8KAHoliday3Q


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934


Date of Report (Date of earliest event reported):
March 3, 2014 (December 23, 2013)

NATIONAL HEALTH INVESTORS, INC.
(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction
of incorporation)
 
001-10822
(Commission
File Number)
 
62-1470956
(IRS Employer
Identification No.)

222 Robert Rose Drive, Murfreesboro, TN 37129
(Address of principal executive offices)

(615) 890-9100
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)





Item 2.01. Completion of Acquisition or Disposition of Assets.

Explanatory Note
On December 23, 2013, National Health Investors, Inc. (“we,” “our,” “us” and the “Company”) filed a Current Report on Form 8-K (the “Initial Report”) with the Securities and Exchange Commission (the “SEC”) announcing the December 23, 2013 acquisition by NHI-REIT of Next House, LLC (“NextHouse”), our wholly-owned subsidiary, of a portfolio of 25 independent living facilities located in 12 states, for a total cash purchase price of $491 million, plus reimbursement to Holiday Acquisition Holdings LLC (“Holiday”) of $1.5 million for certain specified transaction costs, pursuant to the purchase agreement (the “Purchase Agreement”) between NextHouse and certain subsidiaries of Holiday dated November 18, 2013 which was previously announced and disclosed in the Company’s Current Report on Form 8-K that was filed with the SEC on November 19, 2013. In connection with the completion of the acquisition, accounted for as an asset purchase for financial reporting purposes, NextHouse leased the portfolio of 25 independent living facilities to NH Master Tenant, LLC (“Holiday Tenant”), a wholly-owned subsidiary of Holiday AL Holdings LP, the guarantor of the obligations ("Guarantor") under our lease to Holiday Tenant. Holiday AL Holdings LP is an indirect wholly-owned subsidiary of Holiday. The master lease between the Company and Holiday Tenant was dated December 23, 2013.

Pursuant to the Securities Exchange Act of 1934, as amended, on February 14, 2014, we amended the Initial Report to provide the financial statements of the Guarantor and pro forma financial information required by Item 9.01 of Form 8-K. We hereby amend the Initial Report to provide the financial statements of the portfolio of 25 independent living facilities acquired by our wholly-owned subsidiary, NextHouse. This amendment, and the previous amendment referred to above, should be read in conjunction with the Initial Report.


Item 9.01.   Financial Statements and Exhibits.

A list of exhibits filed herewith is contained on the Exhibit Index and is incorporated herein by reference.

(a)
Combined Financial Statements
NHI Portfolio
Combined Financial Statements for the nine months ended September 30, 2013 (unaudited)
Notes to Combined Financial Statements
Report of Independent Auditors
Combined Financial Statements for the years ended December 31, 2012, 2011 and 2010
Notes to Combined Financial Statements

(b)     Not applicable.

(c)    Not applicable.

(d)     Exhibits.

Number
Exhibit
23.1
Consent of Ernst & Young LLP, Independent Auditors.




(a)    Combined Financial Statements    


Combined Financial Statements
NHI Portfolio
For the Nine Month Period Ended September 30, 2013





NHI Portfolio
Combined Financial Statements
For the Nine Month Period Ended September 30, 2013
Contents


Combined Balance Sheets
1

 
 
Combined Statements of Operations
2

 
 
Combined Statement of Changes in Equity
3

 
 
Combined Statements of Cash Flows
4

 
 
Notes to Combined Financial Statements
5







NHI Portfolio
 
 
 
 
Combined Balance Sheets
(In Thousands)
 
 
 
 
 
 
 
 
 
September 30,
 
December 31,
 
2013
 
2012
 
(Unaudited)
 
 
Assets
 
 
 
Investment in real estate:
 
 
 
Land and land improvements
$
67,753

 
$
67,579

Building and building improvements
382,389

 
382,344

Equipment
23,576

 
22,008

 
473,718

 
471,931

Less accumulated depreciation
(85,034
)
 
(76,050
)
 
388,684

 
395,881

Cash and cash equivalents
11

 
11

Cash and escrow deposits – restricted
3,396

 
2,405

Accounts receivable, net
213

 
713

Prepaid expenses and other assets, net
3,066

 
4,007

Resident lease and other intangibles, net
6,266

 
6,406

Deferred loan costs, net
163

 
457

Total assets
$
401,799

 
$
409,880

 
 
 
 
Liabilities and equity
 
 
 
Mortgage notes payable
$
325,422

 
$
350,219

Accounts payable and accrued expenses
5,231

 
4,468

Accrued interest payable
1,275

 
1,425

Prepaid rent and deferred revenue
3,344

 
2,389

Tenant security deposits
503

 
620

Total liabilities
335,775

 
359,121

 
 
 
 
Equity
66,024

 
50,759

Total liabilities and equity
$
401,799

 
$
409,880

 
 
 
 
See accompanying notes to combined financial statements.
 
 
 

1


NHI Portfolio
 
 
 
 
Combined Statements of Operations
(Unaudited, In Thousands)
 
 
 
 
 
 
 
 
 
Nine Month Period Ended
 
September 30,
 
2013
 
2012
Revenue
 
 
 
Resident fees
$
52,249

 
$
47,810

 
 
 
 
Expenses
 
 
 
Facility operating expenses
27,005

 
27,583

Property management fee
1,829

 
1,673

Depreciation and amortization
9,124

 
9,410

Total expenses
37,958

 
38,666

 
 
 
 
Operating income
14,291

 
9,144

 
 
 
 
Interest expense:
 
 
 
Interest incurred
(14,993
)
 
(15,031
)
Amortization of deferred loan costs
(294
)
 
(294
)
Prepayment penalty and exit fees
(826
)
 
                     –

Net loss
$
(1,822
)
 
$
(6,181
)
 
 
 
 
See accompanying notes to combined financial statements.
 
 
 

2


NHI Portfolio
 
 
Combined Statement of Changes in Equity
(Unaudited, In Thousands)
 
Nine Month Period Ended September 30, 2013
 
 
 
 
 
Total
 
Equity
 
 
Balance at January 1, 2013
$
50,759

Net loss
(1,822
)
Distributions
(10,516
)
Contributions
27,603

Balance at September 30, 2013
$
66,024

 
 
See accompanying notes to combined financial statements.
 

3


NHI Portfolio
 
 
 
 
Combined Statements of Cash Flows
(Unaudited, In Thousands)
 
 
 
 
 
 
 
 
 
Nine Month Period Ended
 
September 30,
 
2013
 
2012
Operating activities
 
 
 
Net loss
$
(1,822
)
 
$
(6,181
)
Adjustments to reconcile net loss to net cash provided by
 
 
 
operating activities:
 
 
 
Depreciation and amortization
9,124

 
9,410

Bad debt expense
336

 
493

Amortization of deferred loan costs
294

 
294

Amortization of resident incentives, net
1,085

 
115

Non-refundable community fees, deferred
1,145

 
377

Changes in operating assets and liabilities:
 
 
 
Cash and escrow deposits – restricted
(991
)
 
(852
)
Accounts receivable, net
164

 
1,249

Prepaid expenses and other assets
(144
)
 
22

Accounts payable and accrued expenses
613

 
1,430

Tenant security deposits
(117
)
 
(170
)
Prepaid rent
(190
)
 
(62
)
Net cash provided by operating activities
9,497

 
6,125

 
 
 
 
Investing activities
 
 
 
Additions to investment in real estate
(1,787
)
 
(2,092
)
Cash used in investing activities
(1,787
)
 
(2,092
)
 
 
 
 
Financing activities
 
 
 
Repayment of debt
(24,797
)
 
                  –

Distributions
(10,516
)
 
(4,033
)
Contributions
27,603

 
                  –

Net cash used in financing activities
(7,710
)
 
(4,033
)
 
 
 
 
Net change in cash and cash equivalents
                  –

 
                  –

Cash and cash equivalents at beginning of year
11

 
11

Cash and cash equivalents at end of year
$
11

 
$
11

 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
Cash paid for interest
$
15,143

 
15,085

 
 
 
 
See accompanying notes to combined financial statements.


4


NHI Portfolio
Notes to Combined Financial Statements
For the Nine Month Period Ended September 30, 2013
(Unaudited, In Thousands)
1. Formation and Description of Operations
The NHI Portfolio (the Company) represents the 25 independent living senior housing communities (the Communities) acquired by National Health Investors (NHI) on December 23, 2013 (see Note 9) from certain subsidiaries of Harvest Facility Holdings LP (Harvest). Harvest is owned by Holiday Acquisition Holdings LLC (Holiday Acquisition, a limited liability company and a wholly owned subsidiary of investment funds managed by affiliates of Fortress Investment Group LLC). As of September 30, 2013, the Communities consist of 2,794 apartment and townhouse units (unaudited), located in 12 states.
2. Summary of Significant Accounting Policies
The accompanying unaudited combined financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments (consistent of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
Use of Estimates
The preparation of the combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the combined financial statements and accompanying notes. Estimates are used for, but not limited to, the allocation of purchase price to tangible and intangible assets and liabilities, the evaluation of asset impairments, insurance reserves, depreciation and amortization, allowance for doubtful accounts, and other contingencies. Actual results could differ from those estimates and assumptions.


5


NHI Portfolio
Notes to Combined Financial Statements (continued)
(Unaudited, In Thousands)


2. Summary of Significant Accounting Policies (continued)
Investment in Real Estate and Related Intangibles
In business combinations, the Company recognizes all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value. In addition, the Company is required to expense acquisition-related costs as incurred, value noncontrolling interests at fair value at the acquisition date and expense restructuring costs associated with an acquired business.
The Company allocates the purchase price of properties to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, own internal analysis of recently acquired and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.
Identified net tangible and finite lived intangible assets are amortized over their estimated useful lives or contractual lives, which are as follows:
Asset Categories
Estimated Useful Life
(In Years)
 
 
Building and building improvements
15-40
Land improvements
15
Equipment
3-10
Resident lease intangibles
3-40



6


NHI Portfolio
Notes to Combined Financial Statements (continued)
(Unaudited, In Thousands)


2. Summary of Significant Accounting Policies (continued)
Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and upgrades that improve and/or extend the life of the assets are capitalized and depreciated over their estimated useful lives. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets held for use is assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying value, with any excess carrying value recognized as an expense in the current period. No impairment charges were recorded during the periods presented herein.
Property sales or dispositions are recorded when title transfers to unrelated third parties, contingencies have been removed and sufficient cash consideration has been received by the Company. Upon disposition, the related costs and accumulated depreciation are removed from the respective accounts and any gain or loss on sale is recognized.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less from the date of purchase.
Harvest uses a centralized approach to cash management. All cash generated by the Communities is transferred to Harvest and Harvest funds operating and investing activities for the Communities as needed. Cash transfers from the 25 Communities to Harvest are treated as distributions in the accompanying combined financial statements.


7


NHI Portfolio
Notes to Combined Financial Statements (continued)
(Unaudited, In Thousands)


2. Summary of Significant Accounting Policies (continued)
Cash and Escrow Deposits - Restricted
Cash and escrow deposits - restricted consist principally of deposits required by the lender pursuant to the applicable debt agreement to fund future property expenditures, certain resident security deposits held in trusts and as collateral for letters of credit. A summary is as follows:
 
September 30, 2013
 
December 31, 2012
 
 
 
 
Tenant/resident security deposits
$
210

 
$
288

Property tax and other lender-required reserves
3,186

 
2,117

Total
$
3,396

 
$
2,405


Allowance for Doubtful Accounts
Allowance for doubtful accounts are recorded by management based upon the Company’s historical write-off experience, analysis of accounts receivable aging, and historic resident payment trends.
Management reviews material past due balances on a monthly basis. Account balances are charged off against the allowance when management determines it is probable that the receivable will not be recovered. Allowance for doubtful accounts was $481 and $1,571 at September 30, 2013 and December 31, 2012, respectively.
Deferred Loan Costs
Deferred loan costs include direct costs to obtain financing. Such costs are deferred and amortized using the straight-line method, which approximates the level-yield method, over the terms of the underlying debt agreements.
Revenue Recognition
Resident fee revenue is recorded as it becomes due as provided for in the residents’ lease agreements. Residents’ agreements are generally for a term of 30 days with resident fees due monthly in advance.

8


NHI Portfolio
Notes to Combined Financial Statements (continued)
(Unaudited, In Thousands)


2. Summary of Significant Accounting Policies (continued)
Certain communities have residency agreements that require the resident to pay an upfront fee prior to occupying the community. Community fees are non-refundable after a stated period (typically 90 days) and are initially recorded as deferred revenue and recognized on a straight-line basis as part of resident fee revenue over an estimated three-year average stay of the residents in the communities. Deferred revenue totaled $2,580 and $1,435 at September 30, 2013 and December 31, 2012.
Certain residency agreements provide for free rent or incentives for a stated period of time. Incentives are initially recorded in other assets and recognized on a straight-line basis as a reduction of resident fee revenue over an estimated three-year average stay of the residents in the communities.
Income Taxes
All Communities within the combined portfolio are operated as limited partnerships or limited liability companies; thus, all federal and, substantially, all state income taxes are recorded by the owners. Accordingly, the Company does not provide for or record a provision for federal income taxes. Certain state and local jurisdictions may impose an income tax on the Company.
Fair Value of Financial Instruments
Cash and cash equivalents and cash and escrow deposits - restricted are reflected in the accompanying combined balance sheets at amounts considered by management to reasonably approximate fair value. Management estimates the fair value of its long-term debt using a discounted cash flow analysis based upon the Company’s current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding debt with a carrying value of $325.4 million and $350.2 million as of September 30, 2013 and December 31, 2012, respectively (see Note 5). As of September 30, 2013 and December 31, 2012 the carrying value of debt approximated the fair value, based upon a Level 3 valuation.


9


NHI Portfolio
Notes to Combined Financial Statements (continued)
(Unaudited, In Thousands)


2. Summary of Significant Accounting Policies (continued)
The Company follows the provisions of Accounting Standards Codification (ASC) 820, Fair Value Measurement, when valuing its financial instruments. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market-priced assumptions in fair value measurements, the statement establishes a fair value hierarchy that distinguishes between market-participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and Level 2 of the hierarchy) and the reporting entity’s own assumptions about market-participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.


10


NHI Portfolio
Notes to Combined Financial Statements (continued)
(Unaudited, In Thousands)
3. Resident Lease and Other Intangibles, Net
At September 30, 2013 and December 31, 2012, resident lease and other intangibles, net were as follows:
 
Resident
Lease and Other Intangibles, Net
 
 
Balance at December 31, 2012
$
6,406

Amortization
(140)

Balance at September 30, 2013
$
6,266


4. Other Balance Sheet Data
Prepaid expenses and other assets, net consisted of the following as of September 30, 2013 and December 31, 2012:
 
September 30, 2013
 
December 31,
2012
 
 
 
 
Deferred rent incentives, net
$
2,550

 
$
3,635

Other assets
516

 
372

Total
$
3,066

 
$
4,007


Accounts payable and accrued expenses consisted of the following as of September 30, 2013 and December 31, 2012:

 
September 30, 2013
 
December 31,
2012
 
 
 
 
Trade and accrued payables
$
1,213

 
$
1,326

Salaries and benefits
1,237

 
1,092

Property taxes
1,337

 
510

Insurance reserves
1,360

 
1,444

Other
84

 
96

Total
$
5,231

 
$
4,468


11


NHI Portfolio
Notes to Combined Financial Statements (continued)
(Unaudited, In Thousands)

5. Mortgage Notes Payable
Mortgage notes payable consisted of the following:
 
September 30, 2013
 
December 31, 2012
Loan Pool due March 2014; interest rate of 5.64%; payable interest only until maturity; secured by twenty-five facilities(1) 
$
325,422

 
$
350,219


(1)
As of September 30, 2013 and December 31, 2012, Harvest was the debtor on a pooled mortgage note agreement totaling $1,398,710 and $1,612,861, respectively, collateralized by certain Harvest owned facilities including the Communities. The mortgage note payable allocated to the Communities and included in the combined financial statements was the portion of the pooled mortgage note where the underlying property owning entities for the Communities were the primary obligors.

In September 2013, Harvest paid off a portion of the above pooled mortgage note and as a result, the remaining obligation was reallocated to the remaining Harvest facilities which decreased the mortgage note payable on the Communities by $24,797.
In connection with the sale of the Communities (see Note 9), Harvest repaid an additional portion of the pooled loan discussed above which resulted in full satisfaction of all mortgage note payable outstanding specific to the Communities and the Communities were released as collateral for the remaining Harvest outstanding pooled mortgage note payable.
The Company remains in compliance with all of its mortgage note payable and lease agreements (including the financial covenants contained therein).
6. Insurance
Harvest obtains various insurance coverages from commercial carriers at stated amounts as defined in the applicable policies. Losses related to deductible amounts are accrued based on management’s estimate of expected losses plus incurred but not reported claims. As of September 30, 2013 and December 31, 2012, the Company accrued $1,360 and $1,444, respectively, for the expected future payment of deductible amounts specific to the NHI Portfolio, which is included in accounts payable and accrued expenses in the accompanying combined balance sheets.

12


NHI Portfolio
Notes to Combined Financial Statements (continued)
(Unaudited, In Thousands)

7. Management Fees
Harvest charges the Communities a management fee equal to 3.5% of resident fees revenue covering employee and other overhead costs attributable to managing the Communities. Such fee is presented as property management fee expense in the accompanying combined statements of operations.
8. Commitments and Contingencies
In the normal course of business, the Company is involved in legal actions arising from the ownership and operation of the business. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the combined financial position, operations or liquidity of the Company.
9. Subsequent Events
The Company has evaluated its subsequent events through February 27, 2014, the date the Company’s combined financial statements for the nine month period ended September 30, 2013 were available for issuance.
On December 23, 2013, NHI acquired the Communities from Harvest for a purchase price totaling $491,000. In conjunction with the sale, Harvest paid down debt of $325,422 with proceeds from the sale. The Communities were subsequently leased to subsidiaries of Holiday AL Holdings LP (the Partnership), a wholly owned subsidiary of Holiday Acquisition. The Partnership will operate the Communities pursuant to 17-year leases. The minimum lease payments are initially $31,915, and such amount is subject to certain defined increases throughout the lease term.



13




Combined Financial Statements
NHI Portfolio
Years Ended December 31, 2012, 2011, and 2010
With Report of Independent Auditors




 
1402-1205117
 

NHI Portfolio
Combined Financial Statements
Years Ended December 31, 2012, 2011, and 2010

Contents


Report of Independent Auditors
1

 
 
Combined Financial Statements
 
 
 
Combined Balance Sheets
2

 
 
Combined Statements of Operations
3

 
 
Combined Statement of Changes in Equity
4

 
 
Combined Statements of Cash Flows
5

 
 
Notes to Combined Financial Statements
6








Report of Independent Auditors
Owners
NHI Portfolio
We have audited the accompanying combined financial statements of NHI Portfolio (the Company), which comprise the combined balance sheets as of December 31, 2012 and 2011, and the related combined statements of operations, changes in equity, and cash flows for each of the three years in the period ended December 31, 2012, and the related notes to the combined financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the Company at December 31, 2012 and 2011, and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 2012 in conformity with U.S. generally accepted accounting principles.

/s/Ernst & Young LLP

Chicago, Illinois
February 27, 2014


1

NHI Portfolio
 
 
 
 
Combined Balance Sheets
(In Thousands)
 
 
 
 
 
 
 
 
 
December 31,
 
2012
 
2011
Assets
 
 
 
Investment in real estate:
 
 
 
Land and land improvements
$
67,579

 
$
67,490

Building and building improvements
382,344

 
382,073

Equipment
22,008

 
19,741

 
471,931

 
469,304

Less accumulated depreciation
(76,050
)
 
(63,751
)
 
395,881

 
405,553

 
 
 
 
Cash and cash equivalents
11

 
11

Cash and escrow deposits – restricted
2,405

 
2,557

Accounts receivable, net
713

 
2,164

Prepaid expenses and other assets, net
4,007

 
4,390

Resident lease and other intangibles, net
6,406

 
6,594

Deferred loan costs, net
457

 
849

Total assets
$
409,880

 
$
422,118

 
 
 
 
Liabilities and equity
 
 
 
Mortgage notes payable
$
350,219

 
$
350,219

Accounts payable and accrued expenses
4,468

 
4,588

Accrued interest payable
1,425

 
1,425

Prepaid rent and deferred revenue
2,389

 
1,401

Tenant security deposits
620

 
854

Total liabilities
359,121

 
358,487

 
 
 
 
Equity
50,759

 
63,631

Total liabilities and equity
$
409,880

 
$
422,118

 
 
 
 
See accompanying notes to combined financial statements.
 
 
 

2

NHI Portfolio
 
 
 
 
 
 
Combined Statements of Operations
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
2012
 
2011
 
2010
Revenue
 
 
 
 
 
Resident fees
$
65,559

 
$
62,869

 
$
59,672

 
 
 
 
 
 
Expenses
 
 
 
 
 
Facility operating expenses
36,624

 
34,250

 
32,355

Property management fee
2,295

 
2,200

 
2,089

Depreciation and amortization
12,487

 
14,112

 
14,842

Total expenses
51,406

 
50,562

 
49,286

 
 
 
 
 
 
Operating income
14,153

 
12,307

 
10,386

 
 
 
 
 
 
Interest expense:
 
 
 
 
 
Interest incurred
(20,078
)
 
(20,025
)
 
(20,074
)
Amortization of deferred loan costs
(392
)
 
(392
)
 
(392
)
Net loss
$
(6,317
)
 
$
(8,110
)
 
$
(10,080
)
 
 
 
 
 
 
See accompanying notes to combined financial statements.
 
 
 
 

3

NHI Portfolio
 
 
 
 
Combined Statements of Changes in Equity
 
 
 
 
For the Years Ended December 31, 2012, 2011 and 2010
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
Equity
 
 
 
 
Balance at January 1, 2010
 
 
$
85,015

Net loss
 
 
(10,080
)
Distributions
 
 
(1,190
)
Balance at December 31, 2010
 
 
73,745

Net loss
 
 
(8,110
)
Distributions
 
 
(2,004
)
Balance at December 31, 2011
 
 
63,631

Net loss
 
 
(6,317
)
Distributions
 
 
(6,555
)
Balance at December 31, 2012
 
 
$
50,759

 
 
 
 
See accompanying notes to combined financial statements.
 

4

NHI Portfolio
 
 
 
 
 
 
Combined Statements of Cash Flows
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
2012
 
2011
 
2010
Operating activities
 
 
 
 
 
Net loss
$
(6,317
)
 
$
(8,110
)
 
$
(10,080
)
Adjustments to reconcile net loss to net cash
 
 
 
 
 
provided by operating activities:
 
 
 
 
 
Depreciation and amortization
12,487

 
14,112

 
14,842

Bad debt expense
653

 
300

 
194

Amortization of deferred loan costs
392

 
392

 
392

Amortization of resident incentives, net
386

 
(839
)
 
(906
)
Non-refundable community fees, deferred
607

 
(68
)
 
(663
)
Changes in operating assets and liabilities:
 
 
 
 
 
Cash and escrow deposits – restricted
152

 
(126
)
 
225

Accounts receivable, net
798

 
(1,851
)
 
(708
)
Prepaid expenses and other assets
(4
)
 
35

 
(27
)
Accounts payable and accrued expenses
(120
)
 
431

 
503

Tenant security deposits
(234
)
 
(316
)
 
(496
)
Prepaid rent
382

 
199

 
215

Net cash provided by operating activities
9,182

 
4,159

 
3,491

 
 
 
 
 
 
Investing activities
 
 
 
 
 
Additions to investment in real estate
(2,627
)
 
(2,380
)
 
(2,413
)
Cash used in investing activities
(2,627
)
 
(2,380
)
 
(2,413
)
 
 
 
 
 
 
Financing activities
 
 
 
 
 
Distributions
(6,555
)
 
(2,004
)
 
(1,190
)
Cash used in financing activities
(6,555
)
 
(2,004
)
 
(1,190
)
 
 
 
 
 
 
Net (decrease) in cash and cash equivalents
                 –

 
(225
)
 
(112
)
Cash and cash equivalents at beginning of year
11

 
236

 
348

Cash and cash equivalents at end of year
$
11

 
$
11

 
$
236

 
 
 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
 
 
Cash paid for interest
$
20,078

 
$
20,025

 
$
20,018

 
 
 
 
 
 
See accompanying notes to combined financial statements.
 
 


5

NHI Portfolio
Notes to Combined Financial Statements
(In Thousands)
December 31, 2012
1. Basis of Presentation
The NHI Portfolio (the Company) represents the 25 independent living senior housing communities (the Communities) acquired by National Health Investors (NHI) on December 23, 2013 (see Note 9) from certain wholly owned subsidiaries of Harvest Facility Holdings LP (Harvest). Harvest is owned by Holiday Acquisition Holdings LLC (Holiday Acquisition, a limited liability company and a wholly owned subsidiary of investment funds managed by affiliates of Fortress Investment Group LLC). As of December 31, 2012, the Communities consist of 2,794 apartment and townhouse units (unaudited), located in 12 states.
2. Summary of Significant Accounting Policies
The combined financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The significant accounting policies are summarized below.
Use of Estimates
The preparation of the combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the combined financial statements and accompanying notes. Estimates are used for, but not limited to, the allocation of purchase price to tangible and intangible assets and liabilities, the evaluation of asset impairments, insurance reserves, depreciation and amortization, allowance for doubtful accounts, and other contingencies. Actual results could differ from those estimates and assumptions.
Investment in Real Estate and Related Intangibles
In business combinations, the Company recognizes all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value. In addition, the Company is required to expense acquisition-related costs as incurred, value noncontrolling interests at fair value at the acquisition date and expense restructuring costs associated with an acquired business.


6

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)
2. Summary of Significant Accounting Policies (continued)
The Company allocates the purchase price of properties to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, own internal analysis of recently acquired and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.
Identified net tangible and finite lived intangible assets are amortized over their estimated useful lives or contractual lives, which are as follows:
Asset Categories
Estimated Useful Life (In Years)
 
 
Building and building improvements
15 - 40
Land improvements
15
Equipment
3 - 10
Resident lease and other intangibles
3 - 40

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


7

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)

2. Summary of Significant Accounting Policies (continued)
During the years ended December 31, 2012, 2011, and 2010, the Company evaluated all long-lived assets using an undiscounted cash flow approach and determined that the undiscounted cash flows exceeded the carrying value of the assets for all Communities. As a result, no impairment charges were recorded on the Company’s long-lived assets during the years ended December 31, 2012, 2011, and 2010. The cash flow projections are based on a number of estimates and assumptions, such as revenue and expense growth rates, capitalization rates and hold periods. Such assumptions are classified as Level 3 inputs in the valuation hierarchy.
Property sales or dispositions are recorded when title transfers to unrelated third parties, contingencies have been removed and sufficient cash consideration has been received by the Company. Upon disposition, the related costs and accumulated depreciation are removed from the respective accounts and any gain or loss on sale is recognized.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less from the date of purchase.
Harvest uses a centralized approach to cash management. All cash generated by the Communities is transferred to Harvest and Harvest funds operating and investing activities for the Communities as needed. Cash transfers from the 25 Communities to Harvest are treated as distributions in the accompanying combined financial statements.
Cash and Escrow Deposits - Restricted
Cash and escrow deposits - restricted consist principally of deposits required by the lender pursuant to the applicable debt agreement to fund future property expenditures, and certain resident security deposits held in trusts. A summary is as follows:
 
December 31
 
2012
 
2011
 
 
 
 
Property tax and other lender-required reserves
$
2,117

 
$
2,159

Tenant/resident security deposits
288

 
398

Total cash and escrow deposits-restricted
$
2,405

 
$
2,557


8

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)


2. Summary of Significant Accounting Policies (continued)
Allowance for Doubtful Accounts
Allowance for doubtful accounts are recorded by management based upon the Company’s historical write-off experience, analysis of accounts receivable aging, and historic resident payment trends.
Management reviews material past due balances on a monthly basis. Account balances are charged off against the allowance when management determines it is probable that the receivable will not be recovered. Allowance for doubtful accounts was $1,571 and $215 at December 31, 2012 and 2011, respectively.
Deferred Loan Costs
Deferred loan costs include direct costs to obtain financing. Such costs are deferred and amortized using the straight-line method, which approximates the level-yield method, over the terms of the underlying debt agreements.
Revenue Recognition
Resident fee revenue is recorded as it becomes due as provided for in the residents’ lease agreements. Residents’ agreements are generally for a term of 30 days with resident fees due monthly in advance.
Certain communities have residency agreements that require the resident to pay an upfront fee prior to occupying the community. Community fees are non-refundable after a stated period (typically 90 days) and are initially recorded as deferred revenue and recognized on a straight-line basis as part of resident fee revenue over an estimated three-year average stay of the residents in the communities. Deferred revenue totaled $1,435 and $828 at December 31, 2012 and 2011, respectively.
Certain residency agreements provide for free rent or incentives for a stated period of time. Incentives are initially recorded in other assets and recognized on a straight-line basis as a reduction of resident fee revenue over an estimated three-year average stay of the residents in the communities.

9

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)

2. Summary of Significant Accounting Policies (continued)
Income Taxes
All Communities within the combined portfolio are operated as limited partnerships or limited liability companies; thus, all federal and, substantially, all state income taxes are recorded by the owners. Accordingly, the Company does not provide for or record a provision for federal income taxes. Certain state and local jurisdictions may impose an income tax on the Company.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs were $847, $629, and $343 for the years ended December 31, 2012, 2011, and 2010, respectively, and are included in facility operating expenses in the combined statements of operations.
Fair Value of Financial Instruments
Cash and cash equivalents and cash and escrow deposits - restricted are reflected in the accompanying combined balance sheets at amounts considered by management to reasonably approximate fair value. Management estimates the fair value of its long-term debt using a discounted cash flow analysis based upon the Company’s current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding debt with a carrying value of $350.2 million as of December 31, 2012 and 2011, respectively (see Note 5). As of December 31, 2012 and 2011, the carrying value of debt approximated the fair value, based upon a Level 3 valuation.
The Company follows the provisions of Accounting Standards Codification (ASC) 820, Fair Value Measurement, when valuing its financial instruments. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market-priced assumptions in fair value measurements, the statement establishes a fair value hierarchy that distinguishes between market-participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and Level 2 of the hierarchy) and the reporting entity’s own assumptions about market-participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

10

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)

2. Summary of Significant Accounting Policies (continued)
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
3. Resident Lease and Other Intangibles, Net
At December 31, 2012 and 2011, resident lease and other intangibles, net were as follows:
 
Resident
Lease and Other Intangibles, Net
 
 
Balance at January 1, 2011
$
6,782

Amortization
(188
)
Balance at December 31, 2011
6,594

Amortization
(188
)
Balance at December 31, 2012
$
6,406



11

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)

3. Resident Lease and Other Intangibles, Net (continued)
Future amortization expense related to the resident lease and other intangibles over the next five years and thereafter, is as follows:
 
Estimated Amortization
of Resident
Lease and Other Intangibles, Net
Years:
 
2,013
$
188

2,014
188

2,015
188

2,016
188

2,017
188

Thereafter
5,466

Total
$
6,406


4. Other Balance Sheet Data
Prepaid expenses and other assets, net consisted of the following as of December 31, 2012 and 2011:
 
2012
 
2011
 
 
 
 
Deferred rent incentives, net
$
3,635

 
$
4,021

Other assets
372

 
369

Total
$
4,007

 
$
4,390




12

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)

4. Other Balance Sheet Data (continued)
Accounts payable and accrued expenses consisted of the following as of December 31, 2012 and 2011:
 
2012
 
2011
 
 
 
 
Trade and accrued payables
$
1,326

 
$
1,368

Salaries and benefits
1,092

 
1,001

Property taxes
510

 
731

Insurance reserves
1,444

 
1,378

Other
96

 
110

Total
$
4,468

 
$
4,588


5. Mortgage Notes Payable
Mortgage notes payable consisted of the following as of December 31, 2012 and 2011:
Mortgage Notes Payable
2012
 
2011
Loan Pool due March 2014; interest rate of 5.64%; payable interest only until maturity; secured by twenty-five facilities (1)
$
350,219

 
$
350,219


(1) 
As of December 31, 2012 and 2011, Harvest was the debtor on a pooled mortgage note agreement totaling $1,612,861 and $1,771,094, respectively, collateralized by certain Harvest owned facilities including the Communities. The mortgage note payable allocated to the Communities and included in the combined financial statements was the portion of the pooled mortgage note where the underlying property owning entities for the Communities were the primary obligors.
In September 2013, Harvest paid off a portion of the above pooled mortgage note and as a result, the remaining obligation was reallocated to the remaining Harvest facilities which decreased the mortgage note payable on the Communities by $24,797.
In connection with the sale of the Communities (see Note 9) Harvest repaid an additional portion of the pooled loan discussed above which resulted in full satisfaction of the mortgage note payable outstanding specific to the Communities and the Communities were released as collateral for the remaining Harvest outstanding pooled mortgage note payable.

13

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)

5. Mortgage Notes Payable (continued)
The Company remains in compliance with all of its mortgage note payable and lease agreements (including the financial covenants contained therein).
6. Insurance
Harvest obtains various insurance coverages from commercial carriers at stated amounts as defined in the applicable policies. Losses related to deductible amounts are accrued based on management’s estimate of expected losses plus incurred but not reported claims. As of December 31, 2012 and 2011, the Company accrued $1,444 and $1,378, respectively, for the expected future payment of deductible amounts specific to the NHI Portfolio, which is included in accounts payable and accrued expense in the accompanying combined balance sheets.
7. Management Fees
Harvest charges the Communities a management fee equal to 3.5% of resident fees revenue covering employee and other overhead costs attributable to managing the Communities. Such fee is presented as property management fee expense in the accompanying combined statements of operations.
8. Commitments and Contingencies
In the normal course of business, the Company is involved in legal actions arising from the ownership and operation of the business. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the combined financial position, operations or liquidity of the Company.
9. Subsequent Events
The Company has evaluated its subsequent events through February 27, 2014, the date the Company’s combined financial statements were available for issuance.


14

NHI Portfolio
Notes to Combined Financial Statements (continued)
(In Thousands)

9. Subsequent Events (continued)
On December 23, 2013, NHI acquired the Communities from Harvest for a purchase price totaling $491,000. In conjunction with the sale, Harvest paid down debt of $325,422 with proceeds from the sale. The Communities were subsequently leased to subsidiaries of Holiday AL Holdings LP (the Partnership), a wholly owned subsidiary of Holiday Acquisition. The Partnership will operate the Communities pursuant to 17-year leases. The minimum lease payments are initially $31,915, and such amount is subject to certain defined increases throughout the lease terms.


15



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
NATIONAL HEALTH INVESTORS, INC.
 
By:
_/s/Roger R. Hopkins        
 
Name:
Roger R. Hopkins                  
 
Title:
Principal Financial Officer      
Date:     March 3, 2014
 
 





Exhibit Index
Number
Exhibit
23.1
Consent of Ernst & Young LLP, Independent Auditors.