National Health Investors, Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005
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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)
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Maryland
(State or other jurisdiction of incorporation or organization)
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62-1470956
(I.R.S. Employer Identification Number) |
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100 Vine Street, Suite 1202, Murfreesboro, Tennessee 37130
(Address of principal executive offices)
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37130
(Zip Code) |
Companys telephone number, including area code: (615) 890-9100
Securities registered pursuant to Section 12(b) of the Act:
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Title of each Class
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Name of each exchange on which registered |
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Shares of Common Stock
Convertible Subordinated Debentures Due 2006 -
(Greater of Prime + 1% or 9%)
7.30% Notes Due 2007
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New York Stock Exchange
New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: Same
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
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 o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as
defined in Rule 12b-2 of the Act).
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No þ
The aggregate market value of voting stock held by nonaffiliates on June 30, 2005 (based on the closing price of such shares on
the New York Stock Exchange) was approximately $591 million. For purposes of the foregoing calculation only, all directors, named
executive officers and persons knows to the Registrant to be holders of 5% or more of the Registrants Common Stock have been deemed
affiliates of the Registrant. The number of shares of Common Stock outstanding as of February 28, 2006 was 27,830,439.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement for its 2006 annual meeting of stockholders are incorporated by reference into
Part III, Items 10, 11, 12, 13, and 14 of this Form 10-K.
TABLE OF CONTENTS
PART I
Item 1. Business.
General
National Health Investors, Inc. (NHI or the Company) is a real estate investment trust
(REIT) which invests in income producing health care properties primarily in the long-term care
industry. As of December 31, 2005, we had ownership interests in real estate and mortgage
investments totaling approximately $381,929,000, and other investments in preferred stock and
marketable securities of $57,685,000, resulting in total invested assets of $439,614,000. Our
mission is to invest in health care real estate which generates current income that will be
distributed to stockholders. We have pursued this mission by making mortgage loans and acquiring
properties to lease nationwide primarily in the long-term health care industry. These investments
include long-term care facilities, acute care hospitals, medical office buildings, retirement
centers and assisted living facilities, all of which are collectively referred to herein as Health
Care Facilities. We have funded these investments through three sources of capital: (1) current
cash flow, including principal prepayments from our borrowers, (2) the sale of equity in the form
of common and preferred stock and (3) debt offerings, including bank lines of credit, the issuance
of convertible debt instruments, and the issuance of straight debt. We currently have no
outstanding bank lines of credit.
As of December 31, 2005, we had approximately $381,929,000 in real estate and mortgage
investments in 158 health care facilities located in 18 states consisting of 115 long-term care
facilities, one acute care hospital, four medical office buildings, 15 assisted living facilities,
six retirement centers and 17 residential projects for the developmentally disabled. These
investments consist of approximately $118,800,000 aggregate carrying amount of loans to 16
borrowers and $263,129,000 of purchase leaseback agreements with 16 lessees. Of these 158
facilities, 37 are leased to or operated by National HealthCare Corporation (NHC), and four have
lease guarantees extended to them by NHC.
We will continue to review our investment opportunities as we generate cash from our
operating, investing and financing activities. At December 31, 2005, we were committed, subject
to due diligence and financial performance goals, to fund approximately $2,770,000 in health care
real estate projects. The commitments include investments for five long-term health care centers,
and one assisted living facility all at rates ranging from 6% to prime plus 2%.
Effective November 1, 2004, we assigned our Advisory Agreement with National HealthCare
Corporation to a new company, Management Advisory Source, LLC, formed by NHIs President and Board
Chairman, W. Andrew Adams. NHI has no ownership in Management Advisory Source, LLC. Prior to
November 1, 2004, NHC had provided advisory services to us since our inception pursuant to an
Advisory, Administrative Services and Facilities Agreement (the Advisory Agreement). In
addition, NHI and NHC have certain other relationships.
Unless the context indicates otherwise, references herein to the Company, we and our
include all of our subsidiaries.
Types of Health Care Facilities
Long-term care facilities. As of December 31, 2005, we owned and leased 69 licensed long-term
care facilities, 34 of which were operated by NHC. All of the 35 remaining licensed long-term care
facilities are leased to other long-term care companies. We also had outstanding first mortgage
loans on 46 additional licensed long-term care facilities. All of these facilities provide some
combination of skilled and intermediate nursing and rehabilitative care, including speech, physical
and occupational therapy. The operators of the long-term care facilities receive payment from a
combination of private pay sources and government programs such as Medicaid and Medicare.
Long-term care facilities are required to obtain state licenses and are highly regulated at the
federal, state and local level. Most long-term care facilities must obtain certificates of need
from the state before opening or expanding such facilities.
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Acute and long term care hospitals. As of December 31, 2005, we owned and leased one acute
care hospital. Acute care hospitals provide a wide range of inpatient and outpatient services and
are subject to extensive federal, state and local legislation and regulation. Acute and long term
care hospitals undergo periodic inspections regarding standards of medical care, equipment and
hygiene as a condition of licensure. Services provided by acute and long term care hospitals are
generally paid for by a combination of private pay sources and governmental programs.
Medical office buildings. As of December 31, 2005, we owned and leased four medical office
buildings. Medical office buildings are specifically configured office buildings whose tenants are
primarily physicians and other medical practitioners. Medical office buildings differ from
conventional office buildings due to the special requirements of the tenants and their patients.
Each of our owned medical office buildings is leased to one lessee, and is either physically
attached to or located on an acute care hospital campus. The lessee then leases individual office
space to the physicians or other medical practitioners. The lessee is responsible to us for the
lease obligations of the entire building, regardless of its ability to lease the individual office
space.
Assisted Living Facilities. We own 15 assisted living facilities which are leased to
individual operators. Assisted living unit facilities are free standing facilities or facilities
which are attached to long term care facilities or retirement facilities and provide basic room and
board functions for the elderly. Some assisted living projects include licensed long term care
(nursing home) beds. On-site staff are available to assist in minor medical needs on an as needed
basis.
Retirement Centers. We own five retirement centers, three of which are leased to NHC, one to
Sun Healthcare, and one to ElderTrust and have a first mortgage on one other center. Retirement
centers offer specially designed residential units for the active and ambulatory elderly and
provide various ancillary services for their residents including restaurants, activity rooms and
social areas. Charges for services are paid from private sources without assistance from
government programs. Retirement centers may be licensed and regulated in some states, but do not
require the issuance of a certificate of need such as is required for long-term care facilities.
Residences for the developmentally disabled. As of December 31, 2005, we had outstanding
first mortgage notes on 17 residences for the developmentally disabled. Residences for the
developmentally disabled are generally small home-like environments which accommodate six to eight
mentally and developmentally disabled persons. These persons obtain custodial care which includes
food, lodging, education and transportation services. These community based services are replacing
the large state institutions which have historically provided care to the developmentally disabled.
Services to the developmentally disabled are primarily paid for by state Medicaid programs.
Nature of Investments
Our investments are typically structured as either purchase leaseback transactions or mortgage
loans. We also provide construction loans for facilities for which we have already committed to
provide long-term financing or which agree to enter into a lease with us upon completion of the
construction. The lease rates of our leases and the interest rates on the mortgage loans and
construction loans have historically ranged between 9% and 12% per annum. We typically charge a
commitment fee of 1% based on the purchase price of the property of a purchase leaseback or the
total principal loan amount of a mortgage loan. In instances where construction financing has also
been supplied, there is generally an additional 1% commitment fee for the construction financing.
We believe our lease terms, mortgage loan and construction loan terms are competitive in the market
place. Except for certain properties, as described under the heading Real Estate and Mortgage
Writedowns (Recoveries), all of the operating Health Care Facilities are currently performing
under their mortgage loans or leases. Typical characteristics of these transactions are as
follows:
Mortgage Loans. In general, the term of our mortgage loans is 10 years with the principal
amortized over 20 to 25 years and a balloon payment due at the end of the 10 year term.
Substantially all mortgage loans have an additional interest component which is based on the escalation of gross revenues at the
project level or fixed rate increases. In certain of our mortgage loans, we have received an
equity participation which allows us to share in a portion of any appreciation of the equity value
of the underlying property. We do not expect the equity participations to constitute a
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significant
or frequent source of income. Most mortgage loans have prepayment penalties starting at 10% during
the first year and decreasing by 1% each year thereafter. In most cases, the owner of the property
has committed to make minimum annual capital improvements for the purpose of maintenance or
upgrading the facility.
Leases. Our leases generally have an initial leasehold term of 10 to 15 years with one or
more five year renewal options. The leases are triple net leases under which the tenant is
responsible to pay all taxes, utilities, insurance premium costs, repairs and other charges
relating to the ownership and operation of the Health Care Facilities. The tenant is generally
obligated at its expense to keep all improvements and fixtures and other components of the Health
Care Facilities covered by all risk insurance in an amount equal to at least the full replacement
costs thereof and to maintain specified minimal personal injury and property damage insurance,
protecting us as well as the tenant at such Health Care Facility. The leases also require the
tenant to indemnify and hold harmless NHI from all claims resulting from the use and occupancy of
each Health Care Facility by the tenant and related activities, as well as to indemnify NHI against
all costs related to any release, discovery, clean-up and removal of hazardous substances or
materials on, or other environmental responsibility with respect to, each Health Care Facility.
Our existing leases contain annual escalators in rent payments. All of the acute care and
medical office building properties which we own and lease give the lessee an option to purchase the
underlying property at the greater of i) our acquisition costs; ii) the then fair market value as
established by independent appraisers or iii) the sum of the land costs, construction costs and any
additional capital improvements made to the property by us. In addition, the acute care and
medical office building leases contain a right of first refusal for the lessee if we receive an
offer to buy the underlying leased property.
Most of the obligations under the leases are guaranteed by the parent corporation of the
lessee, if any, or affiliates or individual principals of the lessee. In some leases, the third
party operator will also guarantee some portion of the lease obligations, usually for a fixed
period such as six months or one year. Some obligations are further backed by other collateral
such as machinery, equipment, furnishings and other personal property.
Construction loans. From time to time, although none are currently outstanding, we also
provide construction loans that by their terms convert either into purchase leaseback transactions
or mortgage loans upon the completion of the construction of the facility. The term of such
construction loans are for a period which commences upon the closing of such loan and terminates
upon the earlier of (a) the completion of the construction of the applicable facility or (b) a
specific date. During the term of the construction loan, funds are usually advanced pursuant to
draw requests made by the borrower in accordance with the terms and conditions of the loan. In
addition to the security of the lien against the property, we will generally require additional
security and collateral in the form of either payment and performance completion bonds or
completion guarantees by the borrowers parent, affiliates of the borrower or one or more of the
individuals who control the borrower. No such loans are currently outstanding.
Operating Facilities. We owned and operated 17 long-term health care facilities that we
acquired through foreclosure or through the acceptance of deeds in lieu of foreclosure and
subsequently sold the facilities to an unrelated not-for-profit entity, providing 100% financing.
The operating revenues and expenses of these facilities continue to be recorded in the consolidated
statements of income until such time as the down payment and continuing investment criteria of
Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate (SFAS
66) are met at which time we will account for the sale under the full accrual method.
Competition and Market Conditions
We compete, primarily on the basis of price, available capital, knowledge of the industry, and
flexibility of financing structure, with real estate partnerships, other REITs and other investors
(including, but not limited to, banks, insurance companies, and investment bankers marketing
securities in mortgage funds) in the acquisition, leasing and financing of health care related
entities.
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The operators of the Health Care Facilities compete on a local and regional basis with
operators of facilities that provide comparable services. Operators compete for patients and staff
based on quality of care, reputation, physical appearance of facilities, services offered, family
preference, physicians, staff and price. They compete with independent operators as well as
companies managing multiple facilities, some of which are substantially larger and have greater
resources than the operators of the Health Care Facilities. Some of these facilities are operated
for profit while others are owned by governmental agencies or tax-exempt non-profit organizations.
The long term care facilities to which we provide mortgage loans and which we rent to others
or operate ourselves receive the majority of their revenues from Medicare, Medicaid and other
government programs. From time to time, these facilities have experienced Medicare and Medicaid
revenue reductions brought about by the enactment of legislation to reduce government costs.
Beginning January 1, 2006, CMS (Centers for Medicare and Medicaid Services) implemented major
changes to the SNF PPS payment methodology (See Sources of Revenue) that will reduce payments to
facilities by about 5%. State Medicaid funding is not expected to keep pace with inflation
according to industry studies. Additionally, the assisted living industry experienced slower
fill-up rates on new projects and more competition for their mature projects as overbuilding
occurred in certain markets. Any changes in reimbursement methodology that reduces reimbursement
to levels that are insufficient to cover the operating costs of our borrowers, lessees and the
facilities we operate could adversely impact us.
Operators
The majority of the Health Care Facilities are operated by the owner or lessee. As a percent
of total investments, 24.82% of the Health Care Facilities are operated by publicly-owned
companies, while 67.62% are operated by regional health care operators and 7.56% are operated by
smaller operators. We consider the operator to be an important factor in determining the
creditworthiness of the investment and we generally have the right to approve any changes in
operators. Operators who collectively operate more than 3% of our total real estate investments
are as follows: NHC, Health Services Management of Texas, LLC, THI of Baltimore, Inc., Sunrise
Senior Living Services, Inc., Health Services Management, Inc., Community Health Systems, Inc.,
ElderTrust of Florida, RGL Development, LLC, Southeast Health Services, Regal Holdings, LLC,
American HealthCare, LLC, and SeniorTrust of Florida, Inc. For additional information about these
and other NHI operators, see Real Estate and Mortgage Writedowns (Recoveries).
NHC Master Agreement to Lease
On December 27, 2005, under an amendment to the master lease, NHC exercised its option to
extend the existing lease on 41 properties for the second renewal term. These 41 properties
include 38 skilled nursing homes, four of which are leased to other parties, the lease payments of
which are guaranteed to us by NHC under the Master Lease, and three retirement centers. The
15-year lease extension begins January 1, 2007, and includes three additional five-year renewal
options, each at fair market value. Under the terms of the lease, base rent for 2007 will total
$33,700,000 (compared to $33,328,000; $32,836,000; and $33,267,000 in 2005, 2004, and 2003,
respectively) with rent thereafter escalating by 4% of the increase in facility revenue over a 2007
base year. The lease was scheduled to expire on December 31, 2006 unless extended by NHC. The
terms of the existing lease remain in place for 2006, as discussed below.
Before amendment on December 27, 2005 and before termination of one lease each in 2004 and
2005, the Master Agreement to Lease (the Master Agreement) with NHC covered 40 nursing homes and
three retirement centers and contained terms and conditions applicable to all leases entered into by and between NHC
and the Company (the Leases). The Leases were for an initial term expiring on December 31, 2001
with two five year renewal options at the election of NHC which allow for the renewal of the leases
on an omnibus basis only. During 2000, NHC exercised its option to extend the lease term for the
first five-year renewal term under the same terms and conditions as the initial term. During 2000,
individual facility leases for four centers, all in Florida, were terminated and NHI re-leased the
properties
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to third parties. Although NHCs rent obligations pursuant to the master lease are
unchanged, NHC receives a credit for rents paid to NHI by the new operators of the four Florida
centers.
During the initial term and the first renewal term ending on December 31, 2006 (which renewal
term has been exercised by NHC), NHC is obligated to pay three types of rent for the respective
Health Care Facilities: (1) base rent, (2) debt service rent, and (3) percentage rent. Base rent
(which includes rent on property additions since inception) totaled $19,827,000 in 2005. Debt
service rent varies from year to year and is the amount of interest and principal on the mortgages
to which the Health Care Facilities were subject when they were transferred to us in 1991. Debt
service rent has been adjusted for refinancings from time to time and totaled $9,776,000 in 2005.
In addition to base rent and debt service rent, NHC must pay percentage rent to us equal to 3%
of the increase in the gross revenue of each facility. Effective January 1, 2000, we amended our
lease agreements with NHC to provide for the calculation of percentage rent based on quarterly
revenue increases rather than annual revenue increases. NHC paid $4,525,000 as percentage rent for
2005.
The Master Agreement is a triple net lease, under which NHC is responsible for all taxes,
utilities, insurance premium costs, repairs (including structural portions of the buildings,
constituting a part of the Health Care Facilities) and other charges relating to the ownership and
operation of the Health Care Facilities. NHC is obligated at its expense to keep all improvements
and fixtures and other components of the Health Care Facilities covered by all risk insurance in
an amount equal to the full replacement costs thereof, insurance against boiler explosion and
similar insurance, flood insurance if the land constituting the Health Care Facility is located
within a designated flood plain area and to maintain specified property damage insurance,
protecting us as well as NHC at such Health Care Facility. NHC is also obligated to indemnify and
hold us harmless from all claims resulting from the use and occupancy of each Health Care Facility
by NHC or persons claiming under NHC and related activities, as well as to indemnify us against all
costs related to any release, discovery, cleanup and removal of hazardous substances or materials
on, or other environmental responsibility with respect to, each Health Care Facility leased by NHC.
Commitments
We have commitments to third parties to make loans to fund projects totaling $2,770,000 as of
December 31, 2005.
The following table sets forth certain information regarding our commitments as of December
31, 2005.
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Commitments |
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Less Than |
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After |
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Facility Type |
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Facilities |
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One Year |
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One Year |
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Total |
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(in thousands) |
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Long-term Care |
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5 |
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$ |
2,500 |
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$ |
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$ |
2,500 |
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Assisted Living |
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1 |
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270 |
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270 |
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Commitments |
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6 |
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$ |
2,770 |
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$ |
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$ |
2,770 |
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Sources of Revenues
General. Our revenues are derived primarily from mortgage interest income, rental income and
the operation of Foreclosure Properties. During 2005, mortgage interest income equaled $18,226,000
of which all except $250,000 was from non-NHC borrowers. Rental income totaled $45,791,000,
$33,328,000 of which was from properties operated by NHC. The interest and rental payments are
primarily derived from the operations of the Health Care Facilities. The source and amount of
revenues from such operations are determined by (i) the licensed bed or other capacity of the
Health Care Facilities, (ii) the occupancy rate of the Health Care Facilities, (iii) the extent to
which the services provided at each Health Care Facility are utilized by the patients, (iv) the mix
of private pay, Medicare and Medicaid patients at
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the Health Care Facilities, and (v) the rates
paid by private paying patients and by the Medicare and Medicaid programs. Facility operating
revenues are derived from the operations of the Foreclosure Properties and are determined by
similar factors.
Governmental and other concerns regarding health care costs have and may continue to result in
significant reductions in payments to health care facilities, and there can be no assurance that
future payment rates for either governmental or private health care plans will be sufficient to
cover cost increases in providing services to patients. Any changes in reimbursement policies
which reduce reimbursement to levels that are insufficient to cover the cost of providing patient
care have and could continue to adversely affect revenues of our health-related lessees and
borrowers and thereby adversely affect those lessees and borrowers abilities to make their lease
or debt payments to us. Failure of the lessees or borrowers to make their lease or debt payments
would have a direct and material adverse impact on us.
Medicare and Medicaid. A significant portion of the revenue of our Foreclosure Properties and
our lessees and borrowers is derived from governmental-funded reimbursement programs, such as
Medicare and Medicaid.
Medicare is uniform nationwide and reimburses nursing centers under a fixed payment
methodology named the Prospective Payment System (SNF PPS). PPS was instituted as mandated by the
Balanced Budget Act of 1997. PPS became effective July 1, 1998. PPS is an acuity based
classification system that uses nursing and therapy indexes adjusted by geographical wage indexes
to calculate per diem rates for each Medicare patient. Payment rates are updated annually and
generally increased each October when the federal fiscal year begins. The acuity classification
system is named RUGs (Resource Utilization Groups III). SNF PPS as implemented had an adverse
impact on our industry and our business by decreasing payments materially. Refinements in the form
of temporary add-ons provided some relief until October 1, 2002. Annual market basket
(inflationary) increases have continued to improve payments.
On July 28, 2005, the Centers for Medicare and Medicaid Services (CMS) issued a final rule
updating SNF PPS and consolidated billing provisions. The rule updates the per-diem payment rates
under the SNF PPS for federal fiscal year (FY) 2006.
Effective October 1, 2005, PPS rates were increased by a 3.1% annual inflation update factor.
Payments to facilities for the fourth quarter of 2005 will reflect the continuation of the
temporary add-on payments.
Including inflation, total projected payments to providers in FY 2006 will be the same as
total payments made to providers in FY 2005. However, the final rule will cause a redistribution
of payments among providers. This is accomplished by expanding the Resource Utilization Groups
(RUGs) from 44 RUG groups to 53 RUG groups, and eliminating temporary rate add-ons. The
elimination of temporary add-ons has always been tied to the long awaited RUG refinement. RUG
refinement modifies case mix weights and indexes. This is a permanent change in the PPS
methodology. Excluding the 3.1% annual inflation update factor, RUG refinement is expected to
reduce Medicare payment rates beginning January 1, 2006 by 5%, thereby reducing 2006 revenues for
operators of long term care facilities.
Medicaid is a joint federal and state program designed to provide medical assistance to
medically indigent persons. These programs are operated by state agencies that adopt their own
medical reimbursement methodology and standards. Payment rates and covered services vary from
state to state. In many instances,
revenues from Medicaid programs are insufficient to cover the actual costs incurred in providing
care to those patients. State Medicaid plans subject to budget constraints are of particular
concern to us given the repeal of the Boren Amendment by the Balance Budget Act of 1997. The Boren
Amendment provided fair reimbursement protection to nursing facilities. Changes in federal funding
and pressure on certain provider taxes coupled with state budget problems have produced an
uncertain environment. Industry studies predict the Medicaid crisis will continue with states
required contribution to Medicare Part D and anticipated budget deficits. States will more than
likely be unable to keep pace with nursing center inflation. States are under pressure to pursue
other alternatives to long term care such as community and home-based services. Furthermore,
several of the states in which we have investments have actively sought to reduce or slow the
increase of Medicaid spending for nursing home care.
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Medicare and Medicaid programs are highly regulated and subject to frequent and substantial
changes resulting from legislation, adoption of rules and regulations, and administrative and
judicial interpretations of existing law. Moreover, health care facilities have experienced
increasing pressure from private payors attempting to control health care costs, reimbursement from
private payors has in many cases effectively been reduced to levels approaching of government
payors.
Licensure and Certification. The health care industry is highly regulated by federal, state
and local law, and is directly affected by state and local licensing requirements, facility
inspections, state and federal reimbursement policies, regulations concerning capital and other
expenditures, certification requirements, and other such laws, regulations and rules. Sanctions
for failure to comply with these regulations and laws include (but are not limited to) loss of
licensure, fines, and loss of certification to participate in the Medicare and Medicaid programs,
as well as potential criminal penalties. The failure of any lessee or borrower to comply with such
laws, requirements and regulations could affect its ability to operate the facility or facilities
and could adversely affect such lessees or borrowers ability to make lease or debt payments to
us.
In the past several years, due to rising health care costs, there has been an increased
emphasis on detecting and eliminating fraud and abuse in the Medicare and Medicaid programs.
Payment of any consideration in exchange for referral of Medicare and Medicaid patients is
generally prohibited by federal statute, which subjects violators to severe penalties, including
exclusion from the Medicare and Medicaid programs, fines, and even prison sentences. In recent
years, both federal and state governments have significantly increased investigation and
enforcement activity to detect and punish wrongdoers. In addition, legislation has been adopted at
both state and federal levels which severely restricts the ability of physicians to refer patients
to entities in which they have a financial interest.
It is anticipated that the trend toward increased investigation and enforcement activity in
the area of fraud and abuse, as well as self-referral, will continue in future years. Certain of
our investments are with lessees or borrowers which are partially or wholly owned by physicians.
In the event that any lessee or borrower were to be found in violation of laws regarding fraud and
abuse or self-referral, that lessees or borrowers ability to operate the facility as a health
care facility could be jeopardized, which could adversely affect the lessees or borrowers ability
to make lease or debt payments to us and thereby adversely affect us.
Certificates of Need. Certain Health Care Facilities in which we invest are also generally
subject to state statutes which may require regulatory approval, in the form of a certificate of
need (CON) prior to the addition or construction of new beds, the addition of services or certain
capital expenditures. CON requirements are not uniform throughout the United States and are
subject to change. We cannot predict the impact of regulatory changes with respect to CONs on the
operations of our lessees and mortgagees; however, in our primary market areas, a significant
reduction in new construction of long term care beds has occurred.
Investment Policies
Our investment objectives are (i) to provide current income for distribution to our
stockholders through investments primarily in health care related facilities, (ii) to provide the
opportunity to realize capital growth resulting from appreciation, if any, in the residual value of
our portfolio properties, and (iii) to preserve and protect stockholders capital. There can be no
assurance that these objectives will be realized.
We anticipate making more new investments in 2006. In making new investments, we would
consider such factors, as (i) the geographic area and type of property, (ii) the location,
construction quality, condition and design of the property, (iii) the current and anticipated cash
flow and its adequacy to meet operational needs and lease or mortgage obligations and to provide a
competitive market return on equity to our investors, (iv) the growth, tax and regulatory
environments of the communities in which the properties are located, (v) occupancy and demand for
similar health care facilities in the same or nearby communities, (vi) the quality, experience and
creditworthiness of the management operating the facilities located on the property; and (vii) the
mix of private and government sponsored patients. There can be no assurances that investments
containing these attributes will be found or closed.
8
We will not, without the approval of a majority of the Board of Directors, enter into any
joint venture relationships with or acquire from or sell to any director, officer, or employee of
NHC or NHI, or any affiliate thereof, as the case may be, any of our assets or other property.
The Board of Directors, without the approval of the stockholders, may alter our investment
policies if they determine that such a change is in our best interests and our stockholders best
interests. The methods of implementing our investment policies may vary as new investment and
financing techniques are developed or for other reasons.
We may incur additional indebtedness in the future to make investments in health care related
facilities or business when it is advisable in the opinion of the Board of Directors. We may
negotiate other lines of credit, or arrange for other short or long term borrowings from banks, NHC
or otherwise. We have and may arrange for long term borrowings from institutional investors or
through public offerings. We have invested and may in the future invest in properties subject to
existing loans or secured by mortgages, deeds of trust or similar liens with favorable terms or
REMIC investments.
Advisory Agreement
Management Advisory Source, LLC Effective November 1, 2004, we assigned our Advisory
Agreement with National HealthCare Corporation to a new company, Management Advisory Source, LLC,
formed by NHIs President and Board Chairman, W. Andrew Adams. NHI has no ownership in Management
Advisory Source, LLC. In 2005, the annual compensation expensed under the Advisory Agreement was
approximately $3,599,000. We believe it to be in the best interest of NHI to accentuate its
independence from NHC, its largest tenant. Therefore, Mr. Adams, through his company, has assumed
the responsibilities of the Advisory Agreement. To assure independence from NHC, Mr. Adams
resigned as CEO of NHC in 2004 and terminated his managerial responsibilities with NHC. He has
outsourced non-managerial functions of the Advisory Agreement such as payroll processing,
accounting and the like to NHC. During the immediate future, Mr. Adams will remain on the NHC
Board as Chairman, focusing on strategic planning, but will have no management involvement with
NHC.
NHC We entered into the Advisory Agreement on October 17, 1991 with NHC as Advisor under
which NHC provided management and advisory services to us through November 30, 2004. Under the
Advisory Agreement, we engaged NHC to use its best efforts (a) to present to us a continuing and
suitable investment program consistent with our investment policies adopted by the Board of
Directors from time to time; (b) to manage our day-to-day affairs and operations; and (c) to
provide administrative services and facilities appropriate for such management. In performing its
obligations under the Advisory Agreement, NHC was subject to the supervision of and policies
established by our Board of Directors.
The Advisory Agreement was initially for a stated term which expired December 31, 1997. Since
then, the Agreement was on a year to year term, but terminable on 90 days notice, and terminable
for cause at any time. For 1993 and later years, the Advisor was entitled to annual compensation
which was calculated on a formula related to the increase in Funds from Operations per common share
(as defined in the Advisory Agreement).
Pursuant to the Advisory Agreement, the advisor manages all of our day-to-day affairs and
provides all such services through its personnel or contractual agreements. The Advisory Agreement
provides that without regard to the amount of compensation received by the Advisor under the
Advisory Agreement, the Advisor shall pay all expenses in performing its obligations including the
employment expenses of the personnel providing services to us. The Advisory Agreement further
provides that NHI shall pay the expenses incurred with respect to and allocable to the prudent
operation and business of NHI including any fees, salaries, and other employment costs, taxes and
expenses paid to our directors, officers and employees who are not also employees of the Advisor.
9
Investor Information
We maintain a worldwide web site at www.nhinvestors.com. We publish to this web site our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and press
releases. We do not necessarily have these filed the same day as they are filed with the SEC or
released to the public, but rather have a policy of placing these on the web site within two (2)
business days of public release or SEC filing.
We also maintain the following documents on the web site:
|
|
|
The NHI Code of Ethics and Standards of Conduct. This has been
adopted for all employees of our Administrative Services Contractor,
officers and directors of the Company. The website will also disclose
whether there have been any amendments or waivers to the Code of
Ethics and Standards of conduct. To date there have been none. |
|
|
|
|
Information on our NHI Valuesline, which allows our staff and
investors unrestricted access to our Corporate Compliance Officer,
executive officers and directors. The toll free number is
800-526-4064 and the communications may be made anonymously, if
desired. |
|
|
|
|
The NHI Restated Audit Committee Charter. |
|
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|
The NHI Compensation Committee Charter. |
|
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The NHI Nomination and Corporate Governance Committee Charter |
We will furnish, free of charge, a copy of any of the above documents to any interested
investor upon receipt of a written request.
Item 1A. Risk Factors.
We depend on the operating success of our tenants, who operate in the skilled nursing and
assisted living industry for collection of our rent revenues. Our skilled nursing, hospital and
projects for the developmentally disabled facility operators revenues are primarily driven by
occupancy, Medicare and Medicaid reimbursement and private pay rates. Our assisted living facility
operators revenues are primarily driven by occupancy and private pay rates. Expenses for these
facility types are driven by the costs of labor, food, utilities, taxes, insurance and rent or debt
service. Revenues from government reimbursement have, and may continue, to come under pressure due
to reimbursement cuts and from federal and state budget shortfalls. Liability insurance and
staffing costs continue to increase for our operators. To the extent that any decrease in revenues
and/or any increase in operating expenses result in a facility not generating enough cash to make
payments to us, the credit of our operator and the value of other collateral would have to be
relied upon.
We are exposed to the risk that our operators may not be able to meet the rent, principal and
interest or other payments due us, which may result in an operator bankruptcy or insolvency, or
that an operator might become subject to bankruptcy or insolvency proceedings for other reasons.
Although our operating lease agreements provide us the right to evict an operator, demand immediate
payment of rent and exercise other remedies, and our mortgage loans provide us the right to
terminate any funding obligations, demand immediate repayment of principal and unpaid interest,
foreclose on the collateral and exercise other remedies, the bankruptcy laws afford certain rights
to a party that has filed for bankruptcy or reorganization. An operator in bankruptcy may be able
to limit or delay our ability to collect unpaid rent in the case of a lease or to receive unpaid
principal and/or interest in the case of a mortgage loan, and to exercise other rights and
remedies.
We may be required to fund certain expenses (e.g., real estate taxes, maintenance and capital
improvements) to preserve the value of a facility, avoid the imposition of liens on a facility
and/or transition a
facility to a new operator. In some instances, we have terminated our lease with an operator and
relet the facility to another operator. In some of
10
those situations, we provided working capital
loans to and limited indemnification of the new operator. If we cannot transition a leased
facility to a new operator, we may take possession of that facility, which may expose us to certain
successor liabilities. Should such events occur, our revenue and operating cash flow may be
adversely affected.
We are exposed to risks related to government regulations and the effect they have on our
operators business. Our operators businesses are affected by government reimbursement and
private payor rates. To the extend that any skilled nursing, hospital or project for the
developmentally disabled facility receives a significant portion of its revenues from governmental
payors, primarily Medicare and Medicaid, such revenues may be subject to statutory and regulatory
changes, retroactive rate adjustments, recovery of program overpayments or set-offs, administrative
rulings, policy interpretations, payment or other delays by fiscal intermediaries, government
funding restrictions (at a program level or with respect to specific facilities) and interruption
or delays in payments due to any ongoing governmental investigations and audits at such facility.
In recent years, governmental payors have frozen or reduced payments to health care providers due
to budgetary pressures. Changes in health care reimbursement will likely continue to be of
paramount importance to federal and state authorities. We cannot make any assessment as to the
ultimate timing or effect any future legislative reforms may have on the financial condition of the
health care industry. There can be no assurance that adequate reimbursement levels will continue
to be available for services provided by any facility operator, whether the facility receives
reimbursement from Medicare, Medicaid or private payors. Significant limits on the scope of
services reimbursed and on reimbursement rates and fees could have a material adverse effect on an
operators liquidity, financial condition and results of operations, which could adversely affect
the ability of an operator to meet its obligations to us. In addition, the replacement of an
operator that has defaulted on its lease or loan could be delayed by the approval process of any
federal, state or local agency necessary for the transfer of the facility or the replacement of the
operator licensed to manage the facility.
We are exposed to the risk that the cash flows of our tenants and mortgages will be affected
by increased liability claims and increased general and professional liability insurance costs.
Long-term care facility operators (assisted living and skilled nursing facilities) have experienced
substantial increases in both the number and size of patient care liability claims in recent years,
particularly in the states of Texas and Florida. As a result, general and professional liability
costs have increased and may continue to increase. Nationwide, long-term care liability insurance
rates are increasing because of large jury awards in states like Texas and Florida. Over the past
two years, both Texas and Florida have adopted skilled nursing facility liability laws that modify
or limit tort damages. Despite some of these reforms, the long-term care industry overall
continues to experience very high general and professional liability costs. Insurance companies
have responded to this claims crisis by severely restricting their capacity to write long-term care
general and professional liability policies. No assurances can be given that the climate for
long-term care general and professional liability insurance will improve in any of the foregoing
states or any other states where the facility operators conduct business. Insurance companies may
continue to reduce or stop writing general and professional liability policies for assisted living
and skilled nursing facilities. Thus, general professional liability insurance coverage may be
restricted, very costly, or not available, which may adversely affect the facility operators
future operations, cash flows and financial condition, and may have a material adverse effect on
the facility operators ability to meet their obligations to us.
We depend on the success of future acquisitions. We are exposed to the risk that our future
acquisitions may not prove to be successful. We could encounter unanticipated difficulties and
expenditures relating to any acquired properties, including contingent liabilities, and newly
acquired properties might require significant management attention that would otherwise be devoted
to our ongoing business. If we agree to provide construction funding to an operator and the
project is not completed, we may need to take steps to ensure completion of the project or we could
lose the property. Moreover, if we issue equity securities or incur additional debt, or both, to
finance future acquisitions, it may reduce our per share financial results. These costs may
negatively affect our results of operations.
We are exposed to risks related to environmental laws and the costs associated with the
liability related to hazardous substances. Under various federal and state laws, owners or
operators of real property may be required to respond to the release of hazardous substances on the
property and may be held liable for property damage, personal injuries or penalties that result
from environmental contamination. These laws also expose us to the possibility that we may become
liable to reimburse the government for damages and costs it incurs in connection with the
contamination. Generally, such liability attaches to a person based on the persons relationship
to the property. Our tenants or borrowers
11
are primarily responsible for the condition of the
property and since we are a passive landlord, we do not participate in the management of any
property in which we have an interest. Moreover, we review environmental site assessment of the
properties that we own or encumber prior to taking an interest in them. Those assessments are
designed to meet the all appropriate inquiry standard, which qualifies us for the innocent
purchaser defense if environmental liabilities arise. Based upon such assessments, we do not
believe that any of our properties are subject to material environmental contamination. However,
environmental liabilities, including mold, may be present in our properties and we may incur costs
to remediate contamination, which could have a material adverse effect on our business or financial
condition.
We depend on the ability to reinvest cash from our operating, investing and financing
activities in a timely manner and on acceptable terms. From time to time, we will have cash
available from (1) the proceeds of sales of our securities, (2) principal payments on our loans
receivable, and (3) the sale of properties, including non-elective dispositions, under the terms of
master leases or similar financial support arrangements. We must re-invest these proceeds, on a
timely basis, in health care investments or in qualified short-term investments. We compete for
real estate investments with a broad variety of potential investors. This competition for
attractive investments may negatively affect our ability to make timely investments on terms
acceptable to us. Delays in acquiring properties may negatively impact revenues and perhaps our
ability to make distributions to stockholders.
We depend on the ability to qualify or remain as a REIT. We intend to operate as a REIT under
the Internal Revenue Code and believe we have and will continue to operate in such a manner. Since
REIT qualification requires us to meet a number of complex requirements, it is possible that we may
fail to fulfill them, and if we do, our earnings will be reduced by the amount of federal taxes
owed. A reduction in our earnings would affect the amount we could distribute to our stockholders.
Also, if we were not a REIT, we would not be required to make distributions to stockholders since
a non-REIT is not required to pay dividends to stockholders amounting to at least 90% of its annual
taxable income.
We are dependent upon Management Advisory Source, LLC (MAS) for services related to
investment activities and day-to-day management. MAS, which was formed by our President and Board
Chairman, W. Andrew Adams, has outsourced most functions of the advisory agreement such as
accounting, monitoring of investments, finance activities, etc. to NHC. Our advisory agreement
with MAS and MASs outsourcing agreement with NHC may be cancelled upon 90 days notice or upon
demand in some circumstances. The cancellation of either or these agreements could, at least
temporarily, have a material adverse impact on our business and upon our ability to comply with
government regulations.
See the notes to the Annual Financial Statement, and Item 1. Business herein for a
discussion of various governmental regulations and other operating factors relating to the
healthcare industry and the risk factors inherent in them. You should carefully consider these
risks before making any investment decisions in the Company. These risks and uncertainties are not
the only ones facing the Company. There may be additional risks that we do not presently know of
or that we currently deem immaterial. If any of the risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In that case, the
trading price of our shares of stock could decline, and you may lose all or part of your
investment. Given these risks and uncertainties, we can give no assurances that these
forward-looking statements will, in fact, occur and, therefore, caution investors not to place
undue reliance on them.
Item 1B. Unresolved Staff Comments.
None
12
Item 2. Properties.
NHI PROPERTIES
LONG TERM CARE
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Center |
|
City |
|
Beds |
ALABAMA |
|
|
|
|
|
|
NHC HealthCare, Anniston
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|
Anniston
|
|
|
151 |
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NHC HealthCare, Moulton
|
|
Moulton
|
|
|
136 |
|
|
|
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|
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ARIZONA |
|
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Estrella Care and Rehab
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Avondale
|
|
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161 |
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|
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FLORIDA |
|
|
|
|
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The Manor at Gainesville
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Gainesville
|
|
|
120 |
|
Ayers Health and Rehabilitation Center
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|
Trenton
|
|
|
120 |
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Bayonet Point Health & Rehabilitation Center
|
|
Hudson
|
|
|
180 |
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Bear Creek Nursing Center
|
|
Hudson
|
|
|
120 |
|
Brooksville Healthcare Center
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|
Brooksville
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|
|
180 |
|
Cypress Cove Care Center
|
|
Crystal River
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|
|
120 |
|
Heather Hill Nursing Home
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|
New Port Richey
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|
|
120 |
|
Jefferson Nursing Center
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|
Monticello
|
|
|
60 |
|
Miracle Hill Nursing & Convalescent Center
|
|
Tallahassee
|
|
|
120 |
|
Williston Health Care Center
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|
Williston
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|
|
180 |
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Osceola Health Care Center
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St. Cloud
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|
|
120 |
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Parkway Health and Rehabilitation Center
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Stuart
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177 |
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Pine Lake Nursing Home
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Greenville
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|
58 |
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Lake Bennett Health and Rehabilitation Center
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Ocoee
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|
|
120 |
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Royal Oak Nursing Center
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|
Dade City
|
|
|
120 |
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The Health Center of Merritt Island
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Merritt Island
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|
|
180 |
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The Health Center of Plant City
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Plant City
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180 |
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The Palms at Maitland*
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Maitland
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39 |
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The Place at West Palm Beach*
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West Palm Beach
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47 |
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GEORGIA |
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Ashton Woods
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Rossville
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157 |
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Forrest Lake Manor
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Martinez
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100 |
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Jennings Health Care Center
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Augusta
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100 |
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Meadowbrook Nursing Center
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Tucker
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144 |
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Moss Oaks Health Care Center
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Pooler
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122 |
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Rossville Convalescent Center
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Rossville
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112 |
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West Lake Manor
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Augusta
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100 |
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IDAHO |
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Grangeville Care Center
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Grangeville
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60 |
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Sunny Ridge Care Center*
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Nampa
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46 |
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KANSAS |
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Chanute HealthCare Center
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Chanute
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77 |
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Council Grove HealthCare Center
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Council Grove
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80 |
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Emporia Rehabilitation Center
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Emporia
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79 |
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Haysville HealthCare Center
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Haysville
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119 |
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Hoisington Rehabilitation Center
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Hoisington
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62 |
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Larned HealthCare Center
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Larned
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54 |
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Sedgwick HealthCare Center
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Sedgwick
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62 |
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13
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Center |
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City |
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Beds |
KENTUCKY |
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Tradewater Pointe
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Dawson Springs
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80 |
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NHC HealthCare, Glasgow
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Glasgow
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206 |
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NHC HealthCare, Madisonville
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Madisonville
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94 |
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MASSACHUSETTS |
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John Adams Nursing Home
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Quincy
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71 |
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Buckley Health Care Center
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Greenfield
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|
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120 |
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Holyoke Health Care Center
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Holyoke
|
|
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102 |
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Longmeadow of Taunton
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Taunton
|
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100 |
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MISSOURI |
|
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Charleviox HealthCare Center
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St. Charles
|
|
|
142 |
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Columbia HealthCare Center
|
|
Columbia
|
|
|
97 |
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Joplin HealthCare Center
|
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Joplin
|
|
|
92 |
|
NHC HealthCare, Desloge
|
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Desloge
|
|
|
120 |
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NHC HealthCare, Joplin
|
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Joplin
|
|
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126 |
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NHC HealthCare, Kennett
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Kennett
|
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170 |
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NHC HealthCare, Maryland Heights
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St. Louis
|
|
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220 |
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NHC HealthCare, St. Charles
|
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St. Charles
|
|
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120 |
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Town & Country HealthCare Center
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Clayton
|
|
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282 |
|
|
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NEW HAMPSHIRE |
|
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Epsom Manor
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Epsom
|
|
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108 |
|
Maple Leaf Health Care Center
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Manchester
|
|
|
114 |
|
Villa Crest Nursing Home*
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Manchester
|
|
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123 |
|
|
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NEW JERSEY |
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|
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Brighton Gardens of Edison*
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Edison
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|
30 |
|
Shore Meadows Rehab & Nursing Center*
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Toms River
|
|
|
120 |
|
Royal Health Gate Nursing & Rehab*
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Trenton
|
|
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132 |
|
|
|
|
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SOUTH CAROLINA |
|
|
|
|
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NHC HealthCare, Anderson
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Anderson
|
|
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290 |
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NHC HealthCare, Greenwood
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Greenwood
|
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152 |
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NHC HealthCare, Laurens
|
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Laurens
|
|
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176 |
|
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TENNESSEE |
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NHC HealthCare, Athens
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Athens
|
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98 |
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NHC HealthCare, Chattanooga
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Chattanooga
|
|
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207 |
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NHC HealthCare, Columbia
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Columbia
|
|
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106 |
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NHC HealthCare, Dickson*
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Dickson
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191 |
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NHC HealthCare, Franklin
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Franklin
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80 |
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NHC HealthCare, Hendersonville
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Hendersonville
|
|
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122 |
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NHC HealthCare, Hillview
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Columbia
|
|
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92 |
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NHC HealthCare, Johnson City*
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Johnson City
|
|
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160 |
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NHC HealthCare, Knoxville
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Knoxville
|
|
|
139 |
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NHC HealthCare, Lewisburg
|
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Lewisburg
|
|
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102 |
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NHC HealthCare, McMinnville
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McMinnville
|
|
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150 |
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NHC HealthCare, Milan
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Milan
|
|
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123 |
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NHC HealthCare, Oakwood
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Lewisburg
|
|
|
60 |
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NHC HealthCare, Pulaski
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Pulaski
|
|
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102 |
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NHC HealthCare, Scott
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Lawrenceburg
|
|
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62 |
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14
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Center |
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City |
|
Beds |
NHC HealthCare, Sequatchie
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Dunlap
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|
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120 |
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NHC HealthCare, Smithville*
|
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Smithville
|
|
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114 |
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NHC HealthCare, Somerville*
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Somerville
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|
|
72 |
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NHC HealthCare, Sparta
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Sparta
|
|
|
150 |
|
NHC HealthCare, Springfield
|
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Springfield
|
|
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107 |
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|
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TEXAS |
|
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Beaumont Health Care Center
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Beaumont
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|
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82 |
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Bonham Nursing & Retirement
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|
Bonham
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|
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65 |
|
Cleveland Health Care Center
|
|
Cleveland
|
|
|
148 |
|
College Street Health Care Center
|
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Beaumont
|
|
|
50 |
|
Columbus Nursing and Rehabilitation
|
|
Columbus
|
|
|
129 |
|
Conroe Health Care Center
|
|
Conroe
|
|
|
108 |
|
Denison Manor Nursing and Rehabilitation
|
|
Denison
|
|
|
71 |
|
Falfurrias Nursing and Rehabilitation
|
|
Falfurrias
|
|
|
98 |
|
Friendswood Health Care Center
|
|
Friendswood
|
|
|
102 |
|
Forest Lane Healthcare Center
|
|
Dallas
|
|
|
120 |
|
Heritage Manor Canton
|
|
Canton
|
|
|
110 |
|
Heritage Place
|
|
Dallas
|
|
|
149 |
|
Heritage Oaks
|
|
Arlington
|
|
|
204 |
|
Hill Country Care
|
|
Dripping Springs
|
|
|
60 |
|
Huntsville Health Care Center
|
|
Huntsville
|
|
|
92 |
|
Kleburg Nursing & Rehabilitation
|
|
Kingsville
|
|
|
162 |
|
Lawrence Street Health Care Center
|
|
Tomball
|
|
|
150 |
|
Liberty Health Care Center
|
|
Liberty
|
|
|
118 |
|
Pecan Tree Manor
|
|
Gainesville
|
|
|
120 |
|
Richmond Health Care Center
|
|
Richmond
|
|
|
92 |
|
Sugar Land Health Care Center
|
|
Sugarland
|
|
|
150 |
|
Terry Haven Nursing and Rehabilitation
|
|
Mt. Vernon
|
|
|
65 |
|
The Village at Richardson
|
|
Dallas
|
|
|
280 |
|
West Janisch Health Care Center
|
|
Houston
|
|
|
116 |
|
Willis Nursing and Rehabilitation
|
|
Willis
|
|
|
114 |
|
Willow Bend Nursing and Rehabilitation
|
|
Mesquite
|
|
|
162 |
|
Winterhaven Healthcare Center
|
|
Houston
|
|
|
160 |
|
|
|
|
|
|
|
|
VIRGINIA |
|
|
|
|
|
|
NHC HealthCare, Bristol
|
|
Bristol
|
|
|
120 |
|
Heritage Hall
|
|
Charlottesville
|
|
|
120 |
|
Heritage Hall
|
|
Brookneal
|
|
|
60 |
|
Heritage Hall
|
|
Lexington
|
|
|
60 |
|
Heritage Hall
|
|
Virginia Beach
|
|
|
90 |
|
Heritage Hall
|
|
Front Royal
|
|
|
60 |
|
Heritage Hall
|
|
Grundy
|
|
|
120 |
|
Heritage Hall
|
|
Laurel Meadows
|
|
|
60 |
|
|
|
|
|
|
|
|
WISCONSIN |
|
|
|
|
|
|
Milwaukee South HealthCare Center
|
|
Milwaukee
|
|
|
191 |
|
15
ACUTE CARE PROPERTIES
|
|
|
|
|
|
|
KENTUCKY |
|
|
|
|
|
|
Kentucky River Hospital
|
|
Jackson
|
|
|
55 |
|
MEDICAL OFFICE BUILDINGS
|
|
|
|
|
|
|
Center |
|
City |
|
Sq. Ft. |
FLORIDA |
|
|
|
|
|
|
North Okaloosa
|
|
Crestview
|
|
|
27,017 |
|
|
|
|
|
|
|
|
ILLINOIS |
|
|
|
|
|
|
Crossroads
|
|
Mt. Vernon
|
|
|
12,910 |
|
|
|
|
|
|
|
|
TEXAS |
|
|
|
|
|
|
Hill Regional
|
|
Hillsboro
|
|
|
23,000 |
|
Pasadena
|
|
Pasadena
|
|
|
61,500 |
|
RETIREMENT CENTERS
|
|
|
|
|
|
|
Center |
|
City |
|
Beds |
IDAHO |
|
|
|
|
|
|
Sunny Ridge Care Center*
|
|
Nampa
|
|
|
117 |
|
|
|
|
|
|
|
|
MISSOURI |
|
|
|
|
|
|
Lake St. Charles Retirement Center*
|
|
St. Charles
|
|
|
155 |
|
|
|
|
|
|
|
|
NEW HAMPSHIRE |
|
|
|
|
|
|
Heartland Place
|
|
Epsom
|
|
|
60 |
|
|
|
|
|
|
|
|
TENNESSEE |
|
|
|
|
|
|
Colonial Hill Retirement Center
|
|
Johnson City
|
|
|
63 |
|
Parkwood Retirement Center
|
|
Chattanooga
|
|
|
32 |
|
|
|
|
|
|
|
|
TEXAS |
|
|
|
|
|
|
Tomball Retirement Center
|
|
Tomball
|
|
|
60 |
|
ASSISTED LIVING AND
DEVELOPMENTALLY DISABLED
|
|
|
|
|
|
|
Center |
|
City |
|
Beds |
ARIZONA |
|
|
|
|
|
|
The Place at Gilbert
|
|
Gilbert
|
|
|
100 |
|
The Place at Glendale
|
|
Glendale
|
|
|
36 |
|
The Place at Tanque Verde
|
|
Tucson
|
|
|
42 |
|
The Place at Tucson
|
|
Tucson
|
|
|
92 |
|
|
|
|
|
|
|
|
FLORIDA |
|
|
|
|
|
|
19th Street Group Home
|
|
Gainesville
|
|
|
6 |
|
107th Place Group Home
|
|
Belleview
|
|
|
6 |
|
Bessent Road Group Home
|
|
Starke
|
|
|
6 |
|
Claudia Drive Group Home
|
|
Jacksonville
|
|
|
6 |
|
Coletta Drive Group Home
|
|
Orlando
|
|
|
6 |
|
Frederick Avenue Group Home
|
|
Daytona Beach
|
|
|
6 |
|
High Desert Court Group Home
|
|
Jacksonville
|
|
|
6 |
|
Plaza Oval Group Home
|
|
Casselberry
|
|
|
6 |
|
Rosewood Group Home
|
|
Ormond Beach
|
|
|
6 |
|
Second Street Group Home
|
|
Ocala
|
|
|
6 |
|
16
|
|
|
|
|
|
|
Center |
|
City |
|
Beds |
Spring Street Group Home
|
|
Lake City
|
|
|
6 |
|
Suffridge Drive Group Home
|
|
Bonita Springs
|
|
|
6 |
|
The Bridge at Maitland
|
|
Maitland
|
|
|
38 |
|
The Palms of Maitland*
|
|
Maitland
|
|
|
102 |
|
The Place at Daytona Beach
|
|
Daytona Beach
|
|
|
60 |
|
The Place at Maitland
|
|
Maitland
|
|
|
78 |
|
The Place at West Palm Beach*
|
|
West Palm Beach
|
|
|
104 |
|
Tunis Street Group Home
|
|
Jacksonville
|
|
|
6 |
|
Walnut Street Group Home
|
|
Starke
|
|
|
6 |
|
|
|
|
|
|
|
|
IDAHO |
|
|
|
|
|
|
Sunny Ridge Care Center*
|
|
Nampa
|
|
|
20 |
|
|
|
|
|
|
|
|
MISSOURI |
|
|
|
|
|
|
Lake St. Charles Retirement Center*
|
|
St. Charles
|
|
|
25 |
|
|
|
|
|
|
|
|
NEW JERSEY |
|
|
|
|
|
|
Brighton Gardens of Edison*
|
|
Edison
|
|
|
98 |
|
Shore Meadows Rehab & Nursing Center*
|
|
Toms River
|
|
|
30 |
|
Royal Health Gate Nursing & Rehab*
|
|
Trenton
|
|
|
18 |
|
|
|
|
|
|
|
|
NORTH CAROLINA |
|
|
|
|
|
|
The Place at Southpark
|
|
Charlotte
|
|
|
144 |
|
|
|
|
|
|
|
|
PENNSYLVANIA |
|
|
|
|
|
|
Heritage Hill Senior Community
|
|
Weatherly
|
|
|
70 |
|
|
|
|
|
|
|
|
SOUTH CAROLINA |
|
|
|
|
|
|
The Place at Conway
|
|
Conway
|
|
|
84 |
|
|
|
|
|
|
|
|
TENNESSEE |
|
|
|
|
|
|
717 Cheatam Street
|
|
Springfield
|
|
|
8 |
|
305 West Hillcrest Drive
|
|
Springfield
|
|
|
8 |
|
307 West Hillcrest Drive
|
|
Springfield
|
|
|
8 |
|
NHC HealthCare, Dickson*
|
|
Dickson
|
|
|
20 |
|
NHC HealthCare, Johnson City*
|
|
Johnson City
|
|
|
15 |
|
NHC HealthCare, Somerville*
|
|
Somerville
|
|
|
12 |
|
NHC HealthCare, Smithville*
|
|
Smithville
|
|
|
7 |
|
The Place at Gallatin
|
|
Gallatin
|
|
|
49 |
|
The Place at Kingsport
|
|
Kingsport
|
|
|
49 |
|
The Place at Tullahoma
|
|
Tullahoma
|
|
|
49 |
|
|
|
|
* |
|
These facilities are listed in multiple categories (numbers of beds are not duplicated elsewhere
in this table). |
As described in Note 3 to the Companys financial statements, certain of NHIs real estate
properties are pledged as collateral on individual mortgage notes payable.
17
Item 3. Legal Proceedings.
Contingency
related to damaged property
One of our owned nursing home properties, leased to a subsidiary of NHC and located in
Nashville, Tennessee, was damaged by a tragic fire on September 25, 2003 which resulted in the loss
of life or critical injury to a number of patients. The lease requires NHC to indemnify and hold
harmless NHI from any and all demands and claims arising from its use of the property. Although
NHI had been named as a defendant in 32 lawsuits, 30 of these lawsuits have been settled at no cost
to NHI. At December 31, 2005, NHI has not accrued any liability for this contingent liability but
will continue to monitor the situation and establish liability reserves when appropriate.
A provision of the lease allowed that if substantial damage occurs during the lease term, NHC
may terminate the lease with respect to the damaged property. During October 2004, NHC exercised
its right to terminate the lease on the Nashville facility. As a result, NHI was entitled to
receive all property insurance proceeds paid as a result of the fire. NHI retained the right to
the bed license following lease termination. Prior to the fire, NHI received annualized rent of
$250,000 per year on the Nashville facility. NHI has received $2,654,000 in insurance proceeds
which amount is included in non-operating income for the year ended December 31, 2005. NHI sold
the Nashville facility in May 2005 (See Note 3).
Except as discussed above with respect to the Nashville fire, we are not subject to any
material pending litigation, although a number of our operators or mortgagors are currently in
bankruptcy and/or have multiple pending medical liability suits. See Real Estate and Mortgage
Writedowns (Recoveries) in Item 7 Managements Discussion. The Health Care Facilities are subject
to claims and suits in the ordinary course of business. Our lessees and mortgagees have
indemnified and will continue to indemnify us against all liabilities arising from the operation of
the Health Care Facilities, and will indemnify us against environmental or title problems affecting
the real estate underlying such facilities. While there are lawsuits pending against certain of
the owners and/or lessees of the Health Care Facilities, management believes that the ultimate
resolution of all pending proceedings will have no material adverse effect on us or our operations.
Through the operation of our 17 foreclosure properties, we are subject to professional and
general liability litigation for the provision of patient care. The entire long-term care industry
has seen a dramatic increase in personal injury/wrongful death claims based on alleged negligence
by nursing homes and their employees in providing care to residents. We have maintained or caused
the majority of our lessees or mortgagees to maintain insurance coverage for this type of
litigation. In Florida, however, coverage is limited. We are subject to certain claims, none of
which, in managements opinion, would be material to our financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
The 2004 Annual Meeting of the Shareholders was held on May 3, 2005, the results of which were
included in the June 30, 2005,
Form 10-Q filed with the SEC on August 5, 2005.
PART II
Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities.
On October 16, 1996, the NHI Board of Directors, pursuant to powers granted by NHIs 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.
18
In order to qualify for the beneficial tax treatment accorded to a REIT, we must make
quarterly distributions to holders of our Common Stock equal on an annual basis to at least 90% of
our REIT taxable income (excluding net capital gains), as defined in the Code. Cash available for
distribution to our stockholders is primarily derived from interest payments received on our
mortgages and from rental payments received under our leases. All distributions will be made by us
at the discretion of the Board of Directors and will depend on our cash flow and earnings, our
financial condition, bank covenants contained in our financing documents and such other factors as
the Board of Directors deems relevant. Our REIT taxable income is calculated without reference to
our cash flow. Therefore, under certain circumstances, we may not have received cash sufficient to
pay our required distributions.
Common Stock Market Prices and Dividends
Our common stock is traded on the New York Stock Exchange under the symbol NHI. The closing
price for NHI stock on February 28, 2006 was $26.62. As of December 31, 2005, there were
approximately 1,100 holders of record of shares and we estimate that as of such date there were in
addition in excess of 12,300 beneficial owners of the shares.
High and low stock prices and dividends for the last two years were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
Cash |
|
|
Sales Price |
|
Dividends |
|
Sales Price |
|
Dividends |
Quarter Ended |
|
High |
|
Low |
|
Declared |
|
High |
|
Low |
|
Declared |
March 31 |
|
$ |
29.0500 |
|
|
$ |
25.2000 |
|
|
$ |
.450 |
|
|
$ |
30.8300 |
|
|
$ |
24.6800 |
|
|
$ |
.425 |
|
June 30 |
|
|
28.9500 |
|
|
|
25.0500 |
|
|
|
.450 |
|
|
|
30.7500 |
|
|
|
21.9200 |
|
|
|
.425 |
|
September 30 |
|
|
30.9500 |
|
|
|
26.5600 |
|
|
|
.450 |
|
|
|
29.6800 |
|
|
|
26.8480 |
|
|
|
.425 |
|
December 31 |
|
|
28.4500 |
|
|
|
25.2000 |
|
|
|
.450 |
|
|
|
30.4700 |
|
|
|
27.5000 |
|
|
|
.575 |
|
No Equity Purchase Plans
We did not purchase any of our equity securities in 2005, nor do we have any publicly
announced plans or programs to do so.
Item 6. Selected Financial Data.
The following table represents our financial information for the five years ended December 31,
2005. This financial information has been derived from our historical financial statements
including those for the most recent three years included elsewhere in this Form 10-K and should be
read in conjunction with those financial statements and accompanying footnotes.
19
NATIONAL HEALTH INVESTORS, INC.
SELECTED FINANCIAL DATA
(dollars in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
2005 |
|
|
2004(a) |
|
|
2003(a) |
|
|
2002(a) |
|
|
2001(a) |
|
Net revenues |
|
$ |
157,382 |
|
|
$ |
155,559 |
|
|
$ |
154,234 |
|
|
$ |
149,129 |
|
|
$ |
117,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income |
|
|
17,309 |
|
|
|
11,694 |
|
|
|
5,931 |
|
|
|
6,655 |
|
|
|
4,081 |
|
Income (Loss) from Continuing Operations |
|
|
53,708 |
|
|
|
55,426 |
|
|
|
41,693 |
|
|
|
24,438 |
|
|
|
(2,197 |
) |
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) discontinued |
|
|
(73 |
) |
|
|
(590 |
) |
|
|
580 |
|
|
|
1,266 |
|
|
|
2,134 |
|
Net gain on sales of real estate |
|
|
773 |
|
|
|
1,543 |
|
|
|
1,535 |
|
|
|
5,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
54,408 |
|
|
|
56,379 |
|
|
|
43,808 |
|
|
|
30,787 |
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from Continuing
Operations per common share |
|
$ |
1.94 |
|
|
$ |
2.02 |
|
|
$ |
1.50 |
|
|
$ |
.86 |
|
|
$ |
(.17 |
) |
Discontinued Operations per common share |
|
|
.02 |
|
|
|
.03 |
|
|
|
.08 |
|
|
|
.24 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share |
|
|
1.96 |
|
|
|
2.05 |
|
|
|
1.58 |
|
|
|
1.10 |
|
|
|
(0.08 |
) |
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from Continuing
Operations per common share |
|
$ |
1.93 |
|
|
$ |
2.00 |
|
|
$ |
1.49 |
|
|
$ |
.86 |
|
|
$ |
(.17 |
) |
Discontinued Operations per common share |
|
|
.03 |
|
|
|
.03 |
|
|
|
.08 |
|
|
|
.24 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share |
|
|
1.96 |
|
|
|
2.03 |
|
|
|
1.57 |
|
|
|
1.10 |
|
|
|
(0.08 |
) |
|
|
BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages and other notes receivable, net |
|
$ |
118,800 |
|
|
$ |
112,072 |
|
|
$ |
149,892 |
|
|
$ |
201,236 |
|
|
$ |
324,230 |
|
Real estate properties, net |
|
|
263,129 |
|
|
|
278,170 |
|
|
|
289,465 |
|
|
|
304,394 |
|
|
|
323,266 |
|
Total assets |
|
|
587,932 |
|
|
|
631,371 |
|
|
|
624,366 |
|
|
|
651,064 |
|
|
|
672,630 |
|
Debt |
|
|
117,252 |
|
|
|
154,432 |
|
|
|
162,100 |
|
|
|
161,763 |
|
|
|
164,464 |
|
Convertible subordinated debentures |
|
|
201 |
|
|
|
1,116 |
|
|
|
1,351 |
|
|
|
41,633 |
|
|
|
62,643 |
|
Total stockholders equity |
|
|
424,968 |
|
|
|
425,539 |
|
|
|
409,644 |
|
|
|
400,429 |
|
|
|
397,793 |
|
|
|
OTHER DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
27,830,439 |
|
|
|
27,545,018 |
|
|
|
26,770,123 |
|
|
|
26,682,994 |
|
|
|
26,004,318 |
|
Weighted average common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
27,699,887 |
|
|
|
27,257,826 |
|
|
|
26,727,814 |
|
|
|
26,453,053 |
|
|
|
24,466,850 |
|
Diluted |
|
|
27,830,886 |
|
|
|
27,531,084 |
|
|
|
26,985,571 |
|
|
|
26,853,420 |
|
|
|
24,466,850 |
|
|
Common dividends declared per share |
|
$ |
1.80 |
|
|
$ |
1.85 |
|
|
$ |
1.70 |
|
|
$ |
1.40 |
|
|
$ |
0.45 |
|
|
|
|
(a) |
|
Prior period financial information has been reclassified for presentation of operations discontinued during 2005. |
20
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is based primarily on the consolidated financial
statements of National Health Investors, Inc. for the periods presented and should be read together
with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are
identified in Item 1 Business above.
Executive Overview
National Health Investors, Inc. (NHI or the Company), a Maryland corporation, is a real
estate investment trust (REIT) that invests primarily in income producing health care properties
with emphasis on the long-term health care sector. As of December 31, 2005, we had interests in
real estate owned, and investments in mortgages, preferred stock and marketable securities
resulting in total invested assets of $493,614,000. Founded in 1991, our mission is to invest in
health care real estate which generates current income that will be distributed to stockholders.
We have pursued this mission by making mortgage loans and acquiring properties to lease nationwide
primarily in the long-term health care industry.
Portfolio
As of December 31, 2005, we had investments in 158 health care facilities located in 18 states
consisting of 115 long-term care facilities, one acute care hospital, four medical office
buildings, 15 assisted living facilities, six retirement centers and 17 residential projects for
the developmentally disabled. These investments consisted of approximately $118,800,000 aggregate
carrying value amount of loans to 16 borrowers and $263,129,000 of real estate investments with 16
lessees. Of these 158 facilities, 17 were acquired through foreclosure and are operated by us.
These 17 facilities have been sold, but we have not yet met the accounting criteria to record the
sales.
Our largest customer is National HeatlhCare Corporation (NHC). Of our 158 facilities, 41
are leased to NHC. These 41 facilities include four centers leased to other parties, the lease
payments of which are guaranteed to us by NHC. Also, the 17 properties operated by us are managed
by subsidiaries of NHC. NHC was our investment advisor until November 1, 2004. Consistent with our
strategy of diversification, we have increased our portfolio so that the portion of our portfolio
operated by NHC has been reduced from 100% of our total portfolio on October 17, 1991 (the date we
began operations) to 13.3% of total portfolio on December 31, 2005.
21
The following tables summarize our portfolio as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
Properties |
|
|
Investment |
|
|
Percentage |
|
Portfolio Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Properties |
|
|
94 |
|
|
$ |
263,129,000 |
|
|
|
69 |
% |
Mortgages and Notes Receivable |
|
|
64 |
|
|
|
118,800,000 |
|
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
Total Real Estate Portfolio |
|
|
158 |
|
|
$ |
381,929,000 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties |
|
|
Beds |
|
|
Investments |
|
Real Estate Properties |
|
|
|
|
|
|
|
|
|
|
|
|
Nursing Homes |
|
|
69 |
|
|
|
9,242 |
|
|
$ |
175,540,000 |
|
Assisted Living |
|
|
15 |
|
|
|
1,328 |
|
|
|
59,689,000 |
|
Medical Office Buildings |
|
|
4 |
|
|
124,427 sq. ft. |
|
|
|
10,418,000 |
|
Retirement Homes |
|
|
5 |
|
|
|
426 |
|
|
|
10,234,000 |
|
Hospitals |
|
|
1 |
|
|
|
55 |
|
|
|
7,248,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Properties |
|
|
94 |
|
|
|
|
|
|
|
263,129,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages and Notes Receivable |
|
|
|
|
|
|
|
|
|
|
|
|
Nursing Homes |
|
|
46 |
|
|
|
5,005 |
|
|
$ |
112,500,000 |
|
Retirement Homes |
|
|
1 |
|
|
|
60 |
|
|
|
2,006,000 |
|
Developmentally Disabled |
|
|
17 |
|
|
|
108 |
|
|
|
4,294,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgages and Notes Receivable |
|
|
64 |
|
|
|
|
|
|
|
118,800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Portfolio |
|
|
158 |
|
|
|
|
|
|
$ |
381,929,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
Total |
|
|
|
Properties |
|
|
Total Dollars |
|
|
Dollars |
|
Summary of Facilities by Type |
|
|
|
|
|
|
|
|
|
|
|
|
Nursing Homes |
|
|
115 |
|
|
|
75.42 |
% |
|
$ |
288,040,000 |
|
Assisted Living |
|
|
15 |
|
|
|
15.63 |
% |
|
|
59,689,000 |
|
Medical Office Buildings |
|
|
4 |
|
|
|
2.73 |
% |
|
|
10,418,000 |
|
Retirement Homes |
|
|
6 |
|
|
|
3.20 |
% |
|
|
12,240,000 |
|
Hospitals |
|
|
1 |
|
|
|
1.90 |
% |
|
|
7,248,000 |
|
Developmentally Disabled |
|
|
17 |
|
|
|
1.12 |
% |
|
|
4,294,000 |
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Portfolio |
|
|
158 |
|
|
|
100.00 |
% |
|
$ |
381,929,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio by Operator Type: |
|
|
|
|
|
|
|
|
|
|
|
|
Public |
|
|
71 |
|
|
|
24.82 |
% |
|
$ |
94,805,000 |
|
Regional |
|
|
80 |
|
|
|
67.62 |
% |
|
|
258,266,000 |
|
Small Operator |
|
|
7 |
|
|
|
7.56 |
% |
|
|
28,858,000 |
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Portfolio |
|
|
158 |
|
|
|
100.00 |
% |
|
$ |
381,929,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
Dollar |
|
|
|
Total Portfolio |
|
|
Amount |
|
Public Operators |
|
|
|
|
|
|
|
|
National HealthCare Corp. |
|
|
13.28 |
% |
|
$ |
50,712,000 |
|
Community Health Systems, Inc. |
|
|
3.52 |
% |
|
|
13,450,000 |
|
Sunrise Senior Living Services |
|
|
3.48 |
% |
|
|
13,289,000 |
|
Sun Healthcare |
|
|
2.32 |
% |
|
|
8,845,000 |
|
Res-Care, Inc. |
|
|
1.12 |
% |
|
|
4,294,000 |
|
HCA The Healthcare Company |
|
|
1.10 |
% |
|
|
4,215,000 |
|
|
|
|
|
|
|
|
Total Public Operators |
|
|
24.82 |
% |
|
$ |
94,805,000 |
|
|
|
|
|
|
|
|
Operators who collectively operate more than 3% of our total real estate investments are as
follows: NHC, Health Services Management of Texas, LLC, THI of Baltimore, Inc., Sunrise Senior
Living Services, Inc., Health Services Management, Inc., Community Health Systems, Inc., ElderTrust
of Florida, Inc., RGL Development, LLC, Southeast Health Services, Regal Holdings, LLC, American
HealthCare, LLC, and SeniorTrust of Florida, Inc.
22
Areas of Focus
Reflecting our improving outlook for the healthcare industry, we anticipate making new
investments in 2006 while continuing to monitor and improve our existing properties. Even as we
make new investments, however, we expect to maintain a relatively low level of debt vs. equity
compared to our historical levels. New investments may be funded by our liquid investments and,
if needed, by external financing. We will make new investments where we believe the spreads over
our cost of capital will generate returns to our investors.
We have focused on lowering our debt. Our debt to capitalization ratio on December 31, 2005
was 21.7%, the lowest level in our 14 year history. Our liquidity is also strong with cash and
marketable securities of $152,022,000 exceeding our total debt outstanding of $117,453,000 at the
end of 2005.
On December 27, 2005, we reached an agreement with NHC to extend through December 31, 2021 our
current lease on 41 of our real estate properties. These 41 facilities include four centers leased
to other parties, and three retirement centers. This extension assures an ongoing relationship
with our largest customer.
Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally
accepted in the United States. These accounting principles require us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates and
cause our reported net income to vary significantly from period to period. If actual experience
differs from the assumptions and other considerations used in estimating amounts reflected in our
consolidated financial statements, the resulting changes could have a material adverse effect on
our consolidated results of operations, liquidity and/or financial condition.
We consider an accounting estimate or assumption critical if:
|
|
|
the nature of the estimates or assumptions is material due to the
levels of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change; and |
|
|
|
|
the impact of the estimates and assumptions on financial condition or
operating performance is material. |
Please refer to Note 1 of our audited consolidated financial statements for further
information on significant accounting policies that impact us. There have been no material changes
to these policies in 2005.
Our significant accounting policies and the associated estimates, judgments and the issues
which impact these estimates are as follows:
1) Valuations and impairments to our investments The majority of our tenants and borrowers
are in the long-term health care industry and derive their revenues primarily from Medicare,
Medicaid and other government programs. Amounts paid under these government programs are subject
to legislative and government budget constraints. From time to time, there may be material changes
in government reimbursement. In the past, the long-term health care industry has at times
experienced material reductions in government reimbursement.
The long-term health care industry has also experienced a dramatic increase in professional
liability claims and in the cost of insurance to cover such claims. These factors have combined to
cause a number of bankruptcy filings, bankruptcy court rulings and court judgments about
refinancing for our lessees and mortgagees. We have determined that impairment of certain of our
investments have occurred as the result of these events.
23
Decisions about valuations and impairments of our investments require significant judgments
and estimates on the part of management. For real estate properties, the need to recognize an
impairment is evaluated on a property by property basis in accordance with Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets
(SFAS 144). Recognition of an impairment is based upon estimated future cash flows from a
property compared to the carrying amount of the property and may be affected by managements plans,
if any, to dispose of the property.
For notes receivable, impairment recognition is based upon an evaluation of the estimated
collectibility of loan payments and general economic conditions on a specific loan basis in
accordance with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan An Amendment of FASB Statements No. 5 and 15 (SFAS 114). On a quarterly
basis, NHI reviews its notes receivable for recoverability when events or circumstances, including
the non-receipt of principal and interest payments, significant deteriorations of the financial
condition of the borrower and significant adverse changes in general economic conditions, indicate
that the carrying amount of the note receivable may not be recoverable. If necessary, an
impairment is measured as the amount by which the carrying amount exceeds the discounted cash flows
expected to be received under the note receivable or, if foreclosure is probable, the fair value of
the collateral securing the note receivable.
We evaluate our marketable securities for other-than-temporary impairments consistent with the
provisions of Statement of Financial Accountant Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115) as amended by EITF 03-01 The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments. An impairment of a
marketable security would be considered other-than-temporary unless we have the ability and
intent to hold the investment for a period of time sufficient for a forecasted market price
recovery up to (or beyond) the cost of the investment and evidence indicates the cost of the
investment is recoverable within a reasonable period of time.
While we believe that the carrying amounts of our properties, notes receivable, marketable
securities and other investments are realizable, it is possible that future events could require us
to make significant adjustments or revisions to these estimates.
2) Revenue recognition mortgage interest and rental income We collect interest and rent
from our customers. Generally our policy is to recognize revenues on an accrual basis as earned.
However, there are certain of our customers for which we have determined, based on insufficient
historical collections and the lack of expected future collections, that revenue for interest or
rent is not realizable. For these nonperforming investments, our policy is to recognize interest
or rental income when assured, which we consider to be the period the amounts are collected. We
identify investments as nonperforming if a required payment is not received within 30 days of the
date it is due. This policy could cause our revenues to vary significantly from period to period.
Revenue from minimum lease payments under our leases is recognized on a straight-line basis as
required under SFAS 13 to the extent that future lease payments are considered collectible. Lease
payments that depend on a factor directly related to future use of the property, such as an
increase in annual revenues over a base year revenues, are considered to be contingent rentals and
are excluded from minimum lease payments in accordance with SFAS 13.
3) REIT status and taxes We believe that we have operated our business so as to qualify as a
REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code)
and we intend to continue to operate in such a manner, but no assurance can be given that we will
be able to qualify at all times. If we qualify as a REIT, we will generally not be subject to
federal corporate income taxes on our net income that is currently distributed to our stockholders.
This treatment substantially eliminates the double taxation (at the corporate and stockholder
levels) that typically applies to corporate dividends. Our failure to continue to qualify under
the applicable REIT qualification rules and regulations would cause us to owe state and federal
income taxes and would have a material adverse impact on our financial position, results of
operations and cash flows.
4) Revenue recognition third party payors Approximately two-thirds of our facility
operating revenues are derived from Medicare, Medicaid, and other government programs. Amounts
earned under these programs are subject to review by the third party payors. In our opinion,
adequate provision has been made for any
adjustments that
24
may result from these reviews. Any differences between our estimates of
settlements and final determinations are reflected in operations in the year finalized.
Liquidity and Capital Resources
Sources and Uses of Funds
Our primary sources of cash include rent and interest receipts, the revenues of facilities we
operate, proceeds from the sales of real property and principal payments on loans receivable. Our
primary uses of cash include dividend distributions, the expenses of facilities we operate, debt
service payments (including principal and interest), real property acquisitions and general and
administrative expenses. These sources and uses of cash are reflected in our Consolidated
Statements of Cash Flows and are discussed in further detail below. The following is a summary of
our sources and uses of cash flows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
One Year Change |
|
|
Year Ended |
|
|
One Year Change |
|
|
Two Year Change |
|
|
|
12/31/03 |
|
|
12/31/04 |
|
|
$ |
|
|
% |
|
|
12/31/05 |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
Cash and Cash equivalents
at beginning of period |
|
$ |
43,062 |
|
|
$ |
93,687 |
|
|
$ |
50,625 |
|
|
|
118 |
% |
|
$ |
161,215 |
|
|
$ |
67,528 |
|
|
|
72 |
% |
|
$ |
118,153 |
|
|
|
274 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from (used
in) operating activities |
|
|
68,033 |
|
|
|
57,092 |
|
|
|
(10,941 |
) |
|
|
-16 |
% |
|
|
59,010 |
|
|
|
1,918 |
|
|
|
3 |
% |
|
|
(9,023 |
) |
|
|
-13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from (used
in) investing activities |
|
|
64,722 |
|
|
|
65,742 |
|
|
|
1,020 |
|
|
|
2 |
% |
|
|
333 |
|
|
|
(65,409 |
) |
|
|
-99 |
% |
|
|
(64,389 |
) |
|
|
-99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from (used
in) financing activities |
|
|
(82,130 |
) |
|
|
(55,306 |
) |
|
|
26,824 |
|
|
|
-33 |
% |
|
|
(88,089 |
) |
|
|
(32,783 |
) |
|
|
59 |
% |
|
|
(5,959 |
) |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
at end of period |
|
$ |
93,687 |
|
|
$ |
161,215 |
|
|
$ |
67,528 |
|
|
|
72 |
% |
|
$ |
132,469 |
|
|
$ |
(28,746 |
) |
|
|
-18 |
% |
|
$ |
38,782 |
|
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities We have generated net cash from operating activities during
2005 totaling $59,010,000, an increase of $1,918,000 compared to $57,092,000 in the prior year.
Net cash from operating activities generally includes net income adjusted for non-cash items, such
as depreciation and amortization, working capital changes, investment writedowns and recoveries,
and gain on asset disposals. The $59,010,000 net cash provided from operating activities for 2005
is composed of net income of $54,408,000, depreciation of $12,855,000, and net loan, realty and
security writedowns of $2,963,000. The net loan, realty and security writedowns of $2,963,000 are
attributable to real estate of $2,550,000 and mortgages of $5,435,000, reduced by security
recoveries of $5,022,000, discussed in Notes 3, 4 and 7 of the Consolidated Financial Statements.
This was offset by a gain on sale of real estate of $2,552,000, gain on sale of marketable
securities of $4,050,000, discount and deferred income amortization of $252,000, and working
capital increases of $4,655,000. The net gain on sale of real estate of $2,552,000 is composed of
a gain of $1,624,000 attributable to a Charlotte, North Carolina facility, a loss of $851,000
attributable to a Dallas, Texas facility, and a gain of $1,871,000 attributable to a Nashville,
Tennessee facility, discussed in Notes 3, 19, and 20 of the Consolidated Financial Statements. Net
cash provided by operating activities increased from $57,092,000 in 2004 to $59,010,000 in 2005 due
primarily to $3,918,000 of items affecting net income, offset by a $2,000,000 increase in working
capital change, driven primarily by the timing of vendor payments and collections of patient
receivables at operating facilities.
The $57,092,000 net cash provided from operating activities for 2004 is composed of increases
due to net income of $56,379,000 and depreciation of $14,453,000. This was offset by the
following: (1) net loan, realty, REMIC, and security recoveries of $2,896,000 discussed in Notes 4,
7, and 8, (2) gain on sale of real estate of $1,543,000 discussed in Note 19, (3) gain on sale of
marketable securities of $1,995,000 discussed in Note 7, (4) discount and deferred income
amortization of $1,511,000, and (5) working capital increases of $2,645,000.
Investing Activities Net cash provided by investing activities during 2005 totaled $333,000
compared to $65,742,000 in the prior year. Cash flows provided from investing activities during
2005 included collections on
25
mortgage and other notes receivable of $4,492,000 compared to $13,944,000 for 2004. The
collections for 2004 were substantially higher due to mortgages and other notes receivable which
matured or were settled in 2004. Prepayment of mortgage notes receivable were $5,424,000 in 2005
compared to $4,461,000 in 2004. Collections on real estate mortgage investment conduits provided
$13,126,000 during the prior period of 2004 as we collected in full the 1993 REMIC. Marketable
securities were called and converted to cash of $10,308,000 during 2005. The $10,308,000 cash
proceeds related to the sale, as a result of merger, of the Assisted Living Concepts, Inc. common
stock discussed in Note 7 of the Consolidated Financial Statements. Disposition of property and
equipment provided $14,452,000 and $4,389,000 of cash proceeds for 2005 and 2004, respectively.
The $14,452,000 cash proceeds in 2005 relate to the sale of the following properties: (1)
Charlotte, North Carolina assisted living facility for $3,570,000; (2) Dallas, Texas assisted
living facility for $7,911,000; and (3) Nashville, Tennessee facility for $2,971,000, as discussed
above.
Cash flows used in investing activities during 2005 included investments in real estate
properties of $12,264,000 and in mortgage and other notes receivable of $22,079,000. The
$12,264,000 investment in real estate properties includes the following: (1) the purchase for
$5,000,000 of two Texas facilities as a part of our plan to expand our core business, (2)
$4,400,000 related to a Pennsylvania assisted living facility; and (3) $2,864,000 related to
improvements of current operating facilities. The $22,079,000 investment in mortgage notes
receivable includes the following: (1) an $18,931,000 purchase of seven first mortgages on seven
skilled nursing facilities (Heritage Hall) in Virginia, (2) a $2,500,000 first mortgage loan on two
skilled nursing facilities (Legend HealthCare) in Texas, and (3) $648,000 applicable to various
working capital loans to skilled nursing facilities. Cash flows used in investing activities in
2004 included investments in real estate properties of $1,678,000, in mortgage notes receivable of
$2,419,000, and in marketable securities of $1,024,000.
Financing Activities Net cash used in financing activities during 2005 totaled $88,089,000
compared to $55,306,000 in 2004. Cash flows used in financing activities for 2005 included
principal payments on debt of $37,180,000 and dividends paid to stockholders of $53,259,000. The
$37,180,000 principal payments on debt includes the following: (1) $25,637,000 applicable to the
early payoff of 6% non-recourse debt due in 2007 to SouthTrust Bank as discussed in Note 7 of Notes
to Consolidated Financial Statements, (2) $8,224,000 applicable to the early payoff of 5% first
mortgage notes due in 2006 through 2021, and (3) $3,319,000 of routine principal payments. This
debt was repaid with cash that was earning less than the cost of the repaid debt and as a result
was immediately accretive to earnings. This compares to the corresponding prior year activity of
principal payments on debt of $7,670,000, and dividends paid to stockholders of $48,650,000.
Preferred Stock Conversion
On April 30, 2004, 100% of NHIs 8.5% cumulative convertible preferred stock, with a balance
of 747,994 shares or $18,700,000 was called by NHI for redemption into common stock of NHI at a
conversion rate of .905 shares of common stock for each share of preferred stock. This resulted in
an additional 676,922 shares of common stock issued and outstanding. Consequently, preferred
dividends for the first four months of 2004 totaling $514,000 was replaced with increased common
dividends on the new common shares.
Liquidity
At December 31, 2005, our liquidity is strong, with cash and marketable securities of
$152,022,000 exceeding $117,453,000 of total debt outstanding. Further, our debt to book
capitalization ratio declined to 21.7%, the lowest level in our 14 year history.
In the first quarter of 2003, we redeemed ahead of schedule $39.9 million of convertible
subordinated debentures that were due in February 2004.
Our next significant debt maturity of our $100 million 7.3% unsecured public notes is on July
16, 2007.
We declared and paid total annual dividends of $1.70 to shareholders of record in 2003, $1.85
to shareholders of record in 2004 and $1.80 to shareholders of record in 2005. The 2003 fourth
quarter dividend of $.50 per share was
26
paid on January 30, 2004 and included a $.10 per share special dividend. The
2004 fourth quarter dividend of $.5750 per share was paid on January 10, 2005 and included a $.15
per share special dividend. The 2005 fourth quarter dividend of $.45 per share was paid on January
10, 2006. We did not declare a special dividend for the fourth quarter of 2005 because our 2005
annual dividends to holders of our Common Stock exceeded our REIT taxable income.
Contractual Obligations and Contingent Liabilities
As of December 31, 2005, our contractual payment obligations and contingent liabilities were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations |
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
After |
|
(in thousands) |
|
Total |
|
|
1 Year |
|
|
2-3 Years |
|
|
4-5 Years |
|
|
5 Years |
|
Debt principal |
|
$ |
117,252 |
|
|
$ |
3,706 |
|
|
$ |
108,376 |
|
|
$ |
4,190 |
|
|
$ |
980 |
|
Debt interest |
|
|
15,073 |
|
|
|
8,556 |
|
|
|
5,653 |
|
|
|
578 |
|
|
|
286 |
|
Convertible debentures |
|
|
201 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan commitments |
|
|
2,770 |
|
|
|
2,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees to NHC |
|
|
7,355 |
|
|
|
7,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory fees |
|
|
1,799 |
|
|
|
1,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
144,450 |
|
|
$ |
24,387 |
|
|
$ |
114,029 |
|
|
$ |
4,768 |
|
|
$ |
1,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage notes totaling $8,224,000 at December 31, 2004, with a weighted average
interest rate of 5.0% and maturing in 2006 and 2021 were paid off in January 2005. A non-recourse
mortgage bank note of $25,637,000 at December 31, 2004, with a weighted average interest rate of
6.0%, and maturing in 2007 was paid off in January 2005. (See Note 9 of Notes to Consolidated
Financial Statements).
Off Balance Sheet Arrangements
We currently have no outstanding guarantees or letters of credit. We may or may not elect to
use financial derivative instruments to hedge interest rate exposure. At December 31, 2005, we did
not participate in any such financial instruments.
Commitments
At December 31, 2005, we were committed, subject to due diligence and financial performance
goals, to fund approximately $2,770,000 in health care real estate projects, all of which is
expected to be funded within the next 12 months. The commitments include additional mortgage
investments for five long-term health care centers, and one assisted living facility, at interest
rates ranging from 6.0% to prime plus 2.0%. We currently have sufficient liquidity to finance
current investments for which we are committed to repay or refinance borrowings at or prior to
their maturity, and to pay dividends required to maintain our REIT status.
A contingency related to damaged property is more fully described in Note 11 of notes to
Consolidated Financial Statements.
Real Estate and Mortgage Writedowns (Recoveries)
Our borrowers, tenants and the properties we operate as foreclosure properties have
experienced financial pressures and difficulties similar to those experienced by the health care
industry in general since 1997. Governments at both the federal and state levels have enacted
legislation to lower or at least slow the growth in payments to health care providers.
Furthermore, the costs of professional liability insurance have increased significantly during this
same period.
A number of our real estate property operators and mortgage loan borrowers have experienced
bankruptcy. Others have been forced to surrender properties to us in lieu of foreclosure and have
otherwise failed to make timely payments on their obligations to us.
27
The following table summarizes our writedowns and recoveries for the last three years,
recorded in accordance with the provisions of SFAS 114 and SFAS 144:
|
|
|
|
|
|
|
|
|
|
|
|
|
Writedowns (Recoveries) |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Real estate |
|
$ |
2,550 |
|
|
$ |
|
|
|
$ |
5,400 |
|
Mortgages (net) |
|
|
5,435 |
|
|
|
(3,302 |
) |
|
|
3,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,985 |
|
|
$ |
(3,302 |
) |
|
$ |
9,134 |
|
|
|
|
|
|
|
|
|
|
|
Further deferred maintenance analysis resulted in the recording of an additional $2,852,000 of
deferred maintenance expense in the third quarter of 2005 on two Florida assisted living
facilities, discussed in Note 3.
See Notes 3 and 4 to the financial statements for details of the properties identified as
impaired real estate investments and non-performing loans.
We believe that the carrying amounts of our real estate properties and notes receivable,
including those identified as impaired or non-performing, are realizable and supported by the value
of the underlying collateral. However, it is possible that future events could require us to make
significant adjustments to these carrying amounts.
Security Losses (Recoveries)
The following table summarizes our security writedowns and recoveries for the last three
years, recorded in accordance with the provisions of SFAS 115:
|
|
|
|
|
|
|
|
|
|
|
|
|
Writedowns (Recoveries) |
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
2003 |
Securities |
|
$ |
(5,022 |
) |
|
$ |
(687 |
) |
|
$ |
|
|
Assisted Living Concepts, Inc. (ALC) common stock was called in January 2005 resulting in a
gain of $9,072,000 ($5,022,000 of which is included in recoveries). These securities were
previously identified as impaired in 2001.
Assisted Living Concepts, Inc. Convertible Debentures were called in January 2004 resulting in
a gain of $687,000 which we included in recoveries. These securities were previously identified as
impaired in 2001.
REMIC Writedowns
We have no REMIC investments at December 31, 2005. During 2005, interest income of $997,000
was recognized on a REMIC purchased in 1995 and written down to no balance outstanding at December
31, 2004.
The following table summarizes our REMIC writedowns for the last three years:
|
|
|
|
|
|
|
|
|
Writedowns |
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
2003 |
REMICs
|
|
$
|
|
$ |
1,093 |
|
|
$ |
See Note 8 to the financial statements for details of the investments in real estate mortgage
investment conduits.
28
Results of Operations
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Certain 2004 financial information has been restated for the presentation of operations
discontinued during 2005. Such changes had no impact on the Companys reported earnings.
Net income for the year ended December 31, 2005 is $54,408,000 versus net income of
$56,379,000 for the same period in 2004, a decrease of 3.5%. Diluted earnings per common share
decreased $.07 or 3.4% to $1.96 in 2005 from $2.03 in 2004.
Total revenues for the year ended December 31, 2005 increased $1,823,000 or 1.2% to
$157,382,000 from $155,559,000 for the year ended December 31, 2004. Revenues from mortgage
interest income increased $110,000, or 0.6%, when compared to the same period in 2004. Revenues
from rental income decreased $2,213,000, or 4.6% in 2005 as compared to 2004. Facility operating
revenue increased $3,926,000 or 4.4% in 2005 compared to 2004.
Of the $110,000 net increase in mortgage interest income, increases totaling $5,862,000 are
related to the following: (1) $1,856,000 increased income from new loans, (2) $1,855,000 income
from legal and bankruptcy settlements attributable to interest income unrecorded in earlier years,
and (3) $2,151,000 increase in income from other mortgage loans due to improved performance of the
operations of our mortgagors. Decreases in mortgage interest income totaling $5,752,000 relate
primarily to prior period payoffs of mortgage and REMIC investments.
The $2,213,000 decrease in rental income in 2005 resulted primarily from decreases of $840,000
because of terminated leases and $2,962,000 because of delinquent leases, offset in part by
increases of $788,000 from new leases, and $801,000 from improved paying leases and increased
percentage rent from fully paying leases.
The $3,926,000 increase in facility operating revenues is due primarily to the improved
government payment rates and census at our foreclosure properties in Massachusetts, New Hampshire,
Kansas and Missouri for the year ended December 31, 2005. The increase in facility operating
revenues is attributable to a $1,514,000 increase in our Massachusetts and New Hampshire operating
facilities and a $2,412,000 increase in our Kansas and Missouri operating facilities. The New
Hampshire facilities experienced a one-time $4,228,000 state Medicaid retroactive rate adjustment
in 2004 applicable to 2004 and 2003, which increased 2004 revenue as compared to 2005.
Total expenses for the year ended December 31, 2005 increased $9,156,000 or 8.2% to
$120,983,000 from $111,827,000 for 2004. Interest expense decreased $3,883,000 or 31.2% in 2005 as
compared to 2004. Loan, REMIC, realty and security losses increased $8,711,000. Facility
operating expense increased by $5,117,000 or 6.2% in 2005 compared to 2004.
Interest expense for the year ended December 31, 2005 decreased primarily due to the payment
of debt of $37,180,000 since December 2004. This debt was repaid with cash that was earning less
than the cost of the repaid debt and as a result, was immediately accretive to earnings.
Loan, REMIC, realty and security losses netted $5,815,000 in 2005. Security recoveries of
$5,022,000 were recorded in 2005 related to the sale of Assisted Living Concepts, Inc. common stock
as a result of the acquisition of all the outstanding shares of ALC by Extendicare, Inc. by merger,
discussed in Note 6. Realty impairments of $2,550,000 were recorded during the first quarter of
2005 on two Florida assisted living facilities previously leased to Marriott Senior Living
Services, as a result of further defaults of covenants in the facility leases and continued
maintenance of the facilities, discussed in Note 3. Further maintenance analysis resulted in the
recording of an additional $2,852,000 of accrued maintenance expense in the third quarter of 2005
on these two Florida assisted living facilities attributable to mold remediation.
Loan writedowns of $6,000,000 were recorded during 2005 as follows: (1) $2,000,000 on two
loans held by Algood HealthCare, Inc., (2) $2,000,000 on mortgage loans with purchasers of three
Florida-based nursing homes
29
\
formerly owned by American Medical Associates, Inc., and (3) $2,000,000 on a Miracle Hill nursing
home loan. All these impairments are as a result of declines in past, current and anticipated cash
flow from the facilities collateralizing the loans, discussed in Note 5. Loan recoveries of
$565,000 were recorded in 2005.
The $5,120,000 increase in facility operating expense relates primarily to the improved
facility census in Massachusetts, New Hampshire, Kansas and Missouri facilities. The increase in
facility operating expense is attributable to an increase of $2,846,000 in our Massachusetts and
New Hampshire operating facilities and in increase of $2,274,000 in our Kansas and Missouri
operating facilities. The New Hampshire facilities experienced a one-time $1,811,000 state
Medicaid retroactive bed tax fee in 2004 applicable to 2004 and 2003 which increased 2004 expenses
as compared to 2005. Expenses at these facilities increased also because of inflation and service
improvements to enhance census.
Non-Operating
Income
Non-operating income in 2005 and 2004 includes dividends, interest income, and gains and
losses on the sale of marketable securities. In 2005, $4,525,000 of fire insurance proceeds and
gains from the sale of real estate damaged in a fire is also included in non-operating income.
Furthermore, a gain of $4,050,000 on the sale, as a result of merger, of ALC common stock for cash
(after $5,022,000 of the ALC common sale proceeds is treated as a recovery) is included in
non-operating income in 2005.
Discontinued
Operations
During the year ended December 31, 2005, we sold two assisted living facilities with carrying
amounts totaling $10,709,000 for proceeds of $11,482,000. We recognized a $773,000 gain on the
sale of these facilities. The net gain on the sale of real estate of $773,000 is composed of a
$1,624,000 gain from a Charlotte, North Carolina assisted living facility sale and an $851,000 loss
from a Dallas, Texas assisted living facility sale. Both of these assisted living facilities were
sold as a result of never achieving their expected profitability, discussed in Note 4.
During the prior year ended December 31, 2004, we sold three nursing facilities (one
previously designated as held for sale) with carrying amounts totaling $2,846,000 for proceeds of
$4,389,000. We recognized a gain of $1,543,000 on the sale of these facilities.
For 2005 and 2004, we have reclassified the operations, including the net gain on the sale of
these facilities, as discontinued operations in accordance with SFAS 144.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Certain 2004 and 2003 financial information has been restated for the presentation of
operations discontinued during 2005.
Net income for the year ended December 31, 2004 is $56,379,000 versus net income of
$43,808,000 for the same period in 2003, an increase of 28.7%. Diluted earnings per common share
increased 46 cents or 29.3% to $2.03 in 2004 from $1.57 in 2003.
Total revenues for the year ended December 31, 2004 increased $1,325,000 or .1% to
$155,559,000 from $154,234,000 for the year ended December 31, 2003. Revenues from mortgage
interest income decreased $2,930,000, or 13.9%, when compared to the same period in 2003. Revenues
from rental income decreased $5,912,000, or 11.0% in 2004 as compared to 2003. Facility operating
revenue increased $10,167,000 or 12.8% in 2004 compared to 2003.
Of the $2,930,000 decrease in mortgage interest income, $1,627,000 is related to previous
REMIC payoffs, $488,000 is related to previous mortgage payoffs and $1,344,000 is related to the
repurchase of the National Health
Realty, Inc. note by NHR in December 2003. This is partially offset by a $465,000 increase in
income from other mortgage loans due to improved performance.
30
The $5,912,000 decrease in rental income in 2004 (after restatement of discontinued operations
for a Brighton Gardens facility sold in 2005) resulted primarily from termination of leases in July
2003 with Marriott International on three Brighton Gardens assisted living facilities and a related
settlement resulting in $2,976,000 recognized as rental income in 2003. Furthermore, rental income
from the three remaining Marriott properties declined $2,077,000 in 2004 compared to the prior
year. Furthermore, $859,000 of additional rental income was recognized in 2003 from other leases.
The increase in facility operating revenues is due primarily to the improved government
payment rates and census at our foreclosure properties in Massachusetts, New Hampshire, Kansas and
Missouri for the year ended December 31, 2004. The improved government payment rates exceed any
related increase in facility operating expenses, resulting in more profitable operations.
Total expenses for the year ended December 31, 2004 decreased $6,645,000 or 5.6% to
$111,827,000 from $118,472,000 for 2003. Interest expense decreased $1,401,000 or 10.1% in 2004 as
compared to 2003. Facility operating expense increased by $6,895,000 or 9.1% in 2004 compared to
2003. Loan recoveries were $3,302,000, REMIC recoveries were $2,246,000, security recoveries were
$687,000, and REMIC writeoffs were $3,339,000 in 2004. There was $3,734,000 of loan losses in
2003, attributable to non-performing loans, and a realty impairment loss of $5,400,000 to reflect
the lower rent expected on one of the Brighton Gardens assisted living facilities.
Interest expense for the year ended December 31, 2004 decreased primarily due to the March,
2003 payment of convertible debentures in the amount of $39,917,000, conversion of debentures of
$235,000 and payment of debt of $7,669,000 since December 2003.
The increase in facility operating expense relates to the improved facility census in
Massachusetts, New Hampshire, Kansas and Missouri discussed above. Facility operating expense has
not increased in proportion to facility operating revenue from improved government payment rates,
resulting in more profitable operations.
Non-Operating
Income
Non-operating income for the year ended December 31, 2004 increased $5,763,000 or 97.2%
compared to the same period in 2003. Non-operating income for the year ended December 31, 2004
includes (1) $4,408,000 of dividend and interest income from marketable securities, (2) a gain of
$668,000 on the call of ElderTrust common stock for cash, (3) a gain of $1,326,000 on the sale of
American Retirement common stock, and (4) a gain of $3,308,000 from the sale of a mortgage notes
receivable with Colonial Care (after $2,000,000 of the Colonial Care sale proceeds is treated as a
recovery). Non-operating income for the year ended December 31, 2003 included $4,701,000 of
dividend and interest income from marketable securities.
Discontinued
Operations
During the year ended December 31, 2005, we sold two assisted living facilities with carrying
amounts totaling $10,709,000 for proceeds of $11,482,000. We recognized a $773,000 gain on the
sale of these facilities.
During the year ended December 31, 2004, we sold three nursing facilities (one previously
designated as held for sale) with carrying amounts totaling $2,846,000 for proceeds of
$4,389,000. We recognized a gain of $1,543,000 on the sale of these facilities.
During the year ended December 31, 2003, we sold a medical office building with a carrying
amount of $2,113,000 for proceeds of $4,045,000, resulting in a $1,932,000 net gain on the sale of
this facility and sold two nursing facilities with a carrying amount of $5,597,000 for proceeds of
$5,200,000 resulting in a net loss of $397,000 on these facilities. Additionally, we designated
one additional nursing facility as held for sale, consistent with the provisions of SFAS 144.
31
For 2004 and 2003, we have reclassified the operations, including the net gain on the sale
of these facilities, as discontinued operations in accordance with SFAS 144.
Funds From Operations
Our funds from operations (FFO) for the year ended December 31, 2005, on a diluted basis was
$63,453,000, a decrease of $3,282,000 as compared to $66,735,000 for the same period in 2004. FFO
represents net earnings available to common stockholders, excluding the effects of asset
dispositions, plus depreciation associated with real estate investments. Diluted FFO assumes, if
dilutive, the conversion of convertible subordinated debentures, the conversion of cumulative
convertible preferred stock and the exercise of stock options using the treasury stock method.
We believe that funds from operations is an important supplemental measure of operating
performance for a real estate investment trust. Because the historical cost accounting convention
used for real estate assets requires straight-line depreciation (except on land), such accounting
presentation implies that the value of real estate assets diminishes predictably over time. Since
real estate values instead have historically risen and fallen with market conditions, presentations
of operating results for a real estate investment trust that uses historical cost accounting for
depreciation could be less informative, and should be supplemented with a measure such as FFO. The
term FFO was designed by the real estate investment trust industry to address this issue. Our
measure may not be comparable to similarly titled measures used by other REITs. Consequently, our
funds from operations may not provide a meaningful measure of our performance as compared to that
of other REITs. Since other REITs may not use our definition of FFO, caution should be exercised
when comparing our Companys FFO to that of other REITs. Funds from operations in and of itself
does not represent cash generated from operating activities in accordance with GAAP (funds from
operations does not include changes in operating assets and liabilities) and therefore should not
be considered an alternative to net earnings as an indication of operating performance, or to net
cash flow from operating activities as determined by GAAP in the United States, as a measure of
liquidity and is not necessarily indicative of cash available to fund cash needs.
We have complied with the SECs interpretation that recurring impairments taken on real
property may not be added back to net income in the calculation of FFO. The SECs position is that
recurring impairments on real property are not an appropriate adjustment.
The following table reconciles net income to funds from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
(dollar amounts in thousands, except per share amounts) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net income |
|
$ |
54,408 |
|
|
$ |
56,379 |
|
|
$ |
43,808 |
|
Dividends to preferred stockholders |
|
|
|
|
|
|
(514 |
) |
|
|
(1,589 |
) |
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
|
54,408 |
|
|
|
55,865 |
|
|
|
42,219 |
|
Elimination of non-cash items in net income: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation |
|
|
11,496 |
|
|
|
11,981 |
|
|
|
11,975 |
|
Real estate depreciation in discontinued operations |
|
|
22 |
|
|
|
312 |
|
|
|
451 |
|
Gain on sale of real estate |
|
|
(2,554 |
) |
|
|
(1,543 |
) |
|
|
(1,535 |
) |
|
|
|
|
|
|
|
|
|
|
Basic funds from operations available to common stockholders |
|
|
63,372 |
|
|
|
66,615 |
|
|
|
53,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on convertible subordinated debentures |
|
|
81 |
|
|
|
120 |
|
|
|
149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted funds from operations available to common
stockholders |
|
$ |
63,453 |
|
|
$ |
66,735 |
|
|
$ |
53,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic funds from operations per share |
|
$ |
2.29 |
|
|
$ |
2.44 |
|
|
$ |
1.99 |
|
Diluted funds from operations per share |
|
|
2.28 |
|
|
|
2.42 |
|
|
$ |
1.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares for basic funds from operations per share |
|
|
27,699,887 |
|
|
|
27,257,826 |
|
|
|
26,727,814 |
|
Shares for diluted funds from operations per share |
|
|
27,830,886 |
|
|
|
27,531,084 |
|
|
|
26,985,571 |
|
32
Impact of Inflation
During the past three years, inflation has not significantly affected our earnings because of
relatively moderate inflation rates. Inflation may affect us in the future by changing the
underlying value of our real estate or by impacting our cost of financing its operations.
Our revenues are generated primarily from long-term investments with fixed rates of return.
These investments are financed through a combination of equity, long-term borrowings, and, as
needed, line of credit arrangements. During periods of rising interest rates, our ability to grow
may be adversely affected because yields on new investments may increase more slowly than new
borrowing costs. Certain of our leases offer some degree of inflation protection by requiring
increases in rental income based upon increases in the revenues of the tenants.
New Accounting Pronouncements
In December of 2004, the FASB issued FASB Statement No. 153, Exchanges of Nonmonetary
Assets-An Amendment of APB Opinion No. 29 (Statement 153). Statement 153 amends APB Opinion No.
29, Accounting for Non-monetary Transactions, that was issued in 1973. The amendments made by
Statement 153 are based on the principle that exchanges of non-monetary assets should be measured
based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow
exception for non-monetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of non-monetary assets that do not have commercial substance.
Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a
similar productive asset or an equivalent interest in the same or similar productive asset should
be based on the recorded amount of the asset relinquished. The provisions in Statement 153 are
effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Early application is permitted and companies must apply the standard prospectively. The
Company adopted Statement 153 beginning July 1, 2005. The future effect of Statement 153 on the
Companys financial statements will depend on whether the Company enters into certain non-monetary
transactions. The adoption of Statement 153 has not had a material effect on its financial
statements.
In December 2004, the FASB has issued FASB Statement No. 123 (Revised 2004), Share-Based
Payment (Statement 123R). The new FASB rule requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments issued. The Company will be
required to apply Statement 123R beginning January 1, 2006. The scope of Statement 123R includes a
wide range of share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights, and employee share purchase plans. The
Company does not expect the adoption of Statements 123R to have a significant impact on its
financial statements other than the recording of compensation charges for option holders.
In May 2005, the FASB issued FASB Statement No. 154, Accounting for Changes and Error
Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes and FASB Statement
No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement 154 requires that a
voluntary change in accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is impracticable to do so.
Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived
nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a
change in accounting principle, and (2) correction of errors in previously issued financial
statements should be termed a restatement. The new standard is effective for accounting changes
and correction of errors made in fiscal years beginning after December 15, 2005. The Company does
not expect the adoption of this pronouncement to have a significant impact on the Companys
financial statements.
33
Forward Looking Statements
References throughout this document to the Company include National Health Investors, Inc. and
its wholly-owned subsidiaries. In accordance with the Securities and Exchange Commissions Plain
English guidelines, this Annual Report on Form 10-K has been written in the first person. In this
document, the words we, our, ours and us refer only to National Health Investors, Inc. and
its wholly-owned subsidiaries and not any other person.
This Annual Report on Form 10-K and other information we provide from time to time, contains
certain forward-looking statements as that term is defined by the Private Securities Litigation
Reform Act of 1995. All statements regarding our expected future financial position, results of
operations, cash flows, funds from operations, continued performance improvements, ability to
service and refinance our debt obligations, ability to finance growth opportunities, and similar
statements including, without limitations, those containing words such as believes, anticipates,
expects, intends, estimates, plans, and other similar expressions are forward-looking
statements.
Forward-looking statements involve known and unknown risks and uncertainties that may cause
our actual results in future periods to differ materially from those projected or contemplated in
the forward-looking statements as a result of, but not limited to, the following factors:
|
|
national and local economic conditions, including their effect on the availability and cost
of labor, utilities and materials; |
|
|
|
the status of capital markets, including prevailing interest rates and changes in financing
terms; |
|
|
|
the effect of government regulations and changes in regulations
governing the healthcare industry, including compliance with such
regulations by us and our borrowers and/or lessees; |
|
|
|
operator bankruptcies; |
|
|
|
changes in Medicare and Medicaid payment levels and methodologies and the application of such
methodologies by the government and its fiscal intermediaries to our borrowers and/or lessees; |
|
|
|
changes in health care operators difficulty in obtaining and maintaining adequate liability
and other insurance and the liability and insurance claims of our operators; |
|
|
|
the ability to pay when due or refinance certain debt obligations maturing within the next 12 months; |
|
|
|
the Companys ability to transition or sell facilities with a profitable result and the Companys ability to collect
receivables from such sales; |
|
|
|
the availability and terms of capital to fund investments; |
|
|
|
the Companys ability to find and complete future acquisitions; |
|
|
|
delays in reinvestment of sale proceeds; |
|
|
|
the Companys ability to maintain its advisory agreement and properly
maintain financial reporting under government regulations; |
|
|
|
the competitive environment in which we operate and competition within the health
care and senior housing industries; |
|
|
|
the risk factors described in Item 1A. |
34
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Interest Rate Risk
Our cash and cash equivalents consist of highly liquid investments with a maturity of less
than three months when purchased. All of our mortgage and other notes receivable bear interest at
fixed interest rates. Our investment in preferred stock represents an investment in the preferred
stock of another real estate investment trust and bears interest at a fixed rate of 8.5%. As a
result of the short-term nature of our cash instruments and because the interest rates on our
investments in notes receivable and preferred stock are fixed, a hypothetical 10% change in
interest rates has no impact on our future earnings and cash flows related to these instruments.
As of December 31, 2005, $100,096,000 of our debt bears interest at fixed interest rates.
Because the interest rates of these instruments are fixed, a hypothetical 10% change in interest
rates has no impact on our future earnings and cash flows related to these instruments. The
remaining $17,156,000 of our debt and $201,000 of our convertible subordinated debentures bear
interest at variable rates. A hypothetical 10% increase in interest rates would reduce our future
earnings and cash flows related to these instruments by $82,000. A hypothetical 10% decrease in
interest rates would increase our future earnings and cash flows related to these instruments by
$82,000.
We are subject to risks associated with debt financing, including the risk that our existing
indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the
terms of existing indebtedness. Certain of our loan agreements require the maintenance of
specified financial ratios. Accordingly, in the event that we are unable to raise additional
equity or borrow money because of those limitations, our ability to make additional investments may
be limited.
We do not use derivative instruments to hedge interest rate risks. The future use of such
instruments will be subject to strict approvals by our senior officers.
Equity Price Risk
We consider our investments in marketable securities as available for sale securities and
unrealized gains and losses are recorded in stockholders equity in accordance with SFAS 115. The
investments in marketable securities are recorded at their fair market value based on quoted market
prices. Thus, there is exposure to equity price risk, which is the potential change in fair value
due to a change in quoted market prices. Hypothetically, a 10% change in quoted market prices
would result in a related $1,955,000 change in the fair value of our investments in marketable
securities.
35
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
National Health Investors, Inc.
Murfreesboro, Tennessee
We have audited the accompanying consolidated balance sheets of National Health Investors, Inc. and
Subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of income,
stockholders equity and cash flows for each of the two years in the period ended December 31,
2005. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of National Health Investors, Inc. and Subsidiaries at
December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2005, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of National Health Investors, Inc. and Subsidiaries
internal control over financial reporting as of December 31, 2005, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated February 22, 2006, expressed an unqualified opinion
thereon.
/s/ BDO Seidman, LLP
Memphis, Tennessee
February 22, 2006
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of National Health Investors, Inc.:
We have audited the accompanying consolidated statements of income, stockholders equity and cash
flows of National Health Investors, Inc. and Subsidiaries for the year ended December 31, 2003.
Our audit also included the 2003 information in the financial statement schedules listed in the
Index of Exhibit 13. These financial statements and schedules are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
and schedules based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated results of operations and cash flows of National Health Investors, Inc.
and Subsidiaries for the year ended December 31, 2003, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related 2003 financial statement schedules, when
considered in relation to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Nashville, Tennessee
January 26, 2004
37
NATIONAL HEALTH INVESTORS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
December 31, |
|
2005 |
|
|
2004 |
|
Assets |
|
|
|
|
|
|
|
|
Real estate properties: |
|
|
|
|
|
|
|
|
Land |
|
$ |
31,647 |
|
|
$ |
33,505 |
|
Buildings and improvements |
|
|
362,907 |
|
|
|
368,366 |
|
Construction in progress |
|
|
359 |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
394,913 |
|
|
|
402,067 |
|
Less accumulated depreciation |
|
|
(131,784 |
) |
|
|
(123,897 |
) |
|
|
|
|
|
|
|
Real estate properties, net |
|
|
263,129 |
|
|
|
278,170 |
|
Mortgage and other notes receivable, net |
|
|
118,800 |
|
|
|
112,072 |
|
Investment in preferred stock |
|
|
38,132 |
|
|
|
38,132 |
|
Cash and cash equivalents |
|
|
132,469 |
|
|
|
161,215 |
|
Marketable securities |
|
|
19,553 |
|
|
|
29,098 |
|
Accounts receivable |
|
|
5,581 |
|
|
|
6,384 |
|
Deferred costs and other assets |
|
|
10,268 |
|
|
|
6,300 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
587,932 |
|
|
$ |
631,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Unsecured public notes |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
Debt |
|
|
17,252 |
|
|
|
54,432 |
|
Convertible subordinated debentures |
|
|
201 |
|
|
|
1,116 |
|
Accounts payable and other accrued expenses |
|
|
26,471 |
|
|
|
27,769 |
|
Accrued interest |
|
|
3,374 |
|
|
|
3,392 |
|
Dividends payable |
|
|
12,524 |
|
|
|
15,838 |
|
Deferred income |
|
|
3,142 |
|
|
|
3,285 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
162,964 |
|
|
|
205,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 40,000,000 shares authorized;
27,830,439
and 27,545,018 shares, respectively, issued and outstanding |
|
|
278 |
|
|
|
275 |
|
Capital in excess of par value |
|
|
464,389 |
|
|
|
461,119 |
|
Cumulative net income |
|
|
613,208 |
|
|
|
558,800 |
|
Cumulative dividends |
|
|
(664,729 |
) |
|
|
(614,785 |
) |
Unrealized gains on marketable securities, net |
|
|
11,822 |
|
|
|
20,130 |
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
424,968 |
|
|
|
425,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
587,932 |
|
|
$ |
631,371 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these
consolidated financial statements.
38
NATIONAL HEALTH INVESTORS, INC.
Consolidated Statements of Income
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage interest income |
|
$ |
18,226 |
|
|
$ |
18,116 |
|
|
$ |
21,046 |
|
Rental income |
|
|
45,791 |
|
|
|
48,004 |
|
|
|
53,916 |
|
Facility operating revenue |
|
|
93,365 |
|
|
|
89,439 |
|
|
|
79,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,382 |
|
|
|
155,559 |
|
|
|
154,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
8,556 |
|
|
|
12,439 |
|
|
|
13,840 |
|
Depreciation |
|
|
12,792 |
|
|
|
14,041 |
|
|
|
14,657 |
|
Amortization of loan costs |
|
|
174 |
|
|
|
148 |
|
|
|
297 |
|
Legal expense |
|
|
570 |
|
|
|
1,292 |
|
|
|
729 |
|
Franchise, excise, and other taxes |
|
|
622 |
|
|
|
284 |
|
|
|
548 |
|
General and administrative |
|
|
4,310 |
|
|
|
3,492 |
|
|
|
3,135 |
|
Loan, remic, realty and security losses (recoveries) |
|
|
5,815 |
|
|
|
(2,896 |
) |
|
|
9,134 |
|
Facility operating expenses |
|
|
88,144 |
|
|
|
83,027 |
|
|
|
76,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,983 |
|
|
|
111,827 |
|
|
|
118,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Non-Operating Income |
|
|
36,399 |
|
|
|
43,732 |
|
|
|
35,762 |
|
Non-operating income (investment interest and other) |
|
|
17,309 |
|
|
|
11,694 |
|
|
|
5,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations |
|
|
53,708 |
|
|
|
55,426 |
|
|
|
41,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income discontinued |
|
|
(73 |
) |
|
|
(590 |
) |
|
|
580 |
|
Net gain on sales of real estate |
|
|
773 |
|
|
|
1,543 |
|
|
|
1,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
953 |
|
|
|
2,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
54,408 |
|
|
|
56,379 |
|
|
|
43,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to preferred stockholders |
|
|
|
|
|
|
(514 |
) |
|
|
(1,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
54,408 |
|
|
$ |
55,865 |
|
|
$ |
42,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
27,699,887 |
|
|
|
27,257,826 |
|
|
|
26,727,814 |
|
Diluted |
|
|
27,830,886 |
|
|
|
27,531,084 |
|
|
|
26,985,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.94 |
|
|
$ |
2.02 |
|
|
$ |
1.50 |
|
Discontinued operations |
|
|
.02 |
|
|
|
.03 |
|
|
|
.08 |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
1.96 |
|
|
$ |
2.05 |
|
|
$ |
1.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.93 |
|
|
$ |
2.00 |
|
|
$ |
1.49 |
|
Discontinued operations |
|
|
.03 |
|
|
|
.03 |
|
|
|
.08 |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
1.96 |
|
|
$ |
2.03 |
|
|
$ |
1.57 |
|
The accompanying notes to consolidated financial statements are an integral part of these
consolidated financial statements.
39
NATIONAL HEALTH INVESTORS, INC.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
54,408 |
|
|
$ |
56,379 |
|
|
$ |
43,808 |
|
Adjustments to reconcile net income to net cash provided from
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
12,855 |
|
|
|
14,453 |
|
|
|
15,380 |
|
Provision for loan, remic, realty, and security losses (recoveries) |
|
|
2,963 |
|
|
|
(2,896 |
) |
|
|
9,134 |
|
Net gain on sales of real estate |
|
|
(2,552 |
) |
|
|
(1,543 |
) |
|
|
(1,535 |
) |
Gain on sale of notes receivable |
|
|
|
|
|
|
(3,308 |
) |
|
|
|
|
Realized (gain) loss on sales of marketable securities |
|
|
(4,050 |
) |
|
|
(1,995 |
) |
|
|
191 |
|
Amortization of loan costs |
|
|
174 |
|
|
|
148 |
|
|
|
297 |
|
Interest on debenture conversions |
|
|
10 |
|
|
|
|
|
|
|
3 |
|
Amortization of discount on held-to-maturity securities and real estate
mortgage investment conduit |
|
|
|
|
|
|
(1,191 |
) |
|
|
(740 |
) |
Deferred income |
|
|
109 |
|
|
|
10 |
|
|
|
|
|
Amortization of deferred income |
|
|
(252 |
) |
|
|
(320 |
) |
|
|
(957 |
) |
(Increase) decrease in accounts receivable |
|
|
803 |
|
|
|
(2,075 |
) |
|
|
2,314 |
|
Increase in deferred costs and other assets |
|
|
(4,142 |
) |
|
|
(446 |
) |
|
|
(1,050 |
) |
(Decrease) increase in accounts payable and other accrued expenses |
|
|
(1,298 |
) |
|
|
(107 |
) |
|
|
2,371 |
|
Decrease in accrued interest |
|
|
(18 |
) |
|
|
(17 |
) |
|
|
(1,183 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
59,010 |
|
|
|
57,092 |
|
|
|
68,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided from
investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in mortgage and other notes receivable |
|
|
(22,079 |
) |
|
|
(2,419 |
) |
|
|
(1,730 |
) |
Collection of mortgage and other notes receivable |
|
|
4,492 |
|
|
|
13,944 |
|
|
|
12,188 |
|
Prepayment of mortgage notes receivable |
|
|
5,424 |
|
|
|
4,461 |
|
|
|
24,072 |
|
Sale of mortgage notes receivable |
|
|
|
|
|
|
24,120 |
|
|
|
|
|
Collection of real estate mortgage investment conduits |
|
|
|
|
|
|
13,126 |
|
|
|
21,032 |
|
Acquisition of and construction of real estate properties |
|
|
(12,264 |
) |
|
|
(1,678 |
) |
|
|
(627 |
) |
Disposition of property and equipment |
|
|
14,452 |
|
|
|
4,389 |
|
|
|
9,382 |
|
Acquisition of marketable securities |
|
|
|
|
|
|
(1,024 |
) |
|
|
|
|
Sales of marketable securities |
|
|
10,308 |
|
|
|
10,823 |
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities: |
|
|
333 |
|
|
|
65,742 |
|
|
|
64,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided from
financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
|
|
|
|
|
|
|
|
9,110 |
|
Payments on debt |
|
|
(37,180 |
) |
|
|
(7,670 |
) |
|
|
(8,773 |
) |
Payments of convertible subordinated debentures |
|
|
|
|
|
|
|
|
|
|
(39,917 |
) |
Dividends paid to stockholders |
|
|
(53,259 |
) |
|
|
(48,650 |
) |
|
|
(43,002 |
) |
Repurchase of common stock |
|
|
|
|
|
|
(578 |
) |
|
|
|
|
Sale of common stock |
|
|
2,350 |
|
|
|
1,592 |
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(88,089 |
) |
|
|
(55,306 |
) |
|
|
(82,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(28,746 |
) |
|
|
67,528 |
|
|
|
50,625 |
|
Cash and cash equivalents, beginning of period |
|
|
161,215 |
|
|
|
93,687 |
|
|
|
43,062 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
132,469 |
|
|
$ |
161,215 |
|
|
$ |
93,687 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these
consolidated financial statements.
40
NATIONAL HEALTH INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Cumulative Convertible |
|
|
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
|
|
(Losses) Gains |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Excess of |
|
|
Cumulative |
|
|
Cumulative |
|
|
on Marketable |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Par Value |
|
|
Net Income |
|
|
Dividends |
|
|
Securities |
|
|
Equity |
|
|
|
At $25 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 12/31/02 |
|
|
747,994 |
|
|
|
18,700 |
|
|
|
26,682,994 |
|
|
|
266 |
|
|
|
440,360 |
|
|
|
458,613 |
|
|
|
(516,632 |
) |
|
|
(878 |
) |
|
|
400,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,808 |
|
|
|
|
|
|
|
|
|
|
|
43,808 |
|
Unrealized gains on marketable securities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,637 |
|
|
|
11,637 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,445 |
|
Shares issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452 |
|
Shares issued in conversion of convertible
debentures to common stock |
|
|
|
|
|
|
|
|
|
|
52,129 |
|
|
|
1 |
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367 |
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to common stockholders, $1.70 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,460 |
) |
|
|
|
|
|
|
(45,460 |
) |
Dividends to preferred stockholders, $2.125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,589 |
) |
|
|
|
|
|
|
(1,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at 12/31/03 |
|
|
747,994 |
|
|
|
18,700 |
|
|
|
26,770,123 |
|
|
|
267 |
|
|
|
441,178 |
|
|
|
502,421 |
|
|
|
(563,681 |
) |
|
|
10,759 |
|
|
|
409,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,379 |
|
|
|
|
|
|
|
|
|
|
|
56,379 |
|
Unrealized gains on marketable securities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,371 |
|
|
|
9,371 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,750 |
|
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
(23,860 |
) |
|
|
|
|
|
|
(578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(578 |
) |
Shares issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
88,271 |
|
|
|
1 |
|
|
|
1,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,592 |
|
Shares issued in conversion of
convertible debentures to common stock |
|
|
|
|
|
|
|
|
|
|
33,562 |
|
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235 |
|
Shares issued in conversion of preferred
stock to common stock |
|
|
(747,994 |
) |
|
|
(18,700 |
) |
|
|
676,922 |
|
|
|
7 |
|
|
|
18,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to common stockholders, $1.85 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,590 |
) |
|
|
|
|
|
|
(50,590 |
) |
Dividends to preferred stockholders, $.6876 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(514 |
) |
|
|
|
|
|
|
(514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at 12/31/04 |
|
|
|
|
|
|
|
|
|
|
27,545,018 |
|
|
|
275 |
|
|
|
461,119 |
|
|
|
558,800 |
|
|
|
(614,785 |
) |
|
|
20,130 |
|
|
|
425,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,408 |
|
|
|
|
|
|
|
|
|
|
|
54,408 |
|
Unrealized losses on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,308 |
) |
|
|
(8,308 |
) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,100 |
|
Shares issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
154,729 |
|
|
|
2 |
|
|
|
2,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,350 |
|
Shares issued in conversion of
convertible debentures to common stock |
|
|
|
|
|
|
|
|
|
|
130,692 |
|
|
|
1 |
|
|
|
922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923 |
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to common stockholders ($1.80 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,944 |
) |
|
|
|
|
|
|
(49,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at 12/31/05 |
|
|
|
|
|
$ |
|
|
|
|
27,830,439 |
|
|
$ |
278 |
|
|
$ |
464,389 |
|
|
$ |
613,208 |
|
|
$ |
(664,729 |
) |
|
$ |
11,822 |
|
|
$ |
424,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these
consolidated financial statements.
41
NATIONAL HEALTH INVESTORS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2005, 2004, and 2003
Note 1. Organization
National Health Investors, Inc. (NHI or the Company) is a Maryland real estate investment
trust (REIT) that was incorporated on July 24, 1991. NHIs revenue is derived from
interest income on mortgage loans, from rent generated on leased properties, from income on other
investments and from the operations of long-term health care facilities on which NHI has foreclosed
or has accepted deeds in lieu of foreclosure. NHI invests in health care properties including
long-term care centers, acute care hospitals, medical office buildings, assisted living facilities
and retirement centers. These properties are located throughout the United States and are operated
by qualified health care providers.
Note 2. Summary of Significant Accounting Policies
Basis
of Presentation The consolidated financial statements include the accounts of NHI and
its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been
eliminated.
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Real Estate Properties NHI records properties at cost, including capitalized interest during
construction periods. NHI uses the straight-line method of depreciation for buildings and
improvements over their estimated remaining useful lives as follows:
|
|
|
|
|
Buildings |
|
40 years |
|
Improvements |
|
5 to 25 years |
In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), NHI evaluates the recoverability of the
carrying values of its properties on a property by property basis. On a quarterly basis, NHI
reviews its properties for recoverability when events or circumstances, including significant
physical changes in the property, significant adverse changes in general economic conditions, and
significant deteriorations of the underlying cash flows of the property, indicate that the carrying
amount of the property may not be recoverable. The need to recognize an impairment is based on
estimated future cash flows from a property compared to the carrying value of that property. If
recognition of an impairment is necessary, it is measured as the amount by which the carrying
amount of the property exceeds the fair value of the property.
Mortgage and Other Notes Receivable In accordance with Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan An Amendment of FASB
Statements No. 5 and 15 (SFAS 114), NHI evaluates the carrying values of its
mortgage and other notes receivable on an instrument by instrument basis. On a quarterly basis,
NHI reviews its notes receivable for recoverability when events or circumstances, including the
non-receipt of principal and interest payments, significant deteriorations of the financial
condition of the borrower and significant adverse changes in general economic conditions, indicate
that the carrying amount of the note receivable may not be recoverable. If necessary, an
impairment is measured as the amount by which the carrying amount exceeds the discounted cash flows
expected to be received under the note receivable or, if foreclosure is probable, the fair value of
the collateral securing the note receivable.
42
Cash Equivalents Cash equivalents consist of all highly liquid investments with an original
maturity of three months or less.
Federal Income Taxes NHI intends at all times to qualify as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended. Therefore, NHI will not be subject
to federal income tax provided it distributes at least 90% of its REIT taxable income to its
stockholders and meets other requirements to continue to qualify as a REIT. Accordingly, no
provision for federal income taxes has been made in the consolidated financial statements.
NHIs failure to continue to qualify under the applicable REIT qualification rules and
regulations would have a material adverse impact on the financial position, results of operations
and cash flows of NHI.
At December 31, 2005, the primary difference between NHIs tax basis and the reported amounts
of NHIs assets and liabilities is a higher book basis than tax basis in its real estate properties
by approximately $27,073,000. $46,513,000 is attributable to operating facilities sold in
Massachusetts, New Hampshire, Kansas and Missouri not recorded (and accounted for under the deposit
method under SFAS 66) (See Note 3), while accounted for under the installment sale
method for tax purposes. This is offset by a $19,440,000 higher tax basis than book basis on other
real estate properties.
Earnings and profits, which determine the taxability of dividends to stockholders, differ from
net income reported for financial reporting purposes due primarily to differences in the basis of
assets, differences in recognition of commitment fees, differences in the estimated useful lives
used to compute depreciation expense and differences in the treatment of accrued interest expense
that existed at the time debentures were converted to common stock.
Concentration of Credit Risks NHIs credit risks primarily relate to cash and cash
equivalents, investments in preferred stock, real estate mortgage investment conduits and mortgage
and other notes receivable. Cash and cash equivalents are primarily held in bank accounts and
overnight investments. The investments in real estate mortgage investment conduits relate to a
participating interest in two real estate mortgage investment conduits as discussed in Note 8.
Mortgage and other notes receivable relate primarily to secured loans with health care facilities
as discussed in Note 4. The investment in preferred stock is in one entity as discussed in Note 6.
NHIs financial instruments, principally its investments in preferred stock and notes
receivable, are subject to the possibility of loss of the carrying values as a result of either the
failure of other parties to perform according to their contractual obligations or changes in market
prices which may make the instruments less valuable. NHI obtains various collateral and other
protective rights, and continually monitors these rights in order to reduce such possibilities of
loss. NHI evaluates the need to provide for reserves for potential losses on its financial
instruments based on managements periodic review of its portfolio on an instrument by instrument
basis. See Notes 4 and 6 for additional information on the notes receivable and investments in
preferred stock.
Marketable Securities NHIs investments in marketable securities include available for
sale securities and held to maturity securities. Unrealized gains and losses on available for sale
securities are recorded in stockholders equity in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities
(SFAS 115).
NHI evaluates its marketable securities for other-than-temporary impairments consistent with
the provisions of SFAS 115.
Deferred Costs Costs incurred to acquire financings are amortized by the interest method
over the term of the related debt.
Deferred Income Deferred income primarily includes non-refundable loan commitment fees
received by NHI, which are amortized into income by the interest method over the expected period of
the related loans. In the event that a potential borrower chooses not to borrow funds from NHI,
the related commitment fees are recognized into income when the commitment expires.
43
In managements opinion, these loan commitment fees approximate the loan commitment fees that
NHI would currently charge to enter into similar agreements based on the terms of the agreements
and the creditworthiness of the parties, and the committed interest rates are approximately the
same as current levels of interest rates.
Rental Income Rental income is recognized by NHI based on the terms of NHIs leases. Under
certain of its leases, NHI receives additional contingent rent, which is based on the increase in
revenues of a lessee over a base year or base quarter. NHI recognizes contingent rent annually or
quarterly, as applicable, when, based on the actual revenues of the lessee, receipt of such income
is assured. Revenue from minimum lease payments under our leases is recognized on a straight-line
basis as required under SFAS 13 to the extent that future lease payments are considered
collectible. Lease payments that depend on a factor directly related to future use of the
property, such as an increase in annual revenues over a base year revenues, are considered to be
contingent rentals and are excluded from minimum lease payments in accordance with SFAS 13.
NHI identifies leases as non-performing if a required payment is not received within 30 days
of the date it is due. The Companys policy related to rental income on non-performing
leased real estate properties is to recognize rental income in the period when the income is
received.
Mortgage Interest Income Mortgage interest income is recognized by NHI based on the interest
rates and principal amounts outstanding of the mortgage notes receivable. Under certain of its
mortgages, NHI receives additional contingent interest, which is based on the increase in the
current year revenues of a borrower over a base year. NHI recognizes contingent interest income
annually when, based on the actual revenues of the borrower, receipt of such income is assured.
Mortgage interest income includes prepayment penalties, which are recognized into income upon
prepayment of notes receivable. NHI identifies loans as non-performing if a required payment is
not received within 30 days of the date it is due. The Companys policy related to mortgage
interest income on non-performing mortgage loans is to recognize mortgage interest income in the
period when the income is received.
Investment Interest and Other Income Investment interest and other income includes dividends
and interest received from investments in preferred stock and marketable securities, realized gains
and losses on sales of marketable securities, interest on cash and cash equivalents and
amortization of deferred income.
Facility Operating Revenue Facility operating revenue is generated from the long-term health
care facilities on which NHI became the licensed operator. With certain elections, unqualified
income generated by these properties is expected to be treated as qualified income for up to six
years from the purchase date for purpose of the income-source tests that must be satisfied by REITs
to maintain their tax status. NHI has engaged subsidiaries of National HealthCare Corporation
(NHC) to manage these properties. Approximately 75% of NHIs facility
operating revenue in 2005, 2004 and 2003 is derived from participation in Medicare and Medicaid
programs. Amounts earned under Medicare, Medicaid and other governmental programs are subject to
review by the third party payors. In the opinion of management, adequate provision has been made
for any adjustments that may result from such reviews. Any differences between estimated
settlements and final determinations are reflected in facility operating revenue in the year
finalized.
Foreclosures NHI records the assets received and liabilities assumed during foreclosures at
their estimated fair value in accordance with the provisions of Statement of Financial Accounting
Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings.
Stock-Based
Compensation NHI accounts for stock-based compensation arrangements under
the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations. NHI has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123), as amended by Statement of Financial Accounting Standards No. 148 (SFAS 148).
As a result, no compensation cost has been recognized in the consolidated statements of income for
NHIs stock option plan. See Note 14 for additional disclosures about NHIs stock option plan.
Based on the number of options granted and the historical and expected future trends of
factors affecting valuation of those options, management believes that the additional compensation
cost, as calculated in accordance with
44
SFAS 123, has no material effect on the Companys net income or earnings per share in 2005, 2004
and 2003. Had compensation cost for our stock option plans been determined based on the fair value
at the grant date of awards in 2005, 2004 and 2003, consistent with the provisions of SFAS 123, our
net income and earnings per share would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(dollars in thousands, except per |
|
|
|
share amounts) |
|
Net income as reported |
|
$ |
54,408 |
|
|
$ |
55,865 |
|
|
$ |
42,219 |
|
Less compensation cost that would
be recognized under fair value method |
|
|
112 |
|
|
|
136 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
Net income pro forma |
|
$ |
54,296 |
|
|
$ |
55,729 |
|
|
$ |
42,102 |
|
|
Net earnings per share as reported |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.96 |
|
|
$ |
2.05 |
|
|
$ |
1.58 |
|
Diluted |
|
$ |
1.96 |
|
|
$ |
2.03 |
|
|
$ |
1.57 |
|
|
Net earnings per share pro forma |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.96 |
|
|
$ |
2.04 |
|
|
$ |
1.58 |
|
Diluted |
|
$ |
1.95 |
|
|
$ |
2.03 |
|
|
$ |
1.57 |
|
Comprehensive Income Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income requires that changes in the amounts of certain items, including unrealized
gains and losses on certain securities, be shown in the consolidated financial statements. NHI
reports its comprehensive income in the consolidated statements of stockholders equity.
Segment Disclosures Statement of Financial Accounting Standards No. 131, Disclosures
About Segments of an Enterprise and Related Information establishes standards for the manner
in which public business enterprises report information about operating segments. Management
believes that substantially all of NHIs operations comprise one operating segment.
New Accounting Pronouncements In December of 2004, the FASB issued FASB Statement No. 153,
Exchanges of Nonmonetary Assets-An Amendment of APB Opinion No. 29 (Statement 153).
Statement 153 amends APB Opinion No. 29, Accounting for Non-monetary Transactions, that was issued
in 1973. The amendments made by Statement 153 are based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets exchanged. Further,
the amendments eliminate the narrow exception for non-monetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of non-monetary assets that do not
have commercial substance. Previously, Opinion 29 required that the accounting for
an exchange of a productive asset for a similar productive asset or an equivalent interest in the
same or similar productive asset should be based on the recorded amount of the asset relinquished.
The provisions in Statement 153 are effective for non-monetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Early application is permitted and companies must apply the
standard prospectively. The Company adopted Statement 153 beginning July 1, 2005. The future
effect of Statement 153 on the Companys financial statements will depend on whether the
Company enters into certain non-monetary transactions. The adoption of Statement 153 has not had a
material effect on its financial statements.
In December 2004, the FASB has issued FASB Statement No. 123 (Revised 2004),
Share-Based Payment (Statement 123R). The new FASB rule requires that the
compensation cost relating to share-based payment transactions be recognized in financial
statements. That cost will be measured based on the fair value of the equity or liability
instruments issued. The Company will be required to apply Statement 123R beginning January 1,
2006. The scope of Statement 123R includes a wide range of share-based compensation arrangements
including share options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. The
45
Company does not expect the adoption of Statements 123R to have a significant impact on its financial statements, due to
the limited number of stock options currently outstanding.
In May 2005, the FASB issued FASB Statement No. 154, Accounting for Changes and Error
Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes and FASB Statement
No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement 154 requires that a
voluntary change in accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is impracticable to do so.
Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived
nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a
change in accounting principle, and (2) correction of errors in previously issued financial
statements should be termed a restatement. The new standard is effective for
accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.
The Company does not expect the adoption of this pronouncement to have a significant impact on the
Companys financial statements.
Note 3. Real Estate Properties
The following table summarizes NHIs real estate properties by type of facility and by state
as of December 31, 2005 and 2004:
(Dollar amounts in thousands)
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings, |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
Improvements & |
|
|
|
|
|
|
Mortgage |
|
|
|
of |
|
|
|
|
|
|
Construction in |
|
|
Accumulated |
|
|
Notes |
|
Facility Type and State |
|
Facilities |
|
|
Land |
|
|
Progress |
|
|
Depreciation |
|
|
Payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Care: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama |
|
|
2 |
|
|
$ |
95 |
|
|
$ |
5,165 |
|
|
$ |
3,086 |
|
|
$ |
1 |
|
Arizona |
|
|
1 |
|
|
|
453 |
|
|
|
6,678 |
|
|
|
1,668 |
|
|
|
1,950 |
|
Florida |
|
|
4 |
|
|
|
2,306 |
|
|
|
37,511 |
|
|
|
17,929 |
|
|
|
1,097 |
|
Georgia |
|
|
1 |
|
|
|
52 |
|
|
|
865 |
|
|
|
721 |
|
|
|
|
|
Idaho |
|
|
1 |
|
|
|
122 |
|
|
|
2,491 |
|
|
|
637 |
|
|
|
|
|
Kansas |
|
|
7 |
|
|
|
658 |
|
|
|
12,512 |
|
|
|
1,980 |
|
|
|
|
|
Kentucky |
|
|
2 |
|
|
|
231 |
|
|
|
2,182 |
|
|
|
1,301 |
|
|
|
|
|
Massachusetts |
|
|
4 |
|
|
|
1,189 |
|
|
|
18,665 |
|
|
|
8,832 |
|
|
|
|
|
Missouri |
|
|
9 |
|
|
|
1,988 |
|
|
|
36,203 |
|
|
|
13,984 |
|
|
|
2,725 |
|
New Hampshire |
|
|
3 |
|
|
|
1,473 |
|
|
|
22,870 |
|
|
|
10,997 |
|
|
|
|
|
New Jersey |
|
|
2 |
|
|
|
1,096 |
|
|
|
11,973 |
|
|
|
1,070 |
|
|
|
|
|
South Carolina |
|
|
3 |
|
|
|
572 |
|
|
|
11,544 |
|
|
|
7,092 |
|
|
|
|
|
Tennessee |
|
|
20 |
|
|
|
1,835 |
|
|
|
41,312 |
|
|
|
23,199 |
|
|
|
13 |
|
Texas |
|
|
8 |
|
|
|
2,280 |
|
|
|
47,409 |
|
|
|
6,741 |
|
|
|
|
|
Virginia |
|
|
1 |
|
|
|
176 |
|
|
|
2,510 |
|
|
|
1,333 |
|
|
|
2,400 |
|
Wisconsin |
|
|
1 |
|
|
|
170 |
|
|
|
1,604 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Care |
|
|
69 |
|
|
|
14,696 |
|
|
|
261,494 |
|
|
|
100,653 |
|
|
|
8,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acute Care: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kentucky |
|
|
1 |
|
|
|
540 |
|
|
|
10,163 |
|
|
|
3,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acute Care |
|
|
1 |
|
|
|
540 |
|
|
|
10,163 |
|
|
|
3,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings, |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
Improvements & |
|
|
|
|
|
|
Mortgage |
|
|
|
of |
|
|
|
|
|
|
Construction in |
|
|
Accumulated |
|
|
Notes |
|
Facility Type and State |
|
Facilities |
|
|
Land |
|
|
Progress |
|
|
Depreciation |
|
|
Payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Office Buildings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida |
|
|
1 |
|
|
|
165 |
|
|
|
3,349 |
|
|
|
1,483 |
|
|
|
|
|
Illinois |
|
|
1 |
|
|
|
|
|
|
|
1,925 |
|
|
|
397 |
|
|
|
|
|
Texas |
|
|
2 |
|
|
|
631 |
|
|
|
9,677 |
|
|
|
3,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Medical Office
Buildings |
|
|
4 |
|
|
|
796 |
|
|
|
14,951 |
|
|
|
5,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assisted Living: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona |
|
|
4 |
|
|
|
1,757 |
|
|
|
13,622 |
|
|
|
2,354 |
|
|
|
|
|
Florida |
|
|
5 |
|
|
|
7,096 |
|
|
|
20,194 |
|
|
|
7,724 |
|
|
|
|
|
New Jersey |
|
|
1 |
|
|
|
4,229 |
|
|
|
13,030 |
|
|
|
3,970 |
|
|
|
|
|
Pennsylvania |
|
|
1 |
|
|
|
440 |
|
|
|
3,960 |
|
|
|
33 |
|
|
|
|
|
South Carolina |
|
|
1 |
|
|
|
344 |
|
|
|
2,877 |
|
|
|
500 |
|
|
|
|
|
Tennessee |
|
|
3 |
|
|
|
871 |
|
|
|
7,061 |
|
|
|
1,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assisted Living |
|
|
15 |
|
|
|
14,737 |
|
|
|
60,744 |
|
|
|
15,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Centers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Idaho |
|
|
1 |
|
|
|
243 |
|
|
|
4,182 |
|
|
|
1,043 |
|
|
|
|
|
Missouri |
|
|
1 |
|
|
|
353 |
|
|
|
3,171 |
|
|
|
1,590 |
|
|
|
|
|
New Hampshire |
|
|
1 |
|
|
|
218 |
|
|
|
2,917 |
|
|
|
1,533 |
|
|
|
|
|
Tennessee |
|
|
2 |
|
|
|
64 |
|
|
|
5,644 |
|
|
|
2,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retirement Centers |
|
|
5 |
|
|
|
878 |
|
|
|
15,914 |
|
|
|
6,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
94 |
|
|
$ |
31,647 |
|
|
$ |
363,266 |
|
|
$ |
131,784 |
|
|
$ |
8,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings, |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
Improvements & |
|
|
|
|
|
|
Mortgage |
|
|
|
of |
|
|
|
|
|
|
Construction in |
|
|
Accumulated |
|
|
Notes |
|
Facility Type and State |
|
Facilities |
|
|
Land |
|
|
Progress |
|
|
Depreciation |
|
|
Payable |
|
Long-Term Care: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama |
|
|
2 |
|
|
$ |
95 |
|
|
$ |
5,165 |
|
|
$ |
2,938 |
|
|
$ |
1 |
|
Arizona |
|
|
1 |
|
|
|
453 |
|
|
|
6,678 |
|
|
|
1,474 |
|
|
|
2,100 |
|
Florida |
|
|
4 |
|
|
|
2,306 |
|
|
|
37,510 |
|
|
|
16,626 |
|
|
|
1,291 |
|
Georgia |
|
|
1 |
|
|
|
52 |
|
|
|
865 |
|
|
|
687 |
|
|
|
|
|
Idaho |
|
|
1 |
|
|
|
122 |
|
|
|
2,491 |
|
|
|
571 |
|
|
|
|
|
Kansas |
|
|
7 |
|
|
|
658 |
|
|
|
12,060 |
|
|
|
1,520 |
|
|
|
|
|
Kentucky |
|
|
2 |
|
|
|
231 |
|
|
|
2,182 |
|
|
|
1,211 |
|
|
|
|
|
Massachusetts |
|
|
4 |
|
|
|
1,189 |
|
|
|
18,187 |
|
|
|
7,956 |
|
|
|
|
|
Missouri |
|
|
9 |
|
|
|
1,988 |
|
|
|
35,417 |
|
|
|
12,794 |
|
|
|
3,125 |
|
New Hampshire |
|
|
3 |
|
|
|
1,483 |
|
|
|
22,037 |
|
|
|
9,756 |
|
|
|
|
|
New Jersey |
|
|
2 |
|
|
|
1,096 |
|
|
|
11,973 |
|
|
|
714 |
|
|
|
|
|
South Carolina |
|
|
3 |
|
|
|
572 |
|
|
|
11,544 |
|
|
|
6,718 |
|
|
|
|
|
Tennessee |
|
|
21 |
|
|
|
2,111 |
|
|
|
44,254 |
|
|
|
23,823 |
|
|
|
8,237 |
|
Texas |
|
|
6 |
|
|
|
1,980 |
|
|
|
42,709 |
|
|
|
5,360 |
|
|
|
25,637 |
|
Virginia |
|
|
1 |
|
|
|
176 |
|
|
|
2,510 |
|
|
|
1,260 |
|
|
|
2,665 |
|
Wisconsin |
|
|
1 |
|
|
|
170 |
|
|
|
1,604 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Care |
|
|
68 |
|
|
|
14,682 |
|
|
|
257,186 |
|
|
|
93,430 |
|
|
|
43,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acute Care: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kentucky |
|
|
1 |
|
|
|
540 |
|
|
|
10,163 |
|
|
|
3,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acute Care |
|
|
1 |
|
|
|
540 |
|
|
|
10,163 |
|
|
|
3,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings, |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
Improvements & |
|
|
|
|
|
|
Mortgage |
|
|
|
of |
|
|
|
|
|
|
Construction in |
|
|
Accumulated |
|
|
Notes |
|
Facility Type and State |
|
Facilities |
|
|
Land |
|
|
Progress |
|
|
Depreciation |
|
|
Payable |
|
Medical Office Buildings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida |
|
|
1 |
|
|
|
165 |
|
|
|
3,349 |
|
|
|
1,388 |
|
|
|
|
|
Illinois |
|
|
1 |
|
|
|
|
|
|
|
1,925 |
|
|
|
343 |
|
|
|
|
|
Texas |
|
|
2 |
|
|
|
631 |
|
|
|
9,677 |
|
|
|
3,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Medical Office
Buildings |
|
|
4 |
|
|
|
796 |
|
|
|
14,951 |
|
|
|
4,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assisted Living: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona |
|
|
4 |
|
|
|
1,757 |
|
|
|
13,622 |
|
|
|
2,013 |
|
|
|
|
|
Florida |
|
|
5 |
|
|
|
7,096 |
|
|
|
22,745 |
|
|
|
6,880 |
|
|
|
|
|
New Jersey |
|
|
1 |
|
|
|
4,229 |
|
|
|
13,030 |
|
|
|
3,549 |
|
|
|
|
|
North Carolina |
|
|
1 |
|
|
|
216 |
|
|
|
1,957 |
|
|
|
226 |
|
|
|
|
|
South Carolina |
|
|
1 |
|
|
|
344 |
|
|
|
2,877 |
|
|
|
429 |
|
|
|
|
|
Tennessee |
|
|
3 |
|
|
|
873 |
|
|
|
7,062 |
|
|
|
1,033 |
|
|
|
|
|
Texas |
|
|
1 |
|
|
|
2,094 |
|
|
|
9,091 |
|
|
|
2,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assisted Living |
|
|
16 |
|
|
|
16,609 |
|
|
|
70,384 |
|
|
|
16,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Centers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Idaho |
|
|
1 |
|
|
|
243 |
|
|
|
4,182 |
|
|
|
931 |
|
|
|
|
|
Missouri |
|
|
1 |
|
|
|
353 |
|
|
|
3,171 |
|
|
|
1,491 |
|
|
|
|
|
New Hampshire |
|
|
1 |
|
|
|
218 |
|
|
|
2,881 |
|
|
|
1,375 |
|
|
|
|
|
Tennessee |
|
|
2 |
|
|
|
64 |
|
|
|
5,644 |
|
|
|
2,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retirement Centers |
|
|
5 |
|
|
|
878 |
|
|
|
15,878 |
|
|
|
6,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
94 |
|
|
$ |
33,505 |
|
|
$ |
368,562 |
|
|
$ |
123,897 |
|
|
$ |
43,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to a legal right of offset, first mortgage bonds having a balance of $175,000 at December
31, 2004, and first mortgage notes having a balance of $19,052,000 at December 31, 2004, (See Note
9) offset NHIs debt obligations in the consolidated balance sheets and are not included in
the table above.
Certain of NHIs real estate properties are pledged as collateral on individual mortgage
notes payable, as noted in the table above.
The following table summarizes NHIs real estate properties by leased facilities and
operating facilities:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
Leased |
|
|
Operating |
|
|
Total |
|
|
Leased |
|
|
Operating |
|
|
Total |
|
Land |
|
$ |
27,598 |
|
|
$ |
4,049 |
|
|
$ |
31,647 |
|
|
$ |
29,446 |
|
|
$ |
4,059 |
|
|
$ |
33,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and improvements |
|
|
295,416 |
|
|
|
67,491 |
|
|
|
362,907 |
|
|
|
303,263 |
|
|
|
65,103 |
|
|
|
368,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
359 |
|
|
|
359 |
|
|
|
33 |
|
|
|
163 |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323,014 |
|
|
|
71,899 |
|
|
|
394,913 |
|
|
|
332,742 |
|
|
|
69,325 |
|
|
|
402,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
(106,398 |
) |
|
|
(25,386 |
) |
|
|
(131,784 |
) |
|
|
(101,628 |
) |
|
|
(22,269 |
) |
|
|
(123,897 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate properties, net |
|
$ |
216,616 |
|
|
$ |
46,513 |
|
|
$ |
263,129 |
|
|
$ |
231,114 |
|
|
$ |
47,056 |
|
|
$ |
278,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosure Properties
We have previously treated the Washington State, New England, Kansas and Missouri properties
described below as foreclosure properties for federal income tax purposes. With certain elections,
unqualified income generated by the properties is expected to be treated as qualified income for up
to six years from the purchase date for purpose of the income-source tests that must be satisfied
by REITs to maintain their tax status. All of the properties have been recognized as sold or
disposed of for tax purposes. However, as described below, the operations of the New England,
Kansas and Missouri properties continue to be included in our financial statements for financial
reporting purposes.
48
Washington State Properties During 1998, we took over the operations of four
long-term care properties in Washington State. The operating results of these facilities were
included in our financial statements from 1998 until the operations were disposed of during 2003
and 2004. Note 19 includes the results of disposal and discontinued operations of these
properties.
New England Properties During 1999, we took over the operations of seven New England
facilities. During 2001, we sold the properties to a not-for-profit entity and provided 100%
financing. For financial reporting purposes, we have not recorded the sale of the assets and
continue to record the results of operations of these properties each period. For tax reporting
purposes, the sale has been recorded. Any sale proceeds received from the buyer will be reported
as a deposit until the down payment and continuing investment criteria of Statement of Financial
Accounting Standards No. 66, Accounting for Sales of Real Estate (SFAS 66)
are met, at which time we will account for the sale under the full accrual method. Management
believes that the carrying amount of these properties at December 31, 2005 of $25,969,000 is
realizable.
Kansas and Missouri Properties In July 2001 we took over the operations of nine nursing
homes in Kansas and Missouri and have included the operating results of these facilities in our
consolidated financial statements since that date. During 2004, we sold the properties to a
not-for-profit entity and provided 100% financing. For financial reporting purposes, we have not
recorded the sale of the assets and continue to record the results of operations of these
properties each period. For tax purposes, the sale has been recorded. Any sale proceeds received
from the buyer will be reported as a deposit until the down payment and continuing investment
criteria of Statement of Financial Accounting Standards No. 66, Accounting for Sale of Real
Estate (SFAS 66) are met, at which time we will account for the sale under the
full accrual method. Management believes that the carrying amount of these properties at December
31, 2005 of $20,613,000 is realizable.
Midwest Nursing Home Investors, Inc. (Midwest) An approximate $8,735,000 first
mortgage loan was secured by two nursing homes in Kansas and one in Wisconsin. Managements
analysis of the future expected cash flows consistent with SFAS 114, historical occupancy and
operating income of the project resulted in the recording of a $2,000,000 writedown of this
mortgage loan value during 2002 and an additional writedown of $2,000,000 during 2003. Payments to
NHI were past due and the properties were foreclosed on in October 2004, resulting in real estate
with a carrying value of $4,324,000. The remaining carrying value of $4,125,000 at December 31,
2005, is believed by management to be realizable. The average recorded investment in the Midwest
loan, before foreclosure in October 2004, was $4,324,000 and $5,465,000 for the years ended
December 31, 2004 and 2003, respectively. The related amount of interest income recognized on the
loan was $304,000 and $656,000 for the years ended December 31, 2004 and 2003, respectively.
Rental income of $452,000 and $136,000 was recognized on the Kansas properties for the years ended
December 31, 2005 and 2004, respectively.
Lease Terminations and Sales of Property
Manor House of Charlotte In January 2005, this facility was sold generating net proceeds of
$3,571,000, and a gain of $1,624,000, which is included in discontinued operations.
Marriott Senior Living Services In July 2003, we reached an agreement with Marriott Senior
Living Services (Marriott) to terminate their leases with us on four assisted living
facilities, two of which are located in Florida, one in Texas and one in New Jersey. Under the
terms of the settlement with Marriott, we were paid $6,211,000 to settle our claims for certain
deferred maintenance and repairs, for accrued real estate taxes, and to compensate us for future
rental periods. $1,580,000 of the $6,211,000 received was reserved for maintenance and repairs,
$223,000 was allocated to property taxes and $4,408,000 was recognized as rental income in the third quarter of 2003. The four
facilities were leased to new operators.
Based on our impairment analysis, as a result of further defaults of covenants in the
facility leases and continued deferred maintenance of the facilities, we recorded an impairment of
$2,550,000 during the first quarter of 2005 on the two Florida facilities. We had previously
recorded an impairment of $5,400,000 during the third quarter of 2003 on one
49
of the Florida facilities. Further maintenance analysis resulted in the recording of an additional $2,852,000 of
accrued maintenance expense in the third quarter of 2005 on the two Florida facilities attributable
to mold remediation.
Lease income of $1,582,000, $2,236,000 and $7,693,000 (including the $4,408,000 discussed
above), was recognized on these four facilities for the years ended December 31, 2005, 2004 and
2003, respectively. In February 2005, the facility in Dallas, Texas was sold for proceeds of
$7,911,000 and a loss of $851,000, which is included in discontinued operations. We believe that
the carrying amount of these remaining three properties at December 31, 2005 of $25,016,000 is
realizable.
Nashville Facility During October 2004, a subsidiary of NHC exercised its right to terminate
the lease on one of our owned nursing home properties located in Nashville, Tennessee that was
damaged by a fire on September 25, 2003. The lease termination entitled NHI to receive all
property insurance proceeds paid as a result of the fire. NHI retains the right to the bed license
following lease termination. Prior to the fire, NHI received annualized rent of $250,000 per year
on the Nashville facility. NHI has received $2,654,000 in insurance proceeds which amount is
included in non-operating income for the year ended December 31, 2005. NHI sold the Nashville
facility in May 2005 for net proceeds of $2,971,000, resulting in a gain of $1,871,000, which
amount is included in non-operating income for the year ended December 31, 2005.
Note 4. Mortgage and Other Notes Receivable
The following is a summary of mortgage and other notes receivable by type:
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2005 |
|
|
2004 |
|
Mortgage loans |
|
$ |
115,901,000 |
|
|
$ |
109,046,000 |
|
Term loans |
|
|
2,899,000 |
|
|
|
3,026,000 |
|
|
|
|
|
|
|
|
|
|
$ |
118,800,000 |
|
|
$ |
112,072,000 |
|
|
|
|
|
|
|
|
The following is a summary of the terms and amounts of mortgage and other notes receivable:
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final |
|
Number |
|
|
|
Original Face |
|
|
|
|
Payment |
|
of |
|
|
|
Amount of |
|
|
Carrying Amount |
|
Date |
|
Loans |
|
Payment Terms in 2005 |
|
Mortgage |
|
|
2005 |
|
|
2004 |
|
Mortgage Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
1 |
|
Monthly payments of $252, which
include interest at 10.00%. Balloon payment due at maturity. |
|
$ |
25,900 |
|
|
$ |
22,673 |
|
|
$ |
23,365 |
|
|
2006 |
|
1 |
|
Monthly payments of interest only at 11% |
|
|
4,000 |
|
|
|
2,897 |
|
|
|
|
|
|
2006 |
|
1 |
|
Monthly payments of interest only at 9.25% |
|
|
800 |
|
|
|
135 |
|
|
|
|
|
|
2009 |
|
3 |
|
Monthly payments from $19 to $47,
which include interest at 6% to 8%. |
|
|
14,500 |
|
|
|
5,930 |
|
|
|
8,212 |
|
|
2009 |
|
2 |
|
Monthly payments of $201, which
include interest at 9.5%. Balloon payment due at maturity. |
|
|
22,750 |
|
|
|
10,819 |
|
|
|
15,716 |
|
|
2010 |
|
1 |
|
Monthly payments of $186, which
include interest at the greater of 12.25% or the rate that five-year United States securities yield plus 4.5%. |
|
|
18,000 |
|
|
|
8,028 |
|
|
|
9,191 |
|
|
2013 |
|
1 |
|
Monthly payment of $22, which includes interest at 6.5%. |
|
|
5,158 |
|
|
|
994 |
|
|
|
1,050 |
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final |
|
Number |
|
|
|
Original Face |
|
|
|
|
Payment |
|
of |
|
|
|
Amount of |
|
|
Carrying Amount |
|
Date |
|
Loans |
|
Payment Terms in 2005 |
|
Mortgage |
|
|
2005 |
|
|
2004 |
|
2009-2014 |
|
1 |
|
Monthly payments of $353 which
include interest at 10.5% on Note A and prime rate (in October 2006) on Note B. |
|
|
51,500 |
|
|
|
24,071 |
|
|
|
24,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005-2011 |
|
6 |
|
Monthly payments from $4 to $23,
which include interest at 6% to 9.5%. Principal
outstanding ranges from $333 to $2,387. |
|
|
7,715 |
|
|
|
4,917 |
|
|
|
4,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006-2008 |
|
3 |
|
Monthly payments from $11 to $57,
which include interest at 10.00% to 10.5%.
Principal outstanding ranges from $924 to $2,716. |
|
|
11,396 |
|
|
|
7,010 |
|
|
|
14,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
1 |
|
Monthly payments of $70, which include interest at 9.5%. |
|
|
7,900 |
|
|
|
7,150 |
|
|
|
7,294 |
|
|
2019 |
|
1 |
|
Monthly payments of $19, interest only at 9% |
|
|
2,500 |
|
|
|
2,500 |
|
|
|
|
|
|
2027-2032 |
|
7 |
|
Monthly payments of $19 to $32, interest at 8% to 9.6% |
|
|
20,774 |
|
|
|
18,777 |
|
|
|
|
|
|
Term Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
3 |
|
Monthly payments of $29, which include interest at 7.5%. |
|
|
4,239 |
|
|
|
2,899 |
|
|
|
3,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
184,232 |
|
|
$ |
118,800 |
|
|
$ |
112,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The mortgage notes receivable are generally first mortgage notes secured by the real
estate of long-term health care centers, medical office buildings, assisted living facilities and
retirement centers in the states of Arizona, Colorado, Florida, Georgia, Kentucky, Pennsylvania,
Tennessee, Texas, Virginia, and Wisconsin.
The mortgage notes receivable are secured by first mortgages on the real property and UCC
liens on the personal property of the facilities. Certain of the notes receivable are also secured
by guarantees of significant parties and by cross-collateralization on properties with the same
respective owner.
Loan Writedowns
American
Medical Associates, Inc. (AMA) On May 1, 2004, NHI provided financing
to purchasers of three Florida-based nursing homes formerly owned by American Medical Associates,
Inc. (AMA) and previously financed by NHI. The amount of the new mortgage loans
total $14,500,000 and the notes mature May 14, 2009. We are also committed to funding up to
$1,700,000 in working capital loans to the purchaser.
Managements analysis of the future expected cash flows consistent with SFAS 114,
historical occupancy and operating income of the project resulted in the recording of a $2,000,000
writedown of this mortgage loan in the second quarter of 2005, following a $5,200,000 writedown in
2002. Management believes that the remaining carrying amount of $5,930,000 at December 31, 2005 is
supported by the value of the collateral. The average recorded investment in the AMA loan was
$7,114,000, $8,297,000, and $8,382,000 for the years ended December 31, 2005, 2004 and 2003,
respectively. The related amount of interest income recognized (representing cash received) on the
loan was $1,118,000, 306,000, and $-0- for the years ended December 31, 2005, 2004, and 2003,
respectively.
Miracle
Hill Nursing and Convalescent Center (Miracle Hill)
In September 1996,
NHI provided financing to Miracle Hill. Managements analysis of the future expected cash
flows consistent with SFAS 114, past, current and anticipated operating income of the project and
liquidity of the facility, resulted in the recording of a $2,000,000 writedown of this mortgage
loan in the second quarter of 2005. Management believes that the remaining carrying amount of
$2,716,000 at December 31, 2005 is supported by the value of the collateral. The average recorded
investment in the Miracle Hill loan was $3,802,000, $4,963,000, and $5,107,000 for the years ended
December 31, 2005, 2004 and 2003, respectively. The related amount of interest income recognized
(representing cash received) on the loan was $508,000, $536,000, and $556,000 for the years ended
December 31, 2005, 2004, and 2003, respectively.
51
Allgood
HealthCare, Inc. (Allgood) We have two loans secured by five
Georgia nursing home properties which are operated by Allgood. In January 2003, the borrowers
filed for bankruptcy protection. Managements analysis of the future expected cash flows
consistent with SFAS 114, historical occupancy and operating income of the project resulted in the
recording of a $2,000,000 writedown of this mortgage loan in the first quarter of 2005 as a result
of our adverse court ruling about our priority position as creditor. We had previously recorded a
$5,000,000 writedown of this mortgage loan in 2002. During the third quarter of 2003, NHI received
a $1,000,000 payment from the estate of the owner of Allgood. Based on managements updated
analysis of the future expected cash flows of this note, this payment was applied to reduce the
principal balance outstanding. Beginning in January 2004, the borrower voluntarily began making
monthly payments of $86,700.
Management believes that the remaining carrying amount of $13,851,000 at December 31, 2005 is
supported by the value of the collateral. The average recorded investment in the Allgood loans was
$14,783,000, $15,716,000 and $16,114,000 for the years ended December 31, 2005, 2004, and 2003,
respectively. The related amount of interest income recognized (representing cash received) on the
loans was $955,000 , $1,040,000 and $-0- for the years ended December 31, 2005, 2004, and 2003,
respectively.
Loan Recoveries
Colonial
Care The $25,000,000 Colonial Care promissory note dated January 1996, with a
carrying value of $17,062,000 was sold in December 2004 for cash proceeds of $22,370,000, resulting
in a gain of $5,308,000. $2,000,000 of this gain is included in loan loss recoveries and
$3,308,000 is included in non-operating income for the year ended December 31, 2004.
Somerset on Lake Saunders Managements analysis of the future cash flows consistent
with SFAS 114, historical occupancy and operating income of the project resulted in the recording
of a $1,500,000 writedown of this mortgage loan value during the first quarter of 2003. This loan
was sold in January 2004 for cash proceeds of $1,750,000 resulting in a gain of $1,302,000, which
is included in loan recoveries for 2004. The average recorded investment in the Somerset on Lake
Saunders loan was $1,208,000 for the year ended December 31, 2003. The related amount of interest
income recognized on the loan was $60,000 for the year ended December 31, 2003.
Note 5. Disclosures about Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable
approximate fair value due to their short-term nature. We calculate the fair values of other
financial instruments using quoted market prices and discounted cash flow techniques. At December
31, 2005 and 2004, with the exception of the financial instrument listed below which matured on
January 1, 2006, there were no material differences between the carrying amounts and fair values of
NHIs financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
December 31, |
|
2005 |
|
|
2004 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Convertible subordinated debentures |
|
|
(201 |
) |
|
|
(201 |
) |
|
|
(1,116 |
) |
|
|
(4,652 |
) |
Note 6. Investment in Preferred Stock
In September 1998, NHI purchased two million shares of the cumulative preferred stock
of LTC Properties, Inc. (LTC), another REIT. The nonvoting preferred stock is
convertible into common stock at a 1:1 ratio. The preferred stock has an annual cumulative coupon
rate of 8.5% payable quarterly and a liquidation preference of $19.25
52
per share. The preferred
stock is not redeemable by NHI or LTC. The preferred stock, which is not listed on a stock
exchange, is considered a nonmarketable security accounted for under APB 18 and is recorded at cost
in the consolidated balance sheets. Amounts to be received from the 8.5% coupon rate are recorded
as investment income when earned.
In addition to its investment in the preferred stock of LTC, NHI holds 774,800 shares of
common stock of LTC (with a fair value and carrying value of $16,294,000 at December 31, 2005),
which is included in marketable securities.
Note 7. Investment in Marketable Securities
Our investments in marketable securities include available for sale securities. Unrealized
gains and losses on available for sale securities are recorded in stockholders equity in
accordance with SFAS 115. Realized gains and losses from securities sales are determined on the
specific identification of the securities.
Marketable securities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
December 31, |
|
2005 |
|
|
2004 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Available for sale |
|
$ |
7,731 |
|
|
$ |
19,553 |
|
|
$ |
8,968 |
|
|
$ |
29,098 |
|
Gross unrealized gains and gross unrealized losses related to available for sale securities
are as follows:
|
|
|
|
|
|
|
|
|
|
|
12/31/05 |
|
|
12/31/04 |
|
Gross unrealized gains |
|
$ |
11,941,000 |
|
|
$ |
20,256,000 |
|
Gross unrealized losses |
|
|
(119,000 |
) |
|
|
(126,000 |
) |
|
|
|
|
|
|
|
|
|
$ |
11,822,000 |
|
|
$ |
20,130,000 |
|
|
|
|
|
|
|
|
Our available for sale marketable securities consist of the common stock of other publicly
traded REITs. None of these available for sale marketable securities have stated maturity dates.
During 2005, 2004 and 2003, we received and recognized $4,669,000, $4,408,000, and $4,701,000,
respectively, of dividend and interest income from our marketable securities. Such income is
included in non-operating income in the consolidated statements of income.
Proceeds from the sale of investments in available for sale marketable securities during the
year ended December 31, 2005 were $10,308,000. Gross investment gains of $9,072,000 were realized
on these sales during the year ended December 31, 2005, $5,022,000 of which is included in security
recoveries and $4,050,000 of which is included in non-operating income in the consolidated
statements of income.
Proceeds from the sale of investments in available for sale marketable securities during the
year ended December 31, 2004 were $10,823,000. Gross investment gains of $2,682,000 were realized
on these sales during the year ended December 31, 2004, $687,000 of which is included in security
recoveries and $1,995,000 of which is included in non-operating income in the consolidated
statements of income.
Proceeds from the sale of investments in available for sale securities during the year ended
December 31, 2003 were $207,000. Gross investment losses of $203,000 were realized on these sales
in 2003.
Assisted
Living Concepts, Inc. (ALC) Convertible Debentures
During 2002, in
order to protect our status as a REIT, we sold a portion of our investments in Assisted Living
Concepts, Inc. convertible debentures to an employee of our former investment advisor, NHC. The
note was collected in February 2004 for proceeds of $4,593,000, resulting in no gain or loss.
53
ALC debentures owned by us with a face amount of $4,655,000 and a carrying value of
$4,013,000 were called during January 2004 for proceeds of $4,700,000 resulting in a gain of
$687,000 which is included in security recoveries for 2004 discussed above.
Note 8. Investments in Real Estate Mortgage Investment Conduits
We have no balances outstanding on REMIC investments at December 31, 2005. Previous REMIC
transactions are described in the paragraphs below.
1993
REMIC During 2003 we collected $21,032,000 on a REMIC purchased in 1993 and extended
the due date of the three remaining mortgages until December 31, 2004. During 2003 and the first
six months of 2004, we recognized additional interest income of $709,000 and $1,182,000,
respectively, reflecting amortization of our carrying value to the amount ultimately expected to be
collected in December 2004.
Collections of $13,126,000 were received during the first six months of 2004, of which
$2,246,000 (the amount recognized as a writedown in 2000) is included in REMIC recoveries, and
resulting in no balance outstanding at December 31, 2004.
1995
REMIC At December 31, 2003, the net carrying value of a REMIC purchased in 1995 was
$6,346,000. At December 31, 2003, we had a repayment obligation of $3,006,000 to the servicer.
During the second quarter of 2004 we applied the repayment obligation accrued of $3,006,000
against the carrying value of the 1995 REMIC, and recorded a writedown of $3,339,000 in value,
resulting in no balance outstanding at December 31, 2004. Interest income of $997,000 was
recognized on the 1995 REMIC during the year ended December 31, 2005.
Note 9. Debt
Debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
Final |
|
|
|
December 31, |
|
Interest Rate |
|
Maturities |
|
Principal Amount |
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
Senior notes, principal and |
|
Variable, |
|
|
|
|
|
|
|
|
interest payable quarterly |
|
4.71% |
|
2009 |
|
$ |
9,109,000 |
|
|
$ |
11,447,000 |
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage notes, principal and interest |
|
Variable, |
|
|
|
|
|
|
|
|
|
|
payable monthly |
|
5.0% |
|
2006 to 2021 |
|
|
|
|
|
|
8,224,000 |
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse mortgage bank note, interest |
|
Fixed, |
|
|
|
|
|
|
|
|
|
|
payable monthly, principal due at maturity |
|
6.0% |
|
2007 |
|
|
|
|
|
|
25,637,000 |
|
|
Unsecured public notes, interest payable semi- |
|
Fixed, |
|
|
|
|
|
|
|
|
|
|
annually, principal due at maturity |
|
7.3% |
|
2007 |
|
|
100,000,000 |
|
|
|
100,000,000 |
|
|
First mortgage revenue bonds, principal |
|
Variable, |
|
|
|
|
|
|
|
|
|
|
payable in periodic installments, interest |
|
5.0% |
|
2006 to 2014 |
|
|
8,143,000 |
|
|
|
9,124,000 |
|
payable monthly |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
117,252,000 |
|
|
$ |
154,432,000 |
|
|
|
|
|
|
|
|
|
|
|
|
54
The 7.3% unsecured notes (the Notes), which mature on July 16, 2007, have no
sinking fund provisions. The Notes are senior unsecured obligations of NHI and rank equally with
NHIs other unsecured senior debt. NHI agrees in the note indenture that it will limit liens
on assets to certain percentages of tangible assets and that it will limit the issuance of new debt
to certain multiples of capital or net worth.
Certain loan agreements require maintenance of specified financial ratios. We have met all
such covenants as of December 31, 2005. Our failure to meet the required covenants would have a
material adverse effect on our financial position and cash flows.
Principal Maturities of All Debt The aggregate principal maturities of all debt (excluding
convertible subordinated debentures) as of December 31, 2005 are as follows:
|
|
|
|
|
2006 |
|
$ |
3,706,000 |
|
2007 |
|
|
104,058,000 |
|
2008 |
|
|
4,318,000 |
|
2009 |
|
|
2,419,000 |
|
2010 |
|
|
1,771,000 |
|
Thereafter |
|
|
980,000 |
|
|
|
|
|
|
|
$ |
117,252,000 |
|
|
|
|
|
Note 10. Convertible Subordinated Debentures
2000
Senior Debentures Through a rights offering to its common stockholders on December 29,
2000, NHI issued $20,000,000 of senior subordinated convertible debentures (the 2000 senior
debentures) due on January 1, 2006. The outstanding balance at December 31, 2005 was
$201,000. The 2000 senior debentures paid interest at the greater of the prime rate plus 1% or 9%.
All outstanding debentures were redeemed on January 1, 2006.
Note 11. Commitments and Contingencies
At December 31, 2005, we were committed, subject to due diligence and financial performance
goals, to fund approximately $2,770,000 in health care real estate projects, all of which is
expected to be funded within the next 12 months. The commitments include additional mortgage
investments for five long-term health care centers and one assisted living facility, at interest
rates ranging from 6.0% to prime plus 2.0%.
We believe that we have operated our business so as to qualify as a REIT under Section 856
through 860 of the Internal Revenue Code of 1986, as amended (the Code) and we intend
to continue to operate in such a manner, but no assurance can be given that we will be able to
qualify at all times. If we qualify as a REIT, we will generally not be subject to federal
corporate income taxes on our net income that is currently distributed to our stockholders. This
treatment substantially eliminates the double taxation (at the corporate and
stockholder levels) that typically applies to corporate dividends. Our failure to continue to
qualify under the applicable REIT qualification rules and regulations would cause us to owe state
and federal income taxes and would have a material adverse impact on our financial position,
results of operations and cash flows.
Contingency related to damaged property
One of our owned nursing home properties, leased to a subsidiary of NHC and located in
Nashville, Tennessee, was damaged by a tragic fire on September 25, 2003 which resulted in the loss
of life or critical injury to a number of patients. The lease requires NHC to indemnify and hold
harmless NHI from any and all demands and claims arising from its use of the property. Although
NHI had been named as a defendant in 32 lawsuits, 30 of these lawsuits have been
55
settled at no cost
to NHI. At December 31, 2005, NHI has not accrued any liability for this contingent liability but
will continue to monitor the situation and establish liability reserves when appropriate.
A provision of the lease allowed that if substantial damage occurs during the lease term, NHC
may terminate the lease with respect to the damaged property. During October 2004, NHC exercised
its right to terminate the lease on the Nashville facility. As a result, NHI was entitled to
receive all property insurance proceeds paid as a result of the fire. NHI retains the right to the
bed license following lease termination. Prior to the fire, NHI received annualized rent of
$250,000 per year on the Nashville facility. NHI has received $2,654,000 in insurance proceeds
which amount is included in non-operating income for the year ended December 31, 2005. NHI sold
the real estate of the Nashville facility in May 2005 (See Note 3).
Note 12. Cumulative Convertible Preferred Stock
We have no cumulative convertible preferred stock outstanding at either December 31, 2005 or
2004. Previous transactions are described in the paragraphs that follow.
8.5%
Preferred Stock In February and March 1994, NHI issued $109,558,000 of non-voting, 8.5%
cumulative convertible preferred stock (8.5% Preferred Stock) with a liquidation preference of
$25.00 per share. Dividends at an annual rate of $2.125 were cumulative from the date of issuance
and were paid quarterly.
On April 30, 2004, 100% of NHIs 8.5% cumulative convertible preferred stock, with a
balance of 747,994 shares or $18,700,000, was called by NHI for redemption into common stock of NHI
at a conversion rate of .905 shares of common stock for each share of preferred stock. This
resulted in an additional 676,922 shares of common stock issued and outstanding. Dividends on the
preferred stock were accrued and paid through April 30, 2004. During 2003 no preferred shares were
converted.
Note 13. Limits on Common Stock Ownership
The Companys charter limits the percentage of ownership that any person may have in the
outstanding securities of the Company to 9.9% of the total outstanding securities. This limit is a
provision of the Companys charter and is necessary in order to reduce the possibility of the
Companys failing to meet the stock ownership requirements for qualification as a REIT under the
Internal Revenue Code of 1986, as amended.
Note 14. Stock Based Payments
In May 2005, our shareholders approved the 2005 Stock Option, Restricted Stock and Stock
Appreciation Rights Plan pursuant to which 1,500,000 shares of our common stock are available to
grant as share-based payments to employees, officers, directors or consultants. No share-based
payments have yet been granted under the 2005 Plan.
The NHI 1997 Stock Option Plan provides for the granting of options to key employees and
directors of NHI to purchase shares of common stock at a price no less than the market value of the
stock on the date the option is granted. Options to purchase 135,000 shares are currently
outstanding to the Board of Directors under the 1997 Stock Option Plan. All of the currently
outstanding options vested immediately upon grant and may be exercised at any time prior to
expiration. The term of the options outstanding is five years. The following table summarizes
option activity:
56
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Outstanding December 31, 2002 |
|
|
235,000 |
|
|
|
18.440 |
|
Options granted |
|
|
90,000 |
|
|
|
15.733 |
|
Options expired |
|
|
32,500 |
|
|
|
37.923 |
|
Options exercised |
|
|
35,000 |
|
|
|
12.910 |
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2003 |
|
|
257,500 |
|
|
|
15.789 |
|
Options granted |
|
|
60,000 |
|
|
|
23.900 |
|
Options expired |
|
|
2,500 |
|
|
|
14.500 |
|
Options exercised |
|
|
88,271 |
|
|
|
18.023 |
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2004 |
|
|
226,729 |
|
|
|
17.080 |
|
Options granted |
|
|
63,000 |
|
|
|
26.200 |
|
Options exercised |
|
|
154,729 |
|
|
|
15.188 |
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2005 |
|
|
135,000 |
|
|
|
23.502 |
|
|
|
|
|
|
|
|
|
|
Exercisable December 31, 2005 |
|
|
135,000 |
|
|
|
23.502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
Exercise |
|
Remaining Contractual |
Outstanding |
|
Price |
|
Life in Years |
30,000
|
|
$ |
16.35 |
|
|
|
2.333 |
|
45,000
|
|
|
23.90 |
|
|
|
3.333 |
|
60,000
|
|
|
26.78 |
|
|
|
4.417 |
|
|
|
|
|
|
|
|
135,000 |
|
|
|
|
|
|
|
|
The weighted average remaining contractual life of options outstanding at
December 31, 2005 is 3.59 years. NHIs Board of Directors has authorized an
additional 1,752,800 shares of common stock that may be issued under the
share-based payments plans.
The weighted average fair value per share of options granted was $2.51 per
share, $2.20 per share and $1.88 per share for 2005, 2004 and 2003,
respectively. For purposes of pro forma disclosures of net income and earnings
per share as required by SFAS 123, as amended, the estimated fair value of the
options is amortized to expense over the options vesting period. The fair
value of each grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants in 2005,
2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
5/03/05 |
|
4/20/04 |
|
4/24/03 |
Dividend yield |
|
|
8.80 |
% |
|
|
8.66 |
% |
|
|
9.79 |
% |
Expected volatility |
|
|
21.69 |
% |
|
|
28.86 |
% |
|
|
34.1 |
% |
Expected lives |
|
5 years |
|
5 years |
|
5 years |
Risk-free interest rate |
|
|
3.81 |
% |
|
|
3.58 |
% |
|
|
3.00 |
% |
57
Note 15. Supplemental Cash Flow Information
Supplemental disclosure of cash flow information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share amounts) |
|
|
|
|
|
|
Year Ended December 31, |
|
2005 |
|
2004 |
|
2003 |
Cash payments for interest expense |
|
$ |
7,444 |
|
|
$ |
7,784 |
|
|
$ |
9,199 |
|
Cash payments for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
During 2005, 2004 and 2003, $915, $235, and
$365, respectively, of convertible
subordinated debentures were converted
into 130,692, 33,562, and 52,129 shares
respectively, of NHIs common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated debentures |
|
$ |
(915 |
) |
|
$ |
(235 |
) |
|
$ |
(365 |
) |
Financing costs |
|
|
2 |
|
|
|
|
|
|
|
1 |
|
Accrued interest |
|
|
(10 |
) |
|
|
|
|
|
|
(3 |
) |
Common stock |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Capital in excess of par value |
|
|
922 |
|
|
|
235 |
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2004, $18,700,000 or 747,994 shares of 8.5%
Cumulative Convertible Preferred stock was called
by NHI for redemption into 676,922 shares of
NHIs common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative convertible preferred stock |
|
$ |
|
|
|
$ |
(18,700 |
) |
|
$ |
|
|
Common stock |
|
|
|
|
|
|
7 |
|
|
|
|
|
Capital in excess of par |
|
|
|
|
|
|
18,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2004 and 2003, NHI acquired
property in exchange for its
rights under mortgage notes
receivable |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes receivable |
|
$ |
|
|
|
$ |
4,324 |
|
|
$ |
13,069 |
|
Land |
|
|
|
|
|
|
(339 |
) |
|
|
(1,096 |
) |
Buildings and improvements |
|
|
|
|
|
|
(3,985 |
) |
|
|
(11,973 |
) |
Note 16. Earnings Per Share
Basic
earnings per share is based on the weighted average number of common shares outstanding during the year. Net income is reduced by dividends to
holders of cumulative convertible preferred stock.
Diluted earnings per share assumes, if dilutive, the conversion of
convertible subordinated debentures, the conversion of cumulative convertible
preferred stock and the exercise of stock options using the treasury stock
method. Net income is increased for interest expense on the convertible
subordinated debentures, if dilutive.
58
The following table summarizes the average number of common shares and the
net income used in the calculation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2005 |
|
|
2004 |
|
|
2003 |
|
BASIC: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares |
|
|
27,699,887 |
|
|
|
27,257,826 |
|
|
|
26,727,814 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
53,708,000 |
|
|
$ |
55,426,000 |
|
|
$ |
41,693,000 |
|
Dividends paid to preferred stockholders |
|
|
|
|
|
|
(514,000 |
) |
|
|
(1,589,000 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available
to common shareholders |
|
|
53,708,000 |
|
|
|
54,912,000 |
|
|
|
40,104,000 |
|
Discontinued operations |
|
|
700,000 |
|
|
|
953,000 |
|
|
|
2,115,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
54,408,000 |
|
|
$ |
55,865,000 |
|
|
$ |
42,219,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per
common share |
|
$ |
1.94 |
|
|
$ |
2.02 |
|
|
$ |
1.50 |
|
Discontinued operations per common share |
|
|
.02 |
|
|
|
.03 |
|
|
|
.08 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
$ |
1.96 |
|
|
$ |
2.05 |
|
|
$ |
1.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares |
|
|
27,699,887 |
|
|
|
27,257,826 |
|
|
|
26,727,814 |
|
Stock options |
|
|
29,604 |
|
|
|
102,423 |
|
|
|
41,894 |
|
Convertible subordinated debentures |
|
|
101,395 |
|
|
|
170,835 |
|
|
|
215,863 |
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
27,830,886 |
|
|
|
27,531,084 |
|
|
|
26,985,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
53,708,000 |
|
|
$ |
55,426,000 |
|
|
$ |
41,693,000 |
|
Dividends paid to preferred stockholders |
|
|
|
|
|
|
(514,000 |
) |
|
|
(1,589,000 |
) |
Interest on convertible subordinated debentures |
|
|
81,000 |
|
|
|
120,000 |
|
|
|
149,000 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
available to common stockholders |
|
|
53,789,000 |
|
|
|
55,032,000 |
|
|
|
40,253,000 |
|
Discontinued operations |
|
|
700,000 |
|
|
|
953,000 |
|
|
|
2,115,000 |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
assuming conversion of convertible subordinated
debentures to common stock, if dilutive |
|
$ |
54,489,000 |
|
|
$ |
55,985,000 |
|
|
$ |
42,368,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per
common share |
|
$ |
1.93 |
|
|
$ |
2.00 |
|
|
$ |
1.49 |
|
Discontinued operations per common share |
|
|
.03 |
|
|
|
.03 |
|
|
|
.08 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
$ |
1.96 |
|
|
$ |
2.03 |
|
|
$ |
1.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental shares excluded
since anti-dilutive: |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated debentures |
|
|
|
|
|
|
|
|
|
|
238,812 |
|
8.5% Preferred Stock |
|
|
|
|
|
|
169,230 |
|
|
|
676,918 |
|
Stock options |
|
|
|
|
|
|
|
|
|
|
30,000 |
|
In accordance with Statement of Financial Accounting Standards No. 128,
Earnings per Share, the above incremental shares were excluded from the
computation of diluted earnings per share, since inclusion of these
incremental shares in the calculation would have been anti-dilutive.
59
Note 17. Common Stock Dividends (Unaudited)
Dividend payments by NHI to its common stockholders are characterized in
the following manner for tax purposes in 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend |
|
Taxable as |
|
|
Taxable as |
|
|
Unrecaptured |
|
|
Non-Taxable |
|
|
|
|
Payment |
|
Ordinary |
|
|
Capital |
|
|
Section 1250 |
|
|
Return of |
|
|
|
|
Date |
|
Income |
|
|
Gain |
|
|
Gain (1) |
|
|
Capital |
|
|
Totals |
|
May 10, 2005 |
|
$ |
.338 |
|
|
$ |
.075 |
|
|
$ |
.032 |
|
|
$ |
.037 |
|
|
$ |
.450 |
|
August 10, 2005 |
|
|
.338 |
|
|
|
.075 |
|
|
|
.032 |
|
|
|
.037 |
|
|
|
.450 |
|
November 10, 2005 |
|
|
.338 |
|
|
|
.075 |
|
|
|
.032 |
|
|
|
.037 |
|
|
|
.450 |
|
January 10, 2006 |
|
|
.339 |
|
|
|
.074 |
|
|
|
.031 |
|
|
|
.037 |
|
|
|
.450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.353 |
|
|
$ |
.299 |
|
|
$ |
.127 |
|
|
$ |
.148 |
|
|
$ |
1.800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) These amounts are included in the capital gain. |
Note 18. Relationship with National HealthCare Corporation
Leases
Lease extension On December 27, 2005, under an amendment to the master
lease, NHC exercised its option to extend the existing lease on 41 properties
for the second renewal term. The 41 properties include four centers leased to
other parties, the lease payments of which are guaranteed to us by NHC under the
Master Lease. The 15-year lease extension begins January 1, 2007, and includes
three additional five-year renewal options, each at fair market value. Under
the terms of the lease, base rent for 2007 will total $33,700,000 with rent
thereafter escalating by 4% of the increase in facility revenue over a 2007 base
year. The lease was scheduled to expire on December 31, 2006 unless extended by
NHC. The terms of the existing lease remain in place for 2006, as discussed
below.
Initial lease On October 17, 1991, concurrent with NHCs conveyance of
real property to NHI, NHI leased to NHC 40 long-term care facilities and three
retirement centers. Each lease was for an initial term expiring December 31,
2001, with two additional five-year renewal terms at the option of NHC, assuming
no defaults. During 2000, NHC exercised its option to extend the lease term for
the first five-year renewal term under the same terms and conditions as the
initial term. NHI accounts for its leases as operating leases.
During the initial term and the first renewal term ending on December 31,
2006, NHC is obligated to pay annual base rent on all 43 facilities of
$15,238,000. The leases also obligate NHC to pay as debt service rent all
payments of interest and principal due under each mortgage to which the
conveyance of the facilities was subject. Payments for debt still being
serviced are required for the shorter of the remaining life of the mortgage or
lease term.
In addition to base rent and debt service rent, NHC must pay percentage
rent to NHI equal to 3% of the increase in the gross revenue of each facility
through December 31, 2006. Effective January 1, 2000, NHI amended its lease
agreements with NHC to provide for the calculation of percentage rent based on
quarterly revenue increases rather than annual revenue increases. NHI recognized
$4,525,000, $4,124,000, and $3,708,000 of percentage rent from NHC during 2005,
2004, and 2003, respectively.
Each lease with NHC is a triple net lease under which NHC is responsible
for paying all taxes, utilities, insurance premium costs, repairs and other
charges relating to the ownership of the facilities. NHC is obligated at its
expense to maintain adequate insurance on the facilities assets.
One of our owned nursing home properties, leased to a subsidiary of NHC and
located in Nashville, Tennessee, was damaged by a tragic fire on September 25,
2003 which resulted in the loss of life or critical injury to a number of
60
patients. The lease requires NHC to indemnify and hold harmless NHI from any
and all demands and claims arising from its use of the property.
A provision of the lease allows that if substantial damage occurs during
the lease term, NHC may terminate the lease with respect to the damaged
property. During October 2004, NHC exercised its right to terminate the lease
on the Nashville facility. The lease termination entitled NHI to receive all
property insurance proceeds paid as a result of the fire. NHI retained the
right to the bed license following lease termination. Prior to the fire, NHI
received annualized rent of $250,000 per year on the Nashville facility. NHI
has received $2,654,000 in insurance proceeds. NHI sold the Nashville facility
in May 2005. (See Note 3).
Rental income was $45,971,000 ($33,328,000 from NHC) in 2005, $48,004,000
($32,836,000 from NHC) in 2004, and $53,916,000 ($33,267,000 from NHC) in 2003.
During 2000, four of the leases on Florida facilities were terminated and
NHI re-leased the properties to unrelated third parties. Although NHCs rent
obligations pursuant to the master lease are unchanged, NHC receives a credit
for rents paid to NHI on the four re-leased Florida centers by the current
lessees.
Future minimum lease payments At December 31, 2005, the future minimum
lease payments (excluding percentage rent) to be received by NHI under its
operating leases (including debt service payments for 2006 which are based on
interest rates in effect at December 31, 2005 and including obligations related
to the four Florida leases) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NHC |
|
Others |
|
Total |
2006 |
|
|
27,449,000 |
|
|
|
14,250,000 |
|
|
|
41,699,000 |
|
2007 |
|
|
33,700,000 |
|
|
|
9,807,000 |
|
|
|
43,507,000 |
|
2008 |
|
|
33,700,000 |
|
|
|
6,574,000 |
|
|
|
40,274,000 |
|
2009 |
|
|
33,700,000 |
|
|
|
5,860,000 |
|
|
|
39,560,000 |
|
2010 |
|
|
33,700,000 |
|
|
|
5,250,000 |
|
|
|
38,950,000 |
|
Thereafter |
|
|
370,700,000 |
|
|
|
20,330,000 |
|
|
|
391,030,000 |
|
Advisory Agreements
Management Advisory Source, LLC Effective November 1, 2004, NHI assigned
its Advisory Agreement, previously with National HealthCare Corporation, to a
new company, Management Advisory Source, LLC, formed by NHIs President and
Board Chairman, W. Andrew Adams. NHI has no ownership in Management Advisory
Source, LLC. In 2005, the annual compensation expensed under the Advisory
Agreement was approximately $3,599,000. NHI believes it to be in the best
interest of NHI to accentuate its independence from NHC, its largest tenant.
Therefore, Mr. Adams has assumed the responsibilities of the Advisory Agreement.
To assure independence from NHC, in 2004, Mr. Adams resigned as CEO of NHC and
terminated his managerial responsibilities with NHC. He has out sourced
non-managerial functions of the Advisory Agreement such as payroll processing,
accounting, financing and the like to NHC. During the immediate future, Mr.
Adams will remain on the NHC Board as Chairman, focusing only on strategic
planning, but will have no management involvement with NHC.
NHC Prior to November 1, 2004 and since its inception, NHI had an
Advisory Agreement with NHC whereby services related to investment activities
and day-to-day management and operations were provided to NHI by NHC. As
Advisor, NHC was subject to the supervision of and policies established by NHIs
Board of Directors.
For its services under the Advisory Agreement, NHC was entitled to annual
compensation of $2,383,000 in 2004 and $2,502,000 in 2003. The annual
compensation was reduced by any compensation paid by NHI to its executive
officers, if any, and could be deferred under certain circumstances.
Facility Management Services NHI has engaged subsidiaries of NHC to
manage its foreclosure properties for management fees equal to a weighted
average of 5.4% of net revenues of the foreclosure properties, which management
61
fees total $5,045,000, $4,340,000, and $4,677,000 for the years ended December
31, 2005, 2004 and 2003, respectively. NHIs accrued but unpaid management fees
to NHC were $7,355,000, $12,242,000, and $12,742,000 at December 31, 2005, 2004
and 2003, respectively, and are included in the caption, Accounts payable and
other accrued expenses on the balance sheet. $7,132,000 of this amount was paid
in 2005, leaving a balance payable of $7,355,000.
Ownership
of Common Stock At December 31, 2005, NHC owned 1,405,642
shares of our common stock.
Note 19. Discontinued Operations
During the year ended December 31, 2005, we sold two assisted living
facilities with carrying amounts totaling $10,709,000 for proceeds of
$11,482,000. We recognized a $773,000 gain on the sale of these facilities.
During the year ended December 31, 2004, we sold three nursing facilities
(one previously designated as held for sale) with carrying amounts totaling
$2,846,000 for proceeds of $4,389,000. We recognized a gain of $1,543,000 on
the sale of these facilities.
During the year ended December 31, 2003, we sold a medical office building
with a carrying amount of $2,113,000 for proceeds of $4,045,000, resulting in a
$1,932,000 net gain on the sale of this facility and sold two nursing facilities
with a carrying amount of $5,597,000 for proceeds of $5,200,000 resulting in a
net loss of $397,000 on these facilities. Additionally, we designated one
additional nursing facility as held for sale, consistent with the provisions
of SFAS 144.
For 2005, 2004 and 2003, we have reclassified the operations, including the
net gain on the sale of these facilities, as discontinued operations in
accordance with SFAS 144.
Income from discontinued operations related to these facilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(in thousands, except per share amounts) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
|
|
|
$ |
229 |
|
|
$ |
2,329 |
|
Facility operating revenue |
|
|
45 |
|
|
|
803 |
|
|
|
10,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
1,032 |
|
|
|
12,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
63 |
|
|
|
412 |
|
|
|
725 |
|
Facility operating expenses |
|
|
55 |
|
|
|
1,210 |
|
|
|
11,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118 |
|
|
|
1,622 |
|
|
|
12,166 |
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(73 |
) |
|
|
(590 |
) |
|
|
580 |
|
Gain on sale of assets |
|
|
773 |
|
|
|
1,543 |
|
|
|
1,535 |
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations |
|
$ |
700 |
|
|
$ |
953 |
|
|
$ |
2,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
.02 |
|
|
$ |
.03 |
|
|
$ |
.08 |
|
Diluted |
|
$ |
.03 |
|
|
$ |
.03 |
|
|
$ |
.08 |
|
62
Note 20. Non-Operating Income
Non-operating income is outlined in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(in thousands) |
|
Dividends |
|
$ |
4,521 |
|
|
$ |
4,377 |
|
|
$ |
4,097 |
|
Realized gains (loss) on securities |
|
|
4,050 |
|
|
|
1,994 |
|
|
|
(191 |
) |
Interest income |
|
|
4,049 |
|
|
|
1,686 |
|
|
|
1,154 |
|
Gain on note sold |
|
|
|
|
|
|
3,308 |
|
|
|
|
|
Gain on disposal of assets |
|
|
1,779 |
|
|
|
|
|
|
|
|
|
Insurance income |
|
|
2,654 |
|
|
|
|
|
|
|
|
|
Other |
|
|
256 |
|
|
|
329 |
|
|
|
871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,309 |
|
|
$ |
11,694 |
|
|
$ |
5,931 |
|
|
|
|
|
|
|
|
|
|
|
Note 21. Selected Quarterly Financial Data
(Unaudited, in thousands, except per share amounts)
The following table sets forth selected quarterly financial data for the
two most recent fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
$ |
38,074 |
|
|
$ |
39,299 |
|
|
$ |
41,498 |
|
|
$ |
38,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income |
|
|
5,954 |
|
|
|
6,568 |
|
|
|
2,287 |
|
|
|
2,500 |
|
Income From Continuing Operations |
|
|
16,127 |
|
|
|
12,828 |
|
|
|
12,486 |
|
|
|
12,267 |
|
Discontinued
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (loss) Discontinued |
|
|
(81 |
) |
|
|
(13 |
) |
|
|
29 |
|
|
|
(8 |
) |
Net gain (loss)on sale of real estate |
|
|
748 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
16,794 |
|
|
|
12,815 |
|
|
|
12,540 |
|
|
|
12,259 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations per
common share |
|
|
.58 |
|
|
|
.46 |
|
|
|
.45 |
|
|
|
.44 |
|
Discontinued operations per common share |
|
|
.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
|
.61 |
|
|
|
.46 |
|
|
|
.45 |
|
|
|
.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations per
common share |
|
|
.58 |
|
|
|
.46 |
|
|
|
.45 |
|
|
|
.44 |
|
Discontinued operations per common share |
|
|
.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
|
.61 |
|
|
|
.46 |
|
|
|
.45 |
|
|
|
.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
$ |
37,371 |
|
|
$ |
37,826 |
|
|
$ |
38,248 |
|
|
$ |
42,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income |
|
|
2,133 |
|
|
|
2,794 |
|
|
|
1,594 |
|
|
|
5,173 |
|
Income From Continuing Operations |
|
|
13,618 |
|
|
|
11,042 |
|
|
|
12,084 |
|
|
|
18,682 |
|
Discontinued
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (loss) Discontinued |
|
|
(183 |
) |
|
|
(333 |
) |
|
|
(52 |
) |
|
|
(22 |
) |
Net gain on sale of real estate |
|
|
|
|
|
|
1,252 |
|
|
|
|
|
|
|
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
13,435 |
|
|
|
11,961 |
|
|
|
12,032 |
|
|
|
18,951 |
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations per
common share |
|
|
.49 |
|
|
|
.40 |
|
|
|
.44 |
|
|
|
.68 |
|
Discontinued operations per common share |
|
|
|
|
|
|
.03 |
|
|
|
|
|
|
|
.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
|
.49 |
|
|
|
.43 |
|
|
|
.44 |
|
|
|
.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations per
common share |
|
|
.49 |
|
|
|
.40 |
|
|
|
.44 |
|
|
|
.67 |
|
Discontinued operations per common share: |
|
|
(.01 |
) |
|
|
.03 |
|
|
|
(.01 |
) |
|
|
.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
.48 |
|
|
|
.43 |
|
|
|
.43 |
|
|
|
.68 |
|
2005 Non-operating income and income from continuing operations for the
first quarter of 2005 included a $4,050,000 gain on security sales, discussed in
Note 7. Non-operating income and income from continuing operations for the
second quarter of 2005 included $4,525,000 attributable to realty insurance
proceeds and gain, discussed in Note 3. Income from continuing operations for
the second quarter of 2005 has been reduced by loan impairments of $4,000,000.
2004 Non-operating income and income from continuing operations for the
fourth quarter of 2004 included $3,308,000 attributable to gain on security
sales. Income from continuing operations for the fourth quarter of 2004
included: (1) $4,228,000 revenue attributable to facility Medicaid retroactive
rate adjustment settlements, reduced by $1,811,000 expense related to bed tax
fees, and (2) loan recoveries of $2,000,000.
Certain quarterly financial information shown above for each quarter of
2004 differs from amounts previously reported in the Forms 10-Q for those
periods due to reclassifications to reflect the dispositions of certain assets
as discontinued operations.
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures Based on their
evaluation as of December 31, 2005, the CEO and principal accounting officer of
the Company have concluded that the Companys disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) were sufficiently effective to ensure that the information
required to be disclosed by us in this Annual Report on Form 10-K was recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and instructions for Form 10-K.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for establishing and maintaining adequate internal control
over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934, as amended). We assessed the effectiveness of our
internal control over financial reporting as of December 31, 2005. In making
this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. We have concluded that, as of December 31, 2005,
our internal control over financial reporting is effective based on these
criteria. Our independent registered public accounting firm, BDO Seidman, LLP,
have issued an audit report on our assessment of our internal control over
financial reporting, which is included herein.
64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
National Health Investors, Inc.
Murfreesboro, Tennessee
We have audited managements assessment, included in the accompanying
Managements Control Over Financial Reporting, that National Health Investors,
Inc. and Subsidiaries maintained effective internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). National Health Investors, Inc. and
Subsidiaries management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed 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. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, managements assessment that National Health Investors, Inc. and
Subsidiaries maintained effective internal control over financial reporting as
of December 31, 2005, is fairly stated, in all material respects, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway, Commission (COSO). Also
in our opinion, National Health Investors, Inc. and Subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
National Health Investors, Inc. and Subsidiaries as of December 31, 2005 and the
related consolidated statements of income, stockholders equity and cash flows
for the year then ended and our report dated February 3, 2006 expressed an
unqualified opinion.
/s/ BDO Seidman, LLP
Memphis, Tennessee
February 22, 2006
65
Changes
in Internal Controls There were no changes in our internal
controls over financial reporting during the quarter ended December 31, 2005
that have materially affected, or are reasonably likely to materially affect
our internal controls over financial reporting.
Our management, including our CEO and principal accounting officer, does
not expect that our disclosure controls and procedures or our internal controls
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefit of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, with NHI have been detected.
Item 9B. Other Information.
None.
PART III
Item 10. Directors and Executive Officers of Registrant.
The information in our definitive 2006 proxy statement set forth under the
caption Directors and Executive Officers of Registrant is hereby incorporated by
reference.
We have filed with the New York Stock Exchange (NYSE) the Annual CEO
Certification regarding the Companys compliance with the NYSEs Corporate
Governance listing standards as required by Section 303A-12(a) of the NYSE
Listed Company Manual. Additionally, we have filed as exhibits to this annual
report on Form 10-K for the year ended December 31, 2005, the applicable
certifications of our Chief Executive Officer and our Chief Financial Officer as
required under Section 302 of the Sarbanes-Oxley Act of 2002.
Item 11. Executive Compensation.
The information in our definitive 2006 proxy statement set forth under the
caption Compensation of Directors and Executive Officers, Equity Compensation
Plan Information, and Certain Transactions is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholders Matters.
The information in our definitive 2006 proxy statement set forth under the
caption Compensation of Directors and Executive Officers, Equity Compensation
Plan Information, and Certain Transactions is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
The information in our definitive 2006 proxy statement set forth under the
caption Certain Relationships and Related Transactions is hereby incorporated by
reference.
66
Item 14. Principal Accountant Fees and Services.
The information in our definitive 2006 proxy statement set forth under the
caption Committee Reports is hereby incorporated by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
|
|
|
(a)
|
|
(1) Financial Statements |
|
|
|
The Consolidated Financial Statements are included in Item 8 and are filed
as part of this report. |
|
|
|
(2) Financial Statement Schedules |
|
|
|
The Financial Statement Schedules and Report of Independent Registered
Public Accounting Firms on Financial Statement Schedules listed in
Exhibit 13. |
|
|
|
(3) Exhibits |
|
|
|
Exhibits required as part of this report are listed in the Exhibit Index. |
67
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, in the City of
Murfreesboro, State of Tennessee, on the 6th day of March, 2006.
|
|
|
|
|
|
|
|
|
NATIONAL HEALTH INVESTORS, INC. |
|
|
|
|
|
BY:
|
|
/s/ W. Andrew Adams |
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Andrew Adams |
|
|
|
|
|
|
Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed on the dates indicated by the following persons in the
capacities indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ W. Andrew Adams
W. Andrew Adams
|
|
Chief Executive Officer
|
|
March 6, 2006 |
|
|
|
|
|
/s/ Donald K. Daniel
Donald K. Daniel
|
|
Sr. Vice President and Controller
Principal Accounting Officer
(Principal Financial Officer)
|
|
March 6, 2006 |
|
|
|
|
|
/s/ Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr.
|
|
Director
|
|
March 6, 2006 |
|
|
|
|
|
/s/ Robert A. McCabe, Jr.
Robert A. McCabe, Jr.
|
|
Director
|
|
March 6, 2006 |
|
|
|
|
|
/s/ Robert T. Webb
Robert T. Webb
|
|
Director
|
|
March 6, 2006 |
|
|
|
|
|
/s/ Ted H. Welch
Ted H. Welch
|
|
Director
|
|
March 6, 2006 |
68
NATIONAL HEALTH INVESTORS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005
EXHIBIT INDEX
|
|
|
|
|
Exhibit No. |
|
Description |
|
Page No. or Location |
|
3.1 |
|
Articles of Incorporation |
|
Incorporated by reference |
|
|
|
|
to Exhibit 3.1 to Form S-11 |
|
|
|
|
Registration Statement |
|
|
|
|
No. 33-41863 |
|
|
|
|
|
3.2 |
|
Bylaws |
|
Incorporated by reference |
|
|
|
|
to Exhibit 3.2 to Form S-11 |
|
|
|
|
Registration Statement |
|
|
|
|
No. 33-41863 |
|
|
|
|
|
4.1 |
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Form of Common Stock Certificate |
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Incorporated by reference |
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to Exhibit 39 to Form S-11 |
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Registration Statement |
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No. 33-41863 |
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4.2 |
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Form of Preferred Convertible Stock Certificate |
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Incorporated by reference |
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to Exhibit 60 to Form S-3 |
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Registration Statement |
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No. 33-72370 |
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4.3 |
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Form of Debenture due 2006 (10%) |
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Incorporated by reference |
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to Exhibit 38 to Form S-11 |
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Registration Statement |
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No. 33-41863 |
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4.4 |
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Form of Indenture Governing the Debentures |
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Incorporated by reference |
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to Exhibit 4.3 to Form S-4 |
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Registration Statement No. |
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33-41863 |
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4.6 |
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Form of Debenture due 2006 (7%) |
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Incorporated by reference |
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to Exhibit 1 to Form S-3 |
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Registration Statement |
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No. 33-72370 |
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4.7 |
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First Supplemental Indenture Dated December 15, 1995 |
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Incorporated by reference |
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to Exhibit 4.7 to Form 10-K |
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dated February 26, 1996 |
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10.1 |
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Materials Contracts |
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Incorporated by reference |
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from Exhibits 10.1 thru |
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10.9 to Form S-4 Registration |
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Statement No. 33-41863 |
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10.2 |
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Amendment No. 5 to Master Agreement to Lease dated |
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Filed herewith |
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December 27, 2005, effective January 1, 2007. |
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69
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Exhibit No. |
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Description |
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Page No. or Location |
10.3 |
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Advisory, Administrative Services and Facilities Agreement |
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Filed herewith |
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between National Health Investors, Inc. and Management |
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Advisory Source, LLC dated November 1, 2004 |
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10.4 |
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1991 Stock Option Plan |
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Incorporated by reference |
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from Exhibit 10.12 to Form |
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S-4 Registration No. 33-41863 |
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10.5 |
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1997 Stock Option Plan |
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Incorporated by reference from |
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the 1997 Proxy Statement as filed |
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10.6 |
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2005 Stock Option Plan |
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Incorporated by reference from |
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Exhibit 4.10 to the Companys |
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registration statement on Form S-8 |
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filed August 4, 2005. |
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13 |
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Financial Statement Schedules |
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Filed herewith |
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23.1 |
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Consent of Independent Registered Public Accounting Firm |
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Filed herewith |
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23.2 |
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Consent of Independent Registered Public Accounting Firm |
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Filed herewith |
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31.1 |
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Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer |
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Filed Herewith |
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31.2 |
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Rule 13a-14(a)/15d-14(a)
Certification of Principal Accounting Officer |
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Filed Herewith |
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32 |
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Certification pursuant to 18 U.S.C.
Section 1350 by Chief Executive Officer
and Principal Accounting Officer |
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Filed Herewith |
70