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:

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national and local economic conditions, including their effect on the availability and cost of labor, utilities and materials;

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the effect of government regulations and changes in regulations governing the healthcare industry, including compliance with such regulations by us and our borrowers and/or lessees;

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changes in Medicare and Medicaid payment levels and methodologies and the application of such methodologies by the government and its fiscal intermediaries to our borrowers and/or lessees;

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the impact or implementation of the Board's analysis of strategic alternatives;

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the Company's ability to identify acceptable investments to utilize the significant cash balance from early loan repayments;

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the effect of potential or unknown environmental problems on any of the real property that NHI owns;

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the competitive environment in which we operate.

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 March 31, 2009, we had ownership interests in real estate, mortgage investments, preferred stock and marketable securities resulting in total invested assets of $341,896,000. 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 March 31, 2009, we had no outstanding bank lines of credit or convertible debt instruments.

Appointment of President and Chief Operating Officer

Justin Hutchens was appointed as the President and Chief Operating Officer of NHI on February 25, 2009. Prior to joining NHI, he held both regional and national management positions with long-term care and assisted living operating companies. Mr. Hutchens has national operating experience as the Senior Vice-President & COO of Summerville Senior Living in 2003 until the Summerville merger with Emeritus Senior Living (NYSE:ESC) in 2007 at which time he was appointed the Executive Vice-President & COO role of Emeritus. He received a B.S. degree in Human Services from the University of Northern Colorado. Mr. Hutchens undertook his graduate studies in Management at Regis University. He completed an Executive Management Program studying Measurement and Control of Organizational Performance at the University of Michigan. Mr. Hutchens has formerly served as the chair of both the Operational Excellence Advisory Committee and COO Roundtable for the Assisted Living Federation of America (ALFA).

Portfolio

At March 31, 2009, we had investments in real estate and mortgage notes receivable in 121 health care properties located in 17 states consisting of 81 long-term care facilities, 1 acute care hospital, 4 medical office buildings, 14 assisted living facilities, 4 retirement centers and 17 residential projects for the developmentally disabled. These investments consisted of approximately $102,694,000 aggregate carrying value amount of loans to 14 borrowers and $179,352,000 of net real estate investments with 16 lessees.

Of the 72 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 three months ended March 31, 2009, our rental income recognized was $14,029,000 of which $9,101,000 (65%) was recognized from NHC consisting of base rent of $8,425,000, percentage rent for 2008 of $541,000 and percentage rent for 2009 of $135,000 (the base year for the percentage rent calculation having been 2007). For the three months ended March 31, 2008, our rental income was $12,962,000 of which $8,425,000 (65%) 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 20% of our total real estate portfolio on March 31, 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, state survey results and other relevant information.

At March 31, 2009, 32.5% of the total invested assets of the health care facilities were operated by publicly-traded operators, 58.1% by regional operators, and 9.4% by small operators.

The following tables summarize our real estate (excluding corporate office) and mortgage portfolio as of March 31, 2009:

Portfolio Statistics                                  Investment
                                Properties            Percentage            Investment
  Real Estate Properties                72                 63.6%        $  179,352,000
  Mortgages and Notes
  Receivable                            49                 36.4%           102,694,000
  Total Portfolio                      121                100.0%        $  282,046,000

Real Estate Properties          Properties                  Beds            Investment
  Long Term Care Centers                49                 6,788        $  100,962,000
  Assisted Living Facilities            14                 1,141            55,693,000
  Medical Office Buildings               4       124,427 sq. ft.             9,038,000
  Independent Living Facilities          4                   456             7,442,000
  Hospitals                              1                    55             6,217,000
  Total Real Estate Properties          72                                 179,352,000
Mortgage Notes Receivable
  Long Term Care Centers                32                 3,581            98,999,000
  Developmentally Disabled              17                   108             3,695,000
  Total Mortgage Notes
  Receivable                            49                                 102,694,000
  Total Portfolio                      121                              $  282,046,000

                                                      Investment
Summary of Facilities by Type   Properties            Percentage            Investment
  Long Term Care Centers                81                 71.0%        $  199,961,000
  Assisted Living Facilities            14                 19.7%            55,693,000
  Medical Office Buildings               4                  3.2%             9,038,000
  Independent Living Facilities          4                  2.6%             7,442,000
  Hospitals                              1                  2.2%             6,217,000
  Developmentally Disabled              17                  1.3%             3,695,000
  Total Real Estate Portfolio          121                100.0%        $  282,046,000

                                                      Investment
Portfolio by Operator Type:     Properties            Percentage            Investment
  Public                                65                 32.5%        $   91,644,000
  Regional                              48                 58.1%           163,856,000
  Small                                  8                  9.4%            26,546,000
  Total Real Estate Portfolio          121                100.0%        $  282,046,000

                                                      Investment
Public Operators                                      Percentage            Investment
  National HealthCare Corp.                                20.0%        $   56,223,000
  Community Health Systems,
  Inc.                                                      4.3%            12,202,000
  Sunrise Senior Living, Inc.                               4.1%            11,650,000
  Sun Healthcare Group, Inc.                                2.8%             7,874,000
  Res-Care, Inc.                                            1.3%             3,695,000
  Total Public Operators                                   32.5%        $   91,644,000

Operators who operate more than 3% of our total real estate investments are as follows: NHC, THI of Baltimore, Inc., Sunrise Senior Living, Inc., Health Services Management, Inc., Community Health Systems, Inc., ElderTrust of Florida, Inc., RGL Development, LLC, Senior Living Management Corporation, LLC, American HealthCare, LLC, and SeniorTrust of Florida, Inc.

As of March 31, 2009, the average effective quarterly rental income was $1,507 per bed for long-term care centers, $1,766 per bed for assisted living facilities, $858 per bed 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 preferred and common shares of other publicly-held REITs to ensure the substantial portion of our assets are invested for real estate purposes. At March 31, 2009, our investments in common and preferred shares of publicly-held REITs were $53,147,000 and our investments in other available-for-sale marketable securities were $6,674,000. Refer to Notes 7 and 8 of our condensed consolidated financial statements for further information.

Areas of Focus

We anticipate making new investments in 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 March 31, 2009, was 0.65%, the lowest level in our history. Our liquidity is also strong with cash and marketable securities of $126,624,000.

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 Writedowns and 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.

For the year ended December 31, 2008, we received cash distributions of principal from the Fund and IMA totaling $23,031,000. 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. From December 31, 2008 through March 31, 2009, we received cash distributions of principal from the Fund and IMA totaling $2,405,000. Net realized losses from sales of securities were $24,000 and were charged to operations. At March 31, 2009, the fair market value of our investment in the Fund was estimated to be

$2,849,000 and the fair market value of our investment in the separate IMA was estimated to be $2,676,000 for an aggregate total of $5,525,000 and a revised cost basis of the same amount.

We are in regular communication with the manager of the Fund and 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 Fund manager to occur periodically over the next two years. 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 Fund and 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 Fund manager, we may recognize additional losses in future periods.

Litigation Involving Significant Borrower

At March 31, 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. On April 13, 2009, we received payment and will recognize interest income of $548,000 in that period. NHI adamantly denies CFA's claims and intends to vigorously defend 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 March 31, 2009 Compared to Three Months Ended March 31, 2008

In accordance with SFAS 144, 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 March 31, 2009, was $15,049,000 versus $13,399,000 for the same period in 2008, an increase of $1,650,000 or 12.3%.
Basic and diluted earnings per common share related to income from continuing operations in 2009 were $.55 per share versus $.48 per share in 2008. The components that comprise net income are described below.

Total revenues for the three months ended March 31, 2009, were $15,942,000 versus $15,359,000 in 2008, an increase of $583,000 or 3.8%. Rental income increased $1,067,000 or 8.2% from the same period in 2008 due to (1) the recognition of percentage rent income from NHC for 2008 of $541,000; (2) the recognition of $135,000 in percentage rent for the first quarter of 2009 (the base year for the percentage rent calculation having been 2007), and (3) new or extended lease agreements for our properties.

Mortgage interest income decreased $484,000 to $1,913,000 or 20.2% from the same period in 2008. In accordance with our revenue recognition policy concerning non-performing loans, we did not recognize $548,000 in interest income on the CFA mortgage note receivable until the interest was paid in April 2009.

Total expenses for the three months ended March 31, 2009, were $3,666,000 versus $3,919,000 for the same period in 2008, a decrease of $253,000 or 6.5%.
Recoveries of previous loan writedowns of $640,000, related to a loan payoff on one of the former Allgood nursing facilities in Georgia, are reported as a decrease in expenses. Interest expense decreased to $37,000 in 2009 compared to $105,000 for the same period in 2008 due to lower debt principal balances, including the payment in full in February 2009 of $1,225,000 of mortgage revenue bonds.

Non-Operating Income -

Non-operating income for the three months ended March 31, 2009, was $2,814,000 versus $1,978,000 for the same period in 2008, an increase of $836,000 or 42.3%.
In 2009, we (1) received in cash and recognized income of $642,000 on the settlement of a terminated lease of one of our former Texas facilities which was sold to a third-party operator, and (2) received in cash and recognized a gain of $437,000 on the payoff of a mortgage note receivable from the former Allgood nursing facility in Georgia. Interest income on our cash

and cash equivalents for 2009 was $412,000 versus $1,000,000 for the same period in 2008, a 58.8% decrease due to lower interest rates earned on bank deposits.
At March 31, 2009, we had cash and cash equivalents of $104,935,000 in highly-liquid investments at interest rates of up to 2%. We invest funds on a short-term basis with banks until we can identify longer-term investments in our core business.

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 in accordance with SFAS 144. In March 2009, we completed the sale of a closed facility in Emporia, Kansas for net proceeds of $175,000. The facility was classified as held for sale at December 31, 2008.
In February 2009, we recorded an impairment charge of $25,000 to reduce its carrying value, less the cost to sell the facility.

The loss from discontinued operations for the three months ended March 31, 2009 and 2008 was ($41,000) and ($19,000), respectively.

Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of cash include rent and interest receipts, principal payments on notes receivable and proceeds from the sales of real property. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property acquisitions and general and administrative expenses. These sources and uses of cash are reflected in our condensed Consolidated Statements of Cash Flows and are discussed in further detail below.

The following is a summary of our sources and uses of cash flows (in thousands):

Three months ended March 31,             2009            2008          Change        %
Cash and cash equivalents at         $  100,242      $  75,356      $  24,886       33.0%
beginning of period
Cash provided by operating               15,529         16,116            (587)     -3.6%
activities
Cash provided by investing                9,419         37,620         (28,201)    -75.0%
activities
Cash used in financing activities        (20,255)       (38,147)       17,892      -46.9%
Cash and cash equivalents at end of  $  104,935      $  90,945      $  13,990       15.4%
period

Separate reporting of cash flows from discontinued operations in the consolidated statement of cash flows is not required under Statement of Financial Accounting Standard No. 95 "Statement of Cash Flows". Cash flows used in discontinued operations in 2009 were $41,000.

Operating Activities - Cash provided by operating activities in 2009 consisted of net income of $15,049,000, depreciation of $1,951,000, share-based compensation of $625,000, impairment charges on real estate of $25,000 and realized losses on sales of marketable securities of $24,000. Cash used in operating activities was working capital changes of $1,068,000 due primarily to the timing of collections of receivables, the payments of accounts payable and a decrease in deferred costs and other assets. Adjustments to cash flows provided by operating activities include gains on settlement of notes receivable and recoveries of previous writedowns of $1,077,000.

Net cash provided by operating activities in 2008 consists of net income of $13,399,000, depreciation of $2,025,000, share-based compensation of $386,000, realized losses on sales of marketable securities of $169,000, and working capital changes of $139,000.

Investing Activities - Net cash provided by investing activities was $9,419,000 in 2009 versus $37,620,000 in 2008, a decrease of 75.0% due to significantly higher collections in 2008 from note payoffs and note down payments.
Collections and prepayments on mortgages and other notes receivable in 2009 were $7,023,000. Collections and prepayments on mortgages and other notes receivable in 2008 were $28,104,000 and consisted of (1) collection of $7,050,000 related to the payoff of a note receivable from NHC, (2) down payments received of $19,100,000 from the sale and financing of foreclosure properties in Massachusetts, New Hampshire, Kansas and Missouri, and (3) routine collections of $1,954,000. Purchases and sales of marketable securities pertain to our transactions in an enhanced cash fund.

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