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SECURITIES AND EXCHANGE COMMISSION



FORM 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|          
|           |  | For the fiscal year ended December 31,
    2003                                             
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-11314

LTC PROPERTIES, INC.

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|MARYLAND                                                           |  | 71-0720518                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

22917 Pacific Coast Highway, Suite 350

Malibu, California 90265


(Address of principal executive offices)


Registrants telephone number, including
area code:

(310) 455-6010


Securities registered pursuant to
Section 12(b) of the Act:

|                                                                          |  |                        
|------------------------------------------------------------------------- |  | -----------------------
|                                                                          |  | Name of each exchange  
|Title of Stock                                                            |  | on which registered    
|                                                                          |  |                        
|Common stock, $.01 Par Value                                              |  | New York Stock Exchange
|9.50% Series A Cumulative Preferred Stock,
    $.01 Par Value             |  | New York Stock Exchange
|9.00% Series B Cumulative Preferred Stock,
    $.01 Par Value             |  | New York Stock Exchange
|8.50% Series E Cumulative Convertible
    Preferred Stock, $.01 Par Value |  | New York Stock Exchange

Securities registered pursuant to
Section 12(g) of the Act:

NONE


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

Indicate by check
mark whether the Company is an accelerated
filer.     Yes þ          No o

The aggregate
market value of voting and non-voting stock held by
non-affiliates of the Company was approximately $150,679,375 as
of June 30, 2003 (the last business day of the
Companys most recently completed second fiscal quarter).

18,005,643

(Number of shares of common stock outstanding as
of March 5, 2004)




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STATEMENT REGARDING FORWARD LOOKING
DISCLOSURE

Certain information contained in this annual
report includes statements that are not purely historical and
are forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding our expectations, beliefs,
intentions or strategies regarding the future. All statements
other than historical facts contained in this annual report are
forward looking statements. These forward looking statements
involve a number of risks and uncertainties. All forward looking
statements included in this annual report are based on
information available to us on the date hereof, and we assume no
obligation to update such forward looking statements. Although
we believe that the assumptions and expectations reflected in
such forward looking statements are reasonable, no assurance can
be given that such expectations will prove to have been correct.
The actual results achieved by us may differ materially from any
forward looking statements due to the risks and uncertainties of
such statements.

We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Stockholders and
investors are cautioned not to unduly rely on such
forward-looking statements when evaluating the information
presented in our filings and reports.



|        |         
|------- | --------
|Item 1. | BUSINESS

General

LTC Properties, Inc., a health care real estate
investment trust (or REIT), was organized on May 12, 1992
in the State of Maryland and commenced operations on
August 25, 1992. We invest primarily in long-term care and
other health care related 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.

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

We were organized to qualify, and intend to
continue to qualify, as a REIT. So long as we qualify, with
limited exceptions, we may deduct distributions, 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, 2003, our investment in owned properties
consisted of 53 skilled nursing properties with a total of 6,047
beds, 88 assisted living properties with a total of 4,182
units and one school in 23 states, representing a gross
investment of approximately $456.0 million. See
Item 8. FINANCIAL STATEMENTS  Note 6. Real
Estate Investmentsfor further description.

The following operators accounted for more than
10% of our 2003 revenue:

|                               |  |                     |      |  
|------------------------------ |  | ------------------- | ---- | -
|Lessee                         |  | Percent of Revenues
|                               |  |                    
|Alterra Healthcare Corporation |  |                     | 21.7 | %
|Assisted Living Concepts, Inc. |  |                     | 21.2 | %
|Sunwest Management, Inc.       |  |                     | 15.3 | %

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. See Item 8. FINANCIAL STATEMENTS 
Note 6. Real Estate Investmentsfor further description.

See Item 8. FINANCIAL STATEMENTS 
Note 11. Debt Obligationsfor a description of our Senior
Mortgage Participation Payable, which is secured by certain of
our mortgage loans receivable.

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REMIC Certificates.We have completed securitizations by transferring mortgage loans
to newly created Real Estate Mortgage Investment Conduits (or
REMIC) that, in turn, issued mortgage pass-through certificates
aggregating approximately the same amount. A portion of the
REMIC Certificates were then sold to third parties and a portion
of the REMIC Certificates were retained by us. The REMIC
Certificates we retained are subordinated in right of payment to
the REMIC Certificates sold to third parties and a portion of
the REMIC Certificates we retained are interest only
certificates which have no principal amount and entitle us to
receive cash flows designated as interest. Since inception we
have completed four REMIC pools. The first was in 1993 and was
fully retired in 2003 without a realized loss within the pool.
The last REMIC we completed was in 1998. We may again employ
this type of financing in the future should we determine the
financing environment was appropriate for this type of
transaction. At December 31, 2003, we had investments in
REMIC Certificates with a carrying value of $61.7 million
and a fair market value of $48.2 million. See Item 8.
FINANCIAL STATEMENTS  Note 6. Real Estate
Investmentsfor further description of our investments in
REMIC Certificates.

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

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.
Primarily, as a result of obligations we had under our Secured
Revolving Credit, we have made few investments in the last five
years. In the fourth quarter of 2003 we retired the Secured
Revolving Credit and signed a $45.0 million Unsecured
Credit Agreement. Subsequent to December 31, 2003 we
purchased for $3.4 million a 120 bed skilled nursing
property in Texas. We have entered into a 20 year triple
net lease with an operator which begins March 3, 2004, and
for an annual lease amount of $0.4 million in the first
year and increasing 2% every year thereafter. At this time, we
anticipate completing some additional level of new investments
in 2004; however, given the highly competitive environment for
health care real estate acquisitions and mortgages, we can give
no assurances that we will complete a significant level of new
investments in 2004.

Historically our investments have consisted of:



| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | mortgage loans secured by long-term care
    properties;                                                                                                                                       
|
| |  | fee ownership of long-term care properties which
    are leased to providers; or                                                                                                               
|
| |  | participation in such investments indirectly
    through investments in real estate partnerships or other
    entities that themselves make direct investments in such loans
    or properties.

In evaluating potential investments, we consider
factors such as:



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | type of property;                                                                                                                                     
|
| |  | the location;                                                                                                                                         
|
| |  | construction quality, condition and design of the
    property;                                                                                       
|
| |  | the propertys current and anticipated cash
    flow and its adequacy to meet operational needs and lease
    obligations or debt service obligations;
|
| |  | the experience, reputation and solvency of the
    licensee providing services;                                                                       
|
| |  | the payor mix of private, Medicare and Medicaid
    patients;                                                                                         
|
| |  | the growth, tax and regulatory environments of
    the communities in which the properties are located;                                               

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| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | the occupancy and demand for similar properties
    in the area surrounding the property; and   
|
| |  | the Medicaid reimbursement policies and plans of
    the state in which the property is located.

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 attempt to invest in properties that do
not have to rely on a high percentage of private-pay patients.
We seek to invest 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, state survey
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. We believe that assisted living
facilities are an important sector in the long-term care market
and our investments include direct ownership of 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 a significant number of upscale units in
appropriate markets with certain operators. As skilled nursing
facilities reimbursement cuts have created cost and pricing
pressures in that industry, we have tended to emphasize fee
simple investments in the assisted living sector where we
believe facilities tend to be both newer and less dependent, if
at all, on any government reimbursement.

Our new Unsecured Credit Agreement signed in
December 2003, includes no formal restrictions in our investment
in any single type of property. At December 31, 2003, we
had committed to provide Alterra Healthcare Corporation (or
Alterra) $2.5 million over three years to invest in
leasehold improvements to properties leased from us and an
additional $2.5 million over three years to expand
properties leased from us. Both of these investments would be
made at a 10% annual return to us.

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:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | acquiring any real property unless the
    consideration paid for such real property is based on the fair
    market value of the property;
|
| |  | investing in any junior mortgage loan unless by
    appraisal or other method, the Directors determine that                                



| |     |                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the capital invested in any such loan is
    adequately secured on the basis of the equity of the borrower in
    the property underlying such investment and the ability of the
    borrower to repay the mortgage loan; or



| |     |                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | such loan is a financing device we enter into to
    establish the priority of our capital investment over the
    capital invested by others investing with us in a real estate
    project;



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | investing in commodities or commodity futures
    contracts (other than interest rate futures, when used solely
    for hedging purposes);         
|
| |  | investing more than 1% of our total assets in
    contracts for sale of real estate unless such contracts are
    recordable in the chain of title;

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

Competition

In the health care industry, we compete for real
property investments with health care providers, other health
care related REITs, real estate partnerships, banks, insurance
companies and other investors. Many of our competitors are
significantly larger and have greater financial resources and
lower cost of capital than we have available to us. Our ability
to compete successfully for real property investments will be
determined by numerous factors, including our ability to
identify suitable acquisition targets, our ability to negotiate
acceptable terms for any such acquisition and the availability
and cost of capital.

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 heavy 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 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.

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 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, 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. In recent 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. In many instances, revenues from
Medicaid programs are already insufficient to cover the actual
costs incurred in providing care to those patients. According to
a report issued by Kaiser Family Foundation in January 2003, 19
states have reduced, or are considering reducing, nursing
facility payment rates. Moreover, health care facilities have
experienced increasing pressures from private payors attempting
to control health care costs, and

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reimbursement from private payors has in many
cases effectively been reduced to levels approaching those of
government payors.


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 facility borrowers and lessees and to a much
lesser extent our assisted living facilities 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.

On August 4, 2003, Centers for Medicare
& Medicaid Services, commonly known as CMS, published a
final rule announcing that it will implement a 3.0% market
basket increase in skilled nursing facility prospective payment
system rates for fiscal year 2004, which began October 1,
2003. In addition, the rule will adjust fiscal year 2004 rates
by an additional 3.26% to reflect cumulative forecast errors
since the start of the skilled nursing facility prospective
payment system on July 1, 1998.

The federal physician self-referral law, commonly
known as Stark II (or Stark Law), prohibits certain types of
practitioners (including a medical doctor, doctor of osteopathy,
optometrist, dentist or podiatrist) 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.

Legislative Developments

Each year, legislative proposals are introduced
or proposed in Congress and in some state legislatures that
would affect major changes in the health care system, either
nationally or at the state level. Among the proposals under
consideration are cost controls on state Medicaid
reimbursements, health care provider cost-containment
initiatives by public and private payors, health care coverage
for uninsured, increased scrutiny of medical errors, limits on
damages claimed in physician malpractice lawsuits, and a
Patient Bill of Rights to increase the liability of
insurance companies as well as the ability of patients to sue in
the event of a wrongful denial of claim. We cannot predict
whether any proposals will be adopted or, if adopted, what
effect, if any, such proposals would have on 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 obligations may be limited and we cannot
assure that any such borrower or lessee would be able to fulfill
its indemnification obligations.

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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
because the cost of such insurance has increased substantially
and some insurers have stopped offering such insurance for long
term care facilities. Additionally, 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 16 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

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

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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | First, we will be
    taxed at regular corporate rates on any undistributed taxable
    income, including undistributed net capital gains.                                                                                                                                                                                                                                                                                                            
|
| | Second, under
    certain circumstances, we may be subject to the alternative
    minimum tax, if our dividend distributions are less than our
    alternative minimum taxable income.                                                                                                                                                                                                                                                                
|
| | Third, if we have
    (i) net income from the sale or other disposition of
    foreclosure property which is held primarily for sale to
    customers in the ordinary course of business or (ii) other
    non-qualifying income from foreclosure property, we may elect to
    be subject to tax at the highest corporate rate on such income,
    if necessary to maintain our REIT status.                                                         
|
| | Fourth, if we have
    net income from prohibited transactions (which are, in general,
    certain sales or other dispositions of property (other than
    foreclosure property) held primarily for sale to customers in
    the ordinary course of business), such income will be subject to
    a 100% tax.                                                                                                                                         
|
| | Fifth, if we fail to
    satisfy the 75% gross income test or the 95% gross income test,
    but nonetheless maintain our qualification as a REIT because
    certain other requirements have been met, we will be subject to
    a 100% tax on an amount equal to (a) the gross income
    attributable to the greater of the amount by which we fail the
    75% or 95% test multiplied by (b) a fraction intended to
    reflect our profitability.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sixth, if we fail to
    distribute during each calendar year at least the sum of
    (i) 85% of our ordinary income for such year, (ii) 95%
    of our REIT capital gain net income for such year, and
    (iii) any undistributed taxable income from prior periods,
    we will be subject to a 4% excise tax on the excess of such
    required distribution over the amounts actually distributed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Seventh, if we
    acquire an asset which meets the definition of a built-in gain
    asset from a corporation which is or has been a
    C corporation (i.e., generally a corporation subject to
    full corporate-level tax) in certain transactions in which the
    basis of the built-in gain asset in our hands is determined by
    reference to the basis of the asset in the hands of the C
    corporation, and if we subsequently recognize gain on the
    disposition of such asset during the ten-year period, called the
    recognition period, beginning on the date on which we acquired
    the asset, then, to the extent of the built-in gain (i.e., the
    excess of (a) the fair market value of such asset over
    (b) our adjusted basis in such asset, both determined as of
    the beginning of the recognition period), such gain will be
    subject to tax at the highest regular corporate tax rate,
    pursuant to IRS regulations.

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



| |     |                                                                                                                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | which is managed by one or more trustees or
    directors;                                                                                                                                                               
|
| | (2) | the beneficial ownership of which is evidenced by
    transferable shares, or by transferable certificates of
    beneficial interest;                                                                                   
|
| | (3) | which would be taxable, but for Sections 856
    through 860 of the Internal Revenue Code, as a domestic
    corporation;                                                                                                
|
| | (4) | which is neither a financial institution; nor, an
    insurance company subject to certain provisions of the Internal
    Revenue Code;                                                                                  
|
| | (5) | the beneficial ownership of which is held by 100
    or more persons;                                                                                                                                                    
|
| | (6) | during the last half of each taxable year not
    more than 50% in value of the outstanding stock of which is
    owned, actually or constructively, by five or fewer individuals
    (including specified entities); and
|
| | (7) | which meets certain other tests, described below,
    regarding the amount of its distributions and the nature of its
    income and assets.                                                                             

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

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



| |   |                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | First, at least 75% of our gross income
    (excluding gross income from prohibited
    transactions, as defined below) for each taxable year must
    be derived directly or indirectly from investments relating to
    real property or mortgages on real property, including rents
    from real property, or from certain types of temporary
    investment income.
|
| |  | Second, at least 95% of our gross income
    (excluding gross income from prohibited transactions) for each
    taxable year must be derived from income that qualifies under
    the 75% test or from dividends, interest and gain from the sale
    or other disposition of stock or securities.                                                                        

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

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



| |   |                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | First, at least 75% of the value of our total
    assets must be represented by real estate assets (including
    stock or debt instruments held for not more than one year
    purchased with the proceeds of a stock offering or long-term (at
    least five years) public debt offering of our company), cash,
    cash items and government securities.
|
| |  | Second, not more than 25% of our total assets may
    be represented by securities other than those in the 75% asset
    class.                                                                                                                                                                                                                             

7



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| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Third, of the investments included in the 25%
    asset class, the value of any one issuers securities owned
    by us may not exceed 5% of the value of our total assets and we
    may not own more than 10% of any one issuers outstanding
    voting securities.                                        
|
| |  | Fourth, the Tax Relief Extension Act of 1999 (or
    99 Act), provides that, subject to certain exceptions, for
    taxable years commencing after December 31, 2000, we may
    not own more than 10% of the total value of the securities of
    any issuer. See the 99 Act description beginning on page 9.
|
| |  | Fifth, the 99 Act also provides that not more
    than 20% of our value may be represented by securities of one or
    more taxable REIT subsidiaries.                                                                                                                                                        

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

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

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 real estate investment
trust subsidiary, respectively, although no assurance can be
given that the Internal Revenue Service will not successfully
challenge the status of any such organization.

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

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



| |     |            
| | --- | -----------
| | (1) | the sum of:



| |     |                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (A) | 90% (95% for taxable years ending prior to
    January 1, 2001) of our real estate investment trust
    taxable income (computed without regard to the dividends
    paid deduction and our net capital gain); and



| |     |                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------
| | (B) | 90% (95% for taxable years ending prior to
    January 1, 2001) of the net income, if any (after tax),
    from foreclosure property; minus



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

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

8



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##### 



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% (95%
for taxable years ending prior to January 1, 2001), but
less than 100%, of our real estate investment trust
taxable income, as adjusted, it will be subject to tax on
such amounts at regular corporate tax rates. Furthermore, if we
should fail to distribute during each calendar year (or, in the
case of distributions with declaration and record dates in the
last three months of the calendar year, by the end of the
following January) at least the sum of:



| |     |                                                                                       
| | --- | --------------------------------------------------------------------------------------
| | (1) | 85% of our real estate investment trust ordinary
    income for such year;            
|
| | (2) | 95% of our real estate investment trust capital
    gain net income for such year; and
|
| | (3) | any undistributed taxable income from prior
    periods;                              

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

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

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



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Investment limitations and taxable REIT
    subsidiaries.The 99 Act modifies the
    REIT asset test by adding a requirement that except for
    (I) Safe Harbor Debt and (II) the
    ownership of stock in taxable REIT subsidiaries, a
    REIT cannot own more than 10% of the total value of the
    securities of any issuer (or 10% Rule). The 10% Rule becomes
    effective for taxable years commencing after December 31,
    2000. Safe Harbor Debt is non-contingent,
    non-convertible debt (or straight-debt) which satisfies one of
    the following three requirements: (a) the straight-debt is
    issued by an individual, or (b) all of the securities of the
    issuer owned by the REIT is straight debt or (c) the issuer is a
    partnership in which the REIT owns at least 20% of its profits.
|   
|(2) | For a corporation to qualify as a taxable REIT
    subsidiary the following requirements must be satisfied.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



| |     |                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The REIT must own stock in the subsidiary
    corporation.                                                                                                          
|
| | (2) | Both the REIT and the subsidiary corporation must
    join in an election that the subsidiary corporation be treated
    as a taxable REIT subsidiary of the REIT.
|
| | (3) | The subsidiary corporation cannot directly or
    indirectly operate or manage either a lodging or health care
    facility.                                        
|
| | (4) | The subsidiary corporation generally cannot
    provide to any person rights to any brand name under which
    lodging or health care facilities are operated.      



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

9



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Interest paid by a taxable REIT subsidiary to the
    related REIT is subject to the earnings stripping rules
    contained in Section 163(j) of the Code and therefore the
    taxable REIT subsidiary cannot deduct interest in any year that
    it would exceed 50% of the subsidiarys adjusted gross
    income. If any amount of interest, rent, or other deductions of
    the taxable REIT subsidiary to be paid to the REIT is determined
    not to be at arms length, an excise tax of 100% is imposed
    on the portion that is determined to be excessive. However, rent
    received by a REIT shall not fail to qualify as rents from real
    property by reason of the fact that all or any portion of such
    rent is redetermined for purposes of the excise tax.
|
| | The Act permits a REIT to own up to 100% of the
    stock of a taxable REIT subsidiary. However, the
    value of all of the securities of taxable REIT subsidiaries
    owned by the REIT cannot exceed 20% of the value of the
    REITs assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | The 10% Rule generally will not apply to
    securities owned by a REIT on July 12, 1999 (or Transition
    Rule). However, the Transition Rule would cease to apply to
    securities of an issuer if, after July 12, 1999, the REIT
    acquires additional securities of such issuer or if such issuer
    engages in a substantial new line of business, or acquires any
    substantial assets, other than in a reorganization or in a
    transaction qualifying under Section 1031 or 1033 of the
    Code.                                                                                                                                                                                                                                                                      



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Ownership of health care
    facilities. The 99 Act permits a REIT
    to own and operate a health care facility for at least two
    years, and treat it as permitted foreclosure
    property, if the facility is acquired as the result of a default
    (or imminent default) of a lease or indebtedness.                                                                                                                                            
|   
|(4) | REIT distribution
    requirements. The 99 Act reduces the
    requirement that a REIT must distribute at least 95% of its
    income as deductible dividends to 90% of its income.                                                                                                                                                                                                                                                                        
|   
|(5) | Rents from personal
    property. A REIT may treat rent from
    personal property as rent from real property so long as the rent
    from personal property does not exceed 15% of the total rent
    from both real and personal property for the taxable year. The
    Act provides that this determination will be made by comparing
    the fair market value of the personal property to the fair
    market value of the real and personal property.

State and local taxation.We may be subject to state or local
taxation in various state or local jurisdictions, including
those in which we transact business or reside. Our state and
local tax treatment 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 is
www.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.

Corporate Governance Guidelines

We have adopted Corporate Governance Policies.
The Corporate Governance Policies are posted on our website
(www.ltcproperties.com) and are available in print to any
stockholder who requests a copy.

Committee Charters

The Board of Directors has an Audit Committee,
Compensation Committee and Nominating/ Corporate Governance
Committee. The Board of Directors has adopted written charters
for each committee, and we have posted them on our website
(www.ltcproperties.com) and they are available in print
to any stockholder who requests a copy.

Cautionary Statements

Certain information contained in this annual
report includes statements that are not purely historical and
are forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, including statements regarding our expectations,
beliefs, intentions or strategies regarding the future. All
statements other than historical facts contained in this annual
report are forward looking statements. These forward looking
statements involve a number of risks and

10



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##### 



uncertainties. All forward looking statements
included in this annual report are based on information
available to us on the date hereof, and we assume no obligation
to update such forward looking statements. Although we believe
that the assumptions and expectations reflected in such forward
looking statements are reasonable, no assurance can be given
that such expectations will prove to have been correct. The
actual results achieved by us may differ materially from any
forward looking statements due to the risks and uncertainties of
such statements.


We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Stockholders and
investors are cautioned not to unduly rely on such
forward-looking statements when evaluating the information
presented in our filings and reports.

Such risks and uncertainties include, among other
things, the following risks including those described in more
detail below:



| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | the status of the economy;                                                                          
|
| |  | the status of capital markets, including
    prevailing interest rates;                             
|
| |  | compliance with and changes to regulations and
    payment policies within the health care industry;
|
| |  | changes in financing terms;                                                                         
|
| |  | competition within the health care and senior
    housing industries; and                           
|
| |  | changes in federal, state and local legislation.                                                    

Recently Enacted Tax Legislation Could have an
Adverse Effect on the Market Price of our Equity Securities.On May 28, 2003, President Bush
signed into law legislation that, for individual taxpayers, will
generally reduce the tax rate on corporate dividends to a
maximum of 15% for tax years 2003 to 2008. REIT dividends
generally will not qualify for this reduced tax rate because a
REITs income generally is not subject to corporate level
tax. This new law could cause stock in non-REIT corporations to
be a more attractive investment to individual investors than
stock in REITs and could have an adverse effect on the market
price or our equity securities.

A Failure to Maintain or Increase our Dividend
Could Reduce the Market Price of Our
Stock.During calendar 2002 we paid a
quarterly dividend of $.10 per common share of stock. During
calendar 2003, we paid a $.10 dividend in the first quarter, a
$.15 dividend in the second and third quarter and a $.25
dividend in the fourth quarter on our common stock. The ability
to maintain or raise our common dividend is dependent, to a
large part, on growth of funds from operations. 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 capital for growth. As a result, a REIT is required to
grow through the steady investment of new capital in real estate
assets. Presently, we believe capital is readily available to
us. However, there will 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 will be
required to meet existing commitments and to reduce existing
debt. We may not be able to obtain additional equity 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.

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 earthquakes and floods) or similar factors.

We Depend on Lease Income and Mortgage
Payments from Real Property.Since a
substantial portion of our income is derived from mortgage
payments and lease income from real property, our income 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.

11



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We Rely on a Few Major Operators.

Assisted Living Concepts, Inc. (or ALC) leases 37
assisted living properties with a total of 1,434 units owned by
us representing approximately 12.6%, or $72.5 million, of
our total assets. In October 2001, ALC filed for reorganization
under Chapter 11 of the federal bankruptcy laws. The filing
was pre-negotiated with sufficient debt holders to allow ALC to
reorganize its debt and equity and emerge from bankruptcy as of
12:01 a.m. on January 1, 2002. At the request of our
Board of Directors, we agreed to reduce total rents under the 37
leases by $0.9 million a year, beginning January 1,
2002. Our Chairman, CEO and President, Mr. Andre C.
Dimitriadis, became a Board member of ALC as of January 1,
2002.

ALC is a publicly traded company, and as such is
subject to the filing requirements of the Securities and
Exchange Commission.

Alterra Healthcare Corporation (or Alterra)
leases 35 assisted living properties with a total of 1,416 units
owned by us representing approximately 12.4%, or
$71.3 million, of our total assets at December 31,
2003. Alterra announced on January 22, 2003 that it had
filed a voluntary petition with the U.S. Bankruptcy Court for
the District of Delaware to reorganize under Chapter 11 of the
U.S. Bankruptcy Code. Alterras Plan of Reorganization was
approved in November 2003 and Alterra emerged from bankruptcy in
December 2003 as a non-publicly traded company. All of our
leases with Alterra were assumed, without change, by the
reorganized Alterra.

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

Our Borrowers and Lessees Face Competition in
the Healthcare 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 Healthcare Industry is Heavily Regulated
by the Government.Our borrowers and
lessees who operate health care facilities are subject to heavy
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.

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.

A significant portion of the revenue of our
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. In recent 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. In many instances, revenues from Medicaid
programs are already insufficient to cover the actual costs
incurred in providing care to those patients, and several states
have reduced, or are considering reducing, nursing facility
payment rates. Moreover, health care facilities have experienced
increasing pressures from private payors attempting to control

12



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health care costs, and reimbursement from private
payors has in many cases effectively been reduced to levels
approaching those of government payors.


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
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.

On August 4, 2003, Centers for Medicare
& Medicaid Services, commonly known as CMS, published a
final rule announcing that it will implement a 3.0% market
basket increase in skilled nursing facility prospective payment
system rates for fiscal year 2004, which began October 1,
2003. In addition, the rule will adjust fiscal year 2004 rates
by an additional 3.26% to reflect cumulative forecast errors
since the start of the skilled nursing facility prospective
payment system on July 1, 1998.

Congress and the States Have Enacted
Healthcare Reform measures.The health
care industry is facing various challenges, including increased
government and private payor pressure on health care providers
to control costs. While the Bush Administration has proposed
expanded funding for Medicare prescription drug coverage, it has
stated that it intends to offset the cost of this benefit in
part from savings from overpayments to other Medicare providers.
In addition, the Medicare Payment Advisory Commission, known as
the MedPAC, an independent federal body established to advise
Congress on issues affecting the Medicare program, recommended
in a March 2003 report that Congress adopt additional reductions
in skilled nursing facility reimbursement. While the MedPAC
recommendations are not binding on Congress, they may affect
congressional consideration of future Medicare reimbursement
legislation. In June 2003, the U.S. House of Representatives and
Senate adopted separate Medicare reform bills, neither of which
would reduce Medicare skilled nursing facility rates.
Nevertheless, no assurances can be given that legislation
ultimately enacted by Congress, if any, would not reduce
Medicare reimbursement to skilled nursing facilities or result
in additional costs for operators of skilled nursing facilities.

The Balanced Budget Act enacted significant
changes to the Medicare and Medicaid programs designed to
modernize payment and health care delivery systems while
achieving substantial budgetary savings. In seeking to limit
Medicare reimbursement for long term care services, Congress
established the prospective payment system for skilled nursing
facility services to replace the cost-based reimbursement
system. Skilled nursing facilities needed to restructure their
operations to accommodate the new Medicare prospective payment
system reimbursement. Since the skilled nursing facility
prospective payment system was enacted, several publicly held
operators of long-term care facilities and at least two publicly
held operators of assisted living facilities have filed for
reorganization under Chapter 11 of the federal bankruptcy
laws. While certain long-term care operators and both assisted
living operators have emerged from bankruptcy, during their
reorganizations and in some instances subsequent thereto, they
reduced their operations by rejecting leases and/or defaulting
on loans resulting in properties being returned to lessors or
lenders. There can be no assurances given that the remainder of
2004 and future years will not include additional bankruptcies
of skilled nursing and assisted living operators.

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.

Moreover, many states are facing significant
budget shortfalls, and most states are taking steps to implement
cost controls within their Medicaid programs. On May 28,
2003, President Bush signed into law legislation providing
$20.0 billion in temporary assistance to the states,
$10.0 billion of which is earmarked for state Medicaid
programs. However, in light of forthcoming regulations and
continuing state Medicaid program reform and budget cuts, no
assurance can be given that the implementation of such
regulations and reform will not have a material adverse effect
on our financial condition or results of operations.

We Could Incur More Debt.We operate with a policy of incurring
debt when, in the opinion of our directors, it is advisable. We
may incur additional debt by issuing debt securities in a public
offering or in a private transaction.

13



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##### 



Accordingly, we could become more highly
leveraged. The degree of leverage could have important
consequences to stockholders, including affecting our ability to
obtain additional financing in the future 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.


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 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.

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. However, we are not aware of any pending tax
legislation that would adversely affect our ability to operate
as a REIT.

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.

Our Properties are Subject to Licensing,
Certification and Accreditation.In
addition to the requirements to be met by skilled nursing
facilities for participation in the Medicare and Medicaid
programs, skilled nursing facilities are subject to regulatory
and licensing requirements of federal, state and local
authorities. We have no direct control over our borrowers
or tenants ability to meet the numerous state and federal
regulatory requirements. If a borrower or tenant does not
continue to meet all regulatory requirements, such borrower or
tenant may lose its ability to provide or bill for health care
services. If we cannot attract another health care provider on a
timely basis or on acceptable terms, our revenues would be
adversely impacted. In addition, our properties are special
purpose properties that may not be easily adaptable to uses
unrelated to health care. Transfers of operations of health care
facilities are subject to regulatory approvals not required for
transfers of other types of commercial operations and real
estate.

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. Relatively high loan to value ratios
and declines in the value of the property may prevent us from
realizing an amount equal to our mortgage loan upon foreclosure.

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Investments in Commercial Mortgage Backed
Securities are Subject to Real Estate Risks Relating to the
Underlying Properties.We retain
subordinated portions of the REMIC Certificates issued in our
securitizations. These REMIC Certificates are a form of mortgage
backed securities and as such, we are subject to the same risks
associated with investing directly in the underlying mortgage
loans. This is especially true in our case due to the nature of
the collateral properties securing the underlying mortgages in
our securitizations. All of these properties are special purpose
properties used for the delivery of long-term care services. Any
risks associated with investing in these types of properties
could impact the value of our investment in the REMIC
Certificates we retain.

Investments in Commercial Mortgage-Backed
Securities are Subject to Risks Associated with Prepayment of
the Underlying Mortgages.As with many
interest bearing mortgage-backed instruments, prepayments of the
underlying mortgages may expose us to the risk that an
equivalent rate of return is not available in the current market
and that new investment of equivalent risk will have lower rates
of return. Certain types of investments in commercial
mortgage-backed securities may be interest only securities which
expose the holder to the risk that the underlying mortgages may
prepay at a faster rate than anticipated at acquisition. Faster
than anticipated prepayments may cause the investment in
interest only commercial mortgage-backed securities to have a
lower than anticipated rate of return and could result in a loss
of the initial investment under extreme prepayment scenarios.

Subordinated Securities may not be Repaid Upon
Default.We invest in subordinated
tranches of commercial mortgage backed securities (our retained
REMIC Certificates). In general, subordinated tranches of
commercial mortgage backed securities are entitled to receive
repayment of principal only after all principal payments have
been made on more senior tranches and also have subordinated
rights as to receipt of interest distributions. In addition, an
active secondary market for such subordinated securities is not
as well developed as the market for other mortgage backed
securities. Accordingly, such subordinated commercial mortgage
backed securities may have limited marketability and there can
be no assurance that a more efficient secondary market will
develop.

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:



| |   |                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our partners or co-members might become bankrupt
    (in which event we and any other remaining general partners or
    members would generally remain liable for the liabilities of the
    partnership or limited liability company);                                                                             
|
| |  | our partners or co-members might at any time have
    economic or other business interests or goals which are
    inconsistent with our business interests or goals;                                                                                                                                                
|
| |  | our partners or co-members may be in a position
    to take action contrary to our instructions, requests, policies
    or objectives, including our policy with respect to maintaining
    our qualification as a REIT; and                                                                                        
|
| |  | agreements governing limited liability companies
    and partnerships often contain restrictions on the transfer of a
    members or partners interest or buy-sell
    or other provisions which may result in a purchase or sale of
    the interest at a disadvantageous time or on disadvantageous
    terms.

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.

Item 2.     PROPERTIES

Investment Portfolio

At December 31, 2003, our direct real
estate investment portfolio (properties that we own or on
which we hold promissory notes secured by first mortgages)
consisted of investments in 83 skilled nursing properties with
9,728 beds, 96 assisted living properties with 4,551 units and
one school in 30 states. We had approximately
$456.0 million (before accumulated depreciation of
$73.4 million) invested in properties we own and lease to
lessees, approximately $72.7 million invested in mortgage
loans (before allowance for doubtful accounts of
$1.3 million), and investments in REMIC Certificates with a
carrying value of approximately $61.7 million
($63.1 million at amortized cost, prior to any adjustment
of available-for-sale certificates to fair market value).

15



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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 school in our real estate investment
portfolio is a charter school. 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, 2003, we owned 53 skilled nursing properties
with a total of 6,047 beds, 88 assisted living properties with a
total of 4,182 units and one school in 23 states, representing a
gross investment of approximately $456.0 million. The
properties are leased pursuant to non-cancelable leases
generally with an initial term of 10 to 30 years. The
leases provide for a fixed minimum base rent during the initial
and renewal periods. Most of the leases provide for annual fixed
rent increases or increases based on consumer price indices over
the term of the lease. In addition, certain of our leases
provide for additional rent through revenue participation (as
defined in the lease agreement) in incremental revenues
generated by the facilities over a defined base period,
effective at various times during the term of the lease. Each
lease is a triple net lease which requires the lessee to pay
additional charges including all taxes, insurance, assessments,
maintenance and repair (capital and non-capital expenditures),
and other costs necessary in the operation of the facility. Many
of the leases contain renewal options and one contains a limited
period option that permits the operator to purchase the property.

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The following table sets forth certain
information regarding our owned properties as of
December 31, 2003 (dollar amounts in thousands):

|               |       |        |    |        |  |         |    |               |  |              |   |         |  |            |       |        |  |   |        |         |     |  |     |  |  |   |        |         |    
|-------------- | ----- | ------ | -- | ------ |  | ------- | -- | ------------- |  | ------------ | - | ------- |  | ---------- | ----- | ------ |  | - | ------ | ------- | --- |  | --- |  |  | - | ------ | ------- | ---
|               |       | No. of |    | No. of |  | No. of  |    | No. of        |  |              |   | Lease   |  | Current   
|Location       |       | SNFs   |    | ALFs   |  | Schools |    | Beds/Units(1) |  | Encumbrances |   | Term(2) |  | Investment
|               |       |        |    |        |  |         |    |               |  |              |   |         |  |           
|Alabama        |       |        | 3  |        |  |         | 1  |               |  |              |  |         |  |            | 458   |        |  | $ | 3,587  |         |     |  | 93  |  |  | $ | 16,228 |        
|Arizona        |       |        | 4  |        |  |         | 3  |               |  |              |  |         |  |            | 1,026 |        |  |   | 12,827 |         |     |  | 152 |  |  |   | 45,854 |        
|California     |       |        | 1  |        |  |         | 3  |               |  |              |  |         |  |            | 436   |        |  |   | 17,513 |         |     |  | 97  |  |  |   | 36,713 |        
|Colorado       |       |        | 1  |        |  |         | 6  |               |  |              |  |         |  |            | 325   |        |  |   | 6,625  |         |     |  | 189 |  |  |   | 20,383 |        
|Florida        |       |        | 3  |        |  |         | 6  |               |  |              |  |         |  |            | 776   |        |  |   | 2,243  |         |     |  | 197 |  |  |   | 31,597 |        
|Georgia        |       |        | 3  |        |  |         | 1  |               |  |              |  |         |  |            | 364   |        |  |   | 5,002  |         |     |  | 84  |  |  |   | 7,113  |        
|Idaho          |       |        |   |        |  |         | 4  |               |  |              |  |         |  |            | 148   |        |  |   |       |         |     |  | 63  |  |  |   | 9,756  |        
|Indiana        |       |        |   |        |  |         | 2  |               |  |              |  |         |  |            | 78    |        |  |   |       |         |     |  | 72  |  |  |   | 5,070  |        
|Iowa           |       |        | 7  |        |  |         | 1  |               |  |              |  |         |  |            | 645   |        |  |   | 8,933  |         |     |  | 321 |  |  |   | 16,380 |        
|Kansas         |       |        | 4  |        |  |         | 4  |               |  |              |  |         |  |            | 447   |        |  |   | 8,907  |         |     |  | 236 |  |  |   | 16,597 |        
|Nebraska       |       |        |   |        |  |         | 4  |               |  |              |  |         |  |            | 156   |        |  |   |       |         |     |  | 64  |  |  |   | 9,332  |        
|New Jersey     |       |        |   |        |  |         | 1  |               |  |              | 1 |         |  |            | 39    |        |  |   |       |         |     |  | 117 |  |  |   | 12,195 |        
|New Mexico     |       |        | 6  |        |  |         | 1  |               |  |              |  |         |  |            | 604   |        |  |   | 11,157 |         |     |  | 101 |  |  |   | 30,913 |        
|N. Carolina    |       |        |   |        |  |         | 5  |               |  |              |  |         |  |            | 210   |        |  |   |       |         |     |  | 204 |  |  |   | 13,096 |        
|Ohio           |       |        |   |        |  |         | 11 |               |  |              |  |         |  |            | 487   |        |  |   | 20,983 |         |     |  | 126 |  |  |   | 44,718 |        
|Oklahoma       |       |        |   |        |  |         | 6  |               |  |              |  |         |  |            | 221   |        |  |   | 4,476  |         |     |  | 204 |  |  |   | 12,315 |        
|Oregon         |       |        | 1  |        |  |         | 4  |               |  |              |  |         |  |            | 324   |        |  |   | 3,961  |         |     |  | 65  |  |  |   | 17,812 |        
|Pennsylvania   |       |        |   |        |  |         | 1  |               |  |              |  |         |  |            | 69    |        |  |   | 5,440  |         |     |  | 172 |  |  |   | 8,327  |        
|South Carolina |       |        |   |        |  |         | 3  |               |  |              |  |         |  |            | 128   |        |  |   |       |         |     |  | 204 |  |  |   | 7,610  |        
|Tennessee      |       |        | 3  |        |  |         |   |               |  |              |  |         |  |            | 201   |        |  |   |       |         |     |  | 238 |  |  |   | 3,866  |        
|Texas          |       |        | 12 |        |  |         | 13 |               |  |              |  |         |  |            | 2,147 |        |  |   | 19,706 |         |     |  | 172 |  |  |   | 55,521 |        
|Virginia       |       |        | 3  |        |  |         |   |               |  |              |  |         |  |            | 443   |        |  |   |       |         |     |  | 358 |  |  |   | 9,467  |        
|Washington     |       |        | 2  |        |  |         | 8  |               |  |              |  |         |  |            | 497   |        |  |   | 6,640  |         |     |  | 114 |  |  |   | 25,138 |        
|               |       |        |    |        |  |         |    |               |  |              |   |         |  |            |       |        |  |   |        |         |     |  |     |  |  |   |        |        
|               | TOTAL |        |    | 53     |  |         |    | 88            |  |              |   | 1       |  |            |       | 10,229 |  |   | $      | 138,000 | (3) |  |     |  |  |   | $      | 456,001 | (4)
|               |       |        |    |        |  |         |    |               |  |              |   |         |  |            |       |        |  |   |        |         |     |  |     |  |  |   |        |        



---



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Number of beds/ units applies to skilled nursing
    properties and assisted living residences only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|2. | Weighted average remaining months in lease term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|3. | Consists of: i) $123,314 of non-recourse
    mortgages payable by us secured by 22 skilled nursing
    properties containing a total of 2,691 beds,
    18 assisted living properties with 961 units,
    ii) $6,640 of tax-exempt bonds secured by five assisted
    living properties in Washington with 188 units, iii) $4,085
    of non-recourse capital lease obligations on four assisted
    living properties in Kansas with 134 units, and
    iv) $3,961 of multi-unit housing non-recourse tax-exempt
    revenue bonds on one assisted living property in Oregon with
    112 units. As of December 31, 2003 our gross
    investment in properties encumbered by mortgage loans, bonds and
    capital leases was $171,429.
|  
|4. | Of the total, $165,785 relates to investments in
    skilled nursing properties, $280,946 relates to investments in
    assisted living properties and $9,270 relates to an investment
    in a school.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

17



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Mortgage Loans.At
December 31, 2003, we had 37 mortgage loans secured by
first mortgages on 30 skilled nursing properties with a
total of 3,681 beds and eight assisted living residences with
369 units located in 19 states. See
Item 8.     FINANCIAL
STATEMENTS 
Note 6.     Real Estate
Investmentsfor further description.

The following table sets forth certain
information regarding our mortgage loans as of December 31,
2003 (dollar amounts in thousands):

|           |       |        |   |        |  |            |   |          |  |           |     |                |  |                   |             |             |  |  |     |  |  |   |        |        |  |   |        |        |     |   |       |        | 
|---------- | ----- | ------ | - | ------ |  | ---------- | - | -------- |  | --------- | --- | -------------- |  | ----------------- | ----------- | ----------- |  |  | --- |  |  | - | ------ | ------ |  | - | ------ | ------ | --- | - | ----- | ------ | 
|           |       |        |   |        |  |            |   |          |  | Average   |     |                |  |                   |             | Current    
|           |       | No. of |   | No. of |  | No. of     |   | Interest |  | Months to |     | Face Amount of |  | Current Amount of |             | Annual Debt
|Location   |       | SNFs   |   | ALFs   |  | Beds/Units |   | Rate %   |  | Maturity  |     | Mortgage Loans |  | Mortgage Loans    |             | Service(1) 
|           |       |        |   |        |  |            |   |          |  |           |     |                |  |                   |             |            
|Alabama    |       |        | 1 |        |  |            |  |          |  |           | 40  |                |  |                   | 10.63       |             |  |  | 175 |  |  | $ | 500    |        |  | $ | 450    |        |     | $ | 61    |       
|Arizona    |       |        | 1 |        |  |            |  |          |  |           | 144 |                |  |                   | 12.40       |             |  |  | 10  |  |  |   | 2,400  |        |  |   | 2,186  |        |     |   | 315   |       
|Arkansas   |       |        | 2 |        |  |            |  |          |  |           | 274 |                |  |                   | 10.88-11.08 |             |  |  | 87  |  |  |   | 3,400  |        |  |   | 2,811  |        |     |   | 418   |       
|California |       |        | 5 |        |  |            |  |          |  |           | 756 |                |  |                   | 10.40-12.40 |             |  |  | 125 |  |  |   | 11,371 |        |  |   | 9,926  |        |     |   | 1,417 |       
|Colorado   |       |        | 3 |        |  |            |  |          |  |           | 263 |                |  |                   | 11.00-12.00 |             |  |  | 27  |  |  |   | 7,042  |        |  |   | 6,685  |        |     |   | 892   |       
|Florida    |       |        | 2 |        |  |            | 1 |          |  |           | 384 |                |  |                   | 10.52-12.55 |             |  |  | 73  |  |  |   | 9,990  |        |  |   | 8,064  |        |     |   | 1,269 |       
|Georgia    |       |        | 1 |        |  |            |  |          |  |           | 63  |                |  |                   | 11.80       |             |  |  | 37  |  |  |   | 1,200  |        |  |   | 1,126  |        |     |   | 150   |       
|Illinois   |       |        | 1 |        |  |            |  |          |  |           | 120 |                |  |                   | 10.21       |             |  |  | 51  |  |  |   | 1,950  |        |  |   | 1,829  |        |     |   | 217   |       
|Iowa       |       |        | 1 |        |  |            | 1 |          |  |           | 143 |                |  |                   | 11.91-12.50 |             |  |  | 47  |  |  |   | 4,400  |        |  |   | 4,218  |        |     |   | 557   |       
|Missouri   |       |        | 1 |        |  |            |  |          |  |           | 90  |                |  |                   | 9.51        |             |  |  | 173 |  |  |   | 1,500  |        |  |   | 1,312  |        |     |   | 167   |       
|Montana    |       |        |  |        |  |            | 1 |          |  |           | 34  |                |  |                   | 12.15       |             |  |  | 118 |  |  |   | 2,346  |        |  |   | 2,284  |        |     |   | 292   |       
|Nebraska   |       |        |  |        |  |            | 4 |          |  |           | 163 |                |  |                   | 10.73-11.91 |             |  |  | 58  |  |  |   | 10,911 |        |  |   | 10,521 |        |     |   | 1,314 |       
|Nevada     |       |        | 1 |        |  |            |  |          |  |           | 100 |                |  |                   | 11.25       |             |  |  | 79  |  |  |   | 1,200  |        |  |   | 970    |        |     |   | 150   |       
|Ohio       |       |        | 1 |        |  |            |  |          |  |           | 150 |                |  |                   | 10.89       |             |  |  | 27  |  |  |   | 5,200  |        |  |   | 4,761  |        |     |   | 610   |       
|Oklahoma   |       |        | 1 |        |  |            |  |          |  |           | 161 |                |  |                   | 11.78       |             |  |  | 90  |  |  |   | 1,300  |        |  |   | 1,101  |        |     |   | 168   |       
|S. Dakota  |       |        |  |        |  |            | 1 |          |  |           | 34  |                |  |                   | 11.91       |             |  |  | 63  |  |  |   | 2,346  |        |  |   | 2,290  |        |     |   | 287   |       
|Texas      |       |        | 5 |        |  |            |  |          |  |           | 780 |                |  |                   | 10.90-12.32 |             |  |  | 107 |  |  |   | 7,995  |        |  |   | 7,097  |        |     |   | 1,036 |       
|Washington |       |        | 3 |        |  |            |  |          |  |           | 236 |                |  |                   | 11.90-12.38 |             |  |  | 58  |  |  |   | 3,500  |        |  |   | 3,185  |        |     |   | 454   |       
|Wisconsin  |       |        | 1 |        |  |            |  |          |  |           | 115 |                |  |                   | 11.00       |             |  |  | 158 |  |  |   | 2,200  |        |  |   | 1,929  |        |     |   | 272   |       
|           |       |        |   |        |  |            |   |          |  |           |     |                |  |                   |             |             |  |  |     |  |  |   |        |        |  |   |        |        |     |   |       |       
|           | TOTAL |        |   | 30     |  |            |   | 8        |  |           |     | 4,050          |  |                   |             |             |  |  |     |  |  |   | $      | 80,751 |  |   | $      | 72,745 | (2) |   | $     | 10,046 | 
|           |       |        |   |        |  |            |   |          |  |           |     |                |  |                   |             |             |  |  |     |  |  |   |        |        |  |   |        |        |     |   |       |       



---



|   |                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Includes principal and interest payments.                                                                                                                                                                                          
|  
|2. | Of the total current principal balance, $52,242
    and $20,503 relate to investments in skilled nursing properties
    and assisted living properties, respectively. This balance is
    gross of allowance for doubtful accounts.

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.

See
Item 8.     FINANCIAL
STATEMENTS 
Note 11.     Debt Obligationsfor a description of our Senior Mortgage Participation
Payable which is secured by certain of our mortgage loans
receivable.

REMIC Certificates.At December 31, 2003, we had investments in REMIC
Certificates with a carrying value of $61.7 million
($63.1 million at amortized cost prior to any adjustment of
available-for-sale certificates to fair market value).

The REMIC Certificates we retain are subordinate
in rank and right of payment to the REMIC Certificates sold to
third-party investors and as such would bear the first risk of
loss in the event of an impairment to any of the

18



---



##### 



underlying mortgages. The REMIC Certificates are
collateralized by three pools consisting of 69 first
mortgage loans secured by 103 skilled nursing properties with a
total of 11,823 beds in 19 states. Each mortgage loan, all
of which we originated, is evidenced by a promissory note and
secured by a mortgage, deed of trust, or other similar
instrument that creates a first mortgage lien on a fee simple
estate in real property. The $213.3 million current
principal amount of mortgage loans represented by the REMIC
Certificates have a weighted average interest rate of
approximately 11.0%, and scheduled maturities ranging from 2004
to 2028.


The following table sets forth certain
information regarding the mortgage loans securing the REMIC
Certificates as of December 31, 2003 (dollar amounts in
thousands):

|            |       |            |    |           |  |                     |       |                     |  |                |        |         |  |   |        |         |  |   |       |        | 
|----------- | ----- | ---------- | -- | --------- |  | ------------------- | ----- | ------------------- |  | -------------- | ------ | ------- |  | - | ------ | ------- |  | - | ----- | ------ | 
|            |       |            |    |           |  | Original Principal  |       | Current Principal   |  |               
|            |       | Number of  |    | Number of |  | Amount of Remaining |       | Amount of Remaining |  | Current Annual
|Location    |       | Properties |    | Beds      |  | Mortgage Loans      |       | Mortgage Loans (1)  |  | Debt Service  
|            |       |            |    |           |  |                     |       |                     |  |               
|Alabama     |       |            | 3  |           |  |                     | 405   |                     |  | $              | 8,100  |         |  | $ | 7,328  |         |  | $ | 1,028 |       
|Arizona     |       |            | 3  |           |  |                     | 587   |                     |  |                | 18,305 |         |  |   | 16,622 |         |  |   | 1,981 |       
|California  |       |            | 18 |           |  |                     | 1,816 |                     |  |                | 36,545 |         |  |   | 23,831 |         |  |   | 3,863 |       
|Colorado    |       |            | 1  |           |  |                     | 177   |                     |  |                | 2,000  |         |  |   | 1,852  |         |  |   | 247   |       
|Florida     |       |            | 7  |           |  |                     | 945   |                     |  |                | 32,310 |         |  |   | 27,846 |         |  |   | 3,658 |       
|Georgia     |       |            | 11 |           |  |                     | 1,203 |                     |  |                | 24,472 |         |  |   | 22,312 |         |  |   | 3,088 |       
|Iowa        |       |            | 7  |           |  |                     | 508   |                     |  |                | 10,938 |         |  |   | 10,685 |         |  |   | 1,204 |       
|Louisiana   |       |            | 1  |           |  |                     | 127   |                     |  |                | 1,600  |         |  |   | 1,394  |         |  |   | 208   |       
|Michigan    |       |            | 1  |           |  |                     | 236   |                     |  |                | 3,000  |         |  |   | 2,481  |         |  |   | 386   |       
|Mississippi |       |            | 3  |           |  |                     | 400   |                     |  |                | 14,050 |         |  |   | 10,124 |         |  |   | 1,209 |       
|Missouri    |       |            | 1  |           |  |                     | 100   |                     |  |                | 1,500  |         |  |   | 1,398  |         |  |   | 164   |       
|Montana     |       |            | 2  |           |  |                     | 163   |                     |  |                | 5,600  |         |  |   | 5,226  |         |  |   | 697   |       
|Nebraska    |       |            | 2  |           |  |                     | 256   |                     |  |                | 4,700  |         |  |   | 4,433  |         |  |   | 576   |       
|New Mexico  |       |            | 4  |           |  |                     | 443   |                     |  |                | 15,821 |         |  |   | 14,764 |         |  |   | 1,526 |       
|Ohio        |       |            | 1  |           |  |                     | 50    |                     |  |                | 1,100  |         |  |   | 700    |         |  |   | 155   |       
|Oklahoma    |       |            | 1  |           |  |                     | 112   |                     |  |                | 1,300  |         |  |   | 1,088  |         |  |   | 173   |       
|Tennessee   |       |            | 6  |           |  |                     | 550   |                     |  |                | 16,827 |         |  |   | 15,450 |         |  |   | 2,123 |       
|Texas       |       |            | 29 |           |  |                     | 3,645 |                     |  |                | 52,858 |         |  |   | 43,993 |         |  |   | 6,115 |       
|Washington  |       |            | 2  |           |  |                     | 100   |                     |  |                | 1,900  |         |  |   | 1,764  |         |  |   | 227   |       
|            |       |            |    |           |  |                     |       |                     |  |                |        |         |  |   |        |         |  |   |       |       
|            | TOTAL |            |    | 103       |  |                     |       | 11,823              |  |                | $      | 252,926 |  |   | $      | 213,291 |  |   | $     | 28,628 | 
|            |       |            |    |           |  |                     |       |                     |  |                |        |         |  |   |        |         |  |   |       |       



---



|   |                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Included in the balances of the mortgages
    underlying the REMIC Certificates are $56,457 of non-recourse
    mortgages payable by our subsidiaries. We originated these
    mortgages, which were subsequently transferred to the REMIC. The
    properties and the mortgage debt are reflected in our balance
    sheet.

The mortgage loans underlying the REMIC
Certificates generally have 25-year amortization schedules with
final maturities ranging from 2004 to 2028. Contractual
principal and interest distributions with respect to the
$63.1 million amortized cost basis, of REMIC Certificates
(excluding unrealized losses on changes in estimated fair value
of $1.4 million) we retained are subordinated to
distributions of interest and principal with respect to the
$150.4 million of REMIC Certificates held by third parties.
Thus, based on the terms of the underlying mortgages and
assuming no unscheduled prepayments occur nor are any maturities
extended as a result of the inability of the borrower to
refinance, scheduled principal distributions on the REMIC
Certificates we retained will commence in March 2004 with final
distributions in April 2028. Distributions on any of the REMIC
Certificates will depend, in large part, on the amount and
timing of payments, collections, delinquencies and defaults with
respect to the mortgage loans represented by the REMIC
Certificates, including the exercise of certain purchase options
under existing property leases or the sale of the mortgaged
properties. Each of the mortgage loans securing the REMIC
Certificates contains similar prepayment and security provisions
as our mortgage loans.

As part of the REMIC transactions discussed
above, we serve as the sub-servicer and, in such capacity, are
responsible for performing substantially all of the servicing
duties relating to the mortgage loans represented by the REMIC
Certificates. We receive monthly fees equal to a fixed
percentage of the then outstanding mortgage loan balance in the
REMIC, which in our opinion represented then prevailing terms
for similar transactions at that time.

19



---



##### 



In addition, we will act as the special servicer
to restructure any mortgage loans in the REMIC that default. As
noted previously, we assume the first dollar of any losses on
the defaulted loans.


At December 31, 2003, the REMIC Certificates
we held had an effective interest rate of approximately 15.4%
based on the expected future cash flows with no unscheduled
prepayments.



|        |                  
|------- | -----------------
|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 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.



|        |                                                                           
|------- | --------------------------------------------------------------------------
|Item 5. | MARKET FOR THE COMPANYS COMMON EQUITY
    AND RELATED STOCKHOLDER MATTERS



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

|               |  |      |        |      |  |      |        |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ------ | ---- |  | ---- | ------ | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |        |     
|               |  | 2003 |        | 2002
|               |  |      |        |     
|               |  | High |        | Low  |  | High |        | Low
|               |  |      |        |      |  |      |        |    
|First Quarter  |  | $    | 7.170  |      |  | $    | 5.250  |     |  | $ | 7.950 |  |  | $ | 6.050 | 
|Second Quarter |  | $    | 9.550  |      |  | $    | 6.000  |     |  | $ | 8.540 |  |  | $ | 7.450 | 
|Third Quarter  |  | $    | 11.760 |      |  | $    | 9.130  |     |  | $ | 8.700 |  |  | $ | 5.470 | 
|Fourth Quarter |  | $    | 15.000 |      |  | $    | 11.500 |     |  | $ | 8.500 |  |  | $ | 5.850 | 



|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|(b) | As of December 31, 2003 we had approximately
    552 stockholders of record of our common stock.



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

|               |  |      |      |      |  |   |      | 
|-------------- |  | ---- | ---- | ---- |  | - | ---- | 
|               |  | 2003 |      | 2002
|               |  |      |      |     
|First Quarter  |  | $    | 0.10 |      |  | $ | 0.10 | 
|Second Quarter |  |      | 0.15 |      |  |   | 0.10 | 
|Third Quarter  |  |      | 0.15 |      |  |   | 0.10 | 
|Fourth Quarter |  |      | 0.25 |      |  |   | 0.10 | 
|               |  |      |      |      |  |   |      | 
|               |  | $    | 0.65 |      |  | $ | 0.40 | 
|               |  |      |      |      |  |   |      | 

On March 10, 2004, we declared a $0.25 per
common share dividend payable on March 31, 2004, to
stockholders of record on March 19, 2004. 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 the Board of Directors and will depend on
our earnings, our financial condition and such other factors as
the Board of Directors deem relevant. In order to qualify for
the beneficial tax treatment accorded to REITs by
Sections 856 through 860 of the Internal Revenue Code, we
are required to make distributions to holders of our shares
equal to at least 90% (95% for years ending prior to
January 1, 2001) of our REIT taxable income. (See
Annual Distribution Requirements beginning on
page 8.)

20



---



##### 





|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(d) | Securities authorized for issuance under equity
    compensation plans as of December 31, 2003 is as follows:

|                                                               |       |                         |         |                      |  |                                 |      |      |  |  |        |        | 
|-------------------------------------------------------------- | ----- | ----------------------- | ------- | -------------------- |  | ------------------------------- | ---- | ---- |  |  | ------ | ------ | 
|                                                              
|Equity Compensation Plan Information                          
|                                                              
|                                                               |       | (a)                     |         | (b)                  |  | (c)                            
|                                                               |       |                         |         |                      |  |                                
|                                                               |       |                         |         |                      |  | Number of securities remaining 
|                                                               |       | Number of securities to |         | Weighted-average     |  | available for future issuance  
|                                                               |       | be issued upon exercise |         | exercise price of    |  | under equity compensation plans
|                                                               |       | of outstanding options  |         | outstanding options, |  | (excluding securities reflected
|Plan Category                                                  |       | warrants and rights     |         | warrants and rights  |  | in column (a))                 
|                                                               |       |                         |         |                      |  |                                
|Equity compensation plans approved by security
    holders     |       |                         | 285,871 |                      |  | $                               | 5.63 |      |  |  | 53,176 |       
|Equity compensation plans not approved by
    security holders |       |                         |        |                      |  |                                 |     |      |  |  |       |       
|                                                               |       |                         |         |                      |  |                                 |      |      |  |  |        |       
|                                                               | Total |                         |         | 285,871              |  |                                 | $    | 5.63 |  |  |        | 53,176 | 

21



---



##### 





|        |                                   
|------- | ----------------------------------
|Item 6. | SELECTED FINANCIAL
    INFORMATION

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.

|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |        |        | 
|-------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ------- | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                               |                                          | 2003                                     |         | 2002   |        | 2001 |         | 2000   |        | 1999
|                                                               |                                          |                                          |         |        |        |      |         |        |        |     
|                                                               |                                          |                                         
|                                                               |                                          | (In thousands, except per share amounts)
|Operating Information:                                         |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Revenues                                                       |                                          | $                                        | 63,447  |        |        | $    | 68,137  |        |        | $    | 67,591  |         |        | $ | 82,204  |        |        | $ | 82,923  |       
|Expenses:                                                      |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|                                                               | Interest expense                         |                                          |         | 20,877 |        |      |         | 21,322 |        |      |         | 21,435  |        |   |         | 26,871 |        |   |         | 21,716 |       
|                                                               | Depreciation and amortization            |                                          |         | 12,489 |        |      |         | 13,705 |        |      |         | 12,216  |        |   |         | 13,744 |        |   |         | 12,122 |       
|                                                               | Impairment charge                        |                                          |         | 1,260  |        |      |         | 7,097  |        |      |         | 16,671  |        |   |         | 5,337  |        |   |         | 14,939 |       
|                                                               | Legal expenses                           |                                          |         | 1,078  |        |      |         | 803    |        |      |         | 289     |        |   |         | 478    |        |   |         | 405    |       
|                                                               | Operating and other expenses             |                                          |         | 6,561  |        |      |         | 6,044  |        |      |         | 8,702   |        |   |         | 5,303  |        |   |         | 5,453  |       
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|                                                               |                                          | Total expenses                           |         |        | 42,265 |      |         |        | 48,971 |      |         |         | 59,313 |   |         |        | 51,733 |   |         |        | 54,635 | 
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Income before non-operating income and minority
    interest   |                                          |                                          | 21,182  |        |        |      | 19,166  |        |        |      | 8,278   |         |        |   | 30,471  |        |        |   | 28,288  |       
|                                                               | Non-operating income                     |                                          |         | 1,970  |        |      |         |       |        |      |         |        |        |   |         |       |        |   |         | 1,304  |       
|                                                               | Minority interest                        |                                          |         | (1,300 | )      |      |         | (1,308 | )      |      |         | (973    | )      |   |         | (982   | )      |   |         | (1,018 | )     
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Income from continuing operations                              |                                          |                                          | 21,852  |        |        |      | 17,858  |        |        |      | 7,305   |         |        |   | 29,489  |        |        |   | 28,574  |       
|Discontinued Operations:                                       |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|                                                               | Gain (loss) from discontinued operations |                                          |         | 168    |        |      |         | (538   | )      |      |         | (11,773 | )      |   |         | (6,842 | )      |   |         | 3,253  |       
|                                                               | Gain on sale of assets, net              |                                          |         | 2,299  |        |      |         | 14,483 |        |      |         | 1,560   |        |   |         | 8,990  |        |   |         |       |       
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Net income (loss) from discontinued
    operations             |                                          |                                          | 2,467   |        |        |      | 13,945  |        |        |      | (10,213 | )       |        |   | 2,148   |        |        |   | 3,253   |       
|Net income (loss)                                              |                                          |                                          | 24,319  |        |        |      | 31,803  |        |        |      | (2,908  | )       |        |   | 31,637  |        |        |   | 31,827  |       
|Preferred stock redemption charge                              |                                          |                                          | (1,241  | )      |        |      |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|Preferred stock dividends                                      |                                          |                                          | (16,596 | )      |        |      | (15,042 | )      |        |      | (15,077 | )       |        |   | (15,087 | )      |        |   | (15,087 | )     
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Net income (loss) available to common
    stockholders         |                                          | $                                        | 6,482   |        |        | $    | 16,761  |        |        | $    | (17,985 | )       |        | $ | 16,550  |        |        | $ | 16,740  |       
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Per share Information:                                         |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Basic net income (loss) available to common
    stockholders   |                                          | $                                        | 0.36    |        |        | $    | 0.91    |        |        | $    | (0.75   | )       |        | $ | 0.63    |        |        | $ | 0.61    |       
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Diluted net income (loss) available to
    common stockholders |                                          | $                                        | 0.36    |        |        | $    | 0.91    |        |        | $    | (0.75   | )       |        | $ | 0.63    |        |        | $ | 0.61    |       
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Common Stock Distributions declared                            |                                          | $                                        | 0.65    |        |        | $    | 0.40    |        |        | $    | 0.00    |         |        | $ | 0.87    |        |        | $ | 1.56    |       
|                                                               |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Balance Sheet Information:                                     |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Real estate investments, net                                   |                                          | $                                        | 515,752 |        |        | $    | 552,434 |        |        | $    | 604,306 |         |        | $ | 622,428 |        |        | $ | 683,736 |       
|Total assets                                                   |                                          |                                          | 574,924 |        |        |      | 599,925 |        |        |      | 648,568 |         |        |   | 676,585 |        |        |   | 721,811 |       
|Total debt                                                     |                                          |                                          | 156,250 |        |        |      | 227,837 |        |        |      | 284,634 |         |        |   | 262,560 |        |        |   | 292,274 |       
|Total liabilities                                              |                                          |                                          | 192,741 |        |        |      | 239,113 |        |        |      | 294,785 |         |        |   | 272,546 |        |        |   | 303,300 |       
|Minority interest                                              |                                          |                                          | 13,401  |        |        |      | 13,399  |        |        |      | 13,404  |         |        |   | 9,912   |        |        |   | 9,894   |       
|Total stockholders equity                                     |                                          |                                          | 368,782 |        |        |      | 347,413 |        |        |      | 340,379 |         |        |   | 394,127 |        |        |   | 408,617 |       
|Other Information:                                             |                                          |                                          |         |        |        |      |         |        |        |      |         |         |        |   |         |        |        |   |         |       
|Cash flows provided by operating activities                    |                                          | $                                        | 36,218  |        |        | $    | 42,903  |        |        | $    | 43,852  |         |        | $ | 45,307  |        |        | $ | 60,785  |       
|Cash flows provided by (used in) investing
    activities      |                                          |                                          | 20,707  |        |        |      | 19,320  |        |        |      | 46,772  |         |        |   | 45,697  |        |        |   | (48,156 | )     
|Cash flows used in financing activities                        |                                          |                                          | (47,007 | )      |        |      | (60,544 | )      |        |      | (86,172 | )       |        |   | (91,789 | )      |        |   | (11,477 | )     

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating Results

Year ended December 31, 2003 compared to
year ended December 31, 2002

Revenues for the year ended December 31,
2003 were $63.4 million compared to $68.1 million for
the same period in 2002. Rental income decreased
$0.9 million primarily as a result of the effect of
classifying eight properties leased to Sun Healthcare Group,
Inc. (or Sun) as non-accrual rents ($3.3 million) and
the elimination of rents from sold properties not subject to
Statement of Financial Accounting Standard (or SFAS )
No. 144 Accounting for the Impairment or disposal
of Long-Lived Assetsreclassification
($0.9 million), partially offset by the receipt of past due
rent that we had not accrued due to collectibility uncertainties
($0.5 million), the receipt of rent from properties
formerly operated by CLC Healthcare Inc. (or CLC) see
Item 8. FINANCIAL STATEMENTS 
Note 8. CLC Healthcare, Inc.($1.5 million), security deposits applied to past due
rents ($0.5 million), acquisitions ($0.1 million) and
new leases and rental increases provided for in existing lease
agreements ($0.7 million). Same store rental income,
(rental income from properties owned for both years ended
December 31, 2003 and 2002) decreased $1.8 million due
to the effect of classifying rents on eight properties leased to
Sun as non-accrual rents, partially offset by the receipt of
past due rent that we had not accrued due to collectibility
uncertainties and new leases and normal rental rate increases,
as set forth in the lease agreements.

Interest income from mortgage loans and notes
receivable decreased $0.9 million primarily as a result of
the early payoff of four mortgage loans (one in 2003 and three
in 2002) and the receipt of past due interest on CLCs line
of credit in September 2002. Interest income from REMIC
Certificates for the year ended December 31, 2003 decreased
$3.0 million compared to 2002 due to the amortization of
the related asset and the early payoff of certain mortgage loans
underlying our investment in REMIC Certificates. Interest and
other income increased $0.1 million in 2003 from the prior
year due primarily to the receipt of interest on our investment
in secured notes of ALC.

Interest expense decreased $0.4 million in
2003 from the prior year. Included in interest expense for 2003
was a $2.1 million write-off of debt issue costs related to
our early retirement of our Secured Revolving Credit. Interest
expense decreased due to a decrease in average borrowings
outstanding during the year and a decrease in interest rates on
our Secured Revolving Credit partially offset by an increase in
our overall weighted average interest rate related to our Senior
Participation Payable. See Item 8. FINANCIAL
STATEMENTS  Note 11. Debt Obligationsfor a description and further discussion of our Secured
Revolving Credit and Senior Mortgage Participation Payable.

Depreciation and amortization expense for 2003
decreased $1.2 million from the prior year due to
properties sold in 2002 not subject to SFAS No. 144
reclassification and a lower basis of certain assets due to
impairment charges taken in 2002.

We perform periodic comprehensive evaluations of
our investments. During our evaluation of the realizability of
expected future cash flows from the mortgages underlying our
REMIC Certificates, there were indications that certain expected
future cash flows would not be realized by the REMIC Trust.
Accordingly, we recorded a $1.3 million impairment charge
to reflect the estimated impact on future cash flows from loan
prepayments occurring during, or expected to occur subsequent
to, the first quarter of 2003 related to certain subordinated
REMIC Certificates we hold. During 2002 we recorded impairments
of $1.7 million in one skilled nursing property and one
assisted living property ($0.7 million of which is included
in net loss from discontinued operations). Of this
$1.7 million, $1.0 million applied to a skilled
nursing property where we agreed to a rent reduction that
required an impairment adjustment and $0.7 million was for
an assisted living property we agreed to sell at less than net
book value. We recorded a $1.6 million impairment for
mortgage loans on two skilled nursing properties. Of this
amount, $0.6 million was for a skilled nursing property
that had closed and the borrower defaulted on the loan and
$1.0 million was for a loan on a skilled nursing property
whose operator was reporting losses from operations and
requesting temporary loan payment modifications. Additionally,
we recorded a $4.5 million impairment on investments in
REMIC Certificates. Of this $4.5 million charge,
$1.2 million was for loans paying off prior to maturity and
reducing the value of our interest only REMIC Certificates,
$0.5 million was for one skilled nursing property that
closed, $1.3 million was for one skilled nursing facility
that we, as loan servicing agent for the REMIC Trust, agreed
could pay the loan off at a $1.0 million reduction in
principal and $1.5 million was for one skilled nursing
property whose operator advised us they were considering either
closing the facility or attempting to convert the building to an
alternative use.

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Legal expenses were $0.3 million higher in
2003 than in 2002 due to higher legal costs for general
litigation defense. Operating and other expenses increased
$0.5 million due to higher property tax payments made on
behalf of operators in 2003 as compared to 2002.

Non-operating income of $2.0 million was
recognized in 2003 as a result of ALCs early redemption of
its secured notes that we owned. No non-operating income was
recognized in the prior year.

For the year ended December 31, 2003, net
income from discontinued operations was $2.5 million.
During 2003 we sold eight skilled nursing facilities, one of
which was formerly operated by Sun and three were formerly
operated by CLC. We recognized a $2.3 million gain on these
sales and received $15.7 million in net proceeds which we
used to pay $3.8 million in mortgage debt related to these
properties, $2.6 million to repay outstanding borrowings
under the Secured Revolving Credit and the remaining net
proceeds were used to fund the partial redemption of our
Series A Preferred Stock. During 2003 we reported income
from discontinued operations of $0.2 million. This
reclassification was made in accordance with SFAS No. 144
which requires that the financial results of properties meeting
certain criteria be reported on a separate line item called
Discontinued Operations. During 2002 we recognized a
$14.5 million gain related to sale of 15 skilled
nursing properties and one assisted living property and reported
a $0.5 million loss from discontinued operations.

During 2003 we announced the redemption of 40% of
the outstanding shares of our Series A Preferred Stock.
This redemption was completed January 30, 2004, and as a
result, we recognized original issuance costs of
$1.2 million that were related to the shares we redeemed as
a preferred stock redemption charge. We did not redeem any
preferred stock in 2002. Preferred stock dividends increased
$1.6 million due to the issuance of 2.2 million shares
of 8.5% Series E Convertible Preferred Stock (or
Series E Preferred Stock) in September of 2003.

Net income available to common stockholders for
the year ended December 31, 2003 was $6.5 million
compared to $16.8 million for the year ended
December 31, 2002. This decrease is due primarily to gains
on asset sales in 2002 as previously discussed.

Year ended December 31, 2002 compared to
year ended December 31, 2001

Revenues for the year ended December 31,
2002 were $68.1 million compared to $67.6 million for
the same period in 2001. Rental income increased $4.2 million
primarily as a result of the acquisition of properties in
December 2001, new leases and rental increases provided for
in the existing lease agreements, partially offset by the
elimination of rents from sold properties and closed properties
and a reduction in rents due from ALC. Specifically same
store rental income, (rental income from properties owned
for both years ended December 31, 2002 and 2001) increased
$0.9 million due to rental rate increases provided for in
the leases partially offset by decreases in rents due from ALC.
Properties acquired in December 2001 and a loan that converted
to an owned property in 2002 resulted in a $5.8 million
increase in rental income during 2002 while properties sold in
2001 and 2002 resulted in a $2.5 million decrease in rental
income.

Interest income from mortgage loans and notes
receivable decreased $1.9 million primarily as a result of
the early payoff of five mortgage loans (three in 2002 and two
in the second half of 2001), the conversion of one mortgage loan
to an owned property, a receipt of delinquent interest related
to a bankruptcy order in the prior year and the effect of not
accruing interest on one mortgage loan.

Interest income from REMIC Certificates decreased
$2.1 million due to the amortization of the related asset,
the early payoff of certain mortgage loans underlying our
investment in REMIC Certificates and the sale of REMIC
Certificates in the third quarter of 2001.

Interest and other income increased
$0.4 million due primarily to the receipt of interest
income from our investment in secured ALC notes.

Interest expense decreased $0.1 million due
to lower debt outstanding along with a decrease in the interest
rate on our Secured Revolving Credit, partially offset by a
higher interest rate on our Senior Mortgage Participation
Payable.

Depreciation and amortization expense increased
$1.5 million due to the acquisition of properties in
December 2001 and the conversion of mortgage loans into owned
properties, partially offset by properties sold not subject to
SFAS No. 144 reclassification and a lower basis of certain
assets due to impairment charges taken in 2001 and 2002.

We perform periodic comprehensive evaluations of
our investments. As a result, we determined certain investments
in long term care properties were impaired. During 2002 we
recorded impairments of $1.7 million in one skilled nursing
property and one assisted living property ($0.7 million of
which is included in net loss from discontinued

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operations). Of this $1.7 million,
$1.0 million applied to a skilled nursing property where we
agreed to a rent reduction that required an impairment
adjustment and $0.7 million was for an assisted living
property we agreed to sell at less than net book value. We
recorded a $1.6 million impairment for mortgage loans on two
skilled nursing properties. Of this amount, $0.6 million
was for a skilled nursing property that had closed and defaulted
on the loan and $1.0 million was for a loan on a skilled
nursing property whose operator was reporting losses from
operations and requesting temporary loan payment modifications.
Additionally, we recorded a $4.5 million impairment on
investments in REMIC Certificates. Of this $4.5 million
charge, $1.2 million was for loans paying off prior to
maturity and reducing the value of our I/ O REMIC Certificates,
$0.5 million was for one skilled nursing property that
closed, $1.3 million was for one skilled nursing facility
that we, as loan servicing agent for the REMIC Trust, agreed
could pay the loan off at a $1.0 million reduction in
principal and $1.5 million was for one skilled nursing
property whose operator advised us they were considering either
closing the facility or attempting to convert the building to an
alternative use. During 2001 we recorded net impairments of
$16.7 million ($11.9 million of which is included in
loss from discontinued operations) for 14 skilled nursing
properties; $0.5 million in lease termination costs;
$1.5 million on a note receivable and $9.8 million on
ALCs pre-bankruptcy convertible subordinated debentures.


Legal expenses increased $0.5 million in
2002 from 2001 due to the increased costs of general litigation
defense. Operating and other expenses decreased by
$2.6 million due primarily to a $2.5 million charge
for an adjustment to stockholder loans in 2001.

The loss from discontinued operations was
$11.2 million lower due to impairment charges recorded in
2001 on properties that were sold in 2002. During 2002 we sold
15 skilled nursing properties and one assisted living
property resulting in a net gain of $14.5 million. During
2001, we sold three skilled nursing properties, three assisted
living properties and three schools resulting in a net gain of
$3.2 million. Additionally, we sold certain REMIC
Certificates with a net book value of $19.0 million
resulting in a $1.1 million loss. We also sold other
miscellaneous assets during 2001 which resulted in an aggregate
$0.5 million loss.

The year ended December 31, 2002, resulted
in net income available to common stockholders of
$16.8 million compared to a net loss after preferred
dividends of $18.0 million for the year ended
December 31, 2001. This increase is due primarily to gains
on asset sales in 2002, impairment charges in 2001 and the
charge for an adjustment to stockholder loans in 2001.

Critical Accounting Policies

Preparation of the consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates. See Item 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 the carrying amount over the fair value
less cost to sell in instances where management has determined
that we will dispose of the property, as per SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of for years
prior to 2002 and as per SFAS No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets
beginning January 1, 2002. In determining fair value, we
use current appraisals or other third party opinions of value
and other estimates of fair value such as estimated undiscounted
future cash flows.

To the extent there are defaults or unrecoverable
losses on the underlying mortgages of the REMIC Certificates
resulting in reduced cash flows, the subordinated certificates
we hold would, in general bear the first risk of loss. In
accordance with EITF 99-20, management evaluates the
realizability of expected future cash flows periodically.
Management includes in its evaluation such factors as actual
and/or expected loan prepayments, actual and/or expected credit
losses, and other factors that may impact the amount and timing
of REMIC Certificate future cash flows. An impairment is
recorded in current period earnings when management believes
that it is likely that a portion of the underlying mortgage
collateral would not be realized by the REMIC Trust.

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Securitization Transactions.We are a REIT and, as such, make
investments with the intent to hold them for long-term purposes.
However, mortgage loans may be transferred to a REMIC, a
qualifying special-purpose entity, when a securitization
provides us with the best available form of capital to fund
additional long-term investments. When contemplating a
securitization, consideration is given to our current and
expected future interest rate posture and liquidity and leverage
position, as well as overall economic and financial market
trends.

A securitization is completed in a two-step
process. First, a wholly owned special-purpose bankruptcy remote
corporation (or REMIC Corp.) is formed and selected mortgage
loans are sold to the REMIC Corp. without recourse. Second, the
REMIC Corp. transfers the loans to a trust (or REMIC Trust) in
exchange for commercial mortgage pass-through certificates (or
REMIC Certificates) which represent beneficial ownership
interests in the REMIC Trust assets (the underlying mortgage
loans). Under this structure, the REMIC Trust is a qualifying
special purpose entity from which the mortgages are isolated
from us and the REMIC Corp. Holders of REMIC Certificates issued
by the REMIC Trust have the right free of any conditional
constraints to pledge or exchange those interests, and neither
we or the REMIC Corp. maintain effective control over the
transferred assets (the mortgages). The REMIC Trust is
administered by a third-party trustee solely for the benefit of
the REMIC Certificate holders.

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

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

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

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

In addition to the risk from credit losses, the
I/ O Certificates are also subject to prepayment risk, in that
prepayments of the underlying mortgages reduce future interest
payments of which a portion flows to the I/ O Certificates,
thus, reducing their effective yield. The Certificates
fair values are estimated, in part, based on a spread over the
applicable U.S. Treasury rate, and consequently, are inversely
affected by increases or decreases in such interest

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rates. There is no active market in these
securities from which to readily determine their value. The
estimated fair values of both classes of Certificates are
subject to change based on the estimate of future prepayments
and credit losses, as well as fluctuations in interest rates and
market risk. Although we are required to report our REMIC
Certificate investments available for sale at fair value, many
of the factors considered in estimating their fair value are
difficult to predict and are beyond the control of our
management, consequently, changes in the reported fair values
may vary widely and may not be indicative of amounts immediately
realizable if our company was forced to liquidate any of the
Certificates.


On January 1, 1999, we adopted SFAS
No. 134 Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise.Upon adoption
of SFAS No. 134, we, based on our ability and intent to
hold our investments in REMIC Certificates, transferred our I/O
REMIC Certificates and certificates with an investment rating of
BB or higher from the trading category to the
available-for-sale category and our certificates with an
investment rating of B or lower to the
held-to-maturity category. The transfer was recorded at fair
value on the date of the transfer.

Mortgage Loans
Receivable.Mortgage loans receivable
are recorded on an amortized costs basis. We maintain a
valuation allowance based upon the expected collectibility of
our mortgage loans receivable. Changes in the valuation
allowance are included in current period earnings. In accordance
with SFAS No. 114 Accounting by Creditors for
Impairment of a Loanwe evaluate the carrying values
of our mortgage loans receivable on an individual basis.
Management periodically evaluates the realizability of future
cash flows from the mortgages when events or circumstances,
including the non-receipt of principal and interest payments
and/or significant deteriorations of the financial conditions of
the borrowers 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.

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

Revenue Recognition.Interest income on mortgage loans and
REMIC Certificates 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 amounts have been
received. Base rents under operating leases are accrued as
earned over the terms of the leases. Substantially all of our
leases contain provisions for specified annual increases over
the rents of the prior year and are generally computed in one of
four methods depending on specific provisions of each lease as
follows: (i) a specified annual increase over the prior
years rent, generally 2%; (ii) an increase based
on the change in the Consumer Price Index from year to year;
(iii) an increase derived as a percentage of facility net
patient revenues in excess of base revenue amounts or
(iv) specific dollar increases over prior years.
SEC Staff Bulletin No. 101 Revenue Recognition in
Financial Statements (or SAB 101) does not provide for
the recognition of such 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 amounts
due and do not recognize unpaid rental income from that lease
until the amounts have been received.

Rental revenues relating to leases that contain
specified rental increases over the life of the lease are
recognized on the straight-line basis when we believe that all
of the rent related to a particular lease will be collected
according to the terms of the lease. In evaluating whether we
believe all the rent will be collected all of the following
conditions must be met: (i) the property has been operated
by the same operator for at least six months (adding a new
property to a master lease with an operator that otherwise
qualifies does not disqualify the lease from being
straight-lined); (ii) payments for any monetary obligations
due under the lease, or any other lease such operator has with
us have been received late no more than (four) times during
last eight fiscal quarters; (iii) the operator of the
property has not during the last eight fiscal quarters
(a) been under the protection of any Bankruptcy court;
(b) admitted in writing its

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inability to pay it debts generally as they come
due; (c) made an assignment for the benefit of creditors;
or, (d) been under the supervision of a trustee, receiver
or similar custodian; and (iv) the property operating
income has covered the applicable lease payment in each of the
prior four fiscal quarters.


We will discontinue booking rent on a
straight-line basis if the lessee becomes delinquent in rent
owed under the terms of the lease and has been put on
non-accrual status (i.e. we have stopped booking
rent on an accrual basis for a particular lease because the
collection of rent is uncertain). Once a lease is on
non-accrual status, we will evaluate the
collectibility of the related straight-line rent asset. If it is
determined that the collection problem is temporary, we will
resume booking rent on a straight-line basis once payment is
received for past due rents. If it appears that we will not
collect future rent under the non-accrual lease we
will record an impairment charge related to the straight-line
rent asset.

Management periodically evaluates the
realizability of future cash flows from the mortgages underlying
our REMIC Certificates. Included in our evaluation, management
considers such factors as actual and/or expected loan
prepayments, actual and/or expected credit losses, and other
factors that may impact the amount and timing of REMIC
Certificate future cash flows. Impairments are recorded when an
adverse change in cash flows is evident and is determined to be
other than temporary in nature. Additionally, interest
recognition amortization schedules are adjusted periodically to
reflect changes in expected future cash flows from the REMIC
Certificates, thus, accordingly adjusting future interest income
recognized.

Transactions with
Affiliate.See
Item 8. FINANCIAL STATEMENTS 
Note 8. CLC Healthcare, Inc., for a description
of our transactions with CLC Healthcare, Inc. and the
accounting policies we followed related to those transactions.

Liquidity and Capital Resources

Financing Activities:

In the third quarter of 2003 we issued 2,200,000
shares of our Series E Preferred Stock that generated net
cash proceeds of approximately $52.4 million. Each share of
Series E Preferred Stock has a liquidation value of $25.00
per share and is convertible at anytime into shares of our
common stock at a conversion price of $12.50 per share of common
stock, subject to adjustment under certain circumstances. The
cash proceeds and cash on hand were used to fully repay amounts
outstanding under our Secured Revolving Credit. Following this
repayment, in December 2003 we cancelled our Secured
Revolving Credit a year early and entered into a new three-year
Unsecured Credit Agreement that provides for $45.0 million
of total commitments with no scheduled maturities other than the
three-year term and provides for the inclusion of additional
banks and an expansion of the Unsecured Credit Agreement under
certain terms and conditions. The Unsecured Credit Agreement
pricing varies between LIBOR plus 2.75% and LIBOR
plus 3.25% (4.1% at December 31, 2003) depending on
our leverage ratio. The Unsecured Credit Agreement contains
financial covenants customary to an unsecured line of credit.

Subsequent to December 31, 2003, we borrowed
$21.0 million under the Unsecured Credit Agreement in
January 2004 and used $4.5 million to pay, prior to
maturity, mortgage debt that was due in January 2005 and
used $16.5 million to fund the partial redemption of our
Series A Preferred Stock described below. During
February 2004, we repaid the $21.0 million from the
proceeds of the redemption of ALC Senior and Junior Secured
Notes and some of the proceeds from the issuance of our
8% Series F Cumulative Preferred Stock (or
Series F Preferred Stock), both described below. At
present, we have no outstanding amounts under the Unsecured
Credit Agreement.

On December 31, 2003, we announced that we
would be receiving approximately $12.3 million plus accrued
interest in January 2004 from the early redemption of
ALC Senior and Junior Secured Notes we owned. On that same
day we announced a partial (40% or 1,225,680 shares) redemption
of our Series A Preferred Stock. The redemption price of
the Series A Preferred Stock per share, including accrued
and unpaid dividends, was $25.1914. On January 29, 2004, we
distributed $30.9 million to redeem the 1,225,680 shares.
Funds were provided from cash on hand, primarily from asset
sales described below and the draw under our Unsecured Credit
Agreement. As a result of this redemption we recorded a
$1.2 million non-cash preferred stock redemption charge
which represented 40% of the original issuance costs of the
Series A Preferred Stock.

During the year ended December 31, 2003, we
purchased and retired 482,800 shares of common stock for an
aggregate purchase price of $3.2 million, an average of
$6.72 per share. The shares were purchased on the open
market under a Board authorization to purchase up to 5,000,000
shares. Including the shares purchased in 2003, 2,348,200 shares
have been purchased under this authorization; therefore, we
continue to have an open Board

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##### 



authorization to purchase an additional 2,651,800
shares of common stock. Also during 2003 we purchased 5,000 each
of our Series A Preferred Stock and our 9.0% Series B
Cumulative Preferred Stock (or Series B Preferred Stock)
for a total purchase price of approximately $0.2 million.


Additionally during 2003, we received
$4.4 million from principal payments (including the pay-off
price to maturity of one officer loan) on stockholder loans and
$1.3 million for the exercise by employees of stock
options. In February 2004 two loans to Board members were paid
in full. As a result, subsequent to the February 2004 payments,
we have no outstanding loans to employees or Board members. The
two loans paid in February 2004 to two Board members who sold
shares of our common stock to repay the loans. These sales were
made in accordance with our policy regarding Securities
Trades by Company Personnel and both Board members timely
filed Forms 4 with the Securities and Exchange Commission.

In 2003 we distributed $11.6 million in
common dividends and $15.2 million in preferred dividends.
We declared preferred dividends of $16.6 million in 2003
not including the preferred stock redemption charge recorded
relating to the 40% redemption of the Series A
Preferred Stock. As a result of the redemption of our
Series A and Series B Preferred Stock, issuance of our
Series E Preferred Stock described above, the issuance of
our 8.0% Series F Cumulative Preferred Stock (or
Series F Preferred Stock), described below, and assuming no
conversion of our Series E Preferred Stock, our preferred
dividends in 2004 will be approximately $17.1 million
(excluding a preferred stock redemption charge related to the
original issuance costs associated with the Series A and
Series B Preferred Stock redeemed in the first quarter of
2004 as discussed below).

During 2003, we borrowed $7.5 million and
repaid $55.9 million under our now terminated Secured
Revolving Credit. Funds were provided for this net reduction
from a combination of cash on hand at the beginning of 2003, the
net proceeds from the issuance of our Series E Preferred
Stock, asset sales described below and net cash provided from
operations.

We paid the Senior Mortgage Participation holder
approximately $11.4 million from the proceeds of principal
payments on mortgage loans described below and we paid
approximately $14.3 million ($3.8 million from net
proceeds from asset sales) in principal payments on
non-participated mortgage loans.

As of December 31, 2003, we are obligated in
2004 to make approximately $3.0 million in scheduled principal
payments on our mortgage loans payable, bonds payable and
capital lease obligations (there are no 2004 maturities)
and in 2005 through 2008 the total scheduled principal payments
and debt maturities are approximately $16.3 million,
$47.4 million, $2.2 million and $16.3 million,
respectively. Subsequent to December 31, 2003,
$5.8 million of the 2005 maturities were prepaid.

In February 2004 we announced the sale of a total
of 4,000,000 shares of our Series F Preferred Stock that
generated net proceeds of approximately $98.5 million. This
stock was issued at $25.00 per share prior to expenses and fees.
Also in February we announced the redemption of the remaining
1,838,520 outstanding shares of our Series A Preferred
Stock and the redemption of all of the outstanding 1,988,000
shares of our Series B Preferred Stock. Of the
$98.5 million net proceeds, approximately
$96.3 million will be used to fund these two redemptions
including the accrued and unpaid dividends. In the first quarter
of 2004 we will have a non-cash preferred stock redemption
charge of $4.0 million related to the remaining original
issuance costs of the Series A and Series B Preferred
Stock.

Subsequent to December 31, 2003 we purchased
for $3.4 million a 120 bed skilled nursing property in
Texas. We have entered into a 20 year lease with an
operator which begins March 3, 2004 and for an annual
amount of $0.4 million in the first year and
increasing 2% every year thereafter.

Available Shelf Registrations:

Issuance of both the Series E Preferred
Stock and the Series F Preferred Stock reduced the capacity
under our currently effective shelf registration to
$45.0 million. In anticipation of acquisitions or other
refinancings in 2004, we intend to file a new Form S-3 that
will increase our available securities offering capacity to a
total of $200.0 million and anticipate that the
registration statement will become effective in the first or
second quarter of 2004. We may from time to time raise capital
under our currently effective shelf registration or the
anticipated 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.

29



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##### 



Operating and Investing Activities:

During the year ended December 31, 2003, net
cash provided by operating activities was $36.2 million. We
completed the placement of a mortgage loan of $1.7 million,
acquired two skilled nursing properties for approximately
$1.2 million and invested approximately $2.3 million
in building improvements and furniture and equipment leased to
operators.

We received during 2003 approximately
$12.9 million from principal payments on mortgage loans
receivable and paid to the holder of the Senior Mortgage
Participation approximately $11.4 million in principal
payments as discussed above.

In 2003 we sold eight skilled nursing properties
for a total gross sales price of $16.2 million. We received
net proceeds of $15.7 million which we used to repay
$3.8 million in mortgage debt related to these sold
properties, $2.6 million was used to repay borrowings under
our Secured Revolving Credit and we used the remaining net
proceeds to redeem 40% of our outstanding Series A
Preferred Stock.

Subsequent to December 2003, we sold a
72 bed skilled nursing property in Georgia for
$1.5 million and used $1.3 million of the proceeds to
pay a mortgage note payable.

In addition to the $3.8 million paydown of
mortgage debt related to asset sales, we also repaid five loans
payable to REMIC Pools originated by us totaling
$7.7 million and made $2.8 million in scheduled
principal payments on mortgage loans, notes payable and capital
leases.

We also invested approximately $2.0 million
in 2003 to purchase additional ALC Senior and Junior Secured
Notes that have subsequently been redeemed as discussed above.

New Leases in 2003:

In the first quarter of 2003 Sun advised us that
they would no longer make lease payments on nine properties they
leased from us and stopped paying rent in February 2003.
Additionally, we did not collect or record rental revenue on 19
properties leased to CLC for the first eight months of 2003
before these properties were turned over by CLC to a management
company who subsequently began paying us rent on these
19 properties in September 2003. These 19 properties,
along with one former Sun property are now leased under a master
lease with Center Healthcare, Inc. (or Center Healthcare)
providing for lease revenue in 2004 of approximately
$4.6 million. Of the remaining eight Sun properties, one
was sold as described above and the remaining seven properties
were leased during the fourth quarter of 2003 to three separate
operators. Taking into consideration the rental revenue
generated in 2003 from the sold properties, the former Sun
properties and the former CLC properties, we anticipate rental
income will increase in 2004 by approximately $3.4 million
as a result of these new leases offset by the reduction in
rental revenues as a result of properties sold in 2003.
Subsequent to December 31, 2003, at our election, we paid
$3.7 million to acquire a defaulted mortgage loan in the
1994 REMIC pool. The amount paid represents the outstanding
balance on the loan which approximated the fair value.

REMIC Revenue and Cash Flow:

Loans within certain REMIC Certificate pools have
amortized, are scheduled to mature or have paid off early. As a
result, we anticipate REMIC interest income in 2004 will be
approximately $1.0 million less than 2003, absent any
modifications of the underlying loans. As of December 31,
2003, scheduled maturities on REMIC Certificates we hold are
$6.7 million, $8.1 million, $9.8 million,
$6.5 million, $3.2 million and $27.2 million for
the years ending December 31, 2004, 2005, 2006, 2007, 2008
and thereafter.

Commitments:

As of December 31, 2003, we had committed to
provide to Alterra $2.5 million over three years to invest
in leasehold improvements to properties they lease from us and
an additional $2.5 million over three years to expand
properties they lease from us. Both of these investments would
be made at a 10% annual return to us.

30



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##### 



Contractual Obligations:

We monitor our contractual obligations to ensure
funds are available to meet obligations when due. The following
table represents our long-term contractual obligations as of
December 31, 2003 and excludes the effects of interest
(amounts in thousands):

|                                            |  |       |         |                  |  |           |       |           |  |               |        |  |  |   |        |  |  |   |        | 
|------------------------------------------- |  | ----- | ------- | ---------------- |  | --------- | ----- | --------- |  | ------------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                            |  | Total |         | Less than 1 year |  | 1-2 years |       | 3-5 years |  | After 5 years
|                                            |  |       |         |                  |  |           |       |           |  |              
|Mortgage loans payable                      |  | $     | 123,314 |                  |  | $         | 2,304 |           |  | $             | 62,088 |  |  | $ | 16,614 |  |  | $ | 42,308 | 
|Bonds payable and capital lease obligations |  |       | 14,686  |                  |  |           | 719   |           |  |               | 1,612  |  |  |   | 1,855  |  |  |   | 10,500 | 
|                                            |  |       |         |                  |  |           |       |           |  |               |        |  |  |   |        |  |  |   |        | 
|                                            |  | $     | 138,000 |                  |  | $         | 3,023 |           |  | $             | 63,700 |  |  | $ | 18,469 |  |  | $ | 52,808 | 
|                                            |  |       |         |                  |  |           |       |           |  |               |        |  |  |   |        |  |  |   |        | 

Off-Balance Sheet Arrangements:

We had no off-balance sheet arrangements as of
December 31, 2003.

Liquidity:

We believe we have sufficient liquidity and
financing capability to fund additional investments in 2004,
maintain our preferred dividend payments, pay common dividends
at least sufficient to maintain our REIT status and repay
borrowings at or prior to their maturity through our generation
of funds from operation, borrowings under our Unsecured Credit
Agreement, asset sales, proceeds from mortgage notes receivable,
principal payments from REMIC certificates we hold or additional
financings. We believe our liquidity and sources of capital are
adequate to satisfy our cash requirements. We cannot, however,
be certain that these sources of funds will be available at a
time and upon terms acceptable to us in sufficient amounts to
meet our liquidity needs.

Item 7a.     Quantitative
and Qualitative Disclosures About Market Risk

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

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

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, 2003.

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

At December 31, 2003, based on the
prevailing interest rates for comparable loans and estimates
made by management, the fair value of our mortgage loans
receivable was approximately $74.5 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 $3.0 million. A
1% increase or decrease in applicable interest rates would
not have a material impact on the fair value of our investment
in REMIC Certificates or fixed rate debt.

We had no borrowings outstanding under our
Unsecured Credit Agreement at December 31, 2003. Thus, an
increase or decrease in interest rates would have no impact on
annual interest expense on our Unsecured Credit Agreement.

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

31



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##### 



instruments will be material to our financial
position or results of operations. These analyses do not
consider the effects of industry specific events, changes in the
real estate markets, or other overall economic activities that
could increase or decrease the fair value of our financial
instruments. If such events or changes were to occur, we would
consider taking actions to mitigate and/or reduce any negative
exposure to such changes. However, due to the uncertainty of the
specific actions that would be taken and their possible effects,
the sensitivity analysis assumes no changes in our capital
structure.


32



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##### 



Item 8.     FINANCIAL
STATEMENTS

|                                                                                                                            |  |      |    | 
|--------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                            |  | Page
|                                                                                                                            |  |     
|Report of Independent Auditors                                                                                              |  |      | 34 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                            |  |      | 35 | 
|Consolidated Statements of Operations and
    Comprehensive Income for the years ended December 31, 2003,
    2002 and 2001 |  |      | 36 | 
|Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2003, 2002 and 2001                    |  |      | 37 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                              |  |      | 38 | 
|Notes to Consolidated Financial Statements                                                                                  |  |      | 39 | 

33



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##### 



REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

LTC Properties, Inc.

We have audited the accompanying consolidated
balance sheets of LTC Properties, Inc. as of December 31,
2003 and 2002 and the related consolidated statements of
operations and comprehensive income, stockholders equity,
and cash flows for each of the three years in the period ended
December 31, 2003. Our audits also included the financial
statement schedules listed in the index at Item 15(a).
These financial statements and financial statement schedules are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of LTC Properties, Inc. at
December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the
information set forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Los Angeles, California

February 9, 2004


except for Notes 8, 10, 11 and 12


as to which the date is


March 5, 2004


34



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##### 



LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)


|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                                                                                                    |                                                                                                                      |                                           
|                                                                                                                                    |                                                                                                                      | December 31,                              
|                                                                                                                                    |                                                                                                                      |                                           
|                                                                                                                                    |                                                                                                                      | 2003                                       |          | 2002   
|                                                                                                                                    |                                                                                                                      |                                            |          |        
|ASSETS                                                                                                                             
|Real Estate Investments:                                                                                                            |                                                                                                                      |                                            |          |         |         |   |          |        
|                                                                                                                                    | Buildings and improvements, net of accumulated
    depreciation and amortization: 2003  $73,376;
    2002  $61,101 |                                            | $        | 357,282 |         |   | $        | 366,679 |        
|                                                                                                                                    | Land                                                                                                                 |                                            |          | 25,343  |         |   |          | 24,996  |        
|                                                                                                                                    | Properties held for sale, net of accumulated
    depreciation and amortization: 2003  $0;
    2002  $3,215         |                                            |          |        |         |   |          | 13,665  |        
|                                                                                                                                    | Mortgage loans receivable, net of allowance for
    doubtful accounts: 2003  $1,280; 2002 
    $1,280              |                                            |          | 71,465  |         |   |          | 82,675  |        
|                                                                                                                                    | REMIC Certificates                                                                                                   |                                            |          | 61,662  |         |   |          | 64,419  |        
|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |        
|                                                                                                                                    |                                                                                                                      | Real estate investments, net               |          |         | 515,752 |   |          |         | 552,434 | 
|Other Assets:                                                                                                                       |                                                                                                                      |                                            |          |         |         |   |          |        
|                                                                                                                                    | Cash and cash equivalents                                                                                            |                                            |          | 17,919  |         |   |          | 8,001   |        
|                                                                                                                                    | Debt issue costs, net                                                                                                |                                            |          | 1,496   |         |   |          | 5,309   |        
|                                                                                                                                    | Interest receivable                                                                                                  |                                            |          | 3,809   |         |   |          | 3,764   |        
|                                                                                                                                    | Prepaid expenses and other assets                                                                                    |                                            |          | 4,495   |         |   |          | 2,069   |        
|                                                                                                                                    | Prepaid expenses and other assets related to
    properties held for sale                                            |                                            |          |        |         |   |          | 2,037   |        
|                                                                                                                                    | Notes receivable (includes $9,292 due from CLC
    Healthcare, Inc. in 2003 and $7,836 in 2002)                      |                                            |          | 19,172  |         |   |          | 18,343  |        
|                                                                                                                                    | Marketable debt securities                                                                                           |                                            |          | 12,281  |         |   |          | 7,968   |        
|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |        
|                                                                                                                                    |                                                                                                                      |                                            | 59,172   |         |         |   | 47,491   |        
|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |        
|                                                                                                                                    |                                                                                                                      | Total assets                               |          | $       | 574,924 |   |          | $       | 599,925 | 
|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                               
|Bank borrowings                                                                                                                     |                                                                                                                      | $                                          |         |         |         | $ | 48,421   |        
|Mortgage loans payable                                                                                                              |                                                                                                                      |                                            | 123,314  |         |         |   | 134,388  |        
|Bonds payable and capital lease obligations                                                                                         |                                                                                                                      |                                            | 14,686   |         |         |   | 15,361   |        
|Senior mortgage participation payable                                                                                               |                                                                                                                      |                                            | 18,250   |         |         |   | 29,667   |        
|Accrued interest                                                                                                                    |                                                                                                                      |                                            | 952      |         |         |   | 1,267    |        
|Accrued expenses and other liabilities                                                                                              |                                                                                                                      |                                            | 2,514    |         |         |   | 4,419    |        
|Accrued expenses and other liabilities related to
    properties held for sale                                                      |                                                                                                                      |                                            |         |         |         |   | 4,609    |        
|Liability for 9.5% Series A Preferred Stock
    redemption  1,226 shares                                                           |                                                                                                                      |                                            | 30,642   |         |         |   |         |        
|Distributions payable                                                                                                               |                                                                                                                      |                                            | 2,383    |         |         |   | 981      |        
|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |        
|                                                                                                                                    |                                                                                                                      | Total liabilities                          |          |         | 192,741 |   |          |         | 239,113 | 
|Minority interests                                                                                                                  |                                                                                                                      |                                            | 13,401   |         |         |   | 13,399   |        
|Stockholders Equity:                                                                                                               |                                                                                                                      |                                            |          |         |         |   |          |        
|Preferred stock $0.01 par value: 2003 
    15,000 shares authorized; shares issued and outstanding:
    2003  8,026; 2002  7,062 |                                                                                                                      |                                            | 189,163  |         |         |   | 165,183  |        
|Common stock $0.01 par value; 2003 
    35,000 shares authorized; shares issued and outstanding:
    2003  17,807; 2002 18,055   |                                                                                                                      |                                            | 178      |         |         |   | 181      |        
|Capital in excess of par value                                                                                                      |                                                                                                                      |                                            | 250,055  |         |         |   | 253,050  |        
|Cumulative net income                                                                                                               |                                                                                                                      |                                            | 274,948  |         |         |   | 250,629  |        
|Other                                                                                                                               |                                                                                                                      |                                            | (638     | )       |         |   | (6,112   | )      
|Cumulative distributions                                                                                                            |                                                                                                                      |                                            | (344,924 | )       |         |   | (315,518 | )      
|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |        
|                                                                                                                                    |                                                                                                                      | Total stockholders equity                 |          |         | 368,782 |   |          |         | 347,413 | 
|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |        
|                                                                                                                                    |                                                                                                                      | Total liabilities and stockholders equity |          | $       | 574,924 |   |          | $       | 599,925 | 
|                                                                                                                                    |                                                                                                                      |                                            |          |         |         |   |          |        

See accompanying notes.

35



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##### 



LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME

(In thousands, except per share amounts)


|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |         |        | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------ | ------ | ------- | ------ | ---- | ------ | ------- | ------ | - | ------- | ------- | ------ | 
|                                                                                                    |                                                              |                         
|                                                                                                    |                                                              | Years ended December 31,
|                                                                                                    |                                                              |                         
|                                                                                                    |                                                              | 2003                     |        | 2002    |        | 2001
|                                                                                                    |                                                              |                          |        |         |        |     
|Revenues:                                                                                           |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Rental income                                                |                          | $      | 40,554  |        |      | $      | 41,440  |        |   | $       | 37,259  |       
|                                                                                                    | Interest income from mortgage loans and notes
    receivable |                          |        | 9,814   |        |      |        | 10,718  |        |   |         | 12,593  |       
|                                                                                                    | Interest income from REMIC Certificates                      |                          |        | 9,964   |        |      |        | 12,970  |        |   |         | 15,116  |       
|                                                                                                    | Interest and other income                                    |                          |        | 3,115   |        |      |        | 3,009   |        |   |         | 2,623   |       
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    |                                                              | Total revenues           |        |         | 63,447 |      |        |         | 68,137 |   |         |         | 67,591 | 
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Expenses:                                                                                           |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Interest expense                                             |                          |        | 20,877  |        |      |        | 21,322  |        |   |         | 21,435  |       
|                                                                                                    | Depreciation and amortization                                |                          |        | 12,489  |        |      |        | 13,705  |        |   |         | 12,216  |       
|                                                                                                    | Impairment charge                                            |                          |        | 1,260   |        |      |        | 7,097   |        |   |         | 16,671  |       
|                                                                                                    | Legal expenses                                               |                          |        | 1,078   |        |      |        | 803     |        |   |         | 289     |       
|                                                                                                    | Operating and other expenses                                 |                          |        | 6,561   |        |      |        | 6,044   |        |   |         | 8,702   |       
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    |                                                              | Total expenses           |        |         | 42,265 |      |        |         | 48,971 |   |         |         | 59,313 | 
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Income before non-operating income and minority
    interest                                        |                                                              |                          | 21,182 |         |        |      | 19,166 |         |        |   | 8,278   |        
|                                                                                                    | Non-operating income                                         |                          |        | 1,970   |        |      |        |        |        |   |         |        |       
|                                                                                                    | Minority interest                                            |                          |        | (1,300  | )      |      |        | (1,308  | )      |   |         | (973    | )     
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Income from continuing operations                                                                   |                                                              |                          | 21,852 |         |        |      | 17,858 |         |        |   | 7,305   |        
|Discontinued operations:                                                                            |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Income (loss) from discontinued operations                   |                          |        | 168     |        |      |        | (538    | )      |   |         | (11,773 | )     
|                                                                                                    | Gain on sale of assets, net                                  |                          |        | 2,299   |        |      |        | 14,483  |        |   |         | 1,560   |       
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Net income (loss) from discontinued
    operations                                                  |                                                              |                          | 2,467  |         |        |      | 13,945 |         |        |   | (10,213 | )      
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Net income (loss)                                                                                   |                                                              |                          | 24,319 |         |        |      | 31,803 |         |        |   | (2,908  | )      
|                                                                                                    | Preferred stock redemption charge                            |                          |        | (1,241  | )      |      |        |        |        |   |         |        |       
|                                                                                                    | Preferred stock dividends                                    |                          |        | (16,596 | )      |      |        | (15,042 | )      |   |         | (15,077 | )     
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Net income (loss) available to common
    stockholders                                              |                                                              | $                        | 6,482  |         |        | $    | 16,761 |         |        | $ | (17,985 | )      
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Net Income (Loss) per Common Share from
    Continuing Operations Net of Preferred Stock Dividends: |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Basic                                                        |                          | $      | 0.22    |        |      | $      | 0.15    |        |   | $       | (0.45   | )     
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Diluted                                                      |                          | $      | 0.22    |        |      | $      | 0.15    |        |   | $       | (0.45   | )     
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Net Income (Loss) Per Common Share from
    Discontinued Operations:                                |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Basic                                                        |                          | $      | 0.14    |        |      | $      | 0.76    |        |   | $       | (0.30   | )     
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Diluted                                                      |                          | $      | 0.14    |        |      | $      | 0.75    |        |   | $       | (0.30   | )     
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Net Income (Loss) Per Common Share Available to
    Common Stockholders:                            |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Basic                                                        |                          | $      | 0.36    |        |      | $      | 0.91    |        |   | $       | (0.75   | )     
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Diluted                                                      |                          | $      | 0.36    |        |      | $      | 0.91    |        |   | $       | (0.75   | )     
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Basic weighted average shares outstanding                                                           |                                                              |                          | 17,836 |         |        |      | 18,371 |         |        |   | 23,924  |        
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Comprehensive Income:                                                                               |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|                                                                                                    | Net income (loss) available to common
    stockholders       |                          | $      | 6,482   |        |      | $      | 16,761  |        |   | $       | (17,985 | )     
|                                                                                                    | Unrealized (loss) gain on available-for-sale
    securities  |                          |        | (427    | )      |      |        | (1,435  | )      |   |         | 2,807   |       
|                                                                                                    | Reclassification adjustment                                  |                          |        | 1,303   |        |      |        | 276     |        |   |         | 1,376   |       
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        
|Comprehensive income (loss)                                                                         |                                                              | $                        | 7,358  |         |        | $    | 15,602 |         |        | $ | (13,802 | )      
|                                                                                                    |                                                              |                          |        |         |        |      |        |         |        |   |         |        

See accompanying notes.

36



---



##### 



LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except per share amounts)


|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |       |     |               |  |   |         |   |  |   |         |   |  |   |         |      |   |   |          |   | 
|----------------------------------------------------- | ------------------------------------------ | --------- | ------ | ------ |  | --------- | ------ | ---------- |  | --------- | ------- | ---------- |  | ----- | --- | ------------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | ---- | - | - | -------- | - | 
|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |      
|                                                      |                                            | Shares    |        |        |  |           |        |            |  |           |         |            |  |      
|                                                      |                                            |           |        |        |  |           |        | Capital in |  |           |         |            |  |      
|                                                      |                                            | Preferred |        | Common |  | Preferred |        | Common     |  | Excess of |         | Cumulative |  |       |     | Cumulative   
|                                                      |                                            | Stock     |        | Stock  |  | Stock     |        | Stock      |  | Par Value |         | Net Income |  | Other |     | Distributions
|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |       |     |              
|Balance  December 31, 2000                           |                                            |           | 7,080  |        |  |           | 26,031 |            |  | $         | 165,500 |            |  | $     | 260 |               |  | $ | 296,568 |   |  | $ | 221,734 |   |  | $ | (11,872 | )    |   | $ | (278,063 | )
|                                                      | Interest added to stockholder note balance |           |        |       |  |           |        |           |  |           |         |           |  |       |     |              |  |   |         |  |  |   |         |  |  |   |         | (369 | ) |   |          |  | 
|Adjustment to stockholder note balance                |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | 2,453   |      |   |   |         |  
|Reclassification adjustment                           |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | 1,376   |      |   |   |         |  
|Unrealized gain on available-for-sale securities      |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | 2,807   |      |   |   |         |  
|Repurchase of stock                                   |                                            |           | (18    | )      |  |           | (7,588 | )          |  |           | (317    | )          |  |       | (75 | )             |  |   | (41,661 | ) |  |   |        |   |  |   |        |      |   |   |         |  
|Net loss                                              |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   | (2,908  | ) |  |   |        |      |   |   |         |  
|Preferred stock dividends                             |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   |        |      |   |   | (15,077  | )
|Vested restricted stock                               |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   | 23      |   |  |   |        |   |  |   |        |      |   |   |         |  
|Canceled restricted stock                             |                                            |           |       |        |  |           | (50    | )          |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   |        |      |   |   |         |  
|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |       |     |               |  |   |         |   |  |   |         |   |  |   |         |      |   |   |          |  
|Balance  December 31, 2001                           |                                            |           | 7,062  |        |  |           | 18,393 |            |  |           | 165,183 |            |  |       | 185 |               |  |   | 254,930 |   |  |   | 218,826 |   |  |   | (5,605  | )    |   |   | (293,140 | )
|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |       |     |               |  |   |         |   |  |   |         |   |  |   |         |      |   |   |          |  
|Interest added to stockholder note balance            |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | (62     | )    |   |   |         |  
|Payments on stockholder notes                         |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | 877     |      |   |   |         |  
|Reclassification adjustment                           |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | 276     |      |   |   |         |  
|Unrealized loss on available-for-sale securities      |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | (1,435  | )    |   |   |         |  
|Repurchase of stock                                   |                                            |           |       |        |  |           | (338   | )          |  |           |        |            |  |       | (4  | )             |  |   | (2,329  | ) |  |   |        |   |  |   |        |      |   |   |         |  
|Net income                                            |                                            |           |       |        |  |           |        |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   | 31,803  |   |  |   |        |      |   |   |         |  
|Preferred stock dividends                             |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   |        |      |   |   | (15,042  | )
|Vested restricted stock                               |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   | 286     |   |  |   |        |   |  |   |        |      |   |   |         |  
|Reclassification of unvested restricted stock         |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   | 163     |   |  |   |        |   |  |   | (163    | )    |   |   |         |  
|Common stock cash distributions ($0.40 per
    share) |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   |        |      |   |   | (7,336   | )
|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |       |     |               |  |   |         |   |  |   |         |   |  |   |         |      |   |   |          |  
|Balance  December 31, 2002                           |                                            |           | 7,062  |        |  |           | 18,055 |            |  |           | 165,183 |            |  |       | 181 |               |  |   | 253,050 |   |  |   | 250,629 |   |  |   | (6,112  | )    |   |   | (315,518 | )
|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |       |     |               |  |   |         |   |  |   |         |   |  |   |         |      |   |   |          |  
|Interest added to stockholder note balance            |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | (9      | )    |   |   |         |  
|Payments on stockholder notes                         |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | 4,444   |      |   |   |         |  
|Stock option exercises                                |                                            |           |       |        |  |           | 246    |            |  |           |        |            |  |       | 2   |               |  |   | 1,325   |   |  |   |        |   |  |   |        |      |   |   |         |  
|Reclassification adjustment                           |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | 1,303   |      |   |   |         |  
|Unrealized loss on available-for-sale securities      |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | (427    | )    |   |   |         |  
|Repurchase of stock                                   |                                            |           | (10    | )      |  |           | (483   | )          |  |           | (250    | )          |  |       | (5  | )             |  |   | (3,188  | ) |  |   |        |   |  |   |        |      |   |   |         |  
|9.5% Series A Preferred Stock redemption              |                                            |           | (1,226 | )      |  |           |       |            |  |           | (30,642 | )          |  |       |    |               |  |   | 1,241   |   |  |   |        |   |  |   |        |      |   |   | (1,241   | )
|8.5% Series E Preferred Stock offering                |                                            |           | 2,200  |        |  |           |       |            |  |           | 55,000  |            |  |       |    |               |  |   | (2,562  | ) |  |   |        |   |  |   |        |      |   |   |         |  
|Net income                                            |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   | 24,319  |   |  |   |        |      |   |   |         |  
|Preferred stock dividends                             |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   |        |      |   |   | (16,596  | )
|Accelerated vesting of stock options                  |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   | 23      |   |  |   |        |   |  |   |        |      |   |   |         |  
|Vested restricted stock                               |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   | 132     |      |   |   |         |  
|Canceled restricted stock                             |                                            |           |       |        |  |           | (11    | )          |  |           |        |            |  |       |    |               |  |   | (31     | ) |  |   |        |   |  |   | 31      |      |   |   |         |  
|Other                                                 |                                            |           |       |        |  |           |       |            |  |           | (128    | )          |  |       |    |               |  |   | 197     |   |  |   |        |   |  |   |        |      |   |   |         |  
|Common stock cash distributions ($0.65 per
    share) |                                            |           |       |        |  |           |       |            |  |           |        |            |  |       |    |               |  |   |        |   |  |   |        |   |  |   |        |      |   |   | (11,569  | )
|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |       |     |               |  |   |         |   |  |   |         |   |  |   |         |      |   |   |          |  
|Balance  December 31, 2003                           |                                            |           | 8,026  |        |  |           | 17,807 |            |  | $         | 189,163 |            |  | $     | 178 |               |  | $ | 250,055 |   |  | $ | 274,948 |   |  | $ | (638    | )    |   | $ | (344,924 | )
|                                                      |                                            |           |        |        |  |           |        |            |  |           |         |            |  |       |     |               |  |   |         |   |  |   |         |   |  |   |         |      |   |   |          |  

See accompanying notes.

37



---



##### 



LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands, except per share amounts)


|                                                                                      |                                                                            |                                           |         |        |         |      |         |         |         |   |         |        |         |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------- | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------- | ------ | ------- | -
|                                                                                      |                                                                            |                                          
|                                                                                      |                                                                            | Year ended December 31,                  
|                                                                                      |                                                                            |                                          
|                                                                                      |                                                                            | 2003                                      |         | 2002   |         | 2001
|                                                                                      |                                                                            |                                           |         |        |         |     
|OPERATING ACTIVITIES:                                                                 |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|Net income (loss)                                                                     |                                                                            | $                                         | 24,319  |        |         | $    | 31,803  |         |         | $ | (2,908  | )     
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|                                                                                      | Depreciation and amortization                                              |                                           |         | 12,998 |         |      |         | 14,400  |         |   |         | 13,866 |        
|                                                                                      | Gain on sale of real estate and other
    investments, net                 |                                           |         | (2,299 | )       |      |         | (14,483 | )       |   |         | (1,560 | )      
|                                                                                      | Write-off of debt issue costs related to early
    retirement of bank debt |                                           |         | 2,075  |         |      |         |        |         |   |         |       |        
|                                                                                      | Gain on redemption of investment in marketable
    debt securities, net    |                                           |         | (1,970 | )       |      |         |        |         |   |         |       |        
|                                                                                      | Non-cash impairment charge                                                 |                                           |         | 1,260  |         |      |         | 7,807   |         |   |         | 28,584 |        
|                                                                                      | Adjustment to stockholder notes receivable                                 |                                           |         |       |         |      |         |        |         |   |         | 2,453  |        
|                                                                                      | Other non-cash charges, net                                                |                                           |         | 4,584  |         |      |         | 4,475   |         |   |         | 4,639  |        
|(Increase) decrease in interest receivable                                            |                                                                            |                                           | (28     | )      |         |      | (621    | )       |         |   | 32      |       
|(Increase) decrease in prepaid, other assets and
    allowance                        |                                                                            |                                           | (2,639  | )      |         |      | 11      |         |         |   | (1,068  | )     
|(Decrease) increase in accrued interest                                               |                                                                            |                                           | (309    | )      |         |      | 119     |         |         |   | (1,279  | )     
|(Decrease) increase in accrued expenses and other
    liabilities                     |                                                                            |                                           | (1,773  | )      |         |      | (608    | )       |         |   | 1,093   |       
|                                                                                      |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|                                                                                      |                                                                            | Net cash provided by operating activities |         |        | 36,218  |      |         |         | 42,903  |   |         |        | 43,852  |  
|INVESTING ACTIVITIES:                                                                 |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|Investment in real estate mortgages                                                   |                                                                            |                                           | (1,707  | )      |         |      |        |         |         |   |        |       
|Acquisition of real estate properties and capital
    improvements, net               |                                                                            |                                           | (3,467  | )      |         |      | (1,422  | )       |         |   | (1,689  | )     
|Proceeds from sale of real estate investments, net                                    |                                                                            |                                           | 15,664  |        |         |      | 12,090  |         |         |   | 43,493  |       
|Principal payments on mortgage loans receivable                                       |                                                                            |                                           | 12,886  |        |         |      | 6,022   |         |         |   | 9,291   |       
|Investment in debt securities                                                         |                                                                            |                                           | (2,015  | )      |         |      | (26     | )       |         |   | (2,909  | )     
|Proceeds from redemption of investment in debt
    securities                         |                                                                            |                                           | 281     |        |         |      | 903     |         |         |   |        |       
|Advances to CLC Healthcare, Inc.                                                      |                                                                            |                                           | (1,452  | )      |         |      | (792    | )       |         |   | (5,537  | )     
|Repayment of advances to CLC Healthcare,
    Inc.                                     |                                                                            |                                           | 2,146   |        |         |      | 1,393   |         |         |   | 1,149   |       
|Other                                                                                 |                                                                            |                                           | (1,629  | )      |         |      | 1,152   |         |         |   | 2,974   |       
|                                                                                      |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|                                                                                      |                                                                            | Net cash provided by investing activities |         |        | 20,707  |      |         |         | 19,320  |   |         |        | 46,772  |  
|FINANCING ACTIVITIES:                                                                 |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|Debt issue costs                                                                      |                                                                            |                                           | (1,064  | )      |         |      | (3,335  | )       |         |   | (1,187  | )     
|Distributions paid                                                                    |                                                                            |                                           | (26,763 | )      |         |      | (23,200 | )       |         |   | (14,259 | )     
|Proceeds from stock offering                                                          |                                                                            |                                           | 52,438  |        |         |      |        |         |         |   |        |       
|Repayment of stockholder loans                                                        |                                                                            |                                           | 4,444   |        |         |      |        |         |         |   |        |       
|Bank borrowings                                                                       |                                                                            |                                           | 7,500   |        |         |      | 10,000  |         |         |   | 50,000  |       
|Repayment of bank borrowings                                                          |                                                                            |                                           | (55,921 | )      |         |      | (55,561 | )       |         |   | (64,000 | )     
|Proceeds from issuance of senior mortgage
    participation                           |                                                                            |                                           |        |        |         |      | 30,000  |         |         |   |        |       
|Repayment of senior mortgage participation                                            |                                                                            |                                           | (11,417 | )      |         |      | (333    | )       |         |   |        |       
|Mortgage loan borrowings                                                              |                                                                            |                                           |        |        |         |      |        |         |         |   | 11,500  |       
|Principal payments on mortgage loans, notes
    payable and capital leases            |                                                                            |                                           | (14,332 | )      |         |      | (14,537 | )       |         |   | (3,966  | )     
|Redemption of convertible subordinated debentures                                     |                                                                            |                                           |        |        |         |      | (2,408  | )       |         |   | (22,230 | )     
|Repurchase of common and preferred stock                                              |                                                                            |                                           | (3,443  | )      |         |      | (2,332  | )       |         |   | (42,054 | )     
|Other                                                                                 |                                                                            |                                           | 1,551   |        |         |      | 1,162   |         |         |   | 24      |       
|                                                                                      |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|                                                                                      |                                                                            | Net cash used in financing activities     |         |        | (47,007 | )    |         |         | (60,544 | ) |         |        | (86,172 | )
|                                                                                      |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|Increase in cash and cash equivalents                                                 |                                                                            |                                           | 9,918   |        |         |      | 1,679   |         |         |   | 4,452   |       
|Cash and cash equivalents, beginning of year                                          |                                                                            |                                           | 8,001   |        |         |      | 6,322   |         |         |   | 1,870   |       
|                                                                                      |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|Cash and cash equivalents, end of year                                                |                                                                            | $                                         | 17,919  |        |         | $    | 8,001   |         |         | $ | 6,322   |       
|                                                                                      |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|Supplemental disclosure of cash flow information:                                     |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|                                                                                      | Interest paid                                                              |                                           | $       | 16,612 |         |      | $       | 19,946  |         |   | $       | 22,184 |        
|Non-cash investing and financing transactions:                                        |                                                                            |                                           |         |        |         |      |         |         |         |   |         |       
|                                                                                      | See Note 4: Supplemental Cash Flow Informationfor further discussion.      |                                           |         |        |         |      |         |         |         |   |         |        |        

See accompanying notes.

38



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##### 



LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     The
Company

LTC Properties, Inc. (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

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

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

In January 2003, the Financial Accounting
Standards Board (or FASB) issued Interpretation No. 46
Consolidation of Variable Interest Entities(or FIN 46) to expand upon and strengthen existing
accounting guidance that addresses when a company should include
in its financial statements the assets, liabilities and
activities of another entity. Accounting guidance prior to
FIN 46 required that we include another entity in our
consolidated financial statements only if we controlled the
entity through voting interests. FIN 46 changes that guidance by
requiring 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. FIN 46 also requires disclosure
about variable interest entities that we are not
required to consolidate but in which we have a significant
variable interest. In December 2003, FIN 46 was revised and
the effective date of applying FIN 46 to certain variable
interests was deferred. The revised FIN 46 requires us to
apply the provision of FIN 46 immediately to any special
purpose entities and to any variable interest
entities created after January 31, 2003. Application
of the provisions will be required for all other variable
interest entities in financial statements for periods
ending after March 15, 2004. We have evaluated the
requirements of FIN 46 and we believe that as of
December 31, 2003, we do not have investments in any
entities that meet the definition of a variable interest
entity.

Certain reclassifications have been made to the
prior period financial statements to conform to the current year
presentation as required by Statement of Financial Accounting
Standards (or SFAS) No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets.

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

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

Land, Buildings and Improvements.Land, buildings and improvements are
recorded at cost. Depreciation is computed principally by the
straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes. Estimated useful
lives for financial reporting purposes range from 3 years
on computers to 7 years for equipment and 35 to
40 years for buildings.

39



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, per SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of for years
prior to 2002 and per SFAS No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets
beginning January 1, 2002. 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.

To the extent there are defaults or unrecoverable
losses on the underlying mortgages of the REMIC Certificates
resulting in reduced cash flows, the subordinated certificates
held by us would, in general, bear the first risk of loss. In
accordance with EITF 99-20, management evaluates the
realizability of expected future cash flows periodically.
Management includes in its evaluation such factors as actual
and/or expected loan prepayments, actual and/or expected credit
losses, and other factors that may impact the amount and timing
of REMIC Certificates future cash flows. An impairment is
recorded in current period earnings when management believes
that it is probable that a portion of the underlying mortgage
collateral would not be realized by the REMIC Trust.

Securitization Transactions.LTC is a REIT and, as such, makes
investments with the intent to hold them for long-term purposes.
However, mortgage loans may be transferred to a REMIC, a
qualifying special-purpose entity, when a securitization
provides us with the best available form of capital to fund
additional long-term investments. When contemplating a
securitization, consideration is given to our current and
expected future interest rate posture and liquidity and leverage
position, as well as overall economic and financial market
trends.

A securitization is completed in a two-step
process. First, a wholly owned special-purpose bankruptcy remote
corporation (or REMIC Corp.) is formed and selected mortgage
loans are sold to the REMIC Corp. without recourse. Second, the
REMIC Corp. transfers the loans to a trust (or REMIC Trust) in
exchange for commercial mortgage pass-through certificates (or
REMIC Certificates) which represent beneficial ownership
interests in the REMIC Trust assets (the underlying mortgage
loans). Under this structure, the REMIC Trust is a qualifying
special purpose entity from which the mortgages are isolated
from us and the REMIC Corp. Holders of REMIC Certificates issued
by the REMIC Trust have the right free of any conditional
constraints to pledge or exchange those interests, and neither
we or the REMIC Corp. maintain effective control over the
transferred assets (the mortgages). The REMIC Trust is
administered by a third-party trustee solely for the benefit of
the REMIC Certificate holders.

Under the securitization structure described
above, we accounted for the transfer of the mortgages as a sale
with any gain or loss recorded in earnings. The gain or loss is
equal to the excess or deficiency of the cash proceeds and fair
market value of any subordinated certificates received when
compared with the carrying value of the mortgages sold, net of
any transaction costs incurred and any gains or losses
associated with an underlying hedge. Subordinated certificates
received by us are recorded at their fair value at the date of
the transaction. We have no controlling interest in the REMIC
since the majority of the beneficial ownership interests (in the
form of REMIC Certificates) are sold to third-party investors.
Consequently, the financial statements of the REMIC Trust are
not consolidated with those of our company for financial
reporting purposes. The securitization transactions and the
related transaction structures used therein were completed
during or prior to 1998 and prior to the implementation of SFAS
No. 140 Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.
SFAS No. 140 modified some of the requirements that
previously existed under prior accounting principles that
provided for the transfer of mortgages in securitization
transactions to be accounted for as sales. Should we complete
future securitizations, we anticipate that such securitization
structure would comply with the sales accounting provisions of
SFAS No. 140.

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

40



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

On January 1, 1999, we adopted SFAS
No. 134 Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise.Upon adoption
of SFAS No. 134, based on our ability and intent to hold
our investments in REMIC Certificates, we transferred our I/O
REMIC Certificates and certificates with an investment rating of
BB or higher from the trading category to the
available-for-sale category and our certificates with an
investment rating of B or lower to the
held-to-maturity category. The transfer was recorded at fair
value on the date of the transfer.

The I/O REMIC Certificates fair values are
estimated, in part, based on a spread over the applicable U.S.
Treasury Rate, and consequently, are inversely affected by
increases or decreases in such interest rates. There is no
active market in these securities from which to readily
determine their value. The estimated fair values of both classes
of certificates are subject to change based on the estimate of
the current interest rate environment, estimated spreads over
the U.S. Treasury Rate at which the retained certificates might
trade, expectations regarding credit losses, if any, expected
weighted-average life of the underlying collateral and discount
rates commensurate with the risks involved.

Because of the nature of the underlying mortgage
collateral of our REMIC Certificate investments, many market
and/or industry specific factors may affect the treasury rate
spreads or discount rates used in estimating the fair value of
the REMIC Certificates. Such factors may include, but are not
limited to uncertainty surrounding proposed or pending changes
in federal and/or state reimbursement programs for long-term
care which may be subject to among other things, budgetary
constraints, perceptions surrounding the future supply of
long-term care beds, changes in regulations surrounding the
operation of long-term care facilities and the associated costs
therewith, and operating factors including, but not limited to,
labor costs, insurance costs and other costs. Additionally, the
general interest rate environment and the availability and
demand of higher yielding investments also are factors that
impact the spreads and/or yields used in estimating the fair
value of the REMIC Certificates. Investor sentiment towards any
one or more of these factors can impact where our REMIC
Certificate investments would be priced by a potential investor
at any given point in time. Because there are a limited number
of securities similar to the REMIC Certificates held by us,
which trade infrequently, if at all, we balance our fair value
estimates with valuations of more traditional types of
asset-backed securities that have similar rating characteristics
with REMIC Certificates held by us. Differences between the
carrying amounts of our REMIC Certificate investments and the
estimated fair value of those certificates, are due in large
part to current market sentiments towards the long-term care
industry and various factors cited above. Changes in market
sentiments are difficult to predict, at best, thus, management
endeavors to

41



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

utilize its understanding of the underlying
collateral and the expected cash flows therefrom, to determine
whether changes in values are other than market related.

Mortgage Loans
Receivable.Mortgage loans receivable
are recorded on an amortized cost basis. We maintain a valuation
allowance based upon the expected collectibility of the mortgage
loans receivable. Changes in the valuation allowance are
included in current period earnings. In accordance with SFAS
No. 114 Accounting by Creditors for Impairment of
a Loanwe evaluate the carrying values of mortgage
loans receivable on an individual basis. Management periodically
evaluates the realizability of future cash flows from the
mortgages when events or circumstances, including the
non-receipt of principal and interest payments and/or
significant deteriorations of the financial conditions of the
borrowers 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.

Mortgage Servicing Rights.We subservice mortgage loans that are
collateral for REMIC Certificates issued in our securitization
transactions for which we receive servicing fees, based on
market rates for such services at the time the securitization is
completed, equal to a fixed percentage of the outstanding
principal on the collateral loans. A separate asset for
servicing rights is not recognized since the servicing fees
received only adequately compensates us for the cost of
servicing the loans. The fair value of servicing rights for
mortgage loans originated and retained by us are estimated based
on the fees received for servicing mortgage loans that serve as
collateral for REMIC Certificates. All costs to originate
mortgage loans are allocated to the mortgage loans since the
fair value of servicing rights only sufficiently covers the
servicing costs.

Investments.Available-for-sale securities are stated at fair value, with the
unrealized gains and losses, reported in other comprehensive
income. Realized gains and losses and declines in value judged
to be other-than-temporary on available-for-sale securities are
included in net income. 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.

Revenue Recognition.Interest income on mortgage loans and
REMIC Certificates 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. Base rents under operating leases are accrued as
earned over the terms of the leases. Substantially all of our
leases contain provisions for specified annual increases over
the rents of the prior year and are generally computed in one of
four methods depending on specific provisions of each lease as
follows: (i) a specified annual increase over the prior
years rent, generally 2%; (ii) an increase based on
the change in the Consumer Price Index from year to year;
(iii) an increase derived as a percentage of facility net
patient revenues in excess of base revenue amounts or
(iv) specific dollar increases over prior years. SEC Staff
Bulletin No. 101 Revenue Recognition in Financial
Statements (or SAB 101) does not provide for the recognition
of such 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 leases that contain
specified rental increases over the life of the lease are
recognized on the straight-line basis when we believe that all
of the rent related to a particular lease will be collected
according to the terms of the lease. In evaluating whether we
believe all the rent will be collected all of the following
conditions must be met: (i) the property has been operated
by the same operator for at least six months (adding a new
property to a master lease with an operator that otherwise
qualifies does not disqualify the lease from being
straight-lined); (ii) payments for any monetary obligations
due under the lease, or any other lease such operator has with
us have been received late no more than four times during last
eight fiscal quarters; (iii) the operator of the property
has not during the last eight fiscal quarters (a) been
under the protection of any Bankruptcy court; (b) admitted
in writing its inability to pay it debts generally as they come
due; (c) made an assignment for the benefit of creditors;
or, (d) been

42



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

under the supervision of a trustee, receiver or
similar custodian; and (iv) the property operating income
has covered the applicable lease payment in each of the prior
four fiscal quarters.

We will discontinue booking rent on a
straight-line basis if the lessee becomes delinquent in rent
owed under the terms of the lease and has been put on
non-accrual status (i.e. we have stopped booking
rent on an accrual basis for a particular lease because the
collection of rent is uncertain). Once a lease is on
non-accrual status, we will evaluate the
collectibility of the related straight-line rent asset. If it is
determined that the collection problem is temporary, we will
resume booking rent on a straight-line basis once payment is
received for past due rents. If it appears that we will not
collect future rent under the non-accrual lease we
will record an impairment charge related to the straight-line
rent asset.

Management periodically evaluates the
realizability of future cash flows from the mortgages underlying
our REMIC Certificates. Included in our evaluation, management
considers such factors as actual and/or expected loan
prepayments, actual and/or expected credit losses, and other
factors that may impact the amount and timing of Certificate
future cash flows. Impairments are recorded when an adverse
change in cash flows is evident and is determined to be other
than temporary in nature. Additionally, interest recognition
amortization schedules are adjusted periodically to reflect
changes in expected future cash flows from the REMIC
certificates, thus, accordingly adjusting future interest income
recognized.

Transactions with
Affiliate.See Note 8. CLC
Healthcare, Inc.for a description of our transactions with
CLC Healthcare, Inc. (or CLC) and the accounting policies we
followed related to those transactions.

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 may
deduct distributions to its stockholders from its taxable
income. If at least 90% (95% for taxable years ending prior to
January 1, 2001) of a REITs taxable income is
distributed to its stockholders and it complies with other
Internal Revenue Code requirements, a REIT generally is not
subject to Federal income taxation.

For Federal tax purposes, depreciation is
generally calculated at a rate of 3.6% based on the assets
tax basis (which approximates cost) using the straight-line
method over a period of 27.5 years. Earnings and profits,
which determine the taxability of distributions to stockholders,
differ from net income for financial statement purposes
principally due to the treatment of certain interest income and
expense items, the non-deductibility of impairment charges, and
the depreciable lives and basis of assets under the Internal
Revenue Code. At December 31, 2003, the book basis of our
net assets exceeded the tax basis by approximately $8,212,000
due primarily to additional depreciation taken for tax purposes.

Concentrations of Credit Risks.Financial instruments which
potentially subject us to concentrations of credit risk consist
primarily of cash and cash equivalents, REMIC Certificates,
mortgage loans receivable and operating leases on owned
properties. Our financial instruments, principally REMIC
Certificates, mortgage loans receivable and operating leases,
are subject to the possibility of loss of carrying value as a
result of the failure of other parties to perform according to
their contractual obligations or changes in market prices which
may make the instrument less valuable. 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.

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

Certain of the REMIC Certificates retained by us
have designated certificate principal balances and a stated
certificate interest pass-through rate. These REMIC
Certificates are subject to credit risk to the extent that there

43



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

are estimated or realized credit losses on the
underlying mortgages, and as such their effective yield would be
negatively impacted by such losses. We also retain the I/ O
REMIC Certificates. In addition to the risk from credit losses,
the I/ O REMIC Certificates are also subject to prepayment risk,
in that prepayments of the underlying mortgages reduce future
interest payments of which a portion flows to the I/ O REMIC
Certificates, thus, reducing their effective yield.

Discontinued Operations.In August 2001, the Financial
Accounting Standards Board (or FASB) issued SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived
Assets, which was required to be adopted in fiscal
years beginning after December 15, 2001. SFAS No. 144
supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and provides a single accounting model
for long-lived assets to be disposed of. Subsequent to
January 1, 2002, and in accordance with SFAS No. 144,
properties held-for-sale on the balance sheet includes only
those properties available for immediate sale in their present
condition and for which management believes that it is probable
that a sale of the property will be completed within one year.
Properties held-for-sale are carried at the lower of cost or
fair value less estimated selling costs. No depreciation expense
is recognized on properties held-for-sale once they have been
classified as such. In accordance with the implementation
provisions of SFAS No. 144, the operating results of real
estate assets designated as held-for-sale subsequent to
January 1, 2002 are included in discontinued operations in
the consolidated statement of operations. In addition, all gains
and losses from real estate sold are also included in
discontinued operations. As prescribed by SFAS No. 144,
gains and losses on prior years related to assets included on
discontinued operations in 2002 have been reclassified to
discontinued operations for comparative purposes. Assets
designated as held-for-sale prior to January 1, 2002, have
been accounted for under SFAS No. 121 and accordingly,
gains and losses from these assets have not been included in
discontinued operations. See Note 6. Real Estate
Investments, for a detail of the components of the net loss
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.

Stock-Based
Compensation.Effective
January 1, 2003, we adopted SFAS No. 148
Accounting for Stock-Based Compensation 
Transition and Disclosure. SFAS No. 148 amends
SFAS No. 123 Accounting for Stock-Based
Compensation to provide alternative methods of
transition to SFAS No. 123s fair value method of
accounting for stock-based employee compensation. SFAS
No. 148 also amends the disclosure provisions of SFAS
No. 123 and APB Opinion No. 28 Interim
Financial Reporting to require disclosure in the
summary of significant accounting policies of the effects of an
entitys accounting policy for stock-based employee
compensation on reported net income and earnings per share in
annual and interim financial statements. SFAS No. 148
provides three transition methods for entities that adopt the
fair value recognition provisions of SFAS No. 123 for
stock-based employee compensation. In addition to the
prospective method originally provided under SFAS No. 123,
SFAS No. 148 provides for a modified prospective method and
a retroactive restatement method. We have adopted the
prospective method and therefore will recognize compensation
expense related to all employee stock-based awards granted,
modified or settled after January 1, 2003. No options were
granted in 2003.

We use the Black-Scholes model for calculating
stock option expense. This model requires management to make
certain estimates including stock volatility, discount rate and
the termination discount factor. If management incorrectly
estimates these variables, the results of operations could be
affected. Prior to January 1, 2003, we accounted for stock
option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25) and related Interpretations. Historically, we
granted stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at
the date of grant. Under APB 25, because the exercise price
of our employee stock options equaled the market price of the
underlying stock on the date of grant, no compensation expense
was recognized.

Fair Value of Financial Instruments.SFAS No. 107 Disclosures
about Fair Value of Financial Instruments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

44



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all non-financial instruments from its
disclosure requirements. Accordingly, the aggregate fair market
value amounts presented in the footnotes to these financial
statements do not represent our underlying value in financial
instruments.

The carrying amount of cash and cash equivalents
approximates fair value because of the short-term maturity of
these instruments. The fair value of investments in marketable
debt securities in 2002 is based upon quotes from a broker who
trades in those securities and in 2003 it is based on face value
due to the issuers announcement of early redemption The
fair values of mortgage loans receivable, REMIC Certificates and
long-term debt obligations are based upon the estimates of
management and on rates currently prevailing for comparable
loans, and instruments of comparable maturities.

Segment Disclosures.SFAS No. 131 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.

New Accounting
Pronouncements.The following
accounting pronouncements became effective or were issued in
2003 and have no material effect on our financial statements:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | SFAS No. 149 Amendment of
    Statement 133 on Derivative Instruments and Hedging
    Activitiesrequires that contracts with comparable
    characteristics be accounted for similarly and clarifies under
    what circumstances a contract with an initial net investment
    meets the characteristic of a derivative, clarifies when a
    derivative contains a financing component and amends the
    definition of an underlying investment to conform it to language
    used in other FASB promulgations. SFAS No. 149 is effective
    for contracts entered into or modified after June 30, 2003,
    and for hedging relationships designated after June 30,
    2003. At December 31, 2003, we did not have any derivative
    instruments or contracts outstanding nor were we involved in any
    hedging relationships. If in the future we enter into any
    derivative contracts or hedging relationships we will follow the
    guidelines set forth in SFAS No. 149;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | SFAS No. 150 Accounting for Certain
    Financial Instruments with Characteristics of both Liabilities
    and Equityrequires certain financial instruments that
    embody obligations of the issuer and have characteristics of
    both liabilities and equity to be classified as liabilities.
    Many of these instruments were previously classified as equity.
    SFAS No. 150 is effective for financial instruments entered
    into or modified after May 31, 2003, and to all other
    instruments that existed as of the beginning of the first
    interim financial reporting period beginning after June 15,
    2003. In October 2003 portions of SFAS No. 150 that apply
    to non-controlling (minority) interests in finite-life
    entities were deferred indefinitely. Also in October 2003 the
    FASB clarified that any non-controlling minority interest that
    may be redeemed with equity of any entity (including equity of
    an entity other than the subsidiary) does not meet the
    definition of a mandatorily redeemable financial instrument and
    thus does not fall under SFAS No. 150 guidelines. Since the
    partnership agreements with our limited partners (minority
    interests) specify that the limited partners exchange
    rights may be settled in our common stock or cash at our option
    the adoption of SFAS No. 150 does not have an impact on the
    financial statement presentation or accounting for our minority
    interests. However, our adoption of SFAS No. 150 did
    require that the Series A Preferred Stock we called for
    redemption on December 31, 2003 be classified as a
    liability.
|
| |  | FIN 45 Guarantors Accounting and
    Disclosure Requirements for Guarantees, Including Indirect
    Guarantees of Indebtedness of Others requires a
    guarantor to recognize, at the inception of a guarantee, a
    liability for the fair value of the obligation undertaken in
    issuing the guarantee. FIN 45 also outlines additional
    disclosures that a guarantor must make in its interim and annual
    financial statements about its obligations under certain
    guarantees that it has issued. The initial recognition and
    initial measurement provisions of FIN 45 are applicable on
    a prospective basis to guarantees issued or modified after
    December 31, 2002. The disclosure requirements are
    effective for financial statements of interim or annual periods
    ending after December 15, 2002. During 2003 we did not
    enter into any guarantees nor did we have any guarantees
    outstanding at December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

45



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                
|-- | ---------------
|3. | Major Operators

We have two lessees, based on properties subject
to lease agreements and secured by mortgage loans that represent
between 10% and 20% of our total assets. The following table
summarizes our major lessees assets, stockholders
equity, interim revenue and net income (loss) from
continuing operations as of or for the nine months ended
September 30, 2003 per the lessees public filings:

|                                         |  |                                |         |                                |  |   |         |  
|---------------------------------------- |  | ------------------------------ | ------- | ------------------------------ |  | - | ------- | -
|                                         |  | Assisted Living Concepts, Inc. |         | Alterra Healthcare Corporation
|                                         |  |                                |         |                               
|                                         |  |                               
|                                         |  | (unaudited, in thousands)     
|Current assets                           |  | $                              | 26,828  |                                |  | $ | 83,674  |  
|Non-current assets                       |  |                                | 187,256 |                                |  |   | 458,487 |  
|Current liabilities                      |  |                                | 25,711  |                                |  |   | 348,541 |  
|Non-current liabilities                  |  |                                | 155,895 |                                |  |   | 748,172 |  
|Redeemable preferred stock               |  |                                |        |                                |  |   |        |  
|                                        
|Gross revenue                            |  |                                | 125,519 |                                |  |   | 309,018 |  
|Operating expenses                       |  |                                | 112,144 |                                |  |   | 313,846 |  
|Income (loss) from continuing operations |  |                                | 2,276   |                                |  |   | (32,641 | )
|Net income (loss)                        |  |                                | 2,770   |                                |  |   | (65,624 | )
|                                        
|Cash provided by operations              |  |                                | 7,332   |                                |  |   | 184     |  
|Cash provided by investing activities    |  |                                | 5,067   |                                |  |   | 82,568  |  
|Cash used in financing activities        |  |                                | (8,660  | )                              |  |   | (81,498 | )

Assisted Living Concepts, Inc. (or ALC) leases 37
assisted living properties with a total of 1,434 units owned by
us representing approximately 12.6%, or $72,486,000, our total
assets at December 31, 2003. In October 2001, ALC filed for
reorganization under Chapter 11 of the federal bankruptcy
laws. The filing was pre-negotiated with sufficient debt holders
to allow ALC to reorganize its debt and equity and emerge from
bankruptcy as of 12:01 a.m. on January 1, 2002. The
final order affirming the reorganization was made in December
2001, consequently we reflected the transaction as of
December 31, 2001. We agreed to reduce total rents under
the 37 leases by $875,000 a year, beginning January 1,
2002, and received a lease rejection claim of $2,500,000 for
this concession. Under the provisions of ALCs Plan, we
would have been entitled to receive, due to our ownership of
pre-bankruptcy convertible subordinated debentures and the lease
rejection claim, $7,986,000 of ALCs new Senior Secured
Notes (or Senior Notes) bearing interest at 10% per annum,
payable semi-annually in arrears, $3,026,000 new Junior Secured
Notes (or Junior Notes) bearing interest payable in additional
new Junior Notes for three years at 8% and thereafter payable in
cash at 12% per annum, payable semi-annually in arrears and
1,238,076 shares of ALC common stock. Provisions of the
Revenue Code governing REITs prohibit REITs from owning debt
and/or equity securities representing more than 10% of the value
or voting power of any one issuer. Without qualifying as safe
harbor debt, the Senior Notes and the Junior Notes would have
been included in the calculation of 10% of the value of ALC. In
order to qualify as safe harbor debt and retain our REIT status
we were able to hold only the debt. For REIT income test
purposes, provisions would also disqualify income from any
entity in which a REIT owns 10% or more of the total combined
voting power of all classes of stock or 10% or more of the total
value of shares of all classes of a corporate tenant. And as a
result, we could not be owners of the ALC common stock. In
December 2001, we entered into an Assignment and Assumption
Agreement with Healthcare Holdings, Inc. (or HHI), a wholly
owned subsidiary of CLC, allowing HHI to purchase the right to
receive the common stock of ALC. See Note 8. CLC
Healthcare, Inc. and Note 10. Marketable Debt
Securitiesfor further discussions. At the request of
LTCs Board of Directors, our Chairman, CEO and President,
Mr. Andre C. Dimitriadis, became a Board member of ALC as
of January 1, 2002. During the bankruptcy and since
emergence, ALC has been current on all lease payments to us.

Alterra leases 35 assisted living properties with
a total of 1,416 units owned by us representing approximately
12.4%, or $71,281,000, of our total assets at December 31,
2003. Alterra announced on January 22, 2003, that it had
filed a voluntary petition with the U.S. Bankruptcy Court for
the District of Delaware to reorganize under Chapter 11 of
the U.S. Bankruptcy Code. Alterras Plan of
Reorganization was approved in November 2003 and Alterra

46



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

emerged from bankruptcy in December 2003 as a
non-publicly traded company. All of our leases with Alterra were
assumed, without change, by the reorganized Alterra. Alterra is
no longer a publicly traded company.

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



|   |                                   
|-- | ----------------------------------
|4. | Supplemental Cash Flow Information

|                                                                                                                                  |  |                                 |       |      |  |      |       |  |  |   |        | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ------ | 
|                                                                                                                                  |  |                                
|                                                                                                                                  |  | For the year ended December 31,
|                                                                                                                                  |  |                                
|                                                                                                                                  |  | 2003                            |       | 2002 |  | 2001
|                                                                                                                                  |  |                                 |       |      |  |     
|                                                                                                                                  |  |                                
|                                                                                                                                  |  | (in thousands)                 
|Non-cash investing and financing transactions:                                                                                    |  |                                 |       |      |  |      |       |  |  |   |        | 
|Assumption of mortgage loans payable related to
    acquisitions of real estate properties                                        |  | $                               |      |      |  | $    | 1,357 |  |  | $ | 50,774 | 
|Assumption of minority interest liability related
    to acquisition of general partnership interest                              |  |                                 |      |      |  |      |      |  |  |   | 3,518  | 
|Assumption of accrued interest related to
    acquisitions of real estate properties                                              |  |                                 |      |      |  |      |      |  |  |   | 229    | 
|Conversion of mortgage loans and secured lines of
    credit into owned properties                                                |  |                                 |      |      |  |      | 3,832 |  |  |   | 3,899  | 
|Reduction in receivables from CLC related to the
    acquisition of debt securities                                               |  |                                 |      |      |  |      |      |  |  |   | 7,800  | 
|Exchange of third party debt securities related
    to the acquisitions of real estate properties                                 |  |                                 |      |      |  |      |      |  |  |   | 7,925  | 
|Reduction in receivables from CLC related to the
    acquisitions of real estate properties                                       |  |                                 |      |      |  |      |      |  |  |   | 9,285  | 
|Increase in short term notes receivable related
    to the disposition of real estate properties                                  |  |                                 |      |      |  |      | 2,631 |  |  |   | 8,483  | 
|Preferred stock redemption charge relating to the
    original issuance costs of the 40% of Series A Preferred
    Stock redeemed |  |                                 | 1,241 |      |  |      |      |  |  |   |       | 



|   |                  
|-- | -----------------
|5. | Impairment Charge

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

During 2003, we recorded an impairment charge of
$1,260,000. Of this charge, $31,000 was to fully reserve a
mortgage loan on one skilled nursing facility that was closed in
2002 and not reopened or sold. Additionally, we recorded a
$1,303,000 impairment related to certain interest only REMIC
Certificates net of a $74,000 adjustment of an impairment loss,
recognized in the fourth quarter of 2002, related to our
investment in REMIC Certificates. This

47



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$1,303,000 impairment charge had been previously
recognized in comprehensive income as a fair market value
adjustment on available-for-sale REMIC Certificates as described
in Note 6. Real Estate Investments.As more fully
described in Note 2. Summary of Significant Accounting
Policies, to the extent there are defaults, unrecoverable
losses or prepayments of principal on the underlying mortgages
resulting in reduced cash flows, the subordinated REMIC
Certificates we hold would bear the first risk of loss. During
managements periodic evaluation of the realizability of
expected future cash flows from the mortgages underlying our
investment in REMIC certificates, there were indications that
certain expected future cash flows would not be realized by the
REMIC Trust. Accordingly, we recorded a net $1,229,000
impairment charge during 2003, to reflect the estimated impact
on future cash flows from loan prepayments occurring during, or
expected to occur subsequent to, the first quarter of 2003
related to certain subordinated REMIC Certificates we held.

During 2002, we recorded an impairment charge of
approximately $7,807,000 ($710,000 of which is included in net
loss from discontinued operations). The impairment charge
included the write-down of $1,000,000 for one owned skilled
nursing property as a result of our agreeing to a rent reduction
and $710,000 for one assisted living property that was
subsequently sold at less than net book value, a $1,600,000
write-down of two mortgages on two skilled nursing properties
and a $4,497,000 valuation adjustment of the subordinated REMIC
Certificates held by us. Of the $1,600,000 write-down, $600,000
was for a skilled nursing property that had closed and defaulted
on the loan and $1,000,000 was for a loan on a skilled nursing
property whose operator was reporting losses from operations and
requesting temporary loan payment modifications. Relative to the
$4,497,000 charge and as more fully described in Note 2.
Summary of Significant Accounting Policiesto the extent
there are defaults, unrecoverable losses or prepayments of
principal on the underlying mortgages resulting in reduced cash
flows, the subordinated REMIC Certificates held by us would bear
the first risk of loss. As a result, during 2002 we recorded
this $4,497,000 charge of which, $1,215,000 was for loans paying
off prior to maturity and reducing the value of our I/ O REMIC
Certificates, $500,000 was for one skilled nursing property that
closed, $1,282,000 was for a loan on one skilled nursing
property that we, as loan servicing agent for the REMIC Trust,
agreed could pay the loan off at a $1,000,000 reduction in
principal and $1,500,000 was for one skilled nursing property
whose operator advised us that the operator was considering
either closing the property or attempting to convert the
building to an alternative use. During managements
periodic evaluation of the realizability of expected future cash
flows from the mortgages underlying our REMIC Certificates,
there were indications that a portion of the underlying mortgage
collateral would not be realized by the REMIC Trust.
Accordingly, we recorded an impairment charge in current period
earnings.

During 2001, we recorded an impairment charge of
approximately $28,584,000, ($8,937,000 of which is included in
net loss from discontinued operations in accordance with SFAS
No. 144). The impairment charge included the write-down of
the carrying value to the estimated fair value, less cost to
sell, of 14 owned skilled nursing properties of $16,755,000,
notes receivable determined to be uncollectable of $1,500,000,
pre-bankruptcy debt securities of ALC of $9,829,000 and $500,000
in lease termination costs. Of the $16,755,000 charge,
$13,677,000 was for nine closed properties, $2,484,000 was for
three properties that were leased at reduced lease values and
$594,000 was for two properties that were sold. The fair values
were based on current appraisals or other third-party opinions
of value and other estimates of fair value such as estimated
discounted future cash flows.

We believe we have recorded valuation adjustments
on all assets for which there are permanent impairments.
However, the long-term care industry has experienced significant
adverse changes which have 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.During the year ended December 31, 2003, we received
principal repayments totaling $11,422,000 on two mortgage loans,
and scheduled principal payments of $1,464,000. One mortgage
loan with an outstanding principal balance of $1,707,000 that
was secured by one long-term care property was purchased from
the REMIC Trust for cash of $1,707,000 in connection with the
termination of the 1993-1 REMIC Pool.

At December 31, 2003, we had 37 mortgage
loans secured by first mortgages on 30 skilled nursing
properties with a total of 3,681 beds and eight assisted living
residences with 369 units located in 19 states. At
December 31, 2003,

48



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the mortgage loans had interest rates ranging
from 9.5% to 12.6% and maturities ranging from 2004 to 2018. In
addition, the loans contain certain guarantees, provide for
certain facility fees and generally have 25-year amortization
schedules. The majority of the mortgage loans provide for annual
increases in the interest rate based upon a specified increase
of 10 to 25 basis points. At December 31, 2003 and 2002,
the estimated fair value, based on the net present value of the
future cash flows discounted at 10.5%, of the mortgage loans was
approximately $74,511,000 and $85,429,000, respectively.
Scheduled principal payments on mortgage loans are $7,021,000,
$3,538,000, $9,223,000, $11,753,000, $12,680,000 and $28,530,000
in 2004, 2005, 2006, 2007, 2008 and thereafter.

Owned Properties and Lease
Commitments.During 2003, we purchased
two skilled nursing properties with a total of 98 beds from CLC.
We paid cash of $1,215,000 for the two properties which CLC used
to repay the outstanding loan balance due to a REMIC pool
originated by us.

During 2003, we sold eight skilled nursing
properties for a total sales price of $16,227,000. We recognized
a $2,299,000 gain on these sales and used $3,758,000 of proceeds
to pay down mortgage loans and $2,595,000 of proceeds to repay
outstanding borrowings under our Secured Revolving Credit. The
remaining $9,311,000 of net proceeds was used to fund the
partial redemption of our Series A Preferred Stock.

Subsequent to December 31, 2003 we purchased
a 120 bed skilled nursing property in Texas for a total of
$3,389,000 in cash. Additionally, we sold a 72 bed skilled
nursing property in Georgia for $1,500,000 and will recognize a
$975,000 gain in the first quarter of 2004. We used $1,250,000
of the net proceeds to pay down a mortgage note payable.

Owned properties are leased pursuant to
non-cancelable operating leases generally with an initial term
of 10 to 30 years. Many of the leases contain renewal
options and one contains an option for a limited time that
permits the operator to purchase three 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
and are generally computed in one of four ways depending on
specific provisions of each lease: (i) a specified
percentage increase over the prior year, generally 2%;
(ii) the higher of (i) or a calculation based on the
Consumer Price Index; (iii) as a percentage of facility net
patient revenues in excess of base amounts or (iv) specific
dollar increases. Each lease is a triple net lease which
requires the lessee to pay all taxes, insurance, maintenance and
repairs, capital and non-capital expenditures and other costs
necessary in the operations of the facilities. Contingent rent
income for the years ended December 31, 2003, 2002 and 2001
was not significant in relation to contractual base rent income.

Depreciation expense on buildings and
improvements, including properties owned under capital leases
and properties classified as discontinued operations as required
by SFAS No. 144, was $12,783,000, $14,197,000, and
$13,695,000 for the years ended December 31, 2003, 2002 and
2001.

Future minimum base rents receivable under the
remaining non-cancelable terms of operating leases are:
$45,160,000, $45,569,000, $46,645,000, $47,640,000, $46,354,000
and $384,189,000 for the years ending December 31, 2004,
2005, 2006, 2007, 2008 and thereafter.

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

49



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

prior to January 1, 2002 have been accounted
for under SFAS No. 121 and accordingly, gains and losses
from these assets have not been included in discontinued
operations.

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

|                                           |                |                                 |     |      |  |      |       |       |  |   |         |        | 
|------------------------------------------ | -------------- | ------------------------------- | --- | ---- |  | ---- | ----- | ----- |  | - | ------- | ------ | 
|                                           |                |                                
|                                           |                | For the year ended December 31,
|                                           |                |                                
|                                           |                | 2003                            |     | 2002 |  | 2001
|                                           |                |                                 |     |      |  |     
|Rental income                              |                | $                               | 772 |      |  | $    | 1,425 |       |  | $ | 2,253   |       
|Interest income from mortgage loans        |                |                                 |    |      |  |      |      |       |  |   | 10      |       
|Interest and other income                  |                |                                 | 149 |      |  |      | 226   |       |  |   | 258     |       
|                                           |                |                                 |     |      |  |      |       |       |  |   |         |       
|                                           | Total revenues |                                 |     | 921  |  |      |       | 1,651 |  |   |         | 2,521  | 
|Interest expense                           |                |                                 | 271 |      |  |      | 311   |       |  |   | 475     |       
|Depreciation and amortization              |                |                                 | 509 |      |  |      | 695   |       |  |   | 1,650   |       
|Impairment charge                          |                |                                 |    |      |  |      | 710   |       |  |   | 11,913  |       
|Legal expenses                             |                |                                 | 8   |      |  |      | (37   | )     |  |   |        |       
|Operating and other (income) expenses      |                |                                 | (35 | )    |  |      | 510   |       |  |   | 256     |       
|                                           |                |                                 |     |      |  |      |       |       |  |   |         |       
|                                           | Total expenses |                                 |     | 753  |  |      |       | 2,189 |  |   |         | 14,294 | 
|                                           |                |                                 |     |      |  |      |       |       |  |   |         |       
|Income (loss) from discontinued operations |                | $                               | 168 |      |  | $    | (538  | )     |  | $ | (11,773 | )     
|                                           |                |                                 |     |      |  |      |       |       |  |   |         |       

REMIC Certificates.The outstanding principal balance and the weighted-average pass
through rate for the senior certificates (held by third parties)
and the carrying value of the subordinated certificates (held by
us) as of December 31, 2003 and 2002 were as follows
(dollar amounts in thousands):

|               |  |              |        |              |  |                |      |              |  |      |        |                |  |   |        |     |  |  |      |   |  |   |        | 
|-------------- |  | ------------ | ------ | ------------ |  | -------------- | ---- | ------------ |  | ---- | ------ | -------------- |  | - | ------ | --- |  |  | ---- | - |  | - | ------ | 
|               |  |              |        |             
|               |  | 2003         |        | 2002        
|               |  |              |        |             
|               |  |              |        |              |  |                |      |             
|               |  | Senior       |        |              |  | Senior         |      |             
|               |  | Certificates |        | Subordinated |  | Certificates   |      | Subordinated
|               |  |              |        | Certificates |  |                |      | Certificates
|               |  | Principal    |        | Rate         |  | Carrying Value |      | Principal    |  | Rate |        | Carrying Value
|               |  |              |        |              |  |                |      |              |  |      |        |               
|1993-1 Pool(1) |  | $            |       |              |  |                |     |              |  | $    |       |                |  | $ | 28     |     |  |  | 7.1  | % |  | $ | 238    | 
|1994-1 Pool    |  |              | 3,184  |              |  |                | 10.0 | %            |  |      | 19,029 |                |  |   | 16,796 |     |  |  | 10.0 | % |  |   | 19,308 | 
|1996-1 Pool    |  |              | 67,895 |              |  |                | 7.6  | %            |  |      | 9,560  |                |  |   | 74,812 |     |  |  | 7.5  | % |  |   | 9,754  | 
|1998-1 Pool    |  |              | 79,358 |              |  |                | 6.5  | %            |  |      | 33,073 |                |  |   | 89,978 | (2) |  |  | 6.4  | % |  |   | 35,119 | 
|               |  |              |        |              |  |                |      |              |  |      |        |                |  |   |        |     |  |  |      |   |  |   |        | 
|               |  |              |        |              |  |                |      |              |  | $    | 61,662 |                |  |   |        |     |  |  |      |   |  | $ | 64,419 | 
|               |  |              |        |              |  |                |      |              |  |      |        |                |  |   |        |     |  |  |      |   |  |   |        | 



---



|    |                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 1993-1 Pool was fully retired through
    mortgage payments at maturity in 2003 with no realized credit
    losses during its term.                                                                                                  
|   
|(2) | Included in the 1998-1 Pool assets are $0 at
    December 31, 2003 and $7,879,000 at December 31, 2002
    of certificates originated in the 1993-1 Pool that are excluded
    from the amount outstanding presented for the 1993-1 Pool.

At December 31, 2003 and 2002, the aggregate
effective yield of the subordinated certificates, based on
expected future cash flows with no unscheduled prepayments, was
15.4% and 17.04%, respectively. Income on the subordinated
certificates was as follows for the years ended
December 31, 2003, 2002 and 2001 (dollar amounts in
thousands):

|            |  |      |       |      |  |      |        |  |  |   |        | 
|----------- |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|            |  | 2003 |       | 2002 |  | 2001
|            |  |      |       |      |  |     
|1993-1 Pool |  | $    | 22    |      |  | $    | 736    |  |  | $ | 929    | 
|1994-1 Pool |  |      | 2,085 |      |  |      | 2,510  |  |  |   | 3,847  | 
|1996-1 Pool |  |      | 1,991 |      |  |      | 2,614  |  |  |   | 3,128  | 
|1998-1 Pool |  |      | 5,866 |      |  |      | 7,110  |  |  |   | 7,212  | 
|            |  |      |       |      |  |      |        |  |  |   |        | 
|            |  | $    | 9,964 |      |  | $    | 12,970 |  |  | $ | 15,116 | 
|            |  |      |       |      |  |      |        |  |  |   |        | 

50



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

We use certain assumptions and estimates in
determining the fair value allocated to the retained interest at
the time of initial sale and each subsequent measurement date in
accordance with SFAS No. 140. These assumptions and
estimates include projections concerning the expected level and
timing of future cash flows, current interest rate environment,
estimated spreads over the U.S. Treasury Rate at which the
retained certificates might trade, expectations regarding credit
losses, if any, expected weighted-average life of the underlying
collateral and discount rates commensurate with the risks
involved. These assumptions are reviewed periodically by
management. If these assumptions change, the related asset and
income would be affected. Key economic assumptions used in
measuring the retained interests at December 31, 2003, were
as follows: a U.S. Treasury Rate of 4.3%, market spread on
B rated certificates of 950 basis points over the
applicable U.S. Treasury Rate, a weighted average discount rate
on unrated and interest only certificates of 29.0%,
weighted-average life of 151 months and no expected annual
credit losses. At December 31, 2003, key economic
assumptions and the sensitivity of the current fair value of
cash flows on the REMIC Certificates retained by us to immediate
10% and 20% adverse changes in those assumptions are as follows:
(dollar amounts in thousands):

|                                             |  |            |        |          |  |   |        | 
|-------------------------------------------- |  | ---------- | ------ | -------- |  | - | ------ | 
|                                             |  | Estimated  |        | Carrying
|Retained Interests in REMIC Securitizations: |  | Fair Value |        | Amount  
|                                             |  |            |        |         
|Available-for-sale REMIC Certificates        |  | $          | 9,778  |          |  | $ | 9,778  | 
|Held-to-maturity REMIC Certificates          |  |            | 38,395 |          |  |   | 51,884 | 
|                                             |  |            |        |          |  |   |        | 
|Totals                                       |  | $          | 48,173 |          |  | $ | 61,662 | 
|                                             |  |            |        |          |  |   |        | 

|                                                                   |  |                |       |                |  |   |       | 
|------------------------------------------------------------------ |  | -------------- | ----- | -------------- |  | - | ----- | 
|                                                                   |  | 10% Adverse    |       | 20% Adverse   
|                                                                   |  | Change Decline |       | Change Decline
|Key Assumption Sensitivity Analysis:                               |  | in Fair Value  |       | in Fair Value 
|                                                                   |  |                |       |               
|Average Spread and Discount Rate Assumption                        |  |                |       |                |  |   |       | 
|Average Spread on B rated
    certificates  950 basis points    |  | $              | 264   |                |  | $ | 521   | 
|Average discount rate on Unrated and I/ O
    Certificates  29.0% |  |                | 2,010 |                |  |   | 3,799 | 
|                                                                   |  |                |       |                |  |   |       | 
|Total                                                              |  | $              | 2,274 |                |  | $ | 4,320 | 
|                                                                   |  |                |       |                |  |   |       | 
|U.S. Treasury Rate Assumption (4.3%)                               |  | $              | 120   |                |  | $ | 235   | 
|                                                                   |  |                |       |                |  |   |       | 
|Weighted-Average Life Assumption (151 Months)                      |  | $              | 1,712 |                |  | $ | 3,096 | 
|                                                                   |  |                |       |                |  |   |       | 
|Expected Credit Loss Assumption (No Expected
    Losses)           |  | $              | 4,571 |                |  | $ | 9,142 | 
|                                                                   |  |                |       |                |  |   |       | 

As more fully described in Note 2. Summary of
Significant Accounting Policies, to the extent there are
defaults, unrecoverable losses or prepayments of principal on
the underlying mortgages resulting in reduced cash flow, the
subordinated REMIC Certificates held by us would bear the first
risk of loss. During managements periodic evaluation of
the realizability of expected future cash flows from the
mortgages underlying our REMIC Certificates there were
indications that a portion of the underlying mortgage collateral
would not be realized by the REMIC Trust. Accordingly, we
recorded a net $1,229,000 impairment charge during 2003, to
reflect the estimated impact on future cash flows from loan
prepayments occurring during, or expected to occur subsequent
to, the first quarter of 2003 related to certain subordinated
REMIC Certificates we held. We recorded an impairment charge in
2002 of $4,497,000 related to the valuation adjustment of the
subordinated REMIC Certificates held by us. See Note 5.
Impairment Chargefor a discussion of the impairment
indicators.

51



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Subsequent to December 31, 2003, at our
election, we paid $3,661,000 to acquire a mortgage loan that was
in default in the 1994 REMIC pool. The amount paid represents
the outstanding balance of the loan which approximated the fair
value.

During 2001, we sold certain REMIC Certificates
classified as available-for-sale, with a net book value of
$19,035,000 prior to a valuation reserve of $1,010,000. The sale
resulted in net proceeds of $17,894,000 and a realized loss of
$1,141,000.

As of December 31, 2003 and 2002,
available-for-sale certificates were recorded at their fair
value of approximately $9,778,000 and $13,073,000, respectively.
Unrealized holding losses on available-for-sale certificates of
$427,000, $1,435,000 and $803,000 were included in comprehensive
income for the years ended December 31, 2003, 2002 and
2001, respectively.

7.     Asset
Securitizations

LTC is a REIT and, as such, makes investments
with the intent to hold them for long-term purposes. However,
mortgage loans may be transferred to a REMIC
(securitization) when a securitization provides us with the
best available form of capital to fund additional long-term
investments. When contemplating a securitization, consideration
is given to our current and expected future interest rate
posture and liquidity and leverage position, as well as overall
economic and financial market trends. As of December 31,
2003 we had completed four securitization transactions, the last
being in 1998. We may again employ this type of financing in the
future should we determine the financing environment is
appropriate for this type of transaction.

From our past securitizations, we receive annual
sub-servicing fees, which range from 1.0 to 2.0 basis points of
the outstanding mortgage loan balances in each of the REMIC
pools. Additionally, through the REMIC Certificates retained by
us from past securitizations, we receive cash flows and the
rights to future cash flows resulting from cash received on the
underlying mortgage loans in the REMIC pools. All of the
investors in the REMIC Certificates and the REMIC Trusts
themselves have no recourse to our assets for failure by any
obligor to the REMIC Trust assets (the mortgages) to pay when
due, or comply with any provisions of the mortgage contracts.
The REMIC Certificates are classified separately on the balance
sheet and interest income earned shown separately on the income
statement. Sub-servicing fees and related fees associated with
the REMIC Certificates are included in other income.

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

|                                                  |  |            |        |      |  |   |        | 
|------------------------------------------------- |  | ---------- | ------ | ---- |  | - | ------ | 
|                                                  |  |           
|                                                  |  | Year Ended
|                                                  |  |           
|                                                  |  | 2003       |        | 2002
|                                                  |  |            |        |     
|Cash flow received on retained REMIC Certificates |  | $          | 12,515 |      |  | $ | 16,624 | 
|Servicing and related fees received               |  | $          | 186    |      |  | $ | 298    | 
|Servicing advances made                           |  | $          | 690    |      |  | $ | 725    | 
|Repayments of servicing advances                  |  | $          | 782    |      |  | $ | 618    | 

At December 31, 2003 scheduled distributions
of principal on REMIC Certificates retained by us are:
$6,689,000, $8,138,000, $9,799,000, $6,540,000, $3,239,000 and
$27,230,000 for the years ending December 31, 2004, 2005,
2006, 2007, 2008 and thereafter. These amounts are based upon
the scheduled remaining amortization periods of the underlying
mortgages, which may be subject to change. Currently in our
portfolio we have no mortgage loans held

52



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for securitization. Quantitative information
relating to subserviced mortgage loans including delinquencies
and net credit losses is as follows (dollar amounts in
thousands):

|                                                                      |  |            |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------- |  | ---------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                      |  |           
|                                                                      |  | Year Ended
|                                                                      |  |           
|                                                                      |  | 2003       |         | 2002 |  | 2001
|                                                                      |  |            |         |      |  |     
|Average balance of loans in REMIC pools                               |  | $          | 224,742 |      |  | $    | 294,984 |   |  | $ | 340,607 |  
|Year-end balance of loans in REMIC pools                              |  | $          | 213,291 |      |  | $    | 245,248 |   |  | $ | 334,394 |  
|Net credit losses                                                     |  | $          | 2,157   |      |  | $    | 1,284   |   |  | $ | 0       |  
|Net credit losses to average REMIC pool loans                         |  |            | 1.0     | %    |  |      | 0.4     | % |  |   | 0       | %
|Delinquencies (greater than 30 days) to
    year-end REMIC pool loans |  |            | 0.8     | %    |  |      | 1.3     | % |  |   | 0.7     | %

8.     CLC
Healthcare, Inc.

In 2002 LTC Healthcare, Inc. changed its name to
CLC Healthcare, Inc.

During 1998, we completed the spin-off of all CLC
voting common stock through a taxable dividend distribution to
the holders of our common stock, Cumulative Convertible
Series C Preferred Stock and Convertible Subordinated
Debentures. Upon completion of the distribution, CLC began
operating as a separate public company. Beginning in September
1999, CLC began leasing skilled nursing properties owned or
financed by us and from that date assumed certain leases of
additional properties and closed certain properties owned by us.
These properties were previously financed or leased to lessees
and borrowers who experienced financial difficulties to such
extent that the lessees and borrowers were not able to comply
with lease provisions or debt provisions underlying the
properties. As such, CLC assumed the leases of troubled
facilities and was not able to pay, nor did we record as income,
rent under CLC leases with us since 2000.

On October 6, 2003, CLC announced that it
had signed an Agreement and Plan of Merger (or Agreement) with
Center Healthcare and Center Healthcares wholly owned
subsidiary, CHMS, Inc. The Agreement provided that in the
merger, holders of each outstanding share of CLCs common
stock would receive in cash $1.00 per share of common stock. CLC
held a special meeting of its stockholders on November 12,
2003, and the merger was approved by the required sixty-six and
two thirds percent of CLC common stockholders. After
the merger, CLC became a wholly owned subsidiary of Center
Healthcare and ceased to be a publicly traded company. Center
Healthcare is owned by an individual who was operating (under
the management agreement discussed below) 19 skilled nursing
properties owned by us and under lease to CLC. During 2003, we
entered into a 30 year, triple-net master lease with Center
Healthcare for these 19 properties and one property formerly
operated by Sun. This new lease provides for rental payments of
approximately $4,567,000 in the first year with a 3% escalation
each year for the next 10 years, 2% each year for the
following 10 years and 1% each year for the remaining
9 years. In 2003, we advanced Center Healthcare $2,300,000
for capital improvements to the 19 facilities to be expended
within a 36 month period.

Our Chairman, President and Chief Executive
Officer, Chief Financial Officer and Chief Investment Officer
were Board members of CLC through the effective date of the
merger at which time they were no longer CLC board members.
Additionally, we have an indemnification agreement covering
these officers who served as Board members of CLC and one former
independent director of CLC.

In 2002, we sold a wholly owned subsidiary,
LTC-Fort Tucum, Inc. to CLC for a $500,000 note (or Fort Tucum
Note) bearing no interest for one year and thereafter interest
at 8% annually for two years. LTC-Fort Tucum, then acquired
two skilled nursing facilities in New Mexico subject to a
mortgage loan payable to a REMIC pool originated by us. During
2003, we acquired these two facilities for $1,215,000 in cash
and forgave the $500,000 note, which we had previously fully
reserved. CLC used the $1,215,000 to repay the outstanding loan
balance that was due to a REMIC pool originated by us. We leased
these facilities, along with two other facilities in New Mexico
previously operated by Sun, to a third party operator under a
triple-net master lease beginning July 1, 2003. This master
lease provided for rents of $763,000 in the initial year with
2.0% increases annually for 15 years. We also entered into
a triple-net master lease beginning July 1, 2003, with a
third party operator for four skilled nursing properties in
Georgia, all of which subsequently have been sold. These Georgia
properties were formerly operated by CLC.

53



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In 2003, we purchased from CLC all the furniture,
fixtures and equipment in 19 properties for $1,843,000.
Additionally, we purchased all the furniture, fixtures and
equipment at CLCs corporate office for $967,000. We have
included the furniture, fixtures and equipment at the
19 properties and the corporate office in the master lease
with Center Healthcare.

During 2003 and 2002 we did not recognize any
rental income from CLC. During 2003 CLC did not owe us any rent
due to a forbearance agreement effective March 1, 2003.
During 2002 CLC owed us $3,000,000 in rent that they were unable
to pay. However in 2003, Center Healthcare paid us rent of
$1,465,000 after they began operating the 19 properties in
September 2003.

Effective October 19, 2003, we amended the
secured line of credit with CLC waiving the change of control
provisions in this line of credit and in the Promissory Note
discussed below, to allow CLC to satisfy certain conditions of
the Agreement and Plan of Merger dated October 6, 2003
(discussed above). The amendment also changed the nature of the
loan from a secured revolving line of credit to a secured term
loan and extended the maturity date to October 1, 2008. The
initial principal amount of the note is $8,867,000 which
represented the balance due on the secured line of credit
including unpaid interest, and rents due and unpaid through
April 30, 2003. Additionally, the amendment reduced the
interest rate to 8.0% compounded monthly and accruing to the
principal balance from October 1, 2003 through
September 30, 2004, and 8.0% compounded monthly payable in
cash quarterly in arrears beginning October 2004. The book value
of the note was $4,046,000 at December 31, 2003. At
December 31, 2002 there was $4,741,000 outstanding under
the line of credit. During 2003 we did not record any accrued
interest on this note. During 2002, CLC paid, and we recorded as
income, interest on its line of credit with us totaling
$540,000. In 2001, we did not receive or record as income
interest on this line of credit.

Additionally, we hold a Promissory Note (or Note)
issued by HHI in the face amount of $9,150,000. The original
Note was received in December 2001 in exchange for our right to
receive 1,238,076 shares of ALC common stock distributed
concurrently with ALCs emergence from bankruptcy on
December 31, 2001. The Note is for a term of
five years and bears interest at 5.0%, compounded annually
and accruing to the principal balance plus interest at 2.0% on
the principal payable in cash annually. The Note is a full
recourse obligation of HHI and is secured by all of the assets
owned now or in the future by HHI and contains a provision for
acceleration should there be a change of control of HHI or CLC.
We agreed to waive this provision to allow CLC to enter into the
Agreement and Plan of Merger (discussed above). During 2003, we
purchased from HHI $1,177,000 face value of ALC Senior Notes for
$1,177,000 plus accrued interest and $566,000 face value of ALC
Junior Notes for $566,000. See Note 10. Marketable Debt
Securitiesfor discussion of ALCs redemption of these
notes. At December 31, 2003, HHI owned
1,452,794 shares of ALC common stock with a fair market
value based on the closing price of ALC stock at
December 31, 2003 of $11,259,000 and a market value of
$11,622,000 based upon a third party Security and Exchange
Commissions Form 4 filing reporting a bulk purchase of
557,209 shares at $8.00 per share. At
December 31, 2003, the book value of the $9,150,000 Note
was $5,245,000 which represented the fair market value of the
1,238,076 shares acquired by HHI on December 31, 2001
including a $2,150,000 increase in the Note during 2003 which we
allowed HHI to upstream to CLC. CLC returned $1,200,000 to us
which was applied as a reduction in the line of credit with CLC.
In January 2003, we received, in accordance with the terms of
the Note, $140,000 from CLC representing the 2.0% interest on
the then outstanding principal balance which is payable in cash
in arrears. During 2003 we did not accrue any interest income on
the Note. In March 2004, we received $196,000 from CLC
representing the 2.0% interest on the outstanding principal
balance at December 31, 2003 in accordance with the terms
of the Note.

All of the aforementioned transactions between
and CLC and us were approved by the respective disinterested
and/or independent members of the Board of Directors of each
company. All interested and/or non-independent Board members
abstained from any such vote.

During 2001, we sold all 180,000 shares of CLC
common stock we owned at December 31, 2000. The shares were
sold to CLC for $225,000, excluding selling commissions, which
was the fair market value as of the date of sale. We recognized
a loss of $386,000 on the sale of these shares. We sold these
shares because the Tax Relief Extension Act of 1999 (or
99 Act) provided that, subject to certain exceptions for
taxable years commencing after December 31, 2000, a REIT
may not own more than 10% of the total value of the securities
of any corporation. Without qualifying

54



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

as safe harbor debt, securities under the 99 Act
include the line of credit provided by us to CLC. In order to
qualify as safe harbor debt and retain REIT status, we were
required to hold only such debt or the shares.

9.     Notes
Receivable

During 2003 we received $2,843,000 in principal
re-payments prior to maturity on three notes. $2,000,000 of the
notes paid off represented the down payment on a property that
was sold in the fourth quarter of 2003. During 2003 we advanced
$2,150,000 under the Note with HHI and $1,200,000 was repaid by
CLC as discussed in Note 8. CLC Healthcare, Inc.

During 2002, in conjunction with the sale of five
skilled nursing properties, we received a 10-year, $3,550,000
note with a face rate of 7.0%, which we discounted to $2,631,000
for an effective rate of 13.0%. In addition, we advanced
$468,000 to an operator under a line of credit. We received
$1,736,000 in principal re-payments at maturity on three notes
related to properties sold in previous years.

10.     Marketable
Debt Securities

During 2003 we purchased $1,383,000 face value of
ALC Senior Notes and $670,000 face value of ALC Junior Notes.
$1,177,000 face value of the Senior Notes and $566,000 face
value of the Junior Notes were purchased from CLC as discussed
in Note 8. CLC Healthcare Inc.Additionally we
purchased from a third party $206,000 face value of the Senior
Notes for $186,000 plus accrued interest and $103,000 face value
of the Junior Notes for $85,000. During 2003 $281,000 of the
Senior Notes were mandatorily redeemed by ALC as a result of
ALCs sale of assets securing the notes. The notes were
redeemed at face value plus accrued interest. Also during 2003,
we received $279,000 face value of Junior Notes representing
paid-in-kind interest.

At December 31, 2003, we owned $8,186,000
face value of ALC Senior Notes with a face rate of 10%, payable
semi-annually in arrears and maturing on January 1, 2009.
At December 31, 2003, we also owned $4,095,000 face value
of ALC Junior Notes with a face rate of 8% payable in additional
new Junior Notes through 2004 and thereafter payable in cash,
payable semi-annually in arrears and maturing on January 1,
2012. On December 31, 2003, ALC announced the mandatory
redemption of all of the outstanding Senior and Junior Notes and
deposited with the trustee of the notes an amount sufficient to
pay the redemption amount and all interest due. In the fourth
quarter of 2003, we recognized non-operating income of
$1,970,000 related to the reversal of the discount recorded on
the Senior and Junior Notes redeemed, and in January 2004
received cash in the amount of $12,374,000 as full redemption of
these securities including accrued and unpaid interest.

11.     Debt
Obligations

Bank Borrowings.On
December 26, 2003, we entered into a new three year
Unsecured Credit Agreement with three banks. The Unsecured
Credit Agreement provides for a revolving line of credit for up
to $45,000,000 and for the inclusion of additional banks and an
expansion of the line under certain circumstances. There are no
scheduled maturities other than the three year term.

The pricing of the Unsecured Credit agreement
varies between LIBOR plus 2.75% and LIBOR plus 3.25% depending
on our leverage ratio. We had no outstanding balances under this
agreement as of December 31, 2003, however, had we borrowed
our interest rate would have been LIBOR plus 3.00%.

In January 2004 we borrowed $21,000,000 under the
Unsecured Credit Agreement and used $4,500,000 to pay early,
mortgage debt that was due in January 2005 and used $16,500,000
to fund the partial redemption of our Series A Preferred
Stock. In February 2004 we repaid the $21,000,000 from proceeds
from the redemption of ALC Senior and Junior Notes and from some
of the proceeds from the issuance of our Series F Preferred
Stock. See Note 10. Marketable Debt Securitiesand Note 12. Stockholders Equity.

Under financial covenants contained in the
Unsecured Credit Agreement which are measured quarterly we are
required to maintain, among other things, (i) a ratio, of
total indebtedness to total asset value, not greater than .5 to
1.0, (ii) a ratio not greater than .35 to 1.0 of secured
debt to total asset value (iii) a ratio not less than 2.5
to 1.0 of EBITDA to interest expense, and (iv) a ratio of
not less than 1.45 to 1.0 for quarters ending through
June 30, 2004, and then not less than 1.50 to 1.0 of EBITDA
to fixed charges. We were in compliance with all covenants when
we

55



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

first drew under this agreement in 2004 and
currently have no amounts outstanding under the Unsecured Credit
Agreement.

For 2002 and 2001 we had a Secured Revolving
Credit that was scheduled to expire on October 2, 2004. We
cancelled this credit on December 30, 2003, and expensed as
additional interest expense $2,075,000 of the remaining
unamortized debt issuance costs. The credit facility required us
to pay an additional fee of 4% of the outstanding available
commitment level as of October 2, 2002. Accordingly, we
paid a fee of $3,000,000 (4% of the commitment balance of
$75,000,000 on October 2, 2002) to extend the Secured
Revolving Credit to October 2, 2004. It was primarily the
remaining unamortized portion of this fee that we expensed when
we cancelled the credit. Another provision of this agreement
required certain levels of commitment reductions as a result of
asset sales, financings, equity offerings and repayment of
mortgages.

In addition, on October 2, 2002, we issued
1,500,000 book value units (or BVU), to the lenders under the
Secured Revolving Credit. The BVUs have been disclosed as a
contingent liability at December 31, 2003 and 2002. The
number of BVUs issued represented 20,000 BVUs for each
$1,000,000 of outstanding commitment ($75,000,000) as
October 2, 2002. For the BVUs to have value to the lenders
our book value per common share at September 30, 2004,
would have to be in excess of $10.92. As an example, should our
book value per common share at September 30, 2004, be
$11.00, the lenders would receive a total of $120,000
representing $.08 per share times 1,500,000 BVUs. At
December 31, 2003, our book value per common share was
$10.09 and as a result, the BVUs have no current value and we
recognized no expense in the periods presented for the BVUs.
Should the BVUs have an intrinsic value at a future reporting
period, we will recognize as expense the intrinsic value over
the remaining life of the BVUs, adjusted for any change in the
intrinsic value at subsequent future reporting periods. We are
obligated to pay the lenders any amounts due to them relating to
the BVUs as of September 30, 2004, even though we have
terminated the Secured Revolving Credit.

Mortgage Loans Payable

Maturity dates, weighted average interest rates
and amounts due at maturity on our mortgage loans payable were
(dollar amounts in thousands):

|           |  |                   |         |      |  |                   |       |      |  |   |         |  |  |  |       |  
|---------- |  | ----------------- | ------- | ---- |  | ----------------- | ----- | ---- |  | - | ------- |  |  |  | ----- | -
|Maturity   |  | December 31, 2003 |         | Rate |  | December 31, 2002 |       | Rate
|           |  |                   |         |      |  |                   |       |     
|2004       |  | $                 |        |      |  |                   |      |      |  | $ | 4,161   |  |  |  | 11.70 | %
|2005       |  |                   | 13,412  |      |  |                   | 10.41 | %    |  |   | 28,249  |  |  |  | 8.63  | %
|2006       |  |                   | 47,673  |      |  |                   | 8.63  | %    |  |   | 37,831  |  |  |  | 9.25  | %
|2007       |  |                   |        |      |  |                   |      |      |  |   |        |  |  |  |      |  
|2008       |  |                   | 15,938  |      |  |                   | 7.27  | %    |  |   | 16,262  |  |  |  | 7.27  | %
|Thereafter |  |                   | 46,291  |      |  |                   | 8.55  | %    |  |   | 46,903  |  |  |  | 8.55  | %
|           |  |                   |         |      |  |                   |       |      |  |   |         |  |  |  |       |  
|           |  | $                 | 123,314 |      |  |                   |       |      |  | $ | 133,406 |  |  |  |       |  
|           |  |                   |         |      |  |                   |       |      |  |   |         |  |  |  |       |  

As of December 31, 2003 and 2002, the
aggregate carrying value of real estate properties securing our
mortgage loans payable was $171,429,000 and $187,481,000,
respectively.

Subsequent to December 31, 2003, we paid off
a mortgage loan payable to a REMIC Pool we originated in the
amount of $4,525,000 and $1,250,000 on another mortgage loan.
Both loans had scheduled maturities in 2005.

Bonds Payable and Capital Leases.At December 31, 2003 and 2002, we
had outstanding principal of $6,640,000 and $6,960,000,
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
matures during 2015. For the year ended December 31, 2003,
the weighted average interest rate, including letter of credit
fees, on the outstanding bonds was 4.4%. Additionally, at
December 31, 2003 and 2002, we had outstanding principal of
$3,961,000 and $4,021,000, respectively on a multi-unit housing
tax-exempt revenue bond that bears interest at 8.75% and matures
in 2025 and is secured by one assisted living property in Oregon.

56



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2003 and 2002, we had
outstanding principal of $4,085,000 and $4,380,000,
respectively, under capital lease obligations. The capital
leases are secured by four assisted living residences, have a
weighted average interest rate of 7.6% and mature at various
dates through 2013.

As of December 31, 2003 and 2002, the
aggregate gross investment in real estate properties securing
our bonds payable and capital leases was $26,078,000 and
$26,078,000, respectively.

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

The Senior Participation receives interest at a
rate of 9.25% per annum, payable monthly in arrears, on the then
outstanding principal balance of the Senior Participation. In
addition, the Senior Participation receives all mortgage
principal collected on the Participation Loan Pool until the
Senior Participation balance has been reduced to zero. We retain
interest received on the Participation Loan Pool in excess of
the 9.25% paid to the Senior Participation. The ultimate
extinguishment of the Senior Participation is tied to the
underlying maturities of loans in the Participation Loan Pool
which range from 14 to 176 months. As of December 31,
2003, there are 21 loans remaining in the Participation Loan
Pool, the Senior Participation balance was $18,250,000 and the
weighted average interest rate was 11.58%. We have accounted for
the participation transaction as a secured borrowing under SFAS
No. 140 Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.

Liability for 9.5% Series A Preferred
Stock Redemption.As required by SFAS
No. 150, we classified the Series A Preferred Stock that
was mandatorily redeemable on December 31, 2003 as a
liability as a result of our December 2003 announced redemption
of 1,225,680 shares of Series A Preferred Stock.

Scheduled Principal Payments.Total scheduled principal payments for
our mortgage loans payable, bonds payable and capital lease
obligations as of December 31, 2003 were $3,023,000,
$16,312,000, $47,388,000, $2,190,000, $16,279,000 and
$52,808,000 in 2004, 2005, 2006, 2007, 2008 and thereafter. To
the extent we receive principal payments on the mortgage loans
securing the Senior Participation Payable, scheduled principal
payments at December 31, 2003 were $860,000, $2,899,000,
$1,018,000, $10,278,000 and $3,195,000 in 2004, 2005, 2006, 2007
and 2008.

Fair Value.The
estimated fair value of the Senior Participation Payable was
$19,133,000 at December 31, 2003 based on the net present
value of the future cash flows discounted at 7.0%. The estimated
fair value of the mortgage loans payable, bonds payable and
capital lease obligations approximated their carrying values at
December 31, 2003.

12.     Stockholders
Equity

Preferred stock.Preferred Stock is comprised of four
series of cumulative redeemable preferred stock summarized as
follows:

|                                                    |  |                       |           |             |  |          |           |                   |  |      |       |      |  |  |     |   |  |   |       |  |  |   |       | 
|--------------------------------------------------- |  | --------------------- | --------- | ----------- |  | -------- | --------- | ----------------- |  | ---- | ----- | ---- |  |  | --- | - |  | - | ----- |  |  | - | ----- | 
|                                                    |  |                       |           |             |  |          |           |                  
|                                                    |  | Shares outstanding at |           |             |  |          |           | Carrying Value at
|                                                    |  | December 31,          |           | Liquidation |  |          |           | December 31,     
|                                                    |  |                       |           | Value Per   |  | Dividend |           |                  
|Issuance                                            |  | 2003                  |           | 2002        |  | share    |           | Rate              |  | 2003 |       | 2002
|                                                    |  |                       |           |             |  |          |           |                   |  |      |       |     
|Series A Cumulative Preferred Stock                 |  |                       | 1,838,520 |             |  |          | 3,069,200 |                   |  | $    | 25.00 |      |  |  | 9.5 | % |  | $ | 23.99 |  |  | $ | 23.98 | 
|Series B Cumulative Preferred Stock                 |  |                       | 1,988,000 |             |  |          | 1,993,000 |                   |  | $    | 25.00 |      |  |  | 9.0 | % |  | $ | 23.91 |  |  | $ | 23.90 | 
|Series C Cumulative Convertible Preferred
    Stock |  |                       | 2,000,000 |             |  |          | 2,000,000 |                   |  | $    | 19.25 |      |  |  | 8.5 | % |  | $ | 18.80 |  |  | $ | 18.80 | 
|Series E Cumulative Convertible Preferred
    Stock |  |                       | 2,200,000 |             |  |          |          |                   |  | $    | 25.00 |      |  |  | 8.5 | % |  | $ | 23.84 |  |  |   |      | 

Dividends on the Series A Preferred Stock
and Series B Preferred Stock are cumulative from the date
of original issue and are payable monthly to stockholders of
record on the first day of each month. In December 2003 we
announced the redemption of 40% of our outstanding Series A
Preferred Stock or 1,225,680 shares. Accordingly, we

57



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

recognized a preferred stock redemption charge of
$1,241,000 related to the original issue costs of the shares we
redeemed. In 2004, we announced the redemption of all of the
remaining 1,838,520 outstanding shares of Series A
Preferred Stock and all of the 1,988,000 outstanding shares of
Series B Preferred Stock. Accordingly, we will recognize
the $1,861,000 and $2,168,000 of original issue costs related to
the Series A and Series B Preferred Stock,
respectively, as a preferred stock redemption charge in the
first quarter of 2004. During 2003, we purchased and retired
5,000 shares of Series A Preferred Stock for a total cost
of $100,000 and 5,000 shares of Series B Preferred Stock
for a total cost of $97,000. No preferred shares were purchased
during 2002.

Our Series C Cumulative Convertible
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, 2003 and 2002.

In September 2003, we sold 2,200,000 shares of
our Series E Preferred Stock in a public offering. We
received $52,438,000 in net proceeds which we used to pay in
full our Secured Revolving Credit. Our 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. On or after
September 19, 2006 and before September 19, 2008, we
have the right but not the obligation, upon not less than
30 nor more than 60 days written notice, to
redeem shares of the Series E Preferred Stock, in whole or
in part, if such notice is given within fifteen trading days of
the end of the 30 day period in which the closing price of
our common stock on the NYSE equals or exceeds 125% of the
applicable conversion price for 20 out of 30 consecutive trading
days, for cash at a redemption price of $25.00 per share, plus
all accrued and unpaid dividends. On or after September 19,
2008, we, at our option, upon not less than 30 nor more than
60 days written notice, may redeem shares of the
Series E Preferred Stock, in whole or in part, at any time
or from time to time, for cash at a redemption price of
$25.00 per share, plus all accrued and unpaid dividends
thereon. We may not otherwise redeem the Series E Preferred
Stock before September 19, 2008, except in order to
preserve our status as a real estate investment trust. Dividends
are payable quarterly. Total shares reserved for issuance of
common stock related to the conversion of Series E
Preferred Stock were 4,400,000 at December 31, 2003.

In February 2004, we sold 4,000,000 shares of our
Series F Preferred Stock in a registered direct placement.
Dividends will be payable quarterly, beginning April 15,
2004. We may not redeem the Series F Preferred Stock prior
to February 23, 2009, except as necessary to preserve our
status as a real estate investment trust. On or after
February 23, 2009, we may, at our option, redeem the
Series F Preferred Stock, 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.
We received $98,795,000 in net proceeds and we will use
approximately $96,500,000 of the proceeds to redeem all
remaining outstanding shares of our Series A and
Series B Preferred Stock.

While outstanding, the liquidation preferences of
the preferred stocks in the table above and our Series F
Preferred Stock are pari passu. None have any voting
rights, any stated maturity, nor are they subject to any sinking
fund or mandatory redemption.

Common Stock.During
the year ended December 31, 2003, we repurchased and
retired 482,800 shares of common stock for an aggregate purchase
price of approximately $3,246,000, an average of $6.72 per
share. The shares were purchased on the open market under a
Board authorization to purchase up to 5,000,000 shares.
Including these purchases, 2,348,200 shares have been
purchased under this authorization. Therefore, we continue to
have an open Board authorization to purchase an additional
2,651,800 shares.

During 2002 and 2001 we repurchased and retired
338,200 and 7,588,196 shares of common stock, respectively,
for an aggregate purchase price of $2,333,000 and $41,737,000,
respectively. Of the shares repurchased in 2001, 6,060,996 were
purchased pursuant to a tender offer for 6,000,000 shares,
plus up to 2% of outstanding shares as allowed by tender offer
regulations, at $5.75 per share plus costs.

Subsequent to December 31, 2003, two of our
limited partners exercised their conversion rights and exchanged
their interests in five of our limited partnerships. In
accordance with the partnership agreements, at our option, we
issued 175,392 shares of our common stock. Since the market
value of the common stock issued was greater than the book value
of the partnership interests received, we will recognize in the
first quarter of 2004 a $295,000 increase in the basis on the
properties underlying the limited partnership interest acquired.

58



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Other Equity.Other
equity consists of the following (amounts in thousands):

|                                             |                    |              |        |      |   |   |        |        |  
|-------------------------------------------- | ------------------ | ------------ | ------ | ---- | - | - | ------ | ------ | -
|                                             |                    |             
|                                             |                    | December 31,
|                                             |                    |             
|                                             |                    | 2003         |        | 2002
|                                             |                    |              |        |     
|Notes receivable from stockholders           |                    | $            | (2,792 | )    |   | $ | (7,227 | )     
|Unamortized balance on deferred compensation |                    |              |       |      |   |   | (163   | )     
|Accumulated comprehensive income             |                    |              | 2,154  |      |   |   | 1,278  |       
|                                             |                    |              |        |      |   |   |        |       
|                                             | Total Other Equity |              | $      | (638 | ) |   | $      | (6,112 | )
|                                             |                    |              |        |      |   |   |        |       

Deferred compensation is the value of restricted
stock awards granted to employees. See Stock Based
Compensation Plansbelow.

Accumulated comprehensive income represents the
net increase in fair market value over the carrying value of our
available-for-sale securities.

Stock Based Compensation Plans.During 1998 we adopted and our
stockholders approved the 1998 Equity Participation Plan under
which 500,000 shares of common stock have been reserved for
stock based compensation awards. The 1998 Equity Participation
Plan and our Restated 1992 Stock Option Plan under which 500,000
shares of common stock were reserved (collectively the
Plans) provide for the issuance of incentive and
nonqualified stock options, restricted stock and other stock
based awards to officers, employees, non-employee directors and
consultants. The terms of the awards granted under the Plans are
set by our compensation committee at its discretion; however, in
the case of incentive stock options, the term may not exceed
10 years from the date of grant. Total shares available for
grant under the Plans as of December 31, 2003, 2002 and
2001 were 53,176, 4,276 and 28,776, respectively. All options
outstanding vest over five years from the original date of
grant. Unexercised options expire seven years after the date of
vesting.

Nonqualified stock option activity for the years
ended December 31, 2003, 2002 and 2001, was as follows:

|                         |  |        |          |                        |  |      |         |      |  |      |         |      |  |   |      |  |  |   |      |  |  |   |      | 
|------------------------ |  | ------ | -------- | ---------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|                         |  |        |          |                       
|                         |  | Shares |          | Weighted Average Price
|                         |  |        |          |                       
|                         |  | 2003   |          | 2002                   |  | 2001 |         | 2003 |  | 2002 |         | 2001
|                         |  |        |          |                        |  |      |         |      |  |      |         |     
|Outstanding, January 1   |  |        | 569,500  |                        |  |      | 545,000 |      |  |      | 509,000 |      |  | $ | 5.63 |  |  | $ | 5.41 |  |  | $ | 5.74 | 
|Granted                  |  |        |         |                        |  |      | 30,000  |      |  |      | 102,000 |      |  |   |     |  |  | $ | 7.63 |  |  | $ | 5.29 | 
|Exercised                |  |        | (245,629 | )                      |  |      |        |      |  |      |        |      |  | $ | 5.40 |  |  |   |     |  |  |   |     | 
|Canceled                 |  |        | (38,000  | )                      |  |      | (5,500  | )    |  |      | (66,000 | )    |  | $ | 5.61 |  |  | $ | 5.26 |  |  | $ | 7.73 | 
|                         |  |        |          |                        |  |      |         |      |  |      |         |      |  |   |      |  |  |   |      |  |  |   |      | 
|Outstanding, December 31 |  |        | 285,871  |                        |  |      | 569,500 |      |  |      | 545,000 |      |  | $ | 5.63 |  |  | $ | 5.53 |  |  | $ | 5.41 | 
|                         |  |        |          |                        |  |      |         |      |  |      |         |      |  |   |      |  |  |   |      |  |  |   |      | 
|Exercisable, December 31 |  |        | 85,671   |                        |  |      | 214,300 |      |  |      | 102,000 |      |  | $ | 5.59 |  |  | $ | 5.47 |  |  | $ | 5.55 | 
|                         |  |        |          |                        |  |      |         |      |  |      |         |      |  |   |      |  |  |   |      |  |  |   |      | 

Restricted stock activity for the years ended
December 31, 2003, 2002 and 2001 was as follows:

|                         |          |      |         |         |   |      |         |        |   |   |         |         |  
|------------------------ | -------- | ---- | ------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------- | -
|                         |          | 2003 |         | 2002    |   | 2001
|                         |          |      |         |         |   |     
|Outstanding, January 1   |          |      | 202,664 |         |   |      | 209,164 |        |   |   | 265,560 |        
|                         | Granted  |      |         |        |   |      |         |       |   |   |         |        |  
|                         | Vested   |      |         | (40,852 | ) |      |         | (6,500 | ) |   |         | (6,500  | )
|                         | Canceled |      |         | (10,900 | ) |      |         |       |   |   |         | (49,896 | )
|                         |          |      |         |         |   |      |         |        |   |   |         |        
|Outstanding, December 31 |          |      | 150,912 |         |   |      | 202,664 |        |   |   | 209,164 |        
|                         |          |      |         |         |   |      |         |        |   |   |         |        
|Compensation Expense     |          | $    | 132,000 |         |   | $    | 245,000 |        |   | $ | 24,000  |        
|                         |          |      |         |         |   |      |         |        |   |   |         |        

All restricted stock outstanding at
December 31, 2003, vests ratably over six years if we meet
certain financial objectives and the grantee remains employed by
us. If, in any given year, we do not meet the stated financial
objectives then the shares scheduled to vest in that year will
not vest and the vesting period will be extended by one year.
Future compensation expense will be recognized over the service
period at the market price per share on the date of vesting. On
January 1, 2003, 26,352 shares of restricted stock
vested and during the year 14,500 vested as a

59



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

result of an employee termination. Since the
January 1, 2003, vesting was predicated on reaching certain
financial targets at December 31, 2002, we recorded
$180,000 compensation expense in 2002, which represented the
number of shares vested multiplied by the closing stock price of
$6.83 on January 2, 2003. Compensation expense of $132,000
was recognized in 2003 related to shares vesting ratably over
five years. Of the $245,000 restricted stock compensation
expense recognized in 2002, $180,000 related to shares vesting
on January 1, 2003 as previously discussed and $65,000
related to shares vesting ratably over five years. Restricted
stock compensation expense in 2001 of $24,000 related to shares
vesting ratably over five years.

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.

As of December 31, 2003, 2002, and 2001,
there were 285,871, 569,500 and 545,000, options outstanding,
respectively, subject to the disclosure requirements of SFAS
No. 123. The fair value of these options was estimated
utilizing the Black-Scholes valuation model and assumptions as
of each respective grant date. No options were granted in 2003.
In determining the estimated fair value for the options granted
in 2002, the weighted average expected life assumption was five
years, the weighted average volatility was 0.49 and the weighted
average risk free interest rate was 3.80%. The weighted average
fair value of the options granted was estimated to be $1.44. In
determining the estimated fair value for the options granted in
2001, the weighted average expected life assumption was five
years, the weighted average volatility was 0.49 and the weighted
average risk free interest rate was 4.48%. The weighted average
fair value of the options granted was estimated to be $1.46.
There was no material pro-forma effect on net income or earnings
per share for the years ending December 31, 2003, 2002, and
2001. The weighted average exercise price of the options was
$5.63, $5.46, and $5.34 and the weighted average remaining
contractual life was 1.6, 2.5, and 3.4, years as of
December 31, 2003, 2002, and 2001, respectively.

During 2003 a total of 245,629 options were
exercised at a total option value of $1,327,000 and a total
market value as of the exercise dates of $1,772,000. Subsequent
to December 31, 2003, a total of 23,200 options were
exercised at a total option value of $125,000 and a total market
value as of the exercise dates of $343,000.

Effective January 1, 2003, we adopted SFAS
No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure.
SFAS No. 148 amends SFAS No. 123 Accounting
for Stock-Based Compensation to provide alternative
methods of transition to SFAS No. 123s fair value
method of accounting for stock-based employee compensation. SFAS
No. 148 also amends the disclosure provisions of SFAS
No. 123 and APB Opinion No. 28 Interim
Financial Reporting to require disclosure in the
summary of significant accounting policies of the effects of an
entitys accounting policy for stock-based employee
compensation on reported net income and earnings per share in
annual and interim financial statements. SFAS No. 148
provides three transition methods for entities that adopt the
fair value recognition provisions of SFAS No. 123 for
stock-based employee compensation. In addition to the
prospective method originally provided under SFAS No. 123,
SFAS No. 148 provides for a modified prospective method and
a retroactive restatement method. We have adopted the
prospective method and therefore will recognize compensation
expense related to all employee stock-based awards granted,
modified or settled after January 1, 2003.

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

The new loan agreements provided that the
interest rate would be 6.07% (AFR for an equivalent 3 to
9 year instrument) and interest payments were to be paid
from dividends received on shares pledged as security for the
New Agreements during the quarter in which the interest is due.
If the dividend does not fully pay the interest due or if no
dividend is paid, the unpaid interest is added to the principal
balance. In addition, the notes also require the borrower to
reduce principal by one-half of the difference between the most
recent dividend received on the pledged shares and the interest
paid on the loans from that dividend. During the first quarter
of 2003 and all of 2002, the difference between the dividend
paid and the current interest due on the outstanding loan
balances was added to the loan

60



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##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

balance in accordance with the loan agreements.
No dividend was paid on our common shares in 2001 and all
interest due on these loans was added to the principal balances.

During 2001, we granted a stock price adjustment
of the loans to officers and Board Members with such loans. The
loans were adjusted to the sum of the shares collateralizing the
notes times the net book value (or NBV) of a share of common
stock as of September 30, 2001. The NBV per share at that
date was $8.60 and the closing price as reported by the NYSE was
$5.13. This total adjustment amounted to a non-cash charge of
$2,453,000. We accounted for the shares underlying the loans
that were modified under variable plan accounting as required by
SFAS No. 123 Accounting for Stock Based
Compensation.

During 2003, one officer loan was repaid in full
and in February 2004 the two additional loans were paid in full.
As a result, subsequent to the February 2004 payments, we have
no outstanding loans to employees or Board members. The two
loans paid in February 2004 were to two Board members who sold
shares of our common stock to repay the loans.

At December 31, 2003 we had three notes due
from two former officers and the estate of a former Board
member. These notes were not modified in 2003, 2002 or 2001 and
the interest is paid quarterly and is current on all of these
notes. These remaining original notes provide for the same
calculation of the periodic principal reductions; however,
interest is payable every quarter, regardless of receipt of a
dividend. The original notes converted to fully amortizing loans
with 16 quarterly payments in 2002. We received $4,444,000 in
principal repayments on all notes during 2003. The original
notes bear interest rates ranging from 5.77% to 6.63%. In
February 2004 one note due from a former officer was repaid in
full.

We currently have no loan programs for officers
and/or directors and do not provide any guarantee to any officer
and/or director or third party relating to purchases and sales
of our equity securities.

At December 31, 2003, 2002 and 2001, loans
totaling $2,792,000, $7,227,000 and $8,042,000, respectively
were outstanding. At December 31, 2003, 2002 and 2001, the
market value of the common stock securing these loans was
approximately $4,392,520, $5,168,000 and $4,972,000,
respectively.

13.     Commitments
and Contingencies

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
because the cost of such insurance has increased substantially
and some insurers have stopped offering such insurance for long
term care facilities. Additionally, 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.

At December 31, 2003, we had a contingent
commitment to provide Alterra $2,500,000 to be spent on
improvements to properties we own and lease to Alterra. The
money is to be spent over a three year period and will result in
a rental rate increase equal to 10% of the amount funded. The
agreement also provides for an additional $2,500,000

61



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

funding by us over the following three years to
be spent on mutually agreed upon property expansion with a
rental rate increase equal to 10% of the amount funded. See
Note 3. Major Operatorsfor further discussions.

14.     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 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
2003 and 2002 were cash distributions. There were no
distributions to common stockholders in 2001.

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

|                          |       |            |       |       |  |      |       |       |  |   |   |   | 
|------------------------- | ----- | ---------- | ----- | ----- |  | ---- | ----- | ----- |  | - | - | - | 
|                          |       |           
|                          |       | Year Ended
|                          |       |           
|                          |       | 2003       |       | 2002  |  | 2001
|                          |       |            |       |       |  |     
|Ordinary income           |       | $          |      |       |  | $    | 0.379 |       |  | $ |  |  
|Non-taxable distribution  |       |            | 0.650 |       |  |      |      |       |  |   |  |  
|Section 1250 capital gain |       |            |      |       |  |      | 0.021 |       |  |   |  |  
|Long term capital gain    |       |            |      |       |  |      |      |       |  |   |  |  
|                          |       |            |       |       |  |      |       |       |  |   |   |  
|                          | Total |            | $     | 0.650 |  |      | $     | 0.400 |  |   | $ |  | 
|                          |       |            |       |       |  |      |       |       |  |   |   |  

15.     Net (Loss)
Income Per Share

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

|                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                              |  |                                
|                                                              |  | For the year ended December 31,
|                                                              |  |                                
|                                                              |  | 2003                            |         | 2002 |  | 2001
|                                                              |  |                                 |         |      |  |     
|Net income (loss)                                             |  | $                               | 24,319  |      |  | $    | 31,803  |   |  | $ | (2,908  | )
|Preferred stock redemption                                    |  |                                 | (1,241  | )    |  |      |        |   |  |   |        |  
|Preferred dividends                                           |  |                                 | (16,596 | )    |  |      | (15,042 | ) |  |   | (15,077 | )
|                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|Net income (loss) for basic net income per
    share          |  |                                 | 6,482   |      |  |      | 16,761  |   |  |   | (17,985 | )
|7.75% debentures due 2002                                     |  |                                 |        |      |  |      |        |   |  |   |        |  
|Other dilutive securities                                     |  |                                 |        |      |  |      |        |   |  |   |        |  
|                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|Net income (loss) for diluted net income
    (loss) per share |  | $                               | 6,482   |      |  | $    | 16,761  |   |  | $ | (17,985 | )
|                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|Shares for basic net income per share                         |  |                                 | 17,836  |      |  |      | 18,371  |   |  |   | 23,924  |  
|Stock options                                                 |  |                                 | 139     |      |  |      | 143     |   |  |   |        |  
|7.75% debentures due 2002                                     |  |                                 |        |      |  |      |        |   |  |   |        |  
|Other dilutive securities                                     |  |                                 |        |      |  |      |        |   |  |   |        |  
|                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|Shares for diluted net income per share                       |  |                                 | 17,975  |      |  |      | 18,514  |   |  |   | 23,924  |  
|                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|Basic net income (loss) per share                             |  | $                               | 0.36    |      |  | $    | 0.91    |   |  | $ | (0.75   | )
|                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|Diluted net income (loss) per share                           |  | $                               | 0.36    |      |  | $    | 0.91    |   |  | $ | (0.75   | )
|                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  

62



---



##### 



LTC PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

16.     Quarterly
Financial Information (Unaudited)

|                                                                                              |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |       |  
|--------------------------------------------------------------------------------------------- | ------- | --------------------------------------- | ------ | -------- |  | ------------- | ------ | ------------ | - | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                                              |         |                                        
|                                                                                              |         | For the quarter ended                  
|                                                                                              |         |                                        
|                                                                                              |         | March 31,                               |        | June 30, |  | September 30, |        | December 31,
|                                                                                              |         |                                         |        |          |  |               |        |             
|                                                                                              |         |                                        
|                                                                                              |         | (in thousands except per share amounts)
|2003                                                                                          |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |      
|Revenues(1)                                                                                   |         | $                                       | 15,860 |          |  | $             | 15,751 |              |   | $ | 15,920 |       |   | $ | 15,916 |      
|Net (loss) income from discontinued
    operations                                            |         | $                                       | (24    | )        |  | $             | 663    |              |   | $ | (185   | )     |   | $ | 2,013  |      
|Net income available to common stockholders(2)                                                |         | $                                       | 123    |          |  | $             | 2,624  |              |   | $ | 2,129  |       |   | $ | 1,606  |      
|Net (loss) income per common share from
    continuing operations net of preferred dividends: |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |      
|                                                                                              | Basic   |                                         | $      | 0.01     |  |               | $      | 0.11         |   |   | $      | 0.13  |   |   | $      | (0.02 | )
|                                                                                              | Diluted |                                         | $      | 0.01     |  |               | $      | 0.11         |   |   | $      | 0.13  |   |   | $      | (0.02 | )
|Net income (loss) per common share from
    discontinued operations:                          |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |      
|                                                                                              | Basic   |                                         | $      |         |  |               | $      | 0.04         |   |   | $      | (0.01 | ) |   | $      | 0.11  |  
|                                                                                              | Diluted |                                         | $      |         |  |               | $      | 0.04         |   |   | $      | (0.01 | ) |   | $      | 0.11  |  
|Net income (loss) per common share available
    to common stockholders:                      |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |      
|                                                                                              | Basic   |                                         | $      | 0.01     |  |               | $      | 0.15         |   |   | $      | 0.12  |   |   | $      | 0.09  |  
|                                                                                              | Diluted |                                         | $      | 0.01     |  |               | $      | 0.15         |   |   | $      | 0.12  |   |   | $      | 0.09  |  
|Dividends per share                                                                           |         | $                                       | 0.10   |          |  | $             | 0.15   |              |   | $ | 0.15   |       |   | $ | 0.25   |      
|2002                                                                                          |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |      
|Revenues(1)                                                                                   |         | $                                       | 16,973 |          |  | $             | 16,780 |              |   | $ | 17,306 |       |   | $ | 17,078 |      
|Net income (loss) from discontinued
    operations                                            |         | $                                       | (80    | )        |  | $             | 13,204 |              |   | $ | 232    |       |   | $ | 589    |      
|Net income available to common stockholders(3)                                                |         | $                                       | 2,423  |          |  | $             | 10,601 |              |   | $ | 2,792  |       |   | $ | 945    |      
|Net income (loss) per common share from
    continuing operations net of preferred dividends: |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |      
|                                                                                              | Basic   |                                         | $      | 0.14     |  |               | $      | (0.14        | ) |   | $      | 0.14  |   |   | $      | 0.02  |  
|                                                                                              | Diluted |                                         | $      | 0.14     |  |               | $      | (0.14        | ) |   | $      | 0.14  |   |   | $      | 0.02  |  
|Net income per common share from discontinued
    operations:                                 |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |      
|                                                                                              | Basic   |                                         | $      |         |  |               | $      | 0.72         |   |   | $      | 0.01  |   |   | $      | 0.03  |  
|                                                                                              | Diluted |                                         | $      |         |  |               | $      | 0.67         |   |   | $      | 0.01  |   |   | $      | 0.03  |  
|Net income per common share available to common
    stockholders:                             |         |                                         |        |          |  |               |        |              |   |   |        |       |   |   |        |      
|                                                                                              | Basic   |                                         | $      | 0.13     |  |               | $      | 0.58         |   |   | $      | 0.15  |   |   | $      | 0.05  |  
|                                                                                              | Diluted |                                         | $      | 0.13     |  |               | $      | 0.55         |   |   | $      | 0.15  |   |   | $      | 0.05  |  
|Dividends per share                                                                           |         | $                                       | 0.10   |          |  | $             | 0.10   |              |   | $ | 0.10   |       |   | $ | 0.10   |      



---



|    |                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As required by SFAS No. 144, revenues
    related to properties sold in 2003 and 2002 have been
    reclassified to discontinued operations for all periods
    presented.
|   
|(2) | Includes impairment charges totaling $1,260.
    See Note 5. Impairment Charge for further discussion.                                                                    
|   
|(3) | Includes impairment charges totaling $7,807.
    See Note 5. Impairment Charge for further discussion.                                                                    



|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.

63



---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|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, with the participation
of our Chief Executive Officer and Chief Financial Officer, have
evaluated 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 (or Exchange Act). As of the end of the period
covered by this report based on such evaluation our Chief
Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, our disclosure controls and
procedures are effective in recording, processing, summarizing
and reporting, on a timely basis, information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act.

In the fourth quarter of 2003, we engaged IC
Consulting Services, LLC, an independent risk consulting and
internal audit firm, to assist us in evaluating and documenting
our controls and procedures.



|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    COMPANY

The information with respect to directors, set
forth in our Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 18, 2004 under the caption
Election of Directors is incorporated herein by
reference. Our executive officers are:

|                        |  |     |    |          |  |                                                              
|----------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|Andre C. Dimitriadis    |  |     | 63 |          |  | Chairman, Chief Executive Officer, President and
    Director
|Wendy L. Simpson        |  |     | 54 |          |  | Vice Chairman, Chief Financial Officer and
    Director      
|Christopher T. Ishikawa |  |     | 40 |          |  | Executive Vice President and Chief Investment
    Officer    
|Alex J. Chavez          |  |     | 39 |          |  | Senior Vice President and Treasurer                          

Andre C. Dimitriadis founded LTC Properties in
1992 and has been our Chairman and Chief Executive Officer since
inception. In 2000 Mr. Dimitriadis also assumed the
position of President. Mr. Dimitriadis is a director of
Assisted Living Concepts, Inc.

Wendy L. Simpson has been Vice Chairman since
April 2000 and Vice Chairman and Chief Financial Officer since
July 2000. Prior to that she was a financial advisor to Coram
Healthcare Corporation, a health care organization, from
November 1999 through March 31, 2000. Ms. Simpson
joined Coram as Executive Vice President and Chief Financial
Officer in March 1998 and resigned in November 1999. Prior to
joining Coram, Ms. Simpson was Executive Vice President,
Chief Financial Officer, Chief Operating Officer and director of
Transitional Hospitals Corporation from December 1994 to August
1997 and Senior Vice President and Chief Financial Officer from
July 1994 to December 1994. Coram Healthcare commenced
bankruptcy proceedings in August 2000. Ms. Simpson has been
a director since 1995.

Christopher T. Ishikawa has served as Executive
Vice President and Chief Investment Officer since February 2001.
Mr. Ishikawa served as Senior Vice President and Chief
Investment Officer from September 1997 through January 2001 and
prior to that, he served as Vice President and Treasurer of LTC
Properties since April 1995.

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

Code of Ethics

We have adopted a Code of Business Conduct and
Ethics (or Code of Ethics) that applies to our principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, as well as directors, officers and employees. The
Code of Ethics is posted on our website
(www.ltcproperties.com)

64



---



##### 



and is available in print free of charge to any
stockholder who requests a copy. Interested parties may address
a written request for a printed copy of the code of Ethics to:
Investor Relations. LTC Properties, Inc., 22917 Pacific
Coast Hwy. Suite 350, Malibu, California 90265. We intend
to satisfy the disclosure requirement regarding any amendment
to, or a waiver of, a provision of the Code of Ethics for our
principal executive officer, principal financial officer or
controller, or persons performing similar functions by posting
such information on our website.


Section 16(a) Compliance

Information with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934, as
amended, set forth in our Proxy Statement relating to the Annual
Meeting of Stockholders to be held on May 18, 2004 under
the caption Security Ownership of Certain Beneficial
Owners and Management  Section 16(a) Beneficial
Ownership Reporting Compliance, is incorporated herein by
reference.



|         |                       
|-------- | ----------------------
|Item 11. | EXECUTIVE COMPENSATION

Information relating to executive compensation,
set forth in our Proxy Statement relating to the Annual Meeting
of Stockholders to be held on May 18, 2004 under the
caption Executive Compensation, is incorporated
herein by reference. The Comparative Performance Graph and the
Compensation Committee Report on Executive Compensation also
included in the Proxy Statement are expressly not incorporated
herein by reference.



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

Information relating to the security ownership of
management and certain beneficial owners, set forth our Proxy
Statement relating to the Annual Meeting of Stockholders to be
held May 18, 2004 under the caption Security
Ownership of Certain Beneficial Owners and Management, is
incorporated herein by reference.

Information relating to securities authorized for
issuance under our equity compensation plans, set forth in
Item 5 of this report under the caption Equity
Compensation Plan Information, is incorporated herein by
reference.



|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS

Information relating to certain relationships and
related transactions, set forth in our Proxy Statement relating
to the Annual Meeting of Stockholders to be held on May 18,
2004 under the caption Certain Relationships and Related
Transactions, is incorporated herein by reference.



|         |                                           
|-------- | ------------------------------------------
|Item 14. | PRINCIPAL ACCOUNTANT FEES AND
    SERVICES

Information relating to the fees paid to our
accountant, set forth in our Proxy Statement relating to the
Annual Meeting of Stockholders to be held on May 18, 2004
under the caption Audit Committee  Audit and
Non-Audit Fees, is incorporated herein by reference.



|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND
    REPORTS ON FORM 8-K

(a) Financial Statement Schedules

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

(b) Exhibits

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

(c) Reports on Form 8-K

None.

65



---



##### 



LTC PROPERTIES, INC.

INDEX TO FINANCIAL STATEMENT
SCHEDULES

(Item 15(a))

| |      |  |  |                                          |  |   
| | ---- |  |  | ---------------------------------------- |  | --
| | II.  |  |  | Valuation and Qualifying Accounts        |  | 67
| | III. |  |  | Real Estate and Accumulated Depreciation |  | 68
| | IV.  |  |  | Mortgage Loans on Real Estate            |  | 73

All other schedules have been omitted since the
required information is not present or not present in amounts
sufficient to require submission of the schedule.

66



---



##### 



LTC PROPERTIES, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

|                                 |  |                     |       |            |  |               |    |  |  |   |       | 
|-------------------------------- |  | ------------------- | ----- | ---------- |  | ------------- | -- |  |  | - | ----- | 
|                                 |  | Balance at          |       | Charge to  |  | Balance at   
|                                 |  | Beginning of Period |       | Operations |  | End of Period
|                                 |  |                     |       |            |  |              
|Allowance for Doubtful Accounts: |  |                     |       |            |  |               |    |  |  |   |       | 
|2003                             |  | $                   | 1,280 |            |  | $             |   |  |  | $ | 1,280 | 
|2002                             |  | $                   | 1,250 |            |  | $             | 30 |  |  | $ | 1,280 | 
|2001                             |  | $                   | 1,250 |            |  | $             |   |  |  | $ | 1,250 | 

67



---



##### 



LTC PROPERTIES, INC.

SCHEDULE III

REAL ESTATE AND ACCUMULATED
DEPRECIATION

(in thousands)

|                            |  |              |        |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |   |  |   |         |  |  |   |        |  |  |                      |                 |  |        |  |        | 
|--------------------------- |  | ------------ | ------ | --------------- |  | ------------ | ------ | -------------------------------- |  | ---- | ------- | ------------- |  | -------- | ------ | ---------- |  | ---------- | ------ | ---- |  | - | ------- | - |  | - | ------- |  |  | - | ------ |  |  | -------------------- | --------------- |  | ------ |  | ------ | 
|                            |  |              |        |                 |  |              |        |                                  |  |      |         |               |  |         
|                            |  |              |        | Initial Cost to |  |              |        | Gross Amount at which Carried at |  |      |         |               |  |         
|                            |  |              |        | Company         |  | Costs        |        | December 31, 2003                |  |      |         |               |  |         
|                            |  |              |        |                 |  | Capitalized  |        |                                  |  |      |         | Construction/ |  |         
|                            |  |              |        |                 |  | Building and |        | Subsequent                       |  |      |         | Building and  |  |          |        | Accum.     |  | Renovation |        | Acq.
|                            |  | Encumbrances |        | Land            |  | Improvements |        | to Acquisition                   |  | Land |         | Improvements  |  | Total(1) |        | Deprec.(2) |  | Date       |        | Date
|                            |  |              |        |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |     
|Skilled Nursing Facilities: |  |              |        |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |   |  |   |         |  |  |   |        |  |  |                      |                 |  |        |  |        | 
|Alamogordo, NM              |  | $            | 4,559  |                 |  | $            | 210    |                                  |  | $    | 2,590   |               |  | $        | 3      |            |  | $          | 210    |      |  | $ | 2,593   |   |  | $ | 2,803   |  |  | $ | 143    |  |  |                      | 1985            |  |        |  | Dec-01 | 
|Altoona, IA                 |  |              |        | (3)             |  |              | 105    |                                  |  |      | 2,309   |               |  |          | 186    |            |  |            | 105    |      |  |   | 2,495   |   |  |   | 2,600   |  |  |   | 655    |  |  |                      | 1973            |  |        |  | Jan-96 | 
|Atlanta, GA                 |  |              | 4,525  | (7)             |  |              | 175    |                                  |  |      | 1,282   |               |  |          | 3      |            |  |            | 175    |      |  |   | 1,285   |   |  |   | 1,460   |  |  |   | 259    |  |  |                      | 1968            |  |        |  | Sep-99 | 
|Atmore, AL                  |  |              |        | (4)             |  |              | 131    |                                  |  |      | 2,877   |               |  |          |       |            |  |            | 131    |      |  |   | 2,877   |   |  |   | 3,008   |  |  |   | 766    |  |  |                      | 1967/1974       |  |        |  | Jan-96 | 
|Bedford, TX(13)             |  |              |        | (3)             |  |              | 283    |                                  |  |      | 511     |               |  |          | 404    |            |  |            | 283    |      |  |   | 915     |   |  |   | 1,198   |  |  |   | 706    |  |  |                      | 1960/2002       |  |        |  | Jan-96 | 
|Bradenton, FL               |  |              |       |                 |  |              | 330    |                                  |  |      | 2,720   |               |  |          | 87     |            |  |            | 330    |      |  |   | 2,807   |   |  |   | 3,137   |  |  |   | 897    |  |  |                      | 1989/2002       |  |        |  | Sep-93 | 
|Canyon, TX(13)              |  |              |       |                 |  |              | 196    |                                  |  |      | 506     |               |  |          | 211    |            |  |            | 196    |      |  |   | 717     |   |  |   | 913     |  |  |   | 166    |  |  |                      | 1985/86         |  |        |  | Jun-00 | 
|Carroll, IA                 |  |              |        | (3)             |  |              | 47     |                                  |  |      | 1,033   |               |  |          | 95     |            |  |            | 47     |      |  |   | 1,128   |   |  |   | 1,175   |  |  |   | 285    |  |  |                      | 1969            |  |        |  | Jan-96 | 
|Chesapeake, VA              |  |              |       |                 |  |              | 388    |                                  |  |      | 3,469   |               |  |          | 8      |            |  |            | 388    |      |  |   | 3,477   |   |  |   | 3,865   |  |  |   | 1,127  |  |  |                      | 1977/2002       |  |        |  | Oct-95 | 
|Clovis, NM                  |  |              |       |                 |  |              | 561    |                                  |  |      | 5,539   |               |  |          |       |            |  |            | 561    |      |  |   | 5,539   |   |  |   | 6,100   |  |  |   | 331    |  |  |                      | 1970            |  |        |  | Dec-01 | 
|Clovis, NM                  |  |              | 2,744  |                 |  |              | 598    |                                  |  |      | 5,902   |               |  |          |       |            |  |            | 598    |      |  |   | 5,902   |   |  |   | 6,500   |  |  |   | 352    |  |  |                      | 1969/95         |  |        |  | Dec-01 | 
|Coffeyville, KS(13)         |  |              |       |                 |  |              | 100    |                                  |  |      | (100    | )             |  |          |       |            |  |            | 100    |      |  |   | (100    | ) |  |   |        |  |  |   |       |  |  |                      | 1962            |  |        |  | May-97 | 
|Des Moines, IA(13)          |  |              |       |                 |  |              | 115    |                                  |  |      | 2,096   |               |  |          | 1,308  |            |  |            | 115    |      |  |   | 3,404   |   |  |   | 3,519   |  |  |   | 542    |  |  |                      | 1972            |  |        |  | Sep-99 | 
|Dresden, TN                 |  |              |       |                 |  |              | 31     |                                  |  |      | 1,529   |               |  |          | 123    |            |  |            | 31     |      |  |   | 1,652   |   |  |   | 1,683   |  |  |   | 190    |  |  |                      | 1966/2002       |  |        |  | Nov-00 | 
|Gardendale, AL              |  |              |       |                 |  |              | 84     |                                  |  |      | 6,316   |               |  |          |       |            |  |            | 84     |      |  |   | 6,316   |   |  |   | 6,400   |  |  |   | 1,572  |  |  |                      | 1976/1984       |  |        |  | May-96 | 
|Gardner, KS                 |  |              | 5,300  | (10)            |  |              | 896    |                                  |  |      | 4,478   |               |  |          | 316    |            |  |            | 896    |      |  |   | 4,794   |   |  |   | 5,690   |  |  |   | 632    |  |  |                      | 1961/1974       |  |        |  | Dec-99 | 
|Grapevine, TX               |  |              |       |                 |  |              | 431    |                                  |  |      | 1,449   |               |  |          | 100    |            |  |            | 431    |      |  |   | 1,549   |   |  |   | 1,980   |  |  |   | 121    |  |  |                      |                 |  |        |  | Jan-02 | 
|Granger, IA                 |  |              |        | (3)             |  |              | 62     |                                  |  |      | 1,356   |               |  |          | 80     |            |  |            | 62     |      |  |   | 1,436   |   |  |   | 1,498   |  |  |   | 369    |  |  |                      | 1979            |  |        |  | Jan-96 | 
|Griffin, GA                 |  |              |       | (7)             |  |              | 500    |                                  |  |      | 2,900   |               |  |          |       |            |  |            | 500    |      |  |   | 2,900   |   |  |   | 3,400   |  |  |   | 480    |  |  |                      | 1969            |  |        |  | Sep-99 | 
|Hereford, TX(13)            |  |              |       |                 |  |              | 106    |                                  |  |      | (106    | )             |  |          | 2      |            |  |            | 106    |      |  |   | (104    | ) |  |   | 2       |  |  |   | 2      |  |  |                      | 1985            |  |        |  | Oct-01 | 
|Holyoke, CO                 |  |              |       |                 |  |              | 211    |                                  |  |      | 1,513   |               |  |          | 257    |            |  |            | 211    |      |  |   | 1,770   |   |  |   | 1,981   |  |  |   | 309    |  |  |                      | 1963            |  |        |  | Nov-00 | 
|Houston, TX                 |  |              | 6,742  | (6)             |  |              | 202    |                                  |  |      | 4,458   |               |  |          | 612    |            |  |            | 202    |      |  |   | 5,070   |   |  |   | 5,272   |  |  |   | 1,324  |  |  |                      | 1961            |  |        |  | Jun-96 | 
|Houston, TX                 |  |              | 5,688  |                 |  |              | 365    |                                  |  |      | 3,769   |               |  |          | 545    |            |  |            | 365    |      |  |   | 4,314   |   |  |   | 4,679   |  |  |   | 1,226  |  |  |                      | 1964/1968       |  |        |  | Jun-96 | 
|Houston, TX                 |  |              |        | (6)             |  |              | 202    |                                  |  |      | 4,458   |               |  |          | 612    |            |  |            | 202    |      |  |   | 5,070   |   |  |   | 5,272   |  |  |   | 1,324  |  |  |                      | 1967            |  |        |  | Jun-96 | 
|Jefferson, IA               |  |              | 9,998  | (3)             |  |              | 86     |                                  |  |      | 1,883   |               |  |          | 176    |            |  |            | 86     |      |  |   | 2,059   |   |  |   | 2,145   |  |  |   | 523    |  |  |                      | 1968/1972       |  |        |  | Jan-96 | 
|Jacksonville, FL            |  |              |        |                 |  |              | 486    |                                  |  |      | 1,981   |               |  |          | 30     |            |  |            | 486    |      |  |   | 2,011   |   |  |   | 2,467   |  |  |   | 144    |  |  |                      |                 |  |        |  | Mar-02 | 
|Jessup, GA                  |  |              |       | (10)            |  |              | 35     |                                  |  |      | 465     |               |  |          | 63     |            |  |            | 35     |      |  |   | 528     |   |  |   | 563     |  |  |   | 77     |  |  |                      | 1953            |  |        |  | Dec-99 | 
|Lecanto, FL                 |  |              |       |                 |  |              | 351    |                                  |  |      | 2,665   |               |  |          | 2,251  |            |  |            | 351    |      |  |   | 4,916   |   |  |   | 5,267   |  |  |   | 1,430  |  |  |                      | 1988            |  |        |  | Sep-93 | 
|Manchester, TN              |  |              |       |                 |  |              | 50     |                                  |  |      | 954     |               |  |          | 87     |            |  |            | 50     |      |  |   | 1,041   |   |  |   | 1,091   |  |  |   | 157    |  |  |                      | 1957/67/78/2002 |  |        |  | Nov-00 | 
|Mesa, AZ                    |  |              |       |                 |  |              | 305    |                                  |  |      | 6,909   |               |  |          | 1,695  |            |  |            | 305    |      |  |   | 8,604   |   |  |   | 8,909   |  |  |   | 1,975  |  |  |                      | 1975/1996       |  |        |  | Jun-96 | 
|Mesa, AZ(13)                |  |              |        |                 |  |              | 420    |                                  |  |      | 3,258   |               |  |          | 36     |            |  |            | 420    |      |  |   | 3,294   |   |  |   | 3,714   |  |  |   | 739    |  |  |                      | 1972            |  |        |  | Oct-97 | 
|Midland, TX                 |  |              | 1,934  |                 |  |              | 33     |                                  |  |      | 2,285   |               |  |          |       |            |  |            | 33     |      |  |   | 2,285   |   |  |   | 2,318   |  |  |   | 644    |  |  |                      | 1973            |  |        |  | Feb-96 | 
|Montgomery, AL              |  |              | 3,587  | (4)             |  |              | 242    |                                  |  |      | 5,327   |               |  |          |       |            |  |            | 242    |      |  |   | 5,327   |   |  |   | 5,569   |  |  |   | 1,418  |  |  |                      | 1967/1974       |  |        |  | Jan-96 | 
|Nacogdoches, TX             |  |              |       |                 |  |              | 100    |                                  |  |      | 1,738   |               |  |          | 74     |            |  |            | 100    |      |  |   | 1,812   |   |  |   | 1,912   |  |  |   | 418    |  |  |                      | 1973            |  |        |  | Oct-97 | 
|Norwalk, IA                 |  |              |        | (3)             |  |              | 47     |                                  |  |      | 1,033   |               |  |          | 70     |            |  |            | 47     |      |  |   | 1,103   |   |  |   | 1,150   |  |  |   | 283    |  |  |                      | 1975            |  |        |  | Jan-96 | 
|Olathe, KS                  |  |              |       |                 |  |              | 520    |                                  |  |      | 1,872   |               |  |          | 43     |            |  |            | 520    |      |  |   | 1,915   |   |  |   | 2,435   |  |  |   | 288    |  |  |                      | 1968            |  |        |  | Sep-99 | 
|Phoenix, AZ                 |  |              | 6,951  |                 |  |              | 300    |                                  |  |      | 9,703   |               |  |          | 50     |            |  |            | 300    |      |  |   | 9,753   |   |  |   | 10,053  |  |  |   | 1,185  |  |  |                      | 1985            |  |        |  | Aug-00 | 
|Polk City, IA               |  |              |        | (3)             |  |              | 63     |                                  |  |      | 1,376   |               |  |          | 41     |            |  |            | 63     |      |  |   | 1,417   |   |  |   | 1,480   |  |  |   | 369    |  |  |                      | 1976            |  |        |  | Jan-96 | 
|Portland, OR                |  |              |       |                 |  |              | 100    |                                  |  |      | 1,925   |               |  |          | 457    |            |  |            | 100    |      |  |   | 2,382   |   |  |   | 2,482   |  |  |   | 582    |  |  |                      | 1956/1974       |  |        |  | Jun-97 | 
|Richland Hills, TX          |  |              |       |                 |  |              | 144    |                                  |  |      | 1,656   |               |  |          | 181    |            |  |            | 144    |      |  |   | 1,837   |   |  |   | 1,981   |  |  |   | 106    |  |  |                      | 1976            |  |        |  | Dec-01 | 
|Richmond, VA                |  |              |       |                 |  |              | 356    |                                  |  |      | 3,180   |               |  |          | 300    |            |  |            | 356    |      |  |   | 3,480   |   |  |   | 3,836   |  |  |   | 1,053  |  |  | 1970/1975/ 1980/2002 |                 |  | Oct-95 | 
|Ripley, TN                  |  |              |       |                 |  |              | 20     |                                  |  |      | 985     |               |  |          | 87     |            |  |            | 20     |      |  |   | 1,072   |   |  |   | 1,092   |  |  |   | 148    |  |  |                      | 1951/2002       |  |        |  | Nov-00 | 
|Roswell, NM                 |  |              | 3,853  |                 |  |              | 568    |                                  |  |      | 5,232   |               |  |          | 3      |            |  |            | 568    |      |  |   | 5,235   |   |  |   | 5,803   |  |  |   | 288    |  |  |                      | 1975            |  |        |  | Dec-01 | 
|Rusk, TX                    |  |              |       |                 |  |              | 34     |                                  |  |      | 2,399   |               |  |          | 115    |            |  |            | 34     |      |  |   | 2,514   |   |  |   | 2,548   |  |  |   | 873    |  |  |                      | 1969            |  |        |  | Mar-94 | 
|Sacramento, CA              |  |              |       |                 |  |              | 220    |                                  |  |      | 2,929   |               |  |          |       |            |  |            | 220    |      |  |   | 2,929   |   |  |   | 3,149   |  |  |   | 774    |  |  |                      | 1968            |  |        |  | Feb-97 | 
|Salina, KS                  |  |              |       |                 |  |              | 100    |                                  |  |      | 1,153   |               |  |          | 502    |            |  |            | 100    |      |  |   | 1,655   |   |  |   | 1,755   |  |  |   | 385    |  |  |                      | 1985            |  |        |  | May-97 | 
|Tappahannock, VA(13)        |  |              |       |                 |  |              | 375    |                                  |  |      | 1,327   |               |  |          | 65     |            |  |            | 375    |      |  |   | 1,392   |   |  |   | 1,767   |  |  |   | 847    |  |  |                      | 1977/1978       |  |        |  | Oct-95 | 
|Toppenish, WA               |  |              |       |                 |  |              | 67     |                                  |  |      | 2,719   |               |  |          |       |            |  |            | 67     |      |  |   | 2,719   |   |  |   | 2,786   |  |  |   | 811    |  |  |                      | 1960/1970       |  |        |  | Jun-95 | 
|Tucson, AZ                  |  |              | 5,876  |                 |  |              | 276    |                                  |  |      | 8,924   |               |  |          | 50     |            |  |            | 276    |      |  |   | 8,974   |   |  |   | 9,250   |  |  |   | 1,090  |  |  |                      | 1985/92         |  |        |  | Aug-00 | 
|Tucumcari, NM               |  |              |       |                 |  |              | 122    |                                  |  |      | 1,144   |               |  |          |       |            |  |            | 122    |      |  |   | 1,144   |   |  |   | 1,266   |  |  |   | 15     |  |  |                      | 1976            |  |        |  | Jun-03 | 
|Vancouver, WA               |  |              |        |                 |  |              | 133    |                                  |  |      | 3,017   |               |  |          | 122    |            |  |            | 133    |      |  |   | 3,139   |   |  |   | 3,272   |  |  |   | 901    |  |  |                      | 1952/1994       |  |        |  | Jun-95 | 
|Whitewright, TX(13)         |  |              |        |                 |  |              | 100    |                                  |  |      | 1,457   |               |  |          | 3      |            |  |            | 100    |      |  |   | 1,460   |   |  |   | 1,560   |  |  |   | 760    |  |  |                      | 1962/1964/1965  |  |        |  | Jan-96 | 
|                            |  |              |        |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |   |  |   |         |  |  |   |        |  |  |                      |                 |  |        |  |        | 
|Skilled Nursing Facilities  |  |              | 61,757 |                 |  |              | 11,982 |                                  |  |      | 142,350 |               |  |          | 11,453 |            |  |            | 11,982 |      |  |   | 153,803 |   |  |   | 165,785 |  |  |   | 32,061 |  |  |                      |                 |  |        |  |        | 
|                            |  |              |        |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |   |  |   |         |  |  |   |        |  |  |                      |                 |  |        |  |        | 

68



---



##### 



LTC PROPERTIES, INC.


SCHEDULE III

REAL ESTATE AND ACCUMULATED
DEPRECIATION

(in thousands)

|                            |  |              |        |                 |  |              |     |                                  |  |      |        |               |  |          |     |            |  |            |     |      |  |  |        |  |  |  |        |  |  |  |       |  |  |  |                 |  |  |  |        | 
|--------------------------- |  | ------------ | ------ | --------------- |  | ------------ | --- | -------------------------------- |  | ---- | ------ | ------------- |  | -------- | --- | ---------- |  | ---------- | --- | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ----- |  |  |  | --------------- |  |  |  | ------ | 
|                            |  |              |        |                 |  |              |     |                                  |  |      |        |               |  |         
|                            |  |              |        | Initial Cost to |  |              |     | Gross Amount at which Carried at |  |      |        |               |  |         
|                            |  |              |        | Company         |  | Costs        |     | December 31, 2003                |  |      |        |               |  |         
|                            |  |              |        |                 |  | Capitalized  |     |                                  |  |      |        | Construction/ |  |         
|                            |  |              |        |                 |  | Building and |     | Subsequent                       |  |      |        | Building and  |  |          |     | Accum.     |  | Renovation |     | Acq.
|                            |  | Encumbrances |        | Land            |  | Improvements |     | to Acquisition                   |  | Land |        | Improvements  |  | Total(1) |     | Deprec.(2) |  | Date       |     | Date
|                            |  |              |        |                 |  |              |     |                                  |  |      |        |               |  |          |     |            |  |            |     |     
|Assisted Living Residences: |  |              |        |                 |  |              |     |                                  |  |      |        |               |  |          |     |            |  |            |     |      |  |  |        |  |  |  |        |  |  |  |       |  |  |  |                 |  |  |  |        | 
|Ada, OK                     |  |              |       |                 |  |              | 100 |                                  |  |      | 1,650  |               |  |          |    |            |  |            | 100 |      |  |  | 1,650  |  |  |  | 1,750  |  |  |  | 324   |  |  |  | 1996            |  |  |  | Dec-96 | 
|Arlington, OH               |  |              |        | (12)            |  |              | 629 |                                  |  |      | 6,973  |               |  |          |    |            |  |            | 629 |      |  |  | 6,973  |  |  |  | 7,602  |  |  |  | 381   |  |  |  | 1993            |  |  |  | Dec-01 | 
|Arvada, CO                  |  |              | 6,626  | (8)             |  |              | 100 |                                  |  |      | 2,810  |               |  |          | 276 |            |  |            | 100 |      |  |  | 3,086  |  |  |  | 3,186  |  |  |  | 519   |  |  |  | 1997            |  |  |  | Aug-97 | 
|Athens, TX                  |  |              |       |                 |  |              | 96  |                                  |  |      | 1,510  |               |  |          | 1   |            |  |            | 96  |      |  |  | 1,511  |  |  |  | 1,607  |  |  |  | 332   |  |  |  | 1995            |  |  |  | Jan-96 | 
|Bakersfield, CA             |  |              | 9,013  |                 |  |              | 834 |                                  |  |      | 11,986 |               |  |          | 20  |            |  |            | 834 |      |  |  | 12,006 |  |  |  | 12,840 |  |  |  | 755   |  |  |  | 1998/2002       |  |  |  | Dec-01 | 
|Battleground, WA            |  |              |       |                 |  |              | 100 |                                  |  |      | 2,500  |               |  |          |    |            |  |            | 100 |      |  |  | 2,500  |  |  |  | 2,600  |  |  |  | 479   |  |  |  | 1996            |  |  |  | Nov-96 | 
|Beatrice, NE                |  |              |       |                 |  |              | 100 |                                  |  |      | 2,173  |               |  |          |    |            |  |            | 100 |      |  |  | 2,173  |  |  |  | 2,273  |  |  |  | 371   |  |  |  | 1997            |  |  |  | Oct-97 | 
|Bexley, OH                  |  |              | 15,938 | (12)            |  |              | 306 |                                  |  |      | 4,196  |               |  |          |    |            |  |            | 306 |      |  |  | 4,196  |  |  |  | 4,502  |  |  |  | 229   |  |  |  | 1992            |  |  |  | Dec-01 | 
|Bullhead City, AZ           |  |              |       |                 |  |              | 100 |                                  |  |      | 2,500  |               |  |          |    |            |  |            | 100 |      |  |  | 2,500  |  |  |  | 2,600  |  |  |  | 428   |  |  |  | 1997            |  |  |  | Aug-97 | 
|Burley, ID                  |  |              |       |                 |  |              | 100 |                                  |  |      | 2,200  |               |  |          |    |            |  |            | 100 |      |  |  | 2,200  |  |  |  | 2,300  |  |  |  | 381   |  |  |  | 1997            |  |  |  | Sep-97 | 
|Caldwell, ID                |  |              |       |                 |  |              | 100 |                                  |  |      | 2,200  |               |  |          |    |            |  |            | 100 |      |  |  | 2,200  |  |  |  | 2,300  |  |  |  | 381   |  |  |  | 1997            |  |  |  | Sep-97 | 
|Camas, WA                   |  |              |        | (5)             |  |              | 100 |                                  |  |      | 2,175  |               |  |          |    |            |  |            | 100 |      |  |  | 2,175  |  |  |  | 2,275  |  |  |  | 447   |  |  |  | 1996            |  |  |  | May-96 | 
|Central, SC                 |  |              |       |                 |  |              | 100 |                                  |  |      | 2,321  |               |  |          |    |            |  |            | 100 |      |  |  | 2,321  |  |  |  | 2,421  |  |  |  | 280   |  |  |  | 1998            |  |  |  | Mar-99 | 
|Cordele, GA                 |  |              |       |                 |  |              | 153 |                                  |  |      | 1,455  |               |  |          | 82  |            |  |            | 153 |      |  |  | 1,537  |  |  |  | 1,690  |  |  |  | 211   |  |  |  | 1987/88/2002    |  |  |  | Jul-00 | 
|Denison, IA                 |  |              |       |                 |  |              | 100 |                                  |  |      | 2,713  |               |  |          |    |            |  |            | 100 |      |  |  | 2,713  |  |  |  | 2,813  |  |  |  | 401   |  |  |  | 1998            |  |  |  | Jun-98 | 
|Dodge City, KS              |  |              | 1,208  |                 |  |              | 84  |                                  |  |      | 1,666  |               |  |          |    |            |  |            | 84  |      |  |  | 1,666  |  |  |  | 1,750  |  |  |  | 397   |  |  |  | 1995            |  |  |  | Dec-95 | 
|Durant, OK                  |  |              |       |                 |  |              | 100 |                                  |  |      | 1,769  |               |  |          |    |            |  |            | 100 |      |  |  | 1,769  |  |  |  | 1,869  |  |  |  | 329   |  |  |  | 1997            |  |  |  | Apr-97 | 
|Edmond, OK                  |  |              |        | (9)             |  |              | 100 |                                  |  |      | 1,365  |               |  |          | 526 |            |  |            | 100 |      |  |  | 1,891  |  |  |  | 1,991  |  |  |  | 326   |  |  |  | 1996            |  |  |  | Aug-97 | 
|Elkhart, IN                 |  |              |       |                 |  |              | 100 |                                  |  |      | 2,435  |               |  |          |    |            |  |            | 100 |      |  |  | 2,435  |  |  |  | 2,535  |  |  |  | 396   |  |  |  | 1997            |  |  |  | Dec-97 | 
|Erie, PA                    |  |              |        | (11)            |  |              | 850 |                                  |  |      | 7,477  |               |  |          |    |            |  |            | 850 |      |  |  | 7,477  |  |  |  | 8,327  |  |  |  | 1,070 |  |  |  | 1998            |  |  |  | Oct-99 | 
|Eugene, OR                  |  |              |       |                 |  |              | 100 |                                  |  |      | 2,600  |               |  |          |    |            |  |            | 100 |      |  |  | 2,600  |  |  |  | 2,700  |  |  |  | 445   |  |  |  | 1997            |  |  |  | Sep-97 | 
|Fremont,OH                  |  |              |       |                 |  |              | 100 |                                  |  |      | 2,435  |               |  |          |    |            |  |            | 100 |      |  |  | 2,435  |  |  |  | 2,535  |  |  |  | 423   |  |  |  | 1997            |  |  |  | Aug-97 | 
|Ft. Collins, CO             |  |              |       |                 |  |              | 100 |                                  |  |      | 2,961  |               |  |          |    |            |  |            | 100 |      |  |  | 2,961  |  |  |  | 3,061  |  |  |  | 387   |  |  |  | 1998            |  |  |  | Mar-99 | 
|Ft. Collins, CO             |  |              |       |                 |  |              | 100 |                                  |  |      | 3,400  |               |  |          |    |            |  |            | 100 |      |  |  | 3,400  |  |  |  | 3,500  |  |  |  | 398   |  |  |  | 1999            |  |  |  | Jul-99 | 
|Ft. Meyers, FL              |  |              |       |                 |  |              | 100 |                                  |  |      | 2,728  |               |  |          | 9   |            |  |            | 100 |      |  |  | 2,737  |  |  |  | 2,837  |  |  |  | 423   |  |  |  | 1998            |  |  |  | Mar-98 | 
|Gardendale, AL              |  |              |       |                 |  |              | 16  |                                  |  |      | 1,234  |               |  |          |    |            |  |            | 16  |      |  |  | 1,234  |  |  |  | 1,250  |  |  |  | 307   |  |  |  | 1988            |  |  |  | May-96 | 
|Goldsboro, NC               |  |              |       |                 |  |              | 100 |                                  |  |      | 2,385  |               |  |          | 1   |            |  |            | 100 |      |  |  | 2,386  |  |  |  | 2,486  |  |  |  | 261   |  |  |  | 1998            |  |  |  | Mar-99 | 
|Grandview, WA               |  |              |        | (5)             |  |              | 100 |                                  |  |      | 1,940  |               |  |          |    |            |  |            | 100 |      |  |  | 1,940  |  |  |  | 2,040  |  |  |  | 415   |  |  |  | 1996            |  |  |  | Mar-96 | 
|Great Bend, KS              |  |              | 1,008  |                 |  |              | 80  |                                  |  |      | 1,570  |               |  |          | 17  |            |  |            | 80  |      |  |  | 1,587  |  |  |  | 1,667  |  |  |  | 380   |  |  |  | 1995            |  |  |  | Dec-95 | 
|Greeley, CO                 |  |              |       |                 |  |              | 100 |                                  |  |      | 2,310  |               |  |          | 270 |            |  |            | 100 |      |  |  | 2,580  |  |  |  | 2,680  |  |  |  | 443   |  |  |  | 1997            |  |  |  | Aug-97 | 
|Greenville, NC              |  |              |       |                 |  |              | 100 |                                  |  |      | 2,478  |               |  |          | 2   |            |  |            | 100 |      |  |  | 2,480  |  |  |  | 2,580  |  |  |  | 315   |  |  |  | 1998            |  |  |  | Mar-99 | 
|Greenville, TX              |  |              |       |                 |  |              | 42  |                                  |  |      | 1,565  |               |  |          |    |            |  |            | 42  |      |  |  | 1,565  |  |  |  | 1,607  |  |  |  | 343   |  |  |  | 1995            |  |  |  | Jan-96 | 
|Greenwood, SC               |  |              |       |                 |  |              | 100 |                                  |  |      | 2,638  |               |  |          |     |            |  |            | 100 |      |  |  | 2,638  |  |  |  | 2,738  |  |  |  | 340   |  |  |  | 1998            |  |  |  | Mar-99 | 
|Hayden, ID                  |  |              |       |                 |  |              | 100 |                                  |  |      | 2,450  |               |  |          | 243 |            |  |            | 100 |      |  |  | 2,693  |  |  |  | 2,793  |  |  |  | 508   |  |  |  | 1996            |  |  |  | Dec-96 | 
|Hoquiam, WA                 |  |              |       |                 |  |              | 100 |                                  |  |      | 2,500  |               |  |          |    |            |  |            | 100 |      |  |  | 2,500  |  |  |  | 2,600  |  |  |  | 435   |  |  |  | 1997            |  |  |  | Aug-97 | 
|Jacksonville, TX            |  |              |       |                 |  |              | 100 |                                  |  |      | 1,900  |               |  |          |    |            |  |            | 100 |      |  |  | 1,900  |  |  |  | 2,000  |  |  |  | 410   |  |  |  | 1996            |  |  |  | Mar-96 | 
|Kelso, WA                   |  |              |       |                 |  |              | 100 |                                  |  |      | 2,500  |               |  |          |    |            |  |            | 100 |      |  |  | 2,500  |  |  |  | 2,600  |  |  |  | 536   |  |  |  | 1996            |  |  |  | Nov-96 | 
|Kennewick. WA               |  |              |        | (5)             |  |              | 100 |                                  |  |      | 1,940  |               |  |          |    |            |  |            | 100 |      |  |  | 1,940  |  |  |  | 2,040  |  |  |  | 419   |  |  |  | 1996            |  |  |  | Feb-96 | 
|Klamath Falls, OR           |  |              |       |                 |  |              | 100 |                                  |  |      | 2,300  |               |  |          |    |            |  |            | 100 |      |  |  | 2,300  |  |  |  | 2,400  |  |  |  | 439   |  |  |  | 1996            |  |  |  | Dec-96 | 
|Lake Havasu, AZ             |  |              |       |                 |  |              | 100 |                                  |  |      | 2,420  |               |  |          |    |            |  |            | 100 |      |  |  | 2,420  |  |  |  | 2,520  |  |  |  | 421   |  |  |  | 1997            |  |  |  | Aug-97 | 
|Lakeland, FL                |  |              |       |                 |  |              | 519 |                                  |  |      | 2,313  |               |  |          | 82  |            |  |            | 519 |      |  |  | 2,395  |  |  |  | 2,914  |  |  |  | 342   |  |  |  | 1968/74/96/2002 |  |  |  | Jul-00 | 
|Longmont, CO                |  |              |        | (8)             |  |              | 100 |                                  |  |      | 2,640  |               |  |          |    |            |  |            | 100 |      |  |  | 2,640  |  |  |  | 2,740  |  |  |  | 397   |  |  |  | 1998            |  |  |  | Jun-98 | 
|Longview, TX                |  |              |       |                 |  |              | 38  |                                  |  |      | 1,568  |               |  |          | 1   |            |  |            | 38  |      |  |  | 1,569  |  |  |  | 1,607  |  |  |  | 350   |  |  |  | 1995            |  |  |  | Oct-95 | 
|Loveland, CO                |  |              |        | (8)             |  |              | 100 |                                  |  |      | 2,865  |               |  |          | 270 |            |  |            | 100 |      |  |  | 3,135  |  |  |  | 3,235  |  |  |  | 519   |  |  |  | 1997            |  |  |  | Sep-97 | 
|Lufkin, TX                  |  |              |       |                 |  |              | 100 |                                  |  |      | 1,950  |               |  |          |    |            |  |            | 100 |      |  |  | 1,950  |  |  |  | 2,050  |  |  |  | 413   |  |  |  | 1996            |  |  |  | Apr-96 | 
|Madison, IN                 |  |              |       |                 |  |              | 100 |                                  |  |      | 2,435  |               |  |          |    |            |  |            | 100 |      |  |  | 2,435  |  |  |  | 2,535  |  |  |  | 412   |  |  |  | 1997            |  |  |  | Oct-97 | 
|Marshall, TX                |  |              |       |                 |  |              | 38  |                                  |  |      | 1,568  |               |  |          | 451 |            |  |            | 38  |      |  |  | 2,019  |  |  |  | 2,057  |  |  |  | 435   |  |  |  | 1995            |  |  |  | Oct-95 | 
|McPherson, KS               |  |              | 862    |                 |  |              | 79  |                                  |  |      | 1,571  |               |  |          |    |            |  |            | 79  |      |  |  | 1,571  |  |  |  | 1,650  |  |  |  | 376   |  |  |  | 1994            |  |  |  | Dec-95 | 
|Millville, NJ               |  |              |       |                 |  |              | 100 |                                  |  |      | 2,825  |               |  |          |    |            |  |            | 100 |      |  |  | 2,825  |  |  |  | 2,925  |  |  |  | 487   |  |  |  | 1997            |  |  |  | Aug-97 | 
|Nampa, ID                   |  |              |       |                 |  |              | 100 |                                  |  |      | 2,240  |               |  |          | 23  |            |  |            | 100 |      |  |  | 2,263  |  |  |  | 2,363  |  |  |  | 431   |  |  |  | 1997            |  |  |  | Jan-97 | 
|New Bern, NC                |  |              |       |                 |  |              | 100 |                                  |  |      | 2,427  |               |  |          | 1   |            |  |            | 100 |      |  |  | 2,428  |  |  |  | 2,528  |  |  |  | 271   |  |  |  | 1998            |  |  |  | Mar-99 | 
|Newark, OH                  |  |              |       |                 |  |              | 100 |                                  |  |      | 2,435  |               |  |          |    |            |  |            | 100 |      |  |  | 2,435  |  |  |  | 2,535  |  |  |  | 412   |  |  |  | 1997            |  |  |  | Oct-97 | 
|Newport Richey, FL          |  |              |       |                 |  |              | 100 |                                  |  |      | 5,845  |               |  |          | 296 |            |  |            | 100 |      |  |  | 6,140  |  |  |  | 6,241  |  |  |  | 1,066 |  |  |  | 1986/1995       |  |  |  | Jan-98 | 

69



---



##### 



LTC PROPERTIES, INC.


SCHEDULE III

REAL ESTATE AND ACCUMULATED
DEPRECIATION

(in thousands)

|                           |  |              |         |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |        | 
|-------------------------- |  | ------------ | ------- | --------------- |  | ------------ | ------ | -------------------------------- |  | ---- | ------- | ------------- |  | -------- | ------ | ---------- |  | ---------- | ------ | ---- |  | - | ------- |  |  | - | ------- |  |  | - | ------ |  |  |  | --------- |  |  |  | ------ | 
|                           |  |              |         |                 |  |              |        |                                  |  |      |         |               |  |         
|                           |  |              |         | Initial Cost to |  |              |        | Gross Amount at which Carried at |  |      |         |               |  |         
|                           |  |              |         | Company         |  | Costs        |        | December 31, 2003                |  |      |         |               |  |         
|                           |  |              |         |                 |  | Capitalized  |        |                                  |  |      |         | Construction/ |  |         
|                           |  |              |         |                 |  | Building and |        | Subsequent                       |  |      |         | Building and  |  |          |        | Accum.     |  | Renovation |        | Acq.
|                           |  | Encumbrances |         | Land            |  | Improvements |        | to Acquisition                   |  | Land |         | Improvements  |  | Total(1) |        | Deprec.(2) |  | Date       |        | Date
|                           |  |              |         |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |     
|Newport, OR                |  |              |        |                 |  |              | 100    |                                  |  |      | 2,050   |               |  |          |       |            |  |            | 100    |      |  |   | 2,050   |  |  |   | 2,150   |  |  |   | 394    |  |  |  | 1996      |  |  |  | Dec-96 | 
|Niceville, FL              |  |              |        |                 |  |              | 100    |                                  |  |      | 2,680   |               |  |          |       |            |  |            | 100    |      |  |   | 2,680   |  |  |   | 2,780   |  |  |   | 403    |  |  |  | 1998      |  |  |  | Jun-98 | 
|Norfolk, NE                |  |              |        |                 |  |              | 100    |                                  |  |      | 2,123   |               |  |          |       |            |  |            | 100    |      |  |   | 2,123   |  |  |   | 2,223   |  |  |   | 378    |  |  |  | 1997      |  |  |  | Jun-97 | 
|Portland, OR               |  |              | 3,961   |                 |  |              | 100    |                                  |  |      | 7,622   |               |  |          | 359    |            |  |            | 100    |      |  |   | 7,981   |  |  |   | 8,081   |  |  |   | 1,112  |  |  |  | 1986/2002 |  |  |  | Jun-98 | 
|Rio Rancho, NM             |  |              |        |                 |  |              | 100    |                                  |  |      | 8,300   |               |  |          | 40     |            |  |            | 100    |      |  |   | 8,340   |  |  |   | 8,440   |  |  |   | 1,232  |  |  |  | 1998      |  |  |  | Mar-98 | 
|Rocky Mount, NC            |  |              |        |                 |  |              | 100    |                                  |  |      | 2,494   |               |  |          | 1      |            |  |            | 100    |      |  |   | 2,495   |  |  |   | 2,595   |  |  |   | 292    |  |  |  | 1998      |  |  |  | Mar-99 | 
|Rocky River, OH            |  |              | 10,485  | (11)            |  |              | 760    |                                  |  |      | 6,963   |               |  |          |       |            |  |            | 760    |      |  |   | 6,963   |  |  |   | 7,723   |  |  |   | 955    |  |  |  | 1998      |  |  |  | Oct-99 | 
|Roseville, CA              |  |              |        |                 |  |              | 100    |                                  |  |      | 7,300   |               |  |          | 8      |            |  |            | 100    |      |  |   | 7,308   |  |  |   | 7,408   |  |  |   | 1,037  |  |  |  | 1998/2002 |  |  |  | Jun-98 | 
|Salina, KS                 |  |              | 1,006   |                 |  |              | 79     |                                  |  |      | 1,571   |               |  |          |       |            |  |            | 79     |      |  |   | 1,571   |  |  |   | 1,650   |  |  |   | 376    |  |  |  | 1994      |  |  |  | Dec-95 | 
|San Antonio, TX            |  |              |         | (9)             |  |              | 100    |                                  |  |      | 1,900   |               |  |          |       |            |  |            | 100    |      |  |   | 1,900   |  |  |   | 2,000   |  |  |   | 351    |  |  |  | 1997      |  |  |  | May-97 | 
|San Antonio, TX            |  |              |         | (9)             |  |              | 100    |                                  |  |      | 2,055   |               |  |          |       |            |  |            | 100    |      |  |   | 2,055   |  |  |   | 2,155   |  |  |   | 372    |  |  |  | 1997      |  |  |  | Jun-97 | 
|Shelby, NC                 |  |              |        |                 |  |              | 100    |                                  |  |      | 2,805   |               |  |          | 2      |            |  |            | 100    |      |  |   | 2,807   |  |  |   | 2,907   |  |  |   | 420    |  |  |  | 1998      |  |  |  | Jun-98 | 
|Spring Hill, FL            |  |              |        |                 |  |              | 100    |                                  |  |      | 2,650   |               |  |          |       |            |  |            | 100    |      |  |   | 2,650   |  |  |   | 2,750   |  |  |   | 398    |  |  |  | 1998      |  |  |  | Jun-98 | 
|Springfield, OH            |  |              |        |                 |  |              | 100    |                                  |  |      | 2,035   |               |  |          | 270    |            |  |            | 100    |      |  |   | 2,305   |  |  |   | 2,405   |  |  |   | 393    |  |  |  | 1997      |  |  |  | Aug-97 | 
|Sumter, SC                 |  |              |        |                 |  |              | 100    |                                  |  |      | 2,351   |               |  |          |       |            |  |            | 100    |      |  |   | 2,351   |  |  |   | 2,451   |  |  |   | 293    |  |  |  | 1998      |  |  |  | Mar-99 | 
|Tallahassee, FL            |  |              |        | (9)             |  |              | 100    |                                  |  |      | 3,075   |               |  |          |       |            |  |            | 100    |      |  |   | 3,075   |  |  |   | 3,175   |  |  |   | 466    |  |  |  | 1998      |  |  |  | Apr-98 | 
|Tiffin, OH                 |  |              |        |                 |  |              | 100    |                                  |  |      | 2,435   |               |  |          |       |            |  |            | 100    |      |  |   | 2,435   |  |  |   | 2,535   |  |  |   | 423    |  |  |  | 1997      |  |  |  | Aug-97 | 
|Troy, OH                   |  |              |        |                 |  |              | 100    |                                  |  |      | 2,435   |               |  |          | 306    |            |  |            | 100    |      |  |   | 2,741   |  |  |   | 2,841   |  |  |   | 483    |  |  |  | 1997      |  |  |  | May-97 | 
|Tulsa, OK                  |  |              |         | (9)             |  |              | 200    |                                  |  |      | 1,650   |               |  |          |       |            |  |            | 200    |      |  |   | 1,650   |  |  |   | 1,850   |  |  |   | 317    |  |  |  | 1997      |  |  |  | Feb-97 | 
|Tulsa, OK                  |  |              |         | (9)             |  |              | 100    |                                  |  |      | 2,395   |               |  |          |       |            |  |            | 100    |      |  |   | 2,395   |  |  |   | 2,495   |  |  |   | 428    |  |  |  | 1997      |  |  |  | Jun-97 | 
|Tucson, AZ                 |  |              |        |                 |  |              | 100    |                                  |  |      | 8,700   |               |  |          | 8      |            |  |            | 100    |      |  |   | 8,708   |  |  |   | 8,808   |  |  |   | 1,230  |  |  |  | 1998/2002 |  |  |  | Jun-98 | 
|Tyler, TX                  |  |              | 10,996  | (9)             |  |              | 100    |                                  |  |      | 1,800   |               |  |          |       |            |  |            | 100    |      |  |   | 1,800   |  |  |   | 1,900   |  |  |   | 351    |  |  |  | 1996      |  |  |  | Dec-96 | 
|Vacaville, CA              |  |              | 8,500   |                 |  |              | 1,662  |                                  |  |      | 11,634  |               |  |          | 19     |            |  |            | 1,662  |      |  |   | 11,653  |  |  |   | 13,315  |  |  |   | 743    |  |  |  | 1998/2002 |  |  |  | Dec-01 | 
|Vancouver, WA              |  |              |         | (5)             |  |              | 100    |                                  |  |      | 2,785   |               |  |          |       |            |  |            | 100    |      |  |   | 2,785   |  |  |   | 2,885   |  |  |   | 571    |  |  |  | 1996      |  |  |  | Jun-96 | 
|Waco, TX                   |  |              |        |                 |  |              | 100    |                                  |  |      | 2,235   |               |  |          |       |            |  |            | 100    |      |  |   | 2,235   |  |  |   | 2,335   |  |  |   | 402    |  |  |  | 1997      |  |  |  | Jun-97 | 
|Wahoo, NE                  |  |              |        |                 |  |              | 100    |                                  |  |      | 2,318   |               |  |          |       |            |  |            | 100    |      |  |   | 2,318   |  |  |   | 2,418   |  |  |   | 405    |  |  |  | 1997      |  |  |  | Jul-97 | 
|Walla Walla, WA            |  |              | 6,640   | (5)             |  |              | 100    |                                  |  |      | 1,940   |               |  |          |       |            |  |            | 100    |      |  |   | 1,940   |  |  |   | 2,040   |  |  |   | 411    |  |  |  | 1996      |  |  |  | Apr-96 | 
|Watauga, TX                |  |              |        |                 |  |              | 100    |                                  |  |      | 1,668   |               |  |          |       |            |  |            | 100    |      |  |   | 1,668   |  |  |   | 1,768   |  |  |   | 296    |  |  |  | 1996      |  |  |  | Aug-97 | 
|Wetherford, OK             |  |              |        |                 |  |              | 100    |                                  |  |      | 1,669   |               |  |          | 592    |            |  |            | 100    |      |  |   | 2,261   |  |  |   | 2,361   |  |  |   | 384    |  |  |  | 1996      |  |  |  | Aug-97 | 
|Wheelersburg, OH           |  |              |        |                 |  |              | 100    |                                  |  |      | 2,435   |               |  |          |       |            |  |            | 100    |      |  |   | 2,435   |  |  |   | 2,535   |  |  |   | 413    |  |  |  | 1997      |  |  |  | Sep-97 | 
|Wichita Falls, TX          |  |              |        |                 |  |              | 100    |                                  |  |      | 1,850   |               |  |          |       |            |  |            | 100    |      |  |   | 1,850   |  |  |   | 1,950   |  |  |   | 359    |  |  |  | 1996      |  |  |  | Dec-96 | 
|Wichita Falls, TX          |  |              |        |                 |  |              | 100    |                                  |  |      | 2,750   |               |  |          |       |            |  |            | 100    |      |  |   | 2,750   |  |  |   | 2,850   |  |  |   | 469    |  |  |  | 1997      |  |  |  | Sep-97 | 
|Worthington, OH            |  |              |         | (12)            |  |              |       |                                  |  |      | 6,102   |               |  |          |       |            |  |            |       |      |  |   | 6,102   |  |  |   | 6,102   |  |  |   | 323    |  |  |  | 1993      |  |  |  | Dec-01 | 
|Worthington, OH            |  |              |         | (12)            |  |              |       |                                  |  |      | 3,402   |               |  |          |       |            |  |            |       |      |  |   | 3,402   |  |  |   | 3,402   |  |  |   | 199    |  |  |  | 1995      |  |  |  | Dec-01 | 
|York, NE                   |  |              |        |                 |  |              | 100    |                                  |  |      | 2,318   |               |  |          |       |            |  |            | 100    |      |  |   | 2,318   |  |  |   | 2,418   |  |  |   | 405    |  |  |  | 1997      |  |  |  | Aug-97 | 
|                           |  |              |         |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |        | 
|Assisted Living Residences |  |              | 76,243  |                 |  |              | 13,265 |                                  |  |      | 263,505 |               |  |          | 4,176  |            |  |            | 13,265 |      |  |   | 267,681 |  |  |   | 280,946 |  |  |   | 39,880 |  |  |  |           |  |  |  |        | 
|                           |  |              |         |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |        | 
|Schools Trenton, NJ        |  |              |        |                 |  |              | 100    |                                  |  |      | 6,000   |               |  |          | 3,170  |            |  |            | 100    |      |  |   | 9,170   |  |  |   | 9,270   |  |  |   | 1,435  |  |  |  | 1930/1998 |  |  |  | Dec-98 | 
|                           |  |              |         |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |        | 
|Schools                    |  |              |        |                 |  |              | 100    |                                  |  |      | 6,000   |               |  |          | 3,170  |            |  |            | 100    |      |  |   | 9,170   |  |  |   | 9,270   |  |  |   | 1,435  |  |  |  |           |  |  |  |        | 
|                           |  |              |         |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |        | 
|                           |  | $            | 138,000 |                 |  | $            | 25,347 |                                  |  | $    | 411,855 |               |  | $        | 18,799 |            |  | $          | 25,347 |      |  | $ | 430,654 |  |  | $ | 456,001 |  |  | $ | 73,376 |  |  |  |           |  |  |  |        | 
|                           |  |              |         |                 |  |              |        |                                  |  |      |         |               |  |          |        |            |  |            |        |      |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |        | 



---



|    |                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The aggregate cost for federal income tax
    purposes.                                                                                                                                                                                                                                  
|   
|(2) | Depreciation for building is calculated using a
    35 year life for skilled nursing facilities and
    40 year life for assisted living residences and additions
    to facilities. Depreciation for furniture and fixtures is
    calculated based on a 7 year life for all facilities.
|   
|(3) | Single note backed by six facilities in Iowa and
    one facility in Texas.                                                                                                                                                                                                              
|   
|(4) | Single note backed by two facilities in Alabama.                                                                                                                                                                                                                                         
|   
|(5) | Single note backed by five facilities in
    Washington.                                                                                                                                                                                                                                 
|   
|(6) | Single note backed by two facilities in Texas.                                                                                                                                                                                                                                           
|   
|(7) | Single note backed by two facilities in Georgia                                                                                                                                                                                                                                          

70



---



##### 



LTC PROPERTIES, INC.


SCHEDULE III

REAL ESTATE AND ACCUMULATED
DEPRECIATION

(in thousands)



|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(8) | Single note backed by three facilities in Colorado                                                            
|   
|(9) | Single note backed by one facility in Florida,
    three facilities in Oklahoma, and three facilities in Texas



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Single note backed by one facility in Kansas and
    two facilities in Georgia                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(11) | Single note backed by one facility in Ohio and
    one facility in Pennsylvania.                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(12) | Single note backed by four facilities in Ohio.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(13) | An impairment charge totaling $9,643 was taken
    against 8 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 as required by Statement of
    Accounting Standard No. 144 Accounting for the
    Impairment or Disposal of Long-Lived Assets.

71



---



##### 



LTC PROPERTIES, INC.

SCHEDULE III

REAL ESTATE AND ACCUMULATED
DEPRECIATION

(in thousands)

Activity for the years ended December 31,
2001, 2002 and 2003 is as follows:

|                                |                                                    |             |         |              |   |   |        |        |  
|------------------------------- | -------------------------------------------------- | ----------- | ------- | ------------ | - | - | ------ | ------ | -
|                                |                                                    | Real Estate |         | Accumulated 
|                                |                                                    | & Equipment |         | Depreciation
|                                |                                                    |             |         |             
|Balance at December 31, 2000    |                                                    | $           | 468,498 |              |   | $ | 47,181 |       
|                                | Additions                                          |             |         | 73,107       |   |   |        | 13,695 |  
|                                | Conversion of mortgage loans into owned properties |             |         | 3,899        |   |   |        |       |  
|                                | Impairment Charges                                 |             |         | (16,755      | ) |   |        |       |  
|                                | Cost of real estate sold                           |             |         | (32,625      | ) |   |        | (2,293 | )
|                                |                                                    |             |         |              |   |   |        |       
|Balance at December 31, 2001(1) |                                                    |             | 496,124 |              |   |   | 58,583 |       
|                                | Additions                                          |             |         | 2,893        |   |   |        | 14,197 |  
|                                | Conversion of mortgage loans into owned properties |             |         | 3,967        |   |   |        |       |  
|                                | Impairment Charges                                 |             |         | (1,710       | ) |   |        |       |  
|                                | Cost of real estate sold                           |             |         | (31,618      | ) |   |        | (8,464 | )
|                                |                                                    |             |         |              |   |   |        |       
|Balance at December 31, 2002    |                                                    | $           | 469,656 |              |   | $ | 64,316 |       
|                                | Additions                                          |             |         | 2,075        |   |   |        | 12,711 |  
|                                | Additions purchased form Center Healthcare, Inc.   |             |         | 1,612        |   |   |        | 72     |  
|                                | Conversion of mortgage loans into owned properties |             |         |             |   |   |        |       |  
|                                | Impairment Charges                                 |             |         |             |   |   |        |       |  
|                                | Cost of real estate sold                           |             |         | (17,342      | ) |   |        | (3,723 | )
|                                |                                                    |             |         |              |   |   |        |       
|Balance at December 31, 2003    |                                                    | $           | 456,001 |              |   | $ | 73,376 |       
|                                |                                                    |             |         |              |   |   |        |       



---



|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|(1) | Includes amounts classified as properties held
    for sale as required by SFAS No. 144.

72



---



##### 



LTC PROPERTIES, INC.

SCHEDULE IV

MORTGAGE LOANS ON REAL ESTATE

(dollars in thousands)

|        |  |            |    |            |  |          |       |         |  |           |              |           |  |           |           |                   |  |           |        |  |  |   |        |  |  |   |        |  |  |   |        |  |  |  |   | 
|------- |  | ---------- | -- | ---------- |  | -------- | ----- | ------- |  | --------- | ------------ | --------- |  | --------- | --------- | ----------------- |  | --------- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ |  |  |  | - | 
|        |  |            |    |            |  |          |       |         |  |           |              |           |  |           |           |                   |  | Principal
|        |  |            |    |            |  |          |       |         |  |           |              |           |  |           |           |                   |  | Amount   
|        |  |            |    |            |  |          |       |         |  |           |              |           |  |           |           |                   |  | of Loans 
|        |  |            |    |            |  |          |       |         |  | Current   |              |           |  | Carrying  |           | Subject to       
|        |  | Number of  |    |            |  | Final    |       |         |  | Monthly   |              | Face      |  | Amount of |           | Delinquent       
|        |  |            |    | Interest   |  | Maturity |       | Balloon |  | Debt      |              | Amount of |  | Mortgages |           | Principal or     
|State   |  | Properties |    | Beds/Units |  | Rate(1)  |       | Date    |  | Amount(2) |              | Service   |  | Mortgages |           | December 31, 2003 |  | Interest 
|        |  |            |    |            |  |          |       |         |  |           |              |           |  |           |           |                   |  |          
|CO      |  |            | 2  |            |  |          | 230   |         |  |           | 12.00        |           |  |           | 2007      |                   |  | $         | 5,412  |  |  | $ | 64     |  |  | $ | 6,000  |  |  | $ | 5,661  |  |  |  |  | 
|OH      |  |            | 1  |            |  |          | 150   |         |  |           | 10.89        |           |  |           | 2006      |                   |  |           | 4,579  |  |  |   | 51     |  |  |   | 5,200  |  |  |   | 4,761  |  |  |  |  | 
|CA      |  |            | 1  |            |  |          | 212   |         |  |           | 10.66        |           |  |           | 2018      |                   |  |           |       |  |  |   | 35     |  |  |   | 3,500  |  |  |   | 3,137  |  |  |  |  | 
|NE      |  |            | 1  |            |  |          | 47    |         |  |           | 11.91        |           |  |           | 2008      |                   |  |           | 3,071  |  |  |   | 33     |  |  |   | 3,243  |  |  |   | 3,159  |  |  |  |  | 
|FL      |  |            | 1  |            |  |          | 94    |         |  |           | 10.52        |           |  |           | 2007      |                   |  |           | 2,879  |  |  |   | 31     |  |  |   | 3,290  |  |  |   | 3,065  |  |  |  |  | 
|FL      |  |            | 1  |            |  |          | 191   |         |  |           | 12.25        |           |  |           | 2017      |                   |  |           |       |  |  |   | 50     |  |  |   | 4,500  |  |  |   | 2,977  |  |  |  |  | 
|NE      |  |            | 1  |            |  |          | 44    |         |  |           | 11.91        |           |  |           | 2008      |                   |  |           | 2,875  |  |  |   | 31     |  |  |   | 3,036  |  |  |   | 2,957  |  |  |  |  | 
|CA      |  |            | 1  |            |  |          | 151   |         |  |           | 10.40        |           |  |           | 2018      |                   |  |           |       |  |  |   | 32     |  |  |   | 3,171  |  |  |   | 2,851  |  |  |  |  | 
|NE      |  |            | 1  |            |  |          | 44    |         |  |           | 10.73        |           |  |           | 2008      |                   |  |           | 2,343  |  |  |   | 26     |  |  |   | 2,700  |  |  |   | 2,517  |  |  |  |  | 
|IA      |  |            | 1  |            |  |          | 44    |         |  |           | 11.91%       |           |  |           | 2009      |                   |  |           | 2,273  |  |  |   | 24     |  |  |   | 2,400  |  |  |   | 2,342  |  |  |  |  | 
|SD      |  |            | 1  |            |  |          | 34    |         |  |           | 11.91%       |           |  |           | 2009      |                   |  |           | 2,221  |  |  |   | 24     |  |  |   | 2,346  |  |  |   | 2,291  |  |  |  |  | 
|MT      |  |            | 1  |            |  |          | 34    |         |  |           | 12.15%       |           |  |           | 2013      |                   |  |           | 2,078  |  |  |   | 24     |  |  |   | 2,346  |  |  |   | 2,284  |  |  |  |  | 
|AZ      |  |            | 1  |            |  |          | 144   |         |  |           | 12.40%       |           |  |           | 2004      |                   |  |           | 2,174  |  |  |   | 26     |  |  |   | 2,400  |  |  |   | 2,186  |  |  |  |  | 
|Various |  |            | 24 |            |  |          | 2,631 |         |  |           | 9.51%-12.55% |           |  |           | 2003-2018 |                   |  |           | 18,835 |  |  |   | 9,595  |  |  |   | 36,619 |  |  |   | 31,277 |  |  |  |  | 
|        |  |            |    |            |  |          |       |         |  |           |              |           |  |           |           |                   |  |           |        |  |  |   |        |  |  |   |        |  |  |   |        |  |  |  |   | 
|        |  |            | 38 | (3)        |  |          | 4,050 |         |  |           |              |           |  |           |           |                   |  | $         | 48,740 |  |  | $ | 10,046 |  |  | $ | 80,751 |  |  | $ | 71,465 |  |  |  |  | 
|        |  |            |    |            |  |          |       |         |  |           |              |           |  |           |           |                   |  |           |        |  |  |   |        |  |  |   |        |  |  |   |        |  |  |  |   | 



---



|    |                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents current stated interest rate.
    Generally, the loans have 25-year amortization with principal
    and interest payable at varying amounts over the life to
    maturity with annual interest adjustments through specified
    fixed rate increases effective either on the first anniversary
    or calendar year of the loan.
|   
|(2) | Balloon payment is due upon maturity, generally
    the 10th year of the loan, with various prepayment penalties (as
    defined in the loan agreement).                                                                                                                                                                                    
|   
|(3) | Includes 37 first-lien mortgage loans as follows:                                                                                                                                                                                                                                                                                           

| |  |            |    |                       |  |  |                |  |  | 
| |  | ---------- | -- | --------------------- |  |  | -------------- |  |  | 
| |  | # of Loans |    | Original Loan Amounts |  | 
| |  |            |    |                       |  | 
| |  |            | 19 |                       |  |  | $247-$2,000    |  |  | 
| |  |            | 10 |                       |  |  | $2,001-$3,000  |  |  | 
| |  |            | 5  |                       |  |  | $3,001-$4,000  |  |  | 
| |  |            | 1  |                       |  |  | $4,001-$5,000  |  |  | 
| |  |            | 2  |                       |  |  | $5,001-$6,000  |  |  | 
| |  |            | 0  |                       |  |  | $6,001-$11,250 |  |  | 

73



---



##### 



Activity for the years ended December 31,
2001, 2002 and 2003 is as follows:

|                |                                             |   |         |         |     
|--------------- | ------------------------------------------- | - | ------- | ------- | ----
|Balance at 2000 |                                             | $ | 107,399 | (1)    
|                | Conversion of notes to owned properties     |   |         | (3,288  | )   
|                | Impairment charges                          |   |         | (1,250  | )   
|                | Collections of principal                    |   |         | (9,250  | )   
|                |                                             |   |         |        
|Balance at 2001 |                                             |   | 93,611  |        
|                | Conversion of notes to owned properties     |   |         | (3,832  | )(1)
|                | Conversion of other notes to mortgage notes |   |         | 518     |     
|                | Impairment charges                          |   |         | (1,600  | )   
|                | Collections of principal                    |   |         | (6,022  | )   
|                |                                             |   |         |        
|Balance at 2002 |                                             |   | 82,675  |        
|                | Acquisition of mortgage note                |   |         | 1,707   |     
|                | Impairment charges                          |   |         | (31     | )   
|                | Collections of principal                    |   |         | (12,886 | )   
|                |                                             |   |         |        
|Balance at 2003 |                                             | $ | 71,465  |        
|                |                                             |   |         |        



---



|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As required by SFAS No. 144, a mortgage loan
    of $1,500 that converted to an owned property and was sold in
    2002 has been reclassified to discontinued operations for all
    periods presented.

74



---



##### 



LTC PROPERTIES, INC.

INDEX TO EXHIBITS

(Item 15(b))

|        |   |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | - | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|Number  |   | Description
|        |   |            
|        | 3 | .1          |  | Amended and Restated Articles of Incorporation of
    LTC Properties, Inc. (incorporated by reference to
    Exhibit 3.1 to LTC Properties, Inc.s Current Report
    on Form 8-K dated June 19, 1997)                                                                                                                                                                                                                                          
|        | 3 | .2          |  | Amended and Restated By-Laws of LTC Properties,
    Inc. (incorporated by reference to Exhibit 3.1 to LTC
    Properties, Inc.s Form 10-Q for the quarter ended
    June 30, 1996)                                                                                                                                                                                                                                                             
|        | 3 | .3          |  | Articles Supplementary Classifying
    3,080,000 shares of 9.5% Series A Cumulative Preferred
    Stock of LTC Properties, Inc. (incorporated by reference to
    Exhibit 3.2 to LTC Properties, Inc.s Current Report
    on Form 8-K dated June 19, 1997)                                                                                                                                                                                     
|        | 3 | .4          |  | Articles of Amendment of LTC Properties, Inc.
    (incorporated by reference to Exhibit 3.3 to LTC
    Properties, Inc.s Current Report on Form 8-K dated
    June 19, 1997)                                                                                                                                                                                                                                                                   
|        | 3 | .5          |  | Articles Supplementary Classifying 2,000,000
    Shares of 9.0% Series B Cumulative Preferred Stock of LTC
    Properties, Inc. (incorporated by reference to Exhibit 2.5
    to LTC Properties, Inc.s Registration Statement on
    Form 8-A filed on December 15, 1997)                                                                                                                                                                      
|        | 3 | .6          |  | Certificate of Amendment to Amended and Restated
    Bylaws of LTC Properties, Inc. (incorporated by reference to
    Exhibit 3.1 to LTC Properties, Inc.s Quarterly Report
    on Form 10-Q for the quarter ended September 30, 1998)                                                                                                                                                                                                         
|        | 3 | .7          |  | Articles Supplementary Classifying
    2,000,000 Shares of 8.5% Series C Cumulative
    Convertible Preferred Stock of LTC Properties, Inc.
    (incorporated by reference to Exhibit 3.2 to LTC
    Properties, Inc.s Quarterly Report on Form 10-Q for
    the quarter ended September 30, 1998)                                                                                                                                             
|        | 3 | .8          |  | Articles Supplementary Classifying 40,000 shares
    of Series D Junior Participating Preferred Stock of LTC
    Properties, Inc. (incorporated by reference to Exhibit 4.7
    to LTC Properties, Inc.s Registration Statement on
    Form 8-A filed on May 9, 2000)                                                                                                                                                                          
|        | 3 | .9          |  | Articles Supplemental reclassifying
    5,000,000 shares of Common Stock into Preferred Stock of
    LTC Properties, Inc. (incorporated by reference to
    Exhibit 3.1 to LTC Properties, Inc.s Registration
    Statement on Form S-3 filed June 27, 2003)                                                                                                                                                                                   
|        | 3 | .10         |  | Certificate of Amendment to Amended and Restated
    Bylaws of LTC Properties, Inc. (incorporated by reference to
    Exhibit 3.10 to LTC Properties, Inc.s Registration
    Statement on Form S-3, Amendment No. 2 filed
    August 29, 2003)                                                                                                                                                                                                 
|        | 3 | .11         |  | Articles Supplementary Classifying
    2,200,000 shares of 8.5% Series E Cumulative
    Convertible Preferred Stock of LTC Properties, Inc.
    (incorporated by reference to Exhibit 3.2 to LTC
    Properties, Inc.s Registration Statement on Form 8-K
    filed September 16, 2003)                                                                                                                                                        
|        | 4 | .1          |  | Indenture dated September 23, 1994 between
    LTC Properties, Inc. and Harris Trust and Savings Bank, as
    trustee (incorporated by reference to Exhibit 4.2 to LTC
    Properties, Inc.s Form 10-K for the year ended
    December 31, 1994)                                                                                                                                                                                               
|        | 4 | .2          |  | Second Supplemental Indenture dated as of
    September 21, 1995 to Indenture dated September 23,
    1994 between LTC Properties, Inc. and Harris Trust and Savings
    Bank, as trustee with respect to $51,500,000 in principal amount
    of 8.5% Convertible Subordinated Debentures due 2001
    (incorporated by reference to Exhibit 10.17 to LTC
    Properties, Inc.s Form 10-Q for the quarter ended
    September 30, 1995)        
|        | 4 | .3          |  | Third Supplemental Indenture dated as of
    September 26, 1995 to Indenture dated September 23,
    1994 between LTC Properties, Inc. and Harris Trust and Savings
    Bank, as trustee with respect to $10,000,000 in principal amount
    of 8.25% Convertible Subordinated Debentures due 1999
    (incorporated by reference to Exhibit 10.19 to LTC
    Properties, Inc.s Form 10-Q for the quarter ended
    September 30, 1995)        
|        | 4 | .4          |  | Fourth Supplemental Indenture dated as of
    February 5, 1996 to Indenture dated September 23, 1994
    between LTC Properties, Inc. and Harris Trust and Savings Bank,
    as trustee with respect to $30,000,000 in principal amount of
    7.75% Convertible Subordinated Debentures due 2002 (incorporated
    by reference to Exhibit 4.6 to LTC Properties, Inc.s
    Form 10-K for the year ended December 31, 1995)                   
|        | 4 | .5          |  | Fifth Supplemental Indenture dated as of
    August 23, 1996 to Indenture dated September 23, 1994
    between LTC Properties, Inc. and Harris Trust and Savings Bank,
    as trustee with respect to $30,000,000 in principal amount of
    8.25% Convertible Subordinated Debentures due 2001 (incorporated
    by reference to Exhibit 4.5 to LTC Properties, Inc.s
    Annual Report on Form 10-K for the year ended
    December 31, 1998)

75



---



##### 



LTC PROPERTIES, INC.


INDEX TO
EXHIBITS  Continued

|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .6          |  | Sixth Supplemental Indenture dated as of
    December 30, 1998 to Indenture dated September 23,
    1994 between LTC Properties, Inc. and Harris Trust and Savings
    Bank, as trustee with respect to $10,000,000 in principal amount
    of 8.25% Convertible Subordinated Debentures due 1999
    (incorporated by reference to Exhibit 4.6 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 1998)                                                                                                                                
|        | 4  | .7          |  | Seventh Supplemental Indenture dated as of
    January 14, 1999 to Indenture dated September 23, 1994
    between LTC Properties, Inc. and Harris Trust and Savings Bank,
    as trustee with respect to $10,000,000 in principal amount of
    8.25% Convertible Subordinated Debentures due 1999 (incorporated
    by reference to Exhibit 4.7 to LTC Properties, Inc.s
    Annual Report on Form 10-K for the year ended
    December 31, 1998)                                                                                                                               
|        | 4  | .8          |  | Rights Agreement dated as of May 2, 2000
    (incorporated by reference to Exhibit 4.1 to LTC
    Properties, Inc.s Registration Statement on Form 8-A
    filed on May 9, 2000)                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .1          |  | Pooling and Servicing Agreement, dated as of
    July 20, 1993, among LTC REMIC Corporation, as depositor,
    Bankers Trust Company, as Master Servicer, LTC Properties, Inc.,
    as Special Servicer and originator and Union Bank, as trustee
    (incorporated by reference to Exhibit 10.11 to LTC
    Properties, Inc.s Form 10-K for the year ended
    December 31, 1994)                                                                                                                                                                                               
|        | 10 | .2          |  | Pooling and Servicing Agreement, dated as of
    November 1, 1994, among LTC REMIC Corporation, as
    depositor, Bankers Trust Company, as Master Servicer, LTC
    Properties, Inc., as Special Servicer and originator and Marine
    Midland Bank, as trustee (incorporated by reference to
    Exhibit 10.13 to LTC Properties, Inc.s Form 10-K
    dated December 31, 1994)                                                                                                                                                                                                
|        | 10 | .3          |  | Amended Deferred Compensation Plan (incorporated
    by reference to Exhibit 10.17 to LTC Properties,
    Inc.s Form 10-K for the year ended December 31,
    1995)                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .4          |  | Pooling and Servicing Agreement dated as of
    March 1, 1996, among LTC REMIC Corporation, as depositor,
    GMAC Commercial Mortgage Corporation, as Master Servicer, LTC
    Properties, Inc., as Special Servicer and Originator, LaSalle
    National Bank, as Trustee and ABN AMRO Bank, N.V., as fiscal
    agent (incorporated by reference to Exhibit 10.1 to LTC
    Properties, Inc.s Form 10-Q for the quarter ended
    March 31, 1996)                                                                                                                             
|        | 10 | .5          |  | Amended and Restated 1992 Stock Option Plan
    (incorporated by reference to Exhibit 10.22 to LTC
    Properties, Inc.s Form 10-K for the year ended
    December 31, 1996)                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .6          |  | Subservicing Agreement dated as July 20,
    1993 by and between Bankers Trust Company, as Master Servicer
    and LTC Properties, Inc., as Special Servicer (incorporated by
    reference to Exhibit 10.25 to LTC Properties, Inc.s
    Form 10-K/A for the year ended December 31, 1996)                                                                                                                                                                                                                                                                                      
|        | 10 | .7          |  | Custodial Agreement dated as of July 20,
    1993 by and among Union Bank, as Trustee, LTC REMIC Corporation,
    as Depositor, and Bankers Trust Company as Master Servicer and
    Custodian (incorporated by reference to Exhibit 10.26 to
    LTC Properties, Inc.s Form 10-K/A for the year ended
    December 31, 1996)                                                                                                                                                                                                                                                    
|        | 10 | .8          |  | Form of Certificates as Exhibit as filed herewith
    to the Pooling and Servicing Agreement dated as of July 20,
    1993 among LTC REMIC Corporation, as Depositor, Bankers Trust
    Company, as Master Servicer, LTC Properties, Inc. as Special
    Servicer and Originator and Union Bank as Trustee (incorporated
    by reference to Exhibit 10.11 to LTC Properties,
    Inc.s Form 10-K for the year ended December 31,
    1994)                                                                                                                                      
|        | 10 | .9          |  | Form of Certificates, Form of Custodial Agreement
    and Form of Subservicing Agreement as Exhibits as filed herewith
    to the Pooling and Servicing Agreement dated as of
    November 1, 1994 among LTC REMIC Corporation, as Depositor,
    Bankers Trust Company, as Master Servicer, LTC Properties, Inc.
    as Special Servicer and Originator and Marine Midland Bank as
    Trustee (incorporated by reference to Exhibit 10.13 to LTC
    Properties, Inc.s Form 10-K for the year ended
    December 31, 1994)                                                     
|        | 10 | .10         |  | Form of Certificates, Form of Custodial Agreement
    and Form of Subservicing Agreement as Exhibits as filed herewith
    to the Pooling and Servicing Agreement dated as of March 1,
    1996 among LTC REMIC Corporation, as Depositor, GMAC Commercial
    Mortgage Corporation, as Master Servicer, LTC Properties, Inc.
    as Special Servicer and Originator and LaSalle National Bank as
    Trustee and ABN AMRO Bank N.V., as Fiscal Agent (incorporated by
    reference to Exhibit 10.1 to LTC Properties, Inc.s
    Form 10-Q for the quarter ended March 31, 1996)
|        | 10 | .11         |  | Subservicing Agreement dated as of May 14,
    1998, by and between GMAC Commercial Mortgage Corporation, as
    Master Servicer, LTC Properties, Inc. as Subservicer
    (incorporated by reference to Exhibit 10.3 to LTC
    Properties, Inc.s Quarterly Report on Form 10-Q for
    the quarter ended September 30, 1998)                                                                                                                                                                                                                                                    

76



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##### 



LTC PROPERTIES, INC.


INDEX TO
EXHIBITS  Continued

|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .12         |  | Pooling and Servicing Agreement dated as of
    April 20, 1998 among LTC REMIC IV Corporation, LaSalle
    National Bank and LTC Properties, Inc. (incorporated by
    reference to Exhibit 10.4 to LTC Properties, Inc.s
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 1998)                                       
|        | 10 | .13         |  | Distribution Agreement, dated as of
    September 30, 1998, by and between LTC Properties, Inc. and
    LTC Healthcare, Inc. (incorporated by reference to
    Exhibit 10.5 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 1998)                                                            
|        | 10 | .14         |  | Intercompany Agreement, dated as of
    September 30, 1998, by and between LTC Properties, Inc. and
    LTC Healthcare, Inc. (incorporated by reference to
    Exhibit 10.7 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 1998)                                                            
|        | 10 | .15         |  | Tax Sharing Agreement, dated as of
    September 30, 1998, by and between LTC Properties, Inc. and
    LTC Healthcare, Inc. (incorporated by reference to
    Exhibit 10.8 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 1998)                                                             
|        | 10 | .16         |  | LTC Properties, Inc. 1998 Equity Participation
    Plan (incorporated by reference to Exhibit 10.28 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 1998)                                                                                                                                           
|        | 10 | .17         |  | Second Amended and Restated Employment Agreement
    between Andre C. Dimitriadis and LTC Properties, Inc. dated
    March 26, 1999 (incorporated by reference to
    Exhibit 10.28 to LTC Properties, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 1998), as
    amended by Amendment No. 1 thereto dated June 23, 2000
|        | 10 | .18         |  | Amended and Restated Employment Agreement between
    James J. Pieczynski and LTC Properties, Inc. dated
    March 26, 1999 (incorporated by reference to
    Exhibit 10.28 to LTC Properties, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 1998), as
    superceded by Separation Agreement effective July 1, 2000     
|        | 10 | .19         |  | Amended and Restated Employment Agreement between
    Christopher T. Ishikawa and LTC Properties, Inc. dated
    March 26, 1999 (incorporated by reference to
    Exhibit 10.28 to LTC Properties, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 1998), as
    amended by Amendment No. 1 thereto dated June 23, 2000    
|        | 10 | .20         |  | Amended and Restated Employment Agreement between
    Julia L. Kopta and LTC Properties, Inc. dated January 1,
    2000 (incorporated by reference to Exhibit 10.33 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 1999), as amended by Amendment
    No. 1 thereto dated June 23, 2000            
|        | 10 | .21         |  | Amended and Restated Employment Agreement between
    Wendy L. Simpson and LTC Properties, Inc. dated April 10,
    2000, as amended by Amendment No. 1 thereto dated
    June 23, 2000 (incorporated by reference to
    Exhibit 10.22 to LTC Properties, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 2000)           
|        | 10 | .22         |  | Promissory Note dated January 1, 2000,
    executed by Andre C. Dimitriadis in favor of LTC Properties,
    Inc. (incorporated by reference to Exhibit 10.23 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the                                                                                                                    
|        | 10 | .23         |  | year ended December 31, 2000) Promissory
    Note dated January 1, 2000, executed by James J. Pieczynski
    in favor of LTC Properties, Inc. (incorporated by reference to
    Exhibit 10.24 to LTC Properties, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 2000)                                                     
|        | 10 | .24         |  | Promissory Note dated January 1, 2000,
    executed by Wendy L. Simpson in favor of LTC Properties, Inc.
    (incorporated by reference to Exhibit 10.25 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 2000)                                                                                      
|        | 10 | .25         |  | Promissory Note dated January 1, 2000,
    executed by Christopher T. Ishikawa in favor of LTC Properties,
    Inc. (incorporated by reference to Exhibit 10.26 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 2000)                                                                               
|        | 10 | .26         |  | Promissory Note dated January 1, 2000,
    executed by Edmund C. King in favor of LTC Properties, Inc.
    (incorporated by reference to Exhibit 10.27 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 2000)                                                                                        
|        | 10 | .27         |  | Promissory Note dated January 1, 2000,
    executed by Sam Yellen in favor of LTC Properties, Inc.
    (incorporated by reference to Exhibit 10.28 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 2000)                                                                                            

77



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##### 



LTC PROPERTIES, INC.


INDEX TO
EXHIBITS  Continued

|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .28         |  | Senior Secured Revolving Credit Agreement dated
    October 31, 2000 (incorporated by reference to
    Exhibit 10.29 to LTC Properties, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 2000)                                                                                                                                  
|        | 10 | .29         |  | First Amendment to Revolving Credit Agreement
    dated March 23, 2001 (incorporated by reference to
    Exhibit 10 to LTC Properties, Inc.s Quarterly Report
    on Form 10-Q for the quarter ended March 31, 2001)                                                                                                                                
|        | 10 | .30         |  | Second Amendment to Revolving Credit Agreement
    dated May 29, 2001 (incorporated by reference to
    Exhibit 10.1 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2001)                                                                                                                            
|        | 10 | .31         |  | Secured Term Loan with Heller Healthcare
    Financial, Inc. dated June 29, 2001 (incorporated by
    reference to Exhibit 10.2 to LTC Properties, Inc.s
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2001)                                                                                                                 
|        | 10 | .32         |  | Second Amended and Restated Promissory Note with
    LTC Healthcare, Inc. dated June 8, 2001 (incorporated by
    reference to Exhibit 10.3 to LTC Properties, Inc.s
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2001)                                                                                                     
|        | 10 | .33         |  | Security Agreement with LTC Healthcare, Inc.
    dated June 8, 2001 (incorporated by reference to
    Exhibit 10.4 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2001)                                                                                                                              
|        | 10 | .34         |  | Form of Individual Indemnity Agreements between
    LTC Properties and Andre Dimitriadis; Christopher Ishikawa;
    Julia Kopta; Wendy Simpson; Bary Bailey and Steven Stuart dated
    March 18, 2001 (incorporated by reference to
    Exhibit 10.34 to LTC Properties, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 2001)
|        | 10 | .35         |  | Employment Agreement between Alex J. Chavez and
    LTC Properties, Inc. dated September 4, 2001 (incorporated
    by reference to Exhibit 10.35 to LTC Properties,
    Inc.s Annual Report on Form 10-K for the year ended
    December 31, 2001)                                                                                                  
|        | 10 | .36         |  | Promissory Note between LTC Properties, Inc. and
    Healthcare Holdings, Inc. dated December 31, 2001
    (incorporated by reference to Exhibit 10.36 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 2001)                                                                                            
|        | 10 | .37         |  | Security Agreement between LTC Properties, Inc.
    and Healthcare Holdings, Inc. dated December 31, 2001
    (incorporated by reference to Exhibit 10.37 to LTC
    Properties, Inc.s Annual Report on Form 10-K for the
    year ended December 31, 2001)                                                                                         
|        | 10 | .38         |  | Promissory Note dated January 30, 2002
    between LTC Properties, Inc. and LTC-Fort Tucum, Inc.
    (incorporated by reference to Exhibit 10.1 to LTC
    Properties, Inc.s Quarterly Report on Form 10-Q for
    the quarter ended June 30, 2002)                                                                                                 
|        | 10 | .39         |  | Security Agreement dated January 30, 2002
    between LTC Properties, Inc. and LTC-Fort Tucum, Inc.
    (incorporated by reference to Exhibit 10.2 to LTC
    Properties, Inc.s Quarterly Report on Form 10-Q for
    the quarter ended June 30, 2002)                                                                                              
|        | 10 | .40         |  | Stock Purchase Agreement dated January 30,
    2002 between LTC Properties, Inc. and LTC-Fort Tucum, Inc.
    (incorporated by reference to Exhibit 10.3 to LTC
    Properties, Inc.s Quarterly Report on Form 10-Q for
    the quarter ended June 30, 2002)                                                                                        
|        | 10 | .41         |  | First Amendment to Second Amended and Restated
    Promissory Note dated October 1, 2002 between LTC
    Properties, Inc. and CLC Healthcare, Inc. (incorporated by
    reference to Exhibit 10.1 to LTC Properties, Inc.s
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2002)                                          
|        | 10 | .42         |  | Purchases, Warranties, Participation and
    Servicing Agreement dated August 1, 2002 between Beal Bank,
    SSB and LTC BBCO, Inc. (incorporated by reference to
    Exhibit 10.2 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2002)                                                         
|        | 10 | .43         |  | Severance Agreement between LTC Properties, Inc.
    and Julia Kopta dated April 1, 2003 (incorporated by
    reference to Exhibit 10.1 to LTC Properties, Inc.s
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2003)                                                                                                        
|        | 10 | .44         |  | Amended and Restated Promissory Note between LTC
    Properties, Inc. and Healthcare Holdings, Inc. dated
    July 9, 2003 (incorporated by reference to
    Exhibit 10.1 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2003)                                                                       

78



---



##### 



LTC PROPERTIES, INC.


INDEX TO
EXHIBITS  Continued

|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .45         |  | Amended and Restated Security Agreement between
    LTC Properties, Inc. and Healthcare Holdings, Inc. dated
    July 9, 2003 (incorporated by reference to
    Exhibit 10.2 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2003)                                                                                                                                           
|        | 10 | .46         |  | Second Amendment to Second Amended and Restated
    Promissory Note between LTC Properties, Inc. and CLC Healthcare,
    Inc. dated September 30, 2003 (incorporated by reference to
    Exhibit 10.1 to LTC Properties, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003)                                                                                                             
|        | 10 | .47         |  | Credit Agreement dated as of December 26,
    2003 among LTC Properties, Inc. and Bank of Montreal, Chicago
    Branch, as Administrative Agent, Harris Nesbitt Corp. as Co-Lead
    Arranger and Book Manager and Key Corporate Capital, Inc. as
    Co-Lead Arranger and Syndication Agent (incorporated by
    reference to Exhibit 10.1 to LTC Properties, Inc.s
    Current Report on Form 8-K dated January 26, 2004)
|        | 21 | .1          |  | List of subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 23 | .1          |  | Consent of Ernst & Young LLP with
    respect to the financial information of the Company                                                                                                                                                                                                                                                                                                                                   
|        | 31 | .1          |  | Certification of the Chief Executive Officer of
    LTC Properties, Inc. pursuant to Rule 13a-14 of the
    Securities Exchange Act of 1934, as amended, as adopted pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)                                                                                                                                                                      
|        | 31 | .2          |  | Certification of the Chief Financial Officer of
    LTC Properties, Inc. pursuant to Rule 13a-14 of the
    Securities Exchange Act of 1934, as amended, as adopted pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)                                                                                                                                                                      
|        | 32 |             |  | Certifications pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to the Sarbanes-Oxley Act
    of 2002 (furnished herewith).                                                                                                                                                                                                                                                                                      

79



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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, Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                     
| | --------------------
| | LTC Properties, Inc.
| | Registrant          

Dated: March 12, 2004



| |     |                     
| | --- | --------------------
| | By: | /s/ WENDY L. SIMPSON

| |                               
| | ------------------------------
| |                               
| | WENDY L. SIMPSON              
| | Vice Chairman, Chief Financial
| | Officer and Director          

|                                             |  |                                                                 |  |               
|-------------------------------------------- |  | --------------------------------------------------------------- |  | --------------
|                                            
|/s/ ANDRE C. DIMITRIADISANDRE C. DIMITRIADIS |  | Chairman of the Board, Chief Executive Officer
    and Director |  | March 12, 2004
|                                            
|/s/ WENDY L. SIMPSONWENDY L. SIMPSON         |  | Vice Chairman, Chief Financial Officer
    and Director         |  | March 12, 2004
|                                            
|/s/ EDMUND C. KINGEDMUND C. KING             |  | Director                                                        |  | March 12, 2004
|                                            
|/s/ TIMOTHY J. TRICHETIMOTHY TRICHE          |  | Director                                                        |  | March 12, 2004
|                                            
|/s/ SAM YELLENSAM YELLEN                     |  | Director                                                        |  | March 12, 2004

80