ra ~ THE PARTIES resolved all disputed issues and executed a settlement agreement, which is attached and incorporated by reference. The parties are directed to comply with the terms of the attached settlement agreement. Based on the oregoing, this file is CLOSED. — DONE AND ORDERED on this the /4” day of WT Te 2001, in : Tallahassee, Florida. ~. Rhonda M. Medows, MD, Sécretary Agency for Health Care Administration _ oe _ STATE OF FLORIDA cna AGENCY FOR HEALTH CARE ADMINISTRATION BOY tb O! AHC DEPARTMENT CLERK & AHC MANAGEMENT, INC., 2 ott AYERS HEALTH & REHABILITATION bo FF CENTER, LLC; BROOKSVILLE HEALTH £4 . AN CARE CENTER, LLC; CYPRESS COVE Bae, ¢ CARE CENTER, LLC; HEATHER HILL EGE an NURSING CENTER, LLC; ROYAL OAK Gea -, NURSING CENTER, LLC; AND BEAR 4 € CREEK NURSING CENTER, LLC, Petitioner, vs. CASENO. 01-3160, 04- a 01-3162 Rendition No. AHCA-01- Z7/-S- MDE AGENCY FOR HEALTH CARE ADMINISTRATION, Respondent. / FINAL ORDER ~ A PARTY WHO Is ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE. INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL ‘WITH THE AGENCY CLERK ‘OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS _ PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies Furnished to: J. Darin Stewart Gray, Harris & Robinson ~: Post Office Box 3068 Orlando, FL 32802-3068 Kelly A. Bennett Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308-5403 Daniel Manry Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 John Owens, Chief _ Medicaid Program Analysis .. (Via Interoffice Mail) Finance & Accounting, oe pm mee ee were e-em gm ype reece en (ee oe rere OF oT EEC ° SE CTO FET BEE OER CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addresses by U.S. Mail on this the LY: th day of Nontenby_. 2001. Diane Grubbs, ae Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308-5403 (850) 922-5865 STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS AHC MANAGEMENT, INC., AYERS HEALTH & REHABILITATION CENTER, LLC; BROOKSVILLE HEALTH CARE CENTER, LLC; CYPRESS COVE CARE CENTER, LLC; HEATHER HILL NURSING CENTER, LLC; ROYAL OAK - NURSING CENTER, LLC; and BEAR CREEK NURSING CENTER, LLC, Petitioners, Vs. Case Nos: 01-3160, 01-3161, 01-3162 Judge: Daniel Manry AGENCY FOR HEALTH CARE ADMINISTRATION, Respondent. / SETTLEMENT AGREEMENT This settlement agreement (“Agreement”) is entered into by and between the Agency for Health Care Administration (“AHCA”), and AHC MANAGEMENT, INC., AYERS HEALTH & REHABILITATION CENTER, LLC; BROOKSVILLE HEALTH CARE CENTER, LLC; CYPRESS COVE CARE CENTER, LLC; HEATHER HILL NURSING CENTER, LLC; ROYAL OAK NURSING CENTER, LLC; and BEAR CREEK NURSING CENTER, LLC (“Petitioners”): . | 1. This matter arises out of AHCA’s review of Petitioners Change of Ownership applications (“CHOW”) and determination regarding reimbursement rates for the periods beginning on January 1, 2000. In determining the reimbursement rates, AHCA determined that Settlement Agreement DOAH Case Nos. 01-3160, 01-3161, 01-3162 Page 2 of 5 facility owner, Care Foundation of America, Inc., (“Care”), and the lender, National Health Investors, Inc. (“NHI”), non-parties to these proceedings, were related parties as set forth in §§1000 et seq. of the Provider Reimbursement Manual. 2. Petitioners filed petitions challenging AHCA’s determinations of "related party" status and computation of reimbursement rates for the subject facilities. 3. The parties have conducted discovery and trial preparation. The parties have also entered into settlement negotiations and, as a result of those negotiations, the parties desire to resolve these consolidated cases without further litigation and expense pursuant to the following terms and conditions. 4. As a part of the aforementioned negotiations, discovery, and trial preparation, the Petitioners have obtained Robert Webb’s letter dated September 14, 2001, attached and incorporated herein by reference as Exhibit A, stating that Robert Webb will resign as a member of the Board of Directors of Care and will not act as an owner, director, employee, or agent of Care until such time as AHCA consents or Petitioners’ reimbursement is no longer based upon the NHI financing . 5. Petitioners provided AHCA with the affidavit of Richard F. LaRoche, Jr., attached and incorporated herein by reference as Exhibit B, demonstrating that NHI is a bona fide separate organization from Care. In addition, attached as Exhibit C is additional corporate information indicating that Care and NHI are separately incorporated, that Care is a not-for-profit corporation while NHI is for-profit corporation, that Care and NHI have different Federal Employer Identification Numbers, different addresses, and different boards of directors. In addition, Exhibit C includes the 2001 Florida Uniform Business Reports for Care and NHI. Settlement Agreement DOAH Case Nos. 01-3160, 01-3161, 01-3162 Page 3 of 5 6. Mr. LaRoche’s affidavit also demonstrates that a substantial part of NHI’s business activity of the type carried on with Care is transacted with other organizations not related to the provider and the supplier by common ownership or control, and there is an open, competitive market for the type of services, facilities, or supplies furnished by the organization. In addition, attached as Exhibit D is NHI’s 1999 annual report showing NHI’s numerous loans to many other borrowers. | 7. Mr. LaRoche’s affidavit at paragraph 9 also demonstrates that the services provided by NHI are those that are commonly obtained by institutions such as Care from other organizations and are not basic elements of patient care ordinarily furnished directly to patients by such an institution. 8. Mr. LaRoche’s affidavit also demonstrates that NHI’s charge to Care is in line with the charge for such services, facilities, or supplies in the open market and no more than the charge made under comparable circumstances to others by the organization for such services, facilities, or supplies. Additionally, NHI’s charge to Care is within the limits of the Florida Title XIX Long Term Care Reimbursement Plan (“Plan”) which permits interest rates up to three percent (3%) above prime which was 8.5% at the time Care purchased the subject facilities. 9. In consideration of the foregoing and for other good and valuable consideration, AHCA, and Petitioners agree as follows: a. AHCA agrees that Petitioners have satisfied the requirements of the related party exception and agrees to recompute the reimbursement rates of Petitioners effective January 1, 2000, without the related party determination. Petitioners’ property reimbursement under FRVS shall include principal and interest of 11.50%. Settlement Agreement DOAH Case Nos. 01-3160, 01-3161, 01-3162 Page 4 of 5 b. AHCA agrees to pay Petitioners the difference in the rates no later than sixty (60) days from the date this Agreement is adopted by Final Order. AHCA will take immediate steps to issue the Final Order. c. AHCA further agrees that immediately upon receipt of an Order from the Division of Administrative Hearings (“DOAH”) that relinquishes jurisdiction to AHCA, a Final Order will be processed in this matter within a reasonable period of time using best efforts to issue the Final Order as quickly as possible. d. Petitioners reserve their rights to challenge AHCA’s rate computation to verify that they are proper and in accordance with this Agreement and the Plan. e. Upon complete execution of this Agreement by all parties, this Agreement constitutes Petitioners’ dismissal of their petitions with prejudice. f The parties will bear their own fees and costs associated with these proceedings, but Petitioners may claim their attorney’s and accountant’s fees and costs in the appropriate cost reports, subject to the Plan. . g. This Agreement may be executed in counterparts and sent via facsimile each of which shall constitute an original, but all of which together shall constitute one and the same instrument. [Remainder of page intentionally blank] _pemcammenaececmmnpenre 77" 90 eraemmrmree ee Yr tmere ca e a Settlement Agreement a DOAH Case Nos. 01-3160, 01-3161, 01-3162 Page 5 of 5 STIPULATED AND AGREED to the date of the last dated signature below. For Petitioners Date: Michael J. Bittman, Esquire J. Darin Stewart, Esquire Gray, Harris & Robinson, P.A. 301 E. Pine Street, Suite 1400 Orlando, Florida 32802 For Respondent Date: XE/b/ William Roberts ~ Acting General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308 Date: Preston Sweeney, President Petitioners Date: foal Bob Sharpe Deputy Grit Roe Metical Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308 ‘Date:_ ‘Sr6-42-Ce whe. 27, 20s LUA nap Kelly Benrfett Assistant General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308 SEP-25-2881 6:58 VeEp er we Vue up Pa erwerwawee SEP-24-2801 15:48 Settlement Agreement DOAH Case Nos. 01-3460, 01-3161, 01-3162 Page § of 5 GRAY ROBINSON GRAY ROBINSON 4a? 244 5690 “4? 244 5699 STIPULATED AND AGREED to the date of the last dated signature below. For Petitioners Date: q ~A 4 -o] ichael J. Bgtman, Esquire J. Darin Stewart, Esquire Gray, Harris & Robinson, P.A. 301 E. Pine Street, Suite 1400 Orlando, Florida 32802 For Respondent Date: William Roberts Acting General Counsel Agency for Health Care Administration — 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308 Date: Kelly Bennett Assistant General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308 Date: 7- Lye of fide Preston Sweeney, President Petitioners Date: Bob Sharpe Deputy Chief for Medicaid Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308 P.@2/62 P.G6/6 ~ TOTAL P.86 TOTAL P.@2 een Se nS kc Ah AI a A Mr, Robert Webb 2714 Archer Avenue Post Office Box 4011 Murfreesboro, TN 37129-4011 Agency for Health Care Administration 2727 Mahan Drive, Sulte 3434 Fort Knox Bullding I! Tallahassee, Florida 32308 September 14, 2001 Re. Ayers Health & Rehabilitation Center, LLC, of al. v. Agency for Health Care Administration DOAH Case Nos. 01-3160, 01-3161, and 01-3162 To Whom It may concern: _ This is to certify that I, Robert Webb, hereby resign from the board of directors Care Foundation of America, Inc. (“Cara”) effective upon receipt of the payments to Petitioners referenced in paragraph 9(a) of the Settlement Agreement in the above referenced case, and that | will not act as an owner, director, employee, or agent of Care until such time as the Ficrida Agency for Health Care Administration consents © the reimbursement obtained by Care for the six Ficrida nursing homes in the above referenced case is no tonger based upon financing provided by National Heaith Investors, Inc. cc: Care Foundation of America, Inc. TOFEL P.32 SEP-18-2881 14:49 98% P.@2 STATE OF TENNESSEE | COUNTY OF RUTHERFORD AFFIDAVIT Before me, a Notary Public in and for said county and state, personally appeared Richard F, LaRoche, Jr., personally known to me, who after being duly sworn according to law, stated as follows: 1. The undersigned, Richard F. LaRoche, Jr., is the duly elected, acting and authorized Vice President, Secretary and Member of the Board of Directors of National Health Investors, Inc., a Maryland corporation. 2. National Health Investors, Inc. was incorporated in the Fall of 1991 and was initially capitalized with 43 health care properties. National health Investors, Inc. is currently (and has been since October 17, 1991) traded on the New York Stock Exchange under the symbol "NHI". 3. The significant operating information and asset and income information concerning National Health Investors, Inc. for Fiscal Years 1999 and 2000 are as shown on the attached Exhibit A, which is incorporated herein as though copied verbatim. 4, National Health investors, Inc. is the first mortgage holder on six skilled nursing facilities in the State of Florida acquired by Care Foundation of America, Inc. by virtue of Warranty Deeds executed on December 31, 1999 and recorded shortly thereafter in the appropriate offices in the State of Florida. 5. National Health Investors, Inc. has never had any ownership in or owned any stock or other security of Care Foundation of America, Inc., other than the approximate $32 million first mortgage promissory notes issued by Care Foundation of America when it purchased the six above-referenced Florida properties. 6. This is to further certify that National Health Investors, Inc. is a separately chartered, capitalized and owned corporation from Care Foundation of America, Inc. To the best of the undersigned's knowledge, information and belief Care Foundation of America, Inc. is a Tennessee not for profit corporation, which has received a tax exempt determination letter from the Internal Revenue Service and is qualified under Section 501(c)(3) of the Internal Revenue Code as amended. Both corporations are distinct legal entities, neither having any ownership or control over the other. 7. This is to further certify that National Health Investors, Inc. does not own the real estate or operations now owned by Care Foundation of America, Inc. on which are located the six skilled nursing facilities in question. National Health Investors, Inc.'s only involvement in these properties is that it is the holder of first mortgage secured promissory notes issued by Care Foundation of America, Inc., the proceeds of which were used by Care Foundation of America, Inc. to acquire fee simple title to these six properties. 8. This is to further certify that a reference to Exhibit A attached shows that in 1999 NHI had a loan portfolio of $788,545,000, of which the six Care Foundation of America first mortgage notes totaled approximately $32 million, just 3.3% of NHI's portfolio, and that at the end of Fiscal Year 2000, NHI had a loan portfolio of $766,977,000, of which the Care Foundation of America, first mortgage notes totaled approximately $32 million. 9. Nursing home acquisition financing is a service provided by NHI, commonly obtained by institutions such as Care Foundation of America from commercial organizations, and is not a basic element of patient care ordinarily furnished to patients by Care Foundation of America. 10. NHI's interest rate on its loan to Care Foundation of America is in line with the charge for such services in the open market at the end of 1999 for nursing home acquisition financing loans made to nursing homes in bankruptcy, and is no more than the charge made under comparable circumstances to others by NHI. Further affiant sayeth not. Richard F. LaRoche, Jr., Vice President, General Counsel, and Director Sworn and subscribed before me this [it _ day of September, 2001. Min, Nota Public’ = Large My CommigBiin expites;, tr = = CRUE TET Srmeveee'S “EPTRRET I"? pp-sser “orig Ere sore 7 (dollars in thousands, except per share amounts) Year Ended December 31 NATIONAL HEALTH INVESTORS, INC. SELECTED FINANCIAL DATA —— 2000. ——_1299 ——_1998 Net revenues $ 147,514 $ 131,158 $ 106,552 Net income 33,724 53,618 69,645 Net income per share Basic $ 1.31 $ 2.13 $ 2.72 Diluted 1.31 2.13 2.69 Mortgages and other . investments, net $ 429,963 $ 441,906 $ 495,964 Real estate properties, net 278,004 316,021 245,538 Total assets 766,977 788,545 769,198 Long term debt 143,660 172,870 151,559 Credit facilities 83,000 88,000 58,500 Convertible subordinated debentures 114,281 95,741 100,096 Total stockholders' equity 397,409 392,640 424,660 Common shares outstanding 24,392,157 24,382,987 24,364,391 Weighted average common shares Basic 24,383,932 24,365,027 24,964,047 Diluted 24,564,873 24,367,529 28,689,192 Common dividends declared per share : $ 1.280 $ 2.960 $ 2.960 — 1297 _ _ $ 111,410 75,388 $ 3.01 2.92 $ 479,194 200,069 753,033 155,659 119,038 444,080 24,753,570 24,394,044 28,887,987 $ 2.960 23, 21, 27, $ 553,456 184,255 748,672 160,008 59,000 90,735 409,683 474,751 916,921 211,999 2.840 :Division of Corporations @ bitp:/Aeww.sunbiz.org/scnipts/cord...=8I4=NA MUNALHEAL LHUNVES 1URSoO- Foreign Profit ° NATIONAL HEALTH INVESTORS, INC. - PRINCIPAL ADDRESS CITY CENTER 100 VINE STREET, SUITE 1400 MURFREESBORO TN 37130 MAILING ADDRESS CITY CENTER 100 VINE STREET, SUITE 1400 ’ MURFREESBORO TN 37130. Document Number. FE] Number Date Filed P35878 621470956 10/11/1991 State Status Effective Date MD ACTIVE NONE Regist Brat ered Agent & Adres een ranceeert TCE-HALL CORPORATION SYSTEM INC 1201 HAYS STREET SUITE 10. TALLAHASSEE FL 32301 Name Changed: 05/01/1994 Address Changed: 05/01/1994 lof2 9/6/01 2:52 PM (Division of Corporations NTPi// WWW. SUTIDIZ.O1 B/SCHIPIS LULU. POTOSI a a Cane ADAMS, W. ANDREW 100 VINE STREET, #1400 MURFREESBORO TN LAROCHE, RICHARD F., JR. 100 VINE STREET, #1400 M URFREESBORO TN SWAFFORD, CHARLOTTE A. 100 VINE STREET, #1400 - MURFREESBORO TN TYRRELL, JACK 3100 WEST END AVE. NASHVILLE TN WEBB, ROBERT T. 149 MTCS DR. MURFREESBORO TN WELCH, TED H. THE TOWER, #2920 NASHVILLE TN IL 02/20/1999 L 05/19/2000 I 04/24/2001 Previous Filing Return to List No Events No Name History Information Next Filing View Document Image(s) THIS IS NOT OFFICIAL RECORD; SEE DOCUMENTS IF QUESTION OR CONFLICT 2 of 2 9/6/01 2:52 PM 2001 UNIFORM BUSINESS REPORT (UER) FILED DOCUMENT # P35878 Apr 24, 2001 8:00 am 4. Entity Name . ecretary NATIONAL HEALTH INVESTORS, INC. eo ary of State 04-24-2001 90308 022 ***150.00 —_— [ Puncipal Prace o! Business Mailing Agaress Iciry CENTER CITY CENTER 00 VINE STREET. SUITE 1400 100 VINE STREET. SUITE 1400 MURFREESBORO TN 37130 MURFREESBORO TN 37190 eT i wa 1 TE RRS AAA Suite, Apt. #. elc. Surte, Apt. #, etc. (00 NOT WRITE IN THIS SPACE City & Stare City & State 4. FE! Number 62-1470956 ‘Applied For L Not Applicable ae County ae | Country 5. Ceniicate of Status Desired «= Q)-—«98.75 aaaitionas Fee Required [7 ss _.6. Name and Address of Current Registerea Agent T 7, Neme and Address of New Ragisterec Agent ee Sa TES TEREST ee. ont TO GHeET CORPORATION SYSTEM INC. Siteet Address (P.O. Box Number is Not Acceptable) | SUITE 105 TALLAHASSEE FL 32301 ~ wo F L Zip Code in the State of Florida. : [* ‘The above named ently submits this siatement for Ihe purpose ct changing its regisiereo office or registered agent. or both, i SIGNATURE “Tiptore pes © Prnte Fae OF ESTOS BMH ANTON F DCAD, (ROTE: Rapaieraa Agent agree oc aver when anata) cate FILE NOW!!! FEE IS $150.00 10. Election Campaign Financing $5.00 May Be te 9, This corporation is eligible 10 satisty its Intangible Tax filing requirement ana élects 10 do so. After MAY 1, 2001 Fee will be $550.00 Teust Fund Coniibution. imi Adged to Fees (See criteria on back) o Make Check Payable to Department of Stal 1. “OFFICERS AND DIRECTORS ADDITIONS /CHANGES TO OFFICERS ANO DIRECTORS IN 11 me PD O oeiee CD crame — Chasstion | S saat ADAMS, W. ANDREW S sunert agonéss | 100 VINE STREET, #1400 3 Giy.si-zF | MURFREESBORO IN a mu VSD D oetete CO Change O Aatition g NAME LAROCHE, RICHAAD F., JR. STREET ADDRESS | 400 VINE STREET, #1400 crv-st-2P__| MURFREESBORO_TN | ome “To . - oa O oeiew-- —— | - _ - .— OChange Dixsciton | aid SWAFFORD, CHARLOTTE A. STREETAODRESS | 100 VINE STREET, #1400 cm-si-2P | MURFREESBORO _TN ime D O oewe Ci change D) Aasiion taut TYRRELL, JACK STREET ADDRESS 1 3400 WEST END AVE. ors _| NASHVILLE TH The D D delete CT Change 1) Addition nant WEBB, ROBERT T. ‘STREET ADORESS | 449 MTCS DR. ‘CTY-ST-DP TE D D ovlete CO) change = L1) Addition hae WELCH, TED H. stRéel aDoRESS | THE TOWER, #2920 City-St-2P 13, ! nereby certify thal the information supplied with this fing does not quality for the exemption stated in Section 119.67(3)(1), Florida Statutes. | further centty that the information indicated on this teport or supplementai report is tue anc accurate and thal my signature shall have the same lega! sitect as il made under oath; that | am an officer or duector of the corporation or the receiver o trustee empowerec to execute his sepon as required by Chapter 607, Florida Statutes; and that my name appears in Block 11 or Block 12 if changed, or on an attachment with an address, with all other like empowered. TiGuATIRE AND TYPED OA PAWTED NAME OF SIGNING OFFICER OR DIRECTOR signature: __¢/. Aves Afra —— fal G AS 870-7 ‘Division of Corporations e http://www. sunbiz.org/scripts/cord.. = &13=814=CAREFOUNDATIONAMERICA &15= Foreign Non Profit ° CARE FOUNDATION OF AMERICA, INC. PRINCIPAL ADDRESS 2714 ARCHER AVENUE MURFREESBORO TN 37129 MAILING ADDRESS P.O. BOX 1398 MURFREESBORO TN 37133 Document Number FE] Number Date Filed F00000000054 621802653 01/04/2000 State . Status Effective Date ACTIVE NONE RAINER FRANK 314 NORTH CALHOUN STREET TALLAHASSEE FL 32301 | ) oo Registered Agent . : WEEE, ROBERT T 2714 ARCHER AVENUE MURFREESBORO TN 37129 MORTON, JOHN B 1511 AVON STREET ree MURFREESBORO TN 37129 TAMBORNINI, MAZELL 150! MONTECELLO COURT MURFREESBORO TN 37129 ere RIere > wer Eee ee ge rape ee 1 of 2 9/6/01 2:51 PM | vision of Corporanons MIU WW SUUIL UTE Se APEO UE Ra A Cae oe ee Previous Filing [ Return to List ] Next Filing No Events No Name History Information - View Document Image(s) THIS IS NOT OFFICIAL RECORD; SEE DOCUMENTS IF QUESTION OR CONFLICT — fe 2 of 2 9/6/01 2:51 PM 2001 UNIFORM BUSINESS REPORT (UER) FILED 12, Ineteby certity thal the information su indicated on this report or supptertremtatren Teceiver o trustee SSTALET ADDRESS ony st-2e ‘of the Corporation of th yaith all ather like empowered. filing does not qualify for ne exemption stated in Section 119.07(3)(i), Florida Statutes. | further centity that the information tue and accurate ana that my signature shail have the same legal ered to execute this report as required by Chapler 617, Florida Statutes; and that my name appears in Block 10 or Block 11 if lect as it made under oat: that | am an officer or director DOCUMENT # FOOO00000054 Feb 12, 2001 8:00 am 1 Enity ame . Secretary of State CARE FOUNDATION OF AMERICA, INC. 02-12-2001 90250 002 ****61.25 eS Pancipal Pisce ot Busmess Mailing Agaress 2716 ARCHER AVENUE P.O. BOX 1998 cats MURFREESBORO TN 97128 MURFREESBORO TN 37130 ERP OBI RR TE a ACOA Suite, Act. #, etc, Suite, Apt. #, etc. 00 NOT WRITE IN THIS SPACE City & Siate City & State ‘4, FEI Number [ 62- 1802653 [__[Nor Applicable | ze dd ze Country 5. Ceniticate of Status Desived = $8.75 Aastionas = __--6: Name and Agcress of Curent Registorec Agent - -—]—- 7. Name and Adaress of New Registered Agent \~ Name RAINER, FRANK Svreet Address (P.O, Box Number is Not Acceptable) 314 NORTH CALHOUN STREET -— TALLAHASSEE Fi 32301 = Ciy FL | oe 8, The above named entily submits this siatement for the purpose ct changing its registerec ctfice or registerec agent, or both, in the state of Florida. SIGNATURE Sigrwive. peo O preven Rama o (egsitar Aer: ANG Me F aDOACADIO (NCTE: Regiered Ager: acnatu'® recured wren resnsiatng) DATE rc . FILE NOW: 9. Election Campaign Financing $5.00 May Be Make Check Payable to FEE 1S $61.25 Trust Func Contribution. Adgec to Fees Department of State a OFFICERS ANC DIRECTORS 1. ADDITIONS/CHANGES 10 OFFICERS AND DIRECTORS IN 10 We PD O bese me Dchange — C) acition | S Nave WEBB, ROBERT T nM s STREE: ADDRESS | 2714 ARCHER AVENUE STREET ADORESS 5 ciry-st-DP MURFREESBORO TN 37129 eany-St-2P Py me it] CO datae TE ; D chamge 1 ascion | & tue MORTON, JOHN 8 Me : start anoress | 1514 AVON STREET STREET ADDRESS [or st-2- =|, MURFREESBORO-TN-37129—- 7 7-- nan-siene, - see ee: of me [} O cele mE hase TAMBORNINI, MAZELL simett aooéss | 1501 MONTECELLO COURT cy-st-2P | MURFREESBORO TN 37129 ILE O delete NAME . ‘STREET ADDRESS: CIY-ST-2P a O bere O beete see 90- perma ema ere me rye trimer ep er ores pee me ee OO eee ee ‘ . N ational Health Investors, Inc. ~ 1999 Annual Report . Financial Highlights ° (dbllars in thousands, except per share amounts) Year Ended December 31 1999 1998 4997 1996 1995 Net revenues 431,158 ; 106,552 111,410 § 99,429 90,068 ‘Net income ; $3,618 69,645 75,388 67,164 49,692 ‘Net income per share Basic . ‘213 2720 0 ne 2.92 2.63 Diluted 2.13 2.69 2.92 : 2.81 2.48 Funds from operations per share . Basic 3.02 ; 3.08 3.34 3.23 $ 3.00 Diluted — . 52.95 3.00 3.20 3.05 2.75 Mortgages and other investments 441,906 495,964 479,194 $ 553,456 505,108 Real estate properties, net : 316,021 $245,538 200,069 “184,255 123,195 Total assets 788,545 769,198 753,033 - 748,672 639,256 ‘Long term debt : 172,870 151,559 155,659 160,008 141,103 Credit facilities 88,000 58,500 — - 59,000 31,750 Convertible subordinated debentures 95,741 -°100,096 ‘119,038 90,735 82,316 BU Clee cmarttiag 392,640 424,660 444,080 409,683 356,981 Common shares outstanding 24,382,987 24,364,391 PL WER BY | 23,474,751 20,535,014 Weighted average common shares Basic 24,365,027 24,964,047 24,394,044 21,916,921 16,381,826 Diluted 24,367,529 -28,689,192 28,887,987 27,211,999 22,851,888 Common dividends declared per share $ 2.960 $ 2.960 $ 2.960 $ 2.840 § 2.610 About the Cover Table of Contents National Health Investors, Inc. Dear Fellow Stockholders aggressively guarded its assets in 1999 as many of the operators NHI Properties in its portfolio struggled with Medicare’s new reimbursement Report of Independent Public Accountants system. * Selected Quarterly Financial Data and Common Stock Information About the Company Consolidated Balance Sheets National Health Investors, Inc. is a real estate investment trust Consolidated Statements of Income that specializes in the purchase and leaseback of health care real Consolidated Statements of Stockholders’ Equity estate and in the making of mortgage loans to health care Consolidated Statements of Cash Flows operators. Revenues come principally from rent and from Notes to Consolidated Financial Statements interest earned and totaled $131,158,000 in 1999. NHI began Management's Discussion and Analysis operations on October 17, 1991. Today, NHI owns or mortgages Board of Directors and Corporate Information 202 properties in 26 states. NHI trades on the New York Stock Exchange. Dear Fellow Stockholder: National Health Investors, Inc. saw the operators in its 1999 portfolio face one of their toughest years as they struggled with Medicare's new Prospective Payment System, PPS. For that meant a year of guarding our assets as we worked to aggressively manage our portfolio. ‘or most of the operators in NHI's portfolio, 1999 was the year when PPS went into effect. PPS is a new payment system for Medicare. Under the original payment system, nursing homes were reimbursed according to actual allowable costs. Under PPS, nursing homes get a set amount of money per patient, per day, based on each patient's diagnosis. These 1999 PPS rates were significantly lower than the traditional rates. Therelore, operators were compelled to slash expenses and those who were unable to cut costs were forced into reorganization. These changes in the Medicare reimbursement system were instrumental in drying-up the availability of new capital. New capital is the lifeblood of growth for real estate investment trusts at distribute their earnings to shareholders through dividends. Therefore in 1999 and 2000 our goal is to focus on managing our portfolio and protecting our assets. Mortgage ond Real Estate Assets On December 31, 1999 NHI had a stake in a total of 202 properties with a total investment of $670,145,000. The properties include two hospitals, eight medical office buildings and 17 homes for the developmentally disabled. The remaining 93% of the portfolio is long- term health care properties. Of the publicly held longterm health ‘care companies in our portfolio, three are in bankruptcy. Sun HealthCare Group, Inc. of Albuquerque, New Mexico filed for bankruptcy in October of 1999. Mariner Post Acute Care of Atlanta, Georgia filed in January, 2000. Integrated Health Services, Inc. of Sparks, Maryland filed for bankruptcy protection in February, 2000. Of the private operators, Lenox Healthcare of Pittsfield, Massachusetts filed for bankruptcy in November of 1999 and Texas Health terprises of Denton, Texas filed in August of 1999. We expect to foreclose on one property tied to the Lenox Healthcare bankrupicy and we included that Florida property in our $10 million write down during the fourth quarter of 1999. In addition, during 1999, 14 properties were deeded to NHI in satisfaction of their mortgages. Now NHI owns the real estate and is the operator of the centers. National HealthCare Corporation is managing the centers and we anticipate they will be able to return these facilities to a profitable status during 2000. NHI believes that the fair value of its real estate and the collateral value of its loans support their current net carrying values. In 2000, we will continue to guard our assets by aggressively managing the ortfolio and making sure each operator is in full compliance on their loan and lease payments. Should an operator fall out of compliance we would aggressively monitor performance and attempt to impose a lock box for receipt of accounts receivable in order to protect our investment. Should bankruptcy ensue, the experience we gained in 1999 allows us to more forcefully demand adequate protection from the court. Generally speaking, we would prefer to accept a deed in lieu of foreclosure rather than force participation in the very expensive and frustrating debtor protection system. Future Growth In 2000, our priority is to continue to " manage our portfolio and continue to have the majority of our portfolio invested in Tong term care. We believe long-term care is fundamentally a good business and that over time it will : perform well in the future in light of the demographic and market changes occurring in the long-term care marketplace. However, in 2000 we don’t anticipate substantial growth as operators adjust to PPS and we continue to deal with a difficult capital market. Capital Markets NH1’s $100 million revolving line of credit matures this year. We are working to extend the maturity date; however, we anticipate Paying a higher interest rate in today’s market. proximately $38.6 million in convertible subordinated debentures are due January 1, 2001. We anticipate these debentures being repaid from the prepayment of mortgages or through the sale of short-term investments. Dividends Through 1999 we paid a quarterly dividend of 74 cents per common share. This represented a 98% pay-out ratio versus basic FFO. This is a higher pay-out ratio than we would like and as a result, in March, 2000 we announced a reduction in our quarterly dividend of 10 cents per common share to 64 cents. This is 's first dividend decline and it reflects the company’s concerns over continuing volatility in the long-term care industry and increased interest expense on the company’s bank debt. W. Andrew Adams, Chairman Financial Results NHI funds from operations for the year ended December 31, 1999 were $3.02 per share basic and $2.95 per share diluted, compared to $3.08 per share basic and $3 per share diluted for the same period last year. After considering a one-time non-cash write-down of $10 million of mortgage and real estate assets, 1999 net income was $53,618,000 or $2.13 per share basic and diluted compared to 1998 net income of $69,645,000 or $2.72 per share basic and $2.69 per share diluted. NHI recorded a one-time non-cash write down of $10 million, a decrease of 41 cents per share basic and diluted, in the fourth quarter because of the impairment of values related to mortgage foreclosures and lease terminations. charge reduces net income but has no impact on FFO. arnings and FFO for the prior year ended December 31, 1998 include nonrecurring income of $5,001,000, an increase of 20 cents per share basic and 17 cents per share diluted related to the receipt of commitment fees and prepayment penalties from loan prepayments in 1998, There was no nonrecurring income reported in 1999. Future We pledge to guard our assets, with the foal of increasing stockholder value. We believe the tide will tum positive for long-term care in 2000 and will participate in this turnaround in 2001. Sincerely, b). Antes Ahara/ W. Andrew Adams Chairman and Stockholder Page 1 National Health Investors, Inc. NHI Properties Long-Term Care Licensed Licensed Center City Beds Center City Beds Alabama Kentucky NHC HealthCare, Anniston » Anniston 151 NHC HealthCare, Dawson Springs Dawson Springs 80 NHC HealthCare, Moulton Moulton 136 | NHC HealthCare, Glasgow Glasgow 194 NHC HealthCare, Madisonville Madisonville 94 Arizona Sunrise Estrella Care & Rehab Avondale 161 Massachusetts Buckley Nursing Home Greenfield 120 Colorado Buckley Nursing & Brookside Inn Castle Rock 95 Retirement Center Holyoke 102 Longmeadow of Taunton Taunton 100 Florida John Adams Nursing Home Quincy 71 Alachua Nursing Home Gainesville 120 Ayers Health & Rehabilitation Trenton 120. Missouri Bear Creek Nursing Center Hudson 120 Charleviox Nursing Center St. Charles 142 Brighton Gardens of Maitland* Maitland 39 Clayton House Healthcare Town and Country 282 Brighton Gardens of Columbia House Healthcare Columbia 141 West Palm Beach* West Palm Beach 30 ‘Florissant Nursing Center Florissant 120 Brooksville Nursing Manor Brooksville 180 Hunter Acres Nursing Center Sikeston 120 Cypress Cove Care Center Crystal River 120 NHC HealthCare, Desloge Desloge 120 Health Care Center at NHC HealthCare, Joplin Joplin 126 Mercy Hospital Miami 120 = NHC HealthCare, Kennett Kennett 170 Heather Hill Nursing Home New Port Richey 120 NHC HealthCare, Maryland Heights St. Louis 220 Huber Restorium St. Petersburg 96 NHC HealthCare, St. Charles St. Charles 120 Jefferson Nursing Center Monticello 60 Oak View Living Center Jefferson City 120 Lake Park - Madison Madison 119 Ozark Nursing Center West Plains 120 Miracle Hill Nursing & Convalescent Tallahassee 120 Spanish Lake Nursing Center Florissant 120 NHC HealthCare, Hudson Hudson 180 Woodland Park Healthcare Center Joplin 92 NHC HealthCare, Merritt Island Merritt Island 180 NHC HealthCare, Plant City Plant City 180 New Hampshire NHC HealthCare, Stuart Stuart 153 Epsom Manor Epsom 108 Oakview Nursing Williston 180 Maple Leaf Health Care Center Manchester 114 Osceola Health Care Center St. Cloud 120 ‘Villa Crest* Manchester 123 Pine Lake Nursing Home Greenville 58 Plantation Gardens Rehab & Nursing Ocoee 120 New Jersey Royal Oak Nursing Center Dade City 120 _ Brighton Gardens of Edison* Edison 30 N Regal Manor Health Care Center* Toms River 130 Georgia Royal Health Gate Nursing & Rehab* Trenton 120 Ashton Woods Atlanta 157 Forrest Lake Manor Martinez 100 _ Oklahoma Jennings Health Care Center Augusta 100 Skyline Terrace Tulsa 209 Meadowbrook Nursing Center Tucker 144 Moss Oaks Health Care Center Pooler 122 Pennsylvania Rossville Convalescent Center Rossville 112 __ Briarcliff Pavilion for Special Care N. Huntingdon 120 West Lake Manor Augusta 100 Kade Nursing Home Canton Township 68 Nipple Convalescent Center Liverpool 37 Idaho ~ Grangeville Care Center Grangeville 62 South Carolina . ee ae . “ss NHC HealthCare, Anderson Anderson 290 Kansas NHC HealthCare, Greenwood Greenwood 152 Emporia Rehabilitation Center Emporia 79 NHC HealthCare, Laurens Laurens 176 Hoisington Rehabilitation Center Hoisington 62 Larned Healthcare and Living Center Larned 83 Park Place HealthCare Chanute 84 Prestige Rehab & Nursing Haysville 120 Sedgwick Healthcare Center Sedgwick 79 Twin Lakes HealthCare Council Grove 94, Page 2 National Health Investors, Inc. NHI Properties Long-Term Care (continued) Licensed Licensed Center City Beds = Center City Beds Tennessee Virginia NHC HealthCare, Athens Athens 98 Brian Center of Alleghany Low Moor 60 NHC HealthCare, Chattanooga Chattanooga 212 Brian Center of Fincastle Fincastle 60 NHC HealthCare, Columbia Columbia 120.‘ Kegley Manor Bastian 57 NHC HealthCare, Dickson* Dickson 197. Maple Grove Health Care Lebanon 60 NHC HealthCare, Franklin Franklin 84 NHC HealthCare, Bristol Bristol 120 NHC HealthCare, Hendersonville Hendersonville 117 — The Springs Nursing Center Hot Springs 60 NHC HealthCare, Hillview Columbia 98 Willow Creek Health Care Center Midlothian 120 NHC HealthCare, Johnson City* Johnson City 179 NHC HealthCare, Knoxville Knoxville 152 Washington NHC HealthCare, Lewisburg Lewisburg 104 = Highline Care Center Seattle 73 NHC HealthCare, McMinnville McMinnville 150 Park Ridge Care Center Seattle 115 NHC HealthCare, Milan Milan 129 Park West Care Center Seattle 139 NHC HealthCare, Nashville Nashville 133 Sehome Park Care Center Bellingham 15 NHC HealthCare, Oakwood Lewisburg 62 NHC HealthCare, Pulaski Pulaski 104. Wisconsin . NHC HealthCare, Scott Lawrenceburg = 62 Honey Creek Health & Rehab Center Milwaukee 196 NHC HealthCare, Sequatchie Dunlap 120 NHC HealthCare, Smithville Smithville 107 NHC HealthCare, Somerville* Somerville 72 Acte Care NHC HealthCare, Sparta Sparta 150 NHC HealthCare, Springfield Springfield 112 Center City Beds Texas Kentucky Autumn Hills Convalescent Center | Houston 116 Kentucky River Hospital Jackson 55 Autumn Hills Convalescent Center Richmond 99 Autumn Hills Convalescent Center Sugarland 150 Lousiana Autumn Hills Convalescent Center | Tomball 150 University Rehab Hospital New Orleans 106 Bonham Nursing Center Bonham 65 Canterbury Villa of Falfurrias Falfurrias 98 Canterbury Villa of Kingsville Kingsville 162 q ice Buildi College Street Nursing Center Beaumont 50 Medical Office Buildings Columbus Care Center Columbus 129 Square Conroe Convalescent Center Conroe 108 Center City Footage Denison Manor Denison 71 Fair Park Nursing Center Huntsville 92 Florida Friendswood Arms . Convalescent Center Friendswood ~ 102 North Okaloosa Crestview 2707 Galaxy Manor Nursing Center Cleveland 148 Ilinois Golden Charm Nursing Center Liberty 118 Crossroads Mt. Vernon 12.910 Heritage Forest Lane Dallas 120 . " Heritage Manor - xanton Canton 110 Kentucky Heritage Manor - Mesquite Dallas 152 | j Heritage Oaks Arlington 204 Scott Hospital Georgetown 24,824 Heritage vee Dallas 280 = Louisiana Lindbergh Health Care Center Beaumont 82 ' i ' Shoreline Health Care Center Taft. 152 Women 's & Children’s Lafayette 35,629 Terry Haven Nursing Center Mt. Vernon 6 Texas _ Town Park Convalescent Center Houston 125 Willis Convalescent Center Willis 114 Fail Regional pasadena ond Willow Bend Care Center Mesquite 162 , Winterhaven Houston 160s Utah : “Pioneer Valley W. Valley City 69,910 Washington Capital Medical Office Building Olympia 67,152 Notional Health Investors, Inc. Page 3 NHI Properties Retirement Centers Center Idaho Sunny Ridge Care Center Missouri Lake St. Charles Retirement Center New Hampshire ° Heartland Place Tennessee Parkwood Retirement Center Colonial Hill Retirement Center Texas Remington Retirement Community Tiffany Walk Congregate Center City Beds Nampa 192 St. Charles 155 Epsom 60 Chattanooga 32 Johnson City 63 Corpus Christi 90 Tomball 60 Assisted Living and Developmentally Discbled Center Arizona Clare Bridge - Glendale Clare Bridge - Tanque Verde Sterling House - Gilbert Sterling House - Tucson Florida 19th Street Group Home 107th Place Group Home Bessent Road Group Home Brighton Gardens of Maitland* Brighton Gardens of West Palm Beach* Clare Bridge - Maitland Coletta Drive Group Home Frederick Avenue Group Home High Desert Court Group Home Spring Street Group Home Claudia Drive Group Home Plaza Oval Group Home Rosewood Group Home Second Street Group Home Somerset on Lake Saunders Sterling House - Daytona Beach Suffridge Drive Group Home Tunis Street Group Home Walnut Street Group Home Wynwood Park Place of St. Augustine (U/C) Poge 4 National Health Investors, inc. Licensed City Beds Glendale 36 Tucson 42 Gilbert 100 Tucson 92 Gainesville 6 Belleview 6 Starke 6 Maitland 112 West Palm Beach 114 Maitland 38 Orlando 6 Daytona Beach 6 Jacksonville | 6 Lake City 6 Jacksonville 6 Casselberry 6 Ormond Beach 6 Ocala 6 Tavares _ 66 Daytona Beach 60 Bonita Springs 6 Jacksonville 6 Starke 6 Maitland 78 St. Augustine 89 Assisted Living and Developmentally Disabled (continued) Center City Beds Maryland Morningside House of St. Charles Waldorf 99 Morningside House of Friendship Hanover 98 Morningside House of Laurel Laurel 120 Missouri Lake St. Charles Retirement Center* St. Charles 25 New Hapmshire Villa Crest* Manchester 42 New Jers Brighton Cardens of Edison* Edison 118 Royal Health Gate Nursing & Rehab* Trenton 30 Regal Manor Health Care Center* Toms River 30 North Carolina Manorhouse - Charlotte Charlotte 144 South Carolina Sterling House - Conway Conway 84 Tennessee 717 Cheatam Street Springfield 8 305 West Hillcrest Drive Springfield 8 307 West Hillcrest Drive Springfield 8 Sterling House - Gallatin Gallatin 49 Sterling House - Kingsport Kingsport 49 Sterling House - Tullahoma Tullahoma 49 NHC HealthCare, Dickson* - Dickson 20 NHC HealthCare, Johnson City* Johnson City 15 NHC HealthCare, Somerville* Somerville 12 NHC HealthCare, Smithville Smithville 10 Texas Brighton Gardens of Preston Road _Dalllas 109 Virginia Morningside House of Leesburg Leesburg 110 “These facilities are listed in multiple categories. U/C = Under construction. Real Estate Mortgage Investment Conduits 20.0% original participating interest 5.2% original participating interest 1,971 2,896 14 Properties 23 Properties Report of Independent Public Accountants To National Health Investors, Inc.: We have audited the accompanying consolidated balance sheets of National Health Investors, Inc. (a Maryland corpora- tion) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders’ equity and cash flows for the years endéd December 31, 1999, 1998 and 1997. These consolidated financial statements are the responsibility of the Company’s management. Our responsi- bility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of maierial misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant esti- mates made by management, as well as evaluating the overall consolidated 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 sub- sidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years ended December 31, 1999, 1998 and 1997, in conformity with gener- ally accepted accounting principles. A thea Ardoom LP Nashville, Tennessee January 18, 2000 Selected Quarterly Financial Data and Common Stock Information (unaudited, in thousands, except per share amounts) 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter 1999 Net Revenues 30,014 $ 29,182 $ 32,888 $ 39,074 Net Income 16,243 15,953 15,785 5,637 Diluted Earnings Per Share 650 -640 -630 .210 Dividends Declared Per Share -740 740 .740 -740 Share Price - High — 28.2500 25.7500 23.2500 17.2500 Share Price - Low 21.5000 20.0000 15,2500 14.1250 1998 Net Revenues 28,244 $ 26,423 $ 25,544 $ 26341 Net Income 17,846 17,889 17,768 16,142 Diluted Earnings Per Share 690 680 .680 640 Dividends Declared Per Share 740 .740 740 740 Share Price - High 42.2500 39.9375 33.8750 30.9375 Share Price - Low 32.1250 25.3125 38.6250 24.3750 The selected quarterly financial data reflects certain reclassifications of revenue and expenses to conform to previously reported amounts to the presentation effective for the year ended December 31, 1999. The stock of National Health Investors, Inc. is traded on the New York Stock Exchange under the symbol NHI. The closing price for NHI stock on Friday, December 31, 1999 was $14.875. As of December 31, 1999, there were 1,671 holders of record of shares and the Company estimates that as of such date there were in addition in excess of 25,700 beneficial owners of the shares. National Health Investors, Inc. Page 5 Ser ee oes er cepere ones eee Consolidated Balance Sheets (In thousands, except share amounts) December 31 : 1999 1998 Assets Real estate properties: . Land $ 31,875 $ 22,649 Buildings and improvements 340,966 267,962 Construction in progress 567 798 a 373,408 291,409 Less accumulated depreciation . (57,387) (45,871) Real estate properties, net 316,021 245,538 | | Mortgage and other notes receivable, net 316,454 394,174 Investment in preferred stock 38,132 38,132 Investments in real estate mortgage investment conduits 37,670 36,861 Cash and cash equivalents 16,723 20,407 Marketable securities 49,650 26,797 Accounts receivable 10,714 4,542 Deferred costs and other assets . 3,181 2,747 Total Assets ; $ 788,545 $ 769,198 _ CC eee eee a Liabilities and Deferred Income Long-term debt $ 172,870 $ 151,559 Credit facilities 88,000 58,500 Convertible subordinated debentures 95,741 100,096 Accounts payable and other accrued expenses 7,228 1,696 Accrued interest 6412 6,463 Dividends payable 18,033 18,030 Deferred income 7,621 8,194 Total Liabilities and Deferred Income 395,905 344,538 Commitments and guarantees Stockholders’ Equity Cumulative convertible preferred stock, $.01 par value; 10,000,000 shares authorized; 748,694 and 768,894 shares, respectively, issued and outstanding; stated at liquidation preference of $25 per share 18,717 19,222 Common stock, $.01 par value; . 40,000,000 shares authorized; 24,382,987 and 24,364,391 shares, respectively, issued and outstanding 244 244 Capital in excess of par value 425,963 425,449 Cumulative net income 394,165 340,547 Cumulative dividends (431,282) (357,518) Unrealized losses on marketable securities (15,167) (3,284) Total Stockholders’ Equity 392,640 424,660 Total Liabilities and Stockholders’ Equity $788,545 $ 769,198 ———————____— Oe The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. Page 6 National Health Investors, inc. Consolidated Statements of Income (In thousands, except share amounts) Year Ended December 31 1999 1998 1997 Revenues: Mortgage interest income . $ 49,049 $ 56,958 $ 67,473 Rental income 45,993 42,268 39,948 Investment interest and other income 11,810 7,326 3,989 Facility operating revenue 24,306 —_— — * 131,158 106,552 111,410 Expenses: Interest 25,596 19,112 22,219 Depreciation of real estate 11,485 8,955 8,036 Amortization of loan costs 743 688 836 General and administrative 3,275 3,892 3,700 Loan loss expense 13,800 4,260 1,231 Facility operating expenses 22,641 _ _ 77,540 36,907 36,022 Net income 53,618 69,645 75,388 Dividends to preferred stockholders 1,633 1,676 1,916 Net income applicable to common stock $ 51,985 $ 67,969 $ 73,472 Net income per common share: Basic $ 2.13 $ 2.72 $ 3.01 Diluted 2.13 2.69 2.92 Weighted average common shares outstanding: Basic 24,365,027 24,964,047 24,394,044 Diluted 24,367,529 28,689,192 28,887,987 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. Notional Health Investors, Inc. Page 7 “prommmme span t e —oe -rr e prmam _ Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) Cumulative Convertible Preferred Stock Shares Amount Common Stock Shares Amount Balance at December 31, 1996 . 1,050,122 $ 26,253 23,474,751 $ 2 Net income Shares sold _ — Shares issued in conversion . of convertible debentures to common stock _ _— Shares issued in conversion of preferred stock to common stock (216,458) (5,411) Dividends to common shareholders ($2.960 per share) — _ Dividends to preferred shareholders ($2.125 per share) — _— 61,999 1,020,926 195,894 24,753,570 Balance at December 31, 1997 833,664 20,842 Net income _ Unrealized losses on marketable securities : — —_— Total comprehensive income Shares sold . _— Common shares repurchased _ _ Shares issued in conversion of convertible debentures to common stock _ - Shares issued in conversion of preferred stock to common stock (64,770) (1,620) Dividends to common shareholders ($2.960 per share) — =_ Dividends to preferred shareholders ($2.125 per share) _— _ 66,973 (1,122,075) 607,327 58,596 Balance at December 31, 1998 768,894 | 19,222 24,364,391 Net income _ Unrealized losses on marketable securities _ _ Total comprehensive income Shares issued in conversion of convertible debentures to common stock _ Shares issued in conversion of preferred stock to common stock (20,200) (505) Dividends to common shareholders : . : : ($2.960 per share) ~ — — Dividends to preferred shareholders ($2.125 per share) — _— 316 18,280 Balance at December 31, 1999 748,694 $ 18,717 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. Page 8 National Health Investors, Inc. 24,382,987 Capital in Unrealized Total Excess of Cumulative Cumulative Losses on Stockholders’ Par Value Net Income Dividends Marketable Securities Equity $ 395,204 $ 195,514 $ (207,523) $ _ $ 409,683 _ 75,388 _ _ 75,388 1,992 — oe _ 1,993, 31,530 > — _ _ 31,540 5,409 _ _ _ — — _ (72,608) _ (72,608) a _— (1,916) _ (1,916) 434,135 270,902 (282,047) _ 444,080 _ 69,645 - _ 69,645 _ _ _ (3,284) (3,284) 66,361 1,952 —_—. _ _ 1,953 (31,240) _ _— _ (31,252) 18,983 _ _ _ 18,989 1,619 — - _ _— _ _— (73,795) — (73,795) _ _ (1,676) _ (1,676) 425,449 340,547 (357,518) * (3,284) 424,660 _ 53,618 _ _ 53,618 — — _ (11,883) (11,883) 41,735 9 - _ ~_ 9 505 ~ — - _ — _ (72,131) = (72,131) Se (1,633) _ (1,633) $ 425,963 $ 394,165 $ (431,282) $ 392,640 $ (15,167) aed National Health Investors, Inc. Page 9 remem mre ype PRIS er rane mr me erm tg pe ee Consolidated Statements of Cash Flows (In thousands) Year Ended December 31 1999 1998 1997 Cash flows from operating activities: Net income 53,618 69,645 $ 75,388 Depreciation of real estate . 11,485 8,955 8,036 Provision for loan losses 13,800 4,260 1,231 Amortization of loan costs 743 688 836 Interest on debenture conversion _ 324 300 Deferred income 1,095 1,906 1,495 Amortization of deferred income (1,668) (2,022) (2,370) Amortization of bond discount on held to maturity marketable securities (1,563) — — (Increase) decrease in accounts receivable (8,382) 643 197 Increase in other assets (1,177) (2) (25) Increase in accounts payable and accrued liabilities 5,482 531 4,848 Net cash provided by operating activities 73,433 84,928 89,936 Cash flows from investing activities: Investment in mortgage notes receivable (22,163) (67,564) (115,876) Collection of mortgage notes receivable 16,287 3,872 7,695 Prepayment of mortgage notes receivable _ 93,891 181,212 Acquisition of and construction of property and equipment, net (14,318) (40,724) (23,848) Investment in preferred stock _ (38,132) _ Investment in marketable securities, net (33,173) (30,081) — Net cash provided by (used in) investing activities (53,367) (78,738) 49,183 Cash flows from financing activities: Repayment of credit facilities _ _— (151,000) Proceeds from credit facilities 29,500 58,500 92,000 Proceeds from long-term debt 25,773 243 99,756 Principal payments on long-term debt’ (4,462) (4,343) (104,105) Proceeds from (payments on) convertible subordinated debentures (800) (40) 60,000 Financing costs paid _ _ (2,671) Dividends paid to stockholders (73,761) (75,759) (73,577) Sale of stock and exercise of stock options _ 1,953 1,993 Repurchase of common stock - (31,252) _ Net cash used in financing activities (23,750) (50,698) (77,604) Increase (decrease) in cash and cash equivalents (3,684) (44,508) 61,515 Cash and cash equivalents, beginning of period 20,407 64,915 3,400 Cash and cash equivalents, end of P eriod ; $ 16,723 $ 20,407 $ 64,915 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements, Page 10 National Health Investors, Inc. dneinencinetitnsttiente ina i na “ROI RYE RR ee MRE Ree TP ee REY PE “ERNE ERI ee ieee TTP Note 9. Long-term Debt ond Credit Facilities (continued) The debt identified as senior secured notes due 2009 was financed through NHC, National Health Corporation, (“National”) and through the National Health Corporation Leveraged Employee Stock Ownership Plan and Trust before being transferred to NHI with the creation of NHI in 1991. On July 30, 1999, National was notified by SunTrust Bank of Nashville, N.A., the Agent for itself and certain other lenders for the above-referenced loan, that as Agent it disputes the allocation of certain collateral between itself and another lending institu- tion. National is-actively negotiating for resolution of this dis- pute. In the event the dispute is not resolved, the Agent may call the loan into default. If the loan is called into default, payments by NHI to repay the loan may have a material adverse impact upon NH1’s cash flows and liquidity. The debt identified as senior secured notes is cross-defaulted with other liabilities of NHC and its affiliates and is cross-collat- eralized to the extent of approximately $15,906,000 of debt. Thus, in the event NHC defaulted on its obligations under its debt packages, NHI could lose its interest in the related mortgage notes receivable or real estate properties. The aggregate principal maturities of all long-term debt and credit facilities for the five years subsequent to December 31, 1999 are as follows: 2000 $92,574,000 2001 4,606,000 2002 30,952,000 2003 5,084,000 2004 5,886,000 Certain loan agreements require maintenance of specified operating ratios as well as specified levels of working capital and stockholders’ equity by NHI and NHC. All such covenants have been met by NHI, and NHI believes all such covenants have been met by NHC. Note 10. Convertible Subordinated Debentures 1997 Debentures - On January 29, 1997, NHI issued $60,000,000 of 7% convertible subordinated debentures (the “1997 debentures”) due on February 1, 2004. At December 31, 1999, 1997 debentures in the amount of $56,286,000 were out- standing. The 1997 debentures are convertible at the option of the holder into common stock of NHI at a conversion price of $37.50, subject to adjustment. During 1999, none of the 1997 debentures were converted. During 1998, $3,349,000 of the 1997 debentures were converted into 89,302 shares of common stock. NHI has reserved an additional 1,500,960 shares of common stock for 1997 debenture conversions. The 1997 debentures will not be redeemable prior to February 8, 2002 except in the event of certain tax-related events or to the extent necessary to preserve and protect NHI's status as a real estate investment trust. The debentures are subordinated in right of payment to the prior payment in full of all senior indebted- -ness of the Company. Interest is payable semiannually on February 1 and August 1 of each year. 1995 Debentures - On December 12, 1995, NHI sold $45,000,000 of a total of $10,000,000 of 7.75% convertible subor- dinated debentures (the “1995 debentures”) due on January 1, 2001. The remaining $55,000,000 were sold on January 15, 1996. At December 31, 1999, 1995 debentures in the amount of $38,060,000 were outstanding. National Health investors, inc. Page 18 The 1995 debentures are convertible at the option of the holder into common stock of NHI at a conversion price of $31.625, sub- ject to adjustment. During 1999 and 1998, $10,000 and $9,352,000, respectively, of the 1995 debentures were converted into 316 and 295,711 shares of common stock. NHI has reserved an additional 1,203,478 shares of common stock for 1995 debenture conversions. The 1995 debentures will not be redeemable prior to maturity except in the event of certain tax-related events or to the extent necessary to preserve and protect NHI's status as a real estate investment trust. The debentures are subordinated in right of pay- ment to the prior payment in full of all senior indebtedness of the Company. Interest is payable semiannually on January 1 and July 1 of each year. 1995 Debt Service Debentures - In November 1995, NHI began offering 7% subordinated convertible debentures due on January 1, 2006. NHI may offer up to $25,000,000 of these debentures to current and future mortgagees and lessees of NHI to satisfy exist- ing debt service reserve escrow requirements under applicable mortgages or leases. During 1999, $4,347,000 of the debentures were redeemed. At December 31, 1999, debentures in the amount of $1,190,000 were outstanding. The debentures are convertible at the option of the holder into common stock of NHI at a conversion price of 110% of the market price on the date of issuance of the debentures, subject to adjust- ment. During 1999, none of the debentures were converted into common stock. During 1998, $871,000 of the debentures were con- verted into 26,393 shares of common stock. NHI has reserved 32,740 shares of common stock for conversion of 1995 debt service debentures. Interest is payable semiannually on April 1 and October 1 of each year. : Senior Debentures - On October 17, 1991, NHI issued $110,000,000 of 10% senior convertible subordinated debentures (the “senior debentures”) due 2006. At December 31, 1999, senior debentures in the amount of $205,000 were outstanding. The senior debentures are convertible at the option of the holder into NHI’s common stock at a price of $20 per share, sub- ject to adjustment. In 1999, none of the senior debentures were converted. In 1998, $25,000 of the senior debentures were con- verted into 1,250 shares of common stock. NHI has reserved an additional 10,250 shares of common stock for senior debenture conversions. The senior debentures rank equally with other unsecured debt of NHI (other than the trade debt) but are subordinated to all existing and secured indebtedness. NHI may not incur or guaran-. tee unsecured indebtedness which is senior in right of payment to the senior debentures. Interest at 10% is payable semiannually on January 1 and July 1 of each year. Note 11. Commitments and Guarantees At December 31, 1999, NHI was committed, subject to due diligence and financial performance goals, to fund approxi- mately $9,000,000 in health care real estate projects, of which $7,000,000 is expected to be funded within the next 12 months. The commitments include mortgage loans for two long-term health care centers, one medical Bice building, and three assisted living facilities, all at rates ranging from 9% to 11.5%. Included in the $9,000,000 of commitments is a commitment to Joan an additional $2,000,000 on one existing loan when the mortgagee obtains certain operating ratios. In order to obtain the consent of appropriate lenders to NHC’s transfer of assets to NHI, NHI guaranteed certain debt ($14,320,000 at December 31, 1999) of NHC and its affiliates. The debt is at fixed interest rates with a weighted average interest rate of 8.3% at December 31, 1999. NHI receives from NHC com- pensation of approximately $72,000 per annum for the guaran- tees which is credited against NHC’s base rent requirements. Notes to Consolidated Financial Statements Note 11. Commitments and Guarantees (continued) In management's opinion, these guarantee fees approximate the guarantee fees that NHI would currently charge to enter into similar guarantees. All of the guaranteed indebtedness discussed above is secured by first mortgages and rights which may be enforced if either party is required to pay under their respective guarantees. NHC has agreed to indemnify and hold harmless NHI against any and all loss, liability or harm incurred by NHI as a result of having to perform under its guarantee of any or all of the guar- anteed debt. : Additionally, NHI has outstanding letters of credit totaling $9,580,000. NHI also has guaranteed bank loans in the amount of $1,447,700 to key employees and directors utilized for the exer- cise of stock options. All shares of NHI stock purchased with the proceeds of the guaranteed loans are held as collateral by NHI and the loans are limited to $100,000 per individual per year. NHI's potential accounting loss related to these guaranteed bank loans, if all collateral failed, is the face amount of the guaranteed loans outstanding. NHI is aware of certain income tax contingencies with regards to limitations on ownership of its stock and to its use of an independent contractor to manage certain of its fore- closure properties. In order to fully resolve the contingencies, NH is in the process of requesting from the Internal Revenue Service (“IRS”) closing agreements regarding each of these contingencies. NHI’s management, based on its discussions with its legal counsel, understands that other real estate investment trusts have been successful in obtaining closing agreements with the IRS regarding real estate investment trust qualification issues. However, it is possible that the IRS will not rule in favor of NHI. Such an unfavorable ruling could result in the assessment of taxes, penalties and interest by the IRS that are material to NHI’s financial statements taken as a whole and could also result in the loss of NHI’s status as a real estate investment trust, which would have a significant adverse impact on the financial position, results of operations and cash flows of NHI. Note 12. Cumulative Convertible Preferred Stock In February and March 1994, NHI issued $109,558,000 of 8.5% cumulative convertible preferred stock (“Preferred Stock”) with a liquidation preference of $25 per share. Dividends at an annual rate of $2.125 are cumulative from the date of issuance and are paid quarterly. The Preferred Stock is convertible into NHI common stock at the option of the holder at any time at a conversion price of $27.625 per share of common stock, which is equivalent to a con- version rate of 0.905 per share of common stock for each share of Preferred Stock, subject to adjustment in certain circumstances. The Preferred Stock is not redeemable for cash, but effective February 15, 1999, the Preferred Stock is redeemable by NHI for common stock. NHI may redeem the Preferred Stock only if the trading price of the common stock on the New York Stock Exchange (“NYSE”) exceeds $27.625 per share for 20 trading days within a period of 30 trading days prior to the exercise. ‘At December 31, 1999, 748,694 shares of the Preferred Stock, which are convertible into 677,568 shares of common stock, are outstanding. During 1999 and 1998, respectively, 20,200 and 64,770 shares of Preferred Stock were converted into 18,280 and 58,596 shares of common stock. NHI has reserved 677,568 shares of common stock for Preferred Stock conversions. Note 13. Limits on Common Stock Ownership On October 16, 1996, the NHI Board of Directors, pursuant to powers granted by the Company’s charter, changed the limit on the percentage of ownership which any person may have in the outstanding common stock of the Company from a limit of 7.0% to a limit of 9.9%. The limit on ownership of any other class of stock (including issues convertible into common stock) remains at 9.9% of the outstanding stock. This limit is a provision of the Company’s charter and is necessary in order to reduce the possi- bility of the Company’s failing to meet the stock ownership requirements for qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended. Note 14. Stock Option Plan NH has stock option plans which provide 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. The options may be exercised immediately, but the Company may purchase the shares at the grant price if employment is terminated prior to six years from the date of grant. The maximum term of the options is five years. The following table summarizes option activity: Weighted Average Number of Exercise Options Outstanding Shares Price Outstanding December 31, 1996 100,712 $26.75 Options granted 194,000 36.00 Options exercised 39,365 29.78 Outstanding December 31, 1997 255,347 33.31 Options granted 45,000 39.88 Options exercised and canceled 79,213 28.42 Outstanding December 31, 1998 221,134 36.40 Options granted 190,000 16.81 Options expired 1,000 28.75 Outstanding December 31, 1999 410,134 $27.34 At December 31, 1999, all options outstanding are exercisable. Exercise prices on the exercisable options range from $14.50 to $39.88. The weighted average remaining contractual life of options outstanding at December 31, 1999 is 3.4 years. NHI has reserved 577,347 shares of common stock for issuance under the stock option plans. NH has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Asa result, no com- pensation cost has been recognized for NHI’s stock option plans. 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 SFAS 123, has no effect on NHI's earnings per share. Notional Health investors, inc. Page 19 o Notes to Consolidated Financial Statements + Note 15. Supplemental Cash Flow Information Supplemental disclosure of cash flow information is as follows: (in thousands, except share amounts) Year Ended December 31 1999 1998 1997 Cash payments for interest expense $ 21,299 $ 16,451 $ = 13,577 During 1999, 1998 and 1997, $10,000,'$18,902,000 and $31,697,000, respectively, of convertible subordinated debentures were converted into 316 shares, 607,327 shares and 1,020,926 shares, respectively, of NHI’s common stock: Convertible subordinated debentures $ (8) $ (18,902) $ (81,697) Financing costs _ 237 457 Accrued interest @ (324) (300) Common stock - 6 10 Capital in excess of par value 9 18,983 31,530 During 1999 and 1998, NHI acquired property and equipment in exchange for NHI's rights under mortgage notes receivable Mortgage and other notes receivables $ 67,650 $ 13,700 $ Land (4,091) (1,881) _— Buildings and improvements (63,559) (11,819) — During 1999, NHI redeemed certain 1995 Debt Service Debentures and applied those debentures against mortgage notes receivable Mortgage notes receivable $ 3,547 . $ - $ — Convertible subordinated debentures (3,547) _ _ 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 the conversion of convertible subordinated debentures, the conversion of cumulative convert- ible 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. 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 1999 1998 1997 BASIC: Weighted average common shares 24,365,027 24,964,047 24,394,044 Net income $ 53,618,000 $ 69,645,000 $ 75,388,000 Dividends paid to preferred stockholders (1,633,000) (1,676,000) (1,916,000) Net income available to common stockholders $ 51,985,000 $ 67,969,000 $ 73,472,000 Net income per common share $ 2.13 $ 2.72 $ 3.01 DILUTED: yleighted average common shares ; 24,365,027 24,964,047 =. 24,394,044 Stock options 2,502 13,302 36,897 Convertible subordinated debentures _ 2,990,904 3,621,812 Cumulative convertible preferred stock _ 720,939 835,234 Average common shares outstanding 24,367,529 28,689,192 28,887,987 Net income $ 53,618,000 $ 69,645,000 —_$ 75,388,000 Dividends paid to preferred stockholders (1,633,000) _ _— Interest expense on convertible subordinated debentures om 7,594,000 9,046,000 Net income assuming conversion of convertible subordinated debentures to common stock $51,985,000 $ 77,239,000 —‘$ 84,434,000 Net income per common share oo. _ § 213 § 269 = §¢ 2,92 For the year ended December 31,1999, convertible subordinated debentures and convertible preferred stock were convertible into 2,822,553 and 695,480 incremental shares, respectively. These incremental shares were excluded from the computation of diluted earn- ings per share, since inclusion of these incremental shares in the calculation would have been anti-dilutive. National Health Investors, Inc. Page 20 Notes to Consolidated Financial Statements _ Note 17. Dividends Dividend payments by NHI to its common stockholders are characterized in the following manner for tax purposes in 1999: Dividend Taxable as Non-Taxable Payment Ordinary Taxable as Return of ate . Income Capital Gains Capital Totals May 10, 1999 $ .6656 $ — $ .0744 $ 74 Aug. 10, 1999 6656 — 0744 74 Nov. 10, 1999 6656 _ 0744 74 Jan. 31, 2000 2552 _ 4848 74 $ 2.2520 $ — $ .7080 $2.96 Note 18. Relationship with National HealthCare Corporation Leases - On October 17, 1991, concurrent with NHC’s con- veyance of real property to NHI, NHI leased to NHC 40 long- term care facilities and three retirement centers. Each lease is for an initial term expiring December 31, 2001, with two additional five-year renewal terms at the option of NHC, assuming no defaults. NHI accounts for its leases as operating leases. During the initial term of the first renewal term, NHC is oblig- ated to pay annual base rent on all 43 facilities of $15,238,000. If NHC exercises its option to extend the leases for a second renewal term, the base rent will be the then fair rental value as negotiated by NHI and NHC. . 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, in each year after 1992, NHC must pay percentage rent to NHI equal to 3% of the amount by which gross revenue of each facility in such later year exceeds the gross revenue of such facility in 1992. 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. NHC has a right-of-first refusal with NHI to purchase any of the initial properties transferred from NHC should NHI receive an offer from an unrelated party during the term of the lease or up to 180 days after termination of the related lease. Rental income was $45,993,000 ($30,735,000 from NHC) in 1999; $42,268,000 ($31,732,000 from NHC) in 1998; and . $39,948,000 ($29,829,000 from NHC) in 1997. During 1997, NHI purchased $23,375,000 of additional prop- erty from NHC. This property represents capital improvements at 15 long-term care centers owned by NHI and leased to NHC. Additional base rent equal to 9.5% oft the amount transferred is paid annually by NHC. At December 31, 1999, the future minimum lease payments to be received by NHI under its operating leases, including debt ser- vice payments which are based on interest rates in effect at December 31, 1999, are as follows: NHC Others Total 2000 $ 29,652,000 $ 15,077,000 $ 44,729,000 2001 29,504,000 15,201,000 44,705,000 2002 -0- 14,783,000 14,783,000 2003 -0- 14,539,000 14,539,000 2004 -0- 14,673,000 14,673,000 Thereafter -0- 105,779,000 105,779,000 NHC has stated in its financial statements that it is a defen- dant in a lawsuit filed under the Qui Tam provisions of the Federal False Claims Act. The outcome of this pending lawsuit could have a material adverse impact on the financial position, results of operations and cash flows of NHC and NHC’s resultant ability to make its lease payments to NHI. Advisory Agreement - NHI has entered into an Advisory Agreement with NHC whereby services related to investment activities and day-to-day management and operations are pro- vided to NHI by NHC. As Advisor, NHC is subject to the super- vision of and policies established by NHI’s Board of Directors. Either party may terminate the Advisory Agreement on 90 days notice at any time. NHI may terminate the Advisory Agreement for cause at any time. For its services under the Advisory Agreement, NHC is enti- tled to annual compensation of $2,779,000 in 1999 ($3,310,000 in 1998 and $3,101,000 in 1997). The annual compensation is reduced by any compensation paid by NHI to its executive offi- cers, if any. However, the payment of such annual compensation is conditional upon NHI having funds from operations sufficient to enable NHI to pay annual dividends of $2.00 per common share and upon NHI paying such dividends. Funds from opera- tions is defined for these purposes as net income, plus deprecia- tion and amortization, less the effect of any capital gains or losses included in such net income. Increases in compensation to NHC under the Advisory Agreement are proportional to increases in NH1’s funds from operations per common share as defined above. Note 19. Prior Year Reclassifications Certain reclassifications have been made tothe 1997 and 1998 financial statements to conform to the 1999 presentation. Notional Health Investors, Inc. Page 21 i <9 Management's Discussion and Analysis * Overview National Health Investors, Inc. (“NHI” or the “Company”) is a real estate investment trust that invests primarily in income producing health care properties with emphasis on the long-term care sector. As of December 31, 1999, NHI had interests in net real estate owned, and investments in mortgages, real estate mortgage investment conduits (REMICS, preferred stock and marketable securities resulting in total invested assets of $757.9 mil- lion. NHI’s strategy has been to invest in health care real estate which generates current income that will be distrib- uted to stockholders. NHI has implemented this strategy by making mortgage loans and acquiring properties to lease nationwide primarily in the long-term health care industry. Current market conditions make it unlikely that any material new investments in health care properties will occur during 2000. Instead, NHI is monitoring and improv- ing its existing properties. As of December 31, 1999, NHI was diversified with investments in 202 health care facilities located in 26 states consisting of 146 long-term care facilities, two acute care hospitals, eight medical office buildings, 22 assisted living facilities, seven retirement centers and 17 residential pro- "jects for the developmentally disabled. These investments consisted of approximately $316.5 million aggregate princi- pal amount of loans to 29 borrowers, $316.0 million of pur- chase leaseback transactions with seven lessees and $37.7 million invested in REMIC pass through certificates backed by first mortgage loans to four operators. Of these 202 facilities, 51 are leased to National HealthCare Corporation (“NHC”) and nine additional facilities are managed by NHC. NHC is NHI’s investment advisor. Consistent with its strategy of diversification, NHI has reduced the portion of its portfolio operated or managed by NHC from 100.0% of total invested assets on October 17, 1991 to 22.1% of total invested assets on December 31, 1999. At December 31, 1999, 55.4% of the total invested assets of the health care facilities were operated by public operators, 24.0% by regional operators, and 20.6% by local operators. Liquidity and Copital Resources Sources and Uses of Funds NHI has generated net cash from operating activities during 1999 totaling $73.4 million compared to $84.9 mil- lion in the prior year. The primary reason for this year to year decline was a reduction in net income accompanied y an increase in accounts receivable offset in part by increased depreciation expense, loan loss provisions and accounts payable. The increased accounts receivable and payable are due primarily to patient accounts receivable generated from operations of nursing centers taken over in loan foreclosures. Net cash from operating activities gener- ally includes net income plus non-cash expenses, such as depreciation and amortization and provision for loan losses, and working capital changes. Net cash used in investing activities during 1999 totaled $53.4 million compared to $78.7 million in the prior year. Cash flows rovided from investing activities during 1999 included collections on mortgage notes receivable of $16.3 million compared to $3.9 million for the prior year, along with prepayment of $93.9 million of mortgage notes receiv- able in the prior period. ; Page 22 National Health Investors, Inc. Cash flows used in investing activities during 1999 included investment in mortgage notes Teceivable of $22.2 million, real estate properties oFsi43 million, and mar- ketable securities of $33.2 million. Cash flows used in investing activities in the prior eriod included investment in mortgage notes receivable of $67.6 million, in real estate properties of $40.7 million, in preferred stock of $38.1 million and in marketable securities of $30.1 million. - Net cash used in financing activities during 1999 totaled $23.8 million compared to $50.7 million in the prior year. Cash flows provided by financing activities in’1999 ; included $29.5 million from credit facility borrowings and $25.8 million from long term debt borrowings, compared in 1998 to $58.5 million from credit facility borrowings, $0.2 million from long term debt borrowing and $2.0 million from the sale of common stock. Cash flows used in financing activities for 1999 included principal payments on long-term debt of $4.5 million and dividends paid to shareholders of $73.8 million. This com- pares to prior year activity of $4.3 million of principal pay- ments on long term debt, dividends paid to shareholders of $75.8 million and the repurchase of common stock of $31.3 million. In March, 2000, we announced a reduction in our quarterly dividend of 10 cents per common share to 64 cents. This is NHI’s first dividend decline and it reflects the company’s concerns about continuing volatility in the long-term care industry and increased interest expense on the company’s bank debt. NHI has established a senior unsecured revolving line of credit that allows it to borrow a maximum of $100.0 mil- lion. The amount available to be drawn on this revolvin line of credit is $12.0 million at December 31, 1999, and the entire balance outstanding matures in October 2000. In addition, $38.1 million of NHI’s convertible subordinated debentures bot ending at December 31, 1999 mature on January 1, 2001, and NHI likely will redeem these deben- tures in cash. It is unlikely that holders of these convertible subordinated debentures will convert them to common stock Prior to January 1, 2001. The debentures may be repaid from the proceeds of mortgage prepayments or through the sale of short-term investments. The lack of availability of reasonably priced capital limits NHI’s ability to make new investments, and future refinancings at higher interest rates could have an adverse impact on NHI’s financial position, results of Operations and cash flows. . Commitments At December 31, 1999, NHI was committed, subject to due diligence and financial performance goals, to fund approximately $9.0 million in health care real estate pro- jects, of which $7.0 million is expected to be funded within the next 12 months. The commitments include mort age loans for two long-term health care centers, one medical office building and three assisted living facilities all at rates ranging from 9.0% to 11.5 %. Also included in the $9.0 mil- lion of commitments is a commitment to loan an additional $2.0 million on one existing loan when the mortgagee "obtains certain operating ratios. _ Management's Discussion and Analysis (continued) ’ 4 Financing for current commitments and future commit- ments to others may be provided by cash balances, by bor- rowings under NHI’s bank credit facilities, new lines of credit, private placements or public offerings of debt or equity, the assumption of secured or unsecured indebted- ness, or by the sale of all or a portion of certain currently held investments. . NHI is currently limited in its ability to make new investments due to a lack of availability of reasonably priced capital. However, NHI believes it has sufficient lig- uidity and financing capability to finance current invest- ments for which it is committed as well as to repay or refinance borrowings at or prior to their maturity. Loan Foreclosures and Bankruptcy As more fully described in Note 3 to the Consolidated Financial Statements, during late 1998 and during 1999 NHI purchased 17 long-term health care facilities and a retirement center for $81.4 million. The purchases were undertaken either in foreclosure or in lieu of foreclosure due to financial defaults on first mortgage loans with three different owners. The mortgages had been funded from 1993 through 1996 in original principal amounts totaling $88.6 million. NHI is treating each of the Pre erties described above as foreclosure property for federal income tax purposes. With this election, unqualified income generated by the properties is expected to be treated as qualified income for a minimum of two years from the purchase date for pur- pose of the income-source tests that must be satisfied by real estate investment trusts to maintain their tax status. As more fully described in Note 4 to the Consolidated Financial Statements, during late 1999 NHI was informed of the bankruptcy of one of its major borrowers. The bank- ruptcy may affect three of NHI’s mortgage loans. The three loans, which are secured by 17 long-term health care facili- ties and other property, were made to three different enti- ties in the original principal amounts totaling $55.5 million. Current carrying amounts of the three loans total $41.9 mil- lion. NHI is currently evaluating the collateral given for the loans, but believes that for each of the three loans the ‘collateral supports the net carrying value of the loan. Loan Write-offs and Income Recognition As more fully described in Note 4 to the Consolidated Financial Statements, during 1999 NHI wrote off $10.0 million of morgage notes receivable with carrying values before write-off of $74.0 million. In addition, NHI dis- continued income recognition on one loan that had a carrying value of $4.5 million. As of December 31, 1999, two loans with carrying values of $40.9 million earning interest at approximately 11% have unpaid interest of from 30 to 60 days outstanding. Consistent with its policy on nonperforming loans to not recognize unpaid mortgage interest income in excess of 90 days, NHI may discontinue income recognition on these and other mortgage notes receivable in 2000. Results of Operations Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Net income for the year ended December 31, 1999 is $53.6 million versus $69.6 million for the same period in 1998, a decrease of 23.0%. Diluted earnings per common share decreased 56 cents or 20.8%, to $2.13 in 1999 from $2.69 in 1998. _ December 31, 1997 o="~"""'Net income for the year ended December 31, 1998 is Total revenues for the year ended December 31, 1999 increased $24.6 million or 23.1% to $131.2 million from $106.6 million for the year ended December 31, 1999. Revenues from mortgage interest income decreased $7.9 million, or 13.9%, when compared to the same period in 1998. Revenues from rental income increased $3.7 million, or 8.8% in 1999 as compared to 1998. Revenues from investment interest and other income increased $4.5 mil- lion or 61.2% compared to 1998. Facility operating revenue increased to $24.3 million in 1999 compared to $0.0 million in 1998. . The decrease in mortgage interest income is due in part to a decline in the average amount of mortgage invest- ments outstanding as a result of prepayments and foreclo- sure on mortgage loans. During the prior year 1998, NHI received $93.9 million of prepayments on mortgage notes receivable. In addition, during 1998 and 1999, NHI fore- closed on mortgage loans totaling $81.4 million. Furthermore, mortgage interest income in 1999 included no income from prepayment penalties and unamortized commitment fees applicable to early loan repayments as compared to $5.0 million of income in 1998. The increase in rental income resulted primarily from the increase in investments in real estate properties of $55.0 | million during the last 24 months. The increase in invest- ment interest and other income is due to the investment of higher cash amounts, as well as the net investment of $33.2 million in marketable securities during 1999. Total expenses for 1999 increased $40.6 million or 110.1% to $77.5 million from $36.9 million for 1998. Interest expense increased $6.5 million or 33.9% in 1999 as com- pared to 1998. Depreciation of real estate increased $2.5 million or 28.3% when compared to 1998. General and administrative costs decreased $0.6 million or 15.9%. Loan loss expense increased $9.5 million or_223.9% to $13.8 mil- lion. Facility operating expense increased to $22.6 million in 1999 compared to $0.0 million in 1998. Interest expense increased due to increased borrowing on credit facilities and long-term debt compared to the prior year. Depreciation increased as a result of NHI placing newly constructed assets in service, property acquisitions, and the purchase, in lieu of foreclosure, of + four long-term health care centers previously owned by All Seasons Living Centers, and seven long term health care centers and one retirement center previously managed and guaranteed by Phoenix Healthcare Corporation (formerly Tatros Health Network) as discussed in Note 3 of the Consolidated Financial Statements. NHI recorded a non-cash charge of $10.0 million, a decrease of 41 cents per share basic and diluted, in the fourth quarter because of the impairment of values related ; to mortgage loans, foreclosures and lease terminations. The i charge reduces net income but has no impact on funds from operations (“FFO”). Year Ended December 31, 1998 Compared to Year Ended $69.6 million versus $75.4 million for 1997, a decrease of 7.6%. Diluted earnings per common share decreased 23 cents or 7.9% to $2.69 in 1998 from $2.92 in 1997. Total revenues for the year ended December 31,1998 decreased $4.9 million or 4.4% to $106.6 million from $111.4 million for the year ended December 31, 1998. Revenues from mortgage interest income decreased $10.5 National Health Investors, Inc. Page 23 million, or 15.6%, when compared to the same period in 1997. Revenues from rental income increased $2.3 million, or 5.8% in 1998 as compared to 1997. Revenues from investment interest and other income increased $3.3 mil- lion or 83.7% compared to 1997. The decrease in mortgage interest income is due to the receipt by NHI of prepayments of $93.9 million of first mortgages receivable during 1998, compared to new mort- gage investments of $67.6 million during the same period. Mortgage interest income included $7.3 million of prepay- ment penalties and unamortized commitment fees applica- ble to early loan repayments in 1998. The increase in rental income resulted primarily from the increase in investments in real estate properties of $40.7 million during the previous 12 months. The increase in investment interest and other income is due to the investment of higher cash amounts, as well as the invest- ment of $38.1 million in the preferred stock of LTC Properties, Inc. and $30.1 million in marketable securities. Total expenses for the 1998 twelve month period increased $0.9 million or 2.5% to $36.9 million from $36.0 million for the 1997 twelve month period. Interest expense decreased $3.1 million or 14.0% in the 1998 twelve month period as compared to the 1997 period. Depreciation of real estate increased $.9 million or 11.4% while amortization of loan and organization costs decreased $.1 million or 17.7% in 1998 when compared to 1997. General and administrative costs increased 5.2%. Loan loss provisions were $4.3 million for 1998 compared to $1.2 million for 1997. Interest expense decreased due to lower average levels of long-term and subordinated debt compared toa year ago. Depreciation increased as a result oft NHI placing newly constructed assets in service and property acquisi- tions. Loan loss provisions increased based on the applica- tion of NHI’s policy for determining loan loss provisions. The 1998 repurchase of 1,122,000 shares of common stock for $31.3 million resulted in a reduction of weighted average basic and diluted common shares outstanding in 1998 of 343,000. Notwithstanding alternative uses of the cash used to repurchase the common stock, the repurchase resulted in an increase in 1998 net income per share of 3 cents basic and diluted. Income Taxes CS NHI intends at all times to qualify as a real estate invest- ment trust 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 95% of its annual real estate investment trust taxable income to its stockholders and meets other requirements to continue to qualify as a real estate investment trust. Accordingly, no provision for federal income taxes has been made in the financial statements. NHI’s failure to continue to qualify under the applicable REIT qualification rules and reg- ‘ulations would have a material adverse impact on the finan- cial position, results of operations and cash flows of NHI. NHI is aware of certain income tax contingencies with regards to limitations on ownership of its stock and to its use of an independent contractor to manage certain of its fore- closure properties. In order to fully resolve the contingencies, NHI is in the process of requesting from the Internal Revenue Service (“IRS”) closing agreements regarding each of these contingencies. NHI’s management, based on its discussions with its legal counsel, understands that other real estate investment trusts have been successful in obtaining closing Page 24 National Health Investors, Inc. -_ Management's Discussion and Analysis (continued) red if agreements with the IRS regarding real estate investment trust qualification issues. However, it is possible that the IRS will not rule in favor of NHI. Such an unfavorable rulin could result in the assessment of taxes, penalties and interest by the IRS that are material to NHI’s financial statements taken as a whole and could also result in the loss of NHI’s status as a real estate investment trust, which would havea significant adverse impact on the financial position, results of operations and cash flows of NHI. Impact of Inflation Inflation may affect NHI in the future by changing the underlying value of NHI's real estate or by impacting NHI’s cost of financing its operations. "Revenues of NHI are primarily from long-term invest- ments. Certain of NHI's leases require increases in rental income based upon increases in the revenues of the ten- ants. NHI has negotiated similar provisions in many of its mortgage notes receivable. New Accounting Pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 133 establishes accounting and reporting standards requir- ing that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the deriva- tive’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SEAS 133, as amended by Statement of Financial Accounting Standards No. 137, “Deferred of the Effective Date of SFAS 133”, is effective for fiscal quarters beginning after June 15, 2000. The impact of the adoption of SFAS 133 is not expected to have a material impact on NHI’s results of operations or financial position. Year 2000 Compliance In recent years, as part of its Year 2000 readiness plan, NHI focused on potential Year 2000 issues in areas such as mainframe and network computer operations, personal computer hardware and software, third party mortgagees and lessees, and third party vendors. Based on the results of NHI’s Year 2000 assessment remediation and testing and based on experience since January 1, 2000, NHI does not believe that any significant Year 2000 issues continue to exist related to these areas. With regards to NHI's third party mortgagees and lessees, NHIs assessment of Year 2000 issues has been based primarily on information provided by mortgagees and lessees and on NHI's uninterrupted receipt of monthly mortgage and lease payments. However, there can be no assurance that the information provided by the mortgagees and lessees is accurate or complete or that NHI’s third party mortgagees and lessees are not experi- encing or may experience Year 2000 issues. Asa result of its advisory agreement with NHC, costs related to NHI’s Year 2000 plan have not been material and are not expected to be material in future periods. No additional advisory fees have been or will be charged to NHI related to the assessment, remediation and testing of NHI’s Year 2000 compliance. Corporate Offices National Health Investors, Inc. 100 Vine Street, Suite 1402 ‘Murfreesboro, Tennessee 37130 (615) 890-9100 Inquiries Regarding Holdings and the Dividend Reinvestment Plan For specific information related to registered owners of NHI stock, such as the NHI Dividend Reinvestment Plan, change of address, transfer of ownership, payment of dividends, replacement of lost checks or stock certificates, please write directly to our transfer agent: SunTrust Bank, Stock Transfer Department, P.O. Box 4625, Atlanta, Georgia 30302 or telephone 1-800-568-3476. Annual Stockholders’ Meeting The Annual Stockholders’ meeting will be at National Health Investors, Inc.'s corporate offices on 100 Vine Street in Murfreesboro, Tennessee at 4:30 p.m. Central Standard Time on May 24, 2000. rae een crgumlequeaperniapety seas a ce ee wee [FS i: Form 10-K or Annual Report A copy of National Health Investors, Inc.’s Form 10-K or an Annual Report for the fiscal year ended _ December 31, 1999, filed with the Securities and Exchange Commission is available without charge by writing to the corporate offices at the address listed above. Quarterly Earnings Results and Press Release In order to provide quarterly results information and other materials of interest to our stockholders in a timely and cost-effective manner, we have information lines. To have a quarterly press release or any press release faxed to you, dial 1-800-339-5968. To have material mailed to you, dial 1-800-844-4642. Independent Public Accountants Arthur Andersen LLP 424 Church Street Nashville, Tennessee 37219 From left to right: Jack Tyrrell, W. Andrew Adams (seated), Richard F. ‘LaRoche, Jr., Robert T. Webb, and Ted H. Welch (top). ‘Board of Directors W. Andrew Adams President, . National Health Investors, Inc. President, National HealthCare Corporation President, National Health Realty, Inc. Director, SunTrust Bank Director, David Lipscomb University Richard F. LaRoche, Jr. Vice President, Secretary and General Counsel, National Health Investors, Inc. Vice President, Secretary and General Counsel, National Health Realty, Inc. Senior Vice President, Secretary and General Counsel, National HealthCare Corporation Jack Tyrrell General Partner, . ‘Lawrence, Tyrrell, Ortale & Smith Tand II Managing Partner, Richland Veniures J, II and III L.P. Robert T. Webb President and Owner, Webb Refreshments, Inc. Ted H. Welch Chairman and Chief Executive Officer, Eagle Communications Director, American Constructors, Inc. Director, Southeast Service Corp. National Health Investors, Inc. City Center 100 Vine Street Murfreesboro, TN 37130 P.O. Box 1102 Murfreesboro, TN 37133-1102 Phone (615) 890-9100 i ' t

Docket for Case No: 01-003161

Issue Date	Proceedings
Nov. 16, 2001	Final Order filed.
Oct. 03, 2001	Order Closing File issued. CASE CLOSED.
Sep. 28, 2001	Notice of Withdrawal of Amended Petitions for Evidentiary Hearing (filed by Petitioners via facsimile).
Sep. 27, 2001	Notice of Cancellation of Taking Deposition (filed via facsimile).
Sep. 27, 2001	Amended Notice of Taking Deposition Duces Tecum (filed via facsimile).
Sep. 24, 2001	Petitioners` Request for Official Notice (filed via facsimile).
Sep. 21, 2001	Petitioners` Notice to Produce at Hearing (filed via facsimile).
Sep. 18, 2001	Response to Motion for Determination of Burden of Proof (filed by Respondent via facsimile).
Sep. 14, 2001	Letter to K. Bennett from J.D. Steward seeking the concurrence that the AHCA bears the burden of proof and persuasion in the case (filed via facsimile).
Sep. 13, 2001	Petitioners` Motion for Determination of Burden of Proof (filed via facsimile).
Sep. 12, 2001	Notice of Cancellation of Taking Deposition, R. Laroche, R. Webb, K. Denbesten and c. Wysocki (filed via facsimile).
Sep. 05, 2001	Petitioner`s Witness List (filed via facsimile).
Sep. 04, 2001	Order Granting Amendment of Petition issued.
Sep. 04, 2001	Notice of Taking Deposition Duces Tecum, Representative of the Agency for Health Care Administration filed.
Sep. 04, 2001	Notice of Appearance and Substitution of Counsel (filed by Respondent via facsimile).
Aug. 31, 2001	Notice of Appearance and Substitution of Counsel (filed by Respondent via facsimile).
Aug. 31, 2001	Notice of Taking Deposition Duces Tecum, designated representative of the Agency for Health Care Administration (filed via facsimile).
Aug. 22, 2001	Petitioner`s First Request for Production of Documents to Respondent (filed via facsimile).
Aug. 22, 2001	Petitioner`s First Set of Interrogatories to Respondent (filed via facsimile).
Aug. 22, 2001	Petitioner`s Notice of Service of First Set of Interrogatories to Respondent (filed via facsimile).
Aug. 15, 2001	Notice of Hearing issued (hearing set for October 2 and 3, 2001; 9:30 a.m.; Orlando, FL).
Aug. 14, 2001	Order of Consolidation issued. (consolidated cases are: 01-003160, 01-003161, 01-003162)
Jul. 26, 2001	Second Amended Petition for Evidentiary Hearing filed.
Jul. 26, 2001	Petitioner`s Motion to Reopen Cases and for Leave to Amend Petition filed.
Oct. 10, 2000	Agency Action filed.
Oct. 10, 2000	Amended Petition for Evidentiary Hearing filed.
Oct. 10, 2000	Notice filed.