10. Equity

Preferred Stock. At December 31, 2013 and 2012, we had 2,000,000 shares of our 8.5% Series C Cumulative Convertible Preferred Stock (or Series C preferred stock) outstanding. Our Series C preferred stock is convertible into 2,000,000 shares of our common stock and 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, 2013 and 2012.

Common Stock. During 2013, we sold 4,025,000 shares of common stock in a public offering at a price of $44.50 per share, before fees and costs of $7,748,000. The net proceeds of $171,365,000 were used to pay down amounts outstanding under our unsecured revolving line of credit, to fund acquisitions and our current development commitments and general corporate purposes. Also, during 2013, we acquired 6,925 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

During 2013, we terminated the equity distribution agreement which allowed us to issue and sell, from time to time, up to $85,686,000 in aggregate offering price of our common shares. Sales of common shares are made by means of ordinary brokers' transactions at market prices, in block transactions, or as otherwise agreed between us and our sales agents. During the twelve months ended December 31, 2013, we sold 126,742 shares of common stock for $4,895,000 in net proceeds under our equity distribution agreement. In conjunction with the sale of common stock, we reclassified $662,000 of accumulated costs associated with the equity distribution agreement to additional paid in capital. During 2012, we did not sell shares of our common stock under our equity distribution agreement.

During 2012, we amended our charter to increase the number of authorized shares of common stock from 45,000,000 to 60,000,000 shares. The charter amendment was approved by our stockholders at the 2012 annual meeting of stockholders held on May 22, 2012.

Available Shelf Registration. On July 19, 2013, we filed a Form S-3ASR "shelf" registration statement to replace our prior shelf registration statement. This current shelf registration statement provides us with the capacity to offer up to $800,000,000 in common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under this current shelf registration in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering. At December 31, 2013 we had availability of $800,000,000 under our effective shelf registration.

Non-controlling Interests. We currently have no limited partners. During 2012, we had one limited partnership. The limited partnership agreement allowed the limited partners to convert, on a one-for-one basis, their limited partnership units into shares of common stock or the cash equivalent, at our option. Since we exercised control, we consolidated the limited partnership and we carried the non-controlling interests at cost.

During 2012, two of our limited partners exercised their conversion rights to exchange all of their 112,588 partnership units. At our discretion, we converted 23,294 partnership units into an equal number of our common shares. The partnership conversion price was $17.00 per partnership unit. At our discretion, we elected to satisfy the conversion of 89,294 limited partnership units with cash. We paid the limited partners $2,764,000, which represents the closing price of our common stock on the redemption date plus $0.05 per share multiplied by the number of limited partnership units redeemed. The amount we paid upon redemption exceeded the book value of the limited partnership interest redeemed by $1,246,000. Accordingly, the $1,246,000 excess book value of the limited partners' interest in the partnership was reclassified to stockholders' equity. We accounted for these conversions as an equity transaction because there was no change in control requiring consolidation or deconsolidation and remeasurement. Subsequent to these partnership conversions, the assets held by the limited partnership were transferred to other subsidiaries of the Company and the limited partnership was terminated. At December 31, 2012 and 2013, we had no shares of our common stock reserved under any partnership agreements.

The following table represents the effect of changes in our ownership interest in the limited partnership on equity attributable to LTC Properties, Inc. (in thousands):

	Years Ended December 31,

	2013		2012			2011
Net income attributable to LTC Properties, Inc.	$	57,815	$	51,290		$	49,252
Transfers from the non-controlling interest
Increase in paid-in capital for limited partners conversion		—		396			—
Decrease in paid-in capital for limited partners conversion		—		(1,246	)		—


Change from net income attributable to LTC Properties, Inc. and transfers from non-controlling interest	$	57,815	$	50,440		$	49,252

Distributions. We declared and paid the following cash dividends(in thousands):

	Year Ended December 31, 2013						Year ended December 31, 2012

	Declared			Paid			Declared			Paid
Preferred Stock Series C	$	3,273		$	3,273		$	3,273		$	3,273
Common Stock		63,631	⁽¹⁾		63,631	⁽¹⁾		54,512	⁽²⁾		54,512	⁽²⁾


Total	$	66,904		$	66,904		$	57,785		$	57,785

⁽¹⁾: Represents $0.155 per share per month for January through September 2013 and $0.17 per share per month for October through December 2013
⁽²⁾: Represents $0.145 per share per month for January through July of 2012 and $0.155 per share per month for August through December of 2012.

In January 2014, we declared a monthly cash dividend of $0.17 per share on our common stock for the months of January, February and March 2014 payable on January 31, February 28 and March 31, 2014, respectively, to stockholders of record on January 23, February 20 and March 21, 2014, respectively.

Accumulated Other Comprehensive Income. During the years we had investments in Real Estate Mortgage Investment Conduit (or REMIC) Certificates, we retained the non-investment grade certificates issued in the securitizations. During 2005, a loan was paid off in the last remaining REMIC pool which caused the last third party REMIC Certificate holders entitled to any principal payments to be paid off in full. After this transaction, we became the sole holder of the remaining REMIC Certificates and are therefore entitled to the entire principal outstanding of the loan pool underlying the remaining REMIC Certificates. Under the FASB accounting guidance relating to accounting for changes that result in a transferor regaining control of financial assets sold, a Special Purpose Entity (or SPE) may become non-qualified or tainted which generally results in the "repurchase" by the transferor of all the assets sold to and still held by the SPE. Since we were the sole REMIC Certificate holder entitled to principal from the underlying loan pool, we had all the risks and were entitled to all the rewards from the underlying loan pool. As required by the accounting guidance, the repurchase for the transferred assets was accounted for at fair value. The accumulated other comprehensive income balance represents the fair market value adjustment offset by any previously adjusted impairment charge which is amortized to increase interest income over the remaining life of the loans that we repurchased from the REMIC pool. At December 31, 2013 and 2012, other equity consisted of $117,000 and $152,000, respectively, of accumulated other comprehensive income.

Stock Based Compensation Plans. During 2008 we adopted and our shareholders approved the 2008 Equity Participation Plan under which 600,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2008 Equity Participation Plan are set by our compensation committee at its discretion.

Restricted Stock. During 2013 and 2012, we granted 34,400 and 90,500 shares of restricted common stock, respectively, as follows:

Year		Price per Share		Vesting Period

2013:
	8,400	$	46.54	ratably over 3 years
	6,000	$	41.83	ratably over 3 years
	20,000	$	36.26	June 1, 2016


	34,400




2012:
	14,000	$	31.77	ratably over 5 years
	12,200	$	31.77	January 10, 2016
	30,000	$	31.77	June 15, 2015
	8,000	$	31.87	ratably over 3 years
	6,300	$	34.90	ratably over 5 years
	20,000	$	34.90	December 20, 2015


	90,500

Also during the twelve months ended December 31, 2013, the vesting of 18,180 shares of restricted common stock were accelerated due to the retirement of our former Senior Vice President, Marketing and Strategic Planning. In February 2014, we granted 59,000 shares of restricted common stock at $36.81 per share. These shares vest ratably over a three-year period from the grant date. 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. Restricted stock activity for the years ended December 31, 2013 and 2012 was as follows:

	2013			2012

Outstanding, January 1		195,449			165,134
Granted		34,400			90,500
Vested		(64,700	)		(60,185	)
Canceled		—			—


Outstanding, December 31		165,149			195,449




Compensation expense for the year⁽¹⁾	$	2,591,000		$	1,809,000

⁽¹⁾: During 2013, we recorded $457,000 of compensation expense related to the accelerated vesting of 18,180 shares of restricted common stock due to the retirement of our former Senior Vice President, Marketing and Strategic Planning. At December 31, 2013, the total compensation cost related to unvested restricted stock granted is $3,818,000, which will be recognized ratably over the remaining vesting period.

Stock Options. No stock options were issued during 2013 and 2012. Nonqualified stock option activity for the years ended December 31, 2013 and 2012, was as follows:

	Shares						Weighted Average Price

	2013			2012			2013		2012
Outstanding, January 1		95,334			180,334		$	23.93	$	23.33
Granted		—			—		$	—	$	—
Exercised		(22,000	)		(85,000	)	$	23.79	$	22.66
Canceled		—			—		$	—	$	—


Outstanding, December 31		73,334			95,334		$	23.97	$	23.93




Exercisable, December 31⁽¹⁾		73,334			95,334		$	23.97	$	23.93

⁽¹⁾: The aggregate intrinsic value of exercisable options at December 31, 2013, based upon the closing price of our common shares at December 31, 2013 the last trading day of 2013, amounted to approximately $838,000. Options exercisable at December 31, 2013 have a weighted average remaining contractual life of approximately 3 years.

The options exercised during 2013 and 2012 were as follows:

		Weighted Average Exercise Price		Option Value		Market Value⁽¹⁾

2013	22,000	$	23.79	$	523,000	$	865,000
2012	85,000	$	22.66	$	1,926,000	$	2,761,000

⁽¹⁾: As of the exercise dates.

We use the Black-Scholes-Merton formula to estimate the value of stock options granted to employees. This model requires management to make certain estimates including stock volatility, expected dividend yield and the expected term.

The weighted average exercise share price of the options was $23.97 and $23.93 as of December 31, 2013 and 2012, respectively. At December 31, 2013, all stock options are exercisable and no shares are scheduled to vest beyond December 31, 2013.