-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MegdnuiSFNFgIFABcjeGi1mD+4W59nwtsM3mW6+1QKvh3u1HpWFqFFkfN1JzUbJB bXzDy9Wvqmw1fuQR2NcHtg== 0000877860-98-000019.txt : 19981116 0000877860-98-000019.hdr.sgml : 19981116 ACCESSION NUMBER: 0000877860-98-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL HEALTH INVESTORS INC CENTRAL INDEX KEY: 0000877860 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 621470956 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10822 FILM NUMBER: 98748311 BUSINESS ADDRESS: STREET 1: 100 VINE ST STE 1402 CITY: MURFREESBORO STATE: TN ZIP: 37130 BUSINESS PHONE: 6158909100 MAIL ADDRESS: STREET 1: P.O. BOX 1102 CITY: MURFREESBORO STATE: TN ZIP: 37133 10-Q 1 9/30/98 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 of 15(d) of the Securities Exchange Act of 1934 For quarter ended September 30, 1998 Commission file number 33-41863 NATIONAL HEALTH INVESTORS, INC. (Exact name of registrant as specified in its Charter) Maryland 62-1470956 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 100 Vine Street Murfreesboro, TN 37130 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (615) 890-9100 Indicate by check mark whether the registrant (1) Has filed all reports required to be filed by Section 13 or 15(d), of the Securities Exchange Act of 1934 during the preceding 12 months. Yes x No (2) Has been subject to such filing requirements for the past 90 days. Yes x No 24,475,166 shares of common stock were outstanding as of October 31, 1998. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. NATIONAL HEALTH INVESTORS, INC. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
Sept. 30 Dec. 31 1998 1997 (unaudited) ASSETS Real estate properties: Land $ 20,767 $ 20,468 Buildings and improvements 219,770 205,631 Construction in progress 2,190 10,899 242,727 236,998 Less accumulated depreciation (43,504) (36,929) Real estate properties, net 199,223 200,069 Mortgage and other notes receivable 417,880 445,603 Investment in preferred stock 38,500 --- Investment in real estate mortgage investment conduits 36,696 37,157 Cash and cash equivalents 4,739 64,915 Marketable securities 19,561 --- Interest and rent receivable 5,307 5,185 Deferred costs and other assets 3,013 3,670 Total Assets $724,919 $756,599 LIABILITIES AND DEFERRED INCOME Long-term debt $153,436 $155,659 Credit facilities --- --- Convertible subordinated debentures 100,171 119,038 Accounts payable and other accrued expenses 6,959 4,266 Accrued interest 3,265 6,928 Dividends payable 18,197 18,318 Deferred income 8,079 8,310 Commitments, contingencies and guarantees --- --- Total Liabilities and Deferred Income 290,107 312,519 STOCKHOLDERS' EQUITY Cumulative convertible preferred stock, $.01 par value; 10,000,000 shares authorized; 779,094 and 833,664 shares, respectively, issued and outstanding; stated at liquidation preference of $25 per share 19,477 20,842 Common stock, $.01 par value: 40,000,000 shares authorized; 24,593,833 and 24,753,570 shares, respectively, issued and outstanding 246 248 Capital in excess of par value of common stock 431,824 434,135 Cumulative net income 324,405 270,902 Cumulative dividends (339,055) (282,047) Unrealized gains (losses) on securities (2,085) --- Total Stockholders' Equity 434,812 444,080 Total Liabilities and Stockholders' Equity $724,919 $756,599
The accompanying notes to interim condensed consolidated financial statements are an integral part of these financial statements. The interim condensed balance sheet at December 31, 1997 is taken from the audited financial statements at that date. 2 NATIONAL HEALTH INVESTORS, INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 1998 1997 1998 1997 (In thousands, except share amounts) REVENUES: Mortgage interest income $ 13,706 $ 17,552 $ 41,747 $ 50,444 Rental income 10,610 10,093 31,524 29,731 Investment interest and other income 1,518 715 4,500 1,834 25,834 28,360 77,771 82,009 EXPENSES: Interest 4,677 6,163 14,185 17,207 Depreciation of real estate 2,205 2,014 6,584 5,872 Amortization of loan and organization costs 167 200 521 609 General and administrative 1,017 927 2,978 2,798 8,066 9,304 24,268 26,486 NET INCOME $ 17,768 $ 19,056 $ 53,503 $ 55,523 Dividends to preferred stockholders 415 462 1,267 1,470 NET INCOME APPLICABLE TO COMMON STOCK $ 17,353 $ 18,594 $ 52,236 $ 54,053 NET INCOME PER COMMON SHARE: Basic $ .69 $ .76 $ 2.08 $ 2.23 Diluted $ .68 $ .74 $ 2.05 $ 2.16 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 25,067,264 24,485,556 25,121,758 24,283,213 Diluted 28,662,842 29,013,987 28,897,379 28,838,759 Common dividends per share declared $ .74 $ .74 $ 2.22 $ 2.22
The accompanying notes to interim condensed consolidated financial statements are an integral part of these financial statements. 3 NATIONAL HEALTH INVESTORS, INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30 1998 1997 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 53,503 $ 55,523 Depreciation of real estate 6,584 5,872 Amortization of loan and organization costs 521 609 Interest on debenture conversion 320 285 Deferred income 1,485 1,354 Amortization of deferred income (1,716) (1,296) (Increase) decrease in interest & rent receivable (122) 785 (Increase) decrease in other assets (97) (462) Increase (decrease) in accounts payable and accrued liabilities (970) 1,037 NET CASH PROVIDED BY OPERATING ACTIVITIES 59,508 63,707 CASH FLOWS FROM INVESTING ACTIVITIES: Investment in mortgage notes receivable (49,722) (108,001) Collection of mortgage notes receivable 3,013 6,049 Prepayment of mortgage notes receivable 74,893 31,615 Acquisition of property and equipment, net (5,737) (20,171) Investment in preferred stock (38,500) --- Investment in marketable securities (21,647) --- NET CASH USED IN INVESTING ACTIVITIES (37,700) (90,508) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of credit facilities --- (106,000) Proceeds from credit facilities --- 92,000 Proceeds from long-term debt 242 99,651 Principal payments on long-term debt (2,466) (52,316) Proceeds from sale (payments) of subordinated convertible debentures (40) 60,000 Financing costs paid --- (2,662) Dividends paid to shareholders (57,128) (54,866) Sale of stock and exercise of options 1,074 1,714 Repurchase of common stock (23,665) --- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (81,983) 37,521 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (60,176) 10,720 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,915 3,400 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,739 $ 14,120
4 NATIONAL HEALTH INVESTORS, INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30 1998 1997 (in thousands) Supplemental Information: Cash payments for interest expense $ 15,552 $ 12,154 During the nine months ended September 30, 1998 and September 30, 1997, $18,827,000 and $30,602,000 respectively, of Senior Subordinated Convertible Debentures were converted into 604,497 shares and 985,036 shares, respectively, of NHI's common stock: Senior subordinated convertible debentures $(18,827) $(30,602) Financing costs $ 234 $ 437 Accrued interest $ (320) $ (285) Common stock $ 6 $ 10 Capital in excess of par $ 18,907 $ 30,440
The accompanying notes to interim condensed consolidated financial statements are an integral part of these financial statements. 5 NATIONAL HEALTH INVESTORS, INC. INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (dollars in thousands)
Cumulative Convertible Capital in Unrealized Total Preferred Stock Common Stock Excess of Cumulative Cumulative Gains(Losses) Stock. Shares Amount Shares Amount Par Value Net Income Dividends on Securities Equity BALANCE AT 12/31/97 833,664 $ 20,842 24,753,570 $248 $434,135 $270,902 $(282,047) $ --- $444,080 Net income --- --- --- --- --- 53,503 --- --- 53,503 Unrealized gains (losses) on securities --- --- --- --- --- --- --- (2,085) (2,085) Total Comprehensive Income 51,418 Shares sold --- --- 32,973 --- 1,074 --- --- --- 1,074 Common shares repurchased --- --- (846,575) (8) (23,657) --- --- --- (23,665) Shares issued in con- version of converti- ble debentures to common stock --- --- 604,496 6 18,907 --- --- --- 18,913 Shares issued in con- version of preferred stock to common stock (54,570) (1,365) 49,369 --- 1,365 --- --- --- --- Dividends to common shareholders (2.22 per share) --- --- --- --- --- --- (55,741) --- (55,741) Dividends to preferred shareholders ($1.594 per share) --- --- --- --- --- --- (1,267) --- (1,267) BALANCE AT 9/30/98 779,094 $ 19,477 24,593,833$ 246 $431,824 $324,405 $(339,055) $(2,085) $434,812 BALANCE AT 12/31/96 1,050,122 $ 26,253 23,474,751$ 235 $395,204 $195,514 $(207,523) $ --- $409,683 Net income --- --- --- --- --- 55,523 --- --- 55,523 Shares sold --- --- 54,243 --- 1,714 --- --- --- 1,714 Shares issued in con- version of convertible debentures to common stock --- --- 985,036 10 30,440 --- --- --- 30,450 Shares issued in con- version of preferred stock to common stock(188,141) (4,703) 170,229 2 4,701 --- --- --- --- Dividends to common shareholders ($2.22 per share) --- --- --- --- --- --- (54,290) --- (54,290) Dividends to preferred shareholders ($1.594 per share) --- --- --- --- --- --- (1,470) --- (1,470) BALANCE AT 9/30/97 861,981 $ 21,550 4,684,259$ 247 $432,059 $251,037 $(263,283) $ --- $441,610
NATIONAL HEALTH INVESTORS, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) Note 1. SIGNIFICANT ACCOUNTING POLICIES: The unaudited financial statements furnished herein in the opinion of the management include all adjustments which are necessary to fairly present the financial position, results of operations and cash flows of National Health Investors, Inc. ("NHI" or the "Company"). NHI assumes that users of the interim financial statements herein have read or have access to the audited financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for the preceding fiscal years ended December 31, 1997, 1996 and 1995 and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in the Company's most recent annual report to stockholders have been omitted. The interim financial information contained herein is not necessarily indicative of the results that may be expected for a full year because of various reasons including changes in interest rates, rents and the timing of debt and equity financings. Note 2. NET INCOME PER COMMON SHARE Basic earnings per share is based on the weighted average number of common and common equivalent shares outstanding. Net income is reduced by dividends to holders of cumulative convertible preferred stock. Diluted earnings per common share assumes the conversion of convertible subordinated debentures, the conversion of cumulative convertible preferred stock and the exercise of all stock options using the treasury stock method. Net income is increased for interest expense on the convertible subordinated debentures. The following table summarizes the earnings and the average number of common shares and common equivalent shares used in the calculation of basic and diluted earnings per share. 7 NATIONAL HEALTH INVESTORS, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 1998 1997 1998 1997 BASIC: Weighted avg. common shares 25,067,264 24,485,556 25,121,758 24,283,213 Net income $17,768,000 $19,056,000 $53,503,000 $55,523,000 Dividends paid to pre- ferred shareholders (415,000) (462,000) (1,267,000) (1,470,000) Net income available to common stockholders $17,353,000 $18,594,000 $52,236,000 $54,053,000 Net income per common share $ .69 $ .76 $ 2.08 $ 2.23 DILUTED: Weighted average common shares 25,067,264 24,485,556 25,121,758 24,283,213 Stock options 4,220 37,572 17,608 33,422 Convertible subordinated debentures 2,880,086 3,685,206 3,029,707 3,665,639 Cumulative convertible preferred stock 711,272 805,653 728,306 856,485 Average common shares outstanding 28,662,842 29,013,987 28,897,379 28,838,759 Net income $17,768,000 $19,056,000 $53,503,000 $55,523,000 Interest expense on convertible sub- ordinated debentures 1,829,000 2,297,000 5,766,000 6,853,000 Net income assuming con- version of subordinated convertible debentures to common stock $19,597,000 $21,353,000 $59,269,000 $62,376,000 Net income per common share $ .68 $ .74 $ 2.05 $ 2.16
8 NATIONAL HEALTH INVESTORS, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) Note 3. INVESTMENTS IN MARKETABLE SECURITIES: NHI considers its investments in marketable securities as available for sale securities and unrealized gains and losses are recorded in stockholders' equity in accordance with SFAS 115. Realized gains and losses from securities sales are determined on the specific identification of the securities. Note 4. COMMITMENTS AND GUARANTEES: At September 30, 1998, NHI was committed, subject to due diligence and financial performance goals, to fund approximately $85,888,000 in health care real estate projects of which approximately $40,357,000 is eligible to be funded within the next 12 months. The commitments include mortgage loans or purchase leaseback agreements for five long-term care centers, three medical office buildings, and eight assisted living facilities, all at rates ranging from 9.0% to 11.9%. NHI has recorded deferred income for commitment fees related to these loans where applicable. In order to obtain the consent of appropriate lenders to National HealthCare Corporation's ("NHC"'s) transfer of assets to NHI, NHI guaranteed certain debt ($19,358,000 at September 30, 1998) of NHC. The debt is at fixed and variable interest rates with a weighted average interest rate of 8.3% at September 30, 1998. NHI receives from NHC compensation of approximately $97,000 per annum for the guarantees which is credited against NHC's base rent requirements. In management's opinion, these guarantee fees approximate the guarantee fees that NHI would currently charge to enter into similar guarantees. All of the guaranteed indebtedness discussed above is secured by first mortgages and rights which may be enforced if either party is required to pay under their respective guarantees. NHC has agreed to indemnify and hold harmless NHI against any and all loss, liability or harm incurred by NHI as a result of having to perform under its guarantee of any or all of the guaranteed debt. Additionally, NHI has also guaranteed bank loans in the amount of $1,449,570 to key employees and directors which amount was utilized for the exercise of NHI stock options. Shares of NHI stock are held as security by NHI and the loans are limited to $100,000 per individual per year. 9 NATIONAL HEALTH INVESTORS, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) Note 5. CONVERTIBLE SUBORDINATED DEBENTURES: At September 30, 1998, $56,286,000 of 7% convertible subordinated debentures (the "1997 debentures") remain outstanding. The 1997 debentures are convertible at the option of the holder into common stock at a conversion price of $37.50, subject to adjustment. During the nine months ended September 30, 1998, $3,349,000 of the 1997 debentures have been converted into 89,302 shares of common stock. NHI has reserved 1,500,960 shares of common stock for conversions of 1997 debentures. At September 30, 1998, $38,120,000 of 7.75% convertible subordinated debentures (the "1995 debentures") remain outstanding. The 1995 debentures are convertible at the option of the holder into the common stock of NHI at a conversion price of $31.625, subject to adjustment. During the nine months ended September 30, 1998, $9,302,000 of the 1995 debentures have been converted into 294,134 shares of common stock. NHI has reserved 1,205,375 shares of common stock for conversions of 1995 debentures. At September 30, 1998, $5,535,000 of debentures remain outstanding related to "1995 debt service debentures" issued to mortgagees or lessees to satisfy debt service escrow requirements. The debentures are convertible at the option of the holder into common stock of the Company at a conversion price of 110% of the market price on the date of issuance of the debentures, subject to adjustment. During the nine months ended September 30, 1998, $871,000 of the debentures have been converted into 26,394 shares of common stock. NHI has reserved 157,419 shares of common stock for conversion of 1995 debt service debentures. During the nine months ended September 30, 1998, $5,345,000 of the 7.375% convertible subordinated debentures (the "1993 debentures") were converted into 194,671 shares of common stock. None of the 1993 debentures remain outstanding at September 30, 1998. At September 30, 1998, $230,000 of the 10% senior convertible subordinated debentures (the "senior debentures") remain outstanding. The senior debentures are convertible into the common stock of the Company at $20 per share. During the nine months ended September 30, 1998, none of the senior debentures were converted. The Company has reserved 11,500 shares of common stock for conversion of the senior debentures. 10 NATIONAL HEALTH INVESTORS, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) Note 6. CUMULATIVE CONVERTIBLE PREFERRED STOCK In February and March, 1994, NHI issued $109,558,000 of 8.5% Cumulative Convertible Preferred Stock ("Preferred Stock") with a liquidation preference of $25 per share. Dividends at an annual rate of $2.125 are cumulative from the date of issuance and are paid quarterly. At September 30, 1998 $19,477,350 of the preferred stock remains outstanding. The Preferred Stock is convertible into NHI common stock at the option of the holder at any time at a conversion price of $27.625 per share of common stock, which is equivalent to a conversion rate of 0.905 per share of common stock for each share of Preferred Stock, subject to adjustment in certain circumstances. The Preferred Stock is not redeemable by NHI prior to February 15, 1999 and is not redeemable for cash. On or after February 15, 1999, the Preferred Stock will be redeemable by NHI for common stock. NHI may redeem the Preferred Stock only if the trading price of the Common Stock on the New York Stock Exchange (NYSE) exceeds $27.625 per share for 20 trading days within a period of 30 trading days prior to the exercise. NHI has reserved 705,062 shares of common stock for Preferred Stock conversions. The Preferred Stock is listed on the NYSE under the symbol "NHIPr." Note 7. NEW ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") effective for fiscal years beginning after December 15, 1997. SFAS 130 requires that changes in the amounts of certain items, including gains and losses on certain securities, be shown in the financial statements. NHI has adopted the provisions of SFAS 130 effective January 1, 1998. NHI has elected to disclose comprehensive income, which includes net income and unrealized gains and losses on securities, in the consolidated statements of stockholders' equity. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131") effective for fiscal years beginning after December 15, 1997. This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. NHI will be required to adopt SFAS 131 in the fourth quarter of 1998 and is currently determining the impact that SFAS 131 will have on its financial statements. If appropriate, NHI will begin disclosing the required information accordingly. 11 NATIONAL HEALTH INVESTORS, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) Note 8. STOCK OPTION PLAN On March 31, 1998, NHI granted options to purchase 45,000 shares of NHI at $39.875 per share. During the nine months ended September 30, 1998, options to purchase 25,133 shares of NHI were exercised at exercise prices ranging from $25.00 to $36.00. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation ("SFAS 123"). SFAS 123 establishes new financial accounting and reporting standards for stock-based compensation plans. NHI has adopted the disclosure- only provisions of SFAS 123. As a result, no compensation cost has been recognized for NHI's stock option plans. Based on the number of options outstanding and the historical and expected future trends of factors affecting valuation of those options, management believes that any compensation cost attributable to options granted is immaterial. Note 9. ACQUISITION SUBSEQUENT TO THE BALANCE SHEET DATE In 1994, NHI funded a mortgage loan for All Seasons Living Centers in the original principal amount of $15,000,000. Collateral for the loan included first mortgages on four long-term health care facilities and a leasehold mortgage on two additional properties, all located in the State of Washington. Subsequent to the balance sheet date and on October 16, 1998, NHI purchased from All Seasons Living Centers for approximately $13,700,000 (the then current loan balance) all of the real estate, property and equipment of the four long term health care facilities described above (502 beds), but excluding the two leasehold properties. The purchase was undertaken in lieu of foreclosure after certain technical defaults on NHI's loan agreements and after the death of the principal owner. Sunrise Healthcare Corporation, a subsidiary of Sun Healthcare Group, Inc., has been engaged by NHI to manage the facilities. NHI will elect to treat the property as foreclosure property for federal income tax purposes under IRC Section 856(e). With this election, unqualified income generated by the property is expected to be treated as qualified income for up to two years from the purchase date for purposes of the income- source tests which must be satisfied by real estate investment trusts to maintain their tax status. 12 NATIONAL HEALTH INVESTORS, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Overview National Health Investors, Inc. ("NHI" or the "Company") is a real estate investment trust which invests primarily in income producing health care properties with emphasis on the long-term care sector. As of September 30, 1998, NHI had interests in net real estate and mortgage investments totaling $653.8 million, and other investments in preferred stock and marketable securities of $58.1 million, resulting in total invested assets of $711.9 million. NHI's strategy is to invest in health care real estate which generates current income which will be distributed to stockholders. NHI intends to implement this strategy by making mortgage loans and acquiring properties to lease nationwide. As of September 30, 1998, the Company has real estate and mortgage investments in 201 health care facilities located in 26 states consisting of 157 long-term care facilities, two acute care hospitals, nine medical office buildings, ten assisted living facilities, six independent living centers, and 17 residential projects for the developmentally disabled. These investments consist of approximately $417.9 million aggregate principal amount of loans to 38 borrowers, $199.2 million of purchase leaseback transactions with six lessees and $36.7 million invested in REMIC pass through certificates backed by first mortgage loans to three operators. Of these 201 facilities, 43 are leased to National HealthCare Corporation ("NHC") and nine additional facilities are managed by NHC. (NHC is the Company's investment advisor.) Consistent with its strategy of diversification, the Company has reduced the portion of its portfolio operated by NHC from 100.0% of total invested assets on October 17, 1991 to approximately 22.0% of total invested assets on September 30, 1998. Capital Resources and Liquidity NHI has generated net cash from operating activities for the first nine months of 1998 in the amount of $59.5 million. The funds were used along with $77.9 million from prepayments and collections of mortgage notes receivable to make additional investments in income producing assets and real estate properties totaling approximately $115.6 million, to repurchase NHI common stock of $23.7 million, to repay debt and credit facilities of a net $2.2 million and to pay dividends to stockholders of $57.1 million. The amount available to be drawn on NHI's $100 million revolving line of credit was $100 million at September 30, 1998. The Company's balance sheet was further strengthened by the conversion of $18.9 million of convertible debentures to common equity during the first nine months of 1998. NHI's nonconvertible debt as a percentage of total capitalization is 22.2% at September 30, 1998. The Company continues to be well positioned to take advantage of new investment opportunities. 13 NATIONAL HEALTH INVESTORS, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) At September 30, 1998, the Company was committed, subject to due diligence and financial performance goals, to fund approximately $85.9 million in health care real estate projects, of which approximately $40.4 million is eligible to be funded within the next 12 months. The commitments include mortgage loans or purchase leaseback agreements for five long-term health care centers, eight assisted living centers and three medical office buildings, generally at rates ranging from 9.0% to 11.9%. Financing for NHI's current commitments and future commitments to others may be provided by borrowings under NHI's bank credit facilities, new lines of credit, private placements or public offerings of debt or equity, the assumption of secured or unsecured indebtedness, repayments of existing investments or by the sale of all or a portion of certain currently held investments. Results of Operations Three Months ended September 30, 1998 Compared to Three Months Ended September 30, 1997. Net income for the three months ended September 30, 1998 is $17.8 million versus $19.1 million for the same period of 1997, a decrease of 6.8%. Fully diluted earnings per common share decreased six cents or 8.1% to 68 cents in the 1998 period from 74 cents in the 1997 period. Total revenues for the three months ended September 30, 1998 decreased $2.5 million or 8.9% to $25.8 million from $28.4 million for the three months ended September 30, 1997. Revenues from mortgage interest income decreased $3.8 million or 21.9% in the 1998 period as compared to the 1997 period. Revenues from rental income increased $.5 million or 5.1% when compared to the same period in 1997. Revenues from investment interest and other income increased $.8 million or 112.3% compared to the same period a year ago. The decrease in mortgage interest income is due to the receipt by NHI of prepayments of $224.5 million of first mortgages receivable during the past four quarters, compared to new mortgage investments of $57.6 million during the same period. The increase in rental income resulted primarily from investments of $9.4 million in additional real estate properties during the last 12 months and also from increased "revenue participations" and "additional rent" earned under NHI's existing mortgages and leases. The increase in investment interest and other income is due to the investment of $38.5 million in the preferred stock of LTC Properties and $19.6 million in marketable securities, all of which earn from 8.5% to 9.5%. 14 NATIONAL HEALTH INVESTORS, INC. September 30, 1998 (Unaudited) Earnings for the quarter include $1.3 million or five cents per share basic or four cents per share diluted of nonrecurring net income. The quarter a year ago included nonrecurring income of $1.9 million or eight cents per share basic or six cents per share diluted. This nonrecurring income is primarily from the receipt of commitment fees and prepayment penalties from early loan repayments. Total expenses for the 1998 three month period decreased $1.2 million or 13.3% to $8.1 million from $9.3 million for the 1997 three month period. Interest expenses decreased $1.5 million or 24.1% in the 1998 three month period as compared to the 1997 three month period. Depreciation and amortization increased $.2 million or 9.5% when compared to the same period in 1997. Interest expense decreased due to lower levels of long-term and subordinated debt compared to the quarter a year ago. Depreciation increased as a result of the Company's placing of newly constructed assets in service. Nine Months ended September 30, 1998 Compared to Nine Months Ended September 30, 1997. Net income for the nine months ended September 30, 1998 is $53.5 million versus $55.5 million for the same period of 1997, a decrease of 3.6%. Fully diluted earnings per common share decreased 11 cents or 5.1% to $2.05 per share in the 1998 period from $2.16 per share in the 1997 period. Total revenues for the nine months ended September 30, 1998 decreased $4.2 million or 5.2% to $77.8 million from $82.0 million for the nine months ended September 30, 1997. Revenues from mortgage interest income decreased $8.7 million or 17.2% in the 1998 period as compared to the 1997 period. Revenues from rental income increased $1.8 million or 6.0% when compared to the same period in 1997. Revenues from investment interest and other revenue for the 1998 period increased $2.7 million or 145.4% to $4.5 million from $1.8 million when compared to the 1997 period. The decrease in mortgage interest income is due to the receipt by NHI of prepayments of $224.5 million of first mortgages receivable during the past four quarters, compared to new mortgage investments of $57.6 million during the same period. The increase in rental income resulted primarily from the net increase in investments in real estate properties during the last 12 months and also from increased "additional rent" and "revenue participations" earned under the Company's existing leases and mortgage agreements. The increase in investment interest and other income is due to the temporary investment of higher cash amounts, as well as the investment of $38.5 million in the preferred stock of LTC Properties and $19.6 million in marketable securities. The latter two investments were made during the third quarter of 1998. Earnings for the nine months ended September 30, 1998 include $5.1 million or $0.20 per share basic or $0.17 per share diluted of nonrecurring net income. The nine months last year included nonrecurring income of $3.8 million or 16 cents per share basic and 13 cents per share diluted. This nonrecurring income is primarily from the receipt of commitment fees and prepayment penalties from early loan repayments. 15 NATIONAL HEALTH INVESTORS, INC. September 30, 1998 (Unaudited) Total expenses for the 1998 nine month period decreased $2.2 million or 8.3% to $24.3 million from $26.5 million for the 1997 period. Interest expenses decreased $3.0 million or 17.6% in the 1998 nine month period as compared to the 1997 period. Depreciation and amortization increased $0.7 million or 12.1% when compared to the same period in 1997. Interest expense decreased due to lower levels of long-term and subordinated debt compared to the nine month period a year ago. Depreciation increased as a result of the Company's placing of newly constructed assets in service. Future Growth The Company expects increases in both mortgage interest income and rental income from additional investments (net of repayments) in mortgage loans and owned facilities during 1998 and 1999. The Company expects to continue to make additional investments in health care facilities that would increase interest and rental revenues as well as interest and depreciation expense. Increases in revenues are expected to more than offset increases in associated expenses. Year 2000 Compliance NHI has evaluated its information technology systems and embedded technology with respect to potential Year 2000 problems. Although management believes that the majority of NHI's information technology systems and embedded technology is already Year 2000 compliant, NHI will complete the testing of its information technology systems and embedded technology in the third quarter of 1999. In addition, NHI has developed corrective plans for any technology assessed to be non-compliant. As a result of its advisory agreement with NHC, NHI is reliant upon NHC for much of its information technology systems and embedded technology. NHC has performed an evaluation of its information technology as it relates to NHI. Although NHI believes that the majority of NHC's information technology systems and embedded technology is already Year 2000 compliant, NHC will complete the testing of its information technology systems and embedded technology in the third quarter of 1999. NHI believes that NHC has developed corrective plans for any technology assessed to be non-compliant. Costs incurred to date for NHI's internal Year 2000 remediation efforts have not been material, and NHI does not expect that the cost of future internal actions will be material to its financial condition or results of operations. NHI does not anticipate any material disruption in its operations as a result of any failure by NHI to be in compliance. 16 NATIONAL HEALTH INVESTORS, INC. September 30, 1998 (Unaudited) NHI also depends upon the proper functioning of information technology systems and embedded technology operated by certain other third parties. These third parties include commercial banks and other lenders, and vendors such as telecommunications and utilities providers. NHI is currently evaluating and obtaining information concerning the Year 2000 compliance status of these third parties. If third parties have Year 2000 problems that are not remedied, the following problems could result: (i) in the case of banks and other lenders, in the disruption of capital flows potentially resulting in liquidity stress; or (ii) in the case of vendors, in disruption of important services upon which NHI depends, such as telecommunications and electrical power. Based upon current information, NHI anticipates successful completion and testing of its Year 2000 remediation efforts during 1999. However, there can be no guarantee that the Year 2000 will not have a material adverse effect on NHI's operations, financial position or liquidity if NHI's remediation efforts are not successful or completed in a timely manner. NHI is currently developing a contingency plan in the event that it is not able to achieve Year 2000 compliance. This contingency plan is expected to include establishing sources of liquidity that could be drawn upon in the event of systems disruption and identifying alternative vendors and back-up processes that do not rely on computers, whenever possible. The contingency plan is expected to be completed in the third quarter of 1999. Item 3. Quantitative and Qualitative Information About Market Risk Not Applicable. PART II. OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. Not applicable Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) List of exhibits - none required (b) Reports on Form 8-K - none required 17 NATIONAL HEALTH INVESTORS, INC. September 30, 1998 (Unaudited) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL HEALTH INVESTORS, INC. (Registrant) Date November 13, 1998 /s/ Richard F. LaRoche, Jr. Richard F. LaRoche, Jr. Secretary Date November 13, 1998 /s/ Donald K. Daniel Donald K. Daniel Principal Accounting Officer 18 EX-27 2
5 0000877860 NATIONAL HEALTH INVESTORS, INC. 9-MOS DEC-31-1998 SEP-30-1998 4,739,000 19,561,000 459,883,000 0 0 0 242,727,000 (43,504,000) 724,919,000 0 0 0 19,477,000 246,000 415,089,000 724,919,000 0 77,771,000 0 0 2,978,000 0 14,185,000 0 0 0 0 0 0 53,503,000 2.08 2.05
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