NATIONAL HEALTH INVESTORS INC, 10-Q, 2000-11-14

NATIONAL HEALTH INVESTORS INC
10-Q, 2000-11-14
REAL ESTATE INVESTMENT TRUSTS

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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, 2000 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

24,383,620 shares of common stock were outstanding as of October 31, 2000.
<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
2000 1999
<S> <C> <C>
ASSETS (unaudited)
Real estate properties:
Land $ 30,663 $ 31,875
Buildings and improvements 316,845 340,966
Construction in progress 4,165 567
351,673 373,408
Less accumulated depreciation (67,757) (57,387)
Real estate properties, net 283,916 316,021
Mortgage and other notes receivable, net 349,009 316,454
Investment in preferred stock 38,132 38,132
Investment in real estate mortgage
investment conduits 37,267 37,670
Cash and cash equivalents 13,738 16,723
Marketable securities 38,324 49,650
Accounts receivable 9,671 10,714
Deferred costs and other assets 2,800 3,181
Total Assets $772,857 $788,545

LIABILITIES AND DEFERRED INCOME
Debt $170,761 $172,870
Credit facilities 90,000 88,000
Convertible subordinated debentures 94,551 95,741
Accounts payable and other accrued expenses 10,755 7,228
Accrued interest 3,185 6,412
Dividends payable --- 18,033
Deferred income 7,547 7,621
Total Liabilities and Deferred Income 376,799 395,905
Commitments and guarantees

STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock,
$.01 par value; 10,000,000 shares
authorized:
747,994 and 748,694 shares, respectively,
issued and outstanding; stated at
liquidation preference of $25 per share 18,700 18,717
250,000 shares issued and outstanding, stated
at liquidation preference of $12.00 per share 3,000 ---
Common stock, $.01 par value;
40,000,000 shares authorized;
24,383,620 and 24,382,987 shares,
respectively, issued and outstanding 244 244
Capital in excess of par value of common stock 425,980 425,963
Cumulative net income 427,382 394,165
Cumulative dividends (463,820) (431,282)
Unrealized gains (losses) on securities (15,428) (15,167)
Total Stockholders' Equity 396,058 392,640
Total Liabilities and Stockholders' Equity $772,857 $788,545
</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, 1999 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
2000 1999 2000 1999
(in thousands,
except share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Mortgage interest income $ 8,275 $ 12,776 $ 28,887 $ 37,792
Rental income 11,710 11,506 35,010 34,109
Facility operating revenue 12,538 5,613 38,772 11,885
Investment interest, dividends
and other income 2,469 2,996 8,345 8,120
34,992 32,891 111,014 91,906

EXPENSES:
Interest 7,816 6,634 21,821 18,853
Depreciation of real estate 3,459 3,074 10,369 8,428
Amortization of loan costs 267 195 757 543
Facility operating expenses 12,565 5,170 37,228 10,793
Loan loss expense 4,584 1,279 4,259 2,803
General and administrative 951 754 3,363 2,505
29,642 17,106 77,797 43,925

NET INCOME 5,350 15,785 33,217 47,981

DIVIDENDS TO PREFERRED
STOCKHOLDERS 473 408 1,327 1,225

NET INCOME APPLICABLE TO
COMMON STOCK $ 4,877 $ 15,377 $ 31,890 $ 46,756

NET INCOME PER COMMON SHARE:
Basic $ .20 $ .63 $ 1.31 $ 1.92
Diluted $ .20 $ .63 $ 1.31 $ 1.91

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 24,383,620 24,364,888 24,383,444 24,364,827
Diluted 24,383,620 27,851,294 24,468,173 27,896,724

Common dividends per share
declared $ --- $ .74 $ 1.28 $ 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
2000 1999
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,217 $ 47,981
Depreciation of real estate 10,369 8,428
Provision for loan losses 4,259 2,803
Amortization of loan costs 757 543
Deferred income 68 1,075
Amortization of bond discount (1,339) (1,117)
Amortization of deferred income (662) (837)
Increase in accounts receivable (2,362) (8,475)
Increase in other assets (376) (1,061)
Increase in accounts payable
and accrued liabilities 300 770
NET CASH PROVIDED BY OPERATING ACTIVITIES 44,231 50,110

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mortgage notes receivable (28,081) (20,883)
Collection of mortgage notes receivable 18,857 14,667
Acquisition of property and equipment, net (2,716) (14,904)
(Increase) decrease in marketable securities 12,404 (33,173)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 464 (54,293)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities 2,000 29,500
Proceeds from long-term debt 823 25,701
Principal payments on long-term debt (2,932) (2,650)
Dividends paid to shareholders (50,571) (55,323)
Payments on subordinated convertible debentures --- (800)
Sale of preferred stock 3,000 ---
NET CASH USED IN FINANCING ACTIVITIES (47,680) (3,572)

DECREASE IN CASH AND CASH EQUIVALENTS (2,985) (7,755)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,723 20,407
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,738 $ 12,652
</TABLE>

4
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
<TABLE>
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>

Nine Months Ended
September 30
2000 1999
(in thousands)
<S> <C> <C>
Supplemental Information:
Cash payments for interest expense $ 21,004 $ 18,786

During the nine months ended September 30, 1999,
$10,000 of Senior Subordinated Convertible
Debentures were converted into 316 shares
of NHI's common stock:
Senior subordinated convertible debentures $ --- $ (10)
Financing costs $ --- $ ---
Accrued interest $ --- $ (1)
Common stock $ --- $ ---
Capital in excess of par $ --- $ 9

During the nine months ended September 30, 2000
NHI acquired notes receivable in
exchange for NHI's rights
under property and equipment
Mortgage and other notes receivable $(25,900) $ ---
Land $ 1,202 $ ---
Buildings and Improvements $ 24,698 $ ---

During the nine months ended September 30, 1999
NHI acquired property and equipment in
exchange for NHI's rights under mortgage
notes receivable
Mortgage and other notes receivable $ --- $ 41,750
Land $ --- $ (2,889)
Buildings and Improvements $ --- $ (38,861)

</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, 2000 AND 1999
(dollars in thousands)
<CAPTION>

Cumulative Convertible
Preferred Stock Capital in Unrealized Total
Shares Amount Shares Amount Common Stock Excess of Cumulative Cumulative Gains(Losses)Stock.
at $25 per Share at $12 per Share Shares Amount Par Value Net Income Dividends on SecuritiesEquity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
12/31/99 748,694 $ 18,717 --- --- 24,382,987 $ 244 $425,963 $394,165 $(431,282) $(15,167) $392,640
Net income --- --- --- --- --- --- --- 33,217 --- --- 33,217
Unrealized gains(losses)
on securities --- --- --- --- --- --- --- --- --- (261) (261)
Total Comprehensive Income 32,956
Shares sold --- --- 250,000$ 3,000 --- --- --- --- --- --- 3,000
Shares issued in con-
version of preferred
stock to common stock(700) (17) --- --- 633 --- 17 --- --- --- ---
Dividends to common
shareholders ($1.28
per share) --- --- --- --- --- --- --- --- (31,211) --- (31,211)
Dividends to preferred
shareholders --- --- --- --- --- --- --- --- (1,327) --- (1,327)
BALANCE AT 9/30/00 747,994 $18,700 250,000 $ 3,000 24,383,620 $ 244 $425,980 $427,382 $(463,820) $(15,428) $396,058

BALANCE AT
12/31/98 768,894 $19,222 --- $ --- 24,364,391 $ 244 $425,449 $340,547 $(357,518) $ (3,284) $424,660
Net income --- --- --- --- --- --- --- 47,981 --- --- 47,981
Unrealized gains (losses)
on securities --- --- --- --- --- --- --- --- --- (6,143) (6,143)
Total Comprehensive Income 41,838
Shares issued in con-
version of converti-
ble debentures to
common stock --- --- --- --- 316 --- 9 --- --- --- 9
Shares issued in con-
version of preferred
stock to common stock(200) (5) --- --- 181 --- 5 --- --- --- ---
Dividends to common
shareholders (2.22
per share) --- --- --- --- --- --- --- --- (54,098) --- (54,098)
Dividends to preferred
shareholders ($1.594
per share) --- --- --- --- --- --- --- --- (1,225) --- (1,225)
BALANCE AT 9/30/99 768,694 $19,217 --- $ --- 24,364,888 $ 244 $425,463 $388,528 $(412,841) $ (9,427) $411,184
</TABLE>

The accompanying notes to interim condensed consolidated financial statements
are an integral part of these financial statements.

6
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

Note 1. SIGNIFICANT ACCOUNTING POLICIES:

The unaudited financial statements furnished herein in the opinion of
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 included in NHI's Form 10-K for the year
ended December 31, 1999 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 cumulative
convertible preferred stock, the conversion of convertible subordinated
debentures and the exercise of all stock options using the treasury stock
method unless the impact of such assumptions on the calculations of earnings
per share is anti-dilutive. Diluted net income is increased for interest
expense on the convertible subordinated debentures in 1999.

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.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
BASIC:
Weighted average common
shares 24,383,620 24,364,888 24,383,444 24,364,827

Net income $ 5,350,000 $15,785,000 $33,217,000 $47,981,000
Dividends paid to pre-
ferred shareholders (473,000) (408,000) (1,327,000) (1,225,000)
Net income available to
common stockholders $ 4,877,000 $15,377,000 $31,890,000 $46,756,000

Net income per
common share-basic $ .20 $ .63 $ 1.31 $ 1.92

DILUTED:
Weighted average common
shares 24,383,620 24,364,888 24,383,444 24,364,827
Stock options --- --- 1,395 ---
Convertible subordinated
debentures --- 2,790,755 --- 2,836,230
8.5% Cumulative convertible
preferred stock --- 695,651 --- 695,667
8-12% Cumulative convertible
preferred stock --- --- 83,334 ---
Average common shares
outstanding 24,383,620 27,851,294 24,468,173 27,896,724

Net income $ 5,350,000 $15,785,000 $33,217,000 $47,981,000
8.5% Cumulative con-
vertible preferred
stock dividends (398,000) --- (1,192,000) ---
8%-12% Cumulative con-
vertible preferred
stock (75,000) --- --- ---
Interest expense on
convertible sub-
ordinated debentures --- 1,784,000 --- 5,425,000
Net income - diluted $ 4,877,000 $17,569,000 $32,025 000 $53,406,000

Net income per common
share - diluted $ .20 $ .63 $ 1.31 $ 1.91
</TABLE>

8
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Incremental Shares Excluded
Since Antidilutive:
Convertible sub-
ordinated debentures 2,725,720 --- 2,740,192 ---
8.5% Cumulative con-
vertible preferred
stock 676,918 --- 677,094 ---
8%-12% Cumulative con-
vertible preferred
stock 250,000 --- --- ---
</TABLE>
The above incremental shares were excluded from the computation of
diluted earnings per share, since inclusion of these incremental shares in the
calculation would have been anti-dilutive.

Note 3. INVESTMENTS IN MARKETABLE SECURITIES:

NHI's investments in marketable securities include available for sale
securities and held to maturity securities. Unrealized gains and losses on
available for sale securities 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.

Proceeds from the sale of investments in available for sale securities
during the nine months ended September, 2000 were $11,785,805. Gross
investment gains of $689,260 and gross investment losses of $1,308,131 were
realized on these sales during the nine months ended September 30, 2000.

Note 4. COMMITMENTS AND GUARANTEES:

At September 30, 2000, NHI was committed, subject to due diligence and
financial performance goals, to fund approximately $6,107,199 in health care
real estate projects of which approximately $4,107,199 is eligible to be
funded within the next 12 months. The commitments include mortgage loans or
purchase leaseback agreements for one long-term care center, two assisted
living facilities, and one hospital all at rates ranging from 10% to 11.5%.
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 ($12,640,000 at September 30, 2000) of NHC. The debt is at fixed
interest rates with a weighted average interest rate of 8.3% at September 30,
2000. NHI receives from NHC compensation of approximately $63,000 per annum
for the guarantees which is credited against NHC's base rent requirements.
9
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

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.

NHI has outstanding letters of credit totaling $10,000,000.
Additionally, NHI has also guaranteed bank loans in the amount of $1,442,000
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.

NHI is aware of certain income tax contingencies with regards to
limitations on ownership of its stock and to its use of an independent
contractor to manage certain of its foreclosure properties. In order to fully
resolve the contingencies, NHI is in the process of requesting from the
Internal Revenue Service ("IRS") closing agreements regarding each of these
contingencies. NHI's management, based on its discussions with its legal
counsel, understands that other real estate investment trusts have been
successful in obtaining closing agreements with the IRS regarding real estate
investment trust qualification issues. However, it is possible that the IRS
will not rule in favor of NHI. Such an unfavorable ruling could result in the
assessment of taxes, penalties and interest by the IRS that are material to
NHI's financial statements taken as a whole and could also result in the loss
of NHI's status as a real estate investment trust, which would have a
significant adverse impact on the financial position, results of operations
and cash flows of NHI.

Note 5. CONVERTIBLE SUBORDINATED DEBENTURES:

At September 30, 2000, $38,060,000 of 7.75% convertible subordinated
debentures due on January 2, 2001 (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, 2000, none of the 1995 debentures
were converted into common stock. NHI has reserved 1,203,478 shares of common
stock for conversions of 1995 debentures. See Note 11 for a discussion of
liquidity issues related to the maturity of the 1995 debentures.

At September 30, 2000, $56,286,000 of 7% convertible subordinated
debentures due on February 1, 2004 (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, 2000, none of the 1997 debentures were converted
into common stock. NHI has reserved 1,500,960 shares of common stock for
conversions of 1997 debentures.
10
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

During the nine months ended September 30, 2000, $1,190,000 of
debentures due on January 1, 2006 were redeemed related to "1995 debt service
debentures" issued to mortgagees or lessees to satisfy debt service escrow
requirements. The debentures were 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.

At September 30, 2000, $205,000 of the 10% senior convertible
subordinated debentures due 2006 (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, 2000, none of the
senior debentures were converted. The Company has reserved 10,250 shares of
common stock for conversion of the senior debentures.

Note 6. CUMULATIVE CONVERTIBLE PREFERRED STOCK:

In February and March, 1994, NHI issued $109,558,000 of 8.5% Cumulative
Convertible Preferred Stock ("8.5% 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,
2000, $18,699,850 of the preferred stock remains outstanding.

The 8.5% 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 8.5% Preferred Stock is redeemable by NHI for common 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 676,918 shares of common stock
for 8.5% Preferred Stock conversions.

The 8.5% Preferred Stock is listed on the NYSE under the symbol "NHIPr."

On March 31, 2000, NHI issued $3,000,000 of Cumulative Convertible
Preferred Stock (the "2000 Preferred Stock"). The 2000 Preferred Stock, which
is not listed on a stock exchange, is convertible into NHI common stock at the
lower of the then trading value of NHI common stock or $12.00 per share after
December 31, 2000. The shares pay dividends at the rate of 8% through June
30, 2000, at the rate of 10% from July 1, 2000 through September 30, 2000, and
at the rate of 12% thereafter. The 2000 Preferred Stock was sold to NHC, the
Company's investment advisor. NHI has reserved 250,000 shares of common stock
for preferred stock conversion related to this issue.

11
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

Note 7. NEW ACCOUNTING PRONOUNCEMENT:

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS 133, as amended by Statement of
Financial Accounting Standards No. 137, "Deferral of the Effective Date of
SFAS 133", is effective for NHI effective January 1, 2001. The impact of the
adoption of SFAS 133 is not expected to have a material impact on NHI's
results of operations or financial position.

In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") regarding revenue
recognition in financial statements. SAB 101 is effective January 1, 2000;
however, implementation has been delayed until the fourth quarter of 2000.
NHI's implementation of SAB 101 in the fourth quarter is not expected to have
a material impact on its financial position, results of operations or cash
flows.

Note 8. SALE OF REAL ESTATE:

In 1993, NHI funded a mortgage loan for Stockbridge Investment Partners,
Inc. and its subsidiary York Hannover Nursing Centers, Inc. ("York Hannover")
in the original principal amount of $29,500,000. Collateral for the loan
included first mortgages on six long-term health care centers located in the
state of Florida, the personal guarantee of certain of the owners, certain
accounts receivable balances above another creditor's $2,000,000 loan, and the
corporate guarantee of NHC for up to $5,000,000 of principal and interest.

On December 30, 1999, NHI purchased from the borrowers for approximately
$25,900,000 (the then current loan balance) all of the real estate, property
and equipment of the six long-term health care facilities. NHI also received
on December 30, 1999, the accounts receivable of the facilities approximating
$2,200,000 as consideration for unpaid interest on the mortgage loan. The
purchase was undertaken in lieu of foreclosure.

Effective January 1, 2000, NHI sold to Care Foundation of America, Inc.
("Care") all of the real estate, property and equipment of the six long-term
nursing facilities. The sale price was $25,900,000, which was NHI's basis in
the properties. Care assumed the first mortgage which had previously been
owed by York Hannover. In accordance with the provisions of Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate",
NHI has accounted for the sale under the installment method. The note
receivable from Care bears interest at 10% and is collateralized by the first
mortgages on the six long-term health care facilities and the corporate
guarantee of NHC for up to $3,000,000 of principal and interest.
12
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

Note 9. MORTGAGE AND OTHER NOTES RECEIVABLE:

Borrower Bankruptcy

NHI was informed on November 4, 1999, that Lenox Healthcare, Inc. and
its affiliates ("Lenox") have filed for Chapter 11 Bankruptcy protection in
the United States Bankruptcy District Court in Wilmington, Delaware. NHI's
loans may be impacted as follows:

Zurich North America Capital Corporation - In 1996, NHI funded a
mortgage loan for Zurich North America Capital Corporation in the original
principal amount of $26,000,000. Collateral for the loan includes first
mortgages on ten long-term health care facilities, leasehold assignment of
certain existing leases on the properties, the corporate guarantees of Lenox
and Greylock Health Corporation, and certain personal guarantees. Lenox is
the manager of nine of the ten long-term health care facilities located in the
states of Kansas and Missouri. The tenth facility has been closed during the
bankruptcy.

At September 30, 2000, the net carrying value of the loan is
approximately $23,800,000. NHI is currently evaluating the health care center
portion of the collateral given the bankruptcy status of the manager and other
circumstances affecting the centers but believes that the combined collateral
supports the net carrying value of the mortgage. On September 26, 2000, NHI
and the debtor in possession entered into a Settlement Agreement, which is
subject to approval by the creditors of the bankrupt estate and the bankruptcy
court. The proposed agreement will verify the principal balance of the
mortgage as of June 30, 2000, and restate the interest rate on the restated
mortgage amount at rates from 9 to 11 percent with the mortgage balance
becoming due and payable on December 31, 2002. Additionally, Lenox has
recommenced making interest payments on the loan.

Pinellas Healthcare Investors, Inc. - In 1995, NHI funded a mortgage
loan for Pinellas Healthcare Investors, Inc. in the original principal amount
of $4,500,000. An affiliate of Lenox was the operator and lessee of the
facility. Collateral for the loan included a first mortgage on the facility,
the corporate guarantee of Stockbridge Investment Partners, Inc., certain
personal guarantees, and certain accounts receivable. During the second
quarter of 2000, Lenox notified NHI that it rejected its lease with bankruptcy
court approval. NHI approved the assignment of the Lenox lease to an
unaffiliated company in order to allow the center to continue operations. On
September 15, 2000, NHI completed foreclosure action against the borrower and
obtained title to the project in the name of an NHI subsidiary.

At September 30, 2000, the net carrying value of the realty is
approximately $1,449,000. Although the property has been leased to a third
party, rental income is limited to available cash flow, of which there
currently is none. NHI believes that the combined collateral supports the net
carrying value of the realty.

13
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

Colonial Land Corporation - In 1996, NHI funded a mortgage loan for
Colonial Land Corporation in the original amount of $25,000,000. Collateral
for the loan includes first mortgages and lease assignments on six long-term
health care facilities located in Virginia. Although Colonial Land
Corporation is not included in the Lenox bankruptcy filing, Lenox manages
three of the facilities, and Mr. Tom Clarke, the principal owner of Lenox, is
also an owner of Colonial Land Corporation.

At September 30, 2000, the net carrying value of the loan is
approximately $19,300,000, which earns interest at 10.8%. NHI is currently
evaluating the health care portion of the collateral given the bankruptcy
status of the manager and other circumstances affecting the centers but
believes that the combined collateral supports the net carrying value of the
mortgage.

Other Entities Owned by Principals of Lenox - Not Affected by Lenox
Bankruptcy - Although not impacted by the bankruptcy filing, Mr. Tom Clarke,
the principal owner of Lenox, is involved as a principal in other entities
financed by NHI. The carrying value of NHI's investments in these other
entities is $10,200,000 at September 30, 2000. At the present time, NHI knows
of no reason to assume that these entities will be negatively impacted by the
Lenox filing or that any loss of income or asset value will occur.

Other Non-Performing Loans

Brookside Inn - NHI's investment totaled $5,138,000 as of September 30,
2000. NHI has initiated foreclosure proceedings against the owner, but is
currently forbearing from pursuing this action. The owner is making current
payments, plus repaying over the next eighteen months approximately four
months of missed payments. NHI believes that the expected cash flows from
this loan, along with the value of the collateral, support the net carrying
value of this loan.

SouthTrust Loan Participation - NHI has a 50% interest in a loan made by
SouthTrust Bank to Integrated Health Services, Inc. ("IHS"). NHI's loan
balance at September 30, 2000 totaled $25,643,000. IHS and its affiliates
have filed for Chapter 11 bankruptcy protection. In May 2000 during a
collateralization hearing, the bankruptcy court ruled that the value of the
collateral supporting NHI's loan exceeds the balance due to NHI under the
loan. Based on this ruling and based on NHI's knowledge, NHI believes that
the collateral supports the net carrying value of this loan; however, the
debtor is not currently making mortgage payments. NHI and SouthTrust Bank
have filed for a bankruptcy court order requiring IHS to make "adequate
protection payments" and are awaiting the ruling of the Court.

Autumn Hills Convalescent Centers, Inc. - In 1997, NHI funded a mortgage
loan for Autumn Hills Convalescent Centers, Inc. in the original principal
amount of $51,500,000. Collateral for the loan includes first mortgages on
thirteen long-term health facilities, and certain corporate and personal
guarantees. These facilities are located in Texas.
14
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

At September 30, 2000 the net carrying value of the loan is
approximately $45,200,000, which earns 10.5% interest. NHI has not received
all principal and interest payments as due and has entered into a Forbearance
Agreement with the Borrower. This Agreement allows for partial payments while
the Borrower secures HUD financing. NHI is currently evaluating the health
care center portion of the collateral given the circumstances affecting the
centers but believes that the combined collateral supports the net carrying
value of the mortgage. NHI has filed a lawsuit against the individual
guarantor on his guarantee.

Morningside - NHI's investment totaled approximately $21,200,000 at
September 30, 2000 and is secured by four long-term health care facilities in
Virginia and Maryland. NHI has not received all principal and interest
payments as due and the owners of the facilities have indicated that they will
make no additional equity contributions to the facilities. NHI is currently
evaluating the collateral supporting this loan but believes that it supports
the net carrying value of the mortgage.

Loan Reserves

During the third quarter, NHI concluded that current events surrounding
six mortgage loans discussed above required the writeoff of previously
recorded interest receivables under the Company's policy to accrue up to 90
days of unpaid interest if believed collectable. These write offs, totaling
$4,584,000, have been included in loan loss expense in the interim condensed
consolidated statement of income. During this quarter, these loans were
affected by various bankruptcy court rulings and judgments about possible
refinancing and other collateral values to the extent that NHI determined that
the accruals should be reserved. Also, NHI determined that any additional
accruals for payments not received on these loans during the quarter should
not be recorded. NHI has been during the third quarter and is continuing to
evaluate the current events and circumstances that are affecting the borrowers
under these six mortgage loans totaling a net book value of $139,838,000
million. These borrowers have either filed for protection under the
bankruptcy laws or have not made scheduled payments under their loans. NHI
believes that additional events (including borrowers emerging from bankruptcy,
additional bankruptcy court rulings or the completion by the borrowers of
refinancings with other lenders or other events that effect collectibility)
could occur during the fourth quarter of 2000. NHI is concerned that these
events, if adverse to NHI, will indicate a further impairment of the net book
value of these loans. If such adverse events occur, NHI will record the
impairment charges in the fourth quarter. However, NHI believes that the
effect of any adverse events would not exceed $15,000,000.

Mortgage and other notes receivable are reduced by an allowance for loan
losses of $9,346,000 at September 30, 2000.

15
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

Note 10: DEBT AND RELATED GUARANTEE

NHC and NHI both have interests in a debt instrument originally financed
through the National Health Corporation Leveraged Employee Stock Ownership
Plan and Trust. As of September 30, 2000, the total debt balance on the loan
was $23,214,000, of which $10,574,000 is the primary obligation of NHI. NHI
guarantees, and is contingently obligated on, the remaining $12,640,000 of the
outstanding balance under this loan. On July 7, 2000, under the terms of the
debt agreement, NHC, as NHI's investment advisor, purchased the entire
$23,214,000 debt instrument from the previous holders to protect NHC's
interest in the debt. On September 30, 2000, NHI had the liquidity and
purchased the $23,214,000 debt instrument from NHC. Subsequent to the quarter
end and as required by NHI's amended Revolving Credit Facility on November 10,
2000, NHC repurchased the outstanding notes from NHI. NHI believes that all
terms and conditions of this and other debt obligations are currently in full
compliance.

Note 11. LIQUIDITY DEMANDS AND CAPITAL RAISING ALTERNATIVES

Two significant capital needs are being addressed by NHI. The first is
the renewal of the existing $102,112,000 revolving credit facility (including
$12,112,000 in letters of credit), which matured on November 10, 2000. The
second is the maturity of NHI's $38,060,000 subordinated convertible debenture
issue, which matures on January 2, 2001. These maturing debt issue challenges
are compounded by the lack of capital available for health care REITs, nursing
homes, and assisted living facilities.

On November 10, 2000, NHI and its lending group led by Bank of Tokyo-
Mitsubishi extended the then $102,112,000 Credit Facility and combined that
facility with the $25,000,000 Bank of Montreal Term Note, formerly due July
31, 2002. This combined and extended facility was reduced prior to closing by
the payment of $31,000,000. $7,500,000 was paid on October 10, 2000 for a 30
day extension and $23,500,000 was paid on November 10, 2000. The new facility
is divided into three tranches. One tranche is $65,455,000 (previously the
Bank of Tokyo-Mitsubishi revolving line of credit), the second tranche is
$18,545,000 (previously the Bank of Montreal Term Loan) and the third tranche
is a letter of credit tranche for $12,112,000. A portion of the first two
tranches are secured by an assignment of certain notes receivable owned by
NHI, with the balance being unsecured. The combined facility will be
amortized at $1,000,000 a month commencing on December 1, 2000 through June 1,
2001, and for July 1, 2000 through December 1, 2001 at $2 million a month.
Additional installments in the amount of $18,000,000, $41,300,000 (including
the letter of credit component) and $10,800,000 are due and payable on June
1, 2001, December 31, 2001 and June 30, 2002 respectively.

16
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2000
(Unaudited)

In order to address the maturation of $38,000,000 of subordinated
convertible debentures maturing on January 2, 2001, NHI has announced that it
plans to register up to $38,000,000 of senior subordinated convertible
debentures, the proceeds of which will be used to retire that indebtedness.
These senior subordinated convertible debentures will be offered first to
existing shareholders of NHI, then to the current holders of the subordinated
debentures maturing January 2001, with the balance being publicly sold. It is
anticipated that the terms and conditions of this offering will be contained
in a Prospectus to be mailed to existing shareholders and the current
subordinated debenture holders during the week of November 20, 2000.

In regard to the raising of necessary capital in order to meet the
payment schedule on the restated and combined credit facility, NHI has
assembled a group of assets and entered into at least one agreement for the
sale of these assets. Additionally, NHI is aggressively pursuing the
refinancing of other assets using the Federal Housing Authority Section 232
Mortgage Guaranty Program. Finally, the Company has announced that it will
not pay a dividend for the last two fiscal quarters of calendar year 2000,
dedicating that cash flow to the retirement of debt. The Company is
continuing to review other alternatives, including the issuance of an
additional publicly sold or privately placed debt instrument, the additional
sale of assets, and other similar capital raising alternatives.

The long-term goal of NHI is to reduce its debt so as to remove the
uncertainty of the payment and amount of the dividend to shareholders in the
future.

The lack of availability of reasonably priced capital limits NHI's
ability to make new investments, and future refinancings at higher interest
rates or the inability of the Company to repay or extend debt when due would
have a material adverse impact on NHI's financial position, results of
operations and cash flows.

Note 12. 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, NHC is entitled to annual
compensation of $2,779,000 in 1999 ($3,310,000 in 1998 and $3,101,000 in
1997). 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 of $2.00 per
common share. 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. Compensation to NHC under the
Advisory Agreement is related to increases and decreases in NHI's funds from
operations per common share as defined above.
17
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(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, 2000, NHI had interests in net real estate owned, and investments in
mortgages, REMICs, preferred stock and marketable securities resulting in
total invested assets of $746.6 million. NHI's strategy has been to primarily
invest in long term health care real estate which generates current income
which will be distributed to stockholders. Under current market conditions,
however, no such investments are currently being solicited or closed.

As of September 30, 2000, the Company was diversified with investments
in 199 health care facilities located in 26 states consisting of 143 long-term
care facilities, two acute care hospitals, eight medical office buildings, 22
assisted living facilities, seven retirement centers and 17 residential
projects for the developmentally disabled. These investments consisted of
approximately $335.1 million aggregate principal amount of loans to 28
borrowers, $283.9 million of purchase leaseback transactions with seven
lessees and $37.3 million invested in REMIC pass through certificates backed
by first mortgage loans to 10 operators. Of these 199 facilities, 59 are
leased to National HealthCare Corporation ("NHC"). NHC is the Company's
investment advisor.

At September 30, 2000, 58.5% of the total invested assets of the health
care facilities were operated by public operators, 20.5% by regional
operators, and 21.0% by small operators.

Liquidity and Capital Resources

Sources and Uses of Funds

NHI has generated net cash from operating activities during the first
nine months of 2000 totaling $44.2 million compared to $50.1 million in the
prior period. The primary reason for this period's decline was a reduction in
net income offset in part by increased depreciation expense. Net cash from
operating activities generally includes net income plus non-cash expenses,
such as depreciation and amortization and working capital changes.

Cash flows provided by investing activities during the first nine months
of 2000 included collection on mortgage notes receivable of $18.9 million
compared to $14.7 million for the prior period. Marketable securities
decreased $12.4 million for the first nine months of 2000.

Cash flows used in investing activities during the first nine months of
2000 included investment in mortgage notes receivable of $28.1 million and
real estate properties of $2.7 million. Cash flows used in investing
activities of the prior period included investment in mortgage notes
receivable of $20.9 million, real estate properties of $14.9 million, and
marketable securities of $33.2 million.
18
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

Cash flows provided by financing activities for the first nine months of
2000 included $2.0 million from credit facility proceeds, compared to $29.5
million in the prior period. Proceeds from long term debt were $.8 million
for the first nine months of 2000, compared to $25.7 million for the prior
period. Proceeds from the sale of preferred stock totaled $3.0 million in the
2000 period.

The 2000 preferred stock was sold to NHC, the Company's investment
advisor.

Cash flows used in financing activities for the first nine months of
2000 included principal payments on long-term debt of $2.9 million and
dividends paid to shareholders of $50.6 million. This compares to principal
payments on long term debt of $2.7 million and dividends paid to shareholders
of $55.3 million in the prior period.

In March and June 2000, NHI declared quarterly dividends of 64 cents per
common share, a reduction of 10 cents per common share from 1999. NHI has
concluded that the Company will not make any cash dividend distribution during
the third and fourth quarters of 2000. The discontinuance of dividends
reflects the Company's concern over continuing volatility in the long-term
care industry, increased interest expense on the Company's bank debt and the
fact that $128.2 of its debt is currently due. See Note 11: "Liquidity
Demands and Capital Raising Alternatives" for additional comments.

NHI intends to maintain its REIT tax status for the year ended December
31, 2000 and thereafter.

Commitments to Fund Projects

At September 30, 2000, the Company was committed, subject to due
diligence and financial performance goals, to fund approximately $6.1 million
in health care real estate projects, of which approximately $4.1 million is
expected to be funded within the next 12 months. The commitments include
mortgage loans or purchase leaseback agreements for one long-term health care
center, two assisted living facilities, and one hospital all at rates ranging
from 10% to 11.5%.

Financing for current commitments and future commitments to others may
be provided by cash balances, new lines of credit, private placements or
public offerings of debt or equity, the assumption of secured or unsecured
indebtedness, or by the sale of all or a portion of certain currently held
investments.

NHI is currently limited in its ability to make new investments due to a
lack of availability of reasonably priced capital. However, the Company
believes it has sufficient liquidity and cash flow to finance current
investments for which it is committed.

19
<PAGE>
NATIONAL HEALTH INVESTORS, INC.
September 30, 2000
(Unaudited)

Liquidity Demands and Capital Raising Alternatives

NHI's restated and consolidated credit facility was closed on November
10, 2000 and requires significant principal reductions during 2001 and 2002
totaling $103.5 million. In addition, $38.1 million of the Company's
convertible subordinated debentures outstanding at September 30, 2000 mature
on January 2, 2001. It is unlikely that holders of these convertible
subordinated debentures will convert them to common stock prior to January 1,
2001. These maturing debt issue challenges are compounded by the lack of
capital available for health care REIT's, nursing homes, and assisted living
facilities. Management is considering several possible solutions in order to
meet these short-term liquidity demands.

On November 10, 2000, NHI and its lending group led by Bank of Tokyo-
Mitsubishi extended the then $102 million Revolving Credit Facility and
combined that facility with the $25 million Bank of Montreal Term Note,
formerly due July 31, 2002. This combined and extended facility was reduced
prior to closing by the payment of $31.0 million. On October 10, 2000, $7.5
million was paid for a 30 day extension, and on November 10, 2000,
$23,500,000 was paid. The new facility is divided into three tranches. One
tranche is $65.5 million (previously the Bank of Tokyo - Mitsubishi revolving
line of credit), the second tranche is $18.5 million (previously the Bank of
Montreal Term Loan) and the third tranche is a letter of credit tranche for
$12.1 million. A portion of the first two tranches are secured by an
assignment of certain notes receivable owned by NHI, with the balance being
unsecured. The combined facility will be amortized at $1 million a month
commencing on December 1, 2000 through June 1, 2001, and for July 1, 2000
through December 1, 2001 at $2 million a month. Additional installments in
the amount of $18 million, $41.3 million (including the letter of credit
component) and $10.8 million are due and payable on June 1, 2001, December
31, 2001 and June 30, 2002 respectively.

In order to address the maturation of $38 million of subordinated
convertible debentures maturing on January 2, 2001, the Company has announced
that it is registering up to $38 million of senior subordinated convertible
debentures, the proceeds of which will be used to retire that indebtedness.
These senior subordinated convertible debentures will be offered, first, to
existing shareholders of the Company, then to the current holders of the
subordinated debentures maturing January 2001, with the balance being publicly
sold. It is anticipated that the terms and conditions of this offering will
be contained in a Prospectus to be mailed to existing shareholders and the
current subordinated debenture holders on or about the week of November 20,
2000.

In regard to the raising of necessary capital in order to meet the
payment schedule on the restated and combined credit facility, the Company has
assembled a group of assets and entered into at least one agreement for the
sale of these assets. Additionally, the Company is aggressively pursuing the
refinancing of other assets using the Federal Housing Authority Section 232
Mortgage Guaranty Program. Finally, the Company has announced that it will
not pay a dividend for the last two fiscal quarters of calendar year 2000,
dedicating that cash flow to the retirement of debt. The Company is
continuing to review other alternatives, including the issuance of a publicly
sold or privately placed debt instrument, the additional sale of assets, and
other similar capital raising alternatives.
20
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

Loan Foreclosures and Bankruptcy

During late 1998 and during 1999, NHI purchased 17 long-term health care
facilities and a retirement center for $81.4 million. The purchases were
undertaken either in foreclosure or in lieu of foreclosure due to financial
defaults on first mortgage loans with three different owners. The mortgages
had been funded from 1993 through 1996 in original principal amounts totaling
$88.6 million.

NHI is treating each of the properties described above as foreclosure
property for federal income tax purposes. With this election, unqualified
income generated by the properties is expected to be treated as qualified
income for a minimum of two years from the purchase date for purpose of the
income-source tests that must be satisfied by real estate investment trusts to
maintain their tax status.

In January 2000, NHI sold the real estate, property and equipment of six
long-term health care facilities on which it had foreclosed (and which is
included in the $81.4 million mentioned above) to Care Foundation of America,
Inc. ("Care") for $25.9 million in exchange for a note receivable from Care.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate", NHI has accounted for
the transaction under the installment method. The note receivable from Care
bears interest at 10% and is collateralized by the first mortgages on the six
long-term health care facilities and the corporate guarantee of NHC for up to
$3.0 million of principal and interest.

As more fully described in Note 9 to the Interim Condensed Consolidated
Financial Statements, during late 1999, NHI was informed of the bankruptcy of
one of its major customers. The bankruptcy has resulted in the foreclosure of
one loan on September 15, 2000, with title to the realty being taken in the
name of a subsidiary. The bankruptcy may additionally affect two of NHI's
mortgage loans. The two loans, which are secured by 16 long-term health care
facilities and other property, were made to two different entities in the
original principal amounts totaling $51.0 million. Current carrying amounts
of the two loans total $43.1 million. NHI is currently evaluating the
collateral given for the loans, but believes that for each of the two loans
the collateral supports the net carrying value of the loan.

Loan Income Recognition

During the third quarter, NHI concluded that the current events
surrounding six mortgage loans discussed above required the writeoff of
previously recorded interest receivables under the Company's policy to accrue
up to 90 days of unpaid interest if believed collectable. These write offs,
totaling $4.6 million, have been included in loan loss expense in the interim
condensed consolidated statement of income. During this quarter, these loans
were affected by various bankruptcy court rulings and judgments about possible
refinancing and other collateral values to the extent that NHI determined that
the accruals should be
21
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

reserved. Also, NHI determined that any additional accruals for payments not
received on these loans during the quarter should not be recorded. NHI has
been during the third quarter and is continuing to evaluate the current events
and circumstances that are affecting the borrowers under these six mortgage
loans totaling a net book value of $139.8 million. These borrowers have
either filed for protection under the bankruptcy laws or have not made
scheduled payments under their loans. NHI believes that additional events
(including borrowers emerging from bankruptcy, additional bankruptcy court
rulings or the completion by the borrowers of refinancings with other lenders
or other events that effect collectibility) could occur during the fourth
quarter of 2000. NHI is concerned that these events, if adverse to NHI, will
indicate a further impairment of the net book value of these loans. If such
adverse events occur, NHI will record the impairment charges in the fourth
quarter. However, NHI believes that the effect of any adverse events would
not exceed $15.0 million.

Mortgage and other notes receivable are reduced by an allowance for loan
losses of $9.3 million at September 30, 2000.

Debt and Related Guarantee

NHC and NHI both have interests in a debt instrument originally financed
through the National Health Corporation Leveraged Employee Stock Ownership
Plan and Trust. As of September 30, 2000, the total debt balance on the loan
was $23.2 million, of which $10.6 million is the primary obligation of NHI.
NHI guarantees, and is contingently obligated on, the remaining $12.6 million
of the outstanding balance under this loan. On July 7, 2000, under the terms
of the debt agreement, NHC, as NHI's investment advisor, purchased the entire
$23.2 million debt instrument from the previous holders to protect NHC's
interest in the debt. On September 30, 2000, NHI had the liquidity and
purchased the $23.2 million debt instrument from NHC. Subsequent to the
quarter end and as required by NHI's amended Revolving Credit Facility on
November 10, 2000, NHC repurchased the outstanding notes from NHI. NHI
believes that all terms and conditions of this and other debt obligations are
currently in full compliance.

Results of Operations

Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999

Net income for the three months ended September 30, 2000 is $5.4 million
versus $15.8 million for the same period in 1999, a decrease of 66.1%.
Earnings per common share decreased 43 cents or 68.3%, to $.20 in the 2000
period from $.63 in the 1999 period.

Total revenues for three months ended September 30, 2000 increased $2.1
million or 6.4% to $35.0 million from $32.9 million for the three months ended
September 30, 1999. Revenues from mortgage interest income decreased $4.5
million, or 35.2%, when compared to the same period in 1999. Revenues from
rental income increased $.2 million, or 1.8% in 2000 as compared to 1999.
Revenues from investment interest, dividends and other income decreased $.5
million or 17.6% compared to 1999. Facility operating revenue increased $6.9
million to $12.5 million in 2000 compared to $5.6 million in 1999.
22
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

The decrease in mortgage interest income is due to a decline in the
average amount of mortgage investments outstanding as a result of foreclosure
on mortgage loans and due to the discontinuation of interest income
recognition on other loans. During 1999, NHI foreclosed or received deeds in
lieu of foreclosure on mortgage loans totaling $41.8 million, which resulted
in the acquisition of seven long-term health care centers and one retirement
center. See "Loan Income Recognition" above regarding discontinuation of
income recognition on certain loans.

The increase in rental income resulted primarily from the increase in
investments in real estate properties of $14.3 million during 1999. The
decrease in investment interest, dividends, and other income is due primarily
to the disposal of $12.4 million in marketable securities during 2000.

The increase in facility operating revenues is due primarily to the
purchase, in lieu of foreclosure, of seven long-term health care centers and
one retirement center previously managed and guaranteed by Phoenix Healthcare
Corporation (formerly Iatros Health Network) in August, 1999.

Total expenses for the three months ended September 30, 2000 increased
$12.5 million or 73.3% to $29.6 million from $17.1 million for 1999. Interest
expense increased $1.2 million or 17.8% in 2000 as compared to 1999.
Depreciation of real estate increased $.4 million or 12.5% when compared to
1999. Facility operating expense increased $7.4 million to $12.6 million in
2000 compared to $5.2 million in 1999.

Interest expense increased due to increased interest rates and borrowing
on credit facilities and long-term debt compared to the prior period.
Depreciation increased as a result of the Company placing newly constructed
assets in service, property acquisitions, and the purchase, in lieu of
foreclosure, of seven long term health care centers and one retirement center
previously managed and guaranteed by Phoenix Healthcare Corporation (formerly
Iatros Health Network) in August, 1999.

The increase in facility operating expense is due to the purchase, in
lieu of foreclosure, of seven long-term health care centers and one retirement
center previously managed and guaranteed by Phoenix Healthcare Corporation
(formerly Iatros Health Network) in August, 1999.

Nine Months Ended September 30, 2000 Compared to Nine Months Ended September
30, 1999

Net income for the nine months ended September 30, 2000 is $33.2 million
versus $48.0 million for the same period in 1999, a decrease of 30.8%. Basic
net income per common share decreased 61 cents or 31.8%, to $1.31 in the 2000
period from $1.92 in the 1999 period.

23
<PAGE>
NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

Total revenues for the nine months ended September 30, 2000 increased
$19.1 million or 20.8% to $111.0 million from $91.9 million for the nine
months ended September 30, 1999. Revenues from mortgage interest income
decreased $8.9 million, or 23.6% when compared to the same period in 1999.
Revenues from rental income increased $.9 million, or 2.6% in 2000 as compared
to 1999. Revenues from investment interest, dividends and other income
increased $.2 million or 2.8% compared to 1999. Facility operating revenue
increased $26.9 to $38.8 million in 2000 compared to $11.9 million in 1999.

The decrease in mortgage interest income is due to a decline in the
average amount of mortgage investments outstanding as a result of foreclosure
on mortgage loans and due to the discontinuation of interest income
recognition on other loans. During 1999, NHI foreclosed or received deeds in
lieu of foreclosure on mortgage loans totaling $41.8 million, which resulted
in the purchase of seven long-term health care centers and one retirement
center. See "Loan Income Recognition" above regarding discontinuation of
income recognition on certain loans.

The increase in rental income resulted primarily from the increase in
investments in real estate properties of $14.3 million during 1999. The
increase in investment interest, dividends and other income is after giving
consideration to reduced income due to the disposal of $12.4 million in
marketable securities during 1999.

Total expenses for the nine months ended September 30, 2000 increased
$33.9 million or 77.1% to $77.8 million from $43.9 million for 1999. Interest
expense increased $3.0 million or 15.7% in 2000 as compared to 1999.
Depreciation of real estate increased $1.9 million or 23.0% when compared to
1999. General and administrative costs increased $0.9 million or 34.2%
Facility operating expense increased $26.4 million to $37.2 million in 2000
compared to $10.8 million in 1999.

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NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

Income Taxes

NHI intends at all times to qualify as a real estate investment trust
under Section 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 (90% in 2001 and thereafter) 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. NHI's failure to continue to qualify under the
applicable REIT qualification rules and regulations would have a material
adverse impact on the financial position, results of operations and cash flows
of NHI.

NHI intends to maintain its REIT tax status for the year ended December
31, 2000 and thereafter.

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 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 rental income based upon
increases in the revenues of the tenants. The Company has negotiated similar
provisions in many of its mortgage notes receivable.

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NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

New Accounting Pronouncements

Forward Looking Statements

Statements in this Report that are not historical facts are forward-looking
statements that involve a number of known and unknown risks and
uncertainties. In addition to the factors discussed above, among the other
factors that could cause actual results, performance and achievements of the
Company to differ materially from any future results, performance or
achievements implied by such forward-looking statements are the following:
ability to reach agreement with certain creditors to extend maturity on terms
the Company believes are reasonable prior to due dates; receipts of sufficient
cash flow to repay debt as it becomes due; ability to continue to meet REIT
status; general industry distress, including the on-going effect of
reimbursement cutbacks; additional bankruptcy filings or other financial
problems by lessees, mortgagors or managers of healthcare facilities in which
the Company has an interest; and the description of the risk factors mentioned
from time to time in the Company's SEC reports, including, but not limited to
the reports on the Form 10-K for the year ended December 31, 1999. NHI
cautions investors that any forward-looking statements may involve risks and
uncertainties and are not guarantees of future performance. NHI has no duty
to update information in this report. All forward looking statements
represent NHI's judgments as of the date of this report.

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NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

Item 3. Quantitative and Qualitative Information About Market Risk

INTEREST RATE RISK

The Company's cash and cash equivalents consist of highly liquid
investments with a maturity of less than three months. All of the Company's
mortgage and other notes receivable bear interest at fixed interest rates.
The Company's investment in preferred stock represents an investment in the
preferred stock of another real estate investment trust and bears interest at
a fixed rate of 8.5%. The underlying mortgages included in the Company's
investments in real estate mortgage investment conduits ("REMIC's") also bear
interest at fixed interest rates. As a result of the short-term nature of the
Company's cash instruments and because the interest rates on the Company's
investment in notes receivable, preferred stock and REMIC's are fixed, a
hypothetical 10% change in interest rates has no impact on the Company's
future earnings and cash flows related to these instruments. A hypothetical
10% change in interest rates has an immaterial impact on the fair values of
these instruments.

As of September 30, 2000, $111,233,000 of the Company's long-term debt
bears interest at fixed interest rates. As of September 30, 2000, all of the
Company's $94,551,000 of convertible subordinated debentures bear interest at
fixed rates. Because the interest rates of these instruments are fixed, a
hypothetical 10% change in interest rates has no impact on the Company's
future earnings and cash flows related to these instruments. A hypothetical
10% change in interest rates has an immaterial impact on the fair values of
these instruments. The remaining $59,528,000 of the Company's long-term debt
and $90,000,000 line of credit facility bear interest at variable rates.
However, in order to mitigate the impact of fluctuations in interest rates on
its variable rate debt, the Company has entered into interest rate swap
agreements whereby the Company has exchanged certain variable interest rates
on a $25,000,000 notional principal amount for a fixed rate of interest.
Therefore, after including the mitigating impact of the interest rate swaps, a
hypothetical 10% change in interest rates has an immaterial impact on the
Company's future earnings and cash flows related to these instruments. A
hypothetical 10% change in interest rates has an immaterial impact on the fair
values of these instruments.

The Company's use of derivative instruments is limited to the interest
rate swaps discussed above. The Company does use derivative instruments for
trading purposes and the use of such instruments is subject to strict
approvals by the Company's senior officers. The Company's exposure related to
such derivative instruments is not material to the Company's financial
position, results of operations or cash flows.

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NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(Unaudited)

EQUITY PRICE RISK

The Company's investments in marketable securities include available for
sale securities and held to maturity securities. Unrealized gains and losses
on available for sale securities are recorded in stockholders' equity in
accordance with Statement of Financial Accounting Standards No. 115. The
investments in marketable securities classified as available for sale are
recorded at their fair market value based on quoted market prices. Thus,
there is exposure to equity price risk, which is the potential change in fair
value due to a change in quoted market prices. Hypothetically, a 10% change
in quoted market prices would result in a related 10% change in the fair value
of the Company's investments in marketable securities classified as available
for sale. In addition, a hypothetical 10% change in the quoted market prices
of the Company's subordinated convertible debentures would result in a related
10% change in the fair value of the debenture instruments.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings. None of any materiality.

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. Director Jack Tyrrell resigned from the Board
of Directors citing the lack of sufficient time to devote to the
NHI position due to his involvement in other boards, both public
and private. The resignation was effective October 17, 2000.

Item 6. Exhibits and Reports on Form 8-K.

(a) List of exhibits - none required
(b) Reports on Form 8-K - none required

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NATIONAL HEALTH INVESTORS, INC.

September 30, 2000
(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 14, 2000 /s/ Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr.
Secretary

Date November 14, 2000 /s/ Donald K. Daniel
Donald K. Daniel
Principal Accounting Officer