LTC PROPERTIES, INC.

                                   EXHIBIT 99

                                  RISK FACTORS

You should carefully consider the risks described below before making an
investment decision in our company. The risks and uncertainties described below
are not the only ones facing our company and there may be additional risks that
we do not presently know of or that we currently consider immaterial. All of
these risks could adversely affect our business, financial condition, results of
operations and cash flows. As a result, our ability to pay distributions on, and
the market price of, our common stock may be adversely affected if any of such
risks are realized.

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

Our Performance is Subject to Risks Associated with Health Care Real Estate
Investment

There are Factors Outside of our Control that Affect the Performance and Value
of our Real Estate. Real property investments in the health care industry are
subject to varying degrees of risk. The economic performance and values of
health care real estate can be affected by many factors including governmental
regulation, economic conditions, and demand for health care services. We cannot
assure that the value of any property acquired by us will appreciate or that the
value of property securing any of our mortgage loans or any property acquired by
us will not depreciate. Certain significant expenditures associated with an
investment in real estate (such as mortgage payments, real estate taxes and
maintenance costs) generally do not decline when circumstances cause a reduction
in income from the property.

Income and Returns from Health Care Facilities Can be Volatile. The possibility
that the health care facilities 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.

Real Estate Investments are Illiquid. Real estate investments are relatively
illiquid and, therefore, tend to limit our ability to vary our portfolio
promptly in response to changes in economic or other conditions. All of our
properties are "special purpose" properties that could not be readily converted
to general residential, retail or office use. Transfers of operations of nursing
homes and other health care-related facilities are subject to regulatory
approvals not required for transfers of other types of commercial operations and
other types of real estate. Thus, if the operation of any of our properties
becomes unprofitable due to competition, age of improvements or other factors
such that the borrower or lessee becomes unable to meet its obligations on the
debt or lease, the liquidation value of the property may be substantially less
than would be the case if the property were readily adaptable to other uses. The
receipt of liquidation proceeds could be delayed by the approval process of any
state agency necessary for the transfer of the property. In addition, certain
significant expenditures associated with real estate investment (such as real
estate taxes and maintenance costs) are generally not reduced when circumstances
cause a reduction in income from the investment. If any of these events occur,
our income and funds available for distribution would be adversely affected.

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Some Potential Losses are not Covered by Insurance. We currently require, and we
intend to continue to require, all borrowers of funds from us and lessees of any
of our properties to secure adequate comprehensive property and general and
professional liability insurance that covers us as well as the borrower and/or
lessee. Recently, the cost of such insurance has increased substantially and
some insurers have stopped offering such insurance for nursing homes. The
unavailability and increased cost of such insurance could have a material
adverse effect on the ability of the lessees and operators, including their
ability to make lease or mortgage payments. In addition, certain risks may be
uninsurable, not economically insurable or insurance is not available and there
can be no assurance our Company, a borrower or a lessee will have adequate funds
to cover all contingencies itself. Certain losses such as losses due to floods
or seismic activity may be insured subject to certain limitations including
large deductibles or co-payments and policy limits. 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; lose the capital we invested in the properties, as
well as the anticipated future revenue from 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.

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.

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, 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 facility 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.

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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 which
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 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.

Regulations Have Been Adopted to Eliminate Fraud and Abuse. There are various
federal and state laws prohibiting fraud by health care providers, including
criminal provisions which prohibit filing false claims or making false
statements to receive payment or certification under Medicare and Medicaid, or
failing to refund overpayments or improper payments. Violation of these federal
provisions is a felony punishable by up to five years imprisonment and/or
$25,000 fines. Civil provisions prohibit the knowing filing of a false claim or
the knowing use of false statements to obtain payment. The penalties for such a
violation are fines of not less than $5,500 nor more than $11,000, plus treble
damages, for each claim filed.

There are also laws which govern referrals and financial relationships. The
federal Anti-Kickback Law prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for, or to induce,
the referral of Medicare and Medicaid patients. A wide array of relationships
and arrangements, including ownership interests in a company by persons who
refer or who are in a position to refer patients, as well as personal services
agreements, have under certain circumstances, been alleged or been found to
violate these provisions. In addition to the Anti-Kickback Statute, the federal
government restricts certain financial relationships between physicians and
other providers of health care services.

State and federal governments are devoting increasing attention and resources to
anti-fraud initiatives against health care providers. The Health Insurance
Portability and Accountability Act of 1996 ("HIPAA") and the Balanced Budget Act
of 1997 expand the penalties for health care fraud, including broader provisions
for the exclusion of providers from the Medicare and Medicaid programs.

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

Second, HHS has released new standards relating to the privacy of individually
identifiable health information. These standards not only require our operators'
compliance with rules governing the use and disclosure of protected health
information, but they also require entities to impose those rules, by contract,
on any business

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associate to whom such information is disclosed. Rules governing the security of
health information have been proposed but not yet been issued in final form.

HHS finalized the new transaction standards on August 17, 2000, and covered
entities, such as our operators, will be required to comply with them by October
16, 2002. Congress passed legislation in December 2001 that delays for one year
(October 16, 2003) the compliance date, but only for entities that submit a
compliance plan to HHS by the original implementation deadline. The privacy
standards were issued on December 28, 2000, and, after certain delays, became
effective April 14, 2001, with a compliance date of April 14, 2003. The Bush
Administration and Congress are taking a careful look at the existing
regulations, but it is uncertain whether there will be additional changes to the
privacy standards or their compliance date. With respect to the security
regulation, once they are issued in final form, affected parties will have
approximately two years to be fully compliant. Sanctions for failing to comply
with HIPAA include criminal and civil sanctions.

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

Based upon information we have periodically received from our operators over the
terms of their respective leases and loans, we believe that the nursing
facilities in which we have investments are in substantial compliance with the
various regulatory requirements applicable to them, although there can be no
assurance that the operators are in compliance or will remain in compliance in
the future.

Congress Has Enacted Health Care Reform Measures. The health care industry is
facing various challenges, including increased government and private payor
pressure on health care providers to control costs. The pressure to control
health care costs intensified during 1994 and 1995 as a result of the national
health care reform debate and continues as Congress attempts to slow the rate of
growth of federal health care expenditures as part of its effort to balance the
federal budget.

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. In part because of the uncertainty as to the effect of the
prospective payment system on skilled nursing facilities, in November 1998,
Standard & Poor's, an international rating agency that provides credit analysis
and information through the rating of financial instruments, placed many skilled
nursing facility companies on a "credit watch" because of the potential negative
impact of the implementation of the prospective payment system on the financial
condition of skilled nursing facilities, including the ability to make interest
and principal payments on outstanding borrowings. Since that time, five publicly
held operators of long-tem care facilities and one publicly held operator of
assisted living facilities have filed for reorganization under Chapter 11 of the
federal bankruptcy laws. As of February 28, 2002, only one long-term care
operator and the assisted living operated have restructured their operations
and/or debt and equity and emerged from bankruptcy. There can be no assurances
given that 2002 and future years will not include additional bankruptcies of
skilled nursing and assisted living operators. The growing popularity of
long-term care insurance and an aging population, should add to demand for
nursing home services. While the Balance Budget Refinement Act and the Benefits
Improvement and Protection Act of 2000 contain provisions to mitigated to a
certain extent, the effects of the Balanced Budget Act, these changes may be
insufficient to address the negative impact of the prospective

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payment system on some skilled nursing facilities and moreover, are scheduled to
end in October 2002 and if Congress fails to act to extend these or enact
comparable payment increases, skilled nursing facilities could experience
significant losses in revenue.

In addition, there are numerous initiatives at the federal and state levels for
comprehensive reforms affecting the payment for and availability of health care
services. 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.

In light of forthcoming regulations and continuing state Medicaid program
reform, 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.

Our Facilities 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. The operator of each skilled nursing facility is licensed annually
by the department of health or other applicable agency in each state. In
granting and renewing licenses, regulatory agencies consider, among other
things, the physical buildings and equipment, the qualifications of the
administrative personnel and nursing staff, the quality of care and continuing
compliance with the laws and regulations relating to the operation of the
facilities. State licensing of facilities is a prerequisite to certification
under the Medicare and Medicaid programs. In the ordinary course of business,
the operators receive notices of deficiencies for failure to comply with various
regulatory requirements and take appropriate corrective and preventive actions.

Failure to obtain licensure or loss of licensure would prevent a facility from
operating. Failure to maintain certification in the Medicare and Medicaid
programs would result in a loss of funding from those programs. Although
accreditation is generally voluntary, loss of accreditation could result in a
facility not meeting eligibility requirements to participate in various
reimbursement programs. These events could adversely affect the facility
operator's ability to make rent and debt payments.

In addition to licensing requirements, state and local laws may regulate
expansion, including the addition of new beds or services or acquisition of
medical equipment, and occasionally the contraction of health care facilities by
requiring certificate of need or other similar approval programs. States vary in
their utilization of these programs. In addition, health care facilities are
subject to the Americans with Disabilities Act and building and safety codes
which govern access, physical design requirements for facilities, and building
standards.

Skilled Nursing Facilities. Skilled nursing facilities are regulated primarily
through the state licensing and federal certification criteria established by
federal law enacted as part of the Omnibus Budget Reconciliation Act of 1987.
Regulatory authorities and licensing standards vary from state to state, and in
some instances from locality to locality. These standards are constantly
reviewed and revised. Agencies periodically inspect facilities, at which time
deficiencies may be identified. The facilities must correct these deficiencies
as a condition to continued licensing or certification and participation in
government reimbursement programs, and may receive sanctions for noncompliance.
Depending on the nature of such deficiencies, remedies can be routine or costly,
and sanctions can be modest or severe, up to revocation of a facility's license
or certification or closure of a facility. Similarly, compliance with
regulations that cover a broad range of areas such as patients' rights, staff
training, quality of life and quality of resident care may increase facility
start-up and operating costs.

Assisted Living Facilities. Assisted living facilities are subject to certain
state regulations and licensing requirements. To qualify as a state licensed
facility, assisted living facilities must comply with regulations that address,
among other things, staffing, physical design, required services and resident
characteristics. Assisted living facilities are also subject to various local
building codes and other ordinances, including fire safety codes.

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These requirements vary from state to state and are monitored to varying degrees
by state agencies. Failure to comply with these laws and regulations could
result in the denial of reimbursement, the imposition of fines, and in extreme
cases, the revocation of a facility's license or closure of a facility. Such
actions may have an effect on the revenues of the borrowers and lessees of
properties owned by us and therefore adversely impact our revenues.

Currently, assisted living facilities are not regulated as such by the federal
government. State standards required for assisted living facility providers are
less stringent than those required of other licensed health care operators.
There can be no assurance that federal regulations governing the operation of
assisted living facilities will not be implemented in the future or that
existing state regulations will not be expanded. In addition, only certain
states have adopted laws or regulations permitting individuals with higher
acuity levels to remain in assisted living communities who may otherwise qualify
for placement in a nursing facility. While only certain states presently provide
for any Medicaid reimbursement for assisted living residences, several states
are currently reviewing their policies and reimbursement programs to provide
funding for assisted living residences. There can be no assurance that such
states will adopt the Medicaid waiver program.

Environmental Problems Are Possible and Can Be Costly. Under various federal,
state and local environmental laws, ordinances and regulations, an owner of real
property or a secured lender (such as our company) 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.

We Rely on a Few Major Operators

     As of December 31, 2001, Sun Healthcare Group, Inc. ("Sun") operated 15
facilities (13 leases and two loans) with 1,774 beds/units representing
approximately 11.6%, or $68,239,000, of our "direct real estate investment
portfolio" (properties that we own or on which we hold promissory notes secured
by first mortgages). Additionally, at December 31, 2001, Sun operated eight
skilled nursing facilities securing mortgage loans payable to REMIC pools
originated by us. During 1999, Sun filed for reorganization under Chapter 11 of
the Bankruptcy Code. As of December 31, 2001, Sun was operating its business as
a debtor-in-possession subject to the jurisdiction of the Bankruptcy Court,
however, Sun has received approval of its plan of reorganization and emerged
from bankruptcy in February 2002. Concurrently, 13 leases with us were affirmed,
additionally one of the leases related to a loan was affirmed and the other
lease related to a loan was rejected.

Assisted Living Concepts, Inc. ("ALC") operates 37 assisted living facilities
with a total of 1,434 units owned by us representing approximately 14.9%, or
$88,105,000, of our direct real estate investment portfolio. 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

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reduce total rents under the 37 leases by $875,000 a year, beginning January 1,
2002. The final order affirming the reorganization was made in December 2001,
consequently we reflected the transactions as of December 31, 2001. Our
Chairman, CEO and President, Mr. Andre C. Dimitriadis, became a Board Member of
ALC as of January 1, 2002.

Alterra Healthcare Corporation ("Alterra") operates 35 assisted living
facilities with a total of 1,416 units owned by us representing approximately
14.3%, or $84,194,000, of our direct real estate investment portfolio. Alterra
has announced that it has engaged financial advisors to assist Alterra in a
restructuring of its debt and equity. We cannot, at this time, predict or
quantify what, if any, impact any ultimate restructuring could have on our
company. As of March 2002, Alterra was current on all rents due us.

Sunwest Management, Inc. ("Sunwest") operates seven assisted living facilities
with a total of 693 units owned by us representing approximately 10.5%, or
$61,862,000, of our company's direct real estate investment portfolio.

As of December 31, 2001, 24 real estate properties with a total of 2,651 beds
and a gross carrying value of $58,151,000 or 9.8% of our direct real estate
investment portfolio were operated by CLC Healthcare, Inc. ("CLC"). Rents under
these leases totaled approximately $3,148,000, annually. These leases were
cancelled and replaced with new leases in January 2002 as described below.

Subsequent to December 31, 2001, the Company sold to an unrelated party two
properties in Illinois operated by CLC. CLC will continue to operate these
facilities until the new owner obtains a license and regulatory approval.
Additionally, subsequent to December 31, 2001, the Company agreed to sell a
wholly owned subsidiary, LTC-Fort Tucum, Inc. to CLC for a $500,000 note bearing
no interest for one year and thereafter interest at 8% annually for two years.
CLC has certain rights to extend the note at its maturity. LTC-Fort Tucum, now
owned by CLC has acquired two skilled nursing facilities in New Mexico,
previously operated by Integrated Health Services, Inc., in a deed-in-lieu of
foreclosure transaction. These properties are financed with debt from a REMIC
pool originated by the Company. CLC expects to begin operating the two
facilities during the second quarter of 2002. Additionally, in January 2002, the
Company acquired a skilled nursing facility in Texas operated by CLC through the
assumption of a $1,357,000 mortgage loan payable to a REMIC pool originated by
the Company and a cash payment of $505,000.

As a result of the subsequent events, the Company leases 23 facilities to CLC
under individual six-year leases that provide for total rents of $3,000,000;
$4,000,000; $4,750,000; $5,350,000; $5,900,000 and $6,500,000 respectively, in
years 2002 through 2007. The leases contain two five-year renewal options with
increases of 2% annually. These leases have cross default provisions and a
provision for acceleration should there be a change of control, as defined in
the lease, of CLC. Additionally, CLC owns and operates the two New Mexico
facilities discussed above that are financed with mortgage loans payable to a
REMIC pool originated by the Company.

All of these companies, except Sunwest, are publicly traded companies, and as
such are subject to the filing requirements of the Securities and Exchange
Commission. Our financial position and its ability to make distributions may be
adversely affected by further financial difficulties experienced by ALC,
Alterra, CLC and Sun, or financial difficulties experienced by Sunwest, or any
of our other major operators, 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 company's borrowers when it expires.

Third Parties That Operate Our Properties May Become Bankrupt

If third parties that operate properties we invest in become bankrupt, any
investments we make in assets operating in workout modes or under Chapter 11 of
the Bankruptcy Code could be subordinated or disallowed,

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and we could be liable to third parties. Furthermore, if we receive any
distributions relating to such investments, they could be recovered from us if
the distribution is regarded as a fraudulent conveyance or preferential payment.
Bankruptcy laws, including the automatic stay imposed upon the filing of a
bankruptcy petition, may delay our ability to realize on collateral securing
loans made by us or may adversely affect the priority of our loans through
doctrines such as "equitable subordination" or may result in a restructure of
the debt through principles such as the "cramdown" provisions of the bankruptcy
laws.

We Invest in Mortgage Loans

Borrowers May be Unable to Make Debt Service Payments. We invest in mortgages.
In general, investments in mortgages include the risks that borrowers may not be
able to make debt service payments or pay principal when due, that the value of
the mortgaged property may be less than the principal amount of the mortgage
note secured by the property and that interest rates payable on the mortgages
may be lower than our cost of funds to acquire these mortgages. In any of these
events, our ability to make distributions on, and the market price of, our
common stock could be adversely affected.

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

There are Disadvantages to Investments in Commercial Mortgage Backed Securities

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 facilities 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

                                       8



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 may be Unable to Consummate Acquisitions, Leasings and Financings on
Advantageous Terms Due in Part to Competition

Investments in health care facilities entail the risk that they will fail to
perform in accordance with our expectations. Estimates of the costs of
improvements necessary for us to bring an acquired property up to market
standards may prove inaccurate. Further, we anticipate significant competition
for attractive investment opportunities from other major health care facility
investors with significant capital including other REITs, real estate
partnerships, health care providers and other investors, including banks and
insurance companies. We expect that future investments will be financed through
a combination of borrowings and proceeds from equity or debt offerings by us,
which could have an adverse effect on our cash flow. We may not be able to
invest in additional facilities. Our inability to finance any future investments
on favorable terms or the failure of investments to conform to our expectations
or investment criteria could have a direct and adverse impact on us. Difficult
capital market conditions in the health care industry have limited our access to
traditional forms of growth capital. As a result of the tight capital markets in
the health care industry, we reduced our investment activity in 2001 and 2000
and intend to limit our investment activity in 2002.

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.

We Could Incur More Debt

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We operate with a policy of incurring debt when, in the opinion of our
directors, it is advisable. 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.

Debt Financing, Financial Covenants, Degree of Leverage and Increases in
Interest Rates Could Adversely Affect Our Economic Performance

Scheduled Debt Payments Could Adversely Affect Our Financial Condition. We are
subject to risks normally associated with debt financing, including the risks
that our cash flow will be insufficient to make distributions to our
stockholders, that we will be unable to refinance existing indebtedness on our
properties (which in all cases will not have been fully amortized at maturity)
and that the terms of refinancing will not be as favorable as the terms of
existing indebtedness.

As of December 31, 2001, we had total debt outstanding of approximately
$284,634,000 including:

     . $104,000,000 outstanding under our Senior Secured Credit Facility with a
     maturity date of October 2, 2004 and a current interest rate of LIBOR plus
     2.25%;

     . $2,408,000 aggregate principal amount of convertible subordinated
     debentures with a maturity in January 2002 and an interest rate of 7.75%;

     . $15,994,000 aggregate principal amount of capital leases and tax exempt
     revenue bonds with various maturities through 2025 and a weighted average
     interest rate of 7.2%;

     . $162,232,000 aggregate principal amount of mortgage loans with various
     maturities ranging from 2002 through 2028 and a weighted average interest
     rate of 9.4%.

If we are unable to refinance or extend principal payments due at maturity or
pay them with proceeds of other capital transactions, we expect that our cash
flow will not be sufficient in all years to pay distributions to our
stockholders and to repay all such maturing debt. Furthermore, if prevailing
interest rates or other factors at the time of refinancing (such as the
reluctance of lenders to make commercial real estate loans) result in higher
interest rates upon refinancing, the interest expense relating to that
refinanced indebtedness would increase. This increased interest expense would
adversely affect our financial condition and results of operations.

Rising Interest Rates Could Adversely Affect Our Cash Flow. As of December 31,
2001, we had $104,000,000 outstanding under a variable rate line of credit. In
addition, we may incur other variable rate indebtedness in the future. Increases
in interest rates on this indebtedness could increase our interest expense,
which would adversely affect our financial condition and results of operations.

We Are Dependent on External Sources of Capital. In order to qualify as a REIT
under the Internal Revenue Code, we are required each year to distribute to our
stockholders at least 90% (95% for years ending Prior to January 1, 2001) of our
REIT taxable income (determined without regard to the dividends-paid deduction
and by excluding any net capital gain). Because of this distribution
requirement, we may not be able to fund all future capital needs, including
capital needs in connection with acquisitions, from cash retained from
operations. As a result, to fund capital needs, we rely on third-party sources
of capital, which we may not be able to obtain on favorable terms or at all. Our
access to third-party sources of capital depends upon a number of factors,
including general market conditions and the market's perception of our growth
potential and our current and potential future earnings and cash distributions
and the market price of the shares of our capital stock. Additional debt
financing may substantially increase our leverage.

                                       10



Financial Covenants Could Adversely Affect our Financial Condition. If a
property is mortgaged to secure payment of indebtedness and we are unable to
meet mortgage payments, the mortgagee could foreclose on the property, resulting
in loss of income and asset value. The mortgages on our properties contain
customary negative covenants which, among other things, limit our ability,
without the prior consent of the lender, to further mortgage the property, to
enter into new leases or materially modify existing leases, and to discontinue
insurance coverage. In addition, our line of credit contains customary
restrictions, requirements and other limitations on our ability to incur
indebtedness, including maximum leverage ratios, minimum debt-service coverage
ratios, cash flow coverage ratios and minimum consolidated tangible net worth.
Foreclosure on mortgaged properties or an inability to refinance existing
indebtedness would likely have a negative impact on our financial condition and
results of operations.

We Could Default on Cross-Defaulted Debt. Our line of credit contains a
cross-default provision which are triggered in the event that our other material
indebtedness is in default. This cross-default provision may require us to repay
or restructure the line of credit in addition to any mortgage or other debt
which is in default, which could adversely affect our financial condition and
results of operations.

Our Hedging Policies Involve Risks of Unanticipated Movements in Interest Rates

In connection with our line of credit, we have, in the past, employed hedging
techniques designed to protect us against adverse movements in interest rates.
While we may benefit from the use of these hedging mechanisms generally,
unanticipated changes in interest rates, securities prices, or currency exchange
rates may result in a poorer overall performance for us than if it had not
entered into such hedging transactions. As of December 31, 2001, we do not have
any outstanding hedging agreements.

Conflicts of Interest

Some of our Executive Officers and Board Members are also Executive Officers and
Board Members of CLC Healthcare, Inc.

     . Andre C. Dimitriadis, who is currently our Chairman, President and Chief
     Executive Officer serves in the same positions with CLC Healthcare, Inc., a
     Nevada corporation ("CLC"); and

     . Wendy L. Simpson, who is currently our Vice Chairman and Chief Financial
     Officer serves as a Board Member, Executive Vice President and Chief
     Financial Officer with CLC; and

     . Christopher T. Ishikawa, who is currently our Executive Vice President
     and Chief Investment Officer serves as a Board member and President and
     Chief Operating Officer with CLC; and

     . Julia L. Kopta, who is currently our Executive Vice President and General
     Counsel and Corporate Secretary serves as Executive Vice President, General
     Counsel and Corporate Secretary with CLC; and

CLC engages in the following activities: (1) operation of long-term care
facilities; (2) development of long-term care properties, and (3) ownership of
equity and debt investments in long-term care companies. Although none of the
members of our management is committed to spending a particular amount of time
on CLC's affairs, each of the members of management spend time on CLC's affairs.
The continued involvement in CLC by some of our executive officers and directors
could divert management's attention from our day-to-day operations.

                                       11



Conflicts of Interest May Arise in Interpretations of Intercompany Agreements
Between our Company and CLC. Because our management is largely the same as CLC's
management, conflicts may arise with respect to the operation and effect of our
intercompany agreements and relationships which could have an adverse effect on
us if not properly resolved. More specifically, overlapping members of the board
of directors and senior management of both companies may be presented with
conflicts of interest with respect to matters affecting us and CLC, such as the
determination of which company may take advantage of potential business
opportunities, decisions concerning the business focus of each company
(including decisions concerning the types of properties and geographic locations
in which such companies make investments), potential competition between the
business activities conducted, or sought to be conducted, by such companies
(including competition for properties and tenants), possible corporate
transactions (such as acquisitions), and other strategic decisions affecting the
future of such companies. Conflicts also may arise with respect to the
restriction on CLC's right to engage in activities or make investments that
involve real estate unless we were first offered the opportunity and declined to
pursue such activities or investments. We have adopted procedures to be followed
by our Board of Directors and the Board of Directors of CLC to address potential
conflicts. Such procedures include the requirement that the persons serving as
directors of both companies abstain from voting as directors with respect to
matters that present a significant conflict of interest between the companies.

If We Issue Additional Equity Securities, the Investment of Existing
Stockholders Will be Diluted

We may from time to time raise additional capital from the issuance and sale of
equity securities. Any such issuances may significantly dilute the interests of
the existing holders of our securities, including our common stock.

Limitations in Our Charter and Bylaws Could Prevent a Change in Control

Our Charter and Bylaws contain provisions that may delay, defer or prevent a
change in control or other transaction that could provide the holders of our
common stock with the opportunity to realize a premium over the then-prevailing
market price for our common stock. To maintain our qualification as a REIT for
federal income tax purposes:

     . Not more than 50% in value of our outstanding stock may be owned,
     actually or constructively, by five or fewer individuals (as defined in the
     Internal Revenue Code to include certain entities) during the last half of
     a taxable year after the first taxable year for which a REIT election is
     made.

     . After the first taxable year for which a REIT election is made, our
     common stock must be held by a minimum of 100 persons for at least 335 days
     of a 12-month taxable year (or a proportionate part of a taxable year of
     less than 12 months).

     . If we, or an owner of 10% or more of our stock, actually or
     constructively owns 10% or more of one of our tenants (or a tenant of any
     partnership in which we are a partner), the rent received by us (either
     directly or through any such partnership) from that tenant will not be
     qualifying income for purposes of the REIT gross income tests of the
     Internal Revenue Code.

In order to protect us against the risk of losing our REIT status for federal
income tax purposes, we prohibit the ownership (actually or by virtue of
application of certain constructive ownership provisions of the Internal Revenue
Code) by any single person of more than 9.8% (by value or number of shares,
whichever is more restrictive) of the issued and outstanding shares of our
common stock and more than 9.8% (by value or number of shares, whichever is more
restrictive) of the issued and outstanding shares of each class of our preferred
stock by any single person so that no such person, taking into account all of
our stock so owned by such person, may own in excess of 9.8% of our issued and
outstanding capital stock. We refer to this

                                       12



limitation as the "ownership limit." We will redeem shares acquired or held in
excess of the ownership limit. In addition, any acquisition of our common stock
or preferred stock that would result in our disqualification as a REIT is null
and void. The ownership limit may have the effect of delaying, deferring or
preventing a change in control and, therefore, could adversely affect our
stockholders' ability to realize a premium over the then-prevailing market price
for the shares of our common stock in connection with such transaction. The
Board of Directors has waived the ownership limit applicable to our common stock
with respect to National Health Investors, Inc., allowing it to own greater than
9.8% of our outstanding shares of Series C Preferred Stock.

Our Charter authorizes us to issue additional shares of common stock and one or
more series of preferred stock and to establish the preferences, rights and
other terms of any series of preferred stock that we issue. Although our Board
of Directors has no intention to do so at the present time, it could establish a
series of preferred stock that could delay, defer or prevent a transaction or a
change in control that might involve a premium price for our common stock or
otherwise be in the best interests of our stockholders.

Our Charter, our Bylaws and Maryland law also contain other provisions that may
delay, defer or prevent a transaction, including a change in control, that might
involve payment of a premium price for our common stock or otherwise be in the
best interests of our stockholders. Those provisions include the following:

     . the provision in our Bylaws requiring a two-thirds vote of stockholders
     for any amendment of our Bylaws;

     . the requirement in the Bylaws that the request of the holders of 25% or
     more of our common stock is necessary for stockholders to call a special
     meeting;

     . the requirement of Maryland law that stockholders may only take action by
     written consent with the unanimous approval of all stockholders entitled to
     vote on the matter in question; and

     . the requirement in the Bylaws of advance notice by stockholders for the
     nomination of directors or proposal of business to be considered at a
     meeting of stockholders.

These provisions may impede various actions by stockholders without approval of
our Board of Directors, which in turn may delay, defer or prevent a transaction
involving a change of control.

In addition, in May 2000 we adopted a Rights Plan to protect stockholders from
coercive or otherwise unfair takeover tactics. In general terms, the plan works
by imposing significant penalties upon any person or group of persons which
acquires 15% or more of our common stock without the approval of our Board of
Directors.

We Could Change Our Investment and Financing Policies without a Vote of
Stockholders

Subject to our fundamental investment policy to maintain our qualification as a
REIT (unless a change is approved by the Board of Directors under certain
circumstances), the Board of Directors will determine our investment and
financing policies, our growth strategy and our debt, capitalization,
distribution and operating policies. Although the Board of Directors has no
present intention to revise or amend these strategies and policies, the Board of
Directors may do so at any time without a vote of stockholders. Accordingly,
stockholders will have no control over changes in our strategies and policies
(other than through the election of directors), and any such changes may not
serve the interests of all stockholders and could adversely affect our financial
condition or results of operations, including our ability to distribute cash to
stockholders.

                                       13



Various Market Conditions Affect the Price of Our Common Stock

As with other publicly-traded equity securities, the market price of our common
stock will depend upon various market conditions, which may change from time to
time. Among the market conditions that may affect the market price of our common
stock are the following:

     . the extent of investor interest in us;

     . the general reputation of REITs and the attractiveness of their equity
     securities in comparison to other equity securities (including securities
     issued by other real estate-based companies);

     . our financial performance and that of our operators;

     . the contents of analyst reports regarding us and the REIT industry; and

     . general stock and bond market conditions, including changes in interest
     rates on fixed income securities which may lead prospective purchasers of
     our common stock to demand a higher annual yield from future distributions.
     Such an increase in the required yield from distributions may adversely
     affect the market price of our common stock.

Other factors such as governmental regulatory action and changes in tax laws
could also have a significant impact on the future market price of our common
stock.

Earnings and Cash Distributions, Asset Value and Market Interest Rates Affect
the Price of Our Common Stock

The market value of the equity securities of a REIT generally is based primarily
upon the market's perception of the REIT's growth potential and its current and
potential future earnings and cash distributions, and is based secondarily upon
the real estate market value of the underlying assets. For that reason, shares
of our common stock may trade at prices that are higher or lower than the net
asset value per share. To the extent we retain operating cash flow for
investment purposes, working capital reserves or other purposes, these retained
funds, while increasing the value of our underlying assets, may not
correspondingly increase the market price of our common stock. Our failure to
meet the market's expectation with regard to future earnings and cash
distributions likely would adversely affect the market price of our common
stock. Another factor that may influence the price of our common stock will be
the distribution yield on our common stock (as a percentage of the price of our
common stock) relative to market interest rates. An increase in market interest
rates might lead prospective purchasers of our common stock to expect a higher
distribution yield, which would adversely affect the market price of our common
stock. If the market price of our common stock declines significantly, we might
breach covenants with respect to debt obligations, which might adversely affect
our liquidity and our ability to make future acquisitions and pay distributions
to our stockholders.

There are Federal Income Tax Risks Associated with a REIT

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 Internal
Revenue 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 Internal Revenue 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

                                       14



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.

We Pay Some Taxes. Even if we qualify as a REIT, we are subject to certain
federal, state and local taxes on our income and property.

We are Dependent on our Key Personnel

We depend on the efforts of our executive officers, particularly Mr.
Dimitriadis, Ms. Simpson, Mr. Ishikawa and Ms. Kopta. While we believe that we
could find suitable replacements for these key personnel, the loss of their
services or the limitation of their availability could have an adverse impact on
our operations. Although we have entered into employment agreements with our
executive officers, these employment agreements may not assure their continued
service.

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