Shorts boost positions on LTC as firm's exposure increases.

INVESTORS searching for dividend income have poured money into LTC Properties Inc., a health care real estate investment trust. But buyers beware.

Given the boom-and-bust history of REIT stocks and the vagaries of the health care industry, it's no surprise that LTC Properties has attracted short sellers--bearish investors who are betting the stock will get clobbered in the current down market.

Short sellers have increased their position by 32 percent since July as LTC's stock nears a 52-week high. At current levels, it would take 10 days' worth of market volume for short sellers to buy back all the shares they have sold short.

Wendy Simpson, LTC's chief financial officer, declined comment.

The hybrid REIT has both equity and mortgage investments in skilled nursing homes and assisted living centers, one of the most troubled areas of the health care market because of overcapacity and high debt levels.

LTC, formerly based in Oxnard but now in Malibu, was formed in 1992 by Andre Dimitriadis and William McBride, two former executives at Beverly Enterprises Inc., a giant nursing home operator in Fort Smith, Ark.

LTC's three largest investments, which make up 50 percent of its revenue, are on shaky financial ground.

Dimitriadis helped form Assisted Living Concepts Inc., the first publicly traded operator of assisted living facilities, which emerged from bankruptcy in 2002. He resigned as a director in 1997, while McBride resigned as chairman, president and chief executive of Assisted Living shortly after the company announced an earnings restatement in 1999.

LTC Properties owns a $15 million stake in Assisted Living and Jerry Doctrow, an analyst at Legg Masson Wood Walker Inc. said a sale of Assisted Living's stock could add to LTC's funds from operations if it is used to repay debt or fund new investments. Currently, Assisted Living leases 37 properties from LTC, accounting for 21 percent of its revenue.

LTC also has exposure to Alterra Healthcare Corp,, which filed for bankruptcy in January. Alterra leases 35 assisted living properties from LTC and accounts for 21 percent of revenue.

Moreover, LTC signed an unsecured credit agreement with Alterra in December to provide $2.5 million over three years for improvements to its properties and another $2.5 million to expand its properties, according to filings with the Securities and Exchange Commission.

Meanwhile, privately held SunWest Management Inc., of Salem, Ore., which accounts for 15 percent of LTC's revenue, has been entangled in a bitter federal fraud lawsuit.

Jim Butler, a real estate lawyer with Jeffer Mangels Butler & Marmaro LLP in Los Angeles, cautioned that too many investors jumped into the assisted living industry, which has been plagued with troubles in the past five to seven years.

"There's a lot of consolidation, a lot of defaults and generally it was viewed in the past as a situation of irresistible demographics," said Butler, who has no connection to LTC Properties.

Investors also are cautious about whether LTC can sustain its high share price given that its stock already has jumped 65 percent in the past year to $17.70 a share.

Dividends sought

Another concern: In June, LTC raised its dividend 9 percent to $1.20 a share, double its payout a year ago--an attraction to dividend-seeking investors who want to take advantage of the lower 15 percent tax rate on dividends enacted in 2001. The question is whether LTC can continue to get strong yields from its properties and pay out high dividends as interest rates rise.

Dimitriadis told analysts in a second-quarter conference call in July that he was "terrified" by the federal government's $500 billion deficit and its impact on interest rates.

Earlier this year, LTC used its $62 million in proceeds from a Series F preferred offering to pay off $3 million in debt due in 2005 and another $19 million due in 2006. The company is expected to use the remaining $40 million to pay off additional debt and fund investments in the third quarter. It also has a $45 million credit facility that it has not drawn on.

LTC has investments in 96 assisted living residences, 92 skilled nursing facilities and one school. As of March, the company had roughly $383 million, or 74 percent of its portfolio, invested in owned or leased properties with the rest in mortgage loans and related securities.

LTC Properties Inc.

Stock Prices

Aug. 25, 2003        $9.48

Aug. 25, 2004       $17.60

Note: Table made from line graph.

YEAR (Dec. 31)                2003   2002

Revenue (millions)           $63.4  $68.1
Total Expenses (millions)     43.6   50.3
Operating Income (millions)   19.9   17.9
Net Income * (millions)        6.5   16.8
Earnings Per Share           $0.36  $0.91

* After payment of preferred dividends.

Quarterly Net Income (millions)

[GRAPHIC OMITTED]

SUMMARY

Business: Real estate investment trust Headquarters: Malibu CEO: Andre C. Dimitriadis Market Cap: $348.8 million Dividend Yield: 6.8% Total Liabilities: $167.2 million P/E Ratio: 47.5 Long-Term Debt: $149.7 million

Staff reporter Kate Berry can be reached at [phone], ext. 228, or at [e-mail].