NHI Announces Second Quarter 2014 Results

MURFREESBORO, Tenn.--(BUSINESS WIRE)--

National Health Investors, Inc. NHI announced today its Normalized Adjusted Funds From Operations (“AFFO”), its Normalized Funds From Operations (“FFO”), its Normalized Funds Available for Distribution ("FAD") and net income attributable to common stockholders for the three and six months ended June 30, 2014.

Q2 2014 Highlights

• Normalized AFFO per diluted common share increased by 9.3% over the same quarter in 2013; 11.3% year over year
• Acquired an $11.5 million assisted living community at an initial lease rate of 8%
• Company tightens Normalized FFO and AFFO guidance for 2014

Financial Results

• Normalized AFFO per diluted common share for the three months ended June 30, 2014 was $0.94, an increase of $0.08, or 9.3%, over the same period in the prior year. Normalized AFFO per diluted common share for the six months ended June 30, 2014 was $1.87, an increase of $0.19, or 11.3%, over the same period in the prior year.
• Normalized FFO per diluted common share for the three months ended June 30, 2014 was $1.05, an increase of $0.16, or 18.0%, over the same period in the prior year. Normalized FFO per diluted common share for the six months ended June 30, 2014, was $2.09, an increase of $0.33, or 18.8%, over the same period in the prior year.
• Normalized FAD per diluted common share for the three months ended June 30, 2014 was $0.95, an increase of $0.08, or 9.2%, over the same period in the prior year. Normalized FAD for the six months ended June 30, 2014, was $1.92, an increase of $0.18, or 10.3%, over the same period in the prior year.
• FFO per diluted common share for the three months ended June 30, 2014, was $1.05, an increase of $0.18, or 20.7%, over the same period in the prior year. FFO per diluted common share for the six months ended June 30, 2014, was $2.03, an increase of $0.44, or 27.7%, over the same period in the prior year.
• Net income attributable to common stockholders per diluted common share for the three months ended June 30, 2014, was $0.76, an increase of $0.05, or 7.0%, over the same period in the prior year. Net income attributable to common stockholders per diluted common share for the six months ended June 30, 2014, was $1.48, an increase of $0.21, or 16.6%, over the same period in the prior year.

Normalized FFO, Normalized AFFO and Normalized FAD for the six months ended June 30, 2014 exclude $2,145,000 of debt issuance costs written off as a result of modifications and amendments to our unsecured credit facility.

See our Form 8-K dated May 5, 2014 which describes changes to these previously reported metrics as a result of our revised interpretation of FFO. FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT") and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, if any.

We define Normalized FFO as FFO adjusted for infrequent or unpredictable items detailed in the reconciliations. We define Normalized AFFO as Normalized FFO excluding the effects of straight-line rent income, amortization of debt issuance costs and the non-cash amortization of the original issue discount of our unsecured convertible notes. We define Normalized FAD as Normalized AFFO excluding the effect of non-cash compensation expenses.

The reconciliation of net income attributable to common stockholders to our FFO, Normalized FFO, Normalized AFFO and Normalized FAD is included as a table to this press release and in supplemental data furnished on Form 8-K and is filed in our Form 10-Q with the Securities and Exchange Commission.

2014 Guidance

The Company has tightened its current Normalized FFO guidance for 2014 to be in the range of $4.17 to $4.20 per diluted common share and Normalized AFFO to be in the range of $3.72 to $3.75 per diluted common share. The Company's guidance range for the full year 2014, with underlying assumptions and timing of certain transactions, is set forth and reconciled below:

		Full-Year 2014 Range
		Low				High
Net income per diluted share attributable to common stockholders		$	2.99			$	3.02
Plus: Depreciation		1.12				1.12
Plus: Debt issuance costs expensed due to credit facility modifications		.06				.06
Normalized FFO per diluted common share		$	4.17			$	4.20
Less: Straight-line rental income		(0.53		)		(0.53		)
Plus: Amortization of debt issuance costs		0.06				0.06
Plus: Amortization of original issue discount		0.02				0.02
Normalized AFFO per diluted common share		$	3.72			$	3.75

The Company's guidance range reflects the existence of volatile economic conditions, but does not assume any material deterioration in tenant credit quality and/or performance of its portfolio. The guidance is based on a number of assumptions, many of which are outside the Company's control and all of which are subject to change. The low end of our guidance range assumes a baseline from the second quarter of 2014, and assuming 3% growth from our Bickford joint venture. On the top end of that range, we are assuming 6% growth from our Bickford joint venture. The Company's guidance may change if actual results vary from these assumptions.

Investor Conference Call and Webcast

NHI will host a conference call on Monday, August 4, 2014, at 10 a.m. ET, to discuss second quarter results. The number to call for this interactive teleconference is (212) 231-2902 with the confirmation number, 21728299. The live broadcast of NHI's second quarter conference call will be available online at www.nhireit.com. The online replay will follow shortly after the call and continue for approximately 90 days.

About National Health Investors

National Health Investors, Inc. NHI, a Maryland corporation incorporated and publicly listed in 1991, is a healthcare real estate investment trust (REIT) specializing in financing healthcare real estate by purchase and leaseback transactions, RIDEA transactions and by mortgage loans. NHI's investments include senior housing (assisted living, memory care, independent living and senior living campuses), skilled nursing, medical office buildings and specialty hospitals. For more information, visit www.nhireit.com.

Statements in this press release that are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks and uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this release. Investors are urged to carefully review and consider the various disclosures made by NHI in its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Annual Report on Form 10-K for the most recently ended fiscal year. Copies of these filings are available at no cost on the SEC's web site at www.sec.gov or on NHI's web site at www.nhireit.com.

Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD
(in thousands, except share and per share amounts)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2014				2013				2014				2013
Net income attributable to common stockholders		$	25,294			$	19,920			$	48,828			$	35,663
Elimination of certain non-cash items in net income:
Depreciation in continuing operations		9,540				4,391				18,777				8,639
Depreciation related to noncontrolling interest		(247		)		(87		)		(494		)		(175		)
Depreciation in discontinued operations		—				167				—				334
Funds from operations		$	34,587			$	24,391			67,111				44,461
Debt issuance costs expensed due to credit facility modifications		—				353				2,145				353
Acquisition costs under business combination accounting		—				208				—				208
Loan impairment		—				—				—				4,037
Normalized FFO		$	34,587			$	24,952			69,256				49,059
Straight-line lease revenue, net		(4,295		)		(1,413		)		(8,490		)		(2,695		)
Straight-line lease revenue, net, related to noncontrolling interest		17				—				34				—
Amortization of original issue discount		263				—				278				—
Amortization of debt issuance costs		501				404				854				486
Normalized AFFO		31,073				23,943				61,932				46,850
Non-cash stock based compensation		223				253				1,573				1,833
Normalized FAD		31,296				24,196				$	63,505			$	48,683
BASIC
Weighted average common shares outstanding		33,052,750				27,876,176				33,052,083				27,871,120
FFO per common share		$	1.05			$	.87			$	2.03			$	1.60
Normalized FFO per common share		$	1.05			$	.90			$	2.10			$	1.76
Normalized AFFO per common share		$	.94			$	.86			$	1.87			$	1.68
Normalized FAD per common share		$	.95			$	.87			$	1.92			$	1.75
DILUTED
Weighted average common shares outstanding		33,087,283				27,913,727				33,086,258				27,907,600
FFO per common share		$	1.05			$	.87			$	2.03			$	1.59
Normalized FFO per common share		$	1.05			$	.89			$	2.09			$	1.76
Normalized AFFO per common share		$	.94			$	.86			$	1.87			$	1.68
Normalized FAD per common share		$	.95			$	.87			$	1.92			$	1.74
See Notes to Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD.

NOTE: FFO and Normalized FFO per diluted common share for the three months ended June 30, 2013 differ by $.02 and $.02, respectively, and for the six months ended June 30, 2013 differ by $.04 and $.04, respectively, from the amounts previously reported as a result of our revised interpretation of the NAREIT definition of FFO. Normalized FAD per diluted common share for the three and six months ended June 30, 2013 differs by $.02 and $.01, from the amount previously reported as a result of changes we made to our definition of FAD. See our Form 8-K dated May 5, 2014 which describes these revisions.

Notes to Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD

These supplemental operating performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our Funds From Operations ("FFO"), Normalized FFO, Normalized Adjusted Funds From Operations ("AFFO") and Normalized Funds Available for Distribution ("FAD") may not provide a meaningful measure of our performance as compared to that of other REITs. Since other REITs may not use our definition of these operating performance measures, caution should be exercised when comparing our Company's FFO, Normalized FFO, Normalized AFFO and Normalized FAD to that of other REITs. These financial performance measures do not represent cash generated from operating activities in accordance with generally accepted accounting principles ("GAAP") (these measures do not include changes in operating assets and liabilities) and therefore should not be considered an alternative to net earnings as an indication of operating performance, or to net cash flow from operating activities as determined by GAAP as a measure of liquidity, and is not necessarily indicative of cash available to fund cash needs.

Funds From Operations - FFO

FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT") and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, if any. The Company's computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or have a different interpretation of the current NAREIT definition from that of the Company; therefore, caution should be exercised when comparing our Company's FFO to that of other REITs. Diluted FFO assumes the exercise of stock options and other potentially dilutive securities. Normalized FFO excludes from FFO certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing FFO for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs.

We believe that FFO and normalized FFO are important supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative, and should be supplemented with a measure such as FFO. The term FFO was designed by the REIT industry to address this issue.

Adjusted Funds From Operations - AFFO

In addition to the adjustments included in the calculation of normalized FFO, normalized AFFO excludes the impact of any straight-line rent revenue, amortization of the original issue discount on our convertible senior notes and amortization of debt issuance costs.

We believe that normalized AFFO is an important supplemental measure of operating performance for a REIT. GAAP requires a lessor to recognize contractual lease payments into income on a straight-line basis over the expected term of the lease. This straight-line adjustment has the effect of reporting lease income that is significantly more or less than the contractual cash flows received pursuant to the terms of the lease agreement. GAAP also requires the original issue discount of our convertible senior notes and debt issuance costs to be amortized as non-cash adjustments to earnings. Normalized AFFO is useful to our investors as it reflects the growth inherent in the contractual lease payments of our real estate portfolio.

Funds Available for Distribution - FAD

In addition to the adjustments included in the calculation of normalized AFFO, normalized FAD excludes the impact of non-cash stock based compensation.

We believe that normalized FAD is an important supplemental measure of operating performance for a REIT as a useful indicator of the ability to distribute dividends to shareholders.

Condensed Statements of Income
(in thousands, except share and per share amounts)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2014				2013				2014				2013
Revenues:
Rental income		$	41,353			$	24,067			$	81,666			$	48,172
Interest income from mortgage and other notes		1,748				1,972				3,504				3,941
Investment income and other		1,059				1,063				2,126				2,115
		44,160				27,102				87,296				54,228
Expenses:
Depreciation and amortization		9,540				4,391				18,777				8,639
Interest, including amortization of debt discount and issuance costs		6,829				1,597				13,715				2,721
Legal		10				290				83				566
Franchise, excise and other taxes		406				93				712				237
General and administrative		1,850				2,325				4,785				5,414
Loan impairments		—				—				—				4,037
		18,635				8,696				38,072				21,614
Income before equity-method investee, discontinued operations and noncontrolling interest		25,525				18,406				49,224				32,614
Income from equity-method investee		52				70				210				91
Income from continuing operations		25,577				18,476				49,434				32,705
Income from discontinued operations		—				1,622				—				3,316
Net income		25,577				20,098				49,434				36,021
Net income attributable to noncontrolling interest		(283		)		(178		)		(606		)		(358		)
Net income attributable to common stockholders		$	25,294			$	19,920			$	48,828			$	35,663
Weighted average common shares outstanding:
Basic		33,052,750				27,876,176				33,052,083				27,871,120
Diluted		33,087,283				27,913,727				33,086,258				27,907,600
Earnings per common share:
Basic:
Income from continuing operations attributable to common stockholders		$	.77			$	.66			$	1.48			$	1.16
Discontinued operations		—				.05				—				.12
Net income attributable to common stockholders		$	.77			$	.71			$	1.48			$	1.28
Diluted:
Income from continuing operations attributable to common stockholders		$	.76			$	.66			$	1.48			$	1.15
Discontinued operations		—				.05				—				.12
Net income attributable to common stockholders		$	.76			$	.71			$	1.48			$	1.27
Regular dividends declared per common share		$	.77			$	.735			$	1.54			$	1.43

Selected Balance Sheet Data
(in thousands)
		June 30, 2014				December 31, 2013
Real estate properties, net		$	1,289,632			$	1,247,740
Mortgage and other notes receivable, net		60,854				60,639
Investment in preferred stock, at cost		38,132				38,132
Cash and cash equivalents		7,157				11,312
Marketable securities		13,991				12,650
Straight-line rent receivable		27,181				18,691
Equity-method investment and other assets		46,180				66,656
Debt		638,019				617,080
National Health Investors Stockholders' equity		770,027				766,546