Aviv REIT, Inc. Announces Second Quarter 2011 Earnings Results

News provided by

Aviv REIT, Inc.

Aug 15, 2011, 04:06 ET

CHICAGO, Aug. 15, 2011 /PRNewswire/ -- Aviv REIT, Inc. ("Aviv" or the "Company") released its earnings for the quarter ended June 30, 2011.  

Recent Highlights

  • Total revenues were $27.3 million in the second quarter;
  • Adjusted EBITDA for the second quarter was $22.6 million;
  • Adjusted FFO for the second quarter was $11.8 million;
  • Net Income  for the second quarter was $6.5 million;
  • Completed $41.2 million of acquisitions during the second quarter and $77.0 million of investments in 2011 through June 30; and
  • Issued $100 million of 8 year 7.75% senior unsecured notes in April, priced at 102.75%, as an add-on to our $200 million issuance in February, priced at par.

Craig M. Bernfield, Chairman, Chief Executive Officer and President, said, "We are pleased to have achieved another quarter of solid performance, consistent with our expectations.  The portfolio is performing very well and is positioned to withstand the current reimbursement environment.  CMS' recently announced SNF final rule was consistent with the April announcement as well as the intent for RUGS IV to be revenue neutral.  We anticipate limited impact to our portfolio because only 25% of our operators' revenue comes from Medicare.  It is even more important for our portfolio that Medicaid reimbursement for fiscal year 2012 increased or was flat in each of our top 5 states and in 22 of our 25 states.  Our operator and state diversification strategy helps to mitigate the effects of changes in reimbursement."

Conference Call

A conference call to discuss the 2011 second quarter earnings will take place on August 18, 2011 at 1:00 p.m. central daylight time / 2:00 p.m. eastern daylight time.  The dial-in number for the conference call is 877-941-8609 (480-629-9692 for international access) and a replay of the call will be available through September 1, 2011 at 800-406-7325, access code 4464155.

About Aviv

Aviv has been one of the largest owners of skilled nursing and other healthcare properties in the United States for over 30 years.  At June 30, 2011, the Company's portfolio consisted of 200 properties which are triple-net leased to 31 operators in 25 states.

Forward-Looking Statements

This press release may include forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "continue" or similar terminology.  These forward-looking statements are made based on our current expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements.  These uncertainties include, but are not limited to, uncertainties relating to the operations of our tenants, including those relating to reimbursement by government and other third-party payors, compliance with regulatory requirements and occupancy levels, regulatory, reimbursement and other changes in the healthcare industry, the performance and reputation of our tenants, our ability to successfully engage in strategic acquisitions and investments, the effect of general market, economic and political conditions, the availability and cost of capital, changes in tax laws and regulations affecting REITs and our ability to maintain our status as a REIT.  Important factors that could cause actual results to differ materially from our expectations include those disclosed under "Risk Factors" and elsewhere in filings made by Aviv REIT, Inc. and Aviv Healthcare Properties Limited Partnership with the Securities and Exchange Commission.

Note Regarding Non-GAAP Financial Measures

This release includes financial measures, including Adjusted EBITDA and Adjusted FFO, that are derived on the basis of methodologies other than in accordance with generally accepted accounting principles (GAAP).  These measures are non-GAAP measures that may be calculated differently from measures used by other companies and should not be considered measures of liquidity, alternatives to net income or indicators of any other performance measure determined in accordance with GAAP, nor are they indicative of funds available to fund our cash needs, including our ability to make payments on our indebtedness. See "Supplemental Information and Reconciliation of Financial Measures" below for the definitions of, and additional information regarding, these measures and reconciliations of these measures to the GAAP measures we consider most comparable.

Aviv REIT, Inc. and Subsidiaries

Consolidated Balance Sheets




June 30,

December 31,

2011

2010

(unaudited)

Assets

Cash and cash equivalents

$   24,738,826

$      13,029,474

Deferred rent receivable

30,822,931

30,660,773

Tenant receivables, net

4,170,480

1,168,842

Rental properties and financing leases, at cost:

Land

88,333,715

76,466,020

Buildings and improvements

684,230,073

615,806,273

Assets under direct financing leases

10,847,395

10,777,184

783,411,183

703,049,477

Less accumulated depreciation

(85,929,763)

(75,948,944)

Net rental properties

697,481,420

627,100,533



Deferred finance costs, net

13,994,132

9,957,636

Loan receivables, net

32,104,535

36,610,638

Other assets

6,909,824

12,872,323

Total assets

$ 810,222,148

$   731,400,219



Liabilities and equity

Accounts payable and accrued expenses

$   14,700,368

$        6,012,809

Tenant security and escrow deposits

15,226,792

13,658,384

Other liabilities

29,083,911

25,996,492

Mortgage and other notes payable

511,456,067

440,575,916

Total liabilities

570,467,138

486,243,601



Equity:

Stockholders' equity

Common stock (par value $0.01; 235,897 and 227,002



shares outstanding, respectively)

2,359

2,270

Additional paid-in-capital

234,445,277

223,838,999

Accumulated deficit

(9,557,013)

(2,261,839)

Accumulated other comprehensive income

552,913

2,188,155

Stockholders' equity

225,443,536

223,767,585

Noncontrolling interests

14,311,474

21,389,033

Total equity

239,755,010

245,156,618

Total liabilities and equity

$ 810,222,148

$    731,400,219


Aviv REIT, Inc. and Subsidiaries

Consolidated Statements of Operations
















Three Months Ended June 30,

Six Months Ended June 30,


2011

2010

2011

2010

Revenues

(unaudited)

Rental income

$     24,112,746

$       21,271,652

$     43,802,837

$     42,421,987

Tenant recoveries

1,836,064

1,682,182

3,525,060

3,211,236

Interest on loans to lessees - capital expenditures

520,905

511,405

927,602

962,073

Interest on loans to lessees - working capital and capital lease

828,110

876,367

1,753,522

1,556,897

Total revenues

27,297,825

24,341,606

50,009,021

48,152,193





Expenses



Rent and other operating expenses

191,141

115,646

392,805

284,976

General and administrative

3,542,963

2,685,208

7,011,539

4,109,456

Real estate taxes

2,013,361

1,707,069

3,702,455

3,312,499

Depreciation

5,182,251

4,435,289

9,980,819

8,797,190

Total expenses

10,929,716

8,943,212

21,087,618

16,504,121

Operating income

16,368,109

15,398,394

28,921,403

31,648,072





Other income and expenses:



Interest and other income

827,253

(7,366)

832,868

55,932

Interest expense

(9,359,466)

(5,047,080)

(16,915,651)

(10,912,396)

Change in fair value of derivatives

-

1,121,276

-

2,441,997

Amortization of deferred financing costs

(650,444)

(139,295)

(1,329,439)

(278,590)

Earnout accretion

(66,726)

–

(66,726)

–

Loss on extinguishment of debt

(663,505)

–

(3,806,513)

–

Total other income and expenses

(9,912,888)

(4,072,465)

(21,285,461)

(8,693,057)

Net income

6,455,221

11,325,929

7,635,942

22,955,015

Distributions and accretion on
  Class E Preferred Units

-

(4,019,317)

-

(8,018,087)

Net income allocable to common units of
  Partnership/noncontrolling interests

(2,943,762)

(7,306,612)

(3,482,204)

(14,936,928)

Net income allocable to stockholders

$       3,511,459

$                       –

$       4,153,738

$                     –





Net income

$       6,455,221

$       7,635,942

Unrealized loss on derivative instrument

(3,586,630)

(3,077,996)

Total comprehensive income

$       2,868,591

$       4,557,946





Net income allocable to stockholders

$       3,511,459

$       4,153,738

Unrealized loss on derivative instrument,



net of noncontrolling interest portion of



$1,674,706 and $1,442,754, respectively

(1,911,924)

(1,635,242)

Total comprehensive income allocable to stockholders

$       1,599,535

$       2,518,496

Aviv REIT, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Six Months Ended June 30,

2011

2010

Operating activities

(unaudited)

Net income

$              7,635,942

$         22,955,015

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation

9,980,819

8,797,190

Amortization

1,329,439

278,590

Change in fair value of derivatives

–

(2,441,997)

Deferred rental income, net

(296,146)

(1,237,278)

Rental income from intangible amortization, net

(724,393)

(2,263,298)

Non-cash stock (unit)-based compensation

1,081,085

203,000

Non-cash loss on extinguishment of debt

3,806,513

–

Reserve for uncollectible loan receivables

323,639

–

Accretion of earn-out provision for previously acquired rental properties

66,726

–

Changes in assets and liabilities:

Tenant receivables

(4,266,191)

17,116

Other assets

2,562,218

(772,511)

Accounts payable and accrued expenses

8,632,062

678,563

Tenant security deposits and other liabilities

3,153,499

2,453,520

Net cash provided by operating activities

33,285,212

28,667,910



Investing activities

Purchase of rental properties

(65,919,101)

(3,380,000)

Capital improvements and other developments

(11,109,860)

(4,740,957)

Payment of earn-out provision for previously acquired rental properties

–

(2,000,000)

Loan receivables received from (funded to) others, net

5,447,017

(8,463,408)

Net cash used in investing activities

(71,581,944)

(18,584,365)



Financing activities

Borrowings of debt

313,868,117

–

Repayment of debt

(242,987,966)

(5,169,934)

Payment of financing costs

(9,116,952)

–

Capital contributions

10,000,000

–

Cash distributions to partners

(9,994,770)

(17,440,308)

Cash dividends to stockholders

(11,762,345)

–

Net cash provided by (used in) financing activities

50,006,084

(22,610,242)

Net increase (decrease) in cash and cash equivalents

11,709,352

(12,526,697)

Cash and cash equivalents:

Beginning of period

13,029,474

15,542,507

End of period

$            24,738,826

$           3,015,810



Supplemental cash flow information

Cash paid for interest

$            10,084,582

$         11,039,343



Supplemental disclosure of noncash activity

Accrued dividends payable to stockholders

$              5,779,477

$                         –

Accrued distributions payable to partners

$              4,843,773

$           3,390,685

Earn-out accrual and addition to rental properties

$              3,332,745

$           8,120,656

Write-off of deferred rent receivable

$              3,281,374

$           2,233,768

Write-off of in-place lease intangibles, net

$                            –

$           1,224,594

Write-off of deferred financing costs, net

$              3,806,513

$                         –

Supplemental Information and Reconciliation of Financial Measures

We use financial measures in this release that are derived on the basis of methodologies other than in accordance with GAAP.  We derive these measures as follows:    

  • EBITDA represents net income before interest expense (net), taxes, depreciation and amortization of deferred financing costs.  
  • Adjusted EBITDA represents EBITDA before gain/loss on sale of assets, indemnity payments, non-cash stock (unit)-based compensation, loss on debt extinguishment, rental income from intangible amortization and change in fair value of derivatives.  
  • The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (computed in accordance with GAAP), excluding gains from sales of property, plus real estate depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Applying the NAREIT definition to our financial statements results in FFO representing net income before depreciation and gain/loss on sale of assets.  
  • Adjusted FFO (AFFO) represents FFO before deferred rental income, rental income from intangible amortization, amortization of deferred financing fees, loss on debt extinguishment, indemnity payments, non-cash stock (unit)-based compensation and change in fair value of derivatives.  

Our management uses FFO, Adjusted FFO, EBITDA and Adjusted EBITDA as important supplemental measures of our operating performance and liquidity. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. The term FFO was designed by the real estate industry to address this issue and as an indicator of our ability to incur and service debt. Because FFO and Adjusted FFO exclude depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items and because EBITDA and Adjusted EBITDA exclude certain non-cash charges and adjustments and amounts spent on interest and taxes, they provide our management with performance measures that, when compared year over year or with other real estate investment trusts, or REITs, reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and, with respect to FFO and Adjusted FFO, interest costs, in each case providing perspective not immediately apparent from net income. In addition, we believe that FFO, Adjusted FFO, EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs.

We offer these measures to assist the users of our financial statements in assessing our financial performance and liquidity under GAAP, but these measures are non-GAAP measures and should not be considered measures of liquidity, alternatives to net income or indicators of any other performance measure determined in accordance with GAAP, nor are they indicative of funds available to fund our cash needs, including our ability to make payments on our indebtedness. In addition, our calculations of these measures are not necessarily comparable to similar measures as calculated by other companies that do not use the same definition or implementation guidelines or interpret the standards differently from us. Investors should not rely on these measures as a substitute for any GAAP measure, including net income or revenues.

In addition to these non-GAAP financial measures, we present certain statistics in this release regarding our portfolio of properties. These statistics include EBITDAR coverage, EBITDARM coverage, Portfolio Occupancy and Quality Mix, which are derived as follows:

  • EBITDAR coverage represents EBITDAR, which we define as earnings before interest, taxes, depreciation, amortization and rent expense, of our operators for the applicable period, divided by the rent paid to us by our operators during such period.  
  • EBITDARM coverage represents EBITDARM, which we define as earnings before interest, taxes, depreciation, amortization, rent expense and management fees charged by the operator, of our operators for the applicable period, divided by the rent paid to us by our operators during such period.  
  • Portfolio Occupancy represents the average daily number of beds at our properties that are occupied during the applicable period divided by the total number of beds at our properties that are available for use during the applicable period.  
  • Quality Mix represents total revenues from all payor sources, excluding Medicaid revenues, at our properties divided by the total revenue at our properties for the applicable period.  

In order to determine EBITDAR and EBITDARM coverage for the period presented, EBITDAR and EBITDARM coverage is stated only with respect to properties owned by us and operated by the same operator for the entire period. Accordingly, EBITDAR and EBITDARM coverage for the twelve months ended March 31, 2011 included 148 of the 187 properties in our portfolio as of March 31, 2011.

Aviv REIT, Inc.

($'s)





3 Months Ended

3 Months Ended

3 Months Ended

6 Months Ended

6 Months Ended

6/30/2011

3/31/2011 (1)

6/30/2010

6/30/2011

6/30/2010

Cash Rental & Loan Interest Income




Total Revenues (2)

27,297,825

22,711,196

24,341,606

50,009,020

48,152,193

Adjusted For:




Deferred Rental Income (2)

(1,462,068)

1,165,922

(1,141,885)

(296,146)

(1,237,278)

Rental Income from Intangible Amortization

(362,196)

(362,196)

(492,633)

(724,393)

(2,263,298)

Real Estate Tax Escrows

(1,836,064)

(1,688,996)

(1,682,183)

(3,525,060)

(3,211,236)

Cash Rental & Loan Interest Income

23,637,497

21,825,925

21,024,905

45,463,421

41,440,381






(1) Q1 2011 is shown for supplemental comparative purposes in light of our recapitalization transactions completed in Q3 2010.

(2) Includes a $2.2 million non-cash charge to Deferred Rents Receivable in Q1 2011 relating to the transition of 4 facilities to a new operator.






EBITDA




Net Income (3)

6,455,221

1,180,721

11,325,930

7,635,942

22,955,015

Adjusted For:




Interest Expense (4)

9,359,466

7,556,185

5,047,080

16,915,651

10,912,396

Depreciation

5,182,251

4,798,568

4,435,289

9,980,819

8,797,190

Amortization of Deferred Financing Fees

650,445

678,995

139,295

1,329,439

278,590

EBITDA

21,647,383

14,214,469

20,947,594

35,861,851

42,943,191






(3) Q2 2011 Net Income was reduced by a $0.7 million non-cash Loss on Debt Extinguishment relating to the write-off of deferred financing fees associated with the repayment of approximately $36 million of our mortgage term loan with proceeds from our $100 million add-on Unsecured Notes issuance in Q2.  Q1 2011 Net Income was reduced by the $2.2 million non-cash charge to Deferred Rents Receivable discussed in Footnote (2) above and a $3.1 million non-cash Loss on Debt Extinguishment relating to the write-off of deferred financing fees associated with the repayment of $167 million of our mortgage term loan with proceeds of our $200 million Unsecured Notes issuance in Q1.

(4) Interest Expense in Q2 2011 reflects the issuance of $200 million of Unsecured Notes in Q1 and $100 million of add-on Unsecured Notes in Q2.  






Adjusted EBITDA




EBITDA

21,647,383

14,214,469

20,947,594

35,861,851

42,943,191

Adjusted for:




Gain/Loss on Sale of Assets

-

-

-

-

-

Indemnity Payments

143,719

-

492,875

143,719

676,484

Non-cash stock (unit)-based compensation

494,640

586,445

101,500

1,081,085

203,000

Loss on Debt Extinguishment (5)

663,505

3,143,008

-

3,806,513

-

Less:




Rental Income from Intangible Amortization

(362,196)

(362,196)

(492,633)

(724,392)

(2,263,298)

Change in Fair Value of Derivatives

-

-

(1,121,276)

-

(2,441,997)

Adjusted EBITDA

22,587,051

17,581,726

19,928,060

40,168,776

39,117,380






(5) See Footnote (3).












FFO




Net Income

6,455,221

1,180,721

11,325,930

7,635,942

22,955,015

Adjusted For:




Depreciation

5,182,251

4,798,568

4,435,289

9,980,819

8,797,190

Gain/Loss on Sale of Assets

-

-

-

-

-

FFO

11,637,472

5,979,289

15,761,219

17,616,761

31,752,205






AFFO




FFO

11,637,472

5,979,289

15,761,219

17,616,761

31,752,205

Adjusted For:




Deferred Rental Income

(1,462,068)

1,165,922

(1,141,885)

(296,147)

(1,237,278)

Rental Income from Intangible Amortization

(362,196)

(362,196)

(492,633)

(724,393)

(2,263,298)

Amortization of Deferred Financing Fees

650,445

678,995

139,295

1,329,439

278,590

Loss on Debt Extinguishment

663,505

3,143,008

-

3,806,513

-

Indemnity Payments

143,719

-

492,875

143,719

676,484

Non-cash stock (unit)-based compensation

494,640

586,445

101,500

1,081,085

203,000

Change in Fair Value of Derivatives

-

-

(1,121,276)

-

(2,441,997)

AFFO

11,765,517

11,191,463

13,739,095

22,956,977

26,967,706






Balance Sheet Metrics

At 6/30/2011

At 12/31/2010






Cash & Equivalents

24,738,826

13,029,474






Debt

% Total

% Total

 Secured - GE Mortgage Term Loan

198,730,787

38.9%

402,794,111

91.4%

 Secured - Other

10,037,910

2.0%

37,781,805

8.6%

 Unsecured Notes

302,687,371

59.2%

-

0.0%

Total Debt

511,456,068

100.0%

440,575,916

100.0%






Total Assets - Book Value

810,222,148

731,400,219

Total Undepreciated Book Value of Property

783,411,183

703,049,477






Total Unencumbered Assets

493,153,221

NA

Unencumbered Assets / Unsecured Debt

164.4%

NA






Portfolio Information










Rent Concentration by Operator

Operator

No. Properties

% Total Rents (1)







Evergreen Healthcare

17

13.0%

Daybreak Partners, LLC

32

10.7%

Sun Mar Healthcare

13

9.8%

Saber Health Group

16

9.3%

Convacare Mgmt. Inc.

11

8.7%

All Others (26 Operators)

111

48.5%

Total

200

100.0%






Rent Concentration by State

State

No. Properties

% Total Rents (1)







California

22

17.8%

Texas

44

14.8%

Arkansas

13

9.1%

Missouri

15

7.9%

Washington

12

6.7%

All Others (20 States)

94

43.7%

Total

200

100.0%






(1) Total rent represents the rent under existing leases net of property dispositions for the 12 months ended June 30, 2011.






Rent Coverage (1)




(for 12 months ended March 31, 2011)





EBITDAR

1.4

x

EBITDARM

1.9

x






(1) Based on properties operated by the same operator for the entire 12 month period.






Occupancy (1)




(for 12 months ended March 31, 2011)





Occupancy

74.8%







(1) Based on beds available for use.










Quality Mix (1)




(for 12 months ended March 31, 2011)





Quality Mix

45.8%







(1) Based on total revenues from all payor sources excluding Medicaid revenues.

SOURCE Aviv REIT, Inc.

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