10. Equity

Preferred Stock. At December 31, 2014 and 2013, 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 at $19.25 per share 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, 2014 and 2013.

Common Stock. During 2014, we sold 600,000 shares of common stock at a price of $41.50 per share in a registered direct placement to certain institutional investors. The net proceeds of $24,644,000 were used to pay down amounts outstanding under our unsecured line of credit, to fund current developments and for general corporate purposes. During 2013, we sold 4,025,000 shares of common stock in a public offering at a price of $44.50 per share. 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 for general corporate purposes. During 2014 and 2013, we acquired 5,324 shares and 6,925 shares, respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. Subsequent to December 31, 2014, we acquired 4,609 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 were made by means of ordinary brokers’ transactions at market prices, in block transactions, or as otherwise agreed between us and our sales agents. During 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 shares 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 shelf registration statement provides us with the capacity to offer 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, 2014 we had availability of $775,100,000 under our effective shelf registration which expires on July 19, 2016.

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, 2014 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,
	2014		2013		2012
Net income attributable to LTC Properties, Inc.	$	73,399	$	57,815	$	51,290
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	$	73,399	$	57,815	$	50,440

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


	Year Ended						Year Ended
	December 31, 2014						December 31, 2013
	Declared			Paid			Declared			Paid
Preferred Stock Series C	$	3,273		$	3,273		$	3,273		$	3,273
Common Stock		71,158	(1)		71,158	(1)		63,631	(2)		63,631	(2)
Total	$	74,431		$	74,431		$	66,904		$	66,904

⁽¹⁾

Represents $0.17 per share per month for the twelve months ended December 31, 2014.

⁽²⁾

Represents $0.155 per share per month for January through September 2013 and $0.17 per share per month for October through December 2013.

In January 2015, we declared a monthly cash dividend of $0.17 per share on our common stock for the months of January, February and March 2015 payable on January 30, February 27 and March 31, 2015, respectively, to stockholders of record on January 22, February 19 and March 23, 2015, 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 were 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, 2014 and 2013, accumulated other comprehensive income was $82,000 and $117,000, respectively.

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 2014 and 2013, we granted 95,000 and 34,400 shares of restricted common stock, respectively, as follows:


		Price per
Year	No. of Shares	Share		Vesting Period
2014
	59,000	$	36.81	ratably over 3 years
	3,000	$	38.43	ratably over 3 years
	15,000	$	40.05	ratably over 3 years
	10,500	$	40.05	June 9, 2015
	7,500	$	41.34	November 12, 2015
	95,000
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

In January 2015, we cancelled 640 shares of restricted stock. In February 2015, we granted 65,750 shares of restricted common stock at $44.45 per share. These shares vest ratably from the grant date over a three-year period. During 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. 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, 2014 and 2013 was as follows:


	2014		2013
Outstanding, January 1		165,149		195,449
Granted		95,000		34,400
Vested		(45,981)		(64,700)
Canceled		—		—
Outstanding, December 31		214,168		165,149
Compensation expense for the year(1)	$	3,241,000	$	2,591,000

⁽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, 2014, the total compensation cost related to unvested restricted stock granted is $4,195,000, which will be recognized ratably over the remaining vesting period.

Stock Options. During 2014, we issued 15,000 options to purchase common stock at an exercise price of $38.43 per share. These stock options vest ratably over a three-year period. The fair value of these options was estimated utilizing the Black-Scholes-Merton valuation model and assumptions as of the grant date. In determining the estimated fair value, the expected life assumption was three years, the volatility was 0.21, the risk free interest rate was 0.66% and the expected dividend yield was 5.31%. The fair value of the option granted was estimated to be $2.96. No stock options were issued during 2013. Nonqualified stock option activity for the years ended December 31, 2014 and 2013, was as follows:


			Weighted Average
	Shares		Price
	2014	2013	2014		2013
Outstanding, January 1	73,334	95,334	$	23.97	$	23.93
Granted	15,000	—	$	38.43	$	—
Exercised	(45,000)	(22,000)	$	23.79	$	23.79
Canceled	—	—	$	—	$	—
Outstanding, December 31	43,334	73,334	$	29.16	$	23.97
Exercisable, December 31(1)	28,334	73,334	$	24.25	$	23.97

⁽¹⁾

The aggregate intrinsic value of exercisable options at December 31, 2014, based upon the closing price of our common shares at December 31, 2014 the last trading day of 2014, amounted to approximately $536,000. Options exercisable at December 31, 2014 have a weighted average remaining contractual life of approximately 2.7 years.

The options exercised during 2014 and 2013 were as follows:


		Weighted
		Average
	Options	Exercise		Option		Market
	Exercised	Price		Value		Value(1)
2014	45,000	$	23.79	$	1,071,000	$	1,840,000
2013	22,000	$	23.79	$	523,000	$	865,000

⁽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 $29.16 and $23.97 and the weighted average remaining contractual life was 2.7 and 3.0 years as of December 31, 2014 and 2013, respectively. At December 31, 2014, the total number of stock options that are scheduled to vest through December 31, 2015, 2016 and 2017 is 5,000; 5,000 and 5,000, respectively. We have no stock options outstanding that are scheduled to vest beyond 2017. Compensation expense related to the vesting of stock options for the year ended December 31, 2014 was $12,000. We did not record compensation expense related to the vesting of stock options for the year ended December 31, 2013. The remaining compensation expense to be recognized related to the future service period of unvested outstanding stock options for 2015, 2016 and 2017 is $15,000; $15,000 and $2,000, respectively.