________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 33-41863
NATIONAL HEALTH INVESTORS, INC.
(Exact name of registrant as specified in its charter)
Maryland 62-1470956
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
100 Vine Street, Suite 1202, Murfreesboro, Tennessee 37130
(Address of principal executive offices)
(Zip Code)
(615) 890-9100
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange
on which registered
Shares of Common Stock New York Stock Exchange
Shares of Preferred Convertible Stock New York Stock Exchange
Senior Subordinated Convertible Debentures
Due 2006 (10%) New York Stock Exchange
Senior Subordinated Convertible Debentures
Due 1998 (7-3/8%) New York Stock Exchange
Convertible Subordinated Debentures Due
2001 (7-3/4%) New York Stock Exchange
Convertible Subordinated Debentures Due
2006 (7%) New York Stock Exchange
Securities registered pursuant to Section 12(g) of
the Act
Same
Indicate by check mark whether the 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 require-
ment for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the regis-
trant was $818,675,914 as of January 27, 1997. The number of shares of Common
Stock outstanding as of January 27, 1997 was 23,633,201.
PAGE 1 OF 75 PAGES
Exhibit Index Page 42
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a real estate investment trust ("REIT") which
invests in income producing health care properties primarily in
the long-term care industry. As of December 31, 1996, the
Company had interests in net real estate owned by it, mortgage
investments and REMIC investments totaling approximately $740
million. The Company's strategy is to provide current income for
distribution to stockholders through investments in health care
related facilities, including long-term care facilities, acute
care hospitals, medical office buildings, retirement centers and
assisted living facilities, all of which are collectively
referred to herein as "Health Care Facilities". The Company
intends to implement this strategy by acquiring additional
properties and making additional mortgage loans nationwide,
predominately in the long-term care industry.
As of December 31, 1996, the Company had approximately
$740.0 million in investments in 249 health care facilities
located in 25 states consisting of 204 long-term care facilities,
three acute care hospitals, nine medical office buildings, eight
assisted living facilities, eight retirement centers and 17
residential projects for the developmentally disabled. These
investments consist of approximately $519.2 million aggregate
principal amount of loans to 47 borrowers and $184.3 million of
purchase leaseback agreements with five lessees and $36.6 million
invested in REMIC pass through certificates. Of these 249
facilities, 43 are leased to NHC and nine additional facilities
are managed by NHC. Consistent with its strategy of
diversification, the Company has reduced the portion of its
portfolio operated by NHC from 100.0% of total assets on October
17, 1991, to 19% of total assets on December 31, 1996.
At December 31, 1996, NHI was committed, subject to due
diligence and financial performance goals, to fund approximately
$106.0 million in health care real estate projects of which
amount approximately $66.1 million is expected to be funded
within the next 12 months. The commitments include mortgage
loans for five long-term health care centers, two medical office
buildings, one retirement center and 13 assisted living centers
all at rates ranging from 10% to 12%. Draws on the $18.6 million
commitment are limited to $3.7 million annually. Also included
in the $106.0 million of commitments is a $18.6 million
commitment on a loan secured by first mortgages on 43 long-term
care centers.
In addition to the above commitments, NHI has entered into
agreements to loan up to $18.9 million in 1997 in connection with
the early purchase of loans.
The Company commenced operations on October 17, 1991 with
approximately $121.8 million in net assets obtained when it
acquired 40 skilled long-term care facilities and three
retirement centers and four first mortgage notes from National
HealthCare L.P. ("NHC") in exchange for 7,306,570 shares of the
Company's Common Stock. Concurrently, the Company assumed
mortgage indebtedness and certain other obligations of NHC
related to the acquired properties. The 43 properties were then
leased to NHC. NHC is a publicly traded master limited
partnership which at December 31, 1996 operated 100 long-term
care facilities with a total of 12,882 licensed beds. Included
within these centers and beds are eight assisted care units (225
beds), nine Alzheimer's units (226 beds) and eight sub-acute
units (255 beds). NHC also operates four retirement centers with
a total of 387 units, two freestanding assisted living facilities
with a total of 152 units and 33 home health care programs. All
NHC operations are in the southeastern United States.
Since the Company commenced operations, NHC has provided
advisory services pursuant to an Advisory, Administrative
Services and Facilities Agreement (the "Advisory Agreement"). In
addition, the Company and NHC have certain other relationships.
See "Certain Relationships and Related Transactions."
Unless the context indicates otherwise, references herein to
the Company include all of the Company's subsidiaries.
TYPES OF HEALTH CARE FACILITIES
LONG-TERM CARE FACILITIES. As of December 31, 1996, the
Company owned and leased 43 licensed long-term care facilities,
40 of which were operated by NHC. It also had outstanding first
mortgage loans on 161 additional licensed long-term care
facilities. All of these facilities provide some combination of
skilled and intermediate nursing and rehabilitative care,
including speech, physical and occupational therapy. The
operators of the long-term care facilities receive payment from a
combination of private pay sources and government programs such
as Medicaid and Medicare. Long-term care facilities are required
to obtain state licenses and are highly regulated at the federal,
state and local level. Most long-term care facilities must
obtain certificates of need from the state before opening or
expanding such facilities.
ACUTE AND LONG TERM CARE HOSPITALS. As of December 31,
1996, the Company owned and leased one acute care hospital and
had outstanding first mortgage loans on one additional operating
acute care hospital and one long term care hospital. Acute care
hospitals provide a wide range of inpatient and outpatient
services and are subject to extensive federal, state and local
legislation and regulation. Long-term care hospitals provide
specialty care services for chronic care patients, whose average
length of stay must exceed twenty-five days. Acute and long term
care hospitals undergo periodic inspections regarding standards
of medical care, equipment and hygiene as a condition of
licensure. Services provided by acute and long term care
hospitals are generally paid for by a combination of private pay
sources and governmental programs.
MEDICAL OFFICE BUILDINGS. As of December 31, 1996, the
Company owned and leased five medical office buildings. In
addition, the Company had first mortgage loans on four medical
office buildings, one of which is undergoing a significant
expansion. Medical office buildings are specifically configured
office buildings whose tenants are primarily physicians and other
medical practitioners. Medical office buildings differ from
conventional office buildings due to the special requirements of
the tenants and their patients. Each of the Company's owned
medical office buildings is leased to one lessee, and is
physically attached to an acute care hospital. The lessee then
leases individual office space to the physicians or other medical
practitioners. The lessee is responsible to the Company for the
lease obligations of the entire building, regardless of its
ability to lease the individual office space.
ASSISTED LIVING FACILITIES. The Company owns four assisted
living facilities leased to a subsidiary of Marriott
International and has first mortgages on four additional assisted
living projects. Assisted living unit facilities are free
standing facilities or facilities which are attached to long term
care facilities or retirement facilities and provide basic room
and board functions for the elderly. Some assisted living
projects include licensed long term care (nursing home) beds.
On-site staff are normally available to assist in minor medical
needs on an as needed basis. Certificates of need are normally
not necessary to build these projects.
RETIREMENT CENTERS. The Company owns three retirement
centers, all of which are leased to NHC, and has first mortgages
on five others. Retirement centers offer specially designed
residential units for the active and ambulatory elderly and
provide various ancillary services for their residents including
restaurants, activity rooms and social areas. Charges for
services are paid from private sources without assistance from
government programs. Retirement centers may be licensed and
regulated in some states, but do not require the issuance of a
certificate of need such as is normally required for long-term
care facilities.
RESIDENCES FOR THE DEVELOPMENTALLY DISABLED. As of December
31, 1996, the Company had outstanding first mortgage notes on 17
residences for the developmentally disabled. Residences for the
developmentally disabled are generally small home-like
environments which accommodate six mentally and developmentally
disabled persons. These persons obtain custodial care which
includes food, lodging, education and transportation services.
These community based services are replacing the large state
institutions which have historically provided care to the
developmentally disabled. Services to the developmentally
disabled are primarily paid for by state Medicaid programs.
NATURE OF INVESTMENTS
The Company's investments are typically structured as either
purchase leaseback transactions or mortgage loans. The Company
also provides construction loans for facilities for which it has
already committed to provide long-term financing or which agree
to enter into a lease with the Company upon completion of the
construction. The capitalization rates of the Company's leases
and the interest rates on the mortgage loans and construction
loans have generally ranged between 10% and 12% per annum. For
transactions closed in 1996, rates were slightly lower than 1995
and generally ranged from 10.25% to 11%. The Company charges a
commitment fee of 1% based on the purchase price of the property
of a purchase leaseback or the total principal loan amount of a
mortgage loan. In instances where construction financing has
also been supplied, there is generally an additional 1%
commitment fee for the construction financing. The Company
believes its lease terms, mortgage loan and construction loan
terms are competitive in the market place. All of the Health
Care Facilities are currently performing under their mortgage
loans or leases and the Company has no reason to believe that any
of the Health Care Facilities will not be able to perform the
obligations under the mortgage loans or leases in the future.
Typical characteristics of these transactions are as follows:
MORTGAGE LOANS. In general, the term of the Company's
mortgage loans is 10 years with the principal amortized over 20
to 25 years and a balloon payment due at the end of the 10 year
term. All mortgage loans except two have an additional interest
component which is based on the escalation of gross revenues at
the project level or fixed rate increases. These escalators are
between 2.5% and 5% of the increase in gross revenue over a base
year for nursing homes (typically, the first year following the
close of the financing) and are negotiated on a project by
project basis. Assisted living escalators are generally higher,
(5 to 7%) while medical office buildings are lower (generally 2%
or so). The escalators, while not currently material to net
income, are expected to be more significant in future periods.
The Company generally requires that the interest rate on mortgage
loans be reset five years from the date of the original loan at
the greater of the then 10-year United States Treasury Notes
yield plus 450 to 500 basis points or the then current interest
rate provided in the mortgage. In certain of its mortgage loans,
the Company has received an equity participation which allows the
Company to share in a portion of any appreciation of the equity
value of the underlying property. The Company does not expect
the equity participations to constitute a significant or frequent
source of income. Most mortgage loans have prepayment penalties
starting at 10% during the first year and decreasing by 1% each
year thereafter. In most cases, the owner of the property has
committed to make minimum annual capital improvements for the
purpose of maintenance or upgrading the facility.
In most circumstances, the Company will require some
additional form of security and/or collateral beyond that
provided by the lien of the mortgage. This additional security
or collateral may consist of some or all of the following: (a) a
guaranty by the borrowers' parent, if any, affiliates or
individual principals; (b) an assignment of the leases and rents
relating to the mortgaged property; (c) cross collateralization
among loans; (d) security interest in other real property; (e) an
assignment of personal property including accounts receivable;
(f) letters of credit or certificates of deposit, and (g) other
intangibles.
LEASES. The Company's leases generally have an initial
leasehold term of 10 to 14 years with one or more five year
renewal options. The leases are "triple net leases" under which
the tenant is responsible to pay all taxes, utilities, insurance
premium costs, repairs and other charges relating to the
ownership and operation of the Health Care Facilities. The
tenant is generally obligated at its expense to keep all
improvements and fixtures and other components of the Health Care
Facilities covered by "all risk" insurance in an amount equal to
at least the full replacement costs thereof and to maintain
specified minimal personal injury and property damage insurance,
protecting the Company as well as the tenant at such Health Care
Facility. The leases also require the tenant to indemnify and
hold harmless the Company from all claims resulting from the use
and occupancy of each Health Care Facility by the tenant and
related activities, as well as to indemnify the Company against
all costs related to any release, discovery, clean-up and removal
of hazardous substances or materials on, or other environmental
responsibility with respect to, each Health Care Facility.
All of the Company's leases contain annual escalators in
rent payments. Revenue escalators for both long-term care
centers and acute care hospitals are typically between 3% and 5%
of the revenue increase per annum. Rent escalators on certain
medical office buildings generally range from 2% to 4% of the
prior year's rent or in certain instances are based on increases
in the Consumer Price Index. The escalators, while not currently
material to net income, are expected to become more significant
to future periods. All of the acute care and medical office
building properties which the Company owns and leases give the
lessee an option to purchase the underlying property at the
greater of i) the Company's acquisition costs; ii) the then fair
market value as established by independent appraisers or iii) the
sum of the land costs, construction costs and any additional
capital improvements made to the property by the Company. None
of the Company's other leases have options to purchase. In
addition, the acute care and medical office building leases
contain a right of first refusal for the lessee if the Company
receives an offer to buy the underlying leased property.
Most of the obligations under the leases are guaranteed by
the parent corporation of the lessee, if any, or affiliates or
individual principals of the lessee. In some leases, the third
party operator will also guarantee some portion of the lease
obligations, usually for a fixed period such as six months or one
year. Some obligations are further backed by other collateral
such as machinery, equipment, furnishings and other personal
property.
CONSTRUCTION LOANS. The Company also provides construction
loans that by their terms convert either into purchase leaseback
transactions or mortgage loans upon the completion of the
construction of the facility. Generally the interest rates on
the construction loans range from 10% to 11%. The term of such
construction loans are for a period which commences upon the
closing of such loan and terminates upon the earlier of (a) the
completion of the construction of the applicable facility or (b)
a specific date. During the term of the construction loan, funds
are usually advanced pursuant to draw requests made by the
borrower in accordance with the terms and conditions of the loan.
In addition to the security of the lien against the property, the
Company will generally require additional security and collateral
in the form of either payment and performance completion bonds or
completion guarantees by the borrower's parent, affiliates of the
borrower or one or more of the individuals who control the
borrower.
COMPETITION
The Company competes, primarily on the basis of price,
knowledge of the industry, and flexibility of financing
structure, with real estate partnerships, other REITs and other
investors (including, but not limited to, banks and insurance
companies) in the acquisition, leasing and financing of health
care related entities.
The operators of the Health Care Facilities compete on a
local and regional basis with operators of facilities that
provide comparable services. Operators compete for patients
based on quality of care, reputation, physical appearance of
facilities, services offered, family preference, physicians,
staff and price. They compete with independent operators as well
as companies managing multiple facilities, some of which are
substantially larger and have greater resources than the
operators of the Health Care Facilities. Some of these
facilities are operated for profit while others are owned by
governmental agencies or tax-exempt non-profit organizations.
OPERATORS
The majority (by total assets) of the Health Care Facilities
are operated by third party management companies on behalf of the
owner or lessee. The balance of the Health Care Facilities are
operated by the owner or lessee. The Health Care Facilities are
primarily operated by publicly-owned companies (72% of the total
assets of the Health Care Facilities) or multistate regional
health care entities (20% of total investments). Generally, a
third party operator of a facility is not liable to the Company
under the mortgage or lease; however, the Company considers the
operator to be an important factor in determining the
creditworthiness of the investment and the Company generally has
the right to approve any changes in operators. On some
investments, the third party operator of a facility guarantees at
least a portion of the lease or mortgage. Operators of the
Health Care Facilities include NHC, Integrated Health Services,
Inc., Marriott Senior Living Services, Columbia/HCA, Sun
Healthcare, Tenet Corporation, Horizon Healthcare Corporation,
Beverly Enterprises, Inc., IATROS Health Network, Inc., and
Community Health Systems.
INVESTMENT IN REMIC CERTIFICATES
1993 TRANSACTIONS
On November 9, 1993, the Company purchased $34.2 million
principal amount of SC Commercial Mortgage Pass-Through
Certificates, Series 1993-1 (the Certificates), which qualify as
a real estate mortgage investment conduit (REMIC). The
Certificates consist of nine classes issued in the aggregate
principal amount of $172.9 million. The Certificates represent
the entire beneficial ownership interest in a trust fund
consisting of a pool of forty-one mortgage loans generally
secured by a first lien on a single property that provides long-
term care and/or assisted living care. All loans bear a fixed
rate of interest, the weighted average of which is 9.308%. The
Certificates were purchased in a private placement offering and
are not readily marketable or freely tradable.
The Company's investment in the Certificates includes Class
D and Class E Certificates which bear interest and the Class I
Certificates which have no principal amount and are not entitled
to distributions of principal, but are entitled to certain
priority interest distributions. The Class D and Class E
Certificates were issued with original issue discount.
The Class D Certificates were rated "BB" by Standard &
Poor's Rating Group (S&P) and Fitch Investors Services (Fitch)
and the Class I Certificates were rated "AA" by Fitch. (As a
policy S&P does not rate interest only certificates.) The Class
E Certificates were not rated. Fitch's rating of the Class I
Certificates does not address the possibility that Class I
Certificate holders might suffer a lower than anticipated yield
or that if there is a rapid rate of principal payments (including
both voluntary and involuntary prepayments), investors in such
Certificates could fail to recover their initial investments.
Distributions of interest and principal on the Class D and
Class E Certificates are subordinated to distributions of
interest and principal with respect to the other classes of
Certificates (which aggregate $137.9 million in principal
amount). Distributions of interest on the Class I certificates
are senior to (or, with respect to certain classes of
Certificates, pari passu to) distributions of principal and
interest of the other classes of Certificates.
1995 TRANSACTIONS
On December 28, 1995, the Company purchased $7,305,000 face
amount (purchase price was $6,158,000) of SC Commercial Mortgage
Pass Through Certificates, Series 1995-1 (the Certificates) which
qualifies as a REMIC. The Certificates consist of ten classes
issued in the aggregate principle amount of $140,258,000. The
Certificates represent the entire beneficial ownership interest
in a trust fund consisting of a pool of 36 first mortgage loans
secured by a first lien on 38 properties that provide long term
and/or assisted living care. All loans bear a fixed rate of
interest the weighted average of which is 10.47%. The
Certificates were purchased in a private placement offering and
are not readily marketable or freely tradable.
The Company's investment is in Certificate Class F which are
rated "B" by S & P and Fitch. Distributions of interest and
principle on the Class F certificates are subordinated to
distributions of interest and principle with respect to the other
classes of the Certificates totaling $132,953,000 in principle
amount.
LITCHFIELD - INTEGRATED HEALTH SERVICES, INC. (IHS)
On August 31, 1994, the Company funded $150.0 million of a
$176.0 million loan commitment to provide permanent financing to
Litchfield Asset Management Corp. for 43 long-term care
facilities (41 nursing homes, two retirement centers) with a
total of approximately 5,430 beds located in Alabama, Colorado,
Florida, Georgia, Idaho, Kansas, Kentucky, Louisiana, North
Carolina, Tennessee, Texas and West Virginia (the "Litchfield
Facilities") and leased by a wholly-owned subsidiary of IHS. The
leases on the retirement centers have been assigned-with NHI's
consent-to a newly formed public company, Integrated Living
Communities. IHS remains as a lease guarantor, however. The
initial $150 million of the loan was used for the repayment of
existing debt and the buyout of certain limited partnership
interests in the Litchfield Facilities. The remaining amount is
available for subsequent advances in annual amounts equal to the
smaller of three times the increase in the contribution margin
(as defined in the Loan Agreement) or $3.7 million. The loan
bears interest at the rate of 10.75% on the initial draw and the
greater of 10.75% or the 10-year Treasury Notes rate plus 500
basis points per annum on each subsequent draw. The term of the
loan is the earlier of twelve months prior to the lease
termination date or ten years, and the loan is amortized over 25
years. The loan provides an annual payment escalator equal to the
greater of 3% of the increase in gross revenue from the base
year, or the increase in the Consumer Price Index (CPI), with the
period ended August 31, 1996 as the base year. The escalator
will commence with the quarter beginning September 1, 1996. The
loan may not be prepaid for the first three years and has a
prepayment penalty of 4% until the second year prior to maturity,
at which time the prepayment penalty is reduced to 2% until the
last year of the lease term at which time the prepayment penalty
is eliminated.
The leases on all 43 facilities are guaranteed by IHS. The
lessees are required to make an initial capital improvement of
$9.5 million, which was substantially funded by December 31,
1995, and has committed on an ongoing basis to spend at least
$300 per bed per year on capital improvements. Each of the
leases was entered into as of August 31, 1994 and each has a
seven year term, which may individually be extended for
additional lease years for a minimum period of one (1) year and a
maximum period of five (5) years, based upon the tenant's
exercise of its right to receive incentive fees pursuant to a
participation agreement. Each lease is also renewable at the
tenant's option for one seven (7) year period and three
successive five (5) year periods thereafter. The rent for the
first three (3) lease years is the amount equal to that
particular facility's debt service amount. In addition to the
first mortgage lien on all 43 facilities, the loan is further
secured by the lease payments, a letter of credit representing
six months principal and interest, all equipment, personal
property, accounts, general intangibles, contract rights,
inventory and debt service reserve. The Company has the right to
approve any lessee, sublease or management company for any of the
Litchfield Facilities. During 1996 all operating covenants
improved to the point that IHS exercised its right to extend its
lease for an additional year and increased the outstanding loan
by $3,700,000. At December 31, 1996, the outstanding balance on
the loan to IHS was $138.7 million and 19% of the Company's real
estate assets were operated by IHS.
MARRIOTT SENIOR LIVING
In August 1996, the Company purchased four existing assisted
living/nursing home complexes from Marriott International in a
$52 million transaction. The projects, which consist of 413
assisted living units and 99 nursing home beds are located in New
Jersey, Florida, and Texas. Marriott Senior Living Services, a
wholly owned subsidiary of Marriott International, in turn leased
the facilities from the Company for an initial term of twenty
years with a fifteen year renewal option. In addition to the
base lease rate, Marriott will pay an additional lease amount
annually based upon a factor of seven to nine percent of the
gross revenues of the projects. Until the projects are
substantially occupied and producing a covenanted debt coverage
ratio, the parent company guarantees the lease payment.
NHC MASTER AGREEMENT TO LEASE
The Master Agreement to Lease (the "Master Agreement") with
NHC regarding 40 nursing homes and three retirement centers, sets
forth certain terms and conditions applicable to all leases
entered into by and between NHC and the Company (the "Leases").
The Leases are for an initial term expiring on December 31, 2001
with two five year renewal options at the election of NHC which
allow for the renewal of the leases on an omnibus basis only.
During the initial term and the first renewal term (if
applicable), NHC is obligated to pay annual base rent for the
respective Health Care Facilities aggregating $15.2 million plus
additional rent described below. During the second renewal term,
NHC is required to pay annual base rent based on the then fair
market rental of the property as negotiated at that time between
NHC and the Company. The Master Agreement also obligates NHC to
pay as additional rent under each Lease all payments of interest
and principal and other payments due under each mortgage to which
the conveyance of the respective Health Care Facility to the
Company was subject or any refinancing of mortgage debt that
matures or is required to be paid in its entirety during the term
of the Lease. In addition, in each year after 1992 (the first
full calendar year of the term of the Master Agreement), NHC is
obligated to pay percentage rent to the Company equal to 3% of
the amount by which gross revenues of each NHC leased Health Care
Facility in such later year exceeds the gross revenues of such
Health Care Facility in 1992. NHC paid $1.7 million as
percentage rent for 1996.
The Master Agreement is a "triple net lease", under which
NHC is responsible to pay all taxes, utilities, insurance premium
costs, repairs (including structural portions of the buildings,
constituting a part of the Health Care Facilities) and other
charges relating to the ownership and operation of the Health
Care Facilities. NHC is obligated at its expense to keep all
improvements and fixtures and other components of the Health Care
Facilities covered by "all risk" insurance in an amount equal to
the full replacement costs thereof, insurance against boiler
explosion and similar insurance, flood insurance if the land
constituting the Health Care Facility is located within a
designated flood plain area and to maintain specified minimal
personal injury and property damage insurance, protecting the
Company as well as NHC at such Health Care Facility. NHC is also
obligated to indemnify and hold harmless the Company from all
claims resulting from the use and occupancy of each Health Care
Facility by NHC or persons claiming under NHC and related
activities, as well as to indemnify the Company against, all
costs related to any release, discovery, cleanup and removal of
hazardous substances or materials on, or other environmental
responsibility with respect to, each Health Care Facility leased
by NHC.
REPAYMENTS
Although NHI structures its first mortgages with a declining
prepayment penalty commencing at 10%, the Company experienced
material loan prepayments in 1996. Although approximately $96
million was prepaid, all proceeds have been reinvested in other
long term investments.
COMMITMENTS
Excluding the Litchfield Facilities (See "Litchfield-
Integrated Health Services, Inc."), the Company has received
commitment fees to make loans and to fund construction in
progress to third parties for $87.4 million. Commitments include
construction financings which have closed but which have not been
fully funded as of December 31, 1996 and also investment amounts
for which the Company has received a commitment fee but which
have not been funded as of December 31, 1996.
The following table sets forth certain information regarding
the Company's commitments as of December 31, 1996.
No. of
Facil- Commitments
Facility Type ities Current Future Total
(in thousands)
Long-term care 5 $22,437 $14,900 $ 37,337
Retirement Centers 1 2,242 --- 2,242
Medical office bldgs 2 7,450 --- 7,450
Assisted Living 13 34,004 25,000 59,004
-- ------ ------ -------
Commitments 21 $66,133 $39,900 $106,033
SOURCES OF REVENUES
GENERAL. The Company's revenues are derived primarily from
mortgage interest income and rental income. During 1996,
mortgage interest income equaled $62.5 million of which all
except $.4 million was from non-NHC borrowers. Rental income
totaled $34.6 million, 82% of which was from properties operated
by NHC. The interest and rental payments are primarily derived
from the operations of the Health Care Facilities. The source
and amount of revenues from such operations are determined by (i)
the licensed bed or other capacity of the Health Care Facilities,
(ii) the occupancy rate of the Health Care Facilities, (iii) the
extent to which the services provided at each Health Care
Facility are utilized by the patients, (iv) the mix of private
pay, Medicare and Medicaid patients at the Health Care
Facilities, and (v) the rates paid by private paying patients and
by the Medicare and Medicaid programs.
Governmental and popular concerns regarding health care
costs may result in significant reductions in payments to health
care facilities, and there can be no assurance that future
payment rates for either governmental or private health care
plans will be sufficient to cover cost increases in providing
services to patients. Any changes in reimbursement policies
which reduce reimbursement to levels that are insufficient to
cover the cost of providing patient care could adversely affect
revenues of the Company's health-related lessees and borrowers
and thereby adversely affect those lessees' and borrowers'
abilities to make their lease or debt payments to the Company.
Failure of the lessees or borrowers to make their lease or debt
payments would have a direct and material adverse impact on the
Company.
MEDICARE AND MEDICAID. A significant portion of the revenue
of the Company's lessees and borrowers is derived from
governmental-funded reimbursement programs, such as Medicare and
Medicaid.
Medicare is a federal health insurance program under the
Social Security Act for individuals age 65 and over and certain
chronically disabled individuals. In recent years, there have
been fundamental changes in the Medicare program which have
resulted in reduced levels of payment for a substantial portion
of health care services.
Medicaid is a joint federal and state program designed to
provide medical assistance to "medically indigent persons".
These programs are operated by state agencies which adopt their
own medical reimbursement formula and standards, and rates and
covered services vary from state to state. However, in many
instances, revenues from Medicaid programs are insufficient to
cover the actual costs incurred in providing care to those
patients.
The Medicare and Medicaid programs are highly regulated and
subject to frequent and substantial changes resulting from
legislation, adoption of rules and regulations, and
administrative and judicial interpretations of existing law.
Moreover, health care facilities have experienced increasing
pressures from private payors attempting to control health care
costs, and reimbursement from private payors has in many cases
effectively been reduced to levels approaching those of
government payors.
GOVERNMENTAL FUNDING OF MEDICARE AND MEDICAID. At the time
that this is written, neither the President nor the United States
Congress have outlined or proposed amendments in Medicare and
Medicaid.
Several important changes to the Medicare payment system
were proposed during 1996, but have not yet been acted upon.
They include:
(1) A change to a prospective payment system (PPS). A PPS
could eliminate the differential between the hospital
based skilled nursing facilities (SNFs) and
freestanding SNFs. Because of inherently lower costs,
freestanding SNFs should be able to continue to attract
higher acuity patients in this environment with a
potential loss of those patients from the acute care
side.
(2) Limitations on ancillary reimbursement will be facility
specific which will be based upon 1994 "reasonable"
costs standard and will be indexed by 1997. Efficient
operators that can improve outcomes for higher acuity
Medicare patients should be able to recover
substantially all of their costs.
(3) A freeze on routine cost payments and a reduction in
capital payments will place a premium on cost controls
and efficient delivery of services. For Medicare
purposes, both the President's 1996 proposed bill and
the 1996 Congressional Budget Reconciliation Bill
propose shifting the actual administration of Medicaid
and other Welfare programs from the Federal government
to the 50 states. Although both bills contained
language endeavoring to protect existing Medicaid
programs, each state government would be assessing
their citizens' needs and allocating their limited
resources accordingly. Again, efficient operators and
operators with a significant market share within states
will probably be less effected with these changes than
single facility providers.
Although it is clear that there will be a reduction in the
growth of governmental revenues for Medicare and Medicaid, NHI
and similar financial institutions believe that their position as
either lessee or first mortgage holder is protected by sufficient
revenue base so that it does not anticipate the creation of
problem or defaulting loans due to these cuts.
LICENSURE AND CERTIFICATION. The health care industry is
highly regulated by federal, state and local law, and is directly
affected by state and local licensing requirements, facility
inspections, state and federal reimbursement policies,
regulations concerning capital and other expenditures,
certification requirements, and other such laws, regulations and
rules. Sanctions for failure to comply with these regulations
and laws include (but are not limited to) loss of licensure,
fines, and loss of certification to participate in the Medicare
and Medicaid programs, as well as potential criminal penalties.
The failure of any lessee or borrower to comply with such laws,
requirements and regulations could affect its ability to operate
the facility or facilities and could adversely affect such
lessee's or borrower's ability to make lease or debt payments to
the Company.
In the past several years, due to rising health care costs,
there has been an increased emphasis on detecting and eliminating
fraud and abuse in the Medicare and Medicaid programs. Payment
of any consideration in exchange for referral of Medicare and
Medicaid patients is generally prohibited by federal statute,
which subjects violators to severe penalties, including exclusion
from the Medicare and Medicaid programs, fines, and even prison
sentences. In recent years, both federal and state governments
have significantly increased investigation and enforcement
activity to detect and punish wrongdoers. In addition,
legislation has been adopted at both state and federal levels
which severely restricts the ability of physicians to refer
patients to entities in which they have a financial interest.
It is anticipated that the trend toward increased
investigation and enforcement activity in the area of fraud and
abuse, as well as self-referral, will continue in future years.
Certain of the Company's investments are with lessees or
borrowers which are partially or wholly owned by physicians. In
the event that any lessee or borrower were to be found in
violation of laws regarding fraud and abuse or self-referral,
that lessee's or borrower's ability to operate the facility as a
health care facility could be jeopardized, which could adversely
affect the lessee's or borrower's ability to make lease or debt
payment to the Company and thereby adversely affect the Company.
CERTIFICATES OF NEED. Certain Health Care Facilities in
which the Company invests are also generally subject to state
statutes which may require regulatory approval, in the form of a
certificate of need ("CON") prior to the addition or construction
of new beds, the addition of services or certain capital
expenditures. CON requirements are not uniform throughout the
United States and are subject to change. The Company cannot
predict the impact of regulatory changes with respect to CON's on
the operations of the Company's lessees and mortgagees.
INVESTMENT POLICIES
The Company's investment objectives are (i) to provide
current income for distribution to its stockholders through
investments primarily in health care related facilities, (ii) to
provide the opportunity to realize capital growth resulting from
appreciation, if any, in the residual value of its portfolio
properties, and (iii) to preserve and protect stockholders'
capital. There can be no assurance that these objectives will be
realized. It is not the present intention of the Company to sell
its properties and reinvest in other investments for the purpose
of realizing gains resulting from the appreciation of value of
those properties; the Company, however, in the future would
consider selling properties in the event circumstances should
arise which would make a sale advisable or attractive.
The Company intends to seek further health care related
investment opportunities and to provide lease or mortgage
financing for such investments with additional capital, possibly
including debt, from public or private sources. The Company
plans to continue its goal of maintaining a one to one ratio of
debt to shareholder's equity. The Company will be competing with
health care providers and investors, including other real estate
investment trusts, for additional health care related
investments. In evaluating potential investments, the Company
expects to consider such factors, as (i) the geographic area and
type of property, (ii) the location, construction quality,
condition and design of the property, (iii) the current and
anticipated cash flow and its adequacy to meet operational needs
and lease or mortgage obligations and to provide a competitive
market return on equity to the Company's investors, (iv) the
growth, tax and regulatory environments of the communities in
which the properties are located, (v) occupancy and demand for
similar health care facilities in the same or nearby communities,
(vi) the quality, experience and creditworthiness of the
management operating the facilities located on the property; and
(vii) the mix of private and government sponsored patients.
There can be no assurances that these intentions will be
realized.
The Company will not, without the prior approval of a
majority of the Board of Directors, enter into any joint venture
relationships with or acquire from or sell to any director,
officer, or employee of NHC or the Company, or any affiliate
thereof, as the case may be, any of the assets or other property
of the Company. The Company's Credit Agreements limit the amount
of investment in any one borrower to 25% of the Company's assets,
except for investments in NHC which is limited to 35% of the
Company's assets. As of December 31, 1996, investments in NHC
totaled approximately 19% and investments to Litchfield totaled
approximately 19%. The Company is unable to predict the extent
to which it will engage in activities with NHC or any other
operator within these limits.
The Board of Directors, without the approval of the
stockholders, may alter the Company's investment policies if they
determine that such a change is in the best interests of the
Company and its stockholders. The methods of implementing the
Company's investment policies may vary as new investment and
financing techniques are developed or for other reasons.
The Company may incur additional indebtedness in the future
to make investments in health care related facilities when it is
advisable in the opinion of the Board of Directors. The Company
may negotiate other lines of credit, or arrange for other short
or long term borrowings from banks, NHC or otherwise. The
Company has and may arrange for long term borrowings from
institutional investors or through public offerings. The Company
has invested and may in the future invest in properties subject
to existing loans or secured by mortgages, deeds of trust or
similar liens with favorable terms or REMIC investments.
ADVISORY AGREEMENT
The Company entered into the Advisory Agreement on October
17, 1991 with NHC as "Advisor" under which NHC provides
management and advisory services to the Company during the term
of the Advisory Agreement. The Company believes the Advisory
Agreement benefits the Company by providing it access to NHC's
extensive experience in the ownership and management of long-term
care facilities and retirement centers. Under the Advisory
Agreement, the Company engaged NHC to use its best efforts (a) to
present to the Company a continuing and suitable investment
program consistent with the investment policies of the Company
adopted by the Board of Directors from time to time; (b) to
manage the day-to-day affairs and operations of the Company; and
(c) to provide administrative services and facilities appropriate
for such management. In performing its obligations under the
Advisory Agreement, NHC is subject to the supervision of and
policies established by the Company's Board of Directors.
The Advisory Agreement was initially for a stated term which
expired December 31, 1996. The Agreement is now on a year to
year term. Either party may terminate the Advisory Agreement at
any time on 90 days notice, and the Company may terminate the
Advisory Agreement for cause at any time. For its services under
the Advisory Agreement, the Advisor is entitled to annual
compensation in a base amount of $1.6 million, payable in monthly
installments of $135,417. Under the Advisory Agreement, the
Company reimburses NHC for certain out of pocket expenses
including those incurred in connection with borrowed money,
taxes, fees to independent contractors, legal and accounting
services and stockholder distributions and communications. For
1993 and later years the annual compensation is calculated on a
formula which is related to the increase in Funds from Operations
per common share (as defined in the Advisory Agreement). In
1996, the annual compensation under the Advisory Agreement was
$3.1 million.
Pursuant to the Advisory Agreement, NHC manages all of the
day-to-day affairs of the Company and provides all such services
through its personnel. The Advisory Agreement provides that
without regard to the amount of compensation received by NHC
under the Advisory Agreement, NHC shall pay all expenses in
performing its obligations including the employment expenses of
the officers and directors and personnel of NHC providing
services to the Company. The Advisory Agreement further provides
that the Company shall pay the expenses incurred with respect to
and allocable to the prudent operation and business of the
Company including any fees, salaries, and other employment costs,
taxes and expenses paid to directors, officers and employees of
the Company who are not also employees of NHC. Currently, other
than the directors who are not employees of NHC, the Company does
not have any officers or employees who are not also employees of
NHC. The Company's two executive officers, Mr. Adams and Mr.
LaRoche are employees of NHC and all of their fees, salaries and
employment costs are paid by NHC.
In addition, although not specifically provided for in the
Advisory Agreement, during 1993 the Company granted stock options
to purchase a total of 100,000 shares of Common Stock for the
benefit of various NHC employees and outside directors of NHC who
provided services to the Company. An additional 100,000 shares
were granted as options to various NHC employees and outside
directors in 1995. Additionally, the Company has implemented an
option exercise loan guaranty program, the purpose of which is to
facilitate Directors and key personnel exercising options to
purchase NHI common stock. Pursuant to Board of Directors'
resolution unanimously passed, each Director and Key Employee to
whom options to purchase NHI common shares have been granted is
eligible to benefit from a Company guaranty on up to $100,000 per
year of loans made from commercial banking institutions, the
proceeds of which are used to exercise NHI options. The
guarantee is structured as follows: Option holders must pledge
to NHI 125% of the loan amount in publicly traded stock as
additional collateral for the guarantee; the option holder must
personally guarantee the loan to the bank; the interest rate
charged by the bank and all expenses pertaining to the loan are
to be borne by the Director or Employee and the maximum
outstanding amount of loan guarantees is $5.0 million.
Furthermore, this facility is to have a one year term and be
renewable at the Board's discretion. The table on page 41
indicates the current amount of loans outstanding by Directors of
NHI individually and by all designated NHC employees collectively
as of December 31, 1996. The total outstanding as of December
31, 1996 is $1.9 million.
FEDERAL INCOME TAX
The Company believes that it has operated its business so as
to qualify as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code") and the
Company intends to continue to operate in such a manner, but no
assurance can be given that the Company will be able to qualify
at all times. If the Company qualifies as a REIT, it will
generally not be subject to federal corporate income taxes on its
net income that is currently distributed to its stockholders.
This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that typically applies to
corporate dividends.
ITEM 2. PROPERTIES
<TABLE>
NHI PROPERTIES
LONG TERM CARE
<CAPTION>
Center City Beds
<S> <C> <C>
ALABAMA
Hanover House Nursing Center Birmingham 80
NHC HealthCare, Anniston Anniston 151
NHC HealthCare, Moulton Moulton 136
ARIZONA
The Arbors Health Care Center Camp Verde 120
Pueblo Notre Nursing Show Low 100
Rio Verde Health Care Center Cottonwood 100
Royal Sun West Care Center Avondale 120
COLORADO
Amberwood Court Denver 88
Brookshire House Denver 79
Brookside Inn Castle Rock 120
(under construction)
Cheyenne Mountain Nursing Center Colorado Springs 180
Christopher House Wheat Ridge 75
Mesa Manor Nursing Home Grand Junction 98
Pikes Peak Manor Colorado Springs 210
Pueblo Manor Nursing Home Pueblo 151
FLORIDA
Alachua Nursing Home Gainesville 120
Bay St. Joseph Care Center Port St. Joe 120
Bear Creek Nursing Center Hudson 120
Brighton Gardens of Maitland Maitland 39
Brighton Gardens of W. Palm Beach West Palm Beach 30
Brooksville Nursing Manor Brooksville 180
Cypress Cove Care Center New Port Richey 120
Eustis Manor Eustis 138
Fort Myers Care Center Fort Myers 107
Franco Nursing Miami 120
Hampton Court Health Care Center North Miami Beach 120
Health Care Center at
Mercy Hospital Miami 120
Heather Hill Nursing Home Crystal River 120
Heritage Park of Bradenton Bradenton 120
Huber Restorium St. Petersburg 96
King David Center West Palm Beach 191
Lake Park - Madison Lake Park 79
Lanier Manor Jacksonville 120
Medic-Ayers Nursing Center Trenton 120
Metro-West Health Center Ocoee 120
(under construction)
Miracle Hill Nursing & Conval. Tallahassee 120
(under construction)
NHC HealthCare, Hudson Hudson 180
NHC HealthCare, Merritt Island Merritt Island 120
NHC HealthCare, Plant City Plant City 171
NHC HealthCare, Stuart Stuart 106
Oakview Nursing Williston 180
Oaks of Kissimmee Kissimmee 59
Orange Park Care Center Orange Park 105
Osceola Health Care Center St. Cloud 120
Palm Bay Care Center Palm Bay 119
Port Charlotte Care Center Port Charlotte 164
Royal Oak Nursing Center Dade City 120
Sebring Care Center Sebring 104
The Shores Nursing Center Bradenton 21
Wakulla Manor Crawfordville 120
Winter Park Care Center Winter Park 103
GEORGIA
Ashton Woods Dekalb County 157
Forest Lake Manor Augusta 100
Heritage Convalescent Center Atlanta 180
Jennings Health Care Center Augusta 100
Meadowbrook Nursing Center Tucker 100
Moss Oaks Health Care Center Pooler 122
Rossville Convalescent Center Rossville 112
Shoreham Convalescent Center Marietta 154
West Lake Manor Augusta 100
IDAHO
Capital Care Center Boise 215
Grangeville Care Center Grangeville 64
Sunny Ridge Care Center Nampa 185
KANSAS
Bethesda Nursing Center Chanute 90
Country Club Home Council Grove 100
Great Bend Manor Great Bend 160
Green Meadows Nursing Center Haysville 150
Hammond Holiday Home Larned 100
Northeast Nursing Center Wichita 116
Royal Terrace Nursing Olathe 147
Sedgwick Convalescent Center Sedgwick 95
KENTUCKY
Mayfair Manor Nursing Center Lexington 100
NHC HealthCare, Dawson Springs Dawson Springs 80
NHC HealthCare, Glasgow Glasgow 206
NHC HealthCare, Madisonville Madisonville 94
LOUISIANA
Centenary Heritage Manor Shreveport 101
East Haven Care Center New Orleans 260
Fountain View Nursing Home Springhill 153
Heritage Manor of Abbeville Abbeville 120
Heritage Manor of Alexandria Alexandria 56
Heritage Manor of Gonzales Gonzales 124
Heritage Manor of Kaplan Kaplan 120
Heritage Manor of Lafayette Lafayette 60
Heritage Manor of Many I Many 128
Heritage Manor of Many II Many 60
Heritage Manor of Marrero Marrero 60
Heritage Manor of New Iberia North New Iberia 121
Heritage Manor of New Iberia South New Iberia 80
Heritage Manor of Shreveport Shreveport 86
Heritage Manor of Thibodaux Thibodaux 58
Heritage Manor of Vivian Vivian 80
Jackson Manor Jonesboro 84
Meadowview Nursing Home Minden 230
Pierremont Heritage Manor Shreveport 196
MARYLAND
Windsor Ridge Nursing and
Rehabilitation Center Rockville 120
MISSOURI
Charleviox Nursing Center St. Charles 142
Clayton House Healthcare Clayton 282
Columbia House Healthcare Columbia 141
Florissant Nursing Center Florissant 120
Heritage Manor of Springfield Springfield 102
Hunter Acres Nursing Center Sikeston 116
Medicenter-Springfield Springfield 168
NHC HealthCare, Desloge Desloge 120
NHC HealthCare, Joplin Joplin 126
NHC HealthCare, Kennett Kennett 160
NHC HealthCare, Maryland Heights St. Louis 220
NHC HealthCare, St. Charles St. Charles 120
Oak View Living Center Jefferson City 120
Ozark Nursing Center West Plains 120
Spanish Lake Nursing Center Florissant 120
Tradition House Healthcare Joplin 92
NEW JERSEY
Brighton Gardens of Edison Edison 30
NORTH CAROLINA
Hawthorne Nursing Center Charlotte 142
NEW HAMPSHIRE
The Courville at Nashua Nashua 100
Epsom Manor, Inc. Epsom 108
Maple Leaf Health Care Center Manchester 114
Villa Crest, Inc. Manchester 165
OHIO
The Riverside Dayton 200
Wood Glen Nursing Center Dayton 148
PENNSYLVANIA
Briarcliff Pavilion for
Special Care N. Huntingdon 225
Kade Nursing Home Canton Township 100
Nipple Convalescent Center Liverpool 37
SOUTH CAROLINA
Anne Maria Nursing Home North Augusta 132
NHC HealthCare, Anderson Anderson 290
NHC HealthCare, Greenwood Greenwood 152
NHC HealthCare, Laurens Laurens 176
Orangeburg Nursing Center Orangeburg 88
TENNESSEE
Donelson Healthcare Center Nashville 124
Fentress County Nursing Home Jamestown 130
Greenville West Health Care Center Greenville 144
NHC HealthCare, Athens Athens 96
NHC HealthCare, Chattanooga Chattanooga 212
NHC HealthCare, Columbia Columbia 120
NHC HealthCare, Dickson Dickson 217
NHC HealthCare, Franklin Franklin 84
NHC HealthCare, Hendersonville Hendersonville 107
NHC HealthCare, Hillview Columbia 98
NHC HealthCare, Johnson City Johnson City 179
NHC HealthCare, Knoxville Knoxville 152
NHC HealthCare, Lewisburg Lewisburg 95
NHC HealthCare, McMinnville McMinnville 142
NHC HealthCare, Milan Milan 129
NHC HealthCare, Nashville Nashville 133
NHC HealthCare, Oakwood Lewisburg 62
NHC HealthCare, Pulaski Pulaski 95
NHC HealthCare, Scott Lawrenceburg 62
NHC HealthCare, Sequatchie Dunlap 60
NHC HealthCare, Smithville Smithville 76
NHC HealthCare, Somerville Somerville 84
NHC HealthCare, Sparta Sparta 150
NHC HealthCare, Springfield Springfield 112
Pickett County Nursing Home Byrdstown 63
Rivermont Convalescent and
Nursing Center South Pittsburg 165
Standing Stone Nursing Home Monterey 115
Sycamore View Nursing Home Memphis 130
TEXAS
Bonham Nursing Center Bonham 65
Canterbury Villa of Falfurrias Falfurrias 98
Canterbury Villa of Kingsville Kingsville 194
Columbus Care Center Columbus 134
Denison Manor Mt. Vernon 71
Heritage Manor of Iowa Park Iowa Park 77
Heritage Manor of Plainview Plainview 109
Midwestern Parkway Heritage Manor Wichita Falls 120
Shoreline Health Care Center Taft 200
Terrell Care Center Terrell 94
Terrell Convalescent Center Terrell 129
Terry Haven Nursing Center Mt. Vernon 65
Willis Convalescent Center Willis 114
Willow Bend Care Center Mesquite 251
VIRGINIA
Brian Center of Alleghany Low Moor 60
Brian Center of Bastian Bastian 60
Brian Center of Fincastle Fincastle 60
Maple Grove Health Care Lebanon 60
NHC HealthCare, Bristol Bristol 120
The Springs Nursing Center Hot Springs 60
Willow Creek Health Care Center Midlothian 120
WASHINGTON
Greenwood Park Care Center Seattle 151
Highline Care Center Seattle 86
Park Ridge Care Center Seattle 128
Park Rose Care Center Tacoma 218
Park West Care Center Seattle 152
Sehome Park Care Center Bellingham 137
WEST VIRGINIA
Jefferson Manor Nursing Home Charlestown 126
ACUTE CARE PROPERTIES
KENTUCKY
Kentucky River Hospital Jackson 55
LOUISIANA
Doctors Hospital Metarie 138
University Rehab Hospital New Orleans 106
MEDICAL OFFICE BUILDINGS
Square
Center City Footage
- ------ ---- -------
ARIZONA
North Valley Medical Center Scottsdale 80,000
FLORIDA
North Okaloosa Crestview 27,017
KENTUCKY
Scott Hospital Georgetown 24,824
LOUISIANA
Women's & Children's Lafayette 30,000
TENNESSEE
Murfreesboro Medical Clinic Murfreesboro 77,801
under construction 45,000
TEXAS
Bellaire Medical Plaza Bellaire 59,622
Pasadena Pasadena 61,500
UTAH
Pioneer Valley Salt Lake City 69,000
WASHINGTON
Capital Medical Office Building Olympia 67,152
RETIREMENT CENTERS
Center City Beds
- ------ ---- ----
COLORADO
Cheyenne Place Retirement Center Colorado Springs 110
FLORIDA
The Shores Nursing Center Bradenton 270
MISSOURI
Lake St. Charles Retirement Center St. Charles 168
NEW HAMPSHIRE
Heartland Place Epsom 80
Villas at Nashua Nashua 2
TENNESSEE
Parkwood Retirement Center Chattanooga 36
Colonial Hill Retirement Center Johnson City 132
TEXAS
Remington Retirement Community Corpus Christi 60
ASSISTED LIVING AND
DEVELOPMENTALLY DISABLED
Center City Beds
- ------ ---- ----
FLORIDA
19th Street Group Home Gainesville 6
107th Place Group Home Belleview 6
Bessent Road Group Home Starke 6
Brighton Gardens of Maitland Maitland 102
Brighton Gardens of W. Palm Beach West Palm Beach 104
Coletta Drive Group Home Orlando 6
Frederick Avenue Group Home Daytona Beach 6
High Desert Court Group Home Jacksonville 6
McFarland Avenue Group Home Lake City 6
Naples Court Group Home Jacksonville 6
Plaza Oval Group Home Casselberry 6
Ruleme Apartments Eustis 31
Rosewood Group Home Ormond Beach 6
Second Street Group Home Ocala 6
Somerset on Lake Saunders Tavares 54
Suffridge Drive Group Home Bonita Springs 6
Tunis Street Group Home Jacksonville 6
Walnut Street Group Home Starke 6
GEORGIA
Shoreham Convalescent Center Marietta 24
NEW HAMPSHIRE
Aynsley Place, Inc. Nashua 46
Carlyle Place, Inc. Bedford 40
NEW JERSEY
Brighton Gardens of Edison Edison 98
TENNESSEE
717 Cheatam Street Springfield 8
305 West Hillcrest Drive Springfield 8
307 West Hillcrest Drive Springfield 8
TEXAS
Brighton Gardens of Preston Road Dallas 109
Remington Retirement Community Corpus Christi 30
(under construction)
REAL ESTATE MORTGAGE INVESTMENT CONDUITS
20.0% participating interest 25 Properties 3,554
5.2% participating interest 36 Properties 4,784
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not subject to any pending litigation. The
Health Care Facilities are subject to claims and suits in the
ordinary course of business. The Company's lessees and
mortgagees have indemnified and will continue to indemnify the
Company against all liabilities arising from the operation of the
Health Care Facilities, and will indemnify the Company against
environmental or title problems affecting the real estate
underlying such facilities. While there are lawsuits pending
against certain of the owners and/or lessees of the Health Care
Facilities, management believes that the ultimate resolution of
all pending proceedings will have no material adverse effect on
the Company or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of the Shareholders was held on
March 21, 1996.
(b) Matters voted upon at the meeting are as follows:
PROPOSAL NO. 1: Election of W. Andrew Adams to serve as
director for a term of three years or until his successor
has been fully elected and qualified. Other directors whose
terms of office continue are Mr. Ted Welch; Mr. Richard F.
LaRoche, Jr., and Mr. Robert T. Webb.
% of Total
Outstanding Shares
For Against Abstain Voting Voting For
16,812,890 -0- 39,022 81.59% 81.13%
PROPOSAL NO. 2: Election of Jack Tyrrell to serve as
director for a term of three years or until his successor
has been fully elected and qualified. Other directors whose
terms of office continue are Mr. Ted Welch; Mr. Richard F.
LaRoche, Jr.; and Mr. Robert T. Webb.
% of Total
Outstanding Shares
For Against Abstain Voting Voting For
16,814,849 -0- 37,063 81.59% 81.14%
PROPOSAL NO. 3: Ratify the appointment of Arthur
Andersen LLP as the Company's independent accountant.
% of Total
Outstanding Shares
For Against Abstain Voting Voting For
16,851,912 17,632 41,822 81.59% 81.31%
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
On October 16, 1996, the NHI Board of Directors, pursuant to
powers granted by NHI's charter, changed the limit on the
percentage of ownership which any person may have in the
outstanding common stock of NHI from a limit of 7.0% (as passed
on October 17, 1995) to a limit of 9.9%. The limit on ownership
of any other class of stock (including issues convertible into
common stock) remain at 9.9% of the outstanding stock.
In order to qualify for the beneficial tax treatment
accorded to a REIT, the Company must make quarterly distributions
to holders of its Common Stock equal on an annual basis to at
least 95% of the Company's REIT taxable income (excluding net
capital gains), as defined in the Code. Cash available for
distribution to stockholders of the Company is primarily derived
from interest payments received on its mortgages and from rental
payments received under the Company's leases. All distributions
will be made by the Company at the discretion of the Board of
Directors and will depend on the cash flow and earnings of the
Company, its financial condition, bank covenants contained in its
financing documents and such other factors as the Board of
Directors deems relevant. The Company's REIT taxable income is
calculated without reference to its cash flow. Therefore, under
certain circumstances, the Company may not have received cash
sufficient to pay its required distributions.
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock is traded on the New York Stock
Exchange under the symbol NHI. The closing price for NHI stock
on Tuesday, February 21, 1997 was $38.625. As of December 31,
1996, there were approximately 2,100 holders of record of shares
and the Company estimates that as of such date there were in
addition in excess of 18,000 beneficial owners of the shares.
High and low stock prices and dividends for the last two years
were:
1996 1995
------------------------------------ -------------------------
Cash Cash
Sales Price Dividends Sales Price Dividends
Quarter Ended High Low Declared High Low Declared
------ ------ -------- ------- ------- --------
March 31 $34.125 $31.750 .70 $26.500 $23.000 $.62
June 30 34.500 30.500 .70 27.625 24.875 .62
September 30 34.125 31.500 .70 30.375 26.500 .67
December 31 38.000 33.000 .74 33.750 29.375 .70
ITEM 6. SELECTED FINANCIAL DATA
The following table represents financial information with
respect to the Company for the five years ended December 31,
1996. This financial information has been derived from financial
statements included elsewhere in this Form 10-K and should be
read in conjunction with those financial statements and
accompanying footnotes.
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Year Ended December 31 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net revenues $ 99,429 $ 87,924 $ 70,850 $ 49,552 $ 39,369
Net income 67,164 49,692 38,880 24,366 13,325
Net income per share
Primary $ 2.92 $ 2.63 $ 2.35 $ 1.95 $ 1.60
Fully Diluted 2.80 2.49 2.28 1.95 1.60
Mortgages and other
investments $ 555,791 $ 507,768 $ 508,135 $ 303,979 $ 145,713
Real estate properties, net 184,255 123,195 118,152 113,376 102,908
Total assets 751,097 641,916 635,423 427,748 259,286
Long Term Debt 160,008 141,103 90,210 110,967 113,844
Credit Facilities 59,000 31,750 193,944 76,700 18,674
Convertible subordinated
debentures 90,735 82,316 102,840 121,613 20,566
Total stockholders' equity 409,683 356,981 223,879 100,606 92,611
Common shares outstanding 23,474,751 20,535,014 14,047,563 12,762,117 12,213,270
Weighted average common shares
Primary 21,938,631 16,396,403 13,245,521 12,509,881 8,341,221
Fully Diluted 27,235,652 22,822,642 20,839,196 16,412,296 13,083,938
Common dividends declared
per share $ 2.840 $ 2.610 $ 2.380 $ 2.175 $ 2.045
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
National Health Investors, Inc. ("NHI" or the "Company") is
a real estate investment trust which invests primarily in income
producing health care properties with emphasis on the long-term
care sector. As of December 31, 1996, NHI had interests in net
real estate owned, mortgage investments and REMIC investments
totaling $740.0 million. NHI's strategy is to invest in health
care real estate which generates current income which will be
distributed to stockholders. NHI intends to implement this
strategy by making mortgage loans and acquiring properties to
lease nationwide primarily in the long-term health care industry.
As of December 31, 1996, the Company has investments in 249
health care facilities located in 25 states consisting of 204
long-term care facilities, three acute care hospitals, nine
medical office buildings, eight assisted living facilities, eight
retirement centers and 17 residential projects for the
developmentally disabled. These investments consisted of
approximately $519.2 million aggregate principal amount of loans
to 47 borrowers and $184.2 million of purchase leaseback
transactions with seven lessees and $36.6 million invested in
REMIC pass through certificates backed by first mortgage loans to
five operators. Of these 249 facilities, 43 are leased to NHC
and nine additional facilities are managed by NHC. (NHC is the
Company's investment advisor.) Consistent with its strategy of
diversification, the Company has reduced the portion of its
portfolio operated or managed by NHC from 100.0% of total
invested assets on October 17, 1991 to 19.1% of total invested
assets on December 31, 1996.
At December 31, 1996, 72.1% of the total invested assets of
the health care facilities were operated by public chain
operators, 20.0% by private chain operators, and 7.9% by small
operators.
Liquidity and Capital Resources
Sources and Uses of Funds
During 1996, NHI has strengthened its capital structure by
receiving an investment grade rating for its senior unsecured
debt, by obtaining longer term and lower cost debt, by issuing
additional convertible debt and as a result of the conversions of
convertible debentures to common equity. NHI's debt as a
percentage of capitalization is at a near all-time low and the
Company is in excellent position to grow by making additional
investments in 1997.
NHI has generated net cash from operating activities during
1996 in the amount of $76.7 million. The funds were used along
with $2.6 million proceeds from the sale of common stock, $255.7
million of proceeds from new borrowings of long-term debt, $57.7
million proceeds from the issuance of convertible subordinated
debentures and $105.1 million received from the prepayment and
collection of mortgage notes receivable to make additional
investments in income producing loans and real estate properties
totaling approximately $221.0 million, to repay debt of $179.5
million and to pay dividends to stockholders of $64.5 million.
During 1996, NHI has taken steps to further strengthen its
capital structure. In September, 1996, NHI received an
investment grade rating on its senior unsecured debt which
lowered the cost on $200 million of bank debt. Duff & Phelps
Credit Rating Co. assigned a BBB- debt rating citing NHI's stable
cash flow provided by a diversified portfolio of investments in
health care properties, moderate financial leverage, and a track
record of growth and profitability.
In June 1996, NHI renegotiated its $100 million revolving
line of credit for a lower spread over LIBOR compared to what was
previously available and also to extend the maturity date for the
entire $100 million credit agreement to June, 1999. The amount
available to be drawn on the line of credit was $41.0 million at
December 31, 1996.
In January 1996, NHI collected $53.6 million in proceeds
from the sale of 7.75% convertible subordinated debentures. In
January 1997, subsequent to our balance sheet date, NHI collected
$58.5 million in proceeds from the sale of 7.0% convertible
debentures. Throughout 1996, the Company's balance sheet was
further strengthened by the conversion of $31.5 million of NHI's
outstanding convertible preferred stock and $49.3 million of
convertible debentures to common equity.
During 1996, the Company received mortgage prepayments
totaling $96.3 million. Proceeds were used to help reduce
borrowing under the Company's $100 million revolving credit
facility and to make new property and mortgage loan investments.
At year end, debt as a percentage of total capitalization
remains strong at 43%. The Company continues to be well
positioned to take advantage of new investment opportunities.
Commitments
At December 31, 1996, the Company was committed, subject to
due diligence and financial performance goals, to fund
approximately $106.0 million in health care real estate projects,
of which amount, approximately $66.1 million is expected to be
funded within the next 12 months. The commitments include
mortgage loans or purchase leaseback agreements for five long-
term health care centers, two medical office buildings, one
retirement center, and 13 assisted living facilities all at rates
ranging from 10% to 12%. Also included in the $106.0 million of
commitments is an $18.6 million commitment on a loan which is
secured by first mortgages on 43 long-term care centers. Draws
on the $18.6 million commitment are limited to $3.7 million
annually. In addition to the $106.0 million in commitments, NHI
has entered into agreements to loan up to $18,900,000 in 1997 in
connection with the early purchase of loans.
Financing for current commitments and future commitments to
others may be provided by borrowings under the Company's bank
credit facilities, new lines of credit, private placements or
public offerings of debt or equity, and the assumption of secured
or unsecured indebtedness or by the sale of all or a portion of
certain currently held investments.
The Company believes it has sufficient liquidity and
financing capability to finance future investments as well as
repay borrowings at or prior to their maturity.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31,
1995.
Net income for the year ended December 31, 1996 is $67.2
million versus $49.7 million for 1995, an increase of 35.2%.
Fully diluted earnings per common share increased $0.31 or 12.4%
to $2.80 in the 1996 period from $2.49 in the 1995 period.
Total revenues for the year ended December 31, 1996
increased $11.5 million or 13.1% to $99.4 million from $87.9
million in the year ended December 31, 1995. Revenues from
mortgage interest income increased $8.6 million or 15.9% when
compared to the same period in 1995. Revenues from rental income
increased $2.5 million or 7.8% in the 1996 period as compared to
the 1995 period. These increases resulted primarily from
investments in additional facilities during the last 12 months
and from the recognition of commitment fees.
Total expenses for 1996 decreased $6.0 million or 15.6% to
$32.2 million from $38.2 million for 1995. Interest expense
decreased $6.7 million or 24.1% in 1996 as compared to 1995.
Depreciation on real estate increased $0.8 million or 13.5% while
amortization of loan and organization costs decreased $0.5
million or 31.9% when compared to 1995. General and
administrative costs increased $0.3 million or 9.3%.
The decrease in interest expense was due to decreased debt
levels resulting from the lower average balances of credit
facility debt and from the conversion of 7.375%, 7.75% and 10%
convertible debentures to common stock. The decrease in interest
expense was offset in part by the increased interest on 7.75%
convertible debt, $45.0 million of which was issued in December,
1995 and $55.0 million of which was issued in January, 1996.
Depreciation increased as a result of the Company's placing in
service newly constructed assets in 1996 and 1995. General and
administrative expenses increased due to increased administrative
expenses and advisory fees to NHC.
Year Ended December 31, 1995 Compared to Year Ended December 31,
1994
Net income for the year ended December 31, 1995 is $49.7
million versus $38.9 million for the same period in 1994, an
increase of 27.8%. Fully diluted earnings per common share
increased 21 cents or 9.2%, to $2.49 in 1995 from $2.28 in 1994.
Fourth quarter, non-recurring expenses related to debt
restructuring totaled $1.2 million or seven cents per share
primary and five cents per share fully diluted on an annual
basis. Of the $1.2 million in expenses, only $0.5 million was
for cash items. Were it not for these one-time fourth quarter
costs, net income for 1995 would be $50.9 million, a 30.8%
increase over 1994. Without the non-recurring expenses, fully
diluted net income per common share would be $2.54 per share for
1995, an 11.4% increase over 1994.
Total revenues for the year ended December 31, 1995
increased $17.1 million or 24.1% to $87.9 million from $70.9
million for the year ended December 31, 1994. Revenues from
mortgage interest income increased $12.0 million, or 28.7%, when
compared to the same period in 1994. Revenues from rental income
increased $4.7 million, or 17.2% in 1995 as compared to 1994.
These increases resulted primarily from investments in additional
facilities during 1995 and 1994.
Total expenses for the 1995 twelve month period increased
$6.3 million or 19.6% to $38.2 million from $32.0 million for the
1994 twelve month period. Interest expense increased $5.2
million or 23.4% in the 1995 twelve month period as compared to
the 1994 period. Depreciation of real estate increased $0.8
million or 14.4% while amortization of loan and organization
costs increased $0.3 million or 20.9% in 1995 when compared to
1994. General and administrative costs increased $0.1 million or
2.1%.
The increase in interest expense is due primarily to higher
average amounts borrowed in 1995 when compared to 1994. Interest
expense in 1995 includes $0.7 million expensed in excess of cash
paid related to debentures converted into common stock.
Depreciation increased as a result of the Company placing newly
constructed assets in service in 1995 and 1994.
Future Growth
The Company expects increases in both mortgage interest
income and rental income from the additional investments it has
made in mortgage loans and owned facilities during 1996 and 1995
and from revenue participations and escalators the Company has
negotiated in its mortgages and leases. Additionally, the
Company expects to make new investments in health care facilities
that would increase interest and rental revenues as well as
interest and depreciation expense. Increases in revenues are
expected to more than offset increases in associated expenses.
Impact of Inflation
Inflation may affect the Company in the future by changing
the underlying value of the Company's real estate or by impacting
on the Company's cost of financing its operations.
Revenues of the Company are primarily from long-term
investments. Certain of the Company's leases require increases
in rent income based upon increases in the revenues of the
tenants. The Company has negotiated similar provisions in many
of its mortgage notes receivable.
New Accounting Pronouncement
In 1996, NHI adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" and Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation". The adoption of the provisions of these
accounting pronouncements did not have a material impact on NHI's
financial condition or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements are included
as Exhibit 13 and are incorporated in this Item 8 by reference:
a. Report of Independent Public Accountants
b. Consolidated Balance Sheets
c. Consolidated Statements of Income
d. Consolidated Statements of Cash Flows
e. Consolidated Statements of Stockholders' Equity
f. Notes to Consolidated Financial Statements
The following table sets forth selected quarterly financial
data for the two most recent fiscal years.
<TABLE>
Selected Quarterly Financial Data
(Unaudited, in thousands, except per share amounts)
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1996
<S> <C> <C> <C> <C>
Net Revenues $23,344 $23,887 $25,275 $26,923
Net Income 15,638 16,401 16,939 18,186
Fully Diluted
Earnings Per Share .670 .690 .710 .730
1995
Net Revenues $21,834 $20,876 $22,469 $22,745
Net Income 11,121 11,661 13,519 13,391
Fully Diluted
Earnings Per Share .610 .620 .650 .610
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
MANAGEMENT
The following table sets forth the directors and executive
officers of the Company. Each executive officer of the Company
is elected by the directors, serves at the pleasure of the Board
of Directors and holds office until a successor is elected or
until the earliest of resignation or removal. Directors hold
office until the annual meeting for the year in which their term
expires and until their successor is elected and qualified. A
director may be removed from office for cause only.
Director
Term
Name Age Position with Company Expires
W. Andrew Adams 51 Director and President 1999
Richard F.
LaRoche, Jr. 51 Director and Secretary 1998
Jack Tyrrell 50 Director 1999
Robert T. Webb 52 Director 1997
Ted H. Welch 63 Director 1998
W. Andrew Adams has been President and a director of the
Company since its inception in 1991. Mr. Adams has also been
President of NHC since 1974. He has served on the Multi-Facility
Committee of the American Health Care Association, the trade
association for long-term health care center companies. He has
an M.B.A. from Middle Tennessee State University. Mr. Adams
serves on the Board of Directors of David Lipscomb University in
Nashville, Tennessee and on the Board of Directors of SunTrust
Bank in Nashville, Tennessee.
Richard F. LaRoche, Jr. has served as Vice President,
Secretary and a director of the Company since its inception in
1991. Mr. LaRoche has also been General Counsel of NHC since
1971, Secretary of NHC since 1974 and Senior Vice President of
NHC since 1986. He received a J.D. from Vanderbilt University
and an A.B. from Dartmouth College. Mr. LaRoche is responsible
for legal affairs, acquisitions and finance for both companies.
Jack Tyrrell has served as a director of the Company since
its inception in 1991. Mr. Tyrrell is a partner of Richland
Ventures, L.P. and Richland Ventures, L.P. II, venture capital
firms based in Nashville, Tennessee which were founded in May
1994 and September 1996. He also currently serves as a general
partner of Lawrence, Tyrrell, Ortale & Smith and Lawrence,
Tyrrell, Ortale & Smith, II, L.P., venture capital partnerships
based in Nashville, Tennessee and New York, New York. Mr.
Tyrrell serves as a director of Regal Cinemas, and Premier Parks,
both of which are publicly held entities.
Robert T. Webb has served as a director of the Company since
its inception in 1991. Mr. Webb is the owner of commercial
buildings and rental properties in the Middle Tennessee area, a
subdivision developer, and a partner in commercial properties
located in Rosslyn, Virginia and Phoenix, Arizona. Mr. Webb has
been President and the sole owner of Webb's Refreshments, Inc.
which has been in operation serving the Middle Tennessee area
since 1976. Mr. Webb attended David Lipscomb College and
received a B.A. in business marketing from Middle Tennessee State
University in 1969.
Ted H. Welch has served as a director of the Company since
its inception in 1991. Mr. Welch has owned and operated income
producing real estate (primarily office buildings) in the
southeastern United States since 1976. From 1953 until 1971, Mr.
Welch worked for the Southwestern Company where he became
Executive Vice President. From 1971 to 1974, he served as the
Commissioner of Finance and Administration for the State of
Tennessee, in which capacity he was responsible for all
construction and maintenance of State of Tennessee real property,
along with being chief operating officer. Mr. Welch received a
B.S. from the University of Tennessee at Martin and attended the
Graduate School of Management at Indiana University. Mr. Welch is
President and Chief Executive Officer of Eagle Communications.
Mr. Welch serves on the Board of Directors of American
Constructors, Inc.; First American National Bank, Nashville,
Tennessee; Logan's Roadhouse, Inc.; and Southeast Service
Corporation.
The following employees of NHC have material involvement
with the Company:
Donald K. Daniel (Vice President and Controller) joined NHC
in 1977 as Controller. He received a B.A. degree from Harding
University and an M.B.A. from the University of Texas. He is a
certified public accountant.
Kenneth D. DenBesten (Vice President/Finance) has served as
Vice President/ Finance since 1992. From 1987 to 1992, he was
employed by Physicians Health Care, most recently as Chief
Operating Officer. From 1984 to 1986, he was employed by Health
America Corporation as Treasurer, Vice President of Finance and
Chief Financial Officer. Mr. DenBesten received a B.S. in
business administration and an M.S. in Finance from the
University of Arizona.
David H. Jones (Assistant Vice President/Development) has
been associated with NHI since 1991. He is responsible for
initial investment review and presentation. Prior to that, he
was employed by USAA for 14 years in positions ranging from
programmer/analyst to acquisitions analyst in the real estate
investments company during which time over 30 properties were
closed totaling in excess of $200 million for various limited
partnerships which were created. He has a B.S. in mathematics
from Middle Tennessee State University and an M.B.A. from the
University of Texas at San Antonio.
Charlotte A. Swafford (Treasurer) has been Treasurer of NHC
since 1985. She joined the Company in 1973 and has served as
Staff Accountant, Accounting Supervisor and Assistant Treasurer.
She has a B.S. degree from Tennessee Technological University.
ITEM 11. EXECUTIVE COMPENSATION
The Company's day to day operations are conducted by
personnel provided by NHC. The Company does have two executive
officers, both of whom are also officers of NHC. See "Business -
Advisory Agreement". The following table sets forth certain
information concerning the compensation of the Company's chief
executive officer and the other executive officer of the
Company:
Summary Compensation Table
Name and
Principal Position Year Compensation
W. Andrew Adams, 1996 $ (1)
President and Director 1995 450,000
1994 400,000
Richard F LaRoche, Jr. 1996 (1)
Vice President, 1995 225,000
Secretary and Director 1994 200,000
(1)Allocated as part of the 1996 NHC performance bonus payment,
amounts not yet determined.
The compensations of Mr. Adams and Mr. LaRoche are set by
the board of directors of the Managing Partner of NHC ("Managing
Board") and are the obligations of NHC pursuant to the Advisory
Agreement. Any compensation paid by the Company is credited
against the Advisory fee paid to NHC. See "Business - Advisory
Agreement". NHC's Managing Board is composed of J. K. Twilla,
Olin O. Williams, W. Andrew Adams, Ernest G. Burgess, III, and
Robert G. Adams.
Mr. Adams and Mr. LaRoche also serve as Executive Officers
of the Managing Partner of NHC.
DIRECTORS' COMPENSATION
Directors not affiliated with NHC (Messrs. Welch, Tyrrell,
and Webb) receive $2,500 for each meeting attended, plus
reimbursement for any actual travel expenses. In addition, non-
NHC affiliated directors are granted options to purchase 5,000
shares of Common Stock each year pursuant to the 1991 Stock
Option Plan. See "Stock Option Plan" below.
STOCK OPTION PLAN
The Company has adopted a 1991 Stock Option Plan (the "1991
Option Plan") which was amended by stockholders in 1994
authorizing a total of 400,000 shares of Common Stock reserved
for issuance of incentive stock options qualifying under Section
422A of the Code and non-qualified stock options.
The Stock Option Plan provides that the Executive Committee
of the Board of Directors (composed of Messrs. Welch, Tyrrell and
Webb) or the full Board of Directors, subject to the express
provisions of the Stock Option Plan, in its sole and absolute
discretion, may grant options for a number of option shares, at
the price and time, on the terms and conditions and to such
eligible participants as it deems advisable and specifies in the
respective grants. The Stock Option Plan permits options to be
granted to all directors, officers and full-time employees of the
Company or any of its subsidiaries, and requires that options be
granted at an exercise price of not less than 100% of the fair
market value of the Common Stock on the date of grant. The 1991
Option Plan has been amended and restated by the Board of
Directors and Shareholders to, among other things, provide for an
automatic grant to each non-NHC affiliated director on March 4,
1993 of an option to purchase 5,000 shares of Common Stock and to
increase the total number of shares reserved for issuance under
the Stock Option Plan to 400,000. Each year thereafter, each
non-NHC affiliated director is automatically granted an option to
purchase 5,000 shares of Common Stock at the highest closing
price on the date of the first annual meeting of shareholders
each calendar year.
The Stock Option Plan permits options to be exercised for
cash or by surrender of shares of Common Stock of the Company
valued at the then fair market value. During 1996, the Company
granted options to purchase 15,000 shares to its non-NHC
affiliated directors. During 1996, Mr. Adams exercised options
to purchase 4,000 shares; Mr. LaRoche, 24,000 shares; Mr. Webb,
2,193 shares; Mr. Welch, 3,800 shares; and Mr. Tyrrell, no
shares.
OPTIONS GRANTED IN 1996
The table below provides certain information on grants of
stock options to the executive officers and directors pursuant to
the Company's 1991 Option Plan during the fiscal year ended
December 31, 1996. Although stock appreciation rights are
available under the plan, none have been issued to date.
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed
Total Exercise Annual Rates of
Options/SAR's or Base Stock Price Appreciation
Options/SAR's Granted in Price Expiration for Option Term (1)
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---- ------------- ----------- --------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ted H. Welch 5,000 33.3% $33.500 3/20/01 $46,277 $102,260
Jack Tyrrell 5,000 33.3% 33.500 3/20/01 46,277 102,260
Robert T. Webb 5,000 33.3% 33.500 3/20/01 46,277 102,260
W. Andrew Adams -0- -0- -0- --- -0- -0-
Richard F. LaRoche, Jr. -0- -0- -0- --- -0- -0-
____________
<F1>(1) Amounts represent hypothetical gains that could be achieved for the
options if exercised at the end of the option terms. These gains
are based on assumed rates of stock appreciation of 5% and 10%
compounded annually from the date the respective options were granted.
Actual gains, if any, on stock option exercises will depend on the
future performance of the Common Stock and the date on which the
options are exercised.
</TABLE>
1996 YEAR-END OPTION VALUES
The following table summarizes certain information regarding
stock options exercised during the fiscal year ended December 31,
1996 and stock options held as of December 31, 1996 by the
Executive Officers and Directors. No SARs were held or exercised
during fiscal 1996.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Shares
Shares Underlying Unexercised Value of Unexercised
Acquired on Value Options at Fiscal In-the-Money Options
Exercise Realized Year-End at Fiscal Year-End
Name (#) ($)(1) (#) ($)(2)
- ---- ----------- --------- ---------------------- -------------------
<S> <C> <C> <C> <C>
W. Andrew Adams 4,000 $ 34,500 40,000 $482,000
Richard F. LaRoche, Jr. 24,000 149,500 8,000 102,000
Robert T. Webb 2,193 17,818 5,000 21,875
Ted H. Welch 3,800 28,175 9,000 71,875
Jack Tyrrell -0- -0- 13,000 116,750
____________
<F1>(1) Represents the difference between the exercise price and the last
sales price of the Common stock on the date of exercise.
<F2>(2) Value based on the last sales price per share ($37.875) of the
Company's Common Stock on December 31, 1996, as reported on the
New York Stock Exchange, less the exercise price.
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as to the
number of shares of Common Stock of the Company beneficially
owned as of December 31, 1996 (a) by each person (including any
"group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
who is known to the Company to own beneficially 5% or more of the
outstanding shares, (b) by each director, and (c) by all
executive officers and directors of the Company:
Names and Addresses Number of Shares Percentages of
of Beneficial Owners Beneficially Owned(1) Total Shares
- -------------------- --------------------- -------------
W. Andrew Adams(2) 994,557 4.2%
1927 Memorial Blvd.
Murfreesboro, TN 37129
Richard F. LaRoche, Jr.(3) 290,505 1.2%
2103 Shannon Drive
Murfreesboro, TN 37129
Jack Tyrrell(4) 15,586 *
3100 West End Avenue
Nashville, TN 37203
Robert T. Webb(5) 33,450 *
149 MTCS Drive
Murfreesboro, TN 37129
Ted Welch(6) 17,000 *
611 Commerce, 29th Floor
Nashville, TN 37219
Franklin Resources, Inc. 1,881,600 8.0%
777 Mariners Island Blvd.
San Mateo, CA 94404
Wasatch Advisors, Inc. 1,336,733 5.7%
68 South Main Street
Salt Lake City, UT 84101
All Executive Officers and
Directors as a Group
(5 persons)(7) 1,351,098 5.8%
________________
*Less than 1%.
(1) The percentages shown are based on 23,474,751 shares of
Common Stock outstanding on December 31, 1996 plus, as
to each individual and group listed, the number of
shares of Common Stock deemed to be owned by such
holder pursuant to Rule 13d-3 under the Exchange Act as
disclosed by Vickers Stock Research Corporation.
(2) Includes options to purchase 40,000 shares of Common
Stock held by Mr. Adams.
(3) Includes options to purchase 8,000 shares of Common
Stock held by Mr. LaRoche.
(4) Includes options to purchase 13,000 shares of Common
Stock held by Mr. Tyrrell.
(5) Includes options to purchase 5,000 shares of Common
Stock held by Mr. Webb.
(6) Includes options to purchase 9,000 shares of Common
Stock held by Mr. Welch.
(7) Includes options to purchase 75,000 shares of Common
Stock.
The Charter contains certain limitations on the number of
shares of the Company's stock that any one stockholder may own,
which limitations are designed to ensure that the Company
maintains its status as a REIT. This limitation (as amended)
states that no person (as defined in the Code) may own directly
or indirectly 9.9 percent or more of the Common Stock of the
Company. Any shares of Common Stock in excess of such limits are
deemed to be "Excess Common Stock". Excess Common Stock shall be
deemed automatically to have been converted into a class separate
and distinct from the class from which converted and from any
other class of Excess Common Stock, each such class being
designated "Excess Common Stock of [stockholder's name]". No
Excess Common Stock may be voted, nor considered outstanding for
the purpose of determining a quorum at any meeting of
stockholders. Any dividends or other distributions payable upon
the Excess Common Stock may, in the discretion of the Company, be
paid into a non-interest bearing account and released to the
stockholder only at such time as he or she ceases to be the
holder of Excess Common Stock. The Company, upon authorization
of the Board of Directors, may redeem any or all Excess Common
Stock, and from the date of the giving of notice of redemption
such shares shall cease to be outstanding and the stockholder
shall cease to be entitled to dividends, voting rights and other
benefits with respect to such shares. The redemption price will
be based on the trading prices of the class of stock from which
the Excess Common Stock being redeemed were converted, and is
payable, without interest, only upon the liquidation of the
Company. However, the Charter contains provisions under which
the holder of Excess Common Stock may cause the Company to
rescind such redemption by selling (and notifying the Company of
such sale), within 30 days after notice of the redemption, a
number of the shares of Common Stock held by such holder equal to
the number of shares of Excess Common Stock. In addition, Excess
Common Stock held by any holder may be converted back into shares
of Common Stock if the holder sells such shares prior to their
being called for redemption.
Upon demand of the Company, each stockholder must disclose
to the Company such information with respect to direct and
indirect ownership of stock owned (or deemed to be owned after
applying the rules applicable to REITs under the Code) as the
Board of Directors deems reasonably necessary in order that the
Company may fully comply with the REIT provisions of the Code.
Proposed transferees of stock must also satisfy the Board, upon
demand, that such transferees will not cause the Company to fall
out of compliance with such provisions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ADVISORY, ADMINISTRATIVE SERVICES AND FACILITIES AGREEMENT
The Company entered into an Advisory, Administrative
Services and Facilities Agreement with NHC as "Advisor" under
which NHC provides management and advisory services to the
Company during the term of the Advisory Agreement. See "Business
- - Advisory, Administrative Services and Facilities Agreement".
LEASES
Pursuant to NHC's conveyance of certain of the Health Care
Facilities to the Company, the Company leases to NHC 43 of the
Health Care Facilities. Pursuant to these Leases, the Company
and NHC have entered into a Master Agreement to Lease. See
"Business - NHC Master Agreement to Lease". Since the date of
the original lease to NHC (October 17, 1991), NHC has expanded
the number of licensed beds at three of the 43 centers. By
authority and unanimous vote of the non-NHC affiliated Directors,
at such time as the bed additions were completed, NHI reimbursed
NHC its actual out of pocket costs and expenses in connection
with the plant expansions and received a corresponding increase
in the base rent paid by NHC. The three expansions were funded
at a cost of $10,534,135 in 1995 and the lease increases at the
three centers are now in effect. At the expiration of the
leases, all of the expansions remain the full and complete
property of NHI.
THE NOTES
The Company was the holder of four notes receivable dated
between 1990 and 1991 representing various amounts (the "Notes")
loaned to the owners of four nursing homes in Florida managed by
NHC. These Notes were contributed to NHI, along with their
corresponding mortgage debt (see below) by NHC when it formed NHI
in October 1991. NHC reacquired these Notes at par for cash and
the assumption of the Mortgage Debt on November 1, 1994. The
Company believes the Notes outstanding principal was the fair
market value therefor.
THE MORTGAGE DEBT
In connection with NHC's conveyance of 43 of the Health Care
Facilities (the "NHC Health Care Facilities") to the Company in
1991, the Company assumed mortgage debt of $120.4 million (the
"NHC Mortgage Debt"). As of December 31, 1996, and after the
reassumption of the mortgage debt attributed to the Notes, (see
above) and the early retirement by the Company of $20,662,000 for
which NHC is still obligated under the original terms, the
aggregate principal balance of the mortgage debt was $66.1
million. If the Company were required to redeem all or a
material portion of such debt, there can be no assurance that the
Company would be able to replace such debt on the same or similar
terms or in a similar amount. NHC has agreed to indemnify and
hold the Company harmless from certain costs and damages incurred
in refinancing or so redeeming this debt, including closing or
commitment fees, legal fees, and increased interest rates. The
balance of the mortgage indebtedness encumbering the Health Care
Facilities received from NHC is long-term self-amortizing debt
with final maturities from 1995 through 2015.
Although the Company assumed the NHC Mortgage Debt, NHC
remains liable on such debt and the Company has agreed to
indemnify NHC in respect of such continuing liability. In
connection with the transfer of the NHC Health Care Facilities
and the Notes to the Company, and the assumption by the Company
of the NHC Mortgage Debt, NHC and the Company obtained the
written consent of each material lender of such Mortgage Debt and
of the Guaranteed Debt (defined below). In addition, the Company
and NHC have covenanted with such lenders to maintain certain
debt coverage and similar financial ratios. Although there can
be no assurance, management believes that the Company and NHC
will be able to comply with each such covenant, during all
relevant periods. In the event, however, that the Company or NHC
fails to comply with any such covenant, and such failure is
deemed to constitute a default under the related NHC Mortgage
Debt or Guaranteed Debt, the Company may be required to retire
such NHC Mortgage Debt or Guaranteed Debt prior to its stated
maturity. A default under such debt, if not waived or cured,
could result in a loss of certain of the Company's assets through
foreclosure or other means. NHC has agreed to indemnify and hold
the Company harmless from suffering any loss, liability or harm
as a result of this cross-collateralization, regardless of the
form of such loss, liability or harm.
The majority of the NHC Mortgage Debt is cross-defaulted
with other NHC liabilities and is cross-collateralized as
mentioned above. Thus, in the event NHC defaulted on its
remaining obligations under its debt package, the Company could
lose its interest in the Notes or the NHC Health Care Facilities,
even if its own payments on the NHC Mortgage Debt were current.
THE GUARANTEED DEBT
In order to obtain the consent of appropriate lenders to
NHC's transfer of assets to NHI, NHI guaranteed the debt
($24,397,000 at December 31, 1996) of unrelated parties which NHC
has also guaranteed. The debt is at fixed interest rates with a
weighted average interest rate of 8.4% at December 31, 1996. NHI
receives from NHC compensation of approximately $121,986 per
annum for the guarantees which is credited against NHC's base
rent requirements. Additionally, NHI has outstanding letters of
credit for $11,253,000 of debt. NHI also has guaranteed bank
loans in the amount of $1,948,000 to key employees and directors
of the Company and NHC employees and directors utilized for the
exercise of stock options. No fee is charged for these option
exercise guarantees.
In management's opinion, these guarantee fees approximate
the guarantee fees that NHI would currently charge to enter into
similar guarantees.
All of the guaranteed indebtedness is secured by first
mortgages, pledges of personalty, accounts receivable and, in
certain instances, by the guarantees of the owners of the
facilities. The borrower has granted second mortgages over the
relevant properties in favor of NHC, and NHC has assigned its
rights in such mortgages to NHI. Such rights may be enforced if
either party is required to pay under their respective
guarantees. NHC has agreed to indemnify and hold harmless NHI
against any and all loss, liability or harm incurred by NHI as a
result of having to perform under its guarantee of any or all of
the guaranteed debt.
MANAGEMENT CONFLICT OF INTEREST
Two of the five directors and all of the officers of the
Company occupy positions with NHC, and therefore, there may be
conflicts of interest in their duties to the NHC Unitholders and
Company stockholders. Although the Directors of the Company
believe the terms of the NHC leases and the Advisory Agreement
are fair and reasonable, not all of the terms of the leases or
the Advisory Agreement are fair and reasonable, not all of the
terms of the leases or the Advisory Agreement were negotiated on
an arm's-length basis. The Company may purchase additional
equity interests in real estate from, or make additional mortgage
loans to, NHC. Since NHC will be the Company's investment
advisor, it will have a conflict of interest in determining the
price to be paid by the Company for additional assets which may
be purchased from NHC and the terms of any leases to be entered
into between the Company and NHC.
Counsel to NHC also represents the Company on certain
matters. In the course of such representation, circumstances may
arise in which NHC and the Company have conflicting interests, in
which event separate counsel will be retained to represent one or
both of the parties.
OPTION EXERCISE LOAN GUARANTY PROGRAM
The Company has implemented an option exercise loan guaranty
program, the purpose of which is to facilitate Directors and key
personnel exercising options to purchase NHI common stock.
Pursuant to Board of Directors' resolution unanimously passed,
each Director and Key Employee to whom options to purchase NHI
common shares have been granted is eligible to obtain an NHI
guaranty of up to $100,000 per year on loans made from commercial
banking institutes, the proceeds of which are used to exercise
NHI options. The guarantee is structured as follows: Option
holders must pledge to NHI 125% of the loan amount in publicly
traded stock as additional collateral for the guarantee; the
option holder must personally guarantee the loan to the bank; the
interest rate charged by the bank and all expenses pertaining to
the loan are to be borne by the Director or Employee and the
maximum outstanding amount of loan guarantees is $5,000,000.
Furthermore, this facility is to have a one year term and be
renewable at the Board's discretion. The below table indicates
the current amount of loans outstanding by Directors of NHI
individually and by all designated NHC employees collectively as
of December 31, 1996.
Current Maximum
Loan Loan Commercial Bank
Outstanding Outstanding Originating Loan
----------- ----------- ----------------
W. Andrew Adams $ -0- $ -0- --
Richard F.
LaRoche, Jr. 300,000 300,000 SouthTrust Bank
Jack Tyrrell -0- -0- --
Robert T. Webb 225,686 245,000 Union Planters
Bank
Ted Welch 99,125 100,000 SouthTrust Bank
NHC Employees 100,000 100,000 Union Planters
Bank
NHC Employees 1,223,265 1,300,000 SouthTrust Bank
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
(a) The following documents are filed as part of this
Report:
1. Financial Statements
The Consolidated Financial Statements are included as
Exhibit 13 and are filed as part of this report.
2. Financial Statement Schedules
The Financial Statement Schedules and Report of Independent
Public Accountants on Financial Statement Schedules listed in the
Index to Financial Statements are filed as part of this Form 10-K.
3. Exhibits
Exhibits required as part of this report are listed in the
index appearing on Page 42.
(b) Reports on Form 8-K. - None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Murfreesboro, State of
Tennessee, on the 5th day of March, 1997.
NATIONAL HEALTH INVESTORS, INC.
BY: /s/ Richard F. LaRoche, Jr.
---------------------------
Richard F. LaRoche, Jr.
Secretary
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed on the dates indicated by
the following persons in the capacities indicated.
Signature Title Date
--------- ----- ----
/s/ W. Andrew Adams President & Director March 5, 1997
W. Andrew Adams (Principal Executive Officer)
/s/ Richard F. LaRoche, Jr. Secretary and Director March 5, 1997
Richard F. LaRoche, Jr. (Principal Financial Officer)
- ---------------------- Director March 5, 1997
Jack Tyrrell
/s/ Robert T. Webb Director March 5, 1997
Robert T. Webb
- --------------------- Director March 5, 1997
Ted H. Welch
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description Page No. or Location
- ----------- ----------- --------------------
<S> <C> <C>
3.1 Articles of Incorporation Incorporated by reference
to Exhibit 3.1 to Form S-11
Registration Statement
No. 33-41863
3.2 By laws Incorporated by reference
to Exhibit 3.2 to Form S-11
Registration Statement
No. 33-41863
4.1 Form of Common Stock Certificate Incorporated by reference
to Exhibit 39 to Form S-11
Registration Statement
No. 33-41863
4.2 Form of Preferred Convertible Incorporated by reference
Stock Certificate to Exhibit 60 to Form S-3
Registration Statement
No. 33-72370
4.3 Form of Debenture due 2006 Incorporated by reference
(10%) to Exhibit 38 to Form S-11
Registration Statement
No. 33-41863
4.4 Form of Indenture Governing Incorporated by reference
the Debentures to Exhibit 4.3 to Form S-4
Registration Statement No.
33-41863
4.5 Form of Debenture due 2001 Incorporated by reference
(7-3/4%) to Exhibit 4.3 to Form S-3
Registration Statement
No. 33-85398
4.6 Form of Debenture due 2006 Incorporated by reference
(7%) to Exhibit 1 to Form S-3
Registration Statement
No. 33-72370
4.7 First Supplemental Indenture Incorporated by reference
Dated December 15, 1995 to Exhibit 4.7 to Form 10-K
dated February 26, 1996
10 Materials Contracts Incorporated by reference
from Exhibits 10.1 thru
10.9 to Form S-4 Registration
Statement No. 33-41863
10.12 1991 Stock Option Plan Incorporated by reference
from Exhibit 10.12 to Form
S-4 Registration No. 33-41863
13 Report of Independent Public Filed Herewith
Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of
Cash Flows
Consolidated Statements of
Stockholders' Equity
Notes to Consolidated Financial
Statements
24 Consent of Independent Public Filed Herewith
Accountants
27 Financial Data Schedule (for SEC purposes only)
</TABLE>
<PAGE>
EXHIBIT 13
NATIONAL HEALTH INVESTORS, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets-December 31, 1996 & 1995
Consolidated Statements of Income-For the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows-For the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity-For the
Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Financial Statements Schedules
Report of Independent Public Accountants on Financial
Statement Schedules
Schedule III Real Estate and Accumulated
Depreciation
Schedule IV Mortgage Loans on Real Estate
All other schedules are not submitted because they are not
applicable or not required or because the required information is
included in the financial statements or notes thereto.
The 1996 consolidated financial statements, together with
the Report of Independent Public Accountants, listed in the above
index are filed herewith.
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
Report of Independent Public Accountants
To the Stockholders of National Health Investors, Inc.:
We have audited the accompanying consolidated balance sheets
of National Health Investors, Inc. (a Maryland corporation
incorporated on July 24, 1991 which began operations on October
17, 1991) and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders'
equity and cash flows for the years ended December 31, 1996, 1995
and 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of National Health Investors, Inc. and subsidiaries as
of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31,
1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 11, 1997
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
<TABLE>
Consolidated Balance Sheets
(In thousands, except share amounts)
<CAPTION>
December 31 1996 1995
<S> <C> <C>
Assets
Real estate properties:
Land $ 20,468 $ 8,238
Buildings and improvements 192,095 136,891
Construction in progress 587 129
------- -------
213,150 145,258
Less accumulated depreciation (28,895) (22,063)
------- -------
Real estate properties, net 184,255 123,195
Mortgage and other notes receivable 519,229 469,628
Investments in real estate mortgage
investment conduits 36,562 38,140
Interest and rent receivable 5,382 6,061
Cash and cash equivalents 3,400 2,122
Deferred costs and other assets 2,269 2,770
------- -------
Total Assets $751,097 $641,916
======= =======
Liabilities and Deferred Income
Long-term debt $160,008 $141,103
Credit facilities 59,000 31,750
Convertible subordinated debentures 90,735 82,316
Accounts payable and other accrued expenses 3,131 3,656
Accrued interest 1,984 1,468
Dividends payable 17,371 15,602
Deferred income 9,185 9,040
------- -------
Total Liabilities and Deferred Income 341,414 284,935
------- -------
Commitments and guarantees
Stockholders' Equity
Cumulative convertible preferred stock, $.01 par value;
10,000,000 shares authorized;
1,050,122 and 2,311,533 shares, respectively,
issued and outstanding; stated
at liquidation preference of $25 per share 26,253 57,788
Common stock, $.01 par value;
40,000,000 shares authorized;
23,474,751 and 20,535,014 shares,
respectively, issued and outstanding 235 205
Capital in excess of par value 395,204 311,908
Cumulative net income 195,514 128,350
Cumulative dividends (207,523) (141,270)
------- -------
Total Stockholders' Equity 409,683 356,981
------- -------
Total Liabilities and Stockholders' Equity $751,097 $641,916
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
<TABLE>
Consolidated Statements of Income
(In thousands, except share amounts)
<CAPTION>
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Revenues:
Mortgage interest income $ 62,508 $ 53,919 $ 41,889
Rental income 34,579 32,061 27,345
Investment interest
and other income 2,342 1,944 1,616
------- ------- -------
99,429 87,924 70,850
------- ------- -------
Expenses:
Interest 20,633 27,205 22,053
Depreciation of real estate 6,832 6,020 5,263
Amortization of loan and organization
costs 1,115 1,637 1,354
General and administrative 3,685 3,370 3,300
------- ------- -------
32,265 38,232 31,970
------- ------- -------
Net income 67,164 49,692 38,880
------- ------- -------
Dividends to preferred stockholders 3,118 6,613 7,729
------- ------- -------
Net income applicable to common stock $ 64,046 $ 43,079 $ 31,151
======= ======== ========
Net income per common share:
Primary $2.92 $2.63 $2.35
Fully diluted 2.80 2.49 2.28
Weighted average common shares outstanding:
Primary 21,938,631 16,396,403 13,245,521
Fully diluted 27,235,652 22,822,642 20,839,196
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 67,164 $ 49,692 $ 38,880
Depreciation of real estate 6,832 6,020 5,263
Amortization of loan and organization costs 1,115 1,637 1,354
Interest on debenture conversion 719 659 161
Deferred income 6,335 530 2,577
Recognition of deferred income (6,190) (1,542) (1,330)
(Increase) decrease in interest and
rent receivable 679 (1,349) (1,628)
(Increase) decrease in other assets 68 232 (60)
Increase (decrease) in accounts payable
and accrued liabilities (9) (665) 2,556
-------- ------- -------
Net cash provided by operating activities 76,713 55,214 47,773
-------- ------- -------
Cash flows from investing activities:
Investment in mortgage notes receivable (153,084) (85,145) (249,602)
Investment in real estate mortgage
investment conduit --- (6,158) ---
Collection of mortgage notes receivable 8,750 8,423 8,918
Prepayment of mortgage notes receivable 96,311 83,247 37,978
Acquisition of and construction of
property and equipment, net (67,892) (11,063) (10,053)
-------- ------- -------
Net cash used in investing activities (115,915) (10,696) (212,759)
-------- ------- -------
Cash flows from financing activities:
Borrowings of short-term loans payable --- --- 85,000
Repayment of short-term loans payable --- (84,792) (208)
Proceeds from long-term debt 225,668 115,085 124,159
Principal payments on long-term debt (179,513) (141,594) (112,464)
Proceeds from issuance of convertible
subordinated debentures 57,735 48,671 ---
Proceeds from sale of cumulative convertible
preferred stock --- --- 109,558
Financing costs paid (1,548) (1,409) (5,098)
Dividends paid to stockholders (64,484) (44,102) (38,113)
Sale of stock and exercise of stock options 2,622 65,729 550
------- ------- -------
Net cash provided by (used in)
financing activities 40,480 (42,412) 163,384
------- ------- -------
Increase (decrease) in cash and cash equivalents 1,278 2,106 (1,602)
Cash and cash equivalents, beginning of period 2,122 16 1,618
------- ------- -------
Cash and cash equivalents, end of period $ 3,400 $ 2,122 $ 16
======= ======= =======
</table)
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
NATIONAL HEALTH INVESTORS, INC.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Cumulative Convertible Capital in Total
Preferred Stock Common Stock Excess of Cumulative Cumulative Stockholders'
Shares Amount Shares Amount Par Value Net Income Dividends Equity
------ ------ ------ ------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/93 --- $ --- 12,762,117 $ 128 $111,425 $ 39,778 $(50,725) $100,606
Net income --- --- --- --- --- 38,880 --- 38,880
Shares sold --- --- 22,000 --- 550 --- --- 550
Shares issued in conversion of
convertible debentures
to common stock --- --- 739,157 7 18,450 --- --- 18,457
Sale of cumulative convert-
ible preferred stock 4,382,300 109,558 --- --- (4,623) --- --- 104,935
Shares issued in conversion
of preferred stock to
common stock (579,340) (14,484) 524,289 5 14,479 --- --- ---
Dividends to common stock-
holders ($2.380 per share) --- --- --- --- --- --- (31,821) (31,821)
Dividends to preferred stock-
holders ($1.853 per share) --- --- --- --- --- --- (7,728) (7,728)
Balance at 12/31/94 3,802,960 95,074 14,047,563 140 140,281 78,658 (90,274) 223,879
Net income --- --- --- --- --- 49,692 --- 49,692
Shares sold --- --- 2,534,453 25 65,704 --- --- 65,729
Shares issued in conversion
of convertible debentures
to common stock --- --- 2,603,317 27 68,650 --- --- 68,677
Shares issued in conversion
of preferred stock to
common stock (1,491,427) (37,286) 1,349,681 13 37,273 --- --- ---
Dividends to common stock-
holders ($2.610 per share) --- --- --- --- --- --- (44,383) (44,383)
Dividends to preferred stock-
holders ($2.125 per share) --- --- --- --- --- --- (6,613) (6,613)
Balance at 12/31/95 2,311,533 57,788 20,535,014 205 311,908 128,350 (141,270) 356,981
Net income --- --- --- --- --- 67,164 --- 67,164
Shares sold --- --- 95,878 1 2,621 --- --- 2,622
Shares issued in conversion
of convertible debentures
to common stock --- --- 1,702,366 18 49,151 --- --- 49,169
Shares issued in conversion
of preferred stock to
common stock (1,261,411) (31,535) 1,141,493 11 31,524 --- --- ---
Dividends to common stock-
holders ($2.840 per share) --- --- --- --- --- --- (63,135) (63,135)
Dividends to preferred stock-
holders ($2.125 per share) --- --- --- --- --- --- (3,118) (3,118)
Balance at 12/31/96 1,050,122 $26,253 23,474,751 $ 235 $395,204 $195,514 $(207,523) $409,683
========= ====== ========== ===== ======= ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 1. ORGANIZATION
National Health Investors, Inc. ("NHI" or the "Company") is
a Maryland real estate investment trust which was incorporated on
July 24, 1991. The majority of NHI's revenue is derived from
interest income on mortgage loans and from rent generated on
leased properties. NHI invests in health care properties
including long-term care centers, acute care hospitals, medical
office buildings, assisted living facilities and retirement
centers. These properties are located throughout the United
States and are operated by qualified health care providers.
NHI commenced operations on October 17, 1991 with the
contribution of assets and debts from National HealthCare L.P.
("NHC") in exchange for common stock.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial
statements include the accounts of NHI and its wholly-owned
subsidiaries. Significant intercompany accounts and transactions
have been eliminated.
Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Real Estate Properties - NHI records properties at cost,
including capitalized interest during construction periods. Real
property transferred from NHC was recorded at NHC's historical
cost book value at the date of transfer. NHI uses the straight-
line method of depreciation for buildings and improvements over
their estimated remaining useful lives of up to 40 years.
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of" ("SFAS 121"). NHI adopted the
provisions of SFAS 121 effective January 1, 1996. The effect of
adoption of SFAS 121 is not material to NHI's financial
statements. NHI evaluates the recoverability of the carrying
values of its properties on a property by property basis.
Cash Equivalents - Cash equivalents consist of all highly
liquid investments with a maturity of three months or less.
Federal Income Taxes - NHI intends at all times to qualify
as a real estate investment trust under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended. Therefore, NHI
will not be subject to federal income tax provided it distributes
at least 95% of its annual real estate investment trust taxable
income to its stockholders and meets other requirements to
continue to qualify as a real estate investment trust.
Accordingly, no provision for federal income taxes has been made
in the financial statements.
The primary difference between NHI's tax basis and the
reported amounts of NHI's assets and liabilities is a higher tax
basis than book basis (by approximately $18,428,000) in its real
estate properties.
Earnings and profits, which determine the taxability of
dividends to stockholders, differ from net income reported for
financial reporting purposes due primarily to differences in the
basis of assets, differences in recognition of commitment fees,
differences in the estimated useful lives used to compute
depreciation expense and differences in the treatment of accrued
interest expense which existed at the time the debentures were
converted to common stock.
Concentration of Credit Risks - NHI's credit risks primarily
relate to cash and cash equivalents, to the investments in real
estate mortgage investment conduits and to mortgage and other
notes receivable. Cash and cash equivalents are primarily held
in bank accounts and overnight investments. The investments in
real estate mortgage investment conduits relate to a
participating interest in two real estate mortgage investment
conduits as discussed in Note 6. Mortgage and other notes
receivable relate primarily to secured loans with health care
facilities as discussed in Note 4. NHI also has loan
participation agreements which it purchased from a financial
institution on certain mortgage and other notes receivable.
NHI's financial instruments, principally its investments in
the real estate mortgage investment conduits and notes
receivable, are subject to the possibility of loss of the
carrying values as a result of either the failure of other
parties to perform according to their contractual obligations or
changes in market prices which may make the instruments less
valuable. NHI obtains various collateral and other protective
rights, and continually monitors these rights, in order to reduce
such possibilities of loss. NHI evaluates the need to provide
for reserves for potential losses on its financial instruments
based on management's periodic review of its portfolio on an
instrument by instrument basis. See Notes 4 and 6 for additional
information on the real estate mortgage investment conduits and
notes receivable.
Deferred Costs - Costs incurred to acquire financings are
amortized by the interest method over the term of the related
debt.
Loan Commitment Fees - Non-refundable loan commitment fees
received by NHI are amortized into income by the interest method
over the expected period of the related loans. In the event that
a potential borrower chooses not to borrow funds from NHI, the
related commitment fees are recognized into income when the
commitment expires.
In management's opinion, these loan commitment fees
approximate the loan commitment fees that NHI would currently
charge to enter into similar agreements based on the terms of the
agreements and the creditworthiness of the parties and the
committed interest rates are approximately the same as current
levels of interest rates.
Rental Income - Rental income is recognized by NHI based on
the terms of NHI's leases.
Mortgage Interest Income - Mortgage interest income is
recognized by NHI based on the interest rates and principal
amounts outstanding of the mortgage notes receivable.
NOTE 3. REAL ESTATE PROPERTIES
The following table summarizes NHI's real estate properties
by type of facility and by state as of December 31, 1996:
<TABLE>
<CAPTION>
Buildings,
Number Improvements & Mortgage
of Construction Accumulated Notes
Facility Type and State Facilities Land in Progress Depreciation Payable
- ----------------------- ---------- ---- ----------- ------------ -------
(Dollar amounts in thousands)
LONG-TERM CARE:
<S> <C> <C> <C> <C> <C>
Alabama 2 $ 95 $ 5,165 $ 1,047 $ 524
Arizona 1 453 4,558 47 3,136
Florida 4 1,949 28,301 4,372 13,753
Georgia 1 52 865 345 168
Idaho 2 365 6,824 71 ---
Kentucky 3 201 2,591 850 ---
Missouri 5 1,070 21,860 4,421 16,962
South Carolina 3 572 9,953 2,781 7,483
Tennessee 21 2,118 31,037 9,101 12,851
Virginia 1 176 2,511 549 3,835
Total Long-Term Care 43 7,051 113,665 23,584 58,712
ACUTE CARE:
Kentucky 1 540 6,961 899 ---
Total Acute Care 1 540 6,961 899 ---
MEDICAL OFFICE BUILDINGS:
Florida 1 170 3,349 434 ---
Kentucky 1 23 3,667 446 ---
Louisiana 1 --- 3,153 384 ---
Texas 1 631 6,248 539 ---
Utah 1 223 6,541 789 ---
Total Medical Office Bldgs. 5 1,047 22,958 2,592 ---
ASSISTED LIVING:
Florida 2 5,089 20,725 269 ---
New Jersey 1 4,229 13,030 176 ---
Texas 1 2,094 9,091 115 ---
Total Assisted Living 4 11,412 42,846 560 ---
RETIREMENT CENTERS:
Missouri 1 354 3,181 619 ---
Tennessee 2 64 3,071 641 1,296
Total Retirement Centers 3 418 6,252 1,260 1,296
Total 56 $20,468 $192,682 $28,895 $60,008
</TABLE>
NOTE 4. MORTGAGE AND OTHER NOTES RECEIVABLE
The following is a summary of mortgage and other notes
receivable by type:
December 31,
1996 1995
Mortgage loans $505,275,000 $453,538,000
Construction loans 10,191,000 12,263,000
Term loans 3,763,000 3,827,000
$519,229,000 $469,628,000
The following is a summary of the terms and amounts of
mortgage and other notes receivable at December 31, 1996:
<TABLE>
<CAPTION>
Final Number of Principal
Payment Date Loans Payment Terms Amount
------------ --------- ------------- ---------
<S> <C> <C> <C> <C>
First Mortgage Notes:
1999 1 Monthly payments of $258,000, which
include interest at 11%. $ 26,000,000
2000 2 Monthly payments of $1,344,000, and
$40,000, which include interest at 10.75%
and 11.93%, respectively. Contingent
interest related to the greater of a
percentage of the facilities' annual
increase in revenue over a base year or
the percentage increase in the Consumer
Price Index over a base year is paid
annually. 138,704,000
2000 1 Loan participation agreement with
SouthTrust Bank acquiring a 43.9%
interest in 12 mortgage notes.
Monthly payments of $166,000, which
include interest at 8.66% to 8.74%. 19,666,000
2000 1 Monthly payments of $116,000 which include
interest at 10.75%. Contingent interest
related to the greater of a percentage of
the facilities' annual increase in revenue
over a base year or the percentage increase
in the Consumer Price Index over a base
year is paid annually. 12,062,000
2002 1 Monthly payments of $132,000, which
include interest at 10.5%. Contingent
interest related to a percentage of
the facility's annual increase in revenue
over a base year is paid annually. 13,252,000
2002 1 Monthly principal payments of
$214,000 plus interest at 12%. Contingent
interest related to a percentage of the
facility's annual increase in revenue
over a base year is paid annually. 13,707,000
2003 1 Monthly payments of $98,000, which
include interest at 11%. Contingent
interest related to the increase in
certain lease payments of the facilities
over a base year are paid annually. 9,722,000
2003 1 Monthly interest payments of $240,000, at
10% through April 1998. Beginning May 1998
monthly payments of principal and interest
of $294,000, which include interest at 10%. 28,834,000
2003 1 Monthly payments of $103,000, which include
interest at 10.75%. Effective October, 1998,
the monthly payments will be adjusted to
include interest at the greater of 10.75%
or the rate that ten-year United States
securities yield plus 4.5%. Contingent
interest related to a percentage of the
facility's annual increase in revenue over
a base year is paid annually. 12,035,000
2004 1 Monthly payments of $149,000, which
include interest at 11%. Effective
October, 2000, the monthly payments will
be adjusted to include interest at the
greater of 11% or the rate that ten-year
United States Securities yield plus 5%.
Contingent interest related to the greater
of a percentage of the facilities' annual
increase in revenue over a base year or the
percentage increase in the Consumer Price
Index over a base year is paid annually. 14,727,000
2004 1 Monthly payments of $180,000, which
include interest at 10.5%. Effective
April, 1999, the monthly payments will
be adjusted to include interest at the
greater of 10.5% or the rate that ten-year
United States securities yield plus 5%.
Contingent interest related to the greater
of a percentage of the facilities' annual
increase in revenues over a base year or
the percentage increase in the Consumer
Price Index over a base year will
be paid annually beginning in 1997. 18,640,000
2005 1 Monthly payments of $98,000, which includes
interest at 11.35%. The interest rate
escalates annually by .1% per year.
Contingent interest related to a percentage
of the facility's annual increase in revenue
over a base year is due annually. 9,545,000
2006 1 Monthly interest payments of $222,000 at
10.25%. Effective January 1997 and 1998,
the rates will be adjusted to 10.75% and
10.5%, respectively. Effective January,
1999, the monthly payment will be adjusted
annually to include principal and interest
at a rate equal to .15% above the previous
year's rate. 22,896,000
2011 1 Monthly interest payments of $229,000 at
10.5%. Effective August, 1997 and annually
thereafter, the interest rate will be in-
creased by .15%. Principal on the loan
is due at maturity. 25,805,000
1997 to 2006 28 Monthly payments from $5,000 to $87,000,
which include interest at 9.875% to 15.00%.
Principal outstanding ranges from $202,000
to $8,591,000. 121,843,000
2010 1 Monthly payments of $182,000, which include
interest at 11.35%. The interest rate will
escalate .1% per year through September 1,
2005, the anniversary date of the note. Effec-
tive September 1, 2005, the monthly payment
will be adjusted to include interest at the
greater of 12.25% or the rate that five-year
United States securities yield plus 4.5%. 17,837,000
Construction Loans:
2006 5 Monthly payments of interest only
at the rates of 10.50% to 11.25% during
construction. Construction notes will convert
to mortgage notes at close of construction.
The notes provide for interest escalation at
various anniversary dates of the note.
Contingent interest related to a
percentage of the facilities' annual
increase in revenue over a base year
will be paid annually beginning during the
term of the mortgage loan. 10,191,000
Term Notes:
2019 3 Monthly payments of $29,000, which
include interest at the rate of
7.5%. 3,763,000
-----------
$519,229,000
===========
</TABLE>
The mortgage notes receivable are generally first mortgage
notes secured by the real estate of long-term health care
centers, acute care hospitals, medical office buildings, assisted
living facilities and retirement centers in the states of
Alabama, Arizona, Colorado, Florida, Georgia, Idaho, Kansas,
Kentucky, Louisiana, Maryland, Missouri, New Hampshire, North
Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas,
Virginia, Washington, and West Virginia. Construction loans are
for the construction of three nursing homes located in Colorado
and Florida, one retirement center in Texas, and one assisted
living facility in Florida. NHI has agreed to provide permanent
financing for the projects upon completion of the construction.
The mortgage notes receivable are secured by first mortgages
on the real property and UCC liens on the personal property of
the facilities. Certain of the notes receivable are also secured
by guarantees of significant parties and by cross-
collateralization on properties with the same respective owner.
NOTE 5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which
it is practicable to estimate that value:
Mortgage and other notes receivable - The fair value of
NHI's mortgage and other notes receivable is estimated based on
the current rates offered by NHI and other real estate investment
trusts and financial institutions for the same or similar types
of mortgage and other notes receivable of the same or similar
maturities.
Investments in real estate mortgage investment conduits -
The fair value of NHI's investments in real estate mortgage
investment conduits is estimated based on the present value of
the estimated cash flows discounted at a risk-free rate.
Interest and rent receivable - The carrying amount
approximates fair value because of the short term nature of these
receivables.
Cash and cash equivalents - The carrying amount approximates
fair value because of the short maturity of these instruments.
Long-term debt and credit facilities - The fair value of
NHI's long-term debt and credit facilities is estimated based on
the current rates offered to NHI and other real estate investment
trusts for debt of the same remaining maturities. The fair value
of the debt transferred from NHC to NHI is estimated to
approximate the carrying value of the debt as NHC is obligated to
pay NHI debt service rent.
Convertible subordinated debentures - The fair value of
NHI's 1995 debentures, 1993 debentures and senior debentures is
estimated based on the quoted market prices of the debentures.
The estimated fair values of NHI's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Mortgage and other
notes receivable $ 519,229 $ 519,229 $ 469,628 $ 469,628
Investments in real estate mort-
gage investment conduits 36,562 36,562 38,140 38,140
Interest and rent receivable 5,382 5,382 6,061 6,061
Cash and cash equivalents 3,400 3,400 2,122 2,122
Long-term debt and credit
facilities (219,008) (219,008) (172,853) (172,853)
Convertible subordinated
debentures (90,735) (106,311) (82,316) (89,514)
</TABLE>
NOTE 6. INVESTMENTS IN REAL ESTATE MORTGAGE INVESTMENT CONDUITS
On December 29, 1995, NHI purchased for $6,158,000 a
participating interest in a real estate mortgage investment
conduit ("REMIC") in the form of one class of certificates issued
in the aggregate principal amount of $146,104,000 ("the 1995
REMIC"). On November 9, 1993, NHI purchased for $34,196,000 a
participating interest in a REMIC in the form of nine classes of
certificates issued in the aggregate principal amount of
$172,928,000 ("the 1993 REMIC"). Both of the REMICs represent
the entire beneficial ownership interest in a trust fund. Each
trust fund consists of pools of mortgage loans, each secured by a
first lien on a property which is used in providing long-term
nursing care and certain other assets.
A portion of the 1993 REMIC certificates are interest-only
certificates and entitle NHI to receive cash flow designated as
interest. Principal and interest distributions on other
certificates purchased by NHI are subordinated to distributions
of principal and interest with respect to certain other classes
of certificates.
Pursuant to Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), NHI has classified its investments in
the certificates as held-to-maturity debt securities.
Accordingly, the investments in the certificates have been
recorded at the amortized cost in NHI's financial statements.
The effective yields, as calculated, have been used to accrue
income based on actual and projected future cash flows that
reflect actual and assumed mortgage prepayments and interest
rates. At the end of each future fiscal quarter, the effective
yield of the certificates will be recalculated by NHI based on
actual cash payments received and revised cash flow projections
that reflect updated assumptions about interest rates and
prepayment rates. The carrying value of the certificates will be
adjusted by NHI at the end of each future quarter as if the new
effective yield had been applied since the purchase of the
certificates, and the cumulative effect of this adjustment will
be reflected in operations in the period the adjustment is made.
At December 31, 1996, the effective yields have been
calculated by NHI to be 10.9% and 11.0%, respectively, on the
1995 REMIC and the 1993 REMIC and the average remaining lives of
the mortgages are calculated to be 8.9 years and 6.3 years,
respectively.
NOTE 7. DEBT
Short-Term Borrowings - During April, 1995, NHI repaid in
full its $85,000,000 short-term unsecured credit agreement. As
of December 31, 1996 and 1995, there were no short-term
borrowings outstanding.
Long-Term Debt - Long-term debt, including refinancing
commitments, consists of the following:
<TABLE>
<CAPTION>
Weighted Average Final Principal
Interest Rate Maturities Amount
------------- ---------- --------------------------------
December 31 1996 1995
<S> <C> <C> <C> <C>
Bank credit facility, principal and Variable,
interest payable quarterly 6.0% 2009 $ 24,493,000 $ 25,590,000
Senior secured notes, principl and interest
payable semiannually 8.4 2005 16,490,000 18,928,000
Senior secured notes, principal and interest
payable semiannually 8.3 2003 1,077,000 534,000
Senior unsecured credit agreement, payable
in periodic installments of Variable,
principal and interest 6.9 1999 59,000,000 31,750,000
Senior unsecured term loan, payable in
periodic installments of Variable,
principal and interest 6.7 2001 100,000,000 ---
Bank loans, repaid in 1996 --- --- --- 75,000,000
First mortgage notes, principal payable in
periodic installments, interest
payable monthly 5.0 2017 746,000 3,435,000
First mortgage revenue bonds, principal
payable in periodic installments, Variable,
interest payable monthly 4.1 2000-2014 17,202,000 17,616,000
----------- -----------
$219,008,000 $172,853,000
=========== ===========
</TABLE>
NHI has established a senior unsecured revolving line of
credit which allows it to borrow a maximum of $100,000,000. The
agreement allows NHI to borrow up to two-thirds of its borrowing
base, which consists primarily of NHI's mortgage notes receivable
and REMIC investments. The loan bears interest at the prime rate
or at a premium over the LIBOR ("The London Interbank Offered
Rate") at the option of NHI. The loan matures in June 1999. The
amount outstanding at December 31, 1996 is $59,000,000.
In August 1996, NHI entered into a $100,000,000 senior
unsecured term loan. The loan bears interest at the prime rate
or at a premium over LIBOR. The loan agreement requires that the
principal be repaid in four equal installments of $25,000,000
annually beginning August 15, 1998 and maturing August 15, 2001.
On October 11, 1995 and April 28, 1995, NHI entered into two
five-year interest rate swap agreements. Pursuant to these
agreements, NHI has exchanged its variable rate interest rate
obligations on a $50,000,000 notional principal amount for a
weighted average fixed rate obligation of 7.6% per annum.
Interest rate swap agreements are used to reduce the
potential impact of increases in interest rates on variable rate
long-term debt. The fair value of the swap agreements are not
recognized in the consolidated financial statements as they are
accounted for as hedges. Amounts payable under such agreements
are accrued as an increase in interest expense. NHI is exposed
to credit losses in the event of nonperformance by the
counterparties to these agreements. NHI anticipates, however,
that counterparties will be able to fully satisfy their
obligations under the contracts. NHI does not obtain collateral
or other security to support these agreements subject to credit
risk but does monitor the credit standing of counterparties.
Substantially all real estate property and certain mortgage
notes receivable are either pledged as collateral on the long-
term debt or are subject to a negative pledge.
The debt identified above as senior secured notes is cross-
defaulted with other NHC liabilities and is cross-collateralized
to the extent of approximately $24,397,000 of debt. Thus, in the
event NHC defaulted on its obligations under its debt packages,
NHI could lose its interest in the related mortgage notes
receivable or real estate properties.
The aggregate principal maturities of all long-term debt,
including refinancing commitments, for the five years subsequent
to December 31, 1996 are as follows:
1997 $ 4,158,000
1998 29,299,000
1999 88,219,000
2000 29,531,000
2001 29,586,000
Certain loan agreements require maintenance of specified
operating ratios as well as specified levels of working capital
and stockholders' equity by NHI and NHC. All such covenants have
been met by NHI, and NHI believes all such covenants have been
met by NHC.
NOTE 8. CONVERTIBLE SUBORDINATED DEBENTURES
1995 Debentures - On December 12, 1995, NHI sold
$45,000,000 of a total of $100,000,000 of 7.75% convertible
subordinated debentures (the "1995 debentures") due on January 1,
2001. The remaining $55,000,000 were sold on January 15, 1996.
At December 31, 1996, 1995 debentures in the amount of
$74,894,000 were outstanding.
The 1995 debentures are convertible at the option of the
holder into common stock of NHI at a conversion price of $31.625,
subject to adjustment. During 1996, $25,106,000 of the 1995
debentures were converted into 793,861 shares of common stock.
NHI has reserved an additional 2,368,190 shares of common stock
for 1995 debenture conversions.
The 1995 debentures will not be redeemable prior to maturity
except in the event of certain tax-related events or to the
extent necessary to preserve and protect NHI's status as a real
estate investment trust. The debentures are subordinated in
right of payment to the prior payment in full of all senior
indebtedness of the Company. Interest is payable semiannually on
January 1 and July 1 of each year.
1995 Debt Service Debentures - In November 1995, NHI began
offering 7% subordinated convertible debentures due on January 1,
2006. NHI may offer up to $25,000,000 of these debentures to
current and future mortgagees and lessees of NHI to satisfy
existing debt service reserve escrow requirements under
applicable mortgages or leases. At December 31, 1996, debentures
in the amount of $6,406,000 have been issued. The debentures are
convertible at the option of the holder into common stock of NHI
at a conversion price of 110% of the market price on the date of
issuance of the debentures, subject to adjustment. At December
31, 1996, none of the debentures have been converted. Interest
is payable semiannually on April 1 and October 1 of each year.
1993 Debentures - On March 25, 1993, NHI issued $112,210,000
of 7.375% convertible subordinated debentures (the "1993
debentures") due on April 1, 1998. At December 31, 1996, 1993
debentures in the amount of $9,135,000 were outstanding.
The 1993 debentures are convertible at the option of the
holder into common stock of NHI at a conversion price of $27.25
per share, subject to adjustment. During 1996 and 1995,
$22,700,000 and $64,379,000, respectively, of the 1993
debentures were converted into 833,005 shares and 2,362,517
shares, respectively, of common stock. NHI has reserved an
additional 335,229 shares of common stock for 1993 debenture
conversions.
The 1993 debentures are redeemable by NHI in whole or in
part at any time upon payment of 100% of the principal amount and
accrued interest to the date fixed for redemption. The 1993
debentures are subordinated in right of payment to all principal
and interest on existing secured indebtedness. Interest is
payable semiannually on April 1 and October 1 of each year.
Senior Debentures - On October 17, 1991, NHI issued
$110,000,000 of 10% senior convertible subordinated debentures
(the "senior debentures") due 2006. At December 31, 1996, senior
debentures in the amount of $300,000 were outstanding.
The senior debentures are convertible at the option of the
holder into NHI's common stock at a price of $20 per share,
subject to adjustment. In 1996 and 1995, $1,510,000 and
$4,816,000, respectively, of the senior debentures were
converted into 75,500 and 240,800 shares, respectively, of
common stock. NHI has reserved an additional 15,000 shares of
common stock for senior debenture conversions.
The remaining senior debentures are redeemable at any time
at the option of NHI, initially at 103% of the principal amount
and thereafter at prices declining to 100% of such principal
amount on and after October 17, 1999, together with accrued
interest.
On October 15 in each of the years 2002, 2003, 2004 and
2005, NHI will redeem 10% of the then outstanding aggregate
principal amount of the senior debentures at a price equal to
100% of the principal amount. All remaining principal and
interest shall be paid on October 17, 2006.
The senior debentures rank equally with other unsecured debt
of NHI (other than the trade debt) but are subordinated to all
existing and secured indebtedness. NHI may not incur or
guarantee unsecured indebtedness which is senior in right of
payment to the senior debentures. Interest at 10% is payable
semiannually on January 1 and July 1 of each year.
NOTE 9. COMMITMENTS AND GUARANTEES
At December 31, 1996, NHI was committed, subject to due
diligence and financial performance goals, to fund approximately
$106,033,000 in health care real estate projects, of which
amount, approximately $66,133,000 is expected to be funded within
the next 12 months. The commitments include mortgage loans for
five long-term health care centers, two medical office buildings,
one retirement center and 13 assisted living facilities, all at
rates ranging from 10% to 12%. Also included in the $106,033,000
of commitments is a $18,600,000 commitment on a loan secured by
first mortgages on 43 long-term care centers. Draws on the
$18,600,000 commitment are limited to $3,700,000 annually.
In addition to the above commitments, NHI has entered into
agreements to loan up to $18,900,000 in 1997 in connection with
the early purchase of loans.
In order to obtain the consent of appropriate lenders to
NHC's transfer of assets to NHI, NHI guaranteed certain debt
($24,397,000 at December 31, 1996) of NHC. The debt is at fixed
interest rates with a weighted average interest rate of 8.4% at
December 31, 1996. NHI receives from NHC compensation of
approximately $121,986 per annum for the guarantees which is
credited against NHC's base rent requirements.
In management's opinion, these guarantee fees approximate
the guarantee fees that NHI would currently charge to enter into
similar guarantees.
All of the guaranteed indebtedness discussed above is
secured by first mortgages and rights which may be enforced if
either party is required to pay under their respective
guarantees. NHC has agreed to indemnify and hold harmless NHI
against any and all loss, liability or harm incurred by NHI as a
result of having to perform under its guarantee of any or all of
the guaranteed debt.
Additionally, NHI has outstanding letters of credit totaling
$11,253,000. NHI also has guaranteed bank loans in the amount of
$1,948,000 to key employees and directors utilized for the
exercise of stock options. All shares of NHI stock purchased
with the proceeds of the guaranteed loans are held as collateral
by NHI and the loans are limited to $100,000 per individual per
year. NHI's potential accounting loss related to these
guaranteed bank loans, if all collateral failed, is the face
amount of the guaranteed loans outstanding.
NOTE 10. CUMULATIVE CONVERTIBLE PREFERRED STOCK
In February and March, 1994, NHI issued $109,558,000 of 8.5%
Cumulative Convertible Preferred Stock ("Preferred Stock") with a
liquidation preference of $25 per share. Dividends at an annual
rate of $2.125 are cumulative from the date of issuance and are
paid quarterly.
The Preferred Stock is convertible into NHI common stock at
the option of the holder at any time at a conversion price of
$27.625 per share of common stock, which is equivalent to a
conversion rate of 0.905 per share of common stock for each share
of Preferred Stock, subject to adjustment in certain
circumstances.
The Preferred Stock is not redeemable by NHI prior to
February 15, 1999 and is not redeemable for cash. On or after
February 15, 1999, the Preferred Stock will be redeemable by NHI
for common stock. NHI may redeem the Preferred Stock only if the
trading price of the common stock on the New York Stock Exchange
("NYSE") exceeds $27.625 per share for 20 trading days within a
period of 30 trading days prior to the exercise.
At December 31, 1996, 1,050,122 shares of the preferred
stock, which are convertible into 950,360 shares of common stock,
are outstanding. During 1996 and 1995, respectively, 1,261,411
and 1,491,427 shares of preferred stock were converted into
1,141,493 and 1,349,681 shares of common stock. NHI has reserved
950,360 shares of common stock for Preferred Stock conversions.
The Preferred Stock is listed on the NYSE under the symbol
"NHIPr".
NOTE 11. COMMON STOCK OFFERINGS
On May 23, 1995, NHI sold, in a public equity offering,
1,900,000 shares of common stock at a price of $26.75 per share.
Net proceeds to the Company from the sale were approximately
$48,000,000.
On July 26, 1995, NHI sold, in a private placement, 577,000
shares of common stock at a price of $28.25 per share. Net
proceeds to the Company from the sale were $16,300,000.
NOTE 12. STOCK OPTION PLAN
NHI has stock option plans which provide for the granting of
options to key employees and directors of NHI to purchase shares
of common stock at a price no less than the market value of the
stock on the date the option is granted. The options may be
exercised immediately, but the Company may purchase the shares at
the grant price if employment is terminated prior to six years
from the date of grant. The maximum term of the options is five
years. The following table summarizes option activity:
Weighted Average
Number of Exercise
Options Outstanding Shares Price
------------------- --------- ----------------
Outstanding December 31, 1993 114,000 $24.91
Options granted 3,000 28.75
Options exercised 22,000 25.00
Outstanding December 31, 1994 95,000 25.01
Options granted 115,000 25.92
Options exercised 53,209 25.09
Outstanding December 31, 1995 156,791 25.65
Options granted 15,000 33.50
Options exercised 71,079 25.75
Outstanding December 31, 1996 100,712 $26.75
At December 31, 1996, all options outstanding are
exercisable. Exercise prices on the exercisable options range
from $25.00 to 33.50. The weighted average remaining contractual
life of options outstanding at December 31, 1996 is 2.75 years.
NHI has reserved 251,712 shares of common stock for issuance
under the stock option plan.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123
establishes new financial accounting and reporting standards for
stock-based compensation plans. NHI has adopted the disclosure-
only provisions of SFAS 123. As a result, no compensation cost
has been recognized for NHI's stock option plans. Based on the
number of options outstanding and the historical and expected
future trends of factors affecting valuation of those options,
management believes that any compensation cost attributable to
options granted is immaterial.
NOTE 13. LIMITS ON COMMON STOCK OWNERSHIP
On October 16, 1996, the NHI Board of Directors, pursuant to
powers granted by the Company's charter, changed the limit on the
percentage of ownership which any person may have in the
outstanding common stock of the Company from a limit of 7.0% to a
limit of 9.9%. The limit on ownership of any other class of
stock (including issues convertible into common stock) remains at
9.9% of the outstanding stock.
This limit is a provision of the Company's charter and is
necessary in order to reduce the possibility of the Company's
failing to meet the stock ownership requirements for REIT
qualification under the Internal Revenue Code. The changing of
the limit to 9.9% of the outstanding common stock is made
possible by the increase in the number of authorized and issued
common shares of the Company since its inception in October 1991.
NOTE 14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as
follows:
<TABLE>
<CAPTION>
(in thousands, except share amounts)
Year Ended December 31 1996 1995 1994
--------- ------- ---------
<S> <C> <C> <C>
Cash payments for interest
expense $ 15,530 $ 29,199 $ 20,721
During 1996, 1995 and 1994,
$49,316,000,$69,195,000 and
$18,773,000, respectively,
of convertible subordinated
debentures were converted
into 1,702,366 shares, 2,603,317
shares and 739,157 shares,
respectively, of NHI's common
stock:
Convertible subordinated
debentures $ (49,316) $(69,195) $ (18,773)
Financing costs $ 866 $ 1,177 $ 477
Accrued interest $ (719) $ (659) $ (161)
Common stock $ 18 $ 27 $ 7
Capital in excess
of par value $ 49,151 $ 68,650 $ 18,450
</TABLE>
NOTE 15. EARNINGS PER SHARE
Primary earnings per share is based on the weighted average
number of common and common equivalent shares outstanding.
Common equivalent shares result from the dilutive effect of stock
options computed using the treasury stock method. Net income is
reduced by dividends to holders of cumulative convertible
preferred stock.
Fully diluted earnings per share assumes the conversion of
convertible subordinated debentures, the conversion of cumulative
convertible preferred stock and the exercise of all stock options
using the treasury stock method. Net income is increased for
interest expense on the convertible subordinated debentures.
The following table summarizes the average number of common
shares and the net income used in the calculation of primary and
fully diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
PRIMARY:
Weighted average common
shares 21,916,921 16,381,826 13,236,205
Stock options 21,710 14,577 9,316
Average common shares
outstanding 21,938,631 16,396,403 13,245,521
Net income $67,164,000 $49,692,000 $38,880,000
Dividends paid to preferred
stockholders (3,118,000) (6,613,000) (7,729,000)
Net income available to
common stockholders $64,046,000 $43,079,000 $31,151,000
Net income per common share $ 2.92 $ 2.63 $ 2.35
FULLY DILUTED:
Weighted average common
shares 21,916,921 16,381,826 13,236,205
Stock options 29,580 35,419 9,316
Convertible subordinated
debentures 3,882,060 3,476,998 4,272,167
Cumulative convertible pre-
ferred stock 1,407,091 2,928,399 3,321,508
Average common shares
outstanding 27,235,652 22,822,642 20,839,196
Net income $67,164,000 $49,692,000 $38,880,000
Interest expense on convertible
subordinated debentures 9,184,000 7,057,000 8,629,000
Net income assuming conversion
of subordinated convertible
debentures to common stock $76,348,000 $56,749,000 $47,509,000
Net income per common share $ 2.80 $ 2.49 $ 2.28
</TABLE>
NOTE 16. DIVIDENDS
Dividend payments by NHI to its common stockholders are
characterized in the following manner for tax purposes in 1996:
<TABLE>
<CAPTION>
Dividend Taxable Non-Taxable
Payment as Ordinary Taxable as Return of
Date Income Capital Gains Capital Totals
<S> <C> <C> <C> <C>
Feb. 9, 1996 $ .70 $--- $--- $ .70
May 10, 1996 .70 --- --- .70
Aug. 9, 1996 .70 --- --- .70
Nov. 11, 1996 .70 --- --- .70
$2.80 $--- $--- $2.80
</TABLE>
NOTE 17. RELATIONSHIP WITH NATIONAL HEALTHCARE L.P.
Leases - On October 17, 1991, concurrent with NHC's
conveyance of real property to NHI, NHI leased to NHC 40 long-
term care facilities and three retirement centers. Each lease is
for an initial term expiring December 31, 2001, with two
additional five-year renewal terms at the option of NHC, assuming
no defaults. NHI accounts for its leases as operating leases.
During the initial term of the first renewal term, NHC is
obligated to pay annual base rent on all 43 facilities of
$15,238,000. If NHC exercises its option to extend the leases
for a second renewal term, the base rent will be the then fair
rental value as negotiated by NHI and NHC.
The leases also obligate NHC to pay as debt service rent all
payments of interest and principal due under each mortgage to
which the conveyance of the facilities was subject. The payments
are required over the remaining life of the mortgage as of the
conveyance date.
In addition to base rent and debt service rent, in each year
after 1992, NHC must pay percentage rent to NHI equal to 3% of
the amount by which gross revenues of each facility in such later
year exceeds the gross revenues of such facility in 1992.
Each lease with NHC is a "triple net lease" under which NHC
is responsible for paying all taxes, utilities, insurance premium
costs, repairs and other charges relating to the ownership of the
facilities. NHC is obligated at its expense to maintain adequate
insurance on the facilities' assets.
NHC has a right-of-first refusal with NHI to purchase any of
the initial properties transferred from NHC should NHI receive an
offer from an unrelated party during the term of the lease or up
to 180 days after termination of the related lease.
Rental income was $34,579,000 ($26,910,000 from NHC) in
1996; $32,061,000 ($27,618,000 from NHC) in 1995; and $27,345,000
($24,399,000 from NHC) in 1994.
At December 31, 1996, the future minimum lease payments to
be received by NHI under its operating leases, including debt
service payments which are based on interest rates in effect at
December 31, 1996, are as follows:
NHC Others Total
1997 $25,524,000 $ 9,976,000 $35,500,000
1998 25,604,000 10,045,000 35,649,000
1999 25,596,000 10,117,000 35,713,000
2000 25,622,000 10,190,000 35,812,000
2001 25,630,000 10,266,000 35,896,000
Thereafter -0- 103,835,000 103,835,000
Advisory Agreement - NHI has entered into an Advisory
Agreement with NHC whereby services related to investment
activities and day-to-day management and operations are provided
to NHI by NHC. As Advisor, NHC is
subject to the supervision of and policies established by NHI's
Board of Directors.
Either party may terminate the Advisory Agreement on 90 days
notice at any time. NHI may terminate the Advisory Agreement for
cause at any time.
For its services under the Advisory Agreement, the Advisor
is entitled to annual compensation of $3,101,000 in 1996
($2,827,159 in 1995 and $2,574,975 in 1994). The annual
compensation is reduced by any compensation paid by NHI to its
executive officers, if any. However, the payment of such annual
compensation is conditional upon NHI having funds from operations
sufficient to enable NHI to pay annual dividends of $2.00 per
common share and upon NHI paying such dividends. Funds from
operations
is defined for these purposes as net income, plus depreciation
and amortization, less the effect of any capital gains or losses
included in such net income. Increases in compensation to NHC
under the Advisory Agreement are proportional to increases in
NHI's funds from operations per common share as defined above.
NOTE 18. PRIOR YEAR RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and
1995 financial statements to conform to the 1996 presentation.
NOTE 19. EVENT SUBSEQUENT TO YEAR END (UNAUDITED)
On January 29, 1997, NHI sold $60,000,000 of 7% convertible
subordinated debentures due on February 1, 2004. The debentures
are convertible at the option of the holder into common stock at
a conversion price of $37.50, subject to adjustment. The
debentures will not be redeemable prior to February 8, 2002
except in the event of certain tax-related events or to the
extent necessary to preserve and protect NHI's status as a real
estate investment trust. The debentures are subordinated in
right of payment to the prior payment in full of all senior
indebtedness of NHI. Interest is payable semiannually on
February 1 and August 1 of each year.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT
SCHEDULES
To National Health Investors, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in National Health
Investors, Inc.'s Annual Report to Stockholders incorporated by
reference in this Form 10-K, and have issued our report thereon
dated January 11, 1997. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a
whole. The financial statement schedules listed in the
accompanying index are the responsibility of the Company's
management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations under
the Securities and Exchange Act of 1934 and are not otherwise a
required part of the basic financial statements. The financial
statement schedules have been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 5, 1997
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Column A Column B Column C Column D Column E Column F
Cost capitalized Gross amount
Initial Cost subsequent to at which carried
to Company acquisition at close of period Accumulated
Encum- Building & Improve- Carrying Buildings & Depre-
Description brances Land Improvements ments Costs Land Improvements Total ciation
- ------------ ------- ---- ------------ -------- -------- ---- ------------ ----- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Health Care Centers (2)
Alabama $ 524 $ 95 $ 1,580 $3,585 $ --- $ 95 $ 5,165 $ 5,260 $1,047
Health Care Centers (4)
Florida 13,753 1,949 17,406 10,895 --- 1,949 28,301 30,250 4,372
Health Care Centers (1)
Georgia 168 52 865 --- --- 52 865 917 345
Health Care Centers (3)
Kentucky --- 201 2,591 --- --- 201 2,591 2,792 850
Health Care Centers (5)
Missouri 16,962 1,070 21,860 --- --- 1,070 21,860 22,930 4,421
Health Care Centers (3)
South Carolina 7,483 572 9,953 --- --- 572 9,953 10,525 2,781
Health Care Centers (21)
Tennessee 12,851 2,118 31,037 --- --- 2,118 31,037 33,155 9,101
Health Care Centers (1)
Virginia 3,835 176 2,511 --- --- 176 2,511 2,687 549
Health Care Centers (1)
Arizona 3,136 453 4,558 --- --- 453 4,558 5,011 47
Health Care Centers (2)
Idaho --- 365 6,824 --- --- 365 6,824 7,189 71
Retirement Center (1)
Missouri --- 354 3,181 --- --- 354 3,181 3,535 619
Retirement Centers (2)
Tennessee 1,296 64 3,071 --- --- 64 3,071 3,135 641
Acute Care Hospital (1)
Kentucky --- 540 6,961 --- --- 540 6,961 7,501 899
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(Continued)
<CAPTION>
Column G Column H
Date of Date
Description Construction Acquired
<S> <C> <C>
Health Care Centers (2)
Alabama N/A 10/17/91
Health Care Centers (4)
Florida N/A 10/17/91
Health Care Centers (1)
Georgia N/A 10/17/91
Health Care Centers (3)
Kentucky N/A 10/17/91
Health Care Centers (5)
Missouri N/A 10/17/91
Health Care Centers (3)
South Carolina N/A 10/17/91
Health Care Centers (21)
Tennessee N/A 10/17/91
Health Care Centers (1)
Virginia N/A 10/17/91
Health Care Centers (1)
Arizona -- 8/13/96
Health Care Centers (2)
Idaho -- 8/13/96
Retirement Center (1)
Missouri N/A 10/17/91
Retirement Centers (2)
Tennessee N/A 10/17/91
Acute Care Hospital (1)
Kentucky N/A 6/12/92
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ----------------- -------- -------------------- ------------------- ------------------------- ------------
Cost capitalized Gross amount
Initial Cost subsequent to at which carried
to Company acquisition at close of period
------------------- -------------------- -------------------------
Accumulated
Encum- Building & Improve- Carrying Buildings & Depre-
Description brances Land Improvements ments Costs Land Improvements Total ciation
- ----------- ------- ------- ------------ -------- -------- ---- ------------ ----- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Medical Office Building (1)
Texas --- 631 5,263 985 --- 631 6,248 6,879 539
Medical Office Building (1)
Florida --- 170 3,349 --- --- 170 3,349 3,519 434
Medical Office Building (1)
Kentucky --- 23 3,667 --- --- 23 3,667 3,690 446
Medical Office Building (1)
Louisiana --- --- 2,989 164 --- --- 3,153 3,153 384
Medical Office Building (1)
Utah --- 223 6,541 --- --- 223 6,541 6,764 789
Assisted Living Centers (2)
Florida --- 5,089 20,725 --- --- 5,089 20,725 25,814 269
Assisted Living Centers (1)
New Jersey --- 4,229 13,030 --- --- 4,229 13,030 17,259 176
Assisted Living Centers (1)
Texas --- 2,094 9,091 --- --- 2,094 9,091 11,185 115
------ ------ ------- ------ ------ ------ ------- ------- ------
$60,008 $20,468 $177,053 $15,629 $ --- $20,468 $192,682 $213,150 $28,895
====== ====== ======= ====== ====== ====== ======= ======= ======
</TABLE>
<F1>(A) See Notes 3 and 17 of Notes to Consolidated Financial Statements.
<F2>(B) The aggregate cost for federal income tax purposes is
approximately $257,448,833.58.
<F3>(C) Depreciation is calculated using depreciation lives up to 40
years for all completed facilities.
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(Continued)
<CAPTION>
Column G Column H
Date of Date
Construction Acquired
<C> <C>
1-1-95 N/A
N/A 6/30/93
N/A 7/27/93
1-1-95 N/A
1-1-95 N/A
--- 8/6/96
--- 8/6/96
--- 8/6/96
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Investment in Real Estate:
Balance at beginning of period $145,258 $134,195 $124,142
Additions through cash expenditures 67,892 11,063 10,053
Improvements --- --- ---
Balance at end of year $213,150 $145,258 $134,195
Accumulated Depreciation:
Balance at beginning of period $ 22,063 $ 16,043 $ 10,766
Addition charged to costs and expenses 6,832 6,020 5,277
Balance at end of year $ 28,895 $ 22,063 $ 16,043
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -------------------------- -------- -------- -------- -------- --------
Final Monthly Original
Interest Maturity Payment Prior Face Amount
Description Rate Date Terms Liens Of Mortgages
- ----------- -------- -------- ------- ----- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
LONG-TERM CARE FACILITIES:
First Mortgage Loans:
SouthTrust Bank of 8.74% &
Alabama (A) Variable September, 2000 $ 166,000 None $ 19,683,000
New Milford, Connecticut (B)(M) 10.75% & 11.93% September, 2000 1,384,000 None 141,638,000
Augusta and Pooler (C)(M)
Georgia 10.5% December, 2002 132,000 None 13,300,000
Bedford and Nashua,
New Hampshire (D)(M) 10.75% October, 2003 103,000 None 12,200,000
Manchester and Epsom,
New Hampshire (M)(N) 10.50% June, 2011 229,000 None 25,805,000
Pittsfield Massachusetts (E)(M) 10.00% December, 2003 240,000 None 29,500,000
Seattle, Tacoma, and Billington,
Washington (F)(M) 11.0% October, 2004 149,000 None 15,000,000
Greeley, Colorado (G)(M) 10.5% March, 2004 180,000 None 19,100,000
Dallas Texas (I)(M) 11.35% June, 2010 182,000 None 18,000,000
Fincastle, Hot Springs, Lebanon,
Bastian, Low Moor, Bristol,
Midlothian, Virginia (K)(M) 10.25% February, 2006 222,000 None 25,000,000
Williston and Gainesville,
Florida (H)(M) 11.35% December, 2005 98,000 None 9,620,000
Florissant, Joplin, Sikeston
Missouri (O)(M) 11.00% September, 2003 98,000 None 10,000,000
Missouri and Kansas (M)(P) 11.0% August, 1999 258,000 None 26,000,000
New Milford, Connecticut(M)(Q) 10.75% September, 2000 116,000 None 12,062,000
Construction Loans:
Ocoee, Florida (L)(M) 11.25% &
Variable February, 2006 --- None 5,900,000
Castle Rock, Colorado (L)(M) 10.50% October, 2006 --- None 5,200,000
Tallahassee, Florida (L)(M) 10.50% September, 2006 --- None 5,400,000
Seven Mortgages(M) 7.75%-15.0% February, 1997 N/A None N/A
December, 2011
Thirteen Mortgages(M) 10.02%-15.0% December, 1997- N/A None N/A
June, 2006
Eight Mortgages(M) 9.875%-11.0% September, 1997- N/A None N/A
April, 2005
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Column G Column H
Principal Amount
of Loans Subject
to Delinquent
Carrying Amount Principal or
of Mortgages Interest
- --------------- ----------------
<C> <C>
$ 19,666,000 None
138,704,000 None
13,252,000 None
12,035,000 None
25,805,000 None
28,834,000 None
14,727,000 None
18,640,000 None
17,837,000 None
22,896,000 None
9,545,000 None
9,722,000 None
26,000,000 None
12,062,000 None
4,828,000 None
1,009,000 None
1,820,000 None
10,402,000 None
56,414,000 None
55,027,000 None
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Column A Column B Column C Column D Column E Column F
Final Monthly Original
Interest Maturity Payment Prior Face Amount
Description Rate Date Terms Liens Of Mortgages
- ----------------------- -------- -------------- ------- ----- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Term Notes:
Johnson City, Tennessee 7.5% June, 2019 15,000 None 2,062,000
Lewisburg, Tennessee 7.5% December, 2018 7,000 None 968,000
Smithville, Tennessee 7.5% December, 2017 7,000 None 1,016,000
HOSPITALS:
First Mortgage Notes:
Metaire, Louisiana (J)(M) 12.0% April, 2002 408,000 None 25,700,000
ASSISTED LIVING CENTERS:
Construction Loans:
Tavares, Florida (L)(M) 10.75% August, 2006 --- None 869,000
RETIREMENT CENTERS:
Construction Loans:
Corpus Christi, Texas (L)(M) 11.25% April, 2006 --- None 4,700,000
<F1>(A) Mortgage loan participation agreement, of which the Company has
43.9% participation.
Balloon payment of $18,473,000 due at mataurity.
<F2>(B) Balloon payment of $132,663,000 due at maturity.
<F3>(C) Balloon payment of $11,854,000 due at maturity.
<F4>(D) Effective October, 1998 payment will be adjusted to include
interest at the greater of 10.75% or the rate that ten-year
United States securities yield plus 4.5%.
Balloon payment of $9,723,000 due at maturity.
<F5>(E) Effective May, 1998, the monthly payment will be adjusted to include
principal and interest payments of $294,000 at 11%. Balloon payment
of $27,346,000 due at maturity.
<F6>(F) Effective October, 2000, payment will be adjusted to include interest
at the greater of 11.0% or the rate that ten-year United States
securities yield plus 5%.
Balloon payment of $12,979,000 due at maturity.
<F7>(G) Effective April, 1999, monthly payment will be adjusted to include
interest at the greater of 10.5% or the rate that ten-year United
States securities yield plus 5%. Balloon payment of $16,332,000
due at maturity.
<F8>(H) Interest escalates .001% per year. Balloon payment of $8,420,000
due at maturity.
<F9>(I) Interest escalates 0.1% per year through September 1, 2005.
Thereafter the payment will be adjusted to include interest
at the greater of 12.25% or the rate that five-year United States
securities yield plus 4.5%. Balloon payment of $15,806,000
due at maturity.
<F10>(J) Constant monthly payments of $214,000, plus interest.
<F11>(K) Monthly interest only payments through December 1998.
Effective January, 1997 and 1998, the interest rate will be
adjusted to 10.75% and 10.50% respectively. Effective January, 1999,
the interest escalates .15% per year through maturity.
Balloon payment of $23,336,000 due at maturity.
<F12>(L) Monthly payments of interest only during construction. The Company
committed to provide permanent financing when construction is
completed.
<F13>(M) Mortgages provide for prepayment penalties.
<F14>(N) Effective August, 1997, and annually thereafter, the interest rate
will be increased by .15%. Principal of $25,805,000 due at maturity.
<F15>(O) Balloon payment of $8,667,000 due at maturity.
<F16>(P) Balloon payment of $25,414,000 due at maturity.
<F17>(Q) Balloon payment of $11,274,000 due at maturity.
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Column G Column H
- --------------- ----------------
Principal Amount
of Loans Subject
to Delinquent
Carrying Amount Principal or
of Mortgages Interest
<C> <C>
1,923,000 None
901,000 None
939,000 None
13,707,000 None
76,000 None
2,458,000 None
$519,229,000
</TABLE>
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1996
<F1>(1) See Note 4 of Notes to Consolidated Financial Statements.
<F2>(2) For tax purposes, the cost of investments is the carrying amount,
as disclosed in the schedule.
<CAPTION>
December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Reconciliation of mortgage loans:
Balance at beginning of period $469,628 $475,253 $269,817
Additions:
New mortgage loans 153,084 85,145 251,495
Deductions during period:
Collection of principal 103,483 90,770 46,059
Balance at end of period $519,229 $469,628 $475,253
</TABLE>
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports on National Health
Investors, Inc. dated January 11, 1997, included in this Form 10-
K for the year ended December 31, 1996, into the Company's
previously filed Registration Statements No. 33-72370 and No. 33-
85398.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000877860
<NAME> NATIONAL HEALTH INVESTORS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,400,000
<SECURITIES> 0
<RECEIVABLES> 555,791,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 213,150,000
<DEPRECIATION> (28,895,000)
<TOTAL-ASSETS> 751,097,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
26,253,000
<COMMON> 235,000
<OTHER-SE> 383,195,000
<TOTAL-LIABILITY-AND-EQUITY> 751,097,000
<SALES> 0
<TOTAL-REVENUES> 99,429,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,685,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,633,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,164,000
<EPS-PRIMARY> 2.92
<EPS-DILUTED> 2.80
</TABLE>
