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, 1996 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
22,821,684 shares of common stock were outstanding as of October 31, 1996.
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
1996 1995
(unaudited)
ASSETS
Real estate properties:
Land $ 20,467 $ 8,238
Buildings and improvements 191,075 136,891
Construction in progress 553 129
212,095 145,258
Less accumulated depreciation (26,936) (22,063)
Real estate properties, net 185,159 123,195
Mortgage and other notes receivable 484,198 469,628
Investment in real estate mortgage
investment conduits 37,746 38,140
Interest and rent receivable 5,714 6,061
Cash and cash equivalents 1,429 2,122
Deferred costs and other assets 2,975 2,770
Total Assets $717,221 $641,916
LIABILITIES AND DEFERRED INCOME
Long-term debt $136,613 $141,103
Credit facilities 49,500 31,750
Convertible subordinated debentures 113,526 82,316
Accounts payable and other accrued expenses 4,230 3,656
Accrued interest 3,120 1,468
Dividends payable 15,694 15,602
Deferred income 10,834 9,040
Commitments, contingencies and guarantees --- ---
Total Liabilities and Deferred Income 333,517 284,935
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock,
$.01 par value; 10,000,000 shares
authorized; 1,291,456 and 2,311,533
shares, respectively, issued and
outstanding; stated at liquidation
preference of $25 per share 32,286 57,788
Common stock, $.01 par value:
40,000,000 shares authorized;
22,420,457 and 20,535,014 shares,
respectively, issued and outstanding 224 205
Capital in excess of par value of
common stock 363,467 311,908
Cumulative net income 177,328 128,350
Cumulative dividends (189,601) (141,270)
Total Stockholders' Equity 383,704 356,981
Total Liabilities & Stockholders' Equity $717,221 $641,916
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, 1995 is taken from the
audited financial statements at that date.
NATIONAL HEALTH INVESTORS, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
(in thousands,
except share amounts)
REVENUES:
Mortgage interest income $ 16,057 $ 13,576 $ 46,510 $ 40,622
Rental income 9,135 8,476 25,270 23,441
Investment interest and
other income 83 417 726 1,116
25,275 22,469 72,506 65,179
EXPENSES:
Interest 5,190 6,267 15,033 21,145
Depreciation and
amortization 2,193 1,884 5,792 5,246
General & administrative 953 799 2,703 2,487
8,336 8,950 23,528 28,878
NET INCOME $ 16,939 $ 13,519 $ 48,978 $ 36,301
DIVIDENDS TO PREFERRED
STOCKHOLDERS 695 1,442 2,558 5,373
NET INCOME APPLICABLE TO
COMMON STOCK $ 16,244 $ 12,077 $ 46,420 $ 30,928
NET INCOME PER COMMON SHARE:
Primary $ .73 $ .70 $ 2.15 $ 2.00
Fully diluted $ .71 $ .65 $ 2.07 $ 1.88
FUNDS FROM OPERATIONS PER COMMON SHARE:
Primary $ .81 $ .80 $ 2.37 $ 2.30
Fully diluted $ .78 $ .72 $ 2.25 $ 2.08
WEIGHED AVERAGE COMMON SHARES OUTSTANDING:
Primary 22,218,269 17,156,968 21,596,934 15,462,229
Fully diluted 27,192,171 23,628,838 27,154,986 22,388,213
Common dividends per share
declared $ .70 $ .67 $ 2.10 $ 1.91
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these financial statements.
NATIONAL HEALTH INVESTORS, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30
1996 1995
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 48,978 $ 36,301
Depreciation of real estate 4,873 4,463
Amortization of loan and organization costs 919 783
Interest on debenture conversion 209 82
Deferred income 6,054 819
Amortization of deferred income (4,260) (767)
Decrease (Increase) in interest & rent receivable 346 (816)
Decrease in other assets 39 5
Increase in accounts payable
and accrued liabilities 2,226 673
NET CASH PROVIDED BY OPERATING ACTIVITIES 59,384 41,543
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mortgage and
other notes receivable (99,840) (43,544)
Collection of mortgage notes receivable 85,664 40,765
Acquisition of property and equipment, net (66,837) (10,917)
NET CASH USED IN INVESTING ACTIVITIES (81,013) (13,696)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term loans payable --- (84,792)
Repayment of credit facilities (46,750) ---
Proceeds from credit facilities 64,500 ---
Proceeds from long-term debt 78,168 80,084
Principal payments on long-term debt (82,658) (49,356)
Proceeds from sale of subordinated
convertible debentures 56,190 ---
Financing costs paid (1,548) (167)
Dividends paid to shareholders (48,237) (32,212)
Sale of stock and exercise of options 1,271 64,910
NET CASH USED IN FINANCING ACTIVITIES 20,936 (21,533)
INCREASE IN CASH AND CASH EQUIVALENTS (693) 6,314
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,122 16
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,429 $ 6,330
NATIONAL HEALTH INVESTORS, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30
1996 1995
(in thousands)
Supplemental Information:
Cash payments for interest expense $ 10,364 $ 20,500
During the nine months ended Sept. 30, 1996
and Sept. 30, 1995, $24,980,000 and $5,256,000
respectively, of Senior Subordinated Convertible
Debentures were converted into 916,811 shares
and 256,943 shares, respectively, of NHI's
common stock:
Senior subordinated convertible debentures $(24,980) $ (5,256)
Financing costs $ 384 $ 138
Accrued interest $ (209) $ (82)
Common stock $ 10 $ 3
Capital in excess of par $ 24,795 $ 5,197
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these financial statements.
NATIONAL HEALTH INVESTORS, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(dollars in thousands)
Cumulative Convertible Capital in Total
Preferred Stock Common Stock Excess of Cumulative Cumulative Stockholders
Shares Amount Shares Amount Par Value Net Income Dividends Equity
BALANCE AT 12/31/95 2,311,533 $ 57,788 20,535,014 $205 $311,908 $128,350 $(141,270) $356,981
Net income -- -- -- -- -- 48,978 -- 48,978
Shares sold -- -- 45,524 -- 1,271 -- -- 1,271
Shares issued in con-
version of con-
vertible debentures
to common stock -- -- 916,811 10 24,795 -- -- 24,805
Shares issued in
conversion of pre-
ferred stock to
common stock (1,020,077) (25,502) 923,108 9 25,493 -- -- --
Dividends to common
shareholders ($2.10
per share) -- -- -- -- -- -- (45,773) (45,773)
Dividends to preferred
shareholders ($1.594
per share) -- -- -- -- -- -- (2,558) (2,558)
BALANCE AT 9/30/96 1,291,456 $ 32,286 22,420,457 $224 $363,467 $177,328 $(189,601) $383,704
BALANCE AT 12/31/94 3,802,960 $ 95,074 14,047,563 $140 $140,281 $ 78,658 $ (90,274) $223,879
Net income -- -- -- -- -- 36,301 -- 36,301
Shares sold -- -- 2,502,500 25 64,885 -- -- 64,910
Shares issued in con-
version of con-
vertible debentures
to common stock -- -- 256,943 3 5,197 -- -- 5,200
Shares issued in
conversion of pre-
ferred stock to
common stock (1,064,425) (26,610) 963,271 10 26,600 -- -- --
Common shares sold -- -- -- -- -- -- -- --
Dividends to common
shareholders ($1.86
per share) -- -- -- -- -- -- (30,020) (30,020)
Dividends to preferred
shareholders ($1.594
per share) -- -- -- -- -- -- (5,373) (5,373)
BALANCE AT 9/30/95 2,738,535 $ 68,464 17,770,277 $178 $236,963 $114,959 $(125,667) $294,897
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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 "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, 1995, 1994 and 1993 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. EARNINGS PER SHARE
Primary earnings per share is based on the weighted average
number of common and common equivalent shares outstanding.
Common equivalent shares result from the dilutive effect of stock
options computed using the treasury stock method. Net income is
reduced by dividends to holders of cumulative convertible
preferred stock.
Fully diluted earnings per share assumes, in addition to the
above, 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 primary and fully diluted earnings per share.
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
PRIMARY:
Weighted avg.common shares 22,189,714 17,136,770 21,568,250 15,451,984
Stock options 28,555 20,198 28,684 10,245
Average common shares
outstanding 22,218,269 17,156,968 21,596,934 15,462,229
Net income $16,939,000 13,519,000 $48,978,000 $36,301,000
Dividends paid to preferred
shareholders ( 695,000) (1,442,000) (2,558,000) (5,373,000)
Net income available to
common stockholders $16,244,000 $12,077,000 $46,420,000 $30,928,000
Net income per
common share $ .73 $ .70 $ 2.15 $ 2.00
FULLY DILUTED:
Weighted average common
shares 22,189,714 17,136,770 21,568,250 15,451,984
Stock options 29,964 29,244 29,964 29,270
Convertible subordinated
debentures 3,723,291 3,637,454 4,008,791 3,769,897
Cumulative convertible pre-
ferred stock 1,249,202 2,825,370 1,547,981 3,137,062
Average common shares
outstanding 27,192,171 23,628,838 27,154,986 22,388,213
Net income $16,939,000 $13,519,000 $48,978,000 $36,301,000
Interest expense on con-
vertible subordinated
debentures 2,239,000 1,840,000 7,122,000 5,678,000
Net income assuming con-
version of subordinated
convertible debentures
to common stock $19,178,000 $15,359,000 $56,100,000 $41,979,000
Net income per
common share $ .71 $ .65 $ 2.07 $ 1.88
NATIONAL HEALTH INVESTORS, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
Note 3. FUNDS FROM OPERATIONS
The following table summarizes the calculation of primary
and fully diluted funds from operations (FFO) per share.
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
PRIMARY:
Net income $16,939,000 $13,519,000 $48,978,000 $36,301,000
Depreciation of real
estate 1,805,000 1,636,000 4,873,000 4,463,000
Dividends paid to preferred
shareholders (695,000) (1,442,000) (2,558,000) (5,373,000)
Funds from operations $18,049,000 $13,713,000 $51,293,000 $35,391,000
Average common shares
outstanding 22,218,269 17,156,968 21,596,934 15,462,229
Funds from operations per
common share $ .81 $ .80 $ 2.37 $ 2.30
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
FULLY DILUTED:
Net income $16,939,000 $13,519,000 $48,978,000 $36,301,000
Depreciation of real
estate 1,805,000 1,636,000 4,873,000 4,463,000
Interest expense on con-
vertible subordinated
debentures 2,239,000 1,840,000 7,122,000 5,678,000
Funds from operations assuming
conversion of subordinated
convertible debentures to
common stock 20,983,000 16,995,000 60,973,000 46,442,000
Average common shares
outstanding 27,192,171 23,628,838 27,154,986 22,388,213
Funds from operations per
common share $ .78 $ .72 $ 2.25 $ 2.08
FFO is net income plus depreciation and amortization. Net
income for these purposes excludes the following items, if any:
1) gains or losses from debt restructurings, 2) gains or losses
from the sale of property which has been previously depreciated,
3) items classified under generally accepted accounting
principles as extraordinary or unusual, and 4) significant
nonrecurring events that materially distort the comparative
measurement of company performance over time. Depreciation and
amortization for these purposes includes only depreciation or
amortization of real estate assets and specifically excludes, if
any, the depreciation of operating equipment and the amortization
of deferred financing costs.
For primary FFO, net income is further reduced by dividends
paid to preferred shareholders. For fully diluted FFO, net
income is increased for interest expense on the convertible
subordinated debentures.
The reconciliation of FFO to net income which is presented
above includes a line-item breakdown of each of the adjustments
being used in the calculation of FFO.
Weighted average shares are calculated in the same way as
they are for the computation of primary and fully diluted
earnings per share.
Beginning in 1996 and restated for prior years, FFO is being
calculated by NHI without adding back to net income the
amortization of loan costs, as suggested in the clarified FFO
definition provided by the National Association of Real Estate
Investment Trusts. Use of the clarified definition of FFO when
compared to the calculation used in prior periods results in a
one cent and three cent decrease, respectively in fully diluted
FFO per share for the three months and nine months ended
September 30, 1996 and in a one cent and four cent decrease,
respectively in fully diluted FFO per share for the three months
and nine months ended September 30, 1995.
Note 4. COMMITMENTS AND GUARANTEES:
At September 30, 1996, NHI was committed, subject to due
diligence and financial performance goals, to fund approximately
$66,376,000 in health care real estate projects of which
approximately $47,776,000 is expected to be funded within the
next 12 months. The commitments include mortgage loans or
purchase leaseback agreements for sixteen long-term care centers,
two retirement centers and one medical office building all at
rates ranging from 10.0% to 11.5%. Also included in the
$47,776,000 of commitments is a $18,600,000 commitment secured by
first mortgages on 43 long-term care centers. Draws on the
$18,600,000 commitment are limited to $3,700,000 annually. NHI
has recorded deferred income for commitment fees related to these
loans where applicable.
In order to obtain the consent of appropriate lenders to
NHC's transfer of assets to NHI, NHI guaranteed certain debt
($26,077,000 at September 30, 1996) of NHC. The debt is at fixed
and variable interest rates with a weighted average interest rate
of 8.3% at September 30, 1996. NHI receives from NHC
compensation of approximately $130,000 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.
Also additionally, NHI has also guaranteed bank loans in the
amount of $1,524,000 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.
Note 5. REVOLVING LINE OF CREDIT
In June, 1996, NHI renegotiated its $100,000,000 revolving
line of credit with seven banks. The agreement was previously
comprised of a $40,000,000 tranch which matured after one year
and a $60,000,000 tranch which matured after three years. Under
the revised terms, all of the $100,000,000 revolving line of
credit has a three year term which matures in June, 1999.
Additionally, the revised line of credit is at a lower spread
over LIBOR ("London Interbank Offered Rate") compared to what was
available under the previous agreement. The full amount
available to be drawn on the line of credit was $50,500,000 at
September 30, 1996.
Note 6. TERM LOANS
In August, 1996, the Company consolidated its three
$25,000,000 term loans into one term loan. The new term loan
facility has $75,000,000 outstanding and a total of $100,000,000
committed. The term loan bears interest at a premium over LIBOR
and matures August 1, 2001. The $25,000,000 available under the
term loan will remain available until December 31, 1996 at which
time the additional $25,000,000 commitment will be eliminated
unless previously borrowed.
In September, 1996, NHI received an investment grade rating
on its senior unsecured debt. Duff & Phelps Credit Rating Co.
assigned a BBB- debt rating citing NHI's stable cash flow
provided by a diversified portfolio of investments in health care
properties, moderate financial leverage, and a track record of
growth and profitability. As a result of receiving this
investment grade rating, NHI's borrowing cost has been reduced by
1/8% on its term loan and revolving line of credit facilities.
Note 7. CONVERTIBLE SUBORDINATED DEBENTURES:
On December 12, 1995 and on January 15, 1996, NHI sold
$45,000,000 and $55,000,000, respectively (for a total of
$100,000,000) of 7.75% convertible subordinated debentures (the
"1995 debentures") due on January 1, 2001. 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.
At September 30, 1996, $3,930,000 of the 1995 debentures have
been converted into 124,266 shares of common stock. NHI has
reserved 3,162,055 shares of common stock for 1995 debenture
conversions.
On February 9, 1996 and April 12, 1996, NHI issued
$1,050,000 and $140,000, respectively of 7% subordinated
convertible debentures due on January 1, 2006 (the "1995 debt
service debentures"). The debentures may be issued to current
and future mortgagees and lessees of NHI to satisfy existing debt
service reserve escrow requirements under applicable mortgages or
leases. At September 30, 1996, debentures in the amount of
$4,861,000 have been 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. At September
30, 1996, none of the debentures have been converted.
At September 30, 1996, $12,295,000 of 7.375% convertible
subordinated debentures (the "1993 debentures") remain
outstanding. The 1993 debentures are convertible at the option
of the holder into the common stock of the Company at a
conversion price of $27.25 per share, subject to adjustment.
During the nine months ended September 30, 1996, $19,540,000 of
the 1993 debentures were converted into 717,045 shares of common
stock. The Company has reserved 454,789 shares of common stock
for conversion of the 1993 debentures.
In addition to the 1993 debentures, $300,000 of the 10%
senior convertible subordinated debentures (the "senior
debentures") remain outstanding at September 30, 1996. The
senior debentures are convertible into the common stock of the
Company at $20 per share. During the nine months ended September
30, 1996, $1,510,000 of the senior debentures were converted into
75,500 shares of common stock. The Company has reserved 82,750
shares of common stock for conversion of the senior debentures.
Note 8. CUMULATIVE CONVERTIBLE PREFERRED STOCK
In February and March, 1994, NHI issued $109,558,000 of 8.5%
Cumulative Convertible Preferred Stock ("Preferred Stock") with a
liquidation preference of $25 per share. Dividends at an annual
rate of $2.125 are cumulative from the date of issuance and are
paid quarterly.
The Preferred Stock is convertible into NHI common stock at
the option of the holder at any time at a conversion price of
$27.625 per share of common stock, which is equivalent to a
conversion rate of 0.905 per share of common stock for each share
of Preferred Stock (subject to adjustment in certain
circumstances).
The Preferred Stock is not redeemable by NHI prior to
February 15, 1999 and is not redeemable for cash. On or after
February 15, 1999, the Preferred Stock will be redeemable 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.
The Preferred Stock is listed on the NYSE under the symbol
"NHIPr."
Note 9. LIMITS ON COMMON STOCK OWNERSHIP
On October 16, 1996, the NHI Board of Directors, pursuant to
powers granted by NHI's charter, changed the limit on the
percentage of ownership which any person may have in the
outstanding common stock of NHI from a limit of 7.0% (as passed
on October 17, 1995) to a limit of 9.9%. The limit on ownership
of any other class of stock (including issues convertible into
common stock) remains at 9.9% of the outstanding stock.
This limit is a provision of NHI's charter and is necessary
in order to reduce the possibility of NHI's failing to meet the
stock ownership requirements for REIT qualification under the
Internal Revenue Code. The changing of the limit to 9.9% of the
outstanding common stock is made possible by the increase in the
number of authorized and issued common shares of NHI since its
inception in October, 1991.
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, 1996, NHI had interests in net
real estate owned by it
and mortgage investments totaling $707.1 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, 1996, the Company has investments in 233
health care facilities located in 26 states consisting of 187
long-term care facilities, three acute care hospitals, eight
medical office buildings,
eight assisted living facilities, eight retirement centers, and
19 residential projects for the developmentally disabled. These
investments consist of approximately $484.2 million aggregate
principal amount of loans to 46 borrowers, $185.2 million of
purchase leaseback transactions with nine lessees and $37.7
million invested in REMIC pass through certificates backed by
first mortgage loans to seven operators. Of these 233
facilities, 43 are leased to NHC and nine additional facilities
are managed by NHC. (NHC is the Company's investment advisor.)
Consistent with its strategy of diversification, the Company has
reduced the portion of its portfolio operated by NHC from 100.0%
of total real estate assets on October 17, 1991 to approximately
20.1% of total real estate assets on September 30, 1996.
Capital Resources and Liquidity
NHI has generated net cash from operating activities for the
first nine months of 1996 in the amount of $59.4 million. The
funds were used along with $56.2 million (net of financing costs
paid) proceeds from the sale of subordinated convertible
debentures, $85.7 million from the collection of mortgage notes
receivable, $17.8 million of net proceeds from credit facilities
and $1.3 million from the sale of common stock to make additional
investments in income producing assets and real estate properties
totaling approximately $166.7 million, to repay long-term debt in
a net amount of $4.5 million and to pay dividends to stockholders
of $48.2 million.
In September, 1996, NHI received an investment grade rating
on its senior unsecured debt. Duff & Phelps Credit Rating Co.
assigned a BBB- debt rating citing NHI's stable cash flow
provided by a diversified portfolio of investments in health care
properties, moderate financial leverage, and a track record of
growth and profitability.
In June 1996, NHI renegotiated its $100 million revolving
line of credit for a lower spread over LIBOR compared to what was
previously available and also to extend the maturity date for the
entire $100 million credit agreement to June, 1999. The amount
available to be drawn on the line of credit was $50.5 million at
September 30, 1996.
In January of 1996, NHI collected $54.7 million in proceeds
from the sale of 7.75% convertible subordinated debentures. The
Company's balance sheet was further strengthened by the
conversion of $25.5 million of NHI's outstanding convertible
preferred stock and $25.0 million of convertible debentures to
common equity during the first nine months of 1996. NHI's
nonconvertible debt as a percentage of total capitalization has
been lowered from 45% at the end of 1994 to 28% at December 31,
1995 and to 27% at September 30, 1996. The Company continues to
be well positioned to take advantage of new investment
opportunities.
At September 30, 1996, the Company was committed, subject to
due diligence and financial performance goals, to fund
approximately $66.4 million in health care real estate projects,
of which approximately $47.8 million is expected to be funded
within the next 12 months. The commitments include mortgage
loans or purchase leaseback agreements for 16 long-term health
care centers, two retirement centers and one medical office
building, generally at rates ranging from 10.0% to 11.5%.
Included in the $66.4 million of commitments is a $18.6 million
commitment which amount is secured by first mortgages on 43 long-
term care centers. Draws on the $18.6 million commitment are
limited to $3.7 million annually. Furthermore, the Company
anticipates that it will in the future continue to make
additional investments in health care properties.
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, and the assumption of
secured or unsecured indebtedness or by the sale of all or a
portion of certain currently held investments.
Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995
Net income for the three months ended September 30, 1996 is
$16.9 million versus $13.5 million for the same period of 1995,
an increase of 25.3%. Fully diluted earnings per common share
increased six cents or 9.2% to 71 cents in the 1996 period from
65 cents in the 1995 period. Fully diluted funds from operations
applicable to common stock for the 1996 three months period were
$21.0 million or 78 cents per share versus $17.0 million or 72
cents per share for the 1995 period, a per share increase of
8.3%.
Total revenues for the three months ended September 30, 1996
increased $2.8 million or 12.5% to $25.3 million from $22.5
million for the three months ended September 30, 1995. Revenues
from mortgage interest income increased $2.5 million or 18.3% in
the 1996 period as compared to the 1995 period. Revenues from
rental income increased $0.7 million or 7.8% when compared to the
same period in 1995. These increases resulted primarily from
investments in additional facilities during the last 12 months
and increased "revenue participations" and "additional rent"
earned under the Company's existing mortgages and leases.
Total expenses for the 1996 three month period decreased
$0.6 million or 6.9% to $8.3 million from $9.0 million for the
1995 three month period. Interest expenses decreased $1.1
million or 17.2% in the 1996 three month period as compared to
the 1995 three month period. Depreciation and amortization
increased $0.3 million or 16.4% when compared to the same period
in 1995. General and administrative expenses in 1996 increased
$0.1 million or 19.3% when compared to the 1995 period. The
decrease in interest expense was due to decreased debt levels
resulting from the paydown of credit facility debt (average
outstanding balance, $89.2 million in the three months ended
September 30, 1995, $38.0 million in 1996) and from the
conversion of 7.375% and 10% convertible debentures to common
stock (average outstanding balance $100.6 million in 1995, $21.1
million during the three months ended September 30, 1996). The
decrease in interest expense was offset in part by interest on
7.75% convertible debt which was not outstanding in the 1995
three month period but which was outstanding in an average amount
of %97.3 million for the 1996 three month period. Depreciation
increased as a result of the Company's placing of newly
constructed assets in service in 1995 and 1996. General and
administrative expenses increased due to increased administrative
expenses and advisory fees to NHC.
Nine Months ended September 30, 1996 Compared to Nine Months
Ended September 30, 1995.
Net income for the nine months ended September 30, 1996 is
$49.0 million versus $36.3 million for the same period of 1995,
an increase of 34.9%. Fully diluted earnings per common share
increased 19 cents or 10.1% to $2.07 in the 1996 period from
$1.88 in the 1995 period.
Fully diluted funds from operations applicable to common
stock for the 1996 nine month period were $60.9 million or $2.25
per share versus $46.4 million or $2.08 per share for the 1995
period, a per share increase of 8.2%. FFO is calculated using
the National Association of Real Estate Investment Trusts
clarified definition of funds from operations which NHI has
adopted in 1996. Use of the clarified definition when compared
to the calculation used in prior periods results in a one cent
and three cent decrease, respectively in fully diluted FFO per
share for the three months and nine months ended September 30,
1996 and in a one cent and four cent decrease, respectively in
fully diluted FFO for the three months and nine months ended
September 30, 1995.
Total revenues for the nine months ended September 30, 1996
increased $7.3 million or 11.2% to $72.5 million from $65.2
million for the nine months ended September 30, 1995. Revenues
from mortgage interest income increased $5.9 million or 14.5% in
the 1996 period as compared to the 1995 period. Revenues from
rental income increased $1.8 million or 7.8% when compared to the
same period in 1995. These increases resulted primarily from
investments in additional facilities during the last 12 months
and increased "revenue participations" and "additional rent"
earned under the Company's existing mortgages and leases.
Total expenses for the 1996 nine month period decreased $5.4
million or 18.5% to $23.5 million from $28.9 million for the 1996
nine month period. Interest expenses decreased $6.1 million or
28.9% in the 1996 nine month period as compared to the 1995 nine
month period. Depreciation and amortization increased $0.5
million or 10.4% when compared to the same period in 1995. Other
operating expenses in 1996 increased $0.2 million or 8.7% when
compared to the 1995 period. The decrease in interest expense
was due to decreased debt levels resulting from the paydown of
credit facility debt (average outstanding balance, $121.9 million
in the nine months ended September 30, 1995, $12.7 million in the
nine months ended September 30, 1996) and from the conversion of
7.375% and 10% convertible debentures to common stock (average
outstanding balance $100.6 million in 1995, $21.1 million in
1996). The decrease in interest expense was offset in part by
the increased interest on 7.75% convertible debt, $45.0 million
of which was issued in December, 1995 and $55.0 million of which
was issued in January, 1996. Depreciation increased as a result
of the Company's placing of newly constructed assets in service
in 1995 and 1996. General and administrative expenses increased
due to increased administrative expenses and advisory fees to
NHC.
Future Growth
The Company expects increases in both mortgage interest
income and rental income from additional investments in mortgage
loans and owned facilities during 1996. 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.
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 - Exhibit 27 - Financial Data Schedule
(for SEC purposes only)
(b) Reports on Form 8-K - none required
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 11, 1996 s/Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr.
Secretary
Date November 11, 1996 s/Donald K. Daniel
Donald K. Daniel
Principal Accounting Officer