FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 of 15(d)
of the Securities Exchange Act of 1934
For quarter ended September 30, 1998 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 of (I.R.S. Employer
incorporation or organization Identification No.)
100 Vine Street
Murfreesboro, TN 37130
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (615) 890-9100
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.
Yes x No
(2) Has been subject to such filing requirements for the past 90
days.
Yes x No
24,475,166 shares of common stock were outstanding as of October 31,
1998.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<CAPTION>
Sept. 30 Dec. 31
1998 1997
(unaudited)
<S> <C> <C>
ASSETS
Real estate properties:
Land $ 20,767 $ 20,468
Buildings and improvements 219,770 205,631
Construction in progress 2,190 10,899
242,727 236,998
Less accumulated depreciation (43,504) (36,929)
Real estate properties, net 199,223 200,069
Mortgage and other notes receivable 417,880 445,603
Investment in preferred stock 38,500 ---
Investment in real estate mortgage
investment conduits 36,696 37,157
Cash and cash equivalents 4,739 64,915
Marketable securities 19,561 ---
Interest and rent receivable 5,307 5,185
Deferred costs and other assets 3,013 3,670
Total Assets $724,919 $756,599
LIABILITIES AND DEFERRED INCOME
Long-term debt $153,436 $155,659
Credit facilities --- ---
Convertible subordinated debentures 100,171 119,038
Accounts payable and other accrued expenses 6,959 4,266
Accrued interest 3,265 6,928
Dividends payable 18,197 18,318
Deferred income 8,079 8,310
Commitments, contingencies and guarantees --- ---
Total Liabilities and Deferred Income 290,107 312,519
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock,
$.01 par value; 10,000,000 shares
authorized; 779,094 and 833,664
shares, respectively, issued and
outstanding; stated at liquidation
preference of $25 per share 19,477 20,842
Common stock, $.01 par value:
40,000,000 shares authorized;
24,593,833 and 24,753,570 shares,
respectively, issued and outstanding 246 248
Capital in excess of par value of common stock 431,824 434,135
Cumulative net income 324,405 270,902
Cumulative dividends (339,055) (282,047)
Unrealized gains (losses) on securities (2,085) ---
Total Stockholders' Equity 434,812 444,080
Total Liabilities and Stockholders' Equity $724,919 $756,599
</TABLE>
The accompanying notes to interim condensed consolidated
financial statements are an integral part of these financial
statements.
The interim condensed balance sheet at December 31, 1997 is
taken from the audited financial statements at that date. 2
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
<TABLE>
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
(In thousands, except share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Mortgage interest income $ 13,706 $ 17,552 $ 41,747 $ 50,444
Rental income 10,610 10,093 31,524 29,731
Investment interest and
other income 1,518 715 4,500 1,834
25,834 28,360 77,771 82,009
EXPENSES:
Interest 4,677 6,163 14,185 17,207
Depreciation of real estate 2,205 2,014 6,584 5,872
Amortization of loan and
organization costs 167 200 521 609
General and administrative 1,017 927 2,978 2,798
8,066 9,304 24,268 26,486
NET INCOME $ 17,768 $ 19,056 $ 53,503 $ 55,523
Dividends to preferred
stockholders 415 462 1,267 1,470
NET INCOME APPLICABLE TO
COMMON STOCK $ 17,353 $ 18,594 $ 52,236 $ 54,053
NET INCOME PER COMMON SHARE:
Basic $ .69 $ .76 $ 2.08 $ 2.23
Diluted $ .68 $ .74 $ 2.05 $ 2.16
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 25,067,264 24,485,556 25,121,758 24,283,213
Diluted 28,662,842 29,013,987 28,897,379 28,838,759
Common dividends per share
declared $ .74 $ .74 $ 2.22 $ 2.22
</TABLE>
The accompanying notes to interim condensed consolidated financial
statements are an integral part of these financial statements.
3
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
<TABLE>
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
September 30
1998 1997
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 53,503 $ 55,523
Depreciation of real estate 6,584 5,872
Amortization of loan and organization costs 521 609
Interest on debenture conversion 320 285
Deferred income 1,485 1,354
Amortization of deferred income (1,716) (1,296)
(Increase) decrease in interest & rent receivable (122) 785
(Increase) decrease in other assets (97) (462)
Increase (decrease) in accounts payable
and accrued liabilities (970) 1,037
NET CASH PROVIDED BY OPERATING ACTIVITIES 59,508 63,707
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mortgage notes receivable (49,722) (108,001)
Collection of mortgage notes receivable 3,013 6,049
Prepayment of mortgage notes receivable 74,893 31,615
Acquisition of property and equipment, net (5,737) (20,171)
Investment in preferred stock (38,500) ---
Investment in marketable securities (21,647) ---
NET CASH USED IN INVESTING ACTIVITIES (37,700) (90,508)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of credit facilities --- (106,000)
Proceeds from credit facilities --- 92,000
Proceeds from long-term debt 242 99,651
Principal payments on long-term debt (2,466) (52,316)
Proceeds from sale (payments) of subordinated
convertible debentures (40) 60,000
Financing costs paid --- (2,662)
Dividends paid to shareholders (57,128) (54,866)
Sale of stock and exercise of options 1,074 1,714
Repurchase of common stock (23,665) ---
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (81,983) 37,521
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (60,176) 10,720
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,915 3,400
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,739 $ 14,120
</TABLE>
4
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1998 1997
(in thousands)
<S> <C> <C>
Supplemental Information:
Cash payments for interest expense $ 15,552 $ 12,154
During the nine months ended September 30, 1998
and September 30, 1997, $18,827,000 and $30,602,000
respectively, of Senior Subordinated Convertible
Debentures were converted into 604,497 shares
and 985,036 shares, respectively, of NHI's
common stock:
Senior subordinated convertible debentures $(18,827) $(30,602)
Financing costs $ 234 $ 437
Accrued interest $ (320) $ (285)
Common stock $ 6 $ 10
Capital in excess of par $ 18,907 $ 30,440
</TABLE>
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these financial statements.
5
<PAGE>
<TABLE>
NATIONAL HEALTH INVESTORS, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(dollars in thousands)
<CAPTION>
Cumulative Convertible Capital in Unrealized Total
Preferred Stock Common Stock Excess of Cumulative Cumulative Gains(Losses) Stock.
Shares Amount Shares Amount Par Value Net Income Dividends on Securities Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT 12/31/97 833,664 $ 20,842 24,753,570 $248 $434,135 $270,902 $(282,047) $ --- $444,080
Net income --- --- --- --- --- 53,503 --- --- 53,503
Unrealized gains (losses)
on securities --- --- --- --- --- --- --- (2,085) (2,085)
Total Comprehensive
Income 51,418
Shares sold --- --- 32,973 --- 1,074 --- --- --- 1,074
Common shares repurchased --- --- (846,575) (8) (23,657) --- --- --- (23,665)
Shares issued in con-
version of converti-
ble debentures to
common stock --- --- 604,496 6 18,907 --- --- --- 18,913
Shares issued in con-
version of preferred
stock to common stock (54,570) (1,365) 49,369 --- 1,365 --- --- --- ---
Dividends to common
shareholders (2.22
per share) --- --- --- --- --- --- (55,741) --- (55,741)
Dividends to preferred
shareholders ($1.594
per share) --- --- --- --- --- --- (1,267) --- (1,267)
BALANCE AT 9/30/98 779,094 $ 19,477 24,593,833$ 246 $431,824 $324,405 $(339,055) $(2,085) $434,812
BALANCE AT 12/31/96 1,050,122 $ 26,253 23,474,751$ 235 $395,204 $195,514 $(207,523) $ --- $409,683
Net income --- --- --- --- --- 55,523 --- --- 55,523
Shares sold --- --- 54,243 --- 1,714 --- --- --- 1,714
Shares issued in con-
version of convertible
debentures to common
stock --- --- 985,036 10 30,440 --- --- --- 30,450
Shares issued in con-
version of preferred
stock to common stock(188,141) (4,703) 170,229 2 4,701 --- --- --- ---
Dividends to common
shareholders ($2.22
per share) --- --- --- --- --- --- (54,290) --- (54,290)
Dividends to preferred
shareholders ($1.594
per share) --- --- --- --- --- --- (1,470) --- (1,470)
BALANCE AT 9/30/97 861,981 $ 21,550 4,684,259$ 247 $432,059 $251,037 $(263,283) $ --- $441,610
</TABLE>
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1. SIGNIFICANT ACCOUNTING POLICIES:
The unaudited financial statements furnished herein in the
opinion of the management include all adjustments which are
necessary to fairly present the financial position, results of
operations and cash flows of National Health Investors, Inc. ("NHI"
or the "Company"). NHI assumes that users of the interim financial
statements herein have read or have access to the audited financial
statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations for the preceding fiscal years
ended December 31, 1997, 1996 and 1995 and that the adequacy of
additional disclosure needed for a fair presentation, except in
regard to material contingencies, may be determined in that
context. Accordingly, footnotes and other disclosures which would
substantially duplicate the disclosure contained in the Company's
most recent annual report to stockholders have been omitted. The
interim financial information contained herein is not necessarily
indicative of the results that may be expected for a full year
because of various reasons including changes in interest rates,
rents and the timing of debt and equity financings.
Note 2. NET INCOME PER COMMON SHARE
Basic earnings per share is based on the weighted average
number of common and common equivalent shares outstanding. Net
income is reduced by dividends to holders of cumulative convertible
preferred stock.
Diluted earnings per common 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 earnings and the average
number of common shares and common equivalent shares used in the
calculation of basic and diluted earnings per share.
7
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
<TABLE>
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
BASIC:
Weighted avg. common
shares 25,067,264 24,485,556 25,121,758 24,283,213
Net income $17,768,000 $19,056,000 $53,503,000 $55,523,000
Dividends paid to pre-
ferred shareholders (415,000) (462,000) (1,267,000) (1,470,000)
Net income available to
common stockholders $17,353,000 $18,594,000 $52,236,000 $54,053,000
Net income per common
share $ .69 $ .76 $ 2.08 $ 2.23
DILUTED:
Weighted average common
shares 25,067,264 24,485,556 25,121,758 24,283,213
Stock options 4,220 37,572 17,608 33,422
Convertible subordinated
debentures 2,880,086 3,685,206 3,029,707 3,665,639
Cumulative convertible
preferred stock 711,272 805,653 728,306 856,485
Average common shares
outstanding 28,662,842 29,013,987 28,897,379 28,838,759
Net income $17,768,000 $19,056,000 $53,503,000 $55,523,000
Interest expense on
convertible sub-
ordinated debentures 1,829,000 2,297,000 5,766,000 6,853,000
Net income assuming con-
version of subordinated
convertible debentures
to common stock $19,597,000 $21,353,000 $59,269,000 $62,376,000
Net income per common
share $ .68 $ .74 $ 2.05 $ 2.16
</TABLE>
8
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 3. INVESTMENTS IN MARKETABLE SECURITIES:
NHI considers its investments in marketable securities as
available for sale securities and unrealized gains and losses are
recorded in stockholders' equity in accordance with SFAS 115.
Realized gains and losses from securities sales are determined on
the specific identification of the securities.
Note 4. COMMITMENTS AND GUARANTEES:
At September 30, 1998, NHI was committed, subject to due
diligence and financial performance goals, to fund approximately
$85,888,000 in health care real estate projects of which
approximately $40,357,000 is eligible to be funded within the next
12 months. The commitments include mortgage loans or purchase
leaseback agreements for five long-term care centers, three medical
office buildings, and eight assisted living facilities, all at
rates ranging from 9.0% to 11.9%. NHI has recorded deferred income
for commitment fees related to these loans where applicable.
In order to obtain the consent of appropriate lenders to
National HealthCare Corporation's ("NHC"'s) transfer of assets to
NHI, NHI guaranteed certain debt ($19,358,000 at September 30,
1998) of NHC. The debt is at fixed and variable interest rates
with a weighted average interest rate of 8.3% at September 30,
1998. NHI receives from NHC compensation of approximately $97,000
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 also guaranteed bank loans in the amount
of $1,449,570 to key employees and directors which amount was
utilized for the exercise of NHI stock options. Shares of NHI
stock are held as security by NHI and the loans are limited to
$100,000 per individual per year.
9
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 5. CONVERTIBLE SUBORDINATED DEBENTURES:
At September 30, 1998, $56,286,000 of 7% convertible
subordinated debentures (the "1997 debentures") remain outstanding.
The 1997 debentures are convertible at the option of the holder
into common stock at a conversion price of $37.50, subject to
adjustment. During the nine months ended September 30, 1998,
$3,349,000 of the 1997 debentures have been converted into 89,302
shares of common stock. NHI has reserved 1,500,960 shares of
common stock for conversions of 1997 debentures.
At September 30, 1998, $38,120,000 of 7.75% convertible
subordinated debentures (the "1995 debentures") remain outstanding.
The 1995 debentures are convertible at the option of the holder
into the common stock of NHI at a conversion price of $31.625,
subject to adjustment. During the nine months ended September 30,
1998, $9,302,000 of the 1995 debentures have been converted into
294,134 shares of common stock. NHI has reserved 1,205,375 shares
of common stock for conversions of 1995 debentures.
At September 30, 1998, $5,535,000 of debentures remain
outstanding related to "1995 debt service debentures" issued to
mortgagees or lessees to satisfy debt service escrow requirements.
The debentures are convertible at the option of the holder into
common stock of the Company at a conversion price of 110% of the
market price on the date of issuance of the debentures, subject to
adjustment. During the nine months ended September 30, 1998,
$871,000 of the debentures have been converted into 26,394 shares
of common stock. NHI has reserved 157,419 shares of common stock
for conversion of 1995 debt service debentures.
During the nine months ended September 30, 1998, $5,345,000 of
the 7.375% convertible subordinated debentures (the "1993
debentures") were converted into 194,671 shares of common stock.
None of the 1993 debentures remain outstanding at September 30,
1998.
At September 30, 1998, $230,000 of the 10% senior convertible
subordinated debentures (the "senior debentures") remain
outstanding. The senior debentures are convertible into the common
stock of the Company at $20 per share. During the nine months
ended September 30, 1998, none of the senior debentures were
converted. The Company has reserved 11,500 shares of common stock
for conversion of the senior debentures.
10
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 6. 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. At September 30, 1998 $19,477,350 of the preferred
stock remains outstanding.
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. NHI has reserved 705,062
shares of common stock for Preferred Stock conversions.
The Preferred Stock is listed on the NYSE under the symbol
"NHIPr."
Note 7. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") effective for
fiscal years beginning after December 15, 1997. SFAS 130 requires
that changes in the amounts of certain items, including gains and
losses on certain securities, be shown in the financial statements.
NHI has adopted the provisions of SFAS 130 effective January 1,
1998. NHI has elected to disclose comprehensive income, which
includes net income and unrealized gains and losses on securities,
in the consolidated statements of stockholders' equity.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131") effective for
fiscal years beginning after December 15, 1997. This statement
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and segments in interim financial reports. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. NHI will be
required to adopt SFAS 131 in the fourth quarter of 1998 and is
currently determining the impact that SFAS 131 will have on its
financial statements. If appropriate, NHI will begin disclosing
the required information accordingly.
11
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 8. STOCK OPTION PLAN
On March 31, 1998, NHI granted options to purchase 45,000
shares of NHI at $39.875 per share. During the nine months ended
September 30, 1998, options to purchase 25,133 shares of NHI were
exercised at exercise prices ranging from $25.00 to $36.00.
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 9. ACQUISITION SUBSEQUENT TO THE BALANCE SHEET DATE
In 1994, NHI funded a mortgage loan for All Seasons Living
Centers in the original principal amount of $15,000,000.
Collateral for the loan included first mortgages on four long-term
health care facilities and a leasehold mortgage on two additional
properties, all located in the State of Washington. Subsequent to
the balance sheet date and on October 16, 1998, NHI purchased from
All Seasons Living Centers for approximately $13,700,000 (the then
current loan balance) all of the real estate, property and
equipment of the four long term health care facilities described
above (502 beds), but excluding the two leasehold properties. The
purchase was undertaken in lieu of foreclosure after certain
technical defaults on NHI's loan agreements and after the death of
the principal owner. Sunrise Healthcare Corporation, a subsidiary
of Sun Healthcare Group, Inc., has been engaged by NHI to manage
the facilities. NHI will elect to treat the property as
foreclosure property for federal income tax purposes under IRC
Section 856(e). With this election, unqualified income generated
by the property is expected to be treated as qualified income for
up to two years from the purchase date for purposes of the income-
source tests which must be satisfied by real estate investment
trusts to maintain their tax status.
12
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Conditions 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 September 30, 1998, NHI had interests in net
real estate and mortgage investments totaling $653.8 million, and
other investments in preferred stock and marketable securities of
$58.1 million, resulting in total invested assets of $711.9
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.
As of September 30, 1998, the Company has real estate and
mortgage investments in 201 health care facilities located in 26
states consisting of 157 long-term care facilities, two acute care
hospitals, nine medical office buildings, ten assisted living
facilities, six independent living centers, and 17 residential
projects for the developmentally disabled. These investments
consist of approximately $417.9 million aggregate principal amount
of loans to 38 borrowers, $199.2 million of purchase leaseback
transactions with six lessees and $36.7 million invested in REMIC
pass through certificates backed by first mortgage loans to three
operators. Of these 201 facilities, 43 are leased to National
HealthCare Corporation ("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 by NHC from 100.0% of
total invested assets on October 17, 1991 to approximately 22.0% of
total invested assets on September 30, 1998.
Capital Resources and Liquidity
NHI has generated net cash from operating activities for the
first nine months of 1998 in the amount of $59.5 million. The
funds were used along with $77.9 million from prepayments and
collections of mortgage notes receivable to make additional
investments in income producing assets and real estate properties
totaling approximately $115.6 million, to repurchase NHI common
stock of $23.7 million, to repay debt and credit facilities of a
net $2.2 million and to pay dividends to stockholders of $57.1
million.
The amount available to be drawn on NHI's $100 million
revolving line of credit was $100 million at September 30, 1998.
The Company's balance sheet was further strengthened by the
conversion of $18.9 million of convertible debentures to common
equity during the first nine months of 1998. NHI's nonconvertible
debt as a percentage of total capitalization is 22.2% at September
30, 1998. The Company continues to be well positioned to take
advantage of new investment opportunities.
13
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
At September 30, 1998, the Company was committed, subject to
due diligence and financial performance goals, to fund
approximately $85.9 million in health care real estate projects, of
which approximately $40.4 million is eligible to be funded within
the next 12 months. The commitments include mortgage loans or
purchase leaseback agreements for five long-term health care
centers, eight assisted living centers and three medical office
buildings, generally at rates ranging from 9.0% to 11.9%.
Financing for NHI's current commitments and future commitments
to others may be provided by borrowings under NHI's bank credit
facilities, new lines of credit, private placements or public
offerings of debt or equity, the assumption of secured or unsecured
indebtedness, repayments of existing investments or by the sale of
all or a portion of certain currently held investments.
Results of Operations
Three Months ended September 30, 1998 Compared to Three Months
Ended September 30, 1997.
Net income for the three months ended September 30, 1998 is
$17.8 million versus $19.1 million for the same period of 1997, a
decrease of 6.8%. Fully diluted earnings per common share
decreased six cents or 8.1% to 68 cents in the 1998 period from 74
cents in the 1997 period.
Total revenues for the three months ended September 30, 1998
decreased $2.5 million or 8.9% to $25.8 million from $28.4 million
for the three months ended September 30, 1997. Revenues from
mortgage interest income decreased $3.8 million or 21.9% in the
1998 period as compared to the 1997 period. Revenues from rental
income increased $.5 million or 5.1% when compared to the same
period in 1997. Revenues from investment interest and other income
increased $.8 million or 112.3% compared to the same period a year
ago.
The decrease in mortgage interest income is due to the receipt
by NHI of prepayments of $224.5 million of first mortgages
receivable during the past four quarters, compared to new mortgage
investments of $57.6 million during the same period. The increase
in rental income resulted primarily from investments of $9.4
million in additional real estate properties during the last 12
months and also from increased "revenue participations" and
"additional rent" earned under NHI's existing mortgages and leases.
The increase in investment interest and other income is due to the
investment of $38.5 million in the preferred stock of LTC
Properties and $19.6 million in marketable securities, all of which
earn from 8.5% to 9.5%.
14
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
September 30, 1998
(Unaudited)
Earnings for the quarter include $1.3 million or five cents
per share basic or four cents per share diluted of nonrecurring net
income. The quarter a year ago included nonrecurring income of
$1.9 million or eight cents per share basic or six cents per share
diluted. This nonrecurring income is primarily from the receipt of
commitment fees and prepayment penalties from early loan
repayments.
Total expenses for the 1998 three month period decreased $1.2
million or 13.3% to $8.1 million from $9.3 million for the 1997
three month period. Interest expenses decreased $1.5 million or
24.1% in the 1998 three month period as compared to the 1997 three
month period. Depreciation and amortization increased $.2 million
or 9.5% when compared to the same period in 1997.
Interest expense decreased due to lower levels of long-term
and subordinated debt compared to the quarter a year ago.
Depreciation increased as a result of the Company's placing of
newly constructed assets in service.
Nine Months ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997.
Net income for the nine months ended September 30, 1998 is
$53.5 million versus $55.5 million for the same period of 1997, a
decrease of 3.6%. Fully diluted earnings per common share
decreased 11 cents or 5.1% to $2.05 per share in the 1998 period
from $2.16 per share in the 1997 period.
Total revenues for the nine months ended September 30, 1998
decreased $4.2 million or 5.2% to $77.8 million from $82.0 million
for the nine months ended September 30, 1997. Revenues from
mortgage interest income decreased $8.7 million or 17.2% in the
1998 period as compared to the 1997 period. Revenues from rental
income increased $1.8 million or 6.0% when compared to the same
period in 1997. Revenues from investment interest and other
revenue for the 1998 period increased $2.7 million or 145.4% to
$4.5 million from $1.8 million when compared to the 1997 period.
The decrease in mortgage interest income is due to the receipt
by NHI of prepayments of $224.5 million of first mortgages
receivable during the past four quarters, compared to new mortgage
investments of $57.6 million during the same period. The increase
in rental income resulted primarily from the net increase in
investments in real estate properties during the last 12 months and
also from increased "additional rent" and "revenue participations"
earned under the Company's existing leases and mortgage agreements.
The increase in investment interest and other income is due to the
temporary investment of higher cash amounts, as well as the
investment of $38.5 million in the preferred stock of LTC
Properties and $19.6 million in marketable securities. The latter
two investments were made during the third quarter of 1998.
Earnings for the nine months ended September 30, 1998 include
$5.1 million or $0.20 per share basic or $0.17 per share diluted of
nonrecurring net income. The nine months last year included
nonrecurring income of $3.8 million or 16 cents per share basic and
13 cents per share diluted. This nonrecurring income is primarily
from the receipt of commitment fees and prepayment penalties from
early loan repayments.
15
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
September 30, 1998
(Unaudited)
Total expenses for the 1998 nine month period decreased $2.2
million or 8.3% to $24.3 million from $26.5 million for the 1997
period. Interest expenses decreased $3.0 million or 17.6% in the
1998 nine month period as compared to the 1997 period.
Depreciation and amortization increased $0.7 million or 12.1% when
compared to the same period in 1997.
Interest expense decreased due to lower levels of long-term
and subordinated debt compared to the nine month period a year ago.
Depreciation increased as a result of the Company's placing of
newly constructed assets in service.
Future Growth
The Company expects increases in both mortgage interest income
and rental income from additional investments (net of repayments)
in mortgage loans and owned facilities during 1998 and 1999. The
Company expects to continue to make additional 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.
Year 2000 Compliance
NHI has evaluated its information technology systems and
embedded technology with respect to potential Year 2000 problems.
Although management believes that the majority of NHI's information
technology systems and embedded technology is already Year 2000
compliant, NHI will complete the testing of its information
technology systems and embedded technology in the third quarter of
1999. In addition, NHI has developed corrective plans for any
technology assessed to be non-compliant.
As a result of its advisory agreement with NHC, NHI is reliant
upon NHC for much of its information technology systems and
embedded technology. NHC has performed an evaluation of its
information technology as it relates to NHI. Although NHI believes
that the majority of NHC's information technology systems and
embedded technology is already Year 2000 compliant, NHC will
complete the testing of its information technology systems and
embedded technology in the third quarter of 1999. NHI believes
that NHC has developed corrective plans for any technology assessed
to be non-compliant.
Costs incurred to date for NHI's internal Year 2000
remediation efforts have not been material, and NHI does not expect
that the cost of future internal actions will be material to its
financial condition or results of operations. NHI does not
anticipate any material disruption in its operations as a result of
any failure by NHI to be in compliance.
16
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
September 30, 1998
(Unaudited)
NHI also depends upon the proper functioning of information
technology systems and embedded technology operated by certain
other third parties. These third parties include commercial banks
and other lenders, and vendors such as telecommunications and
utilities providers. NHI is currently evaluating and obtaining
information concerning the Year 2000 compliance status of these
third parties. If third parties have Year 2000 problems that are
not remedied, the following problems could result: (i) in the case
of banks and other lenders, in the disruption of capital flows
potentially resulting in liquidity stress; or (ii) in the case of
vendors, in disruption of important services upon which NHI
depends, such as telecommunications and electrical power.
Based upon current information, NHI anticipates successful
completion and testing of its Year 2000 remediation efforts during
1999. However, there can be no guarantee that the Year 2000 will
not have a material adverse effect on NHI's operations, financial
position or liquidity if NHI's remediation efforts are not
successful or completed in a timely manner. NHI is currently
developing a contingency plan in the event that it is not able to
achieve Year 2000 compliance. This contingency plan is expected to
include establishing sources of liquidity that could be drawn upon
in the event of systems disruption and identifying alternative
vendors and back-up processes that do not rely on computers,
whenever possible. The contingency plan is expected to be
completed in the third quarter of 1999.
Item 3. Quantitative and Qualitative Information About Market
Risk
Not Applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. Not applicable
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) List of exhibits - none required
(b) Reports on Form 8-K - none required
17
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
September 30, 1998
(Unaudited)
SIGNATURES
Pursuant to the requirements 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.
NATIONAL HEALTH INVESTORS, INC.
(Registrant)
Date November 13, 1998 /s/ Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr.
Secretary
Date November 13, 1998 /s/ Donald K. Daniel
Donald K. Daniel
Principal Accounting Officer
18
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