Agent (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.'s Current Report on Form 8-K filed July 18, 2008)10.2

Equity Distribution Agreement, date August 5, 2009, between LTC Properties, Inc. and KeyBanc Capital Markets Inc. (incorporated by reference to Exhibit 1.1 to LTC Properties,
 Inc.'s Current Report on Form 8-K filed August 5, 2009)10.3+

Second Amendment to 2007 Amended and Restated Employment Agreement of Andre Dimitriadis, dated July 1, 2007 (incorporated by reference to Exhibit 10.3 to LTC Properties, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2007)10.4+

Third Amendment to the 2007 Amended and Restated Employment Agreement of Wendy Simpson dated December 4, 2007 (incorporated by reference to Exhibit 10.1 to LTC Properties, Inc.'s Current
Report on Form 8-K dated December 5, 2007)10.5+

Third Amended and Restated Employment Agreement of Pamela Kessler, effective as of December 4, 2007 (incorporated by reference to Exhibit 10.13 to LTC Properties, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2007)10.6+

Second Amended and Restated Employment Agreement of Clint Malin, effective as of December 4, 2007 (incorporated by reference to Exhibit 10.15 to LTC Properties, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2007)10.7+

Amended and Restated Employment Agreement of T. Andrew Stokes, effective as of December 4, 2007 (incorporated by reference to Exhibit 10.16 to LTC Properties, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2007)10.8

The 2008 Equity Participation Plan10.9

Form of Stock Option Agreement under the 2008 Equity Participation Plan


88

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Exhibit
Number

Description10.10

Form of Restricted Stock Agreement under the 2008 Equity Participation Plan10.11

Form of Indemnity Agreement dated as of July 30, 2009 between LTC Properties, Inc. and its Directors and Officers (incorporated by reference to Exhibit 10.1 to LTC Properties,
 Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009)12

Ratio of Earnings to Fixed Charges21

List of Subsidiaries23.1

Consent of Independent Registered Accounting Firm31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232

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


+Management
contract or compensatory plan or arrangement in which an executive officer or director of the Company participates.


89

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LTC PROPERTIES, INC.  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

LTC PROPERTIES, INC.
RegistrantDated: February 24, 2010By:

/s/PAMELA SHELLEY-KESSLER Pamela Shelley-KesslerSenior Vice President, Chief Financial Officer
and Corporate Secretary
(Principal Financial Officer)


POWER OF ATTORNEY

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

/s/WENDY L. SIMPSON Wendy L. Simpson

Chief Executive Officer, President and Director (Principal Executive Officer)


February 24, 2010/s/PAMELA SHELLEY-KESSLER Pamela Shelley-Kessler

Senior Vice President, Chief Financial Officer
and Corporate Secretary (Principal Financial Officer and Principal Accounting Officer)


February 24, 2010/s/ANDRE C. DIMITRIADIS Andre C. Dimitriadis

Chairman of the Board and Director


February 24, 2010/s/BOYD HENDRICKSON Boyd Hendrickson

Director


February 24, 2010/s/DEVRA G. SHAPIRO Devra G. Shapiro

Director


February 24, 2010/s/EDMUND C. KING Edmund C. King

Director


February 24, 2010/s/TIMOTHY J. TRICHE Timothy Triche

Director


February 24, 2010


90

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