Summary of NATIONAL HEALTH INVESTORS INC

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

References throughout this document to NHI or the Company include National Health Investors, Inc. and its wholly-owned subsidiaries. In accordance with the Securities and Exchange Commission's "Plain English" guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In this document, the words "we", "our", "ours" and "us" refer only to National Health Investors, Inc. and its wholly-owned subsidiaries and not any other person.
Unless the context indicates otherwise, references herein to "the Company" include all of our wholly-owned subsidiaries.

This Quarterly Report on Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission, as well as information included in oral statements made, or to be made, by our senior management contain certain "forward-looking" statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations, cash flows, funds from operations, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, and similar statements including, without limitations, those containing words such as "may", "will", "believes", "anticipates", "expects", "intends", "estimates", "plans", and other similar expressions are forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements as a result of, but not limited to, the following factors:

We depend on the operating success of our customers (facility operators) for collection of our revenues during this time of uncertain economic conditions in the U.S.;

We are exposed to risk that our tenants and mortgagees may become subject to bankruptcy or insolvency proceedings;

We are exposed to risks related to government payors and regulations and the effect they have on our tenants' and mortgagees' business;

We are exposed to risk that the cash flows of our tenants and mortgagees will be adversely affected by increased liability claims and general and professional liability insurance costs;

We depend on the success of future acquisitions and investments;

We are exposed to risks related to environmental laws and the costs associated with the liability related to hazardous substances;

We depend on the ability to reinvest cash in real estate investments in a timely manner and on acceptable terms;

We are exposed to potential future losses in our investment in enhanced cash funds managed by a division of Bank of America;

We are involved in recent litigation brought against us by one of our mortgagees, the ultimate outcome of which is uncertain;

We depend on the ability to continue to qualify as a REIT.

See the notes to the annual financial statements in our most recent Annual Report on Form 10-K for the year ended December 31, 2008, and "Business" and "Risk Factors" under Item 1 and Item 1A therein, for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. You should carefully consider these risks before making any investment decisions in the Company. These risks and uncertainties are not the only ones facing the Company. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurance that these forward-looking statements will, in fact, occur and, therefore, caution investors not to place undue reliance on them.

Executive Overview

NHI, a Maryland corporation incorporated in 1991, is a real estate investment trust ("REIT") which invests in income-producing health care properties primarily in the long-term care industry. As of September 30, 2009, we had ownership interests in real estate, mortgage investments, preferred stock and marketable securities resulting in total invested assets of approximately $390,906,000. Our mission is to invest in health care real estate which generates current income that will be distributed to stockholders. We have pursued this mission by making mortgage loans and acquiring properties to lease nationwide, primarily in the long-term health care industry. These investments include long-term care facilities, acute care hospitals, medical office buildings, retirement centers, assisted living facilities and residential projects for the developmentally disabled. We have funded these investments in the past through three sources of capital: (1) current cash flow, including principal prepayments from our borrowers, (2) the sale of equity securities, and
(3) debt offerings, including bank lines of credit, the issuance of convertible debt instruments, and the issuance of ordinary debt. At September 30, 2009, we had no outstanding bank lines of credit or convertible debt instruments.

Portfolio

At September 30, 2009, we had investments in real estate and mortgage notes receivable in 125 health care properties located in 18 states consisting of 84 skilled nursing facilities, 15 assisted living facilities, 4 medical office buildings, 4 retirement centers, 1 acute care hospital and 17 residential projects for the developmentally disabled. These investments consisted of approximately $230,658,000 of net real estate investments with 16 lessees and $98,372,000 aggregate carrying value of loans to 14 borrowers.

Of the 76 health care properties leased to operators, 41 are leased to National HealthCare Corporation ("NHC"), a publicly-held company and our largest customer. Our current lease with NHC expires December 31, 2021 (excluding 3 additional 5-year renewal options). For the nine months ended September 30, 2009, rental income was $44,570,000 of which $26,222,000 (59%) was recognized from NHC consisting of base rent of $25,275,000, percentage rent for 2008 of $541,000 and percentage rent for 2009 of $406,000 (the base year for the percentage rent calculation having been 2007). For the nine months ended September 30, 2008, rental income was $40,017,000 of which $25,275,000 (63%) was recognized from NHC consisting of base rent only. The 41 facilities include four centers subleased to and operated by other companies, the lease payments of which are guaranteed to us by NHC.

Consistent with our strategy of diversification, we have increased our portfolio over time so that the portion of our portfolio leased by NHC has been reduced from 100% of our total portfolio on October 17, 1991 (the date we began operations) to 16.4% of our total portfolio on September 30, 2009, based on the net book value (carrying amount) of these properties. In 1991, these assets were transferred by NHC to NHI at their then current net book value in a non-taxable exchange. Many of these assets were substantially depreciated as a result of having been carried on NHC's books for as many as 20 years. As a result, we believe that the fair market value of these assets is significantly in excess of their net book value. To illustrate, rental income for the year ended December 31, 2008 from NHC was $33,700,000 or approximately 58.9% of our net book value of the facilities leased to NHC. Subsequent additions to the portfolio related to non-NHC investments reflect their higher value based on existing costs at the date the investment was made.

As with all assets in our portfolio, we monitor the financial and operating results of each of the NHC properties on a quarterly basis. In addition to reviewing the consolidated financial results of NHC, the individual center financial results are reviewed, including their occupancy, patient mix, and other relevant information.

The following tables summarize our investments in real estate (excluding corporate office) and mortgage notes receivable as of September 30, 2009:

Real Estate Properties          Properties  Beds/Sq. Ft.*     Net Investment
Skilled Nursing Facilities              53          7,283   $    153,617,000
Assisted Living Facilities              14          1,141         54,866,000
Medical Office Buildings                 4        124,427 *        8,839,000
Independent Living Facilities            4            456          7,265,000
Hospitals                                1             55          6,071,000
Total Real Estate Properties            76                       230,658,000

Mortgage Notes Receivable
Skilled Nursing Facilities              31          3,481         90,904,000
Assisted Living Facilities               1             70          3,882,000
Developmentally Disabled                17            108          3,586,000
Total Mortgage Notes Receivable         49          3,659         98,372,000

Total Portfolio                        125                  $    329,030,000

                                               Investment
Portfolio Summary               Properties     Percentage     Net Investment
Real Estate Properties                  76          70.1%   $    230,658,000
Mortgage Notes Receivable               49          29.9%         98,372,000
Total Portfolio                        125         100.0%   $    329,030,000

Summary of Facilities by Type
Skilled Nursing Facilities              84          74.3%   $    244,520,000
Assisted Living Facilities              15          17.9%         58,749,000
Medical Office Buildings                 4           2.7%          8,839,000
Independent Living Facilities            4           2.2%          7,265,000
Hospitals                                1           1.8%          6,071,000
Developmentally Disabled                17           1.1%          3,586,000
Total Real Estate Portfolio            125         100.0%   $    329,030,000

Portfolio by Operator Type
Public                                  65          27.1%   $     89,069,000
Regional                                52          65.8%        216,522,000
Small                                    8           7.1%         23,439,000
Total Real Estate Portfolio            125         100.0%   $    329,030,000

Public Operators
National HealthCare Corp.               41          16.4%   $     54,314,000
Sunrise Senior Living, Inc.              1           3.7%         12,043,000
Community Health Systems, Inc.           4           3.5%         11,391,000
Sun Healthcare Group, Inc.               2           2.4%          7,735,000
Res-Care, Inc.                          17           1.1%          3,586,000
Total Public Operators                  65          27.1%   $     89,069,000

Operators who operate more than 3% of our total real estate investments are as follows: National HealthCare Corp., Fundamental Long Term Care Holdings, LLC, Community Health Systems, Inc., RGL Development, LLC, Legend Healthcare, LLC, American HealthCare, LLC, Senior Living Management Corporation, LLC, Health Services Management, Inc., ElderTrust of Florida, Inc., Sunrise Senior Living, Inc., and SeniorTrust of Florida, Inc.

As of September 30, 2009, the average effective quarterly rental income was $1,548 per licensed bed for skilled nursing facilities, $4,947 per licensed bed for assisted living facilities, $861 per unit for independent living facilities, $12,770 per bed for hospitals and $4 per square foot for medical office buildings.

We invest a portion of our funds in the common and preferred shares of other publicly-held REITs to ensure the substantial portion of our assets are invested for real estate purposes. At September 30, 2009, our investment in common and preferred shares of publicly-held REITs was $58,815,000 and our investment in other available-for-sale marketable securities was $2,277,000. Refer to Notes 5 and 6 of our condensed consolidated financial statements for further information.

Areas of Focus

During the quarter ended September 30, 2009, we successfully executed a high quality investment. In August 2009, we purchased and leased back a fourth skilled nursing facility in Texas from affiliates of Legend Healthcare, LLC, ("Legend") a privately owned company and one of our current lease customers.
The total purchase price of the four facilities was $55,550,000, of which $39,750,000 was funded in June 2009, including $1,000,000 retained as a purchase guarantee until the fourth facility was acquired. The four facilities are being leased to Legend for a term of 15 years at an initial lease rate of 10%, or $5,555,000, plus an annual rent escalator. Legend has the option to purchase the facilities after 7 years at appraised value, with NHI sharing equally with Legend in the appraised value of the facilities in excess of $60,000,000.

We are evaluating and will potentially make additional new investments during the last quarter of 2009 while continuing to monitor and improve our existing properties. We continue to cautiously evaluate new portfolio investments and monitor the current prices being offered for health care assets. However, even as we make new investments, we expect to maintain a relatively low level of debt compared to our equity. New investments in real estate and mortgage notes may be funded by our liquid investments and, if needed, by external financing. We intend to make new investments that meet our risk criteria and where we believe the spreads over our cost of capital will generate sufficient returns to our shareholders.

We have focused on lowering our debt for the past five years. Our debt to equity ratio on September 30, 2009, was 0.32%, the lowest level in our history.
Our liquidity is also strong with cash and marketable securities of $86,531,000.

Real Estate and Mortgage Write-downs (Recoveries)

Our borrowers and tenants experience periods of significant financial pressures and difficulties similar to other health care providers. Governments at both the federal and state levels have enacted legislation to lower or at least slow the growth in payments to health care providers. Furthermore, the costs of professional liability insurance have continued to increase significantly.

Since the inception of the Company, a number of our real estate property operators and mortgage loan borrowers have experienced bankruptcy. Others have surrendered properties to us in lieu of foreclosure or have failed to make timely payments on their obligations to us.

In February 2009, we received payment in full of $3,150,000 on the pro-rata portion of a note secured by a Georgia nursing home and recorded a recovery of amounts previously written down of $640,000 and a gain on payoff of the note of $437,000.

We believe that the carrying amounts of our real estate properties are recoverable and notes receivable are realizable (including those identified as impaired or non-performing) and are supported by the value of the underlying collateral. However, it is possible that future events could require us to make significant adjustments to these carrying amounts.

Security Write-downs (Recoveries)

On December 10, 2007, we were notified by Bank of America that its largest, privately-placed, enhanced cash fund called Columbia Strategic Cash Fund (the "Fund") would be closed and liquidated. In addition, (1) cash redemptions were temporarily suspended, although redemptions could be filled through a pro-rata distribution of the underlying securities, consisting principally of corporate debt, mortgage-backed securities and asset-backed securities; (2) the Fund's valuation would be based on the market value of the underlying securities, whereas historically the Fund's valuation was based on amortized cost; and (3) interest would continue to accrue. The carrying value of our investment in the Fund on December 10, 2007 was $38,359,000. Subsequent to December 10, 2007 and prior to December 31, 2007, we received a pro-rata distribution of underlying securities in the Fund as described above of $14,382,000 to a separate investment management account ("IMA") and cash redemptions of principal totaling $4,665,000. As of December 31, 2007, realized losses on the distribution and redemption of securities and cash amounted to $236,000 and were charged to operations.

A decline in the market value of an available-for-sale security below cost that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount to fair value. The impairment is charged to operations and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until a market price recovery and consider whether evidence indicating the cost of the

investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to a reporting date and forecasted performance of the investment.

In 2008, we concluded there was an other-than-temporary impairment of the Fund and the IMA totaling $2,065,000 and additional realized losses were $410,000, both of which were charged to operations. In 2008, we received cash distributions of principal from the Fund and IMA totaling $23,031,000. From December 31, 2008 through September 30, 2009, we received cash distributions of principal from the Fund (which was fully liquidated during the period) and IMA totaling $7,347,000. Net realized gains for the same period were $459,000 and were recognized as non-operating income. At September 30, 2009, the fair market value of our investment in the IMA was estimated to be $1,124,000 with a revised cost basis of $1,064,000.

We are in regular communication with the manager of the IMA in order to monitor the net asset value and the expected cash redemption dates based upon the manager's liquidation strategy. Cash redemptions are estimated by the IMA manager to occur periodically over the next year. Interest continues to accrue and is paid to us each month into our regular bank account. There may be further declines in the value of our investments in the IMA. To the extent that we determine there is a further decline in the fair market value based on up-to-date information provided to us by the manager, we may recognize additional losses in future periods.

Litigation Involving Significant Borrower

At September 30, 2009, we had a non-performing mortgage note receivable from Care Foundation of America ("CFA") with a principal balance of $22,936,000. As disclosed in Note 8 to the condensed consolidated financial statements, CFA has filed a Chapter 11 bankruptcy petition and has initiated an adversary proceeding complaint against us. It is our policy to recognize mortgage interest income on non-performing mortgage loans in the period in which cash is received. Under an Agreed Order by the bankruptcy court, NHI will be entitled to receive interest payments during the period of the Chapter 11 proceedings at an annual interest rate of 9.5% on the unpaid principal balance beginning January 1, 2009. During 2009, we have received payment and recognized interest income of $1,288,000 from CFA, of which $365,000 was recognized during the three months ended September 30, 2009. NHI adamantly denies CFA's claims and is vigorously defending against CFA's complaint. An unfavorable outcome in such litigation or in IRS proceedings arising from CFA's claims could have a material adverse effect on NHI's consolidated financial position, results of operations or cash flows.

Results of Operations

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

The results of operations for facilities sold have been reported in the current and prior periods as discontinued operations. The reclassifications to retroactively reflect the disposition of these facilities had no impact on previously reported net income.

Net income for the three months ended September 30, 2009, was $17,473,000 versus $15,951,000 for the same period in 2008, an increase of $1,522,000 or 9.5%.
Diluted earnings per common share in 2009 was $.63 per share versus $.57 per share in 2008. The significant items affecting net income are described below.

Total revenues for the three months ended September 30, 2009, were $19,622,000 versus $15,620,000 in 2008, an increase of $4,002,000 or 25.6%. Rental income increased $3,834,000 or 29.0% from the same period in 2008 primarily as a result of (1) the recognition into income of $2,000,000 received in past-due rents from RGL Development, LLC, a lessee of 8 assisted living facilities, (2) an increase of $1,248,000 from Legend for new leases that commenced in July and August, 2009, (3) an increase of $95,000 related to a lease that commenced in Orangeburg, SC in October 2008, (4) percentage rent from NHC of $136,000, (5) rent adjustments of $266,000 and (6) smaller items totaling $89,000.

Mortgage interest income increased $168,000 or 7.0% to $2,568,000 from the same period in 2008. The increase in interest revenue is due primarily to the recognition of $654,000 of past-due interest collected on the payoff of a mortgage note to Osceola Health Care and interest earned of $129,000 on a mortgage loan purchased at a discount in June 2009. These increases were partially offset by the expected decline in interest income from our existing portfolio. Unless we continue to make investments in mortgage loans in the future, our interest income will decrease below amounts recognized in prior periods due to the normal amortization of the loans in place.

Total expenses for the three months ended September 30, 2009, were $4,001,000 versus $2,861,000 for the same period in 2008, an increase of $1,140,000 or 39.8%. Depreciation increased by $394,000 over the same period in 2008 due to new real estate investments made in 2009. General and administrative expenses increased $741,000 over the same period in 2008

primarily due to the write-down of accounts receivable by $250,000 and increased payroll and non-cash compensation related to additions to our corporate management and staff.

Non-Operating Income -

Non-operating income for the three months ended September 30, 2009, was $1,856,000 versus $701,000 for the same period in 2008, an increase of $1,155,000 or 164.8%. The increase in non-operating income is due primarily to recording a $1,000,000 impairment of our investment in enhanced cash funds in September 2008. As shown in Note 10 to the condensed consolidated financial statements, non-operating income consists primarily of dividend and interest income on our investments in marketable securities and cash balances.

Discontinued Operations -

We have reclassified for all periods presented the operations of the facilities meeting the accounting criteria as either being sold or held for sale as discontinued operations. The income (loss) from discontinued operations for the three months ended September 30, 2009 and 2008 was ($4,000) and $2,491,000, respectively. Discontinued operations in 2008 consisted of the recognition into income of $4,121,000 in deferred credits which existed at the date of sale in 2004 of a skilled nursing facility in Washington. Management concluded, based on advice from counsel, that we were legally released from any potential liability settlements based on the expiration of a five-year statute of limitations. Discontinued operations in 2008 included impairments of our two Kansas facilities of $1,600,000 which have been sold, and $30,000 of other expenses.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

Net income for the nine months ended September 30, 2009, was $47,938,000 versus $44,143,000 for the same period in 2008, an increase of $3,795,000 or 8.6%.
Diluted earnings per common share in 2009 was $1.74 per share versus $1.59 per share in 2008. The significant items affecting net income are described below.

Total revenues for the nine months ended September 30, 2009, were $51,641,000 versus $47,231,000 in 2008, an increase of $4,410,000 or 9.3%. Rental income increased $4,553,000 or 11.4% from the same period in 2008 primarily as a result of (1) the recognition into income of $2,000,000 received in past-due rents from RGL Development, LLC, a lessee of 8 assisted living facilities, (2) an increase of $1,248,000 from Legend Healthcare, LLC for new leases that commenced in July and August, 2009, (3) percentage rent from NHC of $947,000 (of which $541,000 related to the 2008 lease period), (4) an increase of $285,000 related to a lease that commenced in Orangeburg, SC in October 2008, and (5) smaller adjustments to existing leases of $73,000.

Mortgage interest income for the nine months ended September 30, 2009 decreased $143,000 or 2.0% to $7,071,000 from the same period in 2008. Interest revenue during 2009 increased $654,000 due to the recognition of past-due interest collected on the pay-off of a mortgage note to Osceola HealthCare and $129,000 due to interest earned on a mortgage loan purchased at a discount in June 2009.
The increases were offset by the expected decline in interest income of $926,000 due to the normal amortization of our mortgage loans. Unless we continue to make investments in mortgage loans in the future, our interest income will decrease below amounts recognized in prior periods due to the normal amortization of the loans in place.

Total expenses for the nine months ended September 30, 2009, were $11,517,000 versus $10,001,000 for the same period in 2008, an increase of $1,516,000 or 15.2%. Depreciation expense increased $274,000 over the same period in 2008 due to new real estate investments made in 2009. Legal expense increased $231,000 over the same period in 2008 due primarily to litigation with our customer CFA.
We expect legal fees to increase further during the last quarter of our fiscal year. General and administrative expenses increased $1,799,000 from the same period in 2008 due to the write-down of accounts receivable of $250,000, increased payroll and non-cash compensation totaling $1,643,000 related to additions to our corporate management and staff, offset by decreases in smaller items totaling $94,000. During 2008, there was a forfeiture of restricted stock that reduced compensation expense by $566,000.

Non-Operating Income -

Non-operating income for the nine months ended September 30, 2009, was $5,728,000 versus $4,464,000 for the same period in 2008, an increase of $1,264,000 or 28.3%. Non-operating income consists primarily of dividend and interest income on our investments in marketable securities and cash balances.
During 2009, we had realized gains on the sale of marketable securities of $459,000. During the same period in 2008, we had impairments and realized losses on marketable securities totaling $1,376,000.

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