UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

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FORM 10-Q

 

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

OR

 

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition period from ____ to ____

 

Commission file number 1-11314

 

LTC PROPERTIES, INC.

(Exact name of Registrant as specified in its charter)

 

 

2829 Townsgate Road, Suite 350

Westlake Village, California  91361

(Address of principal executive offices, including zip code)

 

(805) 981-8655

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☑  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☑  No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐  No  ☑

 

The number of shares of common stock outstanding on October 26, 2015 was 35,570,495.

 

 

LTC PROPERTIES, INC.

 

FORM 10-Q

 

September 30, 2015

 

 

INDEX

 

 

 

 

 

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)

 

 

See accompanying notes.

 

 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share, unaudited)

 

 

See accompanying notes.

 

 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands, unaudited)

 

 

See accompanying notes.

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, unaudited)

 

 

See accompanying notes.

 

 

1.General

 

LTC Properties, Inc., a health care real estate investment trust (or REIT), was incorporated on May 12, 1992 in the State of Maryland and commenced operations on August 25, 1992. We invest primarily in senior housing and long-term health care properties through acquisitions, development, mortgage loans and other investments. We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal decision making purposes.   Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in senior housing and long-term health care properties managed by experienced operators. Our primary senior housing and long-term health care property types include skilled nursing properties (or SNF), assisted living properties (or ALF), independent living properties (or ILF), memory care properties (or MC) and combinations thereof. To meet these objectives, we attempt to invest in properties that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location, operator, property type and form of investment.

 

We have prepared consolidated financial statements included herein without audit and in the opinion of management have included all adjustments necessary for a fair presentation of the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (or SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (or GAAP) have been condensed or omitted pursuant to rules and regulations governing the presentation of interim financial statements. The accompanying consolidated financial statements include the accounts of our company, its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the nine months ended September 30, 2015 and 2014 are not necessarily indicative of the results for a full year.

 

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation, including changes in presentation of Provision for doubtful accounts as a result of the application of accounting guidance for presentation of each major income statement caption prescribed by Regulation S-X. These adjustments are normal and recurring in nature.

 

No provision has been made for federal or state income taxes. Our company qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As such, we generally are not taxed on income that is distributed to our stockholders.

 

Investments in unconsolidated joint ventures

From time to time, the Company may make investments in unconsolidated entities, which may be in the form of common equity, preferred equity, or debt (in the form of an acquisition, development or construction or “ADC” loan, or similar arrangement). The Company evaluates each investment pursuant to ASC 805, Consolidation, to determine whether it meets the definition of a variable interest entity (or VIE) and whether the Company is the primary beneficiary. If the entity is deemed to be a VIE but the Company is not the primary beneficiary, or if the entity is deemed to be a voting interest entity but the Company does not have a controlling financial interest, it accounts for its investment using the equity method. Under the equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s share of net earnings or losses and other comprehensive income or loss, cash

contributions made and distributions received, and other adjustments, as appropriate. Allocations of net income or loss may be subject to preferred returns or allocation formulas defined in operating agreements and may not be according to percentage interests of the members. In certain circumstances where the Company has a substantive profit-sharing arrangement which provides a priority return on its investment, a portion of its equity in earnings may consist of a change in its claim on the net assets of the underlying joint venture. Distributions of operating profit from the joint ventures are reported as part of operating cash flows, while distributions related to a capital transaction, such as a refinancing transaction or sale, are reported as investing activities.

 

The Company performs a quarterly evaluation of its investments in unconsolidated joint ventures to determine whether the fair value of each investment is less than the carrying value, and, if such decrease in value is deemed to be other-than-temporary, writes the investment down to its estimated fair value as of the measurement date.

 

Impact of New Accounting Pronouncements.

In May 2014, the FASB issued Accounting Standards Update (or ASU) No. 2014-09 (or ASU 2014-09), Revenue from Contracts with Customers: Topic 606. ASU 2014-09 provides for a single comprehensive principles based standard for the recognition of revenue across all industries. ASU 2014-09 requires expanded disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. In July 2015, FASB approved a one-year deferral of the effective date to December 2017. However, the FASB will permit public companies to adopt the amendment as of the original effective date. Early adoption prior to the original effective date is not permitted. We are currently evaluating the effects of this adoption on our consolidated financial statements.

 

In January 2015, FASB issued ASU No. 2015-01 (or ASU 2015-01), Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates the separate classification, presentation and disclosure of extraordinary events and transactions. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We elected early adoption of ASU 2015-01 as of January 1, 2015. The adoption did not have a material impact on our consolidated financial statements.

 

In February 2015, FASB issued ASU No. 2015-02 (or ASU 2015-02), Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 amends the consolidation guidance for variable interest entities and voting interest entities, among other items, by eliminating the consolidation model previously applied to limited partnerships, emphasizing the risk of loss when determining a controlling financial interest and reducing the frequency of the application of related-party guidance when determining a controlling financial interest. ASU 2015-02 is effective for periods beginning after December 15, 2015, for public companies. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the effects of this ASU on our consolidated financial statements.

 

In April 2015, FASB issued ASU No. 2015-03 (ASU 2015-03), Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires debt

issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effects of this ASU on our consolidated financial statements.

2.Real Estate Investments

 

Assisted living properties, independent living properties, memory care properties and combinations thereof are included in the assisted living property type (or collectively ALF). Range of care properties (or ROC) property type consists of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services.

 

Any reference to the number of properties, number of units, number of beds, and yield on investments in real estate are unaudited and outside the scope of our independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

 

Owned Properties. The following table summarizes our investments in owned properties at September 30, 2015 (dollar amounts in thousands):

 

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Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Many of the leases contain renewal options. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:

 

 

Acquisitions and Development. During the three months ended September 30, 2015, we completed the acquisition of a portfolio of 10 independent, assisted living and memory care properties totaling 891 units. Nine of the properties are located in Wisconsin and one is located in Illinois. The aggregate purchase price paid at closing was $142,000,000. Simultaneously upon closing, we entered into a 15-year triple‐net master lease agreement with an existing operator at an initial cash yield of 6.5% escalating by 25 basis points upon each of the first and second anniversaries and annually thereafter by 2.75%. The master lease agreement includes a commitment up to $10,000,000 to the lessee, upon the portfolio achieving a sustainable stipulated rent coverage ratio, and when funded, cash rent will increase by the amount funded multiplied by the lease rate in effect at the time.

 

Additionally, during the three months ended September 30, 2015, we acquired a newly constructed 60-unit memory care property located in Florida for $14,250,000 including a $2,000,000 working capital reserve which is recorded similarly to an earn‐out and valued using a discounted cash flow analysis. The estimated fair value of the working capital reserve was $1,847,000 which will be accreted up to the settlement amount as of the estimated payment date. Concurrently with the purchase, we entered into a lease agreement at an initial cash yield of 8.0% escalating annually by 2.5%. The lease agreement includes a commitment to the lessee that we will fund a contingent earn-out payment up to $300,000, upon the property achieving a sustainable stipulated rent coverage ratio. When the working capital reserve and earn-out payments are funded, cash rent will increase by the amounts funded multiplied by the lease rate in effect at the time.  

 

During the third quarter of 2015, we purchased a parcel of land in California for $2,022,000 and entered into a development commitment to construct and equip a 66-unit memory care property. Our total commitment for the project is $12,606,000 including the land purchase. Simultaneously with the acquisition, we added this property to a master lease agreement with an existing operator at an initial cash yield of 9.0%. Also, we acquired a parcel of land in Oregon, which we previously leased pursuant to a ground lease. The purchase price was $500,000 and the ground lease was terminated as of the closing.

 

During the nine months ended September 30, 2015, we purchased and equipped a 106-bed skilled nursing property for a total of $13,946,000 by exercising our purchase option under a $10,600,000 mortgage and construction loan. Additionally, we purchased five parcels of land (including the acquired parcel of land in California and excluding the purchase of parcel of land in Oregon discussed above) to build and equip assisted living facilities totaling 385 units.

The following table summarizes our investments for the nine months ended September 30, 2015 (dollar amounts in thousands):

 

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Subsequent to September 30, 2015, we purchased a parcel of land in Illinois for $2,800,000 and entered into a development commitment up to $14,769,000 (including the land purchase) to construct a 66-unit memory care facility. Also, subsequent to September 30, 2015, we purchased a behavioral health care hospital in Nevada for $9,250,000.

 

During the nine months ended September 30, 2015, we funded $20,652,000 on our completed and on-going development and improvement projects, including the final funding on a 60-unit memory care property in Colorado for an aggregate cost of $10,703,000, including the land purchase. The following table summarizes our on-going investment commitments as of September 30, 2015, and amounts funded exclusively under these projects (excludes capitalized interest, dollar amounts in thousands):

 

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Our construction in progress (or CIP) activity during the nine months ended September 30, 2015 for our development, redevelopment, renovation, and expansion projects is as follows (dollar amounts in thousands):

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During the nine months ended September 30, 2014, we sold two assisted living properties located in Florida and Georgia with a total of 133 units and one school property located in Minnesota for a combined sales price of $7,850,000, resulting in net sales proceeds of $7,707,000, and a net gain on sale of $1,140,000. 

 

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at September 30, 2015 (dollar amounts in thousands):

 

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At September 30, 2015, the mortgage loans had interest rates ranging from 7.3% to 13.8% and maturities ranging from 2016 to 2045. In addition, some loans contain certain guarantees, provide for certain facility fees and generally have 20-year to 30-year amortization schedules. The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 10 to 25 basis points. During the nine months ended September 30, 2015, we received $2,487,000 plus accrued interest related to the payoff of two mortgage loans secured by a range of care property located in California and a skilled nursing property located in Texas. During the nine months ended September 30, 2015 and 2014, we received $1,794,000 and $1,609,000, respectively, in regularly scheduled principal payments.

 

During the nine months ended September 30, 2015, we amended an existing mortgage loan secured by a 100-unit independent living property in Arizona to provide up to $490,000 of additional proceeds for capital improvements. Also, during the nine months ended September 30, 2015, we funded $230,000 under this amended mortgage loan and have a remaining commitment of $260,000.

 

During 2013, we funded the initial amount of $124,387,000 under a mortgage loan with a third‑party borrower secured by 15 skilled nursing properties with a total of 2,058 beds in Michigan. The loan agreement provided for additional commitments of $12,000,000 for capital improvements and up to $40,000,000 of additional proceeds, for a total loan commitment of up to $176,387,000. During the nine

months ended September 30, 2015, we funded the $40,000,000 of additional proceeds. During the nine months ended September 30, 2015 and 2014, we funded $3,697,000 and $1,512,000, respectively, under the $12,000,000 capital improvement commitment with $4,965,000 remaining as of September 30, 2015.

 

In addition, this mortgage loan provided the borrower a one‑time option to prepay up to 50% of the then outstanding loan balance without penalty. During the nine months ended September 30, 2015, we amended this mortgage loan to provide up to an additional $20,000,000 in loan proceeds for the expansion of two properties securing the loan (increasing the total capital improvement commitment to $32,000,000 and the total loan commitment to $196,387,000). As a result, our remaining commitment under the aggregate $32,000,000 capital improvement commitment was $24,965,000 at September 30, 2015. Also, we conveyed, to the borrower, two parcels of land held-for-use adjacent to these properties to facilitate the projects. The estimated fair value of these parcels of $670,000, based upon third-party appraisals, was added to the outstanding mortgage loan receivable. As partial consideration for the increased commitment and associated conveyance, the borrower forfeited their prepayment option. 

 

Additionally, during the nine months ended September 30, 2015, we originated an $11,000,000 mortgage loan with the same borrower, funding $9,500,000 with a commitment to fund the balance for approved capital improvement projects. The loan is secured by a 157-bed skilled nursing property in Michigan and bears interest at 9.41% for five years, escalating annually thereafter by 2.25%. The term is 30 years with interest-only payments for the initial three years. Additionally, we have the option to purchase the property under certain circumstances, including a change in regulatory provisions.

 

Subsequent to September 30, 2015, we originated a $20,000,000, 30-year term mortgage loan, funding $9,500,000 at closing, with a commitment to fund $10,500,000.

 

The following table summarizes our additional loan commitments as of September 30, 2015, and amounts funded under these mortgage loans (dollar amounts in thousands):

 

 

During the nine months ended September 30, 2014, we funded the remaining $3,010,000 balance on a $10,600,000 mortgage and construction loan to develop a new 106-bed skilled nursing property in Wisconsin to replace an old existing skilled nursing property. Upon completion of construction and relocation of the residents from the old property to the replacement property in 2014, the old property was sold and released as collateral. During the nine months ended September 30, 2015, we purchased and equipped the replacement property for a total of $13,946,000 by exercising our right under the agreement including applying amounts otherwise due to us under the underlying loan as a closing adjustment. See Owned Properties above for further discussion of the property purchase.    

 

3.Investment in Unconsolidated Joint Ventures

During the nine months ended September 30, 2015, we made a preferred equity investment in an entity (the JV) that owns four properties providing independent, assisted living and memory care services. These properties are located in Arizona. At closing, we provided an initial preferred capital contribution of $20,143,000 and have committed to provide an additional preferred capital contribution of $5,507,000 for a total preferred capital contribution of $25,650,000. As the preferred member of the JV, we are not entitled to share in the JV’s earnings or losses. Rather, we are entitled to receive a 15% preferred return, a portion of which is paid in cash and a portion of which is deferred if the cash flow of the JV is insufficient to pay all of the accrued preferred return. The unpaid accrued preferred return will be added to the balance of the preferred equity investment up to the estimated economic outcome assuming liquidation of the JV. As of September 30, 2015, we have accrued up to the estimated economic outcome assuming liquidation of the JV and will continue to evaluate the estimated economic outcome quarterly. Any unpaid accrued preferred return, whether recorded or unrecorded by us, will be repaid upon redemption.

In addition, we have the option to purchase either the properties owned by the JV or 100% of the common membership interest in the JV, which is exercisable between April 2018 and September 2019. If we elect not to exercise our purchase option, we have the right to put our preferred equity interest to the common member after September 2019 for an amount equal to the unpaid preferred equity investment balance and accrued preferred return thereon. The common equity member has the right to call our preferred interest at any time for an amount equal to the preferred equity investment balance and accrued preferred return thereon that would be due for the first 36 months, less amounts paid to us prior to the redemption date.

The JV is intended to be self-financing, other than our preferred capital contributions, no direct support will be provided by us. As a result, we believe our maximum exposure to loss due to our investment in the JV would be limited to our preferred capital contributions plus any unpaid accrued preferred return. We have concluded that the JV meets the accounting criteria to be considered as a variable interest entity (or VIE). However, because we do not control the entity, nor do we have any role in the day-to-day management, we are not the primary beneficiary of the JV. Therefore, we account for our JV investment using the equity method. During the three and nine months ended September 30, 2015, we recognized $674,000 and $1,544,000, respectively, in income from our preferred equity investment in the JV.  Additionally, during the nine months ended September 30, 2015, we received $289,000 from our preferred equity investment in the JV.

4.Notes Receivable

Notes receivable consists of various loans and line of credit agreements. The following table summarizes our notes receivable activities for the nine months ended September 30, 2015 and 2014 as follows (dollar amounts in thousands):

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At September 30, 2015, we had 8 loans and line of credit agreements with on-going commitments totaling $2,650,000 and weighted average interest rate of 9.8%. As of September 30, 2015, we have a remaining commitment of $2,013,000.

 

5.Debt Obligations

 

The following table sets forth information regarding debt obligations by component as of September 30, 2015 and December 31, 2014 (dollar amounts in thousands):

 

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Bank Borrowings. We have an Unsecured Credit Agreement that provides for a revolving line of credit up to $400,000,000 with the opportunity to increase the credit amount up to a total of $600,000,000. The Unsecured Credit Agreement matures on October 14, 2018 and provides for a one-year extension option at our discretion, subject to customary conditions. Based on our leverage at September 30, 2015, the facility provides for interest annually at LIBOR plus 125 basis points and an unused commitment fee of 30 basis points. During the nine months ended September 30, 2015 and 2014 we borrowed $267,000,000 and $28,500,000, respectively, under our Unsecured Credit Agreement. Additionally, during the nine months ended September 30, 2015 and 2014, we repaid $101,500,000 and

$30,000,000, respectively, under our Unsecured Credit Agreement. At September 30, 2015, we were in compliance with all covenants.

 

Subsequent to September 30, 2015, we exercised the $200,000,000 accordion feature of our $400,000,000 unsecured revolving line of credit. The exercise of this feature increases the commitments under our credit facility to $600,000,000 and does not impact any other terms or conditions within the credit facility including the term or covenant requirements of the agreement. Also, subsequent to September 30, 2015, we borrowed $22,000,000 under our unsecured revolving line of credit. Accordingly, we have $187,500,000 outstanding under our unsecured revolving line of credit with $412,500,000 remaining for borrowing.

 

Senior Unsecured Notes. During the nine months ended September 30, 2015 and 2014, we paid $29,167,000 and $4,167,000 in regular scheduled principal payments. In April 2015, we entered into a third amended and restated $200,000,000 private shelf agreement with Prudential for a three-year term. The agreement provides for the possible issuance of up to an additional $102,000,000 of senior unsecured fixed interest rate term notes. After July 14, 2015 and for the balance of the term, the agreement provides for the possible issuance of additional senior unsecured fixed interest rate term notes up to the maximum availability upon us making our scheduled principal payments on existing notes then outstanding. Interest rates on any issuance under the shelf agreement will be set at a spread over applicable Treasury rates. Maturities of each issuance are at our election for up to 15 years from the date of issuance with a maximum average life of 12 years from the date of original issuance. During the three months ended September 30, 2015, we sold $100,000,000 senior unsecured notes with an annual fixed rate of 4.5% under our Prudential shelf agreement. These notes have periodic scheduled principal repayments with a 15-year final maturity.

 

Also, during the three months ended September 30, 2015, we entered into a $100,000,000 note purchase and private shelf agreement with AIG Asset Management (U.S.) LLC (or AIG) for a three-year term. Subsequent to September 30, 2015, we locked rate under our AIG shelf agreement on $100,000,000 senior unsecured notes with a coupon of 4.26% and anticipate selling notes to AIG on or around November 20, 2015. These notes have periodic scheduled principal repayments with a 13-year final maturity.

 

Bonds Payable. We had a multifamily tax-exempt revenue bond that was secured by five assisted living properties in Washington which was paid off during 2014. During the nine months ended September 30, 2014, we paid $635,000 in regularly scheduled principal payments.

6.Equity

 

Equity activity was as follows (in thousands):

 

Preferred Stock. At September 30, 2015, 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. Total shares reserved for issuance of common stock related to the conversion of Series C preferred stock were 2,000,000 shares at September 30, 2015.

 

Common Stock. During the three months ended September 30, 2015, we entered into equity distribution agreements to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our common shares. Sales of common shares are made by means of ordinary brokers’ transactions, which may include block trades, or transactions that are deemed to be “at the market” offerings. During the three month ended September 30, 2015, we did not sell shares of common stock under our equity distribution agreement. At September 30, 2015, we had $200,000,000 available under this agreement. Also, during the nine months ended September 30, 2015 and 2014, we acquired 4,609 shares and 200 shares respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

 

Available Shelf Registrations. Our 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, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering. At September 30, 2015, we had availability of $575,100,000 under our effective shelf registration which expires on July 19, 2016.

 

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

 

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In October 2015, we increased our common stock monthly cash dividend approximately 5.9% from $0.17 per share to $0.18 per share and declared monthly cash dividends on our common stock for

the months of October, November and December, payable on October 30, November 30, and December 31, 2015, respectively, to stockholders of record on October 22, November 20, and December 23, 2015, respectively.

 

Accumulated Other Comprehensive Income. At September 30, 2015 and December 31, 2014, accumulated comprehensive income of $56,000 and $82,000, respectively, represents the net unrealized holding gains on available-for-sale REMIC Certificates recorded in 2005 when we repurchased the loans in the underlying loan pool. This amount is being amortized to increase interest income over the remaining life of the loans that we repurchased from the REMIC Pool.

 

Stock-Based Compensation.  During the nine months ended September 30, 2015, we adopted and our shareholders approved the 2015 Equity Participation Plan (or the 2015 Plan) which replaces the 2008 Equity Participation Plan (or the 2008 Plan). Under the 2015 Plan, 1,400,000 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 2015 Plan are set by our compensation committee at its discretion. During the nine months ended September 30, 2015, no stock options or restricted stock were granted under this plan. 

 

During the nine months ended September 30, 2015, no stock options were granted under the 2008 Plan. In the comparable 2014 period, we granted 15,000 options under the 2008 Plan to purchase common stock at an exercise price of $38.43 per share. These stock options vest ratably over a three-year period from the grant date. The options exercised during the nine months ended September 30, 2015 and 2014 were as follows:

 

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At September 30, 2015, we had 40,001 stock options outstanding of which 30,001 stock options are exercisable. Compensation expense related to the vesting of stock options for the three and nine months ended September 30, 2015, was $3,000 and $11,000, respectively, compared to $4,000 and $9,000 for the same periods in 2014. The following table summarizes our scheduled number of stock option vesting and remaining compensation expense to be recognized related to the future service period of unvested outstanding stock options:

 

 

During the nine months ended September 30, 2015, we cancelled 640 shares of restricted stock under the 2008 Plan. During the nine months ended September 30, 2015 and 2014, we granted 92,150 and 87,500 shares of restricted common stock, respectively, under the 2008 Plan as follows:

 

 

Compensation expense recognized related to the vesting of restricted common stock for the three and nine months ended September 30, 2015 were $1,009,000 and $3,082,000, respectively, compared to $873,000 and $2,317,000 for the same period in 2014. At September 30, 2015, the total number of restricted common shares that are scheduled to vest and remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock are as follows:

 

 

 

 

 

 

 

 

 

7.Commitments and Contingencies

 

As part of our acquisitions, we may commit to provide contingent payments to our sellers or lessees, upon the properties achieving certain rent coverage ratios, and when the contingent payments are funded cash rent will increase by the amount funded multiplied by a rate stipulated in the agreement. The contingent payment is recorded as a liability at the estimate fair value calculated using a discounted cash flow analysis and accreted to the settlement amount of the estimated payment date. If the contingent payment is provided to the seller, the estimated fair value is capitalized to the properties’ basis. If the contingent payment is provided to the lessee, the estimated fair value is recorded as a lease inducement included in the prepaid and other assets line item in our consolidated balance sheet and is amortized as a yield adjustment over the life of the lease. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement. The fair value of these contingent liabilities are evaluated on a quarterly basis based on changes in estimates of future operating results and changes in market discount rates. During the three and nine months ended September 30, 2015, we recorded non‑cash interest expense of $96,000 and $205,000, respectively, related to these contingent liabilities and the fair value of our contingent payments was $13,323,000, at September 30, 2015.