UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2004

OR

For the Transition period from            to           

Commission file number 1-11314

LTC PROPERTIES, INC.

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

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

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

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

Shares of Registrant’s common stock, $.01 par value, outstanding April 30, 2004 – 19,664,614

LTC PROPERTIES, INC.

FORM 10-Q

March 31, 2004

INDEX

2

LTC PROPERTIES, INC.

See accompanying notes.

3

LTC PROPERTIES, INC.

See accompanying notes.

4

LTC PROPERTIES, INC.

See accompanying notes.

5

LTC PROPERTIES, INC.

1. General

LTC Properties, Inc., a Maryland corporation, 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.

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

We have prepared consolidated financial statements included herein without audit (except for the balance sheet at December 31, 2003 which is audited) and in the opinion of management have included all adjustments necessary for a fair presentation of the results of operations for the three months ended March 31, 2004 and 2003 pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying consolidated financial statements include the accounts of our company, its wholly-owned subsidiaries and controlled partnerships. All significant intercompany accounts and transactions have been eliminated in consolidation. Control over those partnerships is based on the provisions of the partnership agreements that provide us with a controlling financial interest in the partnerships. Under the terms of the partnership agreements, our company, as general partner, is responsible for the management of the partnerships’ assets, business and affairs. Our rights and duties in management of the partnerships include making all operating decisions, setting the capital budgets, executing all contracts, making all employment decisions, and the purchase and disposition of assets, among others. The general partner is responsible for the ongoing, major, and central operations of the partnership and makes all management decisions. In addition, the general partner assumes the risk for all operating losses, capital losses, and is entitled to substantially all capital gains (appreciation).

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

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

Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation and as required by Statement of Financial Accounting Standards (or SFAS) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results for a full year.

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

2. Real Estate Investments

Owned Properties. At March 31, 2004, we owned 53 skilled nursing properties with a total of 6,095 beds, 88 assisted living properties with 4,182 units and one school located in 23 states.

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

During the three months ended March 31, 2004 we sold one skilled nursing property in Georgia for $1,500,000 resulting in a gain on sale of $975,000 and generated net proceeds of $208,000 after a $1,250,000 pay down of a mortgage loan secured by the property. Also during the first quarter of 2004, we purchased a 120 bed skilled nursing property in Texas for a total of $3,371,000 in cash. The property is leased to a third party operator under a 20 year lease beginning at an annual lease payment of $363,000 and increasing 2% annually.

Subsequent to March 31, 2004, we sold two closed skilled nursing properties for a total of $262,000 resulting in a total loss on the sales of $256,000. We received $5,000 in combined net proceeds from the sales after the $236,000 payoff of a mortgage loan securing one of the properties sold. Also subsequent to March 31, 2004, we acquired for $2,134,000 from a REMIC pool we originated a 165 bed skilled nursing property in Texas which had been foreclosed on by the REMIC. The property is leased to a third party operator under a two year lease with a two year option to extend. The annual lease payment is $180,000 during the initial two year term and $240,000 during the extended two year term. In April 2004 we converted one mortgage loan on a 194 bed skilled nursing property in Arizona to an owned property through a deed in lieu foreclosure transaction plus $50,000. This property was added to a master lease with a third party operator, increasing the annual rent due under the master lease by $372,000.

In accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” 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 addition, the operating results of real estate assets designated as held for sale and all gains and losses from real estate sold are included in discontinued operations in the consolidated statement of operations.

Set forth in the table below are the components of the net income (loss) from discontinued operations for the three months ended March 31, 2004 and 2003 (unaudited, in thousands):

Mortgage Loans. At March 31, 2004 we had 38 mortgage loans secured by first mortgages on 31 skilled nursing properties with a total of 3,875 beds and eight assisted living properties with a total of 369 units located in 19 states. At March 31, 2004, the mortgage loans had interest rates ranging from 9.5% to 12.7% 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.

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

During the first quarter 2004, we acquired a mortgage loan from a REMIC pool we originated for $3,661,000, which represented the outstanding loan balance. In April 2004, this loan was converted into an owned property through a deed in lieu foreclosure transaction plus $50,000. In April 2004, we funded a new loan on a 156 bed skilled nursing property in Georgia in the amount of $1,868,000. Also subsequent to March 31, 2004, we acquired a mortgage loan from a REMIC pool we originated for $694,000 in cash which represented the outstanding loan balance owed to the REMIC pool under the mortgage.

REMIC Certificates. As of March 31, 2004 we had $63,084,000 of REMIC Certificates at net book value, which includes the $3,873,000 of REMIC certificates we acquired during the first quarter. Of the $63,084,000, $56,401,000 of our net book value represents face value certificated interests in the principal balances of the underlying mortgage pools which at March 31, 2004 had total unpaid principal balance of $201,265,000. Additionally, there are also $137,671,000 senior certificates outstanding that have priority over the $56,401,000 of face value certificates we retained.

Our investment in the $56,401,000 of face value certificates is backed by the difference between the $201,265,000 in mortgage pool principal and the $137,671,000 of senior certificates outstanding, or $63,594,000, resulting in a collateral cushion over our net book value of $7,193,000.

The remaining $6,683,000 of our REMIC certificates are I/O certificates that represent the present value of the expected cash flows resulting from the mortgage pools that result from the spread in interest that arises between what the underlying mortgage loans are paying in interest versus the interest being paid on the principal based certificates. These cash flows have been discounted at a rate of 35% to arrive at the estimated fair market value of the I/O certificates.

Interest only certificates and certificates with an investment rating of “BB” or higher are classified as available-for-sale and unrated certificates and certificates with an investment rating of “B” or lower are classified as held-to-maturity. As of March 31, 2004, available-for-sale certificates were recorded at their fair value of approximately $12,778,000.

At March 31, 2004, held-to-maturity certificates had a book value of $50,307,000 and an estimated fair value of $39,406,000. As of March 31, 2004, the effective yield on the available-for-sale certificates and the held-to-maturity certificates, based on expected future cash flows discounted to give effect to potential risks associated with prepayments and unanticipated credit losses, was 34.80% and 11.92%, respectively.

3. Notes Receivable

At March 31, 2004, we held a Secured Term Note (or Secured Note) issued by Centers for Long Term Care (or CLC), a wholly owned subsidiary of Center Healthcare, a private company that purchased CLC according to an Agreement and Plan of Merger dated October 6, 2003 as discussed in Note 8. of our Annual Report filed on Form 10-K for the year ended December 31, 2003. The face value of the Secured Note is $8,867,000 which represents the balance due on a previous secured line of credit including unpaid interest and rents due and unpaid through April 30, 2003. The Secured Note is due October 1, 2008 and provides for interest of 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 March 31, 2004. During 2004 and 2003 we did not record any interest on this note.

At March 31, 2004, we held a Promissory Note (or Note) issued by Healthcare Holdings, Inc. (or HHI), a wholly owned subsidiary of CLC. The face value of the Note is $9,150,000. The original Note was received in December 2001 in exchange for our right to receive 1,238,076 shares of Assisted Living Concepts, Inc. (or 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

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

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. At March 31, 2004, HHI owned 1,452,794 shares of ALC common stock with a fair market value based on the closing price of ALC stock at March 31, 2004 of $11,986,000. At March 31, 2004, 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. In accordance with the terms of the Note, we received $196,000 from HHI in March 2004 representing the 2.0% interest on the outstanding principal balance at December 31, 2003 which is payable in cash in arrears. This amount was recognized as interest income in the first quarter of 2004. In the first quarter of 2003, we received $140,000 from HHI representing the 2.0% interest which was applied to the line of credit CLC had outstanding with us at that time.

4. Debt Obligations

At March 31, 2004, $12,000,000 was outstanding under our Unsecured Revolving Credit. During the three months ended March 31, 2004, pricing under the Unsecured Revolving Credit ranged between LIBOR plus 2.75% and LIBOR plus 3.25%. At March 31, 2004, the interest rate applicable to borrowings under the Unsecured Revolving Credit would have been approximately 4.0%.

5. Senior Mortgage Participation Payable

In 2002, we completed a loan participation transaction whereby we issued a $30,000,000 senior participating interest in 22 of our first mortgage loans that had a total unpaid principal balance of $58,627,000 (the “Participation Loan Pool”) to a private bank. The Participation Loan Pool had a weighted average interest rate of 11.6% and a weighted average scheduled term to maturity of 77 months. The senior participation balance is secured by the entire Participation Loan Pool.

The senior participation receives interest at a rate of 9.25% per annum, payable monthly in arrears, on the then outstanding principal balance of the senior participation. In addition, the senior participation receives all mortgage principal collected on the Participation Loan Pool until the senior participation balance has been reduced to zero. We retain interest received on the Participation Loan Pool in excess of the 9.25% paid to the senior participation. The ultimate extinguishments of the senior participation are tied to the underlying maturities of loans in the Participation Loan Pool, which range from 12 to 173 months. We have accounted for the participation transaction as a secured borrowing under SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

During the three months ended March 31, 2004 and 2003, the senior participation received principal payments of $204,000 and $212,000, respectively. At March 31, 2004, $18,046,000 was outstanding under the senior mortgage participation.

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

6. Stockholders’ Equity

During the first quarter of 2004 we redeemed all 1,838,520 outstanding shares of Series A preferred stock and all 1,988,000 outstanding shares of Series B preferred stock. Accordingly we recognized the $4,029,000 of original issue costs related to the Series A and Series B preferred stock as a preferred stock redemption charge in the three months ended March 31, 2004. In February 2004, we issued 4,000,000 shares of Series F Cumulative Redeemable Preferred Stock (or Series F preferred stock) in a registered direct placement generating net cash proceeds of approximately $98,578,000. The cash proceeds and cash on hand were used to redeem all of the outstanding shares of our Series A preferred stock and Series B preferred stock. The Series F preferred stock has a dividend rate of 8.0% and a liquidation value of $25.00 per share. Dividends are cumulative from the date of original issue and are payable quarterly to stockholders of record on the first day of each quarter. The liquidation preference of the Series F preferred stock is pari passu with our other series of preferred stock. The Series F preferred stock has no voting rights, no stated maturity, nor is it subject to any sinking fund or mandatory redemption. On or after February 23, 2009, we may, at our option, redeem Series F preferred stock, in whole or from time to time in part, for $25.00 per share in cash plus any accrued and unpaid dividends to the date of redemption.

During the three months ended March 31, 2004, we declared and paid the following cash dividends (unaudited, in thousands):

	(1)		Represents 22 days of accrued dividends.
	(2)		Represents $0.25 per share
	(3)		The difference between declared and paid is the change in distributions payable on the balance sheet at March 31, 2004 and December 31, 2003.

Subsequent to March 31, 2004, we declared a cash dividend of $0.275 per share on our common stock payable on June 30, 2004, to stockholders of record on June 18, 2004.

During the three months ended March 31, 2004, a total of 35,871 stock options were exercised at a total option value of approximately $194,000 and a total market value as of the dates of exercise of approximately $557,000. Subsequent to March 31, 2004, a total of 60,800 stock options were exercised at a total option value of approximately $337,000 and a total market value as of the dates of exercise of approximately $976,000.

In January 2004, two of our limited partners exercised their conversion rights and exchanged their interest 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

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

the book value of the partnership interests received, we recognized a $295,000 increase in the basis of the properties underlying the limited partnership interests acquired.

Other equity consists of the following (in thousands):

During the three months ended March 31, 2004, three notes receivable from stockholders with a combined balance of $940,000 were paid in full. Two of these notes were from current members of our board of directors.

On March 23, 2004, we filed a Form S-3 “shelf” registration which became effective April 5, 2004 and provides us with the capacity to offer up to $200,000,000 in our debt and/or equity securities.

In our Proxy Statement for our annual meeting to be held on May 18, 2004, we have requested that our stockholders approve the following equity related proposals:

	1.		an increase in the number of authorized common stock from 35,000,000 to 45,000,000 shares;
	2.		an increase in the number of authorized preferred stock from 15,000,000 to 25,000,000 shares;
	3.		approval of The 2004 Stock Option Plan which would provide for the granting of options on 500,000 shares of common stock; and
	4.		approval of The 2004 Restricted Stock Plan which would provide for the granting of up to 100,000 shares of restricted common stock.

There can be no assurances given that all or any of these proposals will be approved by our stockholders.

In April 2004, we received conversion notification on 795,000 shares of our $25.00 liquidation value, 8.5% Series E Convertible Preferred Stock. These shares converted into shares of common stock at a conversion price of $12.50 per common share. Accordingly we issued 1,590,000 shares of common stock.

Prior to January 1, 2003, we accounted for stock option grants in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (or APB 25) and related Interpretations. Historically, we granted stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. Under APB 25, because the exercise price of our employee stock options equaled the market price of the underlying stock on the date of grant, no compensation expense was recognized. Effective January 1, 2003, we adopted SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” on a prospective basis for all employee awards granted, modified or settled on or after January 1, 2003. We did not grant any options during the three months ended March 31, 2004.

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

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

7. Major Operators

There are two companies that lease properties directly from us that each represent between 10% and 20% of our total assets. One of these companies is publicly traded and thus files quarterly financial information with the Securities and Exchange Commission and the other is privately owned and thus no financial information is available. The following table summarizes our publicly traded major lessee’s assets, stockholders’ equity, annual revenue and net loss from continuing operations as of or for the twelve months ended December 31, 2003 per the lessee’s public filings:

Assisted Living Concepts, Inc. (or ALC) leases 37 assisted living properties with a total of 1,434 units we own representing approximately 13.0%, or $71,937,000, of our total assets at March 31, 2004.

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

In January 2004, we received $12,374,000 in cash from ALC as full redemption of ALC Senior and Junior Notes we held. The notes were redeemed at face value plus accrued and unpaid interest as of the redemption date. See Note 3. Notes Receivable for a discussion of a note we have with HHI which is secured by 1,452,794 shares of ALC’s common stock owned by HHI.

Alterra Healthcare Corporation (or Alterra) leases 35 assisted living properties with a total of 1,416 units we own representing approximately 12.8%, or $70,752,000, of our total assets at March 31, 2004. 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 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.

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 our ability to make distributions may be adversely affected by 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.

8. Earnings per Share

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

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating Results

Three months ended March 31, 2004 compared to three months ended March 31, 2003