Aviv REIT, Inc. Announces Third Quarter 2011 Earnings Results

Nov 14, 2011, 16:20 ET from Aviv REIT, Inc.

CHICAGO, Nov. 14, 2011 /PRNewswire/ -- Aviv REIT, Inc. ("Aviv" or the "Company") released its earnings for the quarter ended September 30, 2011.  

Recent Highlights

  • Total revenues were $24.0 million in the third quarter;
  • Adjusted EBITDA for the third quarter was $18.3 million;
  • Adjusted FFO for the third quarter was $10.9 million;
  • Net Loss for the third quarter was $0.2 million including $7.5 million of extraordinary charges of which $6.7 million were non-cash; and
  • Completed $172.1 million of investments year to date including $21.0 million during the third quarter and an additional $74.1 million in acquisitions during the fourth quarter through November 1.

Craig M. Bernfield, Chairman, Chief Executive Officer and President, said, "We are pleased with our third quarter financial performance, which was consistent with our expectations and reflects our ongoing growth and success.  We are excited about the quality and volume of the investments that we have already made this year, and we continue to identify attractive acquisition opportunities with existing and new operators. We are committed to our property reinvestment program to enhance the quality of our properties, having already invested $17.3 million through the end of the third quarter.  Our portfolio is performing well as a result of our commitment to asset management, our operators' ability to adapt to the challenging reimbursement environment, as well as our strong and supportive relationships with them.  We have implemented many important initiatives that should continue to improve our property performance and operator strength.  We believe that all of this, combined with the efforts of our outstanding management team, will enable us to prosper in the fourth quarter and 2012, despite any economic and industry challenges we may encounter."

Conference Call

A conference call to discuss the 2011 third quarter earnings will take place on November 16, 2011 at 1:00 p.m. central standard time / 2:00 p.m. eastern standard time.  The dial-in number for the conference call is 800-762-8779 (480-629-9771 for international access) and a replay of the call will be available through December 15, 2011 at 800-406-7325, access code 4486885.

About Aviv

Aviv is one of the largest owners of skilled nursing and other healthcare properties in the United States.  At September 30, 2011, the Company's portfolio consisted of 202 properties which are triple-net leased to 32 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

(unaudited)


September 30,

December 31,


2011

2010

Assets



Cash and cash equivalents

$     6,264,886

$   13,029,474

Deferred rent receivable

28,873,295

30,660,773

Tenant receivables, net

6,090,209

1,168,842

Rental properties and financing leases, at cost:



Land

90,882,968

76,466,020

Buildings and improvements

705,696,951

615,806,273

Assets under direct financing leases

10,881,228

10,777,184


807,461,147

703,049,477

Less accumulated depreciation

(91,252,681)

(75,948,944)

Net rental properties

716,208,466

627,100,533




Deferred finance costs, net

13,648,381

9,957,636

Loan receivables, net

30,868,334

36,610,638

Other assets

5,629,414

12,872,323

Total assets

$  807,582,985

$  731,400,219




Liabilities and equity



Accounts payable and accrued expenses

$   10,090,892

$     6,012,809

Tenant security and escrow deposits

14,218,676

13,658,384

Other liabilities

31,584,569

25,996,492

Mortgage and other notes payable

525,486,808

440,575,916

Total liabilities

581,380,945

486,243,601




Equity:



Stockholders' equity



Common stock (par value $0.01; 235,898 and 227,003 shares outstanding, respectively)

2,359

2,270

Additional paid-in-capital

234,775,166

223,838,999

Accumulated deficit

(15,219,201)

(2,261,839)

Accumulated other comprehensive (loss) income

(1,669,782)

2,188,155

Stockholders' equity

217,888,542

223,767,585

Noncontrolling interests

8,313,498

21,389,033

Total equity

226,202,040

245,156,618

Total liabilities and equity

$ 807,582,985

$ 731,400,219





Aviv REIT, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)







Three Months Ended

September 30,

Nine Months Ended

September 30,


2011

2010

2011

2010

Revenues





Rental income

$20,979,359

$  21,354,972

$  64,782,196

$   63,776,959

Tenant recoveries

1,800,900

1,640,285

5,325,960

4,851,521

Interest on loans to lessees - capital expenditures

266,506

183,613

957,608

909,186

Interest on loans to lessees - working capital and capital lease

970,316

1,144,301

2,960,338

2,937,698

Total revenues

24,017,081

24,323,171

74,026,102

72,475,364






Expenses





Rent and other operating expenses

228,499

199,500

621,304

484,476

General and administrative

5,974,461

2,376,911

12,986,000

6,486,367

Real estate taxes

1,771,520

1,558,495

5,473,975

4,870,994

Depreciation

5,322,918

4,451,210

15,303,737

13,248,400

Loss on impairment

858,916

96,000

858,916

96,000

Total expenses

14,156,314

8,682,116

35,243,932

25,186,237

Operating income

9,860,767

15,641,055

38,782,170

47,289,127






Other income and expenses:





Interest and other income

7,276

(14,116)

840,144

41,816

Interest expense

(9,311,128)

(5,211,327)

(26,226,779)

(16,123,723)

Change in fair value of derivatives

-

489,312

-

2,931,309

Amortization of deferred financing costs

(667,406)

(194,324)

(1,996,845)

(472,914)

Earnout accretion

(100,088)

-

(166,814)

-

Gain on sale of assets

-

581,734

-

581,734

Loss on extinguishment of debt

-

(2,285,028)

(3,806,513)

(2,285,028)

Total other income and expenses

(10,071,346)

(6,633,749)

(31,356,807)

(15,326,806)

Net (loss) income

(210,579)

9,007,306

7,425,363

31,962,321

Distributions and accretion on
  Class E Preferred Units

-

(9,353,806)

-

(17,371,893)

Net loss (income) allocable to common units of Partnership/noncontrolling interests

96,030

960,162

(3,386,174)

(13,976,766)

Net (loss) income allocable to stockholders

$      (114,549)

$      613,662

$   4,039,189

$        613,662






Net (loss) income

$      (210,579)


$    7,425,363


Unrealized loss on derivative instrument

(4,086,047)


(7,164,043)


Total comprehensive (loss) income

$   (4,296,626)


$       261,320


Net (loss) income allocable to stockholders

$      (114,549)


$   4,039,189


Unrealized loss on derivative instrument, net of noncontrolling interest portion of $1,863,352 and $3,306,106, respectively

(2,222,695)


(3,857,937)


Total comprehensive (loss) income allocable to stockholders

$    (2,337,244)


$       181,252






Aviv REIT, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)


Nine Months Ended September 30,


2011

2010

Operating activities



Net income

$       7,425,363

$   31,962,321

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation

15,303,737

13,248,400

Amortization

1,996,845

472,914

Change in fair value of derivatives

-

(2,931,309)

Deferred rental loss (income), net

1,586,497

(2,600,415)

Rental income from intangible amortization, net

(1,044,431)

(3,318,913)

Non-cash stock (unit)-based compensation

1,598,715

345,101

Gain on sale of assets

-

(581,734)

Non-cash loss on extinguishment of debt

3,806,513

1,437,233

Loss on impairment of assets

858,916

96,000

Reserve for uncollectible loan receivables

1,250,113

-

Accretion of earn-out provision for previously acquired rental properties

166,814

-

Changes in assets and liabilities:



Tenant receivables

(6,685,920)

557,018

Other assets

2,070,268

(309,666)

Accounts payable and accrued expenses

95,433

(1,080,771)

Tenant security deposits and other liabilities

3,048,863

40,327

Net cash provided by operating activities

31,477,726

37,336,506




Investing activities



Purchase of rental properties

(80,719,101)

(8,380,000)

Sales of rental properties

-

3,988,927

Capital improvements and other developments

(17,300,401)

(5,863,863)

Payment of earn-out provision for previously acquired rental properties

-

(9,600,731)

Loan receivables received from (funded to) others, net

6,256,744

(5,637,247)

Net cash used in investing activities

(91,762,758)

(25,492,914)




Financing activities



Borrowings of debt

328,802,912

405,000,000

Repayment of debt

(243,892,020)

(480,309,036)

Payment of financing costs

(9,429,792)

(10,405,360)

Payment for swap termination

-

(3,380,160)

Capital contributions

10,419,757

223,772,055

Redemption of Class E Preferred Units

-

(92,001,451)

Redemption of Class F Units

-

(23,602,649)

Cash distributions to partners

(14,838,568)

(33,003,335)

Cash dividends to stockholders

(17,541,845)

-

Net cash provided by (used in) financing activities

53,520,444

(13,929,936)

Net decrease in cash and cash equivalents

(6,764,588)

(2,086,344)





Nine Months Ended September 30,


2011

2010

Cash and cash equivalents:



Beginning of period

13,029,474

15,542,507

End of period

$      6,264,886

$  13,456,163




Supplemental cash flow information



Cash paid for interest

$    25,080,857

$  16,644,364




Supplemental disclosure of noncash activity



Accrued dividends payable to stockholders

$      5,547,639

$                   -

Accrued distributions payable to partners

$      4,646,091

$    3,106,549

Earn-out accrual and addition to rental properties

$      3,332,745

$                   -

Write-off of deferred rent receivable

$      6,785,132

$    2,233,768

Write-off of in-place lease intangibles, net

$           35,536

$    1,956,499

Write-off of deferred financing costs, net

$      3,806,513

$    1,235,969

Write-off debt discount

$                     -

$       202,307




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 June 30, 2011 included 140 of the 200 properties in our portfolio as of June 30, 2011.


Aviv REIT, Inc.








($'s)









3 Months Ended


9 Months Ended


9/30/2011

6/30/2011 (1)

9/30/2010


9/30/2011

9/30/2010

Cash Rental & Loan Interest Income







Total Revenues (2)

24,017,081

27,297,825

24,323,171


74,026,102

72,475,364

Adjusted For:







Deferred Rental Loss (Income) (2)

1,882,643

(1,462,068)

(1,423,137)


1,586,497

(2,600,415)

Rental Income from Intangible Amortization

(320,038)

(362,196)

(1,055,615)


(1,044,431)

(3,318,913)

Real Estate Tax Escrows

(1,800,900)

(1,836,064)

(1,640,285)


(5,325,960)

(4,851,521)

Cash Rental & Loan Interest Income

23,778,786

23,637,497

20,204,134


69,242,208

61,704,515





(1)  Q2 2011 information shown for supplemental comparative purposes in light of our recapitalization transactions completed in Q3 2010.

(2)  Includes $4.4 million in non-cash charges in Q3, offset by higher rental revenues associated with recent investment activity.  The charges include a $3.5 million charge to Deferred Rents Receivable relating to the transition of 5 facilities to a new operator and the restructuring of certain leases and a $0.9 million reserve for uncollectible loan receivables. The 9 Months ended 9/30/2011 Revenues included an additional $3.3 million non-cash charges to Deferred Rents Receivable relating to property transitions in Q1 and Q2 2011.




EBITDA







Net (Loss) Income (3)

(210,579)

6,455,221

9,007,306


7,425,363

31,962,321

Adjusted For:







Interest Expense

9,311,128

9,359,466

5,211,327


26,226,779

16,123,723

Depreciation

5,322,918

5,182,251

4,451,210


15,303,737

13,248,400

Amortization of Deferred Financing Fees

667,406

650,444

194,324


1,996,845

472,914

EBITDA

15,090,873

21,647,382

18,864,167


50,952,724

61,807,358








Adjusted EBITDA







EBITDA

15,090,873

21,647,382

18,864,167


50,952,724

61,807,358

Adjusted for:







Gain on Sale of Assets

-

-

(581,734)


-

(581,734)

Loss on Impairment (3)

858,916

-

96,000


858,916

96,000

Indemnity Payments (3)

2,178,647

143,719

326,899


2,322,366

1,003,383

Non-cash stock (unit)-based compensation

517,630

494,640

142,101


1,598,715

345,101

Loss on Debt Extinguishment (3)

-

663,505

2,285,028


3,806,513

2,285,028

Less:







Rental Income from Intangible Amortization

(320,038)

(362,196)

(1,055,615)


(1,044,431)

(3,318,913)

Change in Fair Value of Derivatives

-

-

(489,312)


-

(2,931,309)

Adjusted EBITDA

18,326,028

22,587,050

19,587,534


58,494,803

58,704,914





(3)  Q3 2011 Net Loss included a $2.2 million charge ($1.4 million non-cash) for Indemnity Payment obligations relating to certain liabilities incurred by former operators of certain facilities, a $0.9 million Loss on Impairment associated with the write down in book value of a facility intended for sale, and the $4.4 million in non-cash charges discussed in Footnote (2) above.  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 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.





3 Months Ended


9 Months Ended


9/30/2011

6/30/2011 (1)

9/30/2010


9/30/2011

9/30/2010

FFO







Net (Loss) Income

(210,579)

6,455,221

9,007,306


7,425,363

31,962,321

Adjusted For:







Depreciation

5,322,918

5,182,251

4,451,210


15,303,737

13,248,400

Gain on Sale of Assets

-

-

(581,734)


-

(581,734)

FFO

5,112,339

11,637,472

12,876,782


22,729,100

44,628,987








AFFO







FFO

5,112,339

11,637,472

12,876,782


22,729,100

44,628,987

Adjusted For:







Deferred Rental Loss (Income)

1,882,643

(1,462,068)

(1,423,137)


1,586,497

(2,600,415)

Rental Income from Intangible Amortization

(320,038)

(362,196)

(1,055,615)


(1,044,431)

(3,318,913)

Amortization of Deferred Financing Fees

667,406

650,444

194,324


1,996,845

472,914

Loss on Debt Extinguishment (4)

-

663,505

2,285,028


3,806,513

2,285,028

Loss on Impairment (4)

858,916

-

96,000


858,916

96,000

Indemnity Payments (4)

2,178,647

143,719

326,899


2,322,366

1,003,383

Non-cash stock (unit)-based compensation

517,630

494,640

142,101


1,598,715

345,101

Change in Fair Value of Derivatives

-

-

(489,312)


-

(2,931,309)

AFFO

10,897,543

11,765,516

12,953,070


33,854,521

39,980,776




(4) See Footnote (3) above.




Balance Sheet Metrics

At

9/30/2011



At

12/31/2010








Cash & Cash Equivalents

6,264,886



13,029,474








Debt


  % Total



   % Total

 Secured - GE Mortgage Term Loan

197,859,139

37.7%


402,794,111

91.4%

 Secured - Other

10,007,484

1.9%


37,781,805

8.6%

 Revolver

15,000,000

2.9%




 Unsecured Notes

302,620,185

57.6%


-

0.0%

Total Debt

525,486,808

100.0%


440,575,916

100.0%







Total Assets - Book Value

807,582,985



731,400,219


Total Undepreciated Book Value  of Property

807,461,147



703,049,477








Total Unencumbered Assets

488,482,295



NA


Unencumbered Assets / Unsecured Debt

162.8%



NA






Portfolio Information




Note: For further information regarding the derivation of our portfolio information, please see the discussion under "Supplemental Information and Reconciliation of Financial Measures" on page 7.


Rent Concentration by Operator




Operator

No.

Properties


% Total

Rents (1)

Evergreen Healthcare

17


13.1%

Daybreak Partners, LLC

32


11.0%

Sun Mar Healthcare

13


9.8%

Saber Health Group

17


8.5%

Convacare Mgmt. Inc.

11


8.1%

All Others (27 Operators)

112


49.5%

Total

202


100.0%




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


Rent Concentration by State




State


No.

Properties


% Total

Rents (2)






California


22


17.9%

Texas


43


15.1%

Arkansas


13


8.5%

Missouri


15


8.2%

Washington


12


6.1%

All Others (20 States)

97


44.2%

Total


202


100.0%




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





Rent Coverage for 12 months ended June 30, 2011 (3)



      EBITDAR

1.4x

      EBITDARM

1.9x



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





Occupancy for 12 months ended June 30, 2011 (4)



      Occupancy

74.1%



(4) Based on beds available for use.






Quality Mix for 12 months ended June 30, 2011 (5)



      Quality Mix

45.9%



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



SOURCE Aviv REIT, Inc.