LTC PROPERTIES INC
For the period ended Dec 31, 2024. Filed Feb 24, 2025.
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FY2024 · Filed Feb 24, 2025
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of LTC Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of LTC Properties, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | Fair value measurement of the ALG financing receivables and non-controlling interest |
|---|---|
| Description of the Matter | At December 31, 2024, the Company’s financing receivables, net of credit loss reserve, totaled $357.9 million. As discussed in Note 5 to the consolidated financial statements, the Company entered into two partnerships with ALG Senior Living (ALG). The Company exchanged three mortgage loan receivables payable by ALG totaling $102.4 million for a 53% and 93% controlling interest in these partnerships, and ALG contributed the 17 senior housing properties for a 47% and 7% non-controlling interest in these partnerships. The three mortgage loans that the Company contributed were secured by the 17 senior housing properties contributed by ALG. Concurrently, the partnerships leased the contributed properties back to ALG under two 10-year master leases that included purchase options which resulted in failed sales leaseback transactions. As a result, the 17 senior housing properties were accounted for as financing receivables and were recorded at fair value along with ALG’s non-controlling interests. Management independently engaged a valuation specialist to determine the fair value of six of the 17 senior housing properties totaling $60.8 million. Auditing the Company’s fair value measurement of the ALG financing receivables and ALG non-controlling interests for the six properties was complex due to the estimation required by management in determining the fair value of the contributed properties. Significant judgment was used to determine the direct capitalization rate used in the income approach and the comparable fair values per bed in the sales comparison approach used in the valuation. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the valuation of the properties, including controls over the Company’s review of the assumptions underlying the valuation and resulting fair values.Our testing of the Company’s fair value measurements included, among other procedures, assessing the valuation methodology, the significant assumptions used in developing the fair value estimates and the reasonableness of the resulting property fair values. For example, we involved our valuation specialists in evaluating the reasonableness of the direct capitalization rate used in the income approach and the reasonableness of the resulting fair values on a per bed basis used in the sales comparison approach. |
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/s/Ernst & Young LLP
We have served as the Company’s auditor since 1992.
Los Angeles, California
February 24, 2025
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