10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)
[ x ]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________

Commission File Number  001-10822

National Health Investors, Inc.

(Exact name of registrant as specified in its charter)

Maryland	62-1470956
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
222 Robert Rose Drive, Murfreesboro, Tennessee	37129
(Address of principal executive offices)	(Zip Code)

(615) 890-9100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class	Name of each exchange on which registered
Common stock, $.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ x ] No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ x ]

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [ x ] No [ ]

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

Large accelerated filer          [ x ]	Accelerated filer                      [ ]
Non-accelerated filer            [ ]	Smaller reporting company     [ ]
(Do not check if a smaller reporting company)

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

The aggregate market value of shares of common stock held by non-affiliates on June 30, 2014 (based on the closing price of these shares on the New York Stock Exchange) was approximately $1,970,533,000. There were 37,564,987 shares of the registrant’s common stock outstanding as of February 13, 2015.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for its 2015 annual meeting of stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13, and 14 of this Form 10-K/A.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (the “Amendment”) is filed by National Health Investors, Inc. ("NHI" or the “Company”) to amend its Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”). The purpose of the Amendment is to amend Part IV, Item 15 of the 2014 Form 10-K. No other items of the 2014 Form 10-K are amended in this Form 10-K/A.

PART IV

ITEM 15.  Exhibits, Financial Statements and Financial Statement Schedules

Item 15 has been amended to include the audited financial statements of Holiday AL Holdings, LP, the parent of NH Master Tenant, LLC ("Holiday Tenant"), and guarantor of Holiday Tenant's obligations arising under their lease with us.  Holiday Tenant is a significant lessee to NHI and, as of December 31, 2014, leases more than 20% of our assets.

As required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), updated certifications by the Principal Executive Officer and Principal Financial Officer are filed as exhibits to the Amendment in Part IV, Item 15.

We make no attempt in this filing to update matters in the 2014 Form 10-K for any other activities or events occurring after the original filing date; neither do we change any previously reported financial results of operations or any disclosures contained in that document except to the extent expressly provided herein.

EXHIBIT INDEX
Exhibit No.	Description	Page No. or Location
23.1	Consent of Ernst & Young LLP.	Filed Herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	Filed Herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer and Principal Accounting Officer	Filed Herewith
32	Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer and Principal Financial Officer and Principal Accounting Officer	Filed Herewith
99.1	Holiday AL Holdings LP Financial Statements as of December 31, 2014 and 2013 and for the three years ended December 31, 2014.	Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATIONAL HEALTH INVESTORS, INC.
	By: /s/Roger R. Hopkins
	Roger R. Hopkins
	Chief Accounting Officer
Date: February 27, 2015	(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-192338 and 333-194653 and on Form S-8 Nos. 333-186854 and 333-127179) of National Health Investors, Inc. of our report dated February 18, 2015, with respect to the consolidated financial statements of Holiday AL Holdings LP as of December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014, included in this Annual Report on Form 10-K, as amended (Form 10-K/A).

/s/ Ernst & Young LLP

Chicago, Illinois

February 27, 2015

EX-31.1

EXHIBIT 31.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES OXLEY-ACT OF 2002
I, J. Justin Hutchens, certify that:
1.	I have reviewed this Amendment 1 to the annual report on Form 10-K of National Health Investors, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
		a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 27, 2015				/s/ J. Justin Hutchens
				J. Justin Hutchens
				President, Chief Executive Officer
				and Director

EX-31.2

EXHIBIT 31.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES OXLEY-ACT OF 2002
I, Roger R. Hopkins, certify that:
1.	I have reviewed this Amendment 1 to the annual report on Form 10-K of National Health Investors, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
		a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 27, 2015				/s/ Roger R. Hopkins
				Roger R. Hopkins
				Chief Accounting Officer
				(Principal Financial Officer and Principal Accounting Officer)

EX-32

Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY-ACT OF 2002
The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned’s best knowledge and belief, the Amendment 1 to Annual Report on Form 10-K for National Health Investors, Inc. (“Issuer”) for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”):
(a)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.
Date: February 27, 2015		/s/ J. Justin Hutchens
		J. Justin Hutchens President, Chief Executive Officer and Director
Date: February 27, 2015		/s/ Roger R. Hopkins
		Roger R. Hopkins
		Chief Accounting Officer
		(Principal Financial Officer and Principal Accounting Officer)

EX-99.1

Exhibit 99.1

CONSOLIDATED FINANCIAL STATEMENTS

Holiday AL Holdings LP

Years Ended December 31, 2014, 2013 and 2012

With Report of Independent Auditors

Holiday AL Holdings LP

Consolidated Financial Statements

Years Ended December 31, 2014, 2013 and 2012

Contents

Report of Independent Auditors    1

Consolidated Financial Statements

Consolidated Balance Sheets    2

Consolidated Statements of Operations    3

Consolidated Statements of Changes in Equity    4

Consolidated Statements of Cash Flows    5

Notes to Consolidated Financial Statements    6

Report of Independent Auditors

The Partners

Holiday AL Holdings LP

We have audited the accompanying consolidated financial statements of Holiday AL Holdings LP (the Partnership), which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in equity and cash flows for each of the three years in the period ended December 31, 2014, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Partnership at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Ernst & Young LLP

Chicago, Illinois

February 18, 2015

1

Holiday AL Holdings LP
Consolidated Balance Sheets
(In Thousands)
		December 31				December 31
			2014				2013
Assets
Investment in real estate
Land and land improvements	$		40,312				40,301
Building and building improvements			265,637				265,617
Equipment			33,993				17,257
			339,942				323,175
Less accumulated depreciation		(	70,503	)		(	60,430	)
			269,439				262,745
Cash and cash equivalents			24,302				4,621
Cash and escrow deposits – restricted			1,174				1,303
Landlord required deposits			119,054				105,117
Accounts receivable, net			700				789
Prepaid expenses and other assets, net			20,644				22,552
Resident lease and other intangible assets, net			1,930				1,990
Total assets	$		437,243		$		399,117
Liabilities and equity
Accounts payable and accrued expenses	$		29,970		$		24,946
Prepaid rent and deferred revenue			15,805				5,990
Tenant security deposits			3,623				3,957
Straight-line rent payable			55,873				4,830
Due to affiliate			22,127				–
Total liabilities			127,398				39,723
Equity:
Partnership			309,845				359,394
Total liabilities and equity	$		437,243		$		399,117
See accompanying notes to consolidated financial statements.

2

Holiday AL Holdings LP
Consolidated Statements of Operations
(In Thousands)
		Years Ended December 31
				2014				2013				2012
Revenue
Resident fees		$		412,808		$		89,429		$		55,626
Expenses
Facility operating expenses				205,223				44,899				30,742
General and administrative expenses				32,255				3,602				2,025
Lease expense				205,623				20,903				–
Depreciation and amortization				10,174				8,298				8,429
Total expenses				453,275				77,702				41,196
Operating (loss) income			(	40,467	)			11,727				14,430
Interest expense:
Interest incurred				–			(	13,000	)		(	14,670	)
Amortization of deferred loan costs				–			(	366	)		(	227	)
Loss on mortgage notes payable				–			(	5,983	)			–
Net loss attributable to the Partnership		$	(	40,467	)	$	(	7,622	)	$	(	467	)
	See accompanying notes to consolidated financial statements.

3

Holiday AL Holdings LP
Consolidated Statements of Changes in Equity
For the Years Ended December 31, 2014, 2013 and 2012
(In Thousands)
		General						Limited				Total
		Partners						Partners				Equity
Balance at January 1, 2012	$			454		$		44,985		$		45,439
Net loss			(	5	)		(	462	)		(	467	)
Distributions, net			(	10	)		(	1,012	)		(	1,022	)
Balance at December 31, 2012				439				43,511				43,950
Net loss			(	76	)		(	7,546	)		(	7,622	)
Contributions, net				3,231				319,835				323,066
Balance at December 31, 2013				3,594				355,800				359,394
Net loss			(	405	)		(	40,062	)		(	40,467	)
Distributions, net			(	91	)		(	8,991	)		(	9,082	)
Balance at December 31, 2014	$			3,098		$		306,747		$		309,845
See accompanying notes to consolidated financial statements.

4

		Holiday AL Holdings LP
		Consolidated Statements of Cash Flows
		(In Thousands)
						Years Ended December 31
					2014					2013				2012
Operating activities
Net loss			$	(	40,467		)	$	(	7,622	)	$	(	67	)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization					10,174					8,298				8,429
Amortization of deferred loan costs					–					366				227
Amortization of resident incentives, net				(	100		)			780				350
Straight-line rent expense					51,043					4,830				–
Non-refundable deferred community fees, net					8,937					1,456				326
Changes in operating assets and liabilities:
Cash and escrow deposits – restricted					46					1,930			(	621	)
Landlord required deposits				(	13,937		)		(	105,117	)			–
Accounts receivable					89				(	542	)			148
Prepaid expenses and other assets					–				(	15,033	)		(	27	)
Accounts payable and accrued expenses					7,344					6,695				1,108
Prepaid rent					878					1,887				229
Tenant security deposits				(	334		)			1,132			(	3	)
Net cash provided by (used in) by operating activities					23,673				(	100,940	)			9,699
Investing activities
Additions to investment in real estate				(	16,808		)		(	3,425	)		(	1,514	)
Cash used in investing activities				(	16,808		)		(	3,425	)		(	1,514	)
Financing activities
Repayment of principal on mortgage notes payable					–				(	234,319	)		(	476	)
Distributions				(	9,082		)			–			(	1,022	)
Contributions					–					338,221				–
Due to (from) affiliate					21,898					2,875			(	4,482	)
Net cash provided by (used in) financing activities					12,816					106,777			(	5,980	)
Net increase in cash and cash equivalents					19,681					2,412				2,205
Cash and cash equivalents at beginning of year					4,621					2,209				4
Cash and cash equivalents at end of year			$		24,302			$		4,621		$		2,209
Supplemental disclosure of cash flow information
Cash paid for interest			$		–			$		14,040		$		14,674
Supplemental disclosure of non-cash information
Assumption of assets and related liabilities:
Accounts payable and accrued expenses			$	(	2,320		)	$	(	12,272	)
Tenant security deposits					–				(	1,901	)
Prepaid rent					–				(	1,170	)
Cash and escrow deposits - restricted					83					188
Prepaid expenses and other assets					401					–
	See accompanying notes to consolidated financial statements.

5

Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

December 31, 2014

1. Formation and Description of Operations

Holiday AL Holdings LP (HAHLP or the Partnership), a Delaware limited partnership, is the owner and operator of assisted living and independent living facilities in the United States. As of December 31, 2014, the Partnership, directly or indirectly through its ownership entities, owned or leased 131 assisted living communities and independent living communities consisting of 16,361 apartment and townhouse units (unaudited), located in 41 states (unaudited).

Properties	Communities	Units
Owned communities	8	1,673
Leased communities	123	14,688

The “Owned Communities” are accounted for under the consolidation method of accounting and are reflected as investment in real estate.

The “Leased Communities” are accounted for as operating leases, pursuant to Accounting Standards Codification (ASC) 840, Leases.

The Partnership is owned by Holiday AL Acquisition, LLC (Holiday Acquisition, a limited liability company and a wholly owned subsidiary of investment funds managed by affiliates of Fortress Investment Group LLC), Holiday AL Holdings GP LLC (Holiday AL GP – the general partner and a wholly owned subsidiary of Holiday Acquisition), and Retained Interest LLC (Retained Interest – which is wholly owned by previous investors of Holiday Retirement).

On March 1, 2012 and May 1, 2012, in connection with the commencement of operations of Holiday AL Holdings LP, assets and liabilities of 8 assisted living communities were transferred from Harvest Facility Holdings LP (Harvest) to the Partnership. The Partnership and Harvest are under common control and therefore the net assets transferred were recorded at carryover basis on the financial statements of the Partnership. As a result of the common control transaction, the accompanying financial statements are presented as if the net assets were transferred at the beginning of the period; therefore the financial statements have been presented as if the transfer occurred on January 1, 2012.

6

Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

2. Summary of Significant Accounting Policies

The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The significant accounting policies are summarized below.

Principles of Consolidation

The Partnership consolidates its majority-owned subsidiaries in which it has the ability to control the operations of the subsidiaries. All intercompany transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications considered necessary for a fair presentation have been made to the prior period financial statements in order to conform to the current year presentation. These reclassifications have not changed the results of operations or equity.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, the allocation of purchase price to tangible and intangible assets and liabilities, the evaluation of asset impairments, insurance reserves, depreciation and amortization, allowance for doubtful accounts, and other contingencies. Actual results could differ from those estimates and assumptions.

Investment in Real Estate and Related Intangibles

In business combinations, the Partnership recognizes all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value. In addition, the Partnership is required to expense acquisition-related costs as incurred, value noncontrolling interests at fair value at the acquisition date and expense restructuring costs associated with an acquired business.

7

Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

The Partnership allocates the purchase price of properties to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fair values for purposes of allocating purchase price, the Partnership utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, own internal analysis of recently acquired and existing comparable properties in our portfolio and other market data. The Partnership also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

Identified net tangible and finite lived intangible assets are amortized over their estimated useful lives or contractual lives, which are as follows:

Asset Categories	Estimated Useful Life (In Years)
Building and building improvements	15–40
Land improvements	15
Equipment	3–15
Resident lease intangibles	3–40

Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and upgrades that improve and/or extend the life of the assets are capitalized and depreciated over their estimated useful lives. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets held for use is assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying value, with any excess of carrying value over fair value recognized as an expense in the current period.

8

Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

During the years ended December 31, 2014, 2013 and 2012, the Partnership evaluated all long-lived depreciable assets for indicators of impairment, noting none. As a result, no impairment charges were recorded on the Partnership’s long-lived assets during the years ended December 31, 2014, 2013 and 2012.

Property sales or dispositions are recorded when title transfers to unrelated third parties, contingencies have been removed and sufficient cash consideration has been received by the Partnership. Upon disposition, the related costs and accumulated depreciation are removed from the respective accounts and any gain or loss on sale is recognized.

Leases

Leases for which we are the lessee are accounted for as operating, capital, or financing leases based on the underlying terms. The classification criteria are based on estimates regarding the fair value of the leased communities, minimum lease payments, effective cost of funds, the economic life of the community, and certain other terms in the respective lease agreements. The Partnership does not include communities under operating leases on the consolidated balance sheets and it records the rents paid as lease expense.

The Partnership accounts for leases with rent holiday provisions or that contain fixed payment escalators on a straight-line basis as if the lease payments were fixed evenly over the life of each lease. Straight-line rent payable on the consolidated balance sheets represents the effects of straight-lining lease payments. The Partnership capitalizes out-of-pocket costs incurred to enter into lease contracts as lease acquisition costs and amortizes them over the lives of the respective leases as additional community lease expense.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less from the date of purchase.

9

Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

Prior to the formation of Partnership (Note 1), Harvest used a centralized approach to cash management. All cash generated by the communities was transferred to Harvest and Harvest funded operating and investing activities for the communities as needed. Cash transferred from the 8 communities to Harvest was treated as a distribution in the accompanying financial statements. Subsequent to the formation of the Partnership, all cash generated by the communities is held and retained by the Partnership in its own cash accounts.

Landlord Required Deposits

Landlord required deposits consist primarily of funds required by various landlords to be placed on deposit as security for the Partnership’s performance under lease agreements and will generally be held until lease termination. A summary is as follows:

	December 31
	2014		2013
Security deposits	$	112,404	$	97,279
Property tax and reserves	6,650		7,838
Total landlord required deposits	$	119,054	$	105,117

Allowance for Doubtful Accounts

Allowance for doubtful accounts are recorded by management based upon the Partnership’s historical write-off experience, analysis of accounts receivable aging, and historic resident payment trends.

Management reviews material past due balances on a monthly basis. Account balances are charged off against the allowance when management determines it is probable that the receivable will not be recovered. Allowance for doubtful accounts was $564 and $1,119 at December 31, 2014 and 2013, respectively.

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Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

Deferred Loan Costs

Deferred loan costs include direct costs to obtain financing. Such costs are deferred and amortized using the straight-line method, which approximates the level-yield method, over the terms of the underlying debt agreements.

Revenue Recognition

Resident fee revenue is recorded as it becomes due as provided for in the residents’ lease agreements. Residents’ agreements are generally for a term of 30 days with resident fees due monthly in advance.

Certain communities have residency agreements that require the resident to pay an upfront fee prior to occupying the community. Community fees are non-refundable after a stated period (typically 90 days) and are initially recorded as deferred revenue and recognized on a straight-line basis as part of resident fee revenue over an estimated three-year average stay of the residents in the communities. Deferred revenue totaled $11,110 and $2,173 at December 31, 2014 and 2013, respectively.

Certain residency agreements provide for free rent or incentives for a stated period of time. Incentives are initially recorded in other assets and recognized on a straight-line basis as a reduction of resident fee revenue over an estimated three-year average stay of the residents in the communities.

Income Taxes

The Partnership is not subject to federal income tax or substantial state income tax and therefore does not record a provision for federal income tax. Each partner is allocated their respective share of income and pays the related tax. The Partnership is subject to certain state and local income tax in a few jurisdictions and has provided for those taxes.

11

Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

Advertising Costs

The Partnership expenses advertising costs as incurred. Advertising costs were $5,493, $691 and $511 for the periods ended December 31, 2014, 2013 and 2012, respectively, and are included in facility operating expenses in the consolidated statements of operations.

General and Administrative Expenses

Certain employees of Harvest Management Sub, LLC (Management Sub), a wholly owned subsidiary of Harvest provide management services to the Partnership related to the underlying communities. Pursuant to a services agreement the Partnership reimburses Management Sub for a portion of the employee cost which is based on an estimate of each individuals time spent working on the Partnership’s communities. Such reimbursement includes a 10% markup as detailed in the agreement. As of December 31, 2014 approximately $2.9 million of accrued reimbursement costs are included in due to affiliate on the Partnership’s consolidated balance sheet.    

Fair Value of Financial Instruments

Cash and cash equivalents and cash and escrow deposits – restricted are reflected in the accompanying consolidated balance sheets at amounts considered by management to reasonably approximate fair value.

The Partnership follows the provisions of Accounting Standards Codification (ASC) 820, Fair Value Measurement, when valuing its financial instruments. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market-priced assumptions in fair value measurements, the statement establishes a fair value hierarchy that distinguishes between market-participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and Level 2 of the hierarchy) and the reporting entity’s own assumptions about market-participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

• Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Partnership has the ability to access.

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Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

• Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

• Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

3. Resident Lease Intangibles, Net

At December 31, 2014 and December 2013, resident lease intangibles, net were as follows:

	Resident Lease Intangibles, Net
Balance at January 1, 2013	$	2,050
Amortization	(60)
Balance at December 31, 2013	1,990
Amortization	(60)
Balance at December 31, 2014	$	1,930

13

Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

3. Resident Lease Intangibles, Net (continued)

Future amortization expense related to the resident lease intangibles over the next five years and thereafter, is as follows:

	Estimated Amortization of Resident Lease Intangibles, Net
Years:
2015	$	60
2016	60
2017	60
2018	60
2019	60
Thereafter	1,630
Total	$	1,930

4. Other Balance Sheet Data

Prepaid expenses and other assets, net consisted of the following as of December 31, 2014 and 2013:

	2014		2013
Deferred rent incentives, net	$	1,636	$	1,534
Other assets	7,466		7,248
Pre-paid lease expense	927		12,163
Due from affiliate (Note 9)	10,615		1,607
Total	$	20,644	$	22,552

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Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

4. Other Balance Sheet Data (continued)

Accounts payable and accrued expenses consisted of the following as of December 31, 2014 and 2013:

	2014		2013
Trade and accrued payables	$	8,341	$	5,706
Salaries and benefits	7,620		5,512
Property taxes	8,431		5,765
Insurance reserves	5,278		7,693
Other	300		270
Total	$	29,970	$	24,946

5. Mortgage Notes Payable

During 2013, the Partnership repaid $234,319 in mortgage notes payable which was funded through contributions from the partners. In connection with the mortgage notes payable repayment, the Partnership incurred $5,983 of prepayment penalties and exit fees, which are included in loss on extinguishment of mortgage notes payable in the accompanying consolidated 2013 statement of operations. This payment satisfied all remaining mortgage payable obligations of the Partnership, and no further mortgage obligations were incurred subsequent to the payoff.

6. Leases

On September 25, 2014, Harvest sold 21 independent living communities to a third party. These communities were subsequently leased to the Partnership. The Partnership will operate the communities pursuant to a 15 year lease (with two 5 year renewal options at which point rent will reset to a fair value rate). The minimum lease payment is initially $30,250 annually, and such amount is subject to certain defined increases throughout the lease term, as further detailed in the lease agreement.

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Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

6. Leases (continued)

On December 23, 2013, Harvest sold 25 independent living communities to a third party. These communities were subsequently leased to the Partnership. The Partnership will operate the communities pursuant to a 17 year lease. The minimum lease payment is initially $31,915 annually, and such amount is subject to certain defined increases throughout the lease term, as further detailed in the lease agreement.

On December 23, 2013, Harvest sold 51 independent living communities to a third party. These communities were subsequently leased to the Partnership. The Partnership will operate the communities pursuant to a 17 year lease. The minimum lease payment is initially $65,031 annually, and such amount is subject to certain defined increases throughout the lease term, as further detailed in the lease agreement.

On September 19, 2013, Harvest sold 26 independent living communities to a third party. These communities were subsequently leased to the Partnership. The Partnership will operate the communities pursuant to a 15 year lease (with two 5 year renewal options at which point rent will reset to a fair value rate). The minimum lease payment is initially $49,016 annually, and such amount is subject to certain defined increases throughout the lease term, as further detailed in the lease agreement.

Lease expense under noncancelable operating leases was as follows (in thousands):

	Year Ended December 31
	2014		2013			2012
Contractual operating lease expense	$	154,580	$	16,073	$	-
Noncash straight-line lease expense	51,043		4,830			-
Lease expense	$	205,623	$	20,903	$	-

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Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

6. Leases (continued)

Minimum future cash lease payments under noncancelable operating leases which include 123 communities at December 31, 2014, are as follows (in thousands):

2015	$	183,658
2016	191,770
2017	199,956
2018	206,532
2019	213,326
Thereafter	2,623,494
Total	$	3,618,736

As of December 31, 2014, the Partnership was in compliance with all lease covenant requirements.

7. Insurance

Harvest obtains various insurance coverages from commercial carriers at stated amounts as defined in the applicable policies. Losses related to deductible amounts are accrued based on management’s estimate of expected losses plus incurred but not reported claims. As of December 31, 2014 and 2013, the Partnership accrued $5,278 and $7,693 for the expected future payment of deductible amounts specific to the Partnership, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.

8. Commitments and Contingencies

In the normal course of business, the Partnership is involved in legal actions arising from the ownership and operation of the business. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, operations or liquidity of the Partnership.

17

Holiday AL Holdings LP

Notes to Consolidated Financial Statements

(In Thousands)

9. Due to/Due from Affiliate

On September 25, 2014, the Partnership and Harvest entered into a note for approximately $18.1 million, the proceeds of which were used to primarily fund the security deposit for the operating lease of the 21 communities (see Note 6). The note is due on September 25, 2029, and bears interest equal to 2.97%. As of December 31, 2014, the outstanding principal balance was $18.1 million.

As of December 31, 2014, the Partnership had a due to Harvest in the amount of $3.9 million, $2.9 million which related to the general and administrative expense reimbursement (see Note 2).

As of December 31, 2014, the Partnership had a due from Harvest in the amount of $10.6 million which represents expenses of Harvest paid by the Partnership.

As of December 31, 2013, an affiliate of the Partnership held approximately $1.6 million of the Partnership’s cash.

10. Subsequent Events

The Partnership has evaluated its subsequent events through February 18, 2015, the date the Partnership’s consolidated financial statements for the year ended December 31, 2014, were available for issuance.

On January 1, 2015 Management Sub transferred all of its employees to a wholly owned subsidiary of the Partnership. The cost of the employees will be expensed on the statement of operations of the Partnership prospectively with a reimbursement received by the Partnership from Harvest equal to the employee cost which will be based on an estimate of each individuals time spent working on Harvest owned communities. Such reimbursement will include a markup of 0-10% per employee based on the services performed as stated in the executed services agreement.

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