e424b3
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-173824
PROSPECTUS
$300,000,000
Aviv Healthcare Properties
Limited Partnership
Aviv Healthcare Capital
Corporation
Exchange Offer for
7 3/4% Senior
Notes Due 2019
On February 4, 2011, Aviv Healthcare Properties Limited
Partnership and Aviv Healthcare Capital Corporation (the
Issuers) issued $200.0 million in aggregate
principal amount of unregistered
7 3/4% Senior
Notes due 2019. On April 5, 2011, the Issuers issued
$100.0 million in aggregate principal amount of
unregistered
7 3/4% Senior
Notes due 2019 that, other than the issuance date and the
aggregate principal amount, are substantially identical to the
notes issued on February 4, 2011. The notes issued on
February 4, 2011 and April 5, 2011 are collectively
referred to as the Old Notes. We are conducting the
exchange offer in order to provide you with an opportunity to
exchange your Old Notes for freely tradable
7 3/4% Senior
Notes due 2019 that have been registered under the Securities
Act of 1933, as amended (the Securities Act) (which
we refer to as the Exchange Notes and, together with
the Old Notes, the Notes).
Terms of
the Exchange Offer:
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Expires 5:00 p.m., New York City time, August 22,
2011, unless extended.
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You may withdraw tendered outstanding Old Notes any time before
the expiration or termination of the exchange offer.
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The exchange offer is subject to customary conditions that may
be waived by us.
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We will not receive any proceeds from the exchange offer.
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The exchange of Old Notes for Exchange Notes should not be a
taxable exchange for United States federal income tax purposes.
See Material U.S. Federal Income Tax
Considerations.
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All Old Notes that are validly tendered and not validly
withdrawn prior to the expiration of the exchange offer will be
exchanged for Exchange Notes.
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Terms of
the Exchange Notes:
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The Exchange Notes will mature on February 15, 2019. The
Exchange Notes will pay interest semi-annually in cash in
arrears on February 15 and August 15 of each year, beginning on
August 15, 2011.
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The Exchange Notes will be fully and unconditionally guaranteed,
jointly and severally, on an unsecured basis, by Aviv REIT, Inc.
(Aviv REIT) and, with certain exceptions, all of its
existing and future restricted subsidiaries, other than the
Issuers.
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The Exchange Notes and the senior guarantees will be our general
unsecured senior obligations and will be subordinated to all of
our and the guarantors existing and future secured
indebtedness to the extent of the assets securing such secured
indebtedness, pari passu with all existing and future
senior unsecured indebtedness and senior to all existing and
future senior subordinated indebtedness. The subordinated
guarantees provided by the borrowers under our existing credit
facilities will be general unsecured senior obligations and will
be subordinated to all of the obligations of those borrowers
under our existing credit facilities or any permitted
refinancing of those facilities, pari passu with all
existing and future senior unsecured indebtedness and senior to
all existing and future senior subordinated indebtedness.
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We may redeem the Exchange Notes in whole or in part from time
to time. See Description of Exchange Notes.
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Upon a change of control, we must give holders the opportunity
to sell their Exchange Notes to us at 101% of their principal
amount plus accrued and unpaid interest, if any.
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The terms of the Exchange Notes are identical to those of the
outstanding Old Notes, except the transfer restrictions,
registration rights and additional interest provisions relating
to the Old Notes do not apply to the Exchange Notes.
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For a discussion of the specific risks that you should
consider before tendering your outstanding Old Notes in the
exchange offer, see the Risk Factors section
beginning on page 13 of this prospectus.
No public market exists for the outstanding Old Notes. We do not
intend to list the Exchange Notes on any securities exchange
and, therefore, no active public market is anticipated for the
Exchange Notes.
Neither the Securities and Exchange Commission nor any state
or other domestic or foreign securities commission or regulatory
authority has approved or disapproved of the Notes or determined
if this prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
The date of this prospectus is
July 21, 2011.
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. By so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act. A broker dealer who acquired Old Notes as a
result of market making or other trading activities may use this
prospectus, as supplemented or amended from time to time, in
connection with any resales of the Exchange Notes. We have
agreed that, for a period of up to 180 days after the
closing of the exchange offer, we will make this prospectus
available for use in connection with any such resale. See
Plan of Distribution.
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus.
This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy securities other than those
specifically offered hereby or an offer to sell any securities
offered hereby in any jurisdiction where, or to any person whom,
it is unlawful to make such offer or solicitation. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of the Exchange Notes.
TABLE OF
CONTENTS
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F-1
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements.
Forward-looking statements provide our current expectations or
forecasts of future events. Forward-looking statements include
statements about our expectations, beliefs, intentions, plans,
objectives, goals, strategies, future events, performance and
underlying assumptions and other statements that are not
historical facts. Examples of forward-looking statements include
all statements regarding our expected future financial position,
results of operations, cash flows, liquidity, financing plans,
business strategy, projected growth opportunities and potential
acquisitions, plans and
objectives of management for future operations, and compliance
with and changes in governmental regulations. You can identify
forward-looking statements by their use of forward-looking
words, such as may, will,
anticipates, expect,
believe, estimate, intend,
plan, should, seek or
comparable terms, or the negative use of those words, but the
absence of these words does not necessarily mean that a
statement is not forward-looking.
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.
Important factors that could cause actual results to differ
materially from our expectations include those disclosed under
Risk Factors and elsewhere in this prospectus. There
may be additional risks of which we are presently unaware or
that we currently deem immaterial.
Forward-looking
statements are not guarantees of future performance. We do not
undertake any responsibility to release publicly any revisions
to these forward-looking statements to take into account events
or circumstances that occur after the date of this prospectus or
to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or
implied by the forward-looking statements contained in this
prospectus.
PRESENTATION
OF NON-GAAP FINANCIAL INFORMATION AND PORTFOLIO
STATISTICS
In this prospectus, we use financial measures that are derived
on the basis of methodologies other than in accordance with
generally accepted accounting principles (GAAP). The
non-GAAP financial measures used in this prospectus
include FFO, Adjusted FFO, EBITDA and Adjusted EBITDA. We derive
these measures as follows:
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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 on sale of
assets.
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Adjusted FFO represents FFO before deferred rental income,
stock-based compensation, amortization of intangible income,
amortization of deferred financing costs, offering costs,
indemnity payments, loss on impairment of assets, loss on
extinguishment of debt and change in fair value of derivatives.
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EBITDA represents net income before interest expense (net),
taxes, depreciation and amortization of deferred financing costs.
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Adjusted EBITDA represents EBITDA before stock-based
compensation, amortization of intangible income, offering costs,
indemnity payments, loss on impairment of assets, loss on
extinguishment of debt, change in fair value of derivatives and
gain on sale of assets.
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The indenture governing the Notes uses the terms Adjusted FFO
and Adjusted EBITDA. For further discussion of the terms used in
the indenture governing the Notes, see Description of
Exchange NotesCertain Definitions. For a further
description of how FFO, Adjusted FFO, EBITDA and Adjusted EBITDA
are calculated from, and a reconciliation of those measures to,
our net income, see SummarySummary Financial
Data.
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
ii
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 prospectus regarding our portfolio of
properties. These statistics include EBITDAR coverage, EBITDARM
coverage, Portfolio Occupancy and Quality Mix, which are derived
as follows:
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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.
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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.
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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.
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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.
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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 year ended December 31, 2010
included 150 of the 185 properties in our portfolio as of
December 31, 2010.
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INDUSTRY
AND MARKET DATA
This prospectus includes information with respect to market
share and industry conditions from third-party sources or based
upon our estimates using such sources when available. While we
believe that such information and estimates are reasonable and
reliable, we have not independently verified any of the data
from third-party sources. Similarly, our internal research is
based upon our understanding of industry conditions, and such
information has not been independently verified.
TRADEMARKS
As used in this prospectus, Aviv REIT, Aviv
Healthcare and Aviv Financing are trademarks
of our company. This prospectus also refers to brand names,
trademarks or service marks of other companies. All brand names
and other trademarks or service marks cited in this prospectus
are the property of their respective holders.
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SUMMARY
This summary highlights selected information appearing in
this prospectus and may not contain all of the information that
is important to you. This prospectus includes information about
the Exchange Notes and the exchange offer as well as information
regarding our business and detailed financial data. You should
read this prospectus in its entirety, including Risk
Factors and the financial statements and related notes
appearing elsewhere in this prospectus, before deciding to
participate in the exchange offer.
Unless the context requires otherwise or except as otherwise
noted, as used in this prospectus the words Aviv
REIT, we, company, us
and our refer to Aviv REIT, Inc. and its
subsidiaries, including the Issuers. Throughout this prospectus,
we refer to operators and tenants by their commonly-known trade
names; however, each operator or tenant may operate through a
variety of legal entities, some or all of which may not be under
common ownership. In addition, we use the words
operator and tenant interchangeably when
referring to these unaffiliated third parties.
Our
Company
We operate as a self-administered, self-managed real estate
investment trust, or REIT, that focuses on the ownership of
healthcare properties, principally skilled nursing facilities
(SNFs). We generate our revenues through long-term
triple-net
leases with a diversified group of high quality operators
throughout the United States. Through our predecessor entities,
we have been in the business of financing SNF operators through
triple-net
leases for over 30 years. We believe that we have one of
the largest SNF portfolios in the United States which consisted
of 187 properties, of which 168 were SNFs, with 18,300 licensed
beds in 25 states leased to 32 operators, as of
March 31, 2011. For the twelve months ended March 31,
2011, our revenues and Adjusted EBITDA were $95.1 million
and $76.4 million, respectively. See Presentation of
Non-GAAP Financial Information and Portfolio
Statistics and Summary Financial Data.
We believe we are well positioned to benefit from our
diversified portfolio of properties and extensive network of
operator relationships. We focus on cultivating close
relationships with our operators by working closely with them to
help them achieve their business objectives. As a result of
these efforts, we are in a position to effectively manage our
portfolio, make additional investments and continue to expand
our business. From April 2005 through March 2011, we completed
$507.1 million of acquisitions. In 2010, we completed
$79.2 million of acquisitions and investments. In addition,
from January 1, 2011 through the date of this prospectus,
we completed $71.5 million in investments. We target
EBITDAR and EBITDARM coverages that we believe allow us to
balance our rental income with appropriate operating and
financial performance for our operators. Our EBITDAR and
EBITDARM coverages for the year ended December 31, 2010
were 1.4x and 1.8x, respectively, and we have collected 99.5% of
the rents owed to us over the last three years.
The structure of our
triple-net
leases has significantly contributed to our consistent and
stable performance and positions us to benefit from a long-term
stream of rental income. Our leases typically have initial terms
of 10 years or more, annual rent escalation provisions of
2% to 3% and typically do not have operator purchase options. We
also seek additional support for the rental income generated by
the leases through guarantees, master leases, cross-default
provisions and security deposits. As of March 31, 2011, the
leases for 185 of our 187 properties were supported by personal
and/or
corporate guarantees.
Corporate
Information
Aviv REIT was incorporated as a Maryland corporation on
July 30, 2010 and operates in a manner intended to allow it
to qualify as a REIT for federal income tax purposes. Aviv REIT
intends to make its election to be taxed as a REIT effective as
of its taxable year ending December 31, 2010.
Aviv REIT is the sole general partner of Aviv Healthcare
Properties Limited Partnership. Our headquarters are located at
303 West Madison Street, Suite 2400, Chicago, Illinois
60606. Our telephone
1
number is
(312) 855-0930.
Our internet website is
http://www.avivreit.com.
The information contained on, or accessible through, our website
is not incorporated by reference into this prospectus and should
not be considered a part of this prospectus.
The
Exchange Offer
On February 4, 2011 and April 5, 2011, the Issuers
sold, through private placements exempt from the registration
requirements of the Securities Act of 1933, as amended (the
Securities Act), $300,000,000 in aggregate principal
amount of
7 3/4% Senior
Notes due 2019 (the Old Notes), all of which are
eligible to be exchanged for notes which have been registered
under the Securities Act (the Exchange Notes). The
Old Notes and the Exchange Notes are referred to together as the
Notes.
Simultaneously with the private placements, we entered into
registration rights agreements with the initial purchasers of
the Old Notes (collectively, the registration rights
agreements). Under the registration rights agreements, we
are required to cause a registration statement for substantially
identical notes, which will be issued in exchange for the Old
Notes, to be filed with the Securities and Exchange Commission
(the SEC) and to use our reasonable best efforts to
complete the exchange offer by October 3, 2011. You may
exchange your Old Notes for Exchange Notes in the exchange
offer. You should read the discussion under the headings
The Exchange Offer and Description of Exchange
Notes for further information regarding the Exchange Notes.
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Securities to be Exchanged |
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Up to $300,000,000 principal amount of
7 3/4% Senior
Notes due 2019. |
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The Exchange Offer; Securities Act Registration |
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We are offering to exchange the Old Notes for an equal principal
amount of the Exchange Notes. Old Notes may be exchanged only in
denominations of $2,000 of principal amount and any integral
multiple of $1,000 in excess thereof. |
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The exchange offer is being made pursuant to the registration
rights agreements, which grant the initial purchasers and any
subsequent holders of the Old Notes certain exchange and
registration rights. The exchange offer is intended to satisfy
those exchange and registration rights with respect to the Old
Notes. After the exchange offer is complete and except for our
obligations to file a shelf registration statement under the
circumstances described below, you will no longer be entitled to
any exchange or registration rights with respect to Old Notes. |
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You may tender your outstanding Old Notes for Exchange Notes by
following the procedures described under the heading The
Exchange Offer. |
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Expiration Date |
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The exchange offer will expire at 5:00 p.m., New York City
time, on August 22, 2011, or a later date and time to which
the Issuers may extend it. |
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Withdrawal Rights |
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You may withdraw your tender of the Old Notes at any time prior
to the expiration date of the exchange offer. Any Old Notes not
accepted by us for exchange for any reason will be returned to
you at our expense promptly after the expiration or termination
of the exchange offer. |
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Conditions to the Exchange Offer |
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The exchange offer is subject to customary conditions, some of
which we may waive. We intend to conduct the exchange offer in
accordance with the provisions of the registration rights
agreements and the applicable requirements of the Securities
Act, the Securities Exchange Act of 1934, as amended (the
Exchange Act), and the rules and regulations of the
SEC. |
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For more information, see The Exchange
OfferConditions to the Exchange Offer. |
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Procedures for Tendering Old Notes Through Brokers and Banks |
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Because the Old Notes are represented by global book-entry
notes, the Depository Trust Company (DTC), as
depositary, or its nominee is treated as the registered holder
of the Old Notes and will be the only entity that can tender
your Old Notes for Exchange Notes. |
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To tender your outstanding Old Notes, you must instruct the
institution where you keep your Old Notes to tender your Old
Notes on your behalf so that they are received on or prior to
the expiration of the exchange offer. By tendering your Old
Notes you will be deemed to have acknowledged and agreed to be
bound by the terms set forth under The Exchange
Offer. Your outstanding Old Notes must be tendered in
denominations of $2,000 of principal amount and any integral
multiple of $1,000 in excess thereof. In order for your tender
to be considered valid, the exchange agent must receive a
confirmation of book-entry transfer of your outstanding Old
Notes into the exchange agents account at DTC, under the
procedure described in this prospectus under the heading
The Exchange Offer, on or before 5:00 p.m., New
York City time, on the expiration date of the exchange offer. |
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See The Exchange Offer for more information
regarding the procedures for tendering Old Notes. |
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Effect of Not Tendering Old Notes |
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If you do not tender your Old Notes or if you do tender them but
they are not accepted by us, your Old Notes will continue to be
subject to the existing restrictions on transfer. Except for our
obligation to file a shelf registration statement under the
circumstances described below, we will have no further
obligation to provide for the registration of the Old Notes
under the Securities Act. If your outstanding Old Notes are not
tendered and accepted in the exchange offer, it may become more
difficult for you to sell or transfer your outstanding Old Notes. |
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Resale of the Exchange Notes |
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Under existing interpretations by the staff of the SEC as set
forth in no-action letters issued to unrelated third parties and
referenced below, we believe that the Exchange Notes issued in
the exchange offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery
provisions of the Securities Act, if you: |
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are not an affiliate
of ours within the meaning of Rule 405 of the Securities
Act;
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are acquiring the Exchange Notes
in the ordinary course of business; and
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have no arrangement or
understanding with any person to participate in a distribution
of the Exchange Notes.
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In addition, each participating broker-dealer that receives
Exchange Notes for its own account pursuant to the exchange
offer in exchange for Old Notes that were acquired as a result
of market-making or other trading activity must also acknowledge
that it will deliver a prospectus in connection with any resale
of the Exchange Notes. For more information, see Plan of
Distribution. |
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Any holder of Old Notes, including any broker-dealer, who: |
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is our affiliate,
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does not acquire the Exchange
Notes in the ordinary course of its business, or
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tenders in the exchange offer with
the intention to participate, or for the purpose of
participating, in a distribution of Exchange Notes,
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cannot rely on the position of the staff of the SEC expressed in
Exxon Capital Holdings Corporation, Morgan
Stanley & Co., Incorporated or similar no-action
letters and, in the absence of an applicable exemption, must
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the resale
of the Exchange Notes or it may incur liability under the
Securities Act. We will not be responsible for, or indemnify
against, any such liability. |
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Minimum Condition |
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The exchange offer is not conditioned on any minimum aggregate
principal amount of Old Notes being tendered for exchange. |
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Appraisal or Dissenters Rights |
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Holders of the Old Notes do not have any appraisal or
dissenters rights in connection with the exchange offer. |
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Material United States Federal Income Tax Considerations |
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Your exchange of Old Notes for Exchange Notes to be issued in
the exchange offer will not be a taxable event for U.S. federal
income tax purposes. See Material U.S. Federal Income Tax
Considerations for a summary of U.S. federal tax
consequences associated with the exchange of Old Notes for
Exchange Notes and the ownership and disposition of those
Exchange Notes. |
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Use of Proceeds |
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We will not receive any proceeds from the issuance of Exchange
Notes pursuant to the exchange offer. |
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Exchange Agent |
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The Bank of New York Mellon Trust Company, N.A. is serving
as the exchange agent in connection with the exchange offer. The
address and telephone number of the exchange agent are set forth
under the heading The Exchange OfferExchange
Agent. |
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Shelf Registration Statement |
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The registration rights agreements require that we file a shelf
registration statement, in addition to or in lieu of conducting
the exchange offer, in the event that: |
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(1) we are not required to file the exchange offer
registration statement or to consummate the exchange offer
because the exchange offer is not permitted by law or SEC
policy; or
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(2) for any reason, we do not consummate the exchange offer
by October 3, 2011; or
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(3) any holder notifies us that:
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it is not
permitted under law or SEC policy to participate in the exchange
offer;
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it cannot
publicly resell new notes that it acquires in the exchange offer
without delivering a prospectus, and the prospectus contained in
the exchange offer registration statement is not appropriate or
available for resales by that holder;
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it is a
broker-dealer and holds Old Notes that it has not exchanged and
that it acquired directly from us or one of our affiliates; or
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an initial
purchaser so requests (with respect to Old Notes that have not
been resold and that it acquired directly from us or one of our
affiliates).
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You should refer to the section titled Risk
Factors on page 13 of this prospectus for a description of
some of the risks you should consider before participating in
the exchange offer.
5
The
Exchange Notes
The summary below describes the principal terms of the
Exchange Notes. Certain of the terms and conditions described
below are subject to important limitations and exceptions. The
terms of the Exchange Notes are identical to the terms of the
Old Notes, except that the transfer restrictions, registration
rights and provisions for additional interest relating to the
Old Notes do not apply to the Exchange Notes. The
Description of Exchange Notes section of this
prospectus contains a more detailed description of the terms and
conditions of the Exchange Notes.
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Issuers |
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Aviv Healthcare Properties Limited Partnership and Aviv
Healthcare Capital Corporation. |
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Securities Offered |
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$300,000,000 principal amount of 7
3/4% Senior
Notes due 2019. |
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Maturity |
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February 15, 2019. |
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Interest Rate |
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Interest on the Exchange Notes will accrue at a rate of 7.750%
per annum from February 4, 2011 or from the date of the
last payment of interest on the Old Notes, whichever is later.
Interest will be computed on the basis of a
360-day year
comprised of twelve
30-day
months. We will not pay interest on Old Notes tendered and
accepted for exchange. |
|
Interest Payment Dates |
|
Each February 15 and August 15, beginning on
August 15, 2011. |
|
Ranking |
|
The Exchange Notes and the senior guarantees thereof will be the
Issuers and such guarantors senior unsecured
obligations and will rank: |
|
|
|
senior to all existing and future
indebtedness that by its terms is expressly subordinated to the
Exchange Notes, including the subordinated guarantees provided
by the Issuers and such guarantors of the obligations under our
existing mortgage term loan and acquisition credit line;
|
|
|
|
pari passu with all
existing and future senior unsecured indebtedness, including a
limited unsecured guarantee of the obligations under our
existing mortgage term loan and acquisition credit line provided
by Aviv Healthcare Properties Limited Partnership;
|
|
|
|
effectively junior to all secured
indebtedness to the extent of the value of the collateral
securing such debt, including our revolving credit facility; and
|
|
|
|
structurally subordinate to all of
the existing and future liabilities of our subsidiaries that do
not guarantee the Exchange Notes.
|
6
|
|
|
|
|
The subordinated guarantees of the Exchange Notes will be such
guarantors subordinated unsecured obligations and will
rank: |
|
|
|
senior to all existing and future
indebtedness of such guarantors that by its terms is expressly
subordinated to subordinated guarantees of such guarantors;
|
|
|
|
pari passu with all
existing and future senior unsecured indebtedness of such
guarantors; and
|
|
|
|
contractually junior to such
guarantors obligations under our existing mortgage term
loan and acquisition credit line.
|
|
Guarantees |
|
The Exchange Notes will be guaranteed by Aviv REIT and the
existing subsidiaries and (subject to certain exceptions) future
subsidiaries of the Issuers (other than the subsidiaries that
hold properties subject to mortgages whose terms prohibit such
subsidiaries from entering into guarantees of other
indebtedness). In each instance, the Exchange Notes will be
fully and unconditionally guaranteed, jointly and severally, on
an unsecured basis by the applicable guarantors. If we do not
make payments required by the Exchange Notes, the guarantors
must make them. The subsidiary guarantees may be released under
certain circumstances. |
|
Optional Redemption |
|
We may redeem some or all of the Exchange Notes at any time on
or after February 15, 2015, at the redemption prices
specified under the section Description of Exchange
NotesOptional Redemption plus accrued and unpaid
interest, if any, to the redemption date. We may also redeem
some or all of the Exchange Notes before February 15, 2015
at a redemption price of 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the redemption
date, plus a make-whole premium. |
|
Optional Redemption after Equity Offering |
|
At any time prior to February 15, 2014, we may also redeem
up to 35% of the original aggregate principal amount of the
Exchange Notes with the proceeds from specific kinds of equity
offerings at a redemption price equal to 107.750% of the
aggregate principal amount of the Exchange Notes to be redeemed,
plus accrued and unpaid interest, if any, to the redemption
date. See Description of Exchange NotesOptional
Redemption. |
|
Change of Control Offer |
|
If a change in control of our company occurs, we must give
holders the opportunity to sell their Exchange Notes to us at
101% of their principal amount plus accrued and unpaid interest,
if any. We, however, may not be able to pay the required price
for the Exchange Notes presented to us at the time of a change
of control event because we may have insufficient funds. |
7
|
|
|
Restrictive Covenants |
|
The indenture governing the Notes (including the Exchange Notes)
contains covenants that, among other things, limit our ability
and the ability of our restricted subsidiaries to: |
|
|
|
incur or guarantee additional
indebtedness;
|
|
|
|
incur or guarantee secured
indebtedness;
|
|
|
|
pay dividends or distributions on,
or redeem or repurchase, our capital stock;
|
|
|
|
make certain investments or other
restricted payments;
|
|
|
|
sell assets;
|
|
|
|
enter into transactions with
affiliates;
|
|
|
|
merge or consolidate or sell all
or substantially all of our assets; and
|
|
|
|
create restrictions on the ability
of our restricted subsidiaries to pay dividends or other amounts
to us.
|
|
|
|
In addition, we are required to maintain Total Unencumbered
Assets (as defined in Description of Exchange Notes)
of at least 150% of our unsecured indebtedness. These covenants
are subject to a number of important limitations and exceptions.
See Description of Exchange NotesCovenants. |
|
Absence of a Public Market for the Exchange Notes |
|
The Exchange Notes are a new issue of securities with no
established public market. We do not intend to apply for listing
of the Exchange Notes on any securities exchange. |
You should refer to the section titled Risk
Factors on page 13 of this prospectus for a description of
some of the risks you should consider before investing in the
Exchange Notes.
8
Summary
Financial Data
You should read the following summary historical consolidated
financial and other data in connection with Selected
Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the historical consolidated financial statements and related
notes thereto appearing elsewhere in this prospectus.
The summary historical consolidated financial data as of
December 31, 2010 and 2009 and for the years ended
December 31, 2010, 2009 and 2008 have been derived from the
audited historical consolidated financial statements of Aviv
Healthcare Properties Limited Partnership appearing elsewhere in
this prospectus. The summary historical consolidated balance
sheet data as of December 31, 2008 have been derived from
the audited historical consolidated financial statements of Aviv
Healthcare Properties Limited Partnership, which are not
included in this prospectus. The summary historical consolidated
financial data as of March 31, 2011 and 2010 and for the
three months ended March 31, 2011 and 2010 have been
derived from the unaudited historical consolidated financial
statements of Aviv Healthcare Properties Limited Partnership
appearing elsewhere in this prospectus. The unaudited historical
financial statements include all adjustments, consisting of
normal recurring adjustments, that we consider necessary for a
fair presentation of our financial condition and results of
operations as of such dates and for such periods under
accounting principles generally accepted in the United States.
The historical results are not necessarily indicative of the
results to be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Operating Information
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$72,143
|
|
|
|
$82,775
|
|
|
|
$84,490
|
|
|
|
$21,150
|
|
|
|
$19,690
|
|
Tenant recoveries
|
|
|
4,831
|
|
|
|
6,056
|
|
|
|
6,442
|
|
|
|
1,529
|
|
|
|
1,689
|
|
Interest on loans to lessees
|
|
|
1,859
|
|
|
|
3,493
|
|
|
|
5,226
|
|
|
|
1,131
|
|
|
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
78,833
|
|
|
|
92,324
|
|
|
|
96,158
|
|
|
|
23,810
|
|
|
|
22,711
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
1,088
|
|
|
|
612
|
|
|
|
575
|
|
|
|
169
|
|
|
|
202
|
|
General and administrative
|
|
|
6,809
|
|
|
|
7,741
|
|
|
|
10,725
|
|
|
|
1,424
|
|
|
|
3,468
|
|
Offering costs
|
|
|
|
|
|
|
6,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
5,116
|
|
|
|
6,232
|
|
|
|
6,475
|
|
|
|
1,605
|
|
|
|
1,689
|
|
Depreciation
|
|
|
14,616
|
|
|
|
17,528
|
|
|
|
17,854
|
|
|
|
4,362
|
|
|
|
4,799
|
|
Loss on impairment
|
|
|
932
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
28,561
|
|
|
|
38,977
|
|
|
|
35,725
|
|
|
|
7,560
|
|
|
|
10,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
50,272
|
|
|
|
53,347
|
|
|
|
60,433
|
|
|
|
16,250
|
|
|
|
12,553
|
|
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
2,012
|
|
|
|
466
|
|
|
|
133
|
|
|
|
63
|
|
|
|
6
|
|
Interest expense
|
|
|
(26,272
|
)
|
|
|
(26,570
|
)
|
|
|
(22,723
|
)
|
|
|
(5,865
|
)
|
|
|
(7,556
|
)
|
Change in fair value of derivatives
|
|
|
(8,674
|
)
|
|
|
6,988
|
|
|
|
2,931
|
|
|
|
1,321
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
(537
|
)
|
|
|
(550
|
)
|
|
|
(1,008
|
)
|
|
|
(139
|
)
|
|
|
(679
|
)
|
Gain on sale of assets, net
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(2,295
|
)
|
|
|
|
|
|
|
(3,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(33,471
|
)
|
|
|
(19,666
|
)
|
|
|
(22,450
|
)
|
|
|
(4,620
|
)
|
|
|
(11,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
16,801
|
|
|
|
33,681
|
|
|
|
37,983
|
|
|
|
11,630
|
|
|
|
1,181
|
|
Discontinued operations
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$16,874
|
|
|
|
$33,681
|
|
|
|
$37,983
|
|
|
|
$11,630
|
|
|
|
$1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of March 31,
|
Balance Sheet Information
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
|
$9,361
|
|
|
|
$15,543
|
|
|
|
$13,028
|
|
|
|
$8,162
|
|
|
|
$10,504
|
|
Loan receivables
|
|
|
20,361
|
|
|
|
28,970
|
|
|
|
36,611
|
|
|
|
34,575
|
|
|
|
30,727
|
|
Rental properties, net of accumulated depreciation
|
|
|
564,600
|
|
|
|
577,736
|
|
|
|
627,101
|
|
|
|
583,646
|
|
|
|
650,378
|
|
Total assets
|
|
|
634,368
|
|
|
|
665,130
|
|
|
|
731,400
|
|
|
|
668,243
|
|
|
|
746,990
|
|
Mortgage and other notes payable
|
|
|
463,546
|
|
|
|
480,105
|
|
|
|
440,576
|
|
|
|
477,542
|
|
|
|
454,624
|
|
Total liabilities
|
|
|
519,096
|
|
|
|
527,598
|
|
|
|
486,244
|
|
|
|
530,054
|
|
|
|
499,969
|
|
Total equity
|
|
|
77,871
|
|
|
|
74,562
|
|
|
|
245,156
|
|
|
|
73,068
|
|
|
|
247,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended March 31,
|
Other Information
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
|
(in thousands)
|
|
Cash flows provided by operating activities
|
|
|
$32,048
|
|
|
|
$40,042
|
|
|
|
$54,680
|
|
|
|
$14,014
|
|
|
|
$13,670
|
|
Cash flows used in investing activities
|
|
|
(89,075
|
)
|
|
|
(38,493
|
)
|
|
|
(75,117
|
)
|
|
|
(7,756
|
)
|
|
|
(22,350
|
)
|
Cash flows provided by (used in) financing activities
|
|
|
50,010
|
|
|
|
4,632
|
|
|
|
17,922
|
|
|
|
(13,638
|
)
|
|
|
6,156
|
|
Purchase of rental properties
|
|
|
(94,392
|
)
|
|
|
(16,376
|
)
|
|
|
(54,884
|
)
|
|
|
|
|
|
|
(24,826
|
)
|
Capital improvements and other
|
|
|
(1,833
|
)
|
|
|
(13,508
|
)
|
|
|
(7,883
|
)
|
|
|
(2,152
|
)
|
|
|
(3,250
|
)
|
Funds from operations (FFO) (1)
|
|
|
31,536
|
|
|
|
51,209
|
|
|
|
55,325
|
|
|
|
15,992
|
|
|
|
5,979
|
|
Adjusted FFO (1)
|
|
|
34,036
|
|
|
|
43,554
|
|
|
|
52,278
|
|
|
|
13,229
|
|
|
|
11,191
|
|
EBITDA (2)
|
|
|
56,429
|
|
|
|
77,863
|
|
|
|
79,434
|
|
|
|
21,933
|
|
|
|
14,210
|
|
Adjusted EBITDA (2)
|
|
|
63,923
|
|
|
|
76,047
|
|
|
|
77,923
|
|
|
|
19,126
|
|
|
|
17,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Other Information
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Ratio of earnings to fixed charges (3)
|
|
|
1.70
|
x
|
|
|
1.66
|
x
|
|
|
1.63
|
x
|
|
|
2.23
|
x
|
|
|
2.60x
|
|
|
|
2.94
|
x
|
|
|
1.14
|
x
|
|
|
|
(1) |
|
FFO represents net income before depreciation and gain on sale
of assets. Adjusted FFO represents FFO before deferred rental
income, stock-based compensation, amortization of intangible
income, amortization of deferred financing costs, offering
costs, indemnity payments, loss on impairment of assets, loss on
extinguishment of debt and change in fair value of derivatives.
For a discussion of FFO and Adjusted FFO, including their limits
as financial measures, see Presentation of
Non-GAAP Financial Information and Portfolio
Statistics. The following table is a reconciliation of FFO
and Adjusted FFO to net income, the most directly comparable
measure calculated in accordance with GAAP: |
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
Funds from Operations
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Net income
|
|
|
$16,874
|
|
|
|
$33,681
|
|
|
|
$37,983
|
|
|
|
$11,630
|
|
|
|
$1,181
|
|
Depreciation
|
|
|
14,662
|
|
|
|
17,528
|
|
|
|
17,854
|
|
|
|
4,362
|
|
|
|
4,798
|
|
Gain on sale of assets, net
|
|
|
|
|
|
|
|
|
|
|
(512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
|
31,536
|
|
|
|
51,209
|
|
|
|
55,325
|
|
|
|
15,992
|
|
|
|
5,979
|
|
Deferred rental income
|
|
|
(5,531
|
)
|
|
|
(6,389
|
)
|
|
|
(3,056
|
)
|
|
|
(95
|
)
|
|
|
1,166
|
|
Stock-based compensation
|
|
|
406
|
|
|
|
406
|
|
|
|
2,219
|
|
|
|
102
|
|
|
|
586
|
|
Amortization of intangible income
|
|
|
(2,518
|
)
|
|
|
(2,098
|
)
|
|
|
(3,681
|
)
|
|
|
(1,771
|
)
|
|
|
(362
|
)
|
Amortization of deferred financing costs
|
|
|
537
|
|
|
|
550
|
|
|
|
1,008
|
|
|
|
139
|
|
|
|
679
|
|
Offering costs(a)
|
|
|
|
|
|
|
6,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indemnity payments(b)
|
|
|
|
|
|
|
|
|
|
|
1,003
|
|
|
|
183
|
|
|
|
|
|
Loss on impairment of assets
|
|
|
932
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
8,674
|
|
|
|
(6,988
|
)
|
|
|
(2,931
|
)
|
|
|
(1,321
|
)
|
|
|
|
|
Non-cash loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
2,295
|
|
|
|
|
|
|
|
3,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted FFO
|
|
|
$34,036
|
|
|
|
$43,554
|
|
|
|
$52,278
|
|
|
|
$13,229
|
|
|
|
$11,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents costs associated with a planned initial public
offering of our company in 2008 and 2009 that was abandoned.
|
|
|
|
|
(b)
|
Represents payments made to one of our operators to indemnify
the operator for certain government obligations owed by the
prior operator from whom we are seeking reimbursement. The total
possible remaining liability for these obligations is
$0.7 million.
|
|
|
|
(2) |
|
EBITDA represents net income before interest expense (net),
taxes, depreciation and amortization of deferred financing
costs. Adjusted EBITDA represents EBITDA before stock-based
compensation, amortization of intangible income, offering costs,
indemnity payments, loss on impairment of assets, loss on
extinguishment of debt, change in fair value of derivatives and
gain on sale of assets. For a discussion of EBITDA and Adjusted
EBITDA, including their limits as financial measures, see
Presentation of Non-GAAP Financial Information and
Portfolio Statistics. The following table is a
reconciliation of EBITDA and Adjusted EBITDA to net income, the
most directly comparable measure calculated in accordance with
GAAP: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
EBITDA
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Net income
|
|
|
$16,874
|
|
|
|
$33,681
|
|
|
|
$37,983
|
|
|
|
$11,630
|
|
|
|
$1,181
|
|
Interest expense, net
|
|
|
24,356
|
|
|
|
26,104
|
|
|
|
22,589
|
|
|
|
5,802
|
|
|
|
7,551
|
|
Depreciation
|
|
|
14,662
|
|
|
|
17,528
|
|
|
|
17,854
|
|
|
|
4,362
|
|
|
|
4,799
|
|
Amortization of deferred financing costs
|
|
|
537
|
|
|
|
550
|
|
|
|
1,008
|
|
|
|
139
|
|
|
|
679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
EBITDA
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
EBITDA
|
|
|
56,429
|
|
|
|
77,863
|
|
|
|
79,434
|
|
|
|
21,933
|
|
|
|
14,210
|
|
Stock-based compensation
|
|
|
406
|
|
|
|
406
|
|
|
|
2,219
|
|
|
|
102
|
|
|
|
586
|
|
Amortization of intangible income
|
|
|
(2,518
|
)
|
|
|
(2,098
|
)
|
|
|
(3,681
|
)
|
|
|
(1,771
|
)
|
|
|
(362
|
)
|
Offering costs (a)
|
|
|
|
|
|
|
6,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indemnity payments (b)
|
|
|
|
|
|
|
|
|
|
|
1,003
|
|
|
|
183
|
|
|
|
|
|
Loss on impairment of assets
|
|
|
932
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
2,295
|
|
|
|
|
|
|
|
3,143
|
|
Change in fair value of derivatives
|
|
|
8,674
|
|
|
|
(6,988
|
)
|
|
|
(2,931
|
)
|
|
|
(1,321
|
)
|
|
|
|
|
Gain on sale of assets, net
|
|
|
|
|
|
|
|
|
|
|
(512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
$63,923
|
|
|
|
$76,047
|
|
|
|
$77,923
|
|
|
|
$19,126
|
|
|
|
$17,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents costs associated with a planned initial public
offering of our company in 2008 and 2009 that was abandoned.
|
|
|
|
|
(b)
|
Represents payments made to one of our operators to indemnify
the operator for certain government obligations owed by the
prior operator from whom we are seeking reimbursement. The total
possible remaining liability for these obligations is
$0.7 million.
|
|
|
|
(3) |
|
For purposes of the ratio of earnings to fixed charges, earnings
consists of net income before fixed charges. Fixed charges
consist of interest expensed and capitalized and amortized
premiums, preferred dividends, discounts and capitalized
expenses related to indebtedness. |
12
RISK
FACTORS
An investment in the Exchange Notes involves significant
risks. You should consider the following risks in addition to
information set forth elsewhere in this prospectus before
deciding to participate in the exchange offer. If any of the
matters highlighted by the risks discussed in this prospectus
occur, our business, financial condition, liquidity and results
of operations could be materially and adversely affected, and
you could lose all or a part of your investment.
Risks
Relating to Our Business and Operations
Our
business is dependent upon our tenants successfully operating
their businesses and their failure to do so could have a
material adverse effect on our ability to successfully and
profitably operate our business.
We depend on our tenants to operate the properties we own in a
manner which generates revenues sufficient to allow them to meet
their obligations to us, including their obligations to pay
rent, maintain certain insurance coverage, pay real estate taxes
and maintain the properties in a manner so as not to jeopardize
their operating licenses or regulatory status. The ability of
our tenants to fulfill their obligations under our leases may
depend, in part, upon the overall profitability of their
operations, including any other SNFs or other properties or
businesses they may acquire or operate. Cash flow generated by
certain individual properties have not in the past been, and
currently are not, sufficient for a tenant to meet its
obligations to us. Our financial position could be weakened and
our ability to fulfill our obligations under our indebtedness
could be limited if any of our major tenants were unable to meet
their obligations to us or failed to renew or extend their
relationship with us as their lease terms expire, or if we were
unable to lease or re-lease our properties on economically
favorable terms. While we have generally been successful in the
past in transitioning properties from one tenant to another
where properties are underperforming, there can be no assurance
that we will be able to continue to identify and successfully
transition underperforming properties going forward. In
addition, from time to time we may recognize deferred rent
write-offs in connection with transitioning properties. These
adverse developments could arise due to a number of factors,
including those described in the risk factors below, including
those under the heading Risks Relating to Our
Tenants and the Skilled Nursing Facility Industry.
We are
subject to risks associated with debt financing, which could
negatively impact our business and our ability to repay maturing
debt.
Financing for future investments and our maturing commitments
may be provided by borrowings under our credit facilities,
private or public offerings of debt, the assumption of secured
indebtedness, mortgage financing on a portion of our owned
portfolio or through joint ventures. We are subject to risks
normally associated with debt financing, including the risks
that our cash flow will be insufficient to make timely payments
of interest, that we will be unable to refinance existing
indebtedness or support collateral obligations and that the
terms of refinancing will not be as favorable as the terms of
existing indebtedness. If we are unable to refinance or extend
principal payments due at maturity or pay them with proceeds
from other capital transactions, our cash flow may not be
sufficient in all years to repay all maturing debt and to pay
distributions to our stockholders. Furthermore, if prevailing
interest rates, changes in our debt ratings or other factors at
the time of refinancing result in higher interest rates upon
refinancing, the interest expense relating to that refinanced
indebtedness would increase, which could reduce our
profitability. Moreover, additional debt financing increases the
amount of our leverage, which could negatively affect our
ability to obtain additional financing in the future or make us
more vulnerable to a downturn in our results of operations or
the economy generally. See Risks Relating to the
Notes and Our Other Indebtedness.
13
Certain
tenants account for a significant percentage of our rental
income, and the failure of any of these tenants to meet their
obligations to us could materially reduce our rental income and
net income.
For the twelve months ended March 31, 2011, approximately
13.3% of our total rent under existing leases was from
Evergreen, which operates 17 of our properties in California,
Montana, Nevada, Oregon and Washington, approximately 10.6% of
our total rent under existing leases was from Daybreak, which
operates 28 of our properties in Texas, and approximately 9.4%
of our total rent under existing leases was from SunMar, which
operates 13 of our properties in California. No other tenant
generated more than 9.1% of our total rent under existing leases
for the twelve months ended March 31, 2011.
The failure or inability of any of these tenants, or of other
tenants that account for a significant percentage of our rental
income, to meet their obligations to us could materially reduce
our rental income and net income, which could in turn materially
adversely affect our results of operations and our ability to
make payments on our indebtedness, including the Notes.
The
geographic concentration of our properties could leave us
vulnerable to an economic downturn, regulatory or reimbursement
changes or acts of nature in those areas, resulting in a
decrease in our revenues or otherwise negatively impacting our
results of operations.
For the twelve months ended March 31, 2011, the three
states from which we derived the largest amount of rent under
existing leases were California (17.6%), Texas (14.9%) and
Arkansas (9.5%). As a result of these concentrations, the
conditions of local economies and real estate markets, changes
in governmental rules and regulations, particularly with respect
to Medicaid, acts of nature and other factors that may result in
a decrease in demand for long-term care services in these states
could have an adverse impact on our tenants revenues,
costs and results of operations, which may affect their ability
to meet their obligations to us.
Our
portfolio currently consists predominantly of SNFs; any
significant cost increases, reductions in reimbursement rates or
other regulatory changes could negatively affect our
tenants businesses and their ability to meet their
obligations to us.
Our portfolio is predominately comprised of SNFs. As a result of
our focus on SNFs, any changes in governmental rules and
regulations, particularly with respect to Medicare and Medicaid
reimbursement, or any other changes negatively affecting SNFs,
could have an adverse impact on our tenants revenues,
costs and results of operations, which may affect their ability
to meet their obligations to us.
We may
not be successful in identifying and consummating suitable
acquisitions or investment opportunities, which may impede our
growth and negatively affect our results of operations and may
result in the use of a significant amount of management
resources.
Our ability to expand through acquisitions is integral to our
business strategy and requires us to identify suitable
acquisition or investment opportunities that meet our criteria
and are compatible with our growth strategy. Accordingly, we may
often be engaged in evaluating potential transactions and other
strategic alternatives. Although there is uncertainty that any
of these discussions will result in definitive agreements or the
completion of any transaction, we may devote a significant
amount of our management resources to such a transaction, which
could negatively impact our operations. In addition, we may
incur significant costs in connection with seeking acquisitions
or other strategic opportunities, regardless of whether the
contemplated transactions are completed, and in combining our
operations in the event that any such transactions are completed.
Our ability to acquire properties successfully may be
constrained by the following significant risks:
|
|
|
|
|
competition from other real estate investors with significant
capital, including publicly-traded REITs and institutional
investment funds;
|
14
|
|
|
|
|
competition from other potential acquirers may significantly
increase the purchase price for a property we acquire, which
could reduce our growth prospects;
|
|
|
|
unsatisfactory results of our due diligence investigations or
failure to meet other customary closing conditions; and
|
|
|
|
failure to finance an acquisition on favorable terms or at all.
|
If any of these risks are realized, our business, financial
condition and results of operations and our ability to make
payments on our indebtedness, including the Notes, may be
materially and adversely affected.
The fact that we must distribute 90% of our REIT taxable income
annually in order to maintain our qualification as a REIT may
limit our ability to rely upon rental payments from our leased
properties or subsequently acquired properties in order to
finance acquisitions. As a result, if debt or equity financing
is not available on acceptable terms, further acquisitions might
be limited or curtailed.
If we
fail to maintain proper and effective internal controls, our
ability to produce accurate financial statements could be
impaired, which could adversely affect our operating results,
our ability to operate our business and our ability to make
payments on our indebtedness.
Beginning with the fiscal year ending December 31, 2012, we
will be required to perform system and process evaluation and
testing of our internal control over financial reporting to
allow management to begin reporting on the effectiveness of our
internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act. We cannot be certain
that we will be able to successfully complete the procedures,
certification and attestation requirements of Section 404
or that we will not identify material weaknesses in our internal
control over financial reporting. If we fail to comply with the
requirements of Section 404 or if we identify and report a
material weakness, it may affect the reliability of our internal
control over financial reporting, which could adversely affect
the trading price of the Notes, and we could be subject to
sanctions or investigations by the SEC or other regulatory
authorities, which would require additional financial and
management resources.
Because
real estate investments are relatively illiquid, our ability to
promptly sell properties in our portfolio is limited.
Because real estate investments are relatively illiquid, our
ability to promptly sell one or more properties in our portfolio
is limited. The real estate market is affected by many factors,
such as general economic conditions, availability of financing,
interest rates and other factors, including supply and demand,
that are beyond our control. In addition, our properties are
special purpose properties that could not be readily converted
to general residential, retail or office use. Transfers of
operations of SNFs and other healthcare properties are subject
to regulatory approvals not required for transfers of other
types of commercial operations and other types of real estate.
We cannot predict whether we will be able to sell any property
for the price or on the terms set by us or whether any price or
other terms offered by a prospective purchaser would be
acceptable to us. We also cannot predict the length of time
needed to find a willing purchaser and to close the sale of a
property. To the extent we are unable to sell any properties for
our book value, we may be required to take a non-cash impairment
charge or loss on the sale, either of which would reduce our net
income.
We may be required to expend funds to correct defects or to make
improvements before a property can be sold. We may not have
funds available to correct those defects or to make those
improvements. We may agree to transfer restrictions that
materially restrict us from selling that property for a period
of time or impose other restrictions, such as a limitation on
the amount of debt that can be placed or repaid on that
property. These transfer restrictions would impede our ability
to sell a property even if we deem it necessary or appropriate.
These facts and any others that would impede our ability to
respond to adverse changes in the
15
performance of our properties may have a material adverse effect
on our business, financial condition and results of operations.
Uninsured
losses or losses in excess of our tenants insurance
coverage could adversely affect our financial position and our
cash flow.
Under the terms of our leases, our tenants are required to
maintain comprehensive general liability, fire, flood,
earthquake, boiler and machinery, nursing home or long-term care
professional liability and extended coverage insurance with
respect to our properties with policy specifications, limits and
deductibles set forth in the leases or other written agreements
between us and the tenant. However, our properties may be
adversely affected by casualty losses which exceed insurance
coverages and reserves. Should an uninsured loss occur, we could
lose both our investment in, and anticipated profits and cash
flows from, the property. Even if it were practicable to restore
the property to its condition prior to the damage caused by a
major casualty, the operations of the affected property would
likely be suspended for a considerable period of time. In the
event of any substantial loss affecting a property, disputes
over insurance claims could arise.
As an
owner of real property, we may be exposed to environmental
liabilities.
Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner of real
property, such as us, may be liable in certain circumstances for
the costs of investigation, removal, remediation or release of
hazardous or toxic substances (including materials containing
asbestos) at, under or disposed of in connection with such
property, as well as certain other potential costs relating to
hazardous or toxic substances, including government fines and
damages for injuries to persons or adjacent property. Such laws
often impose liability without regard to whether the owner knew
of, or was responsible for, the presence or disposal of such
substances, and liability may be imposed on the owner in
connection with the activities of a tenant at the property. The
cost of any required investigation, remediation, removal, fines
or personal or property damages and the owners liability
therefore could exceed the value of the property
and/or the
assets of the owner. In addition, the presence of such
substances, or the failure to properly dispose of or remediate
such substances, may adversely affect our tenants ability
to attract additional residents, our ability to sell or rent
such property or to borrow using such property as collateral
which, in turn, could reduce our revenues.
Although our leases require the tenant to indemnify us for
certain environmental liabilities, the scope of such obligations
may be limited. For instance, some of our leases do not require
the tenant to indemnify us for environmental liabilities arising
before the tenant took possession of the premises. Further, we
cannot assure you that any such tenant would be able to fulfill
its indemnification obligations. If we were to be liable for any
such environmental liabilities and were unable to seek recovery
against our tenants, our business, financial condition and
results of operations could be materially and adversely affected.
We depend
upon our key employees and our failure to retain or attract
sufficient numbers of qualified personnel could have a material
adverse effect on our business.
Our future performance depends to a significant degree upon the
continued contributions of our management team and other
employees. As of March 31, 2011, we had 22 full-time
employees and two part-time employees and, as a result, the loss
of even a small number of our employees may have an adverse
effect on our business. Accordingly, our future success depends
on our ability to retain, attract, hire and train skilled
management and other qualified personnel. Competition for
qualified employees is intense, and we compete for qualified
employees with companies that may have greater financial
resources than we have. Consequently, we may not be successful
in retaining, attracting, hiring and training the people we
need, which would seriously impede our ability to implement our
business strategy.
16
Craig M.
Bernfield has significant influence over our board of
directors.
Pursuant to a Stockholders Agreement entered into by Aviv REIT,
Inc., an affiliate of Lindsay Goldberg, LLC (Lindsay
Goldberg), a representative of certain limited partners
related to the family of Zev Karkomi and an entity formed by
Craig Bernfield, our Chairman, President and Chief Executive
Officer, a total of eleven votes are to be cast at all meetings
of Aviv REITs board of directors. Subject to certain
exceptions, Class B directors, who are designated by
Mr. Bernfield, are entitled to cast a total of six such
votes. As a result, subject to certain exceptions,
Mr. Bernfield has the ability to effectively control many
of our decisions and substantially influence our business,
policies, affairs and matters requiring the approval of our
board of directors, including the determination of the outcome
of many significant corporate transactions.
Risks
Relating to Our Tenants and the Skilled Nursing Facility
Industry
Our
tenants failure to comply with the requirements of
governmental reimbursement programs such as Medicare or
Medicaid, licensing and certification requirements, fraud and
abuse regulations or new legislative developments may affect
their ability to meet their obligations to us.
Our tenants are subject to numerous federal, state and local
laws and regulations that are subject to frequent and
substantial changes (sometimes applied retroactively) resulting
from legislation, adoption of rules and regulations, and
administrative and judicial interpretations of existing laws.
The ultimate timing or effect of any changes in these laws and
regulations cannot be predicted. We have no direct control over
our tenants ability to meet the numerous federal, state
and local regulatory requirements. The failure of any of our
tenants to comply with these laws, requirements and regulations
may affect their ability to meet their obligations to us. In
particular:
|
|
|
|
|
Licensing and Certification. Our tenants and
facilities are subject to regulatory and licensing requirements
of federal, state and local authorities and are periodically
surveyed by them to confirm compliance. Failure to obtain
licensure or loss or suspension of licensure or certification
may prevent a facility from operating or result in a suspension
of reimbursement payments until all licensure or certification
issues have been resolved and the necessary licenses or
certification are obtained or reinstated. In addition, some
states require that SNFs obtain governmental approval, in the
form of a Certificate of Need, or CON, or similar certification,
that generally varies by state and is subject to change, prior
to the addition or construction of new beds, the addition of
services or certain capital expenditures. The CON laws and
regulations may restrict our ability to add new facilities or
expand an existing facilitys size or services. In
addition, CON laws may constrain our ability to lease a
particular property to a new tenant.
|
|
|
|
Medicare and Medicaid Certification. A
significant portion of the revenues of our tenants that operate
SNFs is derived from participation in government-funded
reimbursement programs, primarily Medicare and Medicaid, and
failure to maintain certification to participate in these
programs could result in a loss of funding from such programs.
Loss of certification could cause the revenues of our tenants to
decline, potentially jeopardizing their ability to meet their
obligations to us.
|
|
|
|
Fraud and Abuse Laws and Regulations. There
are various highly complex federal and state laws governing a
wide array of referrals, financial relationships and
arrangements and prohibiting fraud by healthcare providers,
including criminal provisions that prohibit financial
inducements for referrals, filing false claims or making false
statements to receive payment or certification under Medicare
and Medicaid, or failing to refund overpayments or improper
payments. Violations of these laws subject persons and entities
to termination from participation in Medicare, Medicaid and
other federally funded healthcare programs or result in the
imposition of treble damages and fines or other penalties, which
may affect that tenants ability to meet its obligations to
us or to continue operating the facility.
|
17
|
|
|
|
|
Other Laws. Other laws that impact how our
tenants conduct their operations include: federal and state laws
designed to protect the confidentiality and security of patient
health information; state and local licensure laws; laws
protecting consumers against deceptive practices; laws generally
affecting our tenants management of property and equipment
and how our tenants generally conduct their operations, such as
fire, health and safety, and environmental laws; federal and
state laws affecting assisted living facilities mandating
quality of services and care, and quality of food service;
resident rights (including abuse and neglect laws); and health
standards set by the federal Occupational Safety and Health
Administration. We cannot predict the effect additional costs to
comply with these laws may have on the expenses of our tenants
and their ability to meet their obligations to us.
|
|
|
|
Legislative and Regulatory
Developments. Because all of our properties are
used as healthcare properties, we will be impacted by the risks
associated with the healthcare industry, including healthcare
reform. While the expansion of healthcare coverage may result in
some additional demand for services provided by tenants,
reimbursement levels may be lower than the costs required to
provide such services, which could materially adversely affect
the ability of tenants to generate profits and pay rent under
their lease agreements with us and thereby could materially
adversely affect our business, financial position or results of
operations. Regulatory proposals and rules are released on an
ongoing basis that may have an impact on the healthcare system
in general and the skilled nursing and long-term care industries
in particular. We cannot predict whether any legislative or
regulatory proposals will be adopted or, if adopted, what
effect, if any, these proposals would have on our tenants and
their ability to meet their obligations to us.
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Our
tenants depend on reimbursement from government and other
third-party payors; reimbursement rates from such payors may be
reduced, which could cause our tenants revenues to decline
and affect their ability to meet their obligations to
us.
The ability of our tenants to generate revenue and profit
influences the underlying value of our properties. Revenues of
our tenants are generally derived from payments for patient
care. Sources of such payments for SNFs include Medicare, state
Medicaid programs, private insurance carriers, healthcare
service plans, health maintenance organizations, preferred
provider arrangements, self-insured employers and the patients
themselves. Medicare and Medicaid programs, as well as numerous
private insurance and managed care plans, generally require
participating providers to accept government-determined
reimbursement levels as payment in full for services rendered,
without regard to a facilitys charges. Changes in the
reimbursement rate or methods of payment from third-party
payors, including Medicare and Medicaid, or the implementation
of other measures to reduce reimbursements for services provided
by our tenants, have in the past and could in the future result
in a substantial reduction in our tenants revenues.
Additionally, revenue realizable under third-party payor
agreements can change after examination and retroactive
adjustment by payors during the claims settlement processes or
as a result of post-payment audits. Payors may disallow requests
for reimbursement based on determinations that certain costs are
not reimbursable or reasonable or because additional
documentation is necessary or because certain services were not
covered or were not medically necessary. There also continue to
be new legislative and regulatory proposals that could impose
further limitations on government and private payments to
healthcare providers. In some cases, states have enacted or are
considering enacting measures designed to reduce their Medicaid
expenditures and to make changes to private healthcare
insurance. Moreover, healthcare facilities continue to
experience pressures from private payors attempting to control
healthcare costs, and reimbursement from private payors has in
many cases effectively been reduced to levels approaching those
of government payors. We cannot assure you that adequate
reimbursement levels will continue to be available for the
services provided by our tenants. Further limits on the scope of
services reimbursed and on reimbursement rates could have a
material adverse effect on our tenants liquidity,
financial condition and results of operations, which could cause
the revenues of our tenants to decline and which may affect
their ability to meet their obligations to us.
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Government
budget deficits could lead to a reduction in Medicaid and
Medicare reimbursement.
A number of states are currently managing budget deficits, which
may put pressure on states to decrease reimbursement rates for
our tenants with the goal of decreasing state expenditures under
their state Medicaid programs. The need to control Medicaid
expenditures may be exacerbated by the potential for increased
enrollment in Medicaid due to unemployment and declines in
family incomes. These potential reductions could be compounded
by the potential for federal cost-cutting efforts that could
lead to reductions in reimbursement to our tenants under both
the Medicaid and Medicare programs. Potential reductions in
Medicaid and Medicare reimbursement to our tenants could reduce
the cash flow of our tenants and their ability to meet their
obligations to us.
Our
tenants may be subject to significant legal actions that could
subject them to increased operating costs and substantial
uninsured liabilities, which may affect their ability to meet
their obligations to us.
Our tenants may be subject to claims that their services have
resulted in resident injury or other adverse effects. The
insurance coverage maintained by our tenants, whether through
commercial insurance or self-insurance, may not cover all claims
made against them or continue to be available at a reasonable
cost, if at all. In some states, insurance coverage for the risk
of punitive damages arising from professional liability and
general liability claims
and/or
litigation may not, in certain cases, be available to our
tenants due to state law prohibitions or limitations of
availability. As a result, our tenants operating in these states
may be liable for punitive damage awards that are either not
covered or are in excess of their insurance policy limits. From
time to time, there may also be increases in government
investigations of long-term care providers, particularly in the
area of Medicare/Medicaid false claims, as well as increases in
enforcement actions resulting from these investigations.
Insurance is not available to cover such losses. Any adverse
determination in a legal proceeding or government investigation,
whether currently asserted or arising in the future, could lead
to potential termination from government programs, large
penalties and fines and otherwise have a material adverse effect
on a tenants financial condition. If a tenant is unable to
obtain or maintain insurance coverage, if judgments are obtained
in excess of the insurance coverage, if a tenant is required to
pay uninsured punitive damages, or if a tenant is subject to an
uninsurable government enforcement action, the tenant could be
exposed to substantial additional liabilities, which could
result in its bankruptcy or insolvency or have a material
adverse effect on the tenants business and its ability to
meet its obligations to us.
Moreover, advocacy groups that monitor the quality of care at
healthcare facilities have sued healthcare facility operators
and called upon state and federal legislators to enhance their
oversight of trends in healthcare facility ownership and quality
of care. Patients have also sued healthcare facility operators
and have, in certain cases, succeeded in winning very large
damage awards for alleged abuses. This litigation and potential
litigation in the future has materially increased the costs
incurred by our tenants for monitoring and reporting quality of
care compliance. In addition, the cost of medical malpractice
and liability insurance has increased and may continue to
increase so long as the present litigation environment affecting
the operations of healthcare facilities continues. Increased
costs could limit our tenants ability to meet their
obligations to us, potentially decreasing our revenue and
increasing our collection and litigation costs. To the extent we
are required to remove or replace a tenant, our revenue from the
affected property could be reduced or eliminated for an extended
period of time.
The
bankruptcy, insolvency or financial deterioration of our tenants
could delay or prevent our ability to collect unpaid rents or
require us to find new tenants.
We receive substantially all of our income as rent payments
under leases of our properties. We have very limited control
over the success or failure of our tenants businesses and,
at any time, any of our tenants may experience a downturn in its
business that may weaken its financial condition. As a result,
our tenants may fail to make rent payments when due or declare
bankruptcy. Any tenant failures to make rent payments when due
or tenant bankruptcies could result in the termination of the
tenants lease and could have a material
19
adverse effect on our business, financial condition and results
of operations, our ability to make distributions to our
stockholders and our ability to make payments on our
indebtedness, including the Notes.
If tenants are unable to comply with the terms of the leases, we
may be forced to modify the leases in ways that are unfavorable
to us. Alternatively, the failure of a tenant to perform under a
lease could require us to declare a default, repossess the
property, find a suitable replacement tenant, operate the
property or sell the property. There is no assurance that we
would be able to lease a property on substantially equivalent or
better terms than the prior lease, or at all, find another
tenant, successfully reposition the property for other uses or
sell the property on terms that are favorable to us.
If any lease expires or is terminated, we could be responsible
for all of the operating expenses for that property until it is
re-leased or sold. If we experience a significant number of
un-leased properties, our operating expenses could increase
significantly. Any significant increase in our operating costs
may have a material adverse effect on our business, financial
condition and results of operations, our ability to make
distributions to our stockholders and our ability to make
payments on our indebtedness, including the Notes.
Any bankruptcy filing by or relating to one of our tenants could
bar all efforts by us to collect pre-bankruptcy debts from that
tenant or seize its property. A tenant bankruptcy could also
delay our efforts to collect past due balances under the leases
and could ultimately preclude collection of all or a portion of
these sums. It is possible that we may recover substantially
less than the full value of any unsecured claims we hold, if
any, which may have a material adverse effect on our business,
financial condition and results of operations, our ability to
make distributions to our stockholders and our ability to make
payments on our indebtedness, including the Notes. Furthermore,
dealing with a tenants bankruptcy or other default may
divert managements attention and cause us to incur
substantial legal and other costs.
If one or more of our tenants files for bankruptcy relief, the
U.S. federal Bankruptcy Code provides that a debtor has the
option to assume or reject the unexpired lease within a certain
period of time. However, our leases with tenants that lease more
than one of our properties are generally made pursuant to a
single master lease covering all of that tenants
properties leased from us, or are cross-defaulted with other
leases, and consequently there is uncertainty about how such
arrangements may be treated in a bankruptcy. It is possible that
in bankruptcy the debtor-tenant may be required to assume or
reject the master lease or cross-defaulted leases as a whole,
rather than making the decision on a
property-by-property
basis, thereby preventing the debtor-tenant from assuming the
better performing properties and terminating the master lease or
cross-defaulted leases with respect to the poorer performing
properties. The U.S. federal Bankruptcy Code generally
requires that a debtor must assume or reject a contract in its
entirety. Thus, under this scenario, a debtor could not choose
to keep the beneficial provisions of a contract while rejecting
the burdensome ones; the contract must be assumed or rejected as
a whole. However, where under applicable state law a contract
(even though it is contained in a single document) is determined
to be divisible or severable into different agreements, or
similarly, where a collection of documents is determined to
constitute separate agreements instead of a single, integrated
contract, then in those circumstances a debtor/trustee may be
allowed to assume some of the divisible or separate agreements
while rejecting the others.
Risks
Relating to the Notes and Our Other Indebtedness
We have
substantial indebtedness and have the ability to incur
significant additional indebtedness.
We have substantial indebtedness and we may increase our
indebtedness in the future. As of March 31, 2011, we had
total indebtedness of $454.6 million outstanding. After
giving pro forma effect to the sale of the Old Notes and the
application of the proceeds therefrom to repay certain
outstanding indebtedness, we anticipate that we would have had
total indebtedness of approximately $508.4 million as of
March 31,
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2011, including $300.0 million of indebtedness with
respect to the Old Notes. Our level of indebtedness could have
important consequences to investors. For example, it could:
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limit our ability to satisfy our obligations with respect to the
Notes and our other debt;
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increase our vulnerability to general adverse economic and
industry conditions;
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limit our ability to obtain additional financing to fund future
working capital, capital expenditures and other general
corporate requirements, or to carry out other aspects of our
business;
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increase our cost of borrowing;
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require us to dedicate a substantial portion of our cash flow
from operations to payments on indebtedness, thereby reducing
the availability of such cash flow to fund working capital,
capital expenditures and other general corporate requirements,
or to carry out other aspects of our business;
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require us to pledge as collateral substantially all of our
assets;
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require us to maintain certain debt coverage and financial
ratios at specified levels, thereby reducing our financial
flexibility;
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limit our ability to make material acquisitions or take
advantage of business opportunities that may arise;
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limit our ability to make distributions to our stockholders,
which may cause us to become subject to federal corporate income
tax on any income that we do not distribute;
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expose us to fluctuations in interest rates, to the extent our
borrowings bear variable rates of interests;
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limit our flexibility in planning for, or reacting to, changes
in our business and industry; and
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place us at a potential competitive disadvantage compared to our
competitors that have less debt.
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In addition, the indenture governing the Notes permits us to
incur substantial additional debt, including secured debt (to
which the Notes will be effectively subordinated). If we incur
additional debt, the related risks described above could
intensify.
We may be
unable to service our indebtedness, including the
Notes.
Our ability to make scheduled payments on and to refinance our
indebtedness, including the Notes, depends on and is subject to
our future financial and operating performance, which in turn is
affected by general and regional economic, financial,
competitive, business and other factors beyond our control,
including the availability of financing in the banking and
capital markets. Our business may fail to generate sufficient
cash flow from operations or future borrowings may be
unavailable to us under our existing credit facility, our
revolving credit facility or from other sources in an amount
sufficient to enable us to make payments on our debt, including
the Notes, to refinance our debt or to fund our other liquidity
needs, including making distributions and dividends to maintain
our REIT status. If we are unable to meet our debt obligations
or to fund our other liquidity needs, we will need to
restructure or refinance all or a portion of our debt, including
the Notes. We may be unable to refinance any of our debt,
including our existing credit facility, our revolving credit
facility and the Notes, on commercially reasonable terms or at
all. In particular, our existing credit
21
facility and our revolving credit facility will mature prior to
the maturity of the Notes. If we were unable to make payments or
refinance our debt or obtain new financing under these
circumstances, we would have to consider other options, such as
asset sales, equity issuances
and/or
negotiations with our lenders to restructure the applicable
debt. Our existing credit facility, our revolving credit
facility and the indenture governing the Notes restrict, and
market or business conditions may limit, our ability to take
some or all of these actions. Any restructuring or refinancing
of our indebtedness could be at higher interest rates and may
require us to comply with more onerous covenants that could
further restrict our business operations. In addition, although
the indenture governing the Notes limits our ability to incur
additional indebtedness, this limitation is subject to a number
of significant exceptions and the amount of additional
indebtedness incurred could nevertheless be substantial.
Furthermore, the indenture governing the Notes does not impose
any limitation on our ability to incur liabilities that are not
considered indebtedness under the indenture governing the Notes.
The Notes
and the guarantees are unsecured and are effectively
subordinated to our secured indebtedness to the extent of the
value of the collateral securing such indebtedness.
The Notes and the guarantees are the Issuers and the
guarantors unsecured obligations. The indenture governing
the Notes generally permits us to incur secured indebtedness so
long as we maintain a specified ratio of unencumbered assets to
unsecured debt. The Notes and the guarantees are effectively
subordinated to all of our existing and future secured debt and
that of the guarantors to the extent of the value of the assets
securing such obligations, including our existing credit
facility and our revolving credit facility. Our obligations
under our existing credit facility and our revolving credit
facility are secured by first lien mortgages on certain of our
properties, a pledge of the capital stock of subsidiaries owning
such properties and other customary collateral, including an
assignment of leases and rents with respect to such mortgaged
properties. After giving pro forma effect to the sale of the Old
Notes and the application of the proceeds therefrom to repay
certain outstanding indebtedness, we anticipate that we would
have had an aggregate of approximately $199.3 million of
secured mortgage indebtedness and $9.1 million of other
secured indebtedness as of March 31, 2011. In addition, we
have $100.0 million available for borrowing under our
acquisition credit line and $14.8 million available for
borrowing under our revolving credit facility (which, subject to
certain conditions precedent, can be increased by an additional
$75.0 million). Because the Notes are unsecured
obligations, your right of repayment may be compromised in the
following situations:
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We enter into bankruptcy, liquidation, reorganization or other
winding-up;
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There is a default in payment under any of our secured
debt; or
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There is an acceleration of any of our secured debt.
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If any of these events occurs, the secured lenders could
foreclose on our assets in which they have been granted a
security interest, in each case to your exclusion, even if an
event of default exists under the indenture governing the Notes
at such time. As a result, upon the occurrence of any of these
events, it is possible that there would be no assets remaining
from which your claims could be satisfied or, if any assets
remained, they might be insufficient to fully satisfy your
claims. You may therefore not be fully repaid if we or the
subsidiary guarantors become insolvent or otherwise fail to make
payment on the Notes.
Certain
guarantees of the Notes are subordinated to the borrowings of
the applicable Note guarantors under our existing credit
facilities.
The guarantees of the subordinated guarantee subsidiaries rank
behind all of the subordinated guarantee subsidiaries
indebtedness under our mortgage term loan and acquisition credit
line or any permitted refinancing thereof. Our revenues
attributable to the properties held by the subordinated
guarantee subsidiaries were $41.7 million for the twelve
months ended March 31, 2011, and, as of March 31,
2011, these properties accounted for 44.8% of our total real
estate investments, net of accumulated depreciation. After
giving pro forma effect to the sale of the Old Notes and the use
of proceeds therefrom, as of March 31, 2011, the
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subordinated guarantee subsidiaries would have had aggregate
secured indebtedness to third parties of approximately
$199.3 million.
As a result of this subordination, upon any distribution to the
creditors of the subordinated guarantee subsidiaries in a
bankruptcy, liquidation or reorganization or similar proceeding
relating to the subordinated guarantee subsidiaries or their
property, the holders of the indebtedness under the mortgage
term loan and acquisition credit line of the subordinated
guarantee subsidiaries will be entitled to be paid in full
before any payment may be made with respect to the guarantees of
the Notes of such subordinated guarantee subsidiaries. In
addition, all payments on the guarantees of the Notes by the
subordinated guarantee subsidiaries will be blocked until
payment in full of the mortgage term loan and acquisition credit
line (or any permitted refinancing thereof).
Because amounts otherwise payable to the holders of the Notes by
the subordinated guarantee subsidiaries in a bankruptcy or
similar proceeding are required to be paid to the lenders under
the mortgage term loan and acquisition credit line instead, the
holders of the Notes may receive less, ratably, than the holders
of trade payables or other unsecured, unsubordinated creditors
in any such proceeding. Holders of the Notes may not be fully
repaid if we or the subordinated guarantee subsidiaries become
insolvent or otherwise fail to make payment on the Notes. See
Description of Exchange NotesSubordination of
Guaranties of Subordinated Guaranty Subsidiaries for a
full description of the subordination provisions.
The Notes
are structurally subordinated to all liabilities of our
non-guarantor subsidiaries.
The Notes are structurally subordinated to the indebtedness and
other liabilities of our subsidiaries that are not guaranteeing
the Notes or in the future do not guarantee the Notes. These
non-guarantor subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Notes, or to make any funds
available therefor, whether by dividends, loans, distributions
or other payments. Any right that we or the subsidiary
guarantors have to receive any assets of any of the
non-guarantor subsidiaries upon the bankruptcy, liquidation or
reorganization of those subsidiaries, and the consequent rights
of holders of Notes to realize proceeds from the sale of any of
those subsidiaries assets, will be effectively
subordinated to the claims of those subsidiaries
creditors, including creditors (including mortgage holders) and
holders of preferred equity interests of those subsidiaries.
Accordingly, in the event of a bankruptcy, liquidation or
reorganization of any of our non-guarantor subsidiaries, these
non-guarantor subsidiaries will pay the holders of their debts,
holders of preferred equity interests and their trade creditors
before distributing any of their assets to us. Our revenues
attributable to the properties held by the non-guarantor
subsidiaries was $0.5 million for the twelve months ended
March 31, 2011, and, as of March 31, 2011, these
properties accounted for 2.7% of Aviv REITs total real
estate investments, net of accumulated depreciation.
We rely
on our subsidiaries for our operating funds, and our
non-guarantor subsidiaries have no obligation to supply us with
any funds.
We conduct our operations through subsidiaries and depend on our
subsidiaries for the funds necessary to operate and repay our
debt obligations. We depend on the transfer of funds from our
subsidiaries to make the payments due under the Notes. Under
certain circumstances, one or more of our subsidiaries may be
released from its, or may not be required to provide a,
guarantee of the Notes, and in such circumstances, will not be
required to fund any of our obligations with respect to the
Notes. Each of our subsidiaries is a distinct legal entity and
has no obligation, contingent or otherwise, to transfer funds to
us. In addition, our ability to make payments under the Notes,
and the ability of our subsidiaries to transfer funds to us,
could be restricted by the terms of subsequent financings.
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Covenants
in our debt agreements will restrict our activities and could
adversely affect our business.
Our debt agreements, including the indenture governing the
Notes, our existing credit facility and our revolving credit
facility, contain various covenants that limit our ability and
the ability of our restricted subsidiaries to engage in various
transactions including:
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Incurring additional secured and unsecured debt;
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Paying dividends or making other distributions on, redeeming or
repurchasing the capital stock of Aviv REIT;
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Making investments or other restricted payments;
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Entering into transactions with affiliates;
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Issuing stock of or interests in restricted subsidiaries;
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Engaging in non-healthcare related business activities;
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Creating restrictions on the ability of our restricted
subsidiaries to pay dividends or other amounts to us;
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Selling assets; or
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Effecting a consolidation or merger or selling all or
substantially all of our assets.
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These covenants limit our operational flexibility and could
prevent us from taking advantage of business opportunities as
they arise, growing our business or competing effectively. In
addition, our existing credit facility and our revolving credit
facility require us to maintain specified financial covenants,
which include a maximum leverage ratio and a minimum fixed
charge coverage ratio, as well as satisfy other financial
condition tests. The indenture governing the Notes requires us
to maintain Total Unencumbered Assets (as defined in
Description of Exchange Notes) of at least 150% of
our unsecured indebtedness. Our ability to meet these
requirements may be affected by events beyond our control, and
we may not meet these requirements.
A breach of any of the covenants or other provisions in our debt
agreements could result in an event of default, which if not
cured or waived, could result in such debt becoming immediately
due and payable. This, in turn, could cause our other debt to
become due and payable as a result of cross-acceleration
provisions contained in the agreements governing such other
debt. We may be unable to maintain compliance with these
covenants and, if we fail to do so, we may be unable to obtain
waivers from the lenders
and/or amend
the covenants. In the event that some or all of our debt is
accelerated and becomes immediately due and payable, we may not
have the funds to repay, or the ability to refinance, such debt.
A rise in
interest rates may impact our future debt costs.
We have availability to borrow $100.0 million under our
acquisition credit line and $25.0 million available for
borrowing under our revolving credit facility (which, subject to
certain conditions precedent, can be increased by an additional
$75.0 million), and any amounts borrowed under the
facilities would accrue interest at variable rates. Because we
may incur a significant amount of indebtedness that bears
interest at a variable rate, we may be exposed to market risks
relating to changes in interest rates. A significant increase in
interest rates could impact the ability of our subsidiaries to
make distributions to us, which would reduce or available cash
and impact our ability to finance future investments and meet
maturing commitments. Rising
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interest rates could limit our ability to refinance existing
debt when it matures or cause us to pay higher interest rates
upon refinancing.
Federal
and state statutes allow courts, under specific circumstances,
to void guarantees and require noteholders to return payments
received from subsidiary guarantors.
Under the federal bankruptcy law and comparable provisions of
state fraudulent transfer laws, a guarantee of the Notes could
be voided, or claims in respect of a guarantee could be
subordinated to all other debts of that subsidiary guarantor if,
among other things, the subsidiary guarantor, at the time it
incurred the debt evidenced by its guarantee, received less than
reasonably equivalent value or fair consideration for the
incurrence of such guarantee and (i) was insolvent or
rendered insolvent by reason of such incurrence, (ii) was
engaged in a business or transaction for which the subsidiary
guarantors remaining assets constituted unreasonably small
capital, or (iii) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they
mature.
In addition, any payment by that subsidiary guarantor pursuant
to its guarantee could be voided and required to be returned to
the subsidiary guarantor, or to a fund for the benefit of our
creditors or the creditors of the subsidiary guarantor.
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a subsidiary guarantor would be
considered insolvent if:
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The sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets;
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The present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature; or
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It could not pay its debts as they become due.
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On the basis of historical financial information, recent
operating history and other factors, we believe that each
subsidiary guarantor, after giving effect to its guarantee of
the Notes, will not be insolvent, will have a fair market value
of its assets greater than the total amount of its liabilities
(including contingent liabilities), will have a present fair
salable value of its assets greater than the amount that will be
required to pay its probable liabilities on its debts as they
become absolute and matured, will be able to realize upon its
assets and pay its debts and other liabilities, including
contingent liabilities, as they mature, and will not have
unreasonably small capital. We cannot assure you, however, as to
what standard a court would apply in making these determinations
or that a court would agree with our conclusions in this regard.
In addition, each guarantee will contain a provision intended to
limit the subsidiary guarantors liability to the maximum
amount that it could incur without causing the incurrence of
obligations under its guarantee to be a fraudulent transfer.
This provision may not be effective to protect the guarantees
from being voided under fraudulent transfer laws, or may
eliminate the subsidiary guarantors obligations or reduce
the subsidiary guarantors obligations to an amount that
effectively makes the guarantee worthless.
We may
not have the funds necessary to finance the repurchase of the
Notes in connection with a change of control offer required by
the indenture governing the Notes.
Upon the occurrence of specific kinds of change of control
events, the indenture governing the Notes requires us to make an
offer to repurchase all outstanding Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest (and
additional interest, if any) to the date of repurchase. However,
it is possible that we will not have sufficient funds, or the
ability to raise sufficient funds, at the time of the change of
control to
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make the required repurchase of the Notes. In addition,
restrictions under our existing credit facility, our revolving
credit facility or other future debt, may not allow us to
repurchase the Notes upon a change of control. If we could not
refinance such senior debt or otherwise obtain a waiver from the
holders of such debt, we would be prohibited from repurchasing
the Notes, which would constitute an event of default under the
indenture governing the Notes, which in turn would constitute a
default under our existing credit facility and our revolving
credit facility. In addition, certain important corporate
events, such as leveraged recapitalizations that would increase
the level of our indebtedness, would not constitute a
Change of Control under the indenture governing the
Notes although these types of transactions could affect our
capital structure or credit ratings and the holders of the
Notes. See Description of Exchange NotesRepurchase
of Notes upon a Change of Control.
Courts interpreting change of control provisions under New York
law (which is the governing law of the indenture governing the
Notes) have not provided clear and consistent meanings of such
change of control provisions which leads to subjective judicial
interpretation. In addition, a court case in Delaware has
questioned whether an indenture change of control provision,
similar to the one contained in the indenture governing the
Notes, related to a change of control as a result of a change in
the composition of a board of directors could be unenforceable
on public policy grounds. Accordingly, the ability of a holder
of Notes to require us to repurchase Notes as a result of a
change in the composition of our board of directors is
uncertain. Another court may not enforce the change of control
provisions in the indenture governing the Notes as written for
the benefit of the holders, and the change of control provisions
could be impacted if we become a debtor in a bankruptcy case.
An active
trading market may not develop for the Notes, which may hinder
your ability to liquidate your investment.
We do not intend to list the Notes on any national securities
exchange or seek the admission of the Notes for quotation
through any automated inter-dealer quotation system. As a
result, an active trading market for the Notes may not develop
or be sustained. If an active trading market for the Notes fails
to develop or be sustained, the trading price of the Notes could
be adversely affected.
The liquidity of the trading market for the Notes and the
trading price quoted for the Notes may be adversely affected by
many factors, some of which are beyond our control, including:
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Prevailing interest rates;
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Demand for high yield debt securities generally;
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General economic conditions;
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Our financial condition, performance and future prospects;
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Our credit rating; and
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Prospects for companies in our industry generally.
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Historically, the market of non-investment grade debt like the
Notes has been subject to disruptions that have caused
substantial market price fluctuations in the price of securities
that are similar to the Notes. Therefore, even if a trading
market for the Notes develops, it may be subject to disruptions
and price volatility.
A
downgrade, suspension or withdrawal of the rating assigned by a
rating agency to the Notes, if any, could cause the liquidity or
market value of the Notes to decline.
The Notes have been rated by rating agencies. A rating is not a
recommendation to purchase, sell or hold the Notes. We cannot
assure you that any rating assigned will remain for any given
period of time or that a rating will not be lowered or withdrawn
entirely by a rating agency if, in that rating agencys
judgment,
26
circumstances relating to the basis of the rating, such as
adverse changes in our business, so warrant. Any lowering or
withdrawal of a rating by a rating agency could reduce the
liquidity or market value of the Notes.
Risks
Relating to Our Tax Status and Other Tax Related
Matters
Our
failure to remain qualified as a REIT would have significant
adverse consequences to us and our ability to make payments on
our indebtedness, including the Notes.
Aviv REIT intends to operate in a manner that will allow it to
be taxed as a REIT for U.S. federal income tax purposes
under the Internal Revenue Code of 1986, as amended (the
Code). Aviv REIT intends to make the election to be
taxed as a REIT effective as of its taxable year ending
December 31, 2010. We have not requested and do not plan to
request a ruling from the Internal Revenue Service, or IRS, that
we qualify as a REIT, and the statements in this prospectus are
not binding on the IRS or any court. If we fail to qualify or
lose our qualification as a REIT, we will face serious tax
consequences that would substantially reduce the funds available
for satisfying our obligations for each of the years involved
because:
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we would not be allowed a deduction for distributions to
stockholders in computing our taxable income and we would be
subject to U.S. federal income tax at regular corporate
rates;
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we also could be subject to the U.S. federal alternative
minimum tax and possibly increased state and local
taxes; and
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unless we are entitled to relief under applicable statutory
provisions, we could not elect to be taxed as a REIT for four
taxable years following a year during which we were disqualified.
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Qualification as a REIT involves the application of highly
technical and complex Code provisions and regulations
promulgated thereunder for which there are only limited judicial
and administrative interpretations. Even a technical or
inadvertent violation could jeopardize our ability to remain
qualified as a REIT. The complexity of these provisions and of
the applicable U.S. Treasury Department regulations that
have been promulgated under the Code is greater in the case of a
REIT that, like us, holds its assets through a partnership. The
determination of various factual matters and circumstances not
entirely within our control may affect our ability to remain
qualified as a REIT. In order to remain qualified as a REIT, we
must satisfy a number of requirements on a continuing basis,
including requirements regarding the composition of our assets,
sources of our gross income and stockholder ownership. Also, we
must make distributions to stockholders aggregating annually at
least 90% of our net taxable income, excluding capital gains.
As a result of these factors, our failure to qualify as a REIT
also could impair our ability to expand our business, raise
capital and make payments on our indebtedness, including the
Notes.
Even if
we remain qualified as a REIT, we may face other tax liabilities
that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be
subject to certain federal, state and local taxes on our income
and assets, including taxes on any undistributed income, tax on
income from some activities conducted as a result of a
foreclosure, and state or local income, property and transfer
taxes. Any of these taxes would decrease cash available for the
payment of our debt obligations. In addition, we may use taxable
REIT subsidiaries to undertake indirectly activities that the
REIT rules might otherwise preclude it from doing directly or
through pass-through subsidiaries. Such taxable REIT
subsidiaries will be subject to corporate level income tax at
regular rates.
To
maintain our REIT qualification, we may be forced to borrow
funds during unfavorable market conditions.
To qualify as a REIT, we generally must distribute to our
stockholders at least 90% of our net taxable income each year,
excluding net capital gains, and we will be subject to regular
corporate income taxes to the
27
extent that we distribute less than 100% of our net taxable
income each year. In addition, we will be subject to a 4%
nondeductible excise tax on the amount, if any, by which
distributions paid by us in any calendar year are less than the
sum of 85% of our ordinary income, 95% of our capital gain net
income and 100% of our undistributed income from prior years. In
order to qualify as a REIT and avoid the payment of income and
excise taxes, we may need to borrow funds on a short-term basis,
or possibly on a long-term basis, to meet the REIT distribution
requirements even if the then prevailing market conditions are
not favorable for these borrowings. These borrowing needs could
result from, among other things, a difference in timing between
the actual receipt of cash and inclusion of income for
U.S. federal income tax purposes, the effect of
non-deductible capital expenditures, the creation of reserves or
required debt amortization payments. The terms of the indenture
governing the Notes, our existing credit facility and our
revolving credit facility restrict our ability to incur
additional indebtedness.
Complying
with REIT requirements may limit our ability to hedge
effectively.
The REIT provisions of the Code substantially limit our ability
to hedge our liabilities. Any income from a hedging transaction
we enter into to manage risk of interest rate changes with
respect to borrowings made or to be made to acquire or carry
real estate assets generally does not constitute gross
income for purposes of the 75% gross income test or the
95% gross income test, if certain requirements are met. To the
extent that we enter into other types of hedging transactions,
the income from those transactions is likely to be treated as
non-qualifying income for purposes of both of the gross income
tests. As a result, we might have to limit our use of
advantageous hedging techniques or implement those hedges
through a taxable REIT subsidiary, or TRS. This could increase
the cost of our hedging activities because a domestic TRS would
be subject to tax on gains or expose us to greater risks
associated with changes in interest rates than we would
otherwise want to bear.
New
legislation or administrative or judicial action, in each
instance potentially with retroactive effect, could make it more
difficult or impossible for us to qualify as a REIT.
The present U.S. federal income tax treatment of REITs may
be modified, possibly with retroactive effect, by legislative,
judicial or administrative action at any time, which could
affect the U.S. federal income tax treatment of an
investment in our common stock and impair our ability to raise
capital through the sale of equity. The U.S. federal income
tax rules that affect REITs constantly are under review by
persons involved in the legislative process, the IRS and the
U.S. Treasury Department, which results in statutory
changes as well as frequent revisions to regulations and
interpretations. Revisions in U.S. federal tax laws and
interpretations thereof could cause us to change our investments
and commitments, which could also affect the tax considerations
of an investment in our common stock and impair our ability to
raise capital through the sale of equity.
We have
limited experience operating as a REIT and therefore may have
difficulty in successfully and profitably operating our business
in compliance with the regulatory requirements applicable to
REITs.
Aviv REIT was formed on July 30, 2010, and we have limited
experience operating as a REIT and complying with the numerous
technical restrictions and limitations set forth in the Code, as
applicable to REITs. As a result, we cannot assure you that we
will be able to successfully operate as a REIT or comply with
regulatory requirements applicable to REITs, and you should be
especially cautious in drawing conclusions about the ability of
our management team to operate our business.
Risks
Relating to the Exchange Offer
You may
not be able to sell your Old Notes if you do not exchange them
for Exchange Notes in the exchange offer.
If you do not exchange your Old Notes for Exchange Notes in the
exchange offer, your Old Notes will continue to be subject to
restrictions on transfer. In general, you may not offer, sell or
otherwise transfer the Old Notes in the United States unless
they are:
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registered under the Securities Act;
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28
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offered or sold pursuant to an exemption from the Securities Act
and applicable state securities laws; or
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offered or sold in a transaction not subject to the Securities
Act and applicable state securities laws.
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The Issuers and the guarantors do not currently anticipate that
they will register the Old Notes under the Securities Act and,
except for the limited instances involving the initial
purchasers or holders of the Old Notes who are not eligible to
participate in the exchange offer or who do not receive freely
transferable Exchange Notes in the exchange offer, they will not
be under any obligation to do so under the registration rights
agreements or otherwise.
Your
ability to sell your Old Notes may be significantly more limited
and the price at which you may be able to sell your Old Notes
may be significantly lower if you do not exchange them for
Exchange Notes in the exchange offer.
To the extent that the Old Notes are tendered and accepted for
exchange in the exchange offer, the trading market for the Old
Notes that remain outstanding may be significantly more limited.
As a result, the liquidity of the Old Notes not tendered and
accepted for exchange could be adversely affected. The extent of
the market for Old Notes and the availability of price
quotations would depend on a number of factors, including the
number of holders of Old Notes remaining outstanding and the
interest of securities firms in maintaining a market in the Old
Notes. An issue of securities with a similar outstanding market
value available for trading, which is called the
float, may command a lower price than would be
comparable to an issue of securities with a greater float. As a
result, the market price for the Old Notes that are not
exchanged in the exchange offer may be affected adversely to the
extent that the Old Notes exchanged in the exchange offer reduce
the float. The reduced float also may make the trading price of
the Old Notes that are not exchanged more volatile.
You must
comply with the exchange offer procedures in order to receive
new, freely tradable Exchange Notes.
Delivery of Exchange Notes in exchange for Old Notes tendered
and accepted for exchange pursuant to the exchange offer will be
made only after timely receipt by the exchange agent of
book-entry transfer of Old Notes into the exchange agents
account at DTC, as depositary, including an Agents Message
(as defined in The Exchange OfferProcedures for
Tendering Old Notes Through Brokers and Banks). We are not
required to notify you of defects or irregularities in tenders
of Old Notes for exchange. Old Notes that are not tendered or
that are tendered but we do not accept for exchange will,
following consummation of the exchange offer, continue to be
subject to the existing transfer restrictions under the
Securities Act and, upon consummation of the exchange offer,
certain registration and other rights under the registration
rights agreement will terminate. See The Exchange
OfferProcedures for Tendering Old Notes Through Brokers
and Banks and The Exchange OfferConsequences
of Failure to Exchange.
Some
holders who exchange their Old Notes may be deemed to be
underwriters, and these holders will be required to comply with
the registration and prospectus delivery requirements in
connection with any resale transaction.
If you exchange your Old Notes in the exchange offer for the
purpose of participating in a distribution of the Exchange
Notes, you may be deemed to have received restricted securities
and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
29
THE
EXCHANGE OFFER
Purpose
of the Exchange Offer
In connection with the sale of the Old Notes, we entered into
registration rights agreements pursuant to which we agreed, for
the benefit of the holders of the Old Notes, at our cost, to use
our reasonable best efforts:
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(1)
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to file with the SEC an exchange offer registration statement
pursuant to which we and the guarantors will offer, in exchange
for the Old Notes, new notes identical in all material respects
to, and evidencing the same indebtedness as, the Old Notes (but
will not contain terms with respect to transfer restrictions or
provide for the additional interest described below);
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(2)
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to cause the exchange offer registration statement to be
declared effective under the Securities Act prior to
September 2, 2011; and
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(3)
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to cause the exchange offer to be consummated by October 3,
2011 (the Consummation Deadline).
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Under existing interpretations by the staff of the SEC as set
forth in no-action letters issued to unrelated third parties and
referenced below, we believe that the Exchange Notes issued in
the exchange offer in exchange for the Old Notes may be offered
for resale, resold and otherwise transferred by any exchange
noteholder without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
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(1)
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such holder is not an affiliate of ours within the
meaning of Rule 405 of the Securities Act;
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(2)
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such Exchange Notes are acquired in the ordinary course of the
holders business; and
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(3)
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such holder has no arrangement or understanding with any person
to participate in a distribution (within the meaning of the
Securities Act) of the Exchange Notes.
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Any holder who tenders in the exchange offer with the intention
of participating in any manner in a distribution of the Exchange
Notes:
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(1)
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cannot rely on the position of the staff of the SEC set forth in
Exxon Capital Holdings Corporation, Morgan
Stanley & Co., Incorporated or similar no-action
letters; and
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(2)
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in the absence of an applicable exemption, must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with a resale of the Exchange Notes
or it may incur liability under the Securities Act. We will not
be responsible for, or indemnify against, any such liability.
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If, as stated above, a holder cannot rely on the position of the
staff of the SEC set forth in Exxon Capital Holdings
Corporation, Morgan Stanley & Co., Incorporated
or similar no-action letters, any effective registration
statement used in connection with a secondary resale transaction
must contain the selling security holder information required by
Item 507 of
Regulation S-K
under the Securities Act.
We do not intend to seek our own interpretation regarding the
exchange offer, and we cannot assure you that the staff of the
SEC would make a similar determination with respect to the
Exchange Notes as it has in other interpretations to third
parties.
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This prospectus may be used for an offer to resell, for the
resale or for other retransfer of Exchange Notes only as
specifically set forth in this prospectus. With regard to
broker-dealers, only broker-dealers that acquired the Old Notes
for its own account as a result of market-making activities or
other trading activities may participate in the exchange offer.
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the
Exchange Notes. Please read the section entitled Plan of
Distribution for more details regarding these procedures
for the transfer of Exchange Notes. We have agreed, for a period
of 180 days after the exchange offer is consummated, to
make this prospectus available to any broker-dealer for use in
connection with any resale of the Exchange Notes.
In order to participate in the exchange offer, each holder of
Old Notes that wishes to exchange Old Notes for Exchange Notes
in the exchange offer will be required to make the
representations described below under
Representations.
Shelf
Registration Statement
In the event that:
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(1)
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we are not required to file the exchange offer registration
statement or to consummate the exchange offer because the
exchange offer is not permitted by law or SEC policy; or
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(2)
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for any reason, we do not consummate the exchange offer by
October 3, 2011; or
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(3)
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any holder notifies us that:
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it is not permitted under law or SEC policy to participate in
the exchange offer;
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it cannot publicly resell new notes that it acquires in the
exchange offer without delivering a prospectus, and the
prospectus contained in the exchange offer registration
statement is not appropriate or available for resales by that
holder;
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it is a broker-dealer and holds Old Notes that it has not
exchanged and that it acquired directly from us or one of our
affiliates; or
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an initial purchaser so requests (with respect to Old Notes that
have not been resold and that it acquired directly from us or
one of our affiliates);
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then in addition to or in lieu of conducting the exchange offer,
we will be required to file a shelf registration statement with
the SEC to cover resales of the Old Notes or the Exchange Notes,
as the case may be. In that case, we will use our reasonable
best efforts to (a) cause the registration statement to
become effective (i) in the case of clause (1) above,
by the 90th day after we determine we are not permitted to file
the exchange offer registration statement or to consummate the
exchange offer due to a change in law or policy but in any event
not earlier than September 2, 2011, (ii) in the case
of clause (2) above, by the 90th day after the Consummation
Deadline, and (iii) in the case of clause (3) above,
by the 90th day after receipt of such notice but in any event
not later than September 2, 2011, and (b) maintain the
effectiveness of the registration statement for two years or
such lesser period after which all the notes registered therein
have been sold under the Securities Act.
Additional
Interest
If (1) we have not filed the exchange offer registration
statement or the shelf registration statement by the dates
described above as required by the registration rights
agreements, (2) the exchange offer registration
31
statement or the shelf registration statement is not declared
effective by the dates described above as required by the
registration rights agreements, (3) we do not consummate
the exchange offer described in this prospectus by the
Consummation Deadline, or (4) the shelf registration
statement is declared effective, but thereafter, subject to
certain exceptions, ceases to be effective or usable in
connection with resales of any Notes registered under the shelf
registration statement during the periods specified in the
registration rights agreements, then we will be in default under
the registration rights agreements. If one or more of the
registration defaults occurs, the annual interest rate on the
Old Notes will increase by 0.25% per annum during the
90-day
period immediately following such default. The amount of
additional interest will increase by an additional 0.25% per
annum at the end of each subsequent
90-day
period until all registration defaults are cured, up to a
maximum additional interest rate of 1.00% per annum. When we
have cured all of the registration defaults, the interest rate
on the Old Notes will revert immediately to the original level.
The exchange offer is intended to satisfy our exchange offer
obligations under the registration rights agreements. The Notes
will not have rights to additional interest as set forth above
upon the consummation of the exchange offer.
Terms of
the Exchange Offer
We are offering to exchange up to $300.0 million aggregate
principal amount of the Exchange Notes, the issuance of which
has been registered under the Securities Act, for an equal
principal amount of the Old Notes. Upon the terms and subject to
the conditions set forth in this prospectus, we will accept any
and all Old Notes validly tendered and not withdrawn prior to
5:00 p.m., New York City time, on the expiration date of
the exchange offer. We will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of
Old Notes accepted in the exchange offer. Holders may tender
some or all of their Old Notes pursuant to the exchange offer.
However, Old Notes may be tendered only in denominations of
$2,000 of principal amount and any integral multiple of $1,000
in excess thereof.
The form and terms of the Exchange Notes are the same as the
form and terms of the Old Notes except that the Old Notes have
been registered under the Securities Act and will not have
transfer restrictions or contain the additional interest
provisions of the Old Notes. The Exchange Notes will evidence
the same debt as the Old Notes and will be issued under and
entitled to the benefits of the indenture governing the Notes.
Consequently, the Old Notes and the Exchange Notes will be
treated as a single class of debt securities under the indenture
governing the Notes.
As of the date of this prospectus, Old Notes representing
$300.0 million in aggregate principal amount were
outstanding, and there was one registered holder,
Cede & Co., as nominee of DTC. This prospectus is
being sent to all registered holders of the Old Notes.
The exchange offer is not conditioned on any minimum aggregate
principal amount of Old Notes being tendered for exchange.
We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and
regulations of the SEC. We will be deemed to have accepted for
exchange properly tendered Old Notes when we have given oral or
written notice of the acceptance to the exchange agent. The
exchange agent will act as agent for the tendering holders for
the purposes of receiving the Exchange Notes from us and
delivering the Exchange Notes to such holders.
Old Notes that are not tendered for exchange in the exchange
offer or that are tendered but we do not accept for exchange
will remain outstanding and continue to accrue interest and will
continue to be entitled to the rights and benefits such holders
have under the indenture relating to the Old Notes. The Old
Notes that are not exchanged will continue to be subject to the
existing transfer restrictions under the Securities Act and,
upon consummation of the exchange offer, certain registration
and other rights under the registration rights
32
agreements will terminate. Holders of the Old Notes do not have
any appraisal or dissenters rights in connection with the
exchange offer.
Holders who tender Old Notes in the exchange offer will not be
required to pay brokerage commissions or fees or transfer taxes
with respect to the exchange of Old Notes pursuant to the
exchange offer. We will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the
exchange offer. See Fees and Expenses and
Transfer Taxes below.
Expiration
Date; Extensions; Amendments
The exchange offer will remain open for at least 30 days,
and in all events will remain open for at least 20 full business
days. The term expiration date will mean
5:00 p.m., New York City time, on August 22, 2011,
unless we, in our sole discretion, extend the exchange offer, in
which case the term expiration date will mean the
latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the
exchange agent in writing of any extension. We will notify in
writing by press release or other public announcement the
registered holders of Old Notes of the extension no later than
9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
We reserve the right, in our sole discretion:
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(1)
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to delay accepting any Old Notes, to extend the exchange offer
or, if any of the conditions to the exchange offer set forth
below under Conditions to the Exchange Offer
have not been satisfied, to terminate the exchange offer, by
giving oral (promptly confirmed in writing) or written notice of
such delay, extension or termination to the exchange
agent; or
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(2)
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to amend the terms of the exchange offer in any manner.
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Any delay in acceptance, extension, termination or amendment
will be followed as promptly as practicable by written notice to
the registered holders by a press release or other public
announcement. If we amend the exchange offer in a manner that we
determine to constitute a material change in the exchange offer,
or if we waive a condition to the exchange offer, we will
promptly disclose such amendment or waiver in a manner
reasonably calculated to inform the holders of Old Notes of such
amendment or waiver, and we will extend the exchange offer
period, if necessary, so that at least five business days remain
in the exchange offer following notice of the material change.
If we terminate the exchange offer as provided in this
prospectus before accepting any Old Notes for exchange or if we
amend the terms of the exchange offer in a manner that
constitutes a fundamental change in the information set forth in
the registration statement of which this prospectus forms a
part, we will promptly file a post-effective amendment to the
registration statement of which this prospectus forms a part. In
addition, we will in all events comply with our obligation to,
promptly after expiration or termination of the exchange offer,
as applicable, exchange all Old Notes properly tendered and
accepted for exchange in the exchange offer and return all Old
Notes not accepted for exchange.
Procedures
for Tendering Old Notes Through Brokers and Banks
Since the Old Notes are represented by global book-entry notes,
DTC, as depositary, or its nominee is treated as the registered
holder of the Old Notes and will be the only entity that can
tender your Old Notes for Exchange Notes. Therefore, to tender
Old Notes subject to the exchange offer and to obtain Exchange
Notes, you must instruct the institution where you keep your Old
Notes to tender your Old Notes on your behalf so that they are
received on or prior to the expiration of the exchange offer.
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To tender your Old Notes in the exchange offer, you must:
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(1)
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comply with DTCs Automated Tender Offer Program
(ATOP) procedures described below; and
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(2)
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the exchange agent must receive a timely confirmation of a
book-entry transfer of the Old Notes into its account at DTC
through ATOP pursuant to the procedure for book-entry transfer
described below, along with a properly transmitted Agents
Message (defined below), before the expiration date.
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IF YOU WISH TO ACCEPT THE EXCHANGE OFFER, PLEASE INSTRUCT
YOUR BROKER OR ACCOUNT REPRESENTATIVE IN TIME FOR YOUR OLD
NOTES TO BE TENDERED BEFORE THE 5:00 PM (NEW YORK CITY
TIME) DEADLINE ON AUGUST 22, 2011.
In order to accept the exchange offer on behalf of a holder of
Old Notes you must submit or cause your DTC participant to
submit an Agents Message as described below.
The exchange agent, on our behalf, will seek to establish an
ATOP account with respect to the outstanding Old Notes at DTC
promptly after the delivery of this prospectus. Any financial
institution that is a DTC participant, including your broker or
bank, may make book-entry tender of outstanding Old Notes by
causing the book-entry transfer of such Old Notes into our ATOP
account in accordance with DTCs procedures for such
transfers. Concurrently with the delivery of Old Notes, an
Agents Message in connection with such book-entry transfer
must be transmitted by DTC to, and received by, the exchange
agent on or prior to 5:00 pm, New York City Time on the
expiration date. The confirmation of a book entry transfer into
the ATOP account as described above is referred to herein as a
Book-Entry Confirmation.
The term Agents Message means a message
transmitted by the DTC participants to DTC, and thereafter
transmitted by DTC to the exchange agent, forming a part of the
Book-Entry Confirmation which states that DTC has received an
express acknowledgment from the participant in DTC described in
such Agents Message stating that such participant and
beneficial holder agree to be bound by the terms of the exchange
offer, including the letter of transmittal, and that the
agreement may be enforced against such participant.
Each Agents Message must include the following information:
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(1)
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Name of the beneficial owner tendering such Old Notes;
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(2)
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Account number of the beneficial owner tendering such Old Notes;
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(3)
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Principal amount of Old Notes tendered by such beneficial
owner; and
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(4)
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A confirmation that the beneficial holder of the Old Notes
tendered has made the representations for our benefit set forth
under Representations below.
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BY SENDING AN AGENTS MESSAGE THE DTC PARTICIPANT IS
DEEMED TO HAVE CERTIFIED THAT THE BENEFICIAL HOLDER FOR WHOM
NOTES ARE BEING TENDERED HAS BEEN PROVIDED WITH A COPY OF
THIS PROSPECTUS AND AGREES TO BE BOUND BY THE TERMS OF THE
EXCHANGE OFFER, INCLUDING THE LETTER OF TRANSMITTAL.
The delivery of Old Notes through DTC, and any transmission of
an Agents Message through ATOP, is at the election and
risk of the person tendering Old Notes. We will ask the exchange
agent to instruct DTC to promptly return those Old Notes, if
any, that were tendered through ATOP but were not accepted by
us, to the DTC participant that tendered such Old Notes on
behalf of holders of the Old Notes.
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When you tender your outstanding Old Notes and we accept them,
the tender will be a binding agreement between you and us as
described in this prospectus. By using the ATOP procedures to
exchange Old Notes, you will not be required to deliver a letter
of transmittal to the exchange agent. However, you will be bound
by its terms, and you will be deemed to have made the
acknowledgements and the representations and warranties it
contains, just as if you had signed it.
We will decide all questions about the validity, form,
eligibility, time of receipt, acceptance and withdrawal of
tendered Old Notes, and our reasonable determination will be
final and binding on you. We reserve the absolute right to:
(1) reject any and all tenders of any particular Old Note
not properly tendered; (2) refuse to accept any Old Note
if, in our reasonable judgment or the judgment of our counsel,
the acceptance would be unlawful; and (3) waive any defects
or irregularities or conditions of the exchange offer as to any
particular Old Notes before the expiration of the offer. Our
interpretation of the terms and conditions of the exchange offer
will be final and binding on all parties. You must cure any
defects or irregularities in connection with tenders of Old
Notes as we will reasonably determine. Neither us, the exchange
agent nor any other person will incur any liability for failure
to notify you of any defect or irregularity with respect to your
tender of Old Notes. If we waive any terms or conditions
pursuant to (3) above with respect to a noteholder, we will
extend the same waiver to all noteholders with respect to that
term or condition being waived.
Representations
To participate in the exchange offer, each holder of Old Notes
that wishes to exchange Old Notes for Exchange Notes in the
exchange offer will be required to make the following
representations:
|
|
|
|
(1)
|
it has full corporate (or similar) power and authority to
tender, exchange, assign and transfer the Old Notes and to
acquire the Exchange Notes;
|
|
|
(2)
|
when the Old Notes are accepted for exchange, the Issuers will
acquire good and unencumbered title to the tendered Old Notes,
free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim; and
|
|
|
(3)
|
if such holder is a broker dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making or other trading
activities, then such holder will comply with the applicable
provisions of the Securities Act with respect to any resale of
the Exchange Notes. See Plan of Distribution.
|
Broker-dealers who cannot make the representations in item
(3) of the paragraph above cannot use this prospectus in
connection with resales of the Exchange Notes issued in the
exchange offer.
Each holder of Old Notes that wishes to exchange Old Notes for
Exchange Notes in the exchange offer and any beneficial owner of
those Old Notes also will be required to make the following
representations:
|
|
|
|
(1)
|
neither the holder nor any beneficial owner of the Old Notes is
an affiliate (as defined in Rule 405 under the
Securities Act) of the Issuers;
|
|
|
(2)
|
neither the holder nor any beneficial owner of the Old Notes is
engaged in or intends to engage in, and has no arrangement or
understanding with any person to participate in, a distribution
(within the meaning of the Securities Act) of the Exchange Notes;
|
|
|
(3)
|
any Exchange Notes to be acquired by the holder and any
beneficial owner of the Old Notes pursuant to the exchange offer
will be acquired in the ordinary course of business of the
person receiving such Exchange Notes; and
|
35
|
|
|
|
(4)
|
the holder is not acting on behalf of any person who could not
truthfully make the foregoing representations.
|
BY TENDERING YOUR OLD NOTES YOU ARE DEEMED TO HAVE MADE
THESE REPRESENTATIONS.
If you are our affiliate, as defined under
Rule 405 of the Securities Act, if you are a broker-dealer
who acquired your Old Notes in the initial offering and not as a
result of market-making or trading activities, or if you are
engaged in or intend to engage in or have an arrangement or
understanding with any person to participate in a distribution
of Exchange Notes acquired in the exchange offer, you or that
person:
|
|
|
|
(1)
|
cannot rely on the position of the staff of the SEC set forth in
Exxon Capital Holdings Corporation, Morgan
Stanley & Co., Incorporated or similar no-action
letters; and
|
|
|
(2)
|
in the absence of an applicable exemption, must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with a resale of the Exchange Notes.
|
Acceptance
of Outstanding Old Notes for Exchange; Delivery of Exchange
Notes
We will accept validly tendered Old Notes when the conditions to
the exchange offer have been satisfied or we have waived them.
We will have accepted your validly tendered Old Notes when we
have given oral or written notice to the exchange agent. The
exchange agent will act as agent for the tendering holders for
the purpose of receiving the Exchange Notes from us. If we do
not accept any tendered Old Notes for exchange by book-entry
transfer because of an invalid tender or other valid reason, we
will credit the Old Notes to an account maintained with DTC
promptly after the exchange offer terminates or expires.
THE AGENTS MESSAGE MUST BE TRANSMITTED TO THE EXCHANGE
AGENT ON OR BEFORE 5:00 PM, NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
No
Guaranteed Delivery
There are no guaranteed delivery procedures provided for by us
in conjunction with the exchange offer. Holders of Old Notes
must timely tender their Old Notes in accordance with the
procedures set forth herein.
Withdrawal
Rights
You may withdraw your tender of outstanding notes at any time
before 5:00 p.m., New York City time, on the expiration
date.
For a withdrawal to be effective, you should contact your bank
or broker where your Old Notes are held and have them send an
ATOP notice of withdrawal so that it is received by the exchange
agent before 5:00 p.m., New York City time, on the
expiration date. Such notice of withdrawal must:
|
|
|
|
(1)
|
specify the name of the person that tendered the Old Notes to be
withdrawn;
|
|
|
(2)
|
identify the Old Notes to be withdrawn, including the CUSIP
number and principal amount at maturity of the Old
Notes; and
|
|
|
(3)
|
specify the name and number of an account at the DTC to which
your withdrawn Old Notes can be credited.
|
We will decide all questions as to the validity, form and
eligibility of the notices and our determination will be final
and binding on all parties. Any tendered Old Notes that you
withdraw will not be
36
considered to have been validly tendered. We will promptly
return any outstanding Old Notes that have been tendered but not
exchanged, or credit them to the DTC account. You may re-tender
properly withdrawn Old Notes by following one of the procedures
described above before the expiration date.
Conditions
to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we
are not required to accept for exchange, or to issue Exchange
Notes in exchange for, any Old Notes and may terminate or amend
the exchange offer if, at any time before the expiration of the
exchange offer, (1) we determine that the exchange offer
violates applicable law, any applicable interpretation of the
staff of the SEC or any order of any governmental agency or
court of competent jurisdiction or (2) any action or
proceeding has been instituted or threatened in any court or
before any governmental agency with respect to the exchange
offer which, in our reasonable judgment, could reasonably be
expected to impair our ability to proceed with the exchange
offer or have a material adverse effect on us.
The foregoing conditions are for our sole benefit and may be
asserted by us regardless of the circumstances giving rise to
any such condition or may be waived by us in whole or in part at
any time before the expiration of the exchange offer in our sole
discretion. Our failure to exercise any of the foregoing rights
at any time will not be deemed a waiver of any such right and
each such right will be deemed an ongoing right which may be
asserted at any time before the expiration of the exchange
offer. If we waive any conditions of the exchange offer, we will
promptly disclose such waiver in a manner reasonably calculated
to inform the holders of Old Notes of such waiver.
In addition, we will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for
any Old Notes, if at such time any stop order will be threatened
or in effect with respect to the registration statement of which
this prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act of 1939, as
amended. In any such event we are required to use our reasonable
best efforts to promptly obtain the withdrawal of any stop order.
Exchange
Agent
We have appointed The Bank of New York Mellon
Trust Company, N.A. as the exchange agent for the exchange
offer. You should direct questions, requests for assistance, and
requests for additional copies of this prospectus and the letter
of transmittal to the exchange agent addressed as follows:
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
EXCHANGE AGENT
By registered or certified mail, overnight delivery:
c/o The
Bank of New York Mellon Corporation
Corporate Trust OperationsReorganization Unit
480 Washington Boulevard, 27th Floor
Jersey City, New Jersey 07310
Attn: Ms. Diane Amoroso
For information call:
(212) 815-2742
Delivery
to an address other than set forth above will not constitute a
valid delivery.
Fees and
Expenses
The principal solicitation is being made through DTC by The Bank
of New York Mellon Trust Company, N.A., as exchange agent.
We will pay the exchange agent customary fees for its services,
37
reimburse the exchange agent for its reasonable
out-of-pocket
expenses incurred in connection with the provision of these
services and pay other registration expenses, including
registration and filing fees and expenses, fees and expenses of
compliance with federal securities and state securities or blue
sky securities laws, printing expenses, messenger and delivery
services and telephone, fees and disbursements to our counsel,
application and filing fees and any fees and disbursements to
our independent certified public accountants. We will not make
any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer except for reimbursement of
mailing expenses.
Additional solicitations may be made by telephone, facsimile or
in person by our officers and employees and by persons so
engaged by the exchange agent.
Accounting
Treatment
The Exchange Notes will be recorded at the same carrying value
as the existing Old Notes, as reflected in our accounting
records on the date of exchange. Accordingly, we will recognize
no gain or loss for accounting purposes. The expenses of the
exchange offer will be capitalized and expensed over the term of
the Exchange Notes.
Transfer
Taxes
If you tender outstanding Old Notes for exchange you will not be
obligated to pay any transfer taxes. However, if you instruct us
to register Exchange Notes in the name of, or request that your
Old Notes not tendered or not accepted in the exchange offer be
returned to, a person other than the registered tendering
holder, you will be responsible for paying any transfer tax owed.
Consequences
of Failure to Exchange
If you do not tender your outstanding Old Notes, you will not
have any further registration rights, except for the rights
described in the registration rights agreements and described
above, and your Old Notes will continue to be subject to the
provisions of the indenture governing the Notes regarding
transfer and exchange of the Old Notes and the restrictions on
transfer of the Old Notes imposed by the Securities Act and
states securities law when we complete the exchange offer. These
transfer restrictions are required because the Old Notes were
issued under an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act and
applicable state securities laws. Accordingly, if you do not
tender your Old Notes in the exchange offer, your ability to
sell your Old Notes could be adversely affected. Once we have
completed the exchange offer, holders who have not tendered Old
Notes will not continue to be entitled to any additional
interest that the indenture governing the Notes provides for if
we do not complete the exchange offer.
Other
Participation in the exchange offer is voluntary, and you should
carefully consider whether to accept. You are urged to consult
your financial, tax, legal and other advisors in making your own
decision on what action to take.
We may in the future seek to acquire untendered Old Notes in the
open market or in privately negotiated transactions, through
subsequent exchange offers or otherwise. We have no present
plans to acquire any Old Notes that are not tendered in the
exchange offer or to file a shelf registration statement to
permit resales of any untendered Old Notes.
38
USE OF
PROCEEDS
The exchange offer is intended to satisfy our obligations under
the registration rights agreements. We will not receive any
proceeds from the issuance of the Exchange Notes. In
consideration for issuing the Exchange Notes, we will receive,
in exchange, Old Notes in like principal amount. The form and
terms of the Exchange Notes are identical to the form and terms
of the Old Notes, except as otherwise described under the
heading The Exchange OfferTerms of the Exchange
Offer. The Old Notes properly tendered and exchanged for
Exchange Notes will be retired and cancelled. Accordingly,
issuance of the Exchange Notes will not result in any change in
our capitalization. We have agreed to bear the expense of the
exchange offer.
39
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
the capitalization of Aviv Healthcare Properties Limited
Partnership as of March 31, 2011:
|
|
|
|
|
on an actual basis; and
|
|
|
|
|
|
on an as adjusted basis to give effect to the sale of the Old
Notes in April 2011 and the application of a portion of the net
proceeds therefrom to repay certain outstanding indebtedness.
|
You should read this table in connection with Selected
Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the more detailed information contained in our historical
consolidated financial statements and related notes appearing
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(in millions)
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$10.5
|
|
|
|
$66.6
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
Revolving credit facility (1)
|
|
|
$10.2
|
|
|
|
$
|
|
Acquisition credit line (2)
|
|
|
|
|
|
|
|
|
Mortgage term loan (2)
|
|
|
235.4
|
|
|
|
199.3
|
|
Other secured debt (3)
|
|
|
9.1
|
|
|
|
9.1
|
|
7 3/4% Senior
Notes due 2019 (4)
|
|
|
200.0
|
|
|
|
300.0
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
454.6
|
|
|
|
508.4
|
|
Total equity
|
|
|
247.0
|
|
|
|
247.0
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
$701.6
|
|
|
|
$755.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In February 2011, we entered into a $25.0 million revolving
credit facility. |
|
|
|
(2) |
|
In September 2010, we refinanced all of our existing mortgage
indebtedness by entering into a secured credit facility
consisting of a $405.0 million mortgage term loan and a
$100.0 million acquisition credit line. We have repaid all
drawings made under the acquisition credit line. |
|
|
|
(3) |
|
In November 2010, we entered into a construction and term loan
agreement providing a loan of up to $6.4 million to finance
the renovation of a SNF located in Arkansas, $1.3 million
of which was outstanding as of March 31, 2011. Also in
November 2010, we entered into loan agreements in the aggregate
principal amount of $7.8 million relating to the
acquisition of a SNF located in California. |
|
|
|
(4) |
|
Does not reflect the premium of $2.75 million received in
the offering of $100 million of our
7 3/4% Senior
Notes due 2019, which premium will be amortized as an adjustment
to the yield on the Notes over their term. The premium is
included in As Adjusted cash and cash equivalents. |
40
SELECTED
FINANCIAL DATA
You should read the following selected historical consolidated
data in connection with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the historical consolidated financial statements and related
notes thereto appearing elsewhere in this prospectus.
The selected historical consolidated financial data as of
December 31, 2010 and 2009 and for the years ended
December 31, 2010, 2009 and 2008 have been derived from the
audited historical consolidated financial statements of Aviv
Healthcare Properties Limited Partnership appearing elsewhere in
this prospectus. The selected historical financial data as of
December 31, 2008, 2007 and 2006 and for the years ended
December 31, 2007 and 2006 have been derived from the
audited historical consolidated financial statements of Aviv
Healthcare Properties Limited Partnership, which are not
included in this prospectus. The selected historical
consolidated financial data as of March 31, 2011 and 2010
and for the three months ended March 31, 2011 and 2010 have
been derived from the unaudited historical consolidated
financial statements of Aviv Healthcare Properties Limited
Partnership appearing elsewhere in this prospectus. The
unaudited historical financial statements include all
adjustments, consisting of normal recurring adjustments, that we
consider necessary for a fair presentation of our financial
condition and results of operations as of such dates and for
such periods under accounting principles generally accepted in
the United States. The historical results are not necessarily
indicative of the results to be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
Operating Information
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$42,672
|
|
|
|
$67,755
|
|
|
|
$72,143
|
|
|
|
$82,775
|
|
|
|
$84,490
|
|
|
|
$21,150
|
|
|
|
$19,690
|
|
Tenant recoveries
|
|
|
2,690
|
|
|
|
4,274
|
|
|
|
4,831
|
|
|
|
6,056
|
|
|
|
6,442
|
|
|
|
1,529
|
|
|
|
1,689
|
|
Interest on loans to lessees
|
|
|
330
|
|
|
|
370
|
|
|
|
1,859
|
|
|
|
3,493
|
|
|
|
5,226
|
|
|
|
1,131
|
|
|
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
45,692
|
|
|
|
72,399
|
|
|
|
78,833
|
|
|
|
92,324
|
|
|
|
96,158
|
|
|
|
23,810
|
|
|
|
22,711
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
820
|
|
|
|
658
|
|
|
|
1,088
|
|
|
|
612
|
|
|
|
575
|
|
|
|
169
|
|
|
|
202
|
|
General and administrative
|
|
|
4,337
|
|
|
|
4,929
|
|
|
|
6,809
|
|
|
|
7,741
|
|
|
|
10,725
|
|
|
|
1,424
|
|
|
|
3,468
|
|
Offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
2,664
|
|
|
|
4,306
|
|
|
|
5,116
|
|
|
|
6,232
|
|
|
|
6,475
|
|
|
|
1,605
|
|
|
|
1,689
|
|
Depreciation
|
|
|
8,158
|
|
|
|
12,938
|
|
|
|
14,616
|
|
|
|
17,528
|
|
|
|
17,854
|
|
|
|
4,362
|
|
|
|
4,799
|
|
Loss on impairment
|
|
|
|
|
|
|
2,987
|
|
|
|
932
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
15,979
|
|
|
|
25,818
|
|
|
|
28,561
|
|
|
|
38,977
|
|
|
|
35,725
|
|
|
|
7,560
|
|
|
|
10,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
29,713
|
|
|
|
46,581
|
|
|
|
50,272
|
|
|
|
53,347
|
|
|
|
60,433
|
|
|
|
16,250
|
|
|
|
12,553
|
|
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
533
|
|
|
|
1,413
|
|
|
|
2,012
|
|
|
|
466
|
|
|
|
133
|
|
|
|
63
|
|
|
|
6
|
|
Interest expense
|
|
|
(15,767
|
)
|
|
|
(24,254
|
)
|
|
|
(26,272
|
)
|
|
|
(26,570
|
)
|
|
|
(22,723
|
)
|
|
|
(5,865
|
)
|
|
|
(7,556
|
)
|
Change in fair value of derivatives
|
|
|
263
|
|
|
|
(6,946
|
)
|
|
|
(8,674
|
)
|
|
|
6,988
|
|
|
|
2,931
|
|
|
|
1,321
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
(2,353
|
)
|
|
|
(439
|
)
|
|
|
(537
|
)
|
|
|
(550
|
)
|
|
|
(1,008
|
)
|
|
|
(139
|
)
|
|
|
(679
|
)
|
Gain on sale of assets, net
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,295
|
)
|
|
|
|
|
|
|
(3,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(16,824
|
)
|
|
|
(30,226
|
)
|
|
|
(33,471
|
)
|
|
|
(19,666
|
)
|
|
|
(22,450
|
)
|
|
|
(4,620
|
)
|
|
|
(11,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
12,889
|
|
|
|
16,355
|
|
|
|
16,801
|
|
|
|
33,681
|
|
|
|
37,983
|
|
|
|
11,630
|
|
|
|
1,181
|
|
Discontinued operations
|
|
|
(102
|
)
|
|
|
43
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$12,787
|
|
|
|
$16,398
|
|
|
|
$16,874
|
|
|
|
$33,681
|
|
|
|
$37,983
|
|
|
|
$11,630
|
|
|
|
$1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of March 31,
|
|
Balance Sheet Information
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
|
$12,675
|
|
|
|
$16,377
|
|
|
|
$9,361
|
|
|
|
$15,543
|
|
|
|
$13,028
|
|
|
|
$8,162
|
|
|
|
$10,504
|
|
Loan receivables
|
|
|
2,501
|
|
|
|
34,920
|
|
|
|
20,361
|
|
|
|
28,970
|
|
|
|
36,611
|
|
|
|
34,575
|
|
|
|
30,727
|
|
Rental properties, net of accumulated depreciation
|
|
|
423,383
|
|
|
|
475,695
|
|
|
|
564,600
|
|
|
|
577,736
|
|
|
|
627,101
|
|
|
|
583,646
|
|
|
|
650,378
|
|
Total assets
|
|
|
465,730
|
|
|
|
560,230
|
|
|
|
634,368
|
|
|
|
665,130
|
|
|
|
731,400
|
|
|
|
668,243
|
|
|
|
746,990
|
|
Mortgage and other notes payable
|
|
|
303,060
|
|
|
|
386,356
|
|
|
|
463,546
|
|
|
|
480,105
|
|
|
|
440,576
|
|
|
|
477,542
|
|
|
|
454,624
|
|
Total liabilities
|
|
|
349,147
|
|
|
|
434,536
|
|
|
|
519,096
|
|
|
|
527,598
|
|
|
|
486,244
|
|
|
|
530,054
|
|
|
|
499,969
|
|
Total equity
|
|
|
99,409
|
|
|
|
94,258
|
|
|
|
77,871
|
|
|
|
74,562
|
|
|
|
245,156
|
|
|
|
73,068
|
|
|
|
247,021
|
|
42
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ
materially from those anticipated in forward-looking statements
for many reasons, including the risks described in Risk
Factors and elsewhere in this prospectus. You should read
the following discussion with Special Note Regarding
Forward-Looking Statements, Selected Financial
Data, and the consolidated financial statements and
related notes included elsewhere in this prospectus.
Overview
We operate a self-administered real estate investment trust, or
REIT, that focuses on the ownership of healthcare properties,
principally skilled nursing facilities (SNFs). We
generate our revenues through long-term
triple-net
leases with a diversified group of high quality operators
throughout the United States. Through our predecessor entities,
we have been in the business of financing operators of SNFs for
over 30 years. We believe that we have one of the largest
SNF portfolios in the United States which consisted of 187
properties, of which 168 were SNFs, with 18,300 licensed beds in
25 states leased to 32 operators as of March 31, 2011.
The discussion included herein is intended to apply to Aviv
REIT, Inc. and Subsidiaries and Aviv Healthcare Properties
Limited Partnership and Subsidiaries as the operations of the
two aforementioned entities are materially comparable for the
periods presented.
We believe we are well positioned to benefit from our
diversified portfolio of properties and extensive network of
operator relationships. We focus on cultivating close
relationships with our tenants by working closely with them to
help them achieve their business objectives. As a result of
these efforts, we are in a position to effectively manage our
portfolio, make additional investments and continue to expand
our business.
We lease our properties to a diversified group of 32 operators
with no single operator representing more than 13.3% of our
revenues for the twelve months ended March 31, 2011. We
have a geographically diversified portfolio of properties
located in 25 states, with no state representing more than
17.6% of our revenues for the twelve months ended March 31,
2011. Our properties are leased to third party tenants under
long-term
triple-net
leases. The operators are responsible for all operating costs
and expenses related to the property, including facility
maintenance and insurance required in connection with the
properties and the business conducted on the properties, taxes
levied on or with respect to the properties (other than taxes on
our income) and all utilities and other services necessary or
appropriate for the properties and the business conducted on the
properties. Our leases are typically master leases with initial
terms of 10 years or more, annual rent escalation
provisions of 2% to 3%, guarantees, cross-default provisions and
security deposits and typically do not have operator purchase
options. As of March 31, 2011, the leases for 185 of our
187 properties were supported by personal
and/or
corporate guarantees. As of March 31, 2011, our leases had
an average remaining term of 8.8 years.
We have historically financed investments through borrowings
under our credit facilities, private placements of equity
securities, housing and urban development indebtedness, or a
combination of these methods. We have utilized a mortgage credit
facility and senior notes to provide the majority of our debt as
well as project specific first mortgages in certain situations.
We compete with other public and private companies who provide
lease and/or
mortgage financing to operators of a variety of different types
of healthcare properties. While the overall landscape for
healthcare finance is competitive, we are disciplined and
selective about the investments we make and have a strong track
record of identifying qualified operators and attractive markets
in which to invest. This has enabled us to successfully complete
$507.1 million of acquisitions from April 2005 to
March 31, 2011, including $79.2 million of investments
in 2010. From January 1, 2011 through the date of this
prospectus, we have completed $71.5 million in investments.
As a key part of our growth strategy, we evaluate acquisition
opportunities on an ongoing basis and are in various stages of
due diligence, preliminary discussions or competitive bidding
with respect to a number of potential transactions, some of
which would be significant. None of these potential significant
transactions is subject to a letter of intent or otherwise so
far advanced as to make the transaction reasonably certain.
43
Factors
Affecting Our Business and the Business of Our Tenants
The continued success of our business is dependent on a number
of macroeconomic and industry trends. Many of these trends will
influence our ongoing ability to find suitable investment
properties while other factors will impact our tenants
ability to conduct their operations profitably and meet their
obligations to us.
Industry
Trends
One of the primary trends affecting our business is the
long-term increase in the average age of the
U.S. population. This increase in life expectancy is
expected to be a primary driver for growth in the healthcare and
SNF industry. We believe this demographic trend is resulting in
an increased demand for services provided to the elderly. We
believe that the low cost healthcare setting of a SNF will
benefit our tenants and facilities in relation to higher-cost
healthcare providers. We believe that these trends will support
a growing demand for the services provided by SNF operators,
which in turn will support a growing demand for our properties.
The growth in demand for services provided to the elderly has
resulted in an increase in healthcare spending. The Centers for
Medicare and Medicaid Services, or CMS, and the Office of the
Actuary forecast that U.S. healthcare expenditures will
increase from approximately $2.3 trillion in 2008 to
approximately $4.5 trillion in 2019. Furthermore, according to
CMS, national expenditures for SNFs are expected to grow from
approximately $144 billion in 2009 to approximately
$246 billion in 2019, representing a compound annual growth
rate, or CAGR, of 5.5%.
Liquidity
and Access to Capital
Our single largest cost is the interest expense we incur on our
debt obligations. In order to continue to expand and optimize
our capital to expand our portfolio, we rely on access to the
capital markets on an ongoing basis. We seek to balance this
reliance by maintaining ready access to funds to make
investments at the time opportunities arise. We have extensive
experience in and a successful track record of raising debt and
equity capital over the past 30 years.
Our outstanding indebtedness is comprised principally of
borrowings under our existing credit facility and our
obligations under the Notes. Substantially all of such
indebtedness is scheduled to mature in late 2015 or thereafter.
Factors
Affecting Our Tenants Profitability
Our revenues are derived from rents we receive from
triple-net
leases with our tenants. Certain economic factors present both
opportunities and risks to our tenants and, therefore, influence
their ability to meet their obligations to us. These factors
directly affect our tenants operations and, given our
reliance on their performance under our leases, present risks to
us that may affect our results of operations or ability to meet
our financial obligations. The recent U.S. economic
slowdown and other factors could result in cost-cutting at both
the federal and state levels, which could result in a reduction
of reimbursement rates and levels to our tenants under both the
Medicare and Medicaid programs.
Our tenants revenues are largely derived from third-party
sources. Therefore, we indirectly rely on these same third-party
sources to obtain our rents. The majority of these third-party
payments come from the federal Medicare program and state
Medicaid programs. Our tenants also receive payments from other
third-party sources, such as private insurance companies or
private-pay residents, but these payments typically represent a
small portion of our tenants revenues. The sources and
amounts of our tenants revenues are determined by a number
of factors, including licensed bed capacity, occupancy rates,
the acuity profile of residents and the rate of reimbursement.
Changes in the acuity profile of the residents as well as the
mix
44
among payor types, including private pay, Medicare and Medicaid,
may significantly affect our tenants profitability and, in
turn, their ability to meet their obligations to us. Managing,
billing and successfully collecting third-party payments is a
relatively complex activity that requires significant experience
and is critical to the successful operation of a SNF.
Labor and related expenses typically represent our tenants
largest cost component. Therefore, the labor markets in which
our tenants operate affect their ability to operate cost
effectively and profitably. In order for our tenants to be
successful, they must possess the management capability to
attract and maintain skilled and motivated workforces. Much of
the required labor needed to operate a SNF requires specific
technical experience and education. As a result, our tenants may
be required to increase their payroll costs to attract labor and
adequately staff their operations. Increases in labor costs due
to higher wages and greater employee benefits required to
attract and retain qualified personnel could affect our
tenants ability to meet their obligations to us.
While our revenues are generated from the rents our tenants pay
to us, we seek to establish our rent at an appropriate level so
that our tenants are able to succeed. This requires discipline
to ensure that we do not overpay for the properties we acquire.
While we operate in a competitive environment, we carefully
assess the long-term risks facing our tenants as we consider an
investment. Because our leases are long-term arrangements, we
are required to assess both the short and long-term capital
needs of the properties we acquire. SNFs are generally highly
specialized real estate assets. We believe we have developed
broad expertise in assessing the short and long-term needs of
this asset class.
Components
of Our Revenues, Expenses and Cash Flow
Revenues
Our revenues consist primarily of the rents and associated
charges we collect from our tenants as stipulated in our
long-term
triple-net
leases. In addition to rent under existing leases, a part of our
revenues is made up of other cash payments owed to us by our
tenants. Additionally, we recognize certain non-cash revenues.
These other cash and non-cash revenues are highlighted below.
While not a significant part of our revenues, we also earn
interest from a variety of loans outstanding.
Rental income represents rent under existing leases that is paid
by our tenants. In addition, this includes deferred rental
income relating to straight-lining of rents as well as rental
income from intangible amortization. Both deferred rental income
and rental income from intangible amortization are explained in
further detail below under Components of Cash
FlowCash Provided by Operations.
All of our leases have real estate escrow clauses that require
our tenants to make estimated payments to us to cover their
current real estate tax obligations. We collect money for these
taxes and pay them on behalf of our tenants. We account for the
receipt of these amounts as revenue and the payment of the
actual taxes as an expense (real estate taxes). Because the
escrow charges to our tenants are made on an estimated basis,
the amounts recognized as revenue and corresponding expense will
differ slightly in any given fiscal period.
|
|
|
|
|
Interest on Loans to Tenants
|
We earn interest on certain capital advances and loans we make
to our tenants for a variety of purposes, including for capital
expenditures at our properties for which we receive additional
rent. While we amend our leases to reflect the additional rent
owed as a result of these income producing capital expenditures,
45
we recognize the investment as a loan for accounting purposes
when the lease term exceeds the useful life of the capital
expenditure. In addition, we recognize rent associated with
direct financing leases, in part, as interest income.
Expenses
We recognize a variety of cash and non-cash charges in our
financial statements. Our cash expenses consist primarily of the
interest expense on the borrowings we incur in order to make our
investments and the general and administrative costs associated
with operating our business. These interest charges are
associated with both our existing credit facilities as well as
certain asset specific loans.
|
|
|
|
|
Rent and Other Operating Expenses
|
When we lease a property, we recognize related rent expense.
|
|
|
|
|
General and Administrative
|
Our general and administrative costs consist primarily of
payroll and payroll related expense, including non-cash stock
based compensation. In addition to payroll, we incur accounting,
legal and other professional fees as well as certain other
administrative costs of running our business, along with certain
expenses related to bank charges, franchise taxes and corporate
filing fees.
All of our leases have real estate escrow clauses that require
our tenants to make estimated payments to us to cover their
current real estate tax obligations. We collect money for these
taxes and pay them on behalf of our tenants. We account for the
receipt of these amounts as revenue (tenant recoveries) and the
payment of the actual taxes as an expense. Because the escrow
charges to our tenants are made on an estimated basis, the
amounts recognized as revenue and corresponding expense will
differ slightly in any given fiscal period.
We incur depreciation expense on all of our long-lived assets.
This non-cash expense is designed under generally accepted
accounting principles, or GAAP, to reflect the economic useful
lives of our assets.
|
|
|
|
|
Loss on Impairment of Assets
|
We have implemented a policy that requires management to make
quarterly assessments of the market value of our properties
relative to the amounts at which we carry them on our balance
sheet. This assessment requires a combination of factors. We
utilize objective financial modeling that compares the sum of
the undiscounted cashflows from contractual rents plus the
terminal value against the depreciated book value of an asset.
In addition, certain subjective factors such as market condition
and property condition are considered as well as lease
structure. We consider these results in our assessment of
whether potential impairment indicators are present.
Other
Income and Expenses
|
|
|
|
|
Interest and Other Income
|
We sweep our excess cash balances into overnight
interest-bearing accounts. In 2008 we also earned interest on
loans made to entities controlled by Messrs. Bernfield and
Karkomi in connection with the internalization of AAM, all of
which were repaid in June 2008.
46
We recognize the interest we incur on our existing borrowings as
an interest expense.
|
|
|
|
|
Change in Fair Value of Derivatives
|
We have implemented Accounting Standards Codification (ASC) 815,
Derivatives and Hedging (ASC 815), which establishes
accounting and reporting standards requiring that all
derivatives, including certain derivative instruments embedded
in other contracts, be recorded as either an asset or liability
measured at their fair value unless they qualify for a normal
purchase or normal sales exception. When specific hedge
accounting criteria are not met, ASC 815 requires that
changes in a derivatives fair value be recognized
currently in earnings. All of the changes in the fair market
values of our derivative instruments are recorded in the
consolidated statements of operations for our interest rate
swaps that were terminated in September 2010. In November 2010,
we entered into two interest rate swaps and account for changes
in fair value of such hedges through changes in equity in our
financial statements via hedge accounting.
|
|
|
|
|
Amortization of Deferred Financing Costs
|
We incur non-cash charges that reflect costs incurred with
arranging certain debt instruments. We generally recognize these
costs over the term of the respective debt instrument for which
the costs were incurred.
|
|
|
|
|
Gain on Sale of Assets, Net
|
We record any gain resulting from the sale of assets at the time
of sale. We record any losses resulting from the sale of assets
at the time we enter into a definitive agreement for the sale of
the asset.
|
|
|
|
|
Loss on Extinguishment of Debt
|
We recognize costs relating to extinguishing debt prior to
initial termination dates when we incur them.
Components
of Cash Flow
Cash
Provided by Operations
Cash provided by operations is derived largely from net income
by adjusting our revenues for those amounts not collected in
cash during the period in which the revenue is recognized and
for cash collected that was billed in prior periods or will be
billed in future periods. Net income is further adjusted by
adding back expenses charged in the period that is not paid for
in cash during the same period. We make our distributions based
largely on cash provided by operations. Key non-cash add-backs,
in addition to depreciation and the amortization of deferred
financing charges, in deriving cash provided by operations are:
Deferred Rental Income. We recognize deferred
rental income as a result of the accounting treatment of many of
our long-term leases that include fixed rent escalation clauses.
Because most of our leases contain fixed rent escalations, we
straight-line our lease revenue recognition.
Straight-lining involves spreading the rents we expect to earn
during the term of a lease under its escalation clause over the
lease term. As a result, during the first half of a lease term
with a fixed escalation clause, we accrue a receivable for rents
owed but not paid until future periods. During the second half
of the lease term, our cash receipts exceed our recognized
revenues and we amortize the receivable.
Rental Income from Intangible Amortization. We
incur non-cash rental income adjustments from the amortization
of certain intangibles resulting from the required application
of purchase accounting in the initial
47
recording of our real estate acquisitions. At the date of
acquisition, all assets acquired and liabilities assumed are
recorded at their respective fair value, including any value
attributable to in-place lease agreements. Any identified above
or below market lease intangible asset or liability is amortized
over the remaining lease term as a non-cash adjustment to rental
income.
Non-cash stock- based compensation. We incur
non-cash expense associated with the share-based payments to
employees. The share-based payments are in the form of stock
options. Expense is recognized ratably with the vesting schedule
based on the grant date fair value of the options.
Non-cash loss on extinguishment of debt. We
incurred certain expense associated with the partial pre-payment
of our secured mortgage term loan. Costs associated with the
origination of this loan were capitalized and being ratably
expensed over the life of the loan. When we pre-paid this loan
in part, we recognized a prorated non-cash expense write-off for
the unamortized capitalized debt costs.
Reserve for uncollected rental income and uncollectible loan
receivable. We incur an expense estimate for a
reserve based upon our historical collection record of billed
rental income and collections of loan receivables.
Cash Used
in Investing Activities
Cash used in investing activities consists of cash that is used
during a period for making new investments, capital expenditures
and tenant loans.
Cash
Provided by Financing Activities
Cash provided by financing activities consists of cash we
received from issuances of debt and equity capital. This cash
provides the primary basis for the investments in new
properties, capital expenditures and tenant loans. While we
invest a portion of our cash from operations into new
investments, as a result of our distribution requirements to
maintain our REIT status, it is likely that additional debt or
equity issuances will finance the majority of our investment
activity.
Results
of Operations
The following is a discussion of the consolidated results of
operations, financial position and liquidity and capital
resources of Aviv Healthcare Properties Limited Partnership.
Three
Months Ended March 31, 2011 Compared to Three Months Ended
March 31, 2010
Revenues
Revenues decreased $1.1 million, or 4.6%, from
$23.8 million for the three months ended March 31,
2010 to $22.7 million for the same period in 2011. The
$1.1 million decrease was the result of an increase in
rental revenue of $671,000, off-set by a write-off (expense) of
deferred rent receivable of $2.2 million due to the
termination of a lease and replacement of an operator. Interest
on loans to lessees also increased by $201,000 as a result of
interest earned on loans we made at our properties.
Detailed changes in revenues for the three months ended
March 31, 2011 compared to the same period in 2010 were as
follows:
|
|
|
|
|
Rental income decreased $1.5 million, or 6.9%, from
$21.2 million for the three months ended March 31,
2010 to $19.7 million for the same period in 2011. The
$1.5 million decrease was the result of an increase in
rental revenue of $671,000 that resulted from additional rent
associated with $109 million of acquisitions and
investments made in the twelve months ending March 31,
|
48
|
|
|
|
|
2011, off-set by a write-off (expense) of deferred rent
receivable of $2.2 million due to the termination of a
lease and replacement of an operator.
|
|
|
|
|
|
Tenant recoveries increased $160,000, or 10.5%, from
$1.5 million for the three months ended March 31, 2010
to $1.7 million for the same period in 2011. The increase
was a result of the additional tenant recoveries associated with
real estate taxes for newly acquired facilities included in the
$109 million of acquisitions and investments made in the
twelve months ended March 31, 2011 as well as the tenant
recoveries from those investments made in the three months ended
March 31, 2010 that were not owned for the entire 2010
period. The increase was also due to an increase in tenant
recoveries related to increases in real estate taxes from
investments held more than one year.
|
|
|
|
|
|
Interest on loans to tenants increased $201,000, or 26.2%, from
$1.1 million for the three months ended March 31, 2010
to $1.3 million for the same period in 2011. Most of this
increase in the 2011 period was a result of loans to tenants to
make capital expenditures that they made in our properties for
which we receive interest.
|
Expenses
Expenses increased $2.6 million, or 34.3%, from
$7.6 million for the three months ended March 31, 2010
to $10.2 million for the same period in 2011. This increase
was primarily due to an increase in general and administrative
expenses of $2.0 million which was attributable to
$1.0 million of non-cash share-based compensation expense
in 2011 and also an increase in professional fees of $670,000
because of a $430,000 write off of legal expenses that were
recovered from a tenant in the three months ended March 31,
2010.
Detailed changes in expenses for the three months ended
March 31, 2011 compared to the same period in 2010 were as
follows:
|
|
|
|
|
Rent and other operating expenses were comparable period over
period.
|
|
|
|
|
|
General and administrative expense increased $2.0 million,
or 143.5%, from $1.4 million for the three months ended
March 31, 2010 to $3.5 million for the same period in
2011. The increase was primarily due to $1.0 million of
non-cash share-based compensation expense in 2011 and also an
increase in professional fees of $670,000 due to a $430,000
write off of legal expenses in the first quarter of 2010. These
legal fees were expensed in 2009 but were recovered from the
tenant in the first quarter of 2010.
|
|
|
|
|
|
Real estate tax expense was comparable period over period.
Although we had an increase associated with the
$109 million in acquisitions for the twelve months ended
March 31, 2011, these increases were offset by property tax
decreases and three property dispositions in 2010.
|
|
|
|
|
|
Depreciation expense increased $437,000, or 10.0%, from
$4.4 million for the three months ended March 31, 2010
to $4.8 million for the same period in 2011. The increase
was a result of an increase in depreciation expense associated
with 13 newly acquired facilities included in the
$109 million of acquisitions and investments made during
the twelve months ended March 31, 2011.
|
Other
Income and Expenses
|
|
|
|
|
Interest and other income decreased $58,000 or 91.1%, from
$63,000 for the three months ended March 31, 2010 to $6,000
for the same period in 2011. Most of this decrease was a result
of a decrease in average cash balances.
|
49
|
|
|
|
|
Interest expense increased $1.7 million, or 28.8%, from
$5.9 million for the three months ended March 31, 2010
to $7.6 million for the same period in 2011. The majority
of the increase was due to an increase in the interest rate on
our debt associated with our credit facilities and senior notes
offset by a lesser amount of debt outstanding in the three
months ended March 31, 2011 as compared to the same period
in 2010.
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Income relating to the change in fair value of derivatives
decreased $1.3 million, or 100%, from a gain of
$1.3 million in the three months ended March 31, 2010
to $0 in the same period in 2011. We settled our existing swaps
in September 2010 as part of our debt refinancing. We entered
into new swap arrangements in November 2010 and these swaps have
been deemed to be eligible for hedge accounting, such changes
are reported in accumulated other comprehensive income within
the consolidated statement of changes in equity, exclusive of
ineffectiveness amounts, which are recognized as adjustments to
net income.
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Amortization of deferred financing fees increased $540,000, or
387.5%, from $139,000 for the three months ended March 31,
2010 to $679,000 for the same period in 2011. The increase was
due to additional fees incurred in conjunction with our new
$405 million mortgage term loan entered into in September
2010 and our $200 million issuance of Senior Notes in
February of 2011.
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|
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Loss on extinguishment of debt was $3.1 million for the
three months ended March 31, 2011. This non-recurring cost
was a result of prepaying certain corporate indebtedness prior
to maturity.
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Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009
Revenues
Revenues increased $3.8 million, or 4.2%, from
$92.3 million for the year ended December 31, 2009 to
$96.2 million for the same period in 2010. The
$3.8 million increase was a result of the additional rent
and tenant recoveries associated with $79.2 million of
acquisitions and investments, consisting principally of newly
acquired facilities and capital expenditures for which we
receive additional rent, made in the year ended
December 31, 2010.
Detailed changes in revenues for the year ended
December 31, 2010 compared to the same period in 2009 were
as follows:
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Rental income increased $1.7 million, or 2.1%, from
$82.8 million for the year ended December 31, 2009 to
$84.5 million for the same period in 2010. The
$1.7 million increase was a result of the additional rent
associated with $79.2 million of acquisitions and
investments, consisting principally of newly acquired facilities
for which we receive additional rent, made in the year ended
December 31, 2010, as well as the rent from those
investments made in the year ended December 31, 2009 that
were not owned for the entire 2009 period.
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Tenant recoveries increased $386,000, or 6.4%, from
$6.1 million for the year ended December 31, 2009 to
$6.4 million for the same period in 2010. The increase was
a result of the additional tenant recoveries associated with
real estate taxes for newly acquired facilities included in the
$79.2 million of acquisitions and investments made in the
year ended December 31, 2010 as well as the tenant
recoveries from those investments made in the year ended
December 31, 2009 that were not owned for the entire 2009
period. The increase was also due to an increase in tenant
recoveries related to increases in real estate taxes from
investments held more than one year, offset by a real estate tax
refund to tenants as a result of lower actual real estate taxes
in the 2009 period.
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50
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Interest on loans to tenants increased $1.7 million, or
49.6%, from $3.5 million for the year ended
December 31, 2009 to $5.2 million for the same period
in 2010. Most of this increase in the 2010 period was a result
of capital expenditures that we made in our properties for which
we receive additional rent.
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Expenses
Expenses decreased $3.3 million, or 8.3%, from
$39.0 million for the year ended December 31, 2009 to
$35.7 million for the same period in 2010. The decrease was
primarily due to a decrease in one time offering costs that were
expensed in 2009 when the company made the decision to not move
forward with its IPO effort. This decrease was offset by an
increase in general and administrative expenses of
$3.0 million which was attributable to $1.6 million of
share-based compensation expense in 2010. There was an
additional $500,000 in bonus for employees as a result of
meeting certain corporate performance goals in 2010 that were
not met in 2009.
Detailed changes in expenses for the year ended
December 31, 2010 compared to the same period in 2009 were
as follows:
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Rent and other operating expenses were comparable period over
period.
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General and administrative expense increased $3.0 million,
or 38.5%, from $7.7 million for the year ended
December 31, 2009 to $10.7 million for the same period
in 2010. The increase was primarily due to $1.6 million of
share-based compensation expense in 2010 and an additional
$500,000 in bonus for employees as a result of meeting certain
corporate performance goals in 2010 that were not met in 2009.
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Real estate tax expense increased $243,000, or 3.9%, from
$6.2 million for the year ended December 31, 2009 to
$6.5 million for the same period in 2010. This increase was
a result of an increase in real estate expense associated with
13 newly acquired facilities included in the $79.2 million
of acquisitions and investments made during the year ended
December 31, 2010 as well as the real estate tax expense
from those investments made in the year ended December 31,
2009 that were not owned for the entire 2009 period. The
increase was also due to increases in real estate taxes from
investments held more than one year, offset by a real estate tax
refund to tenants as a result of lower actual real estate taxes
in the 2009 period. To a much lesser extent the increase was
associated with
year-to-year
increases in real estate taxes related to investments held more
than a year.
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Depreciation expense increased $326,000, or 1.9%, from
$17.5 million for the year ended December 31, 2009 to
$17.9 million for the same period in 2010. The increase was
a result of an increase in depreciation expense associated with
13 newly acquired facilities included in the $79.2 million
of acquisitions and investments made during the year ended
December 31, 2010 as well as the depreciation expense from
those investments made in the year ended December 31, 2009
that were not owned for the entire 2009 period.
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Loss on impairment of assets increased $96,000, from $0 for the
year ended December 31, 2009 to $96,000 for the same period
in 2010. The 2010 expense was to record a property at estimated
selling price less costs to dispose.
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Other
Income and Expenses Including Income (Loss) from Discontinued
Operations
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|
Interest and other income decreased $333,000 or 71.5%, from
$466,000 for the year ended December 31, 2009 to $133,000
for the same period in 2010. Most of this decrease was a result
of a decrease in average cash balances.
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51
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Interest expense decreased $3.8 million, or 14.5%, from
$26.6 million for the year ended December 31, 2009 to
$22.7 million for the same period in 2010. The majority of
the decrease was due to a decrease in swap interest expense
relating to contracts expiring in 2010 as well as a significant
paydown of debt in September 2010.
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Income relating to the change in fair value of derivatives
decreased $4.1 million, or 58.1%, from a gain of
$7.0 million in the year ended December 31, 2009 to a
gain of $2.9 million in the same period in 2010. This is a
result of a change in the fair value of our swaps during the
period.
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Amortization increased $458,000, or 83.3%, from $550,000 for the
year ended December 31, 2009 to $1.0 million for the
same period in 2010. The increase was due to additional fees
incurred in conjunction with our new $405 million mortgage
term loan entered into in September 2010.
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Gain on sale of assets, net was $512,000 for the year ended
December 31, 2010 as a result of the disposal of two
properties in July 2010 and one property in December 2010.
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|
Loss on extinguishment of debt was $2.3 million for the
year ended December 31, 2010. This non-recurring cost was a
result of prepaying certain corporate indebtedness prior to
maturity.
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Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Revenues
Revenues increased $13.5 million, or 17.1%, from
$78.8 million for the year ended December 31, 2008 to
$92.3 million for the same period in 2009. The
$13.5 million increase was a result of the additional rent
and tenant recoveries associated with $17.9 million of
investments, consisting principally of two newly acquired
facilities and, to a much lesser extent, capital expenditures,
made in 2009, the full year of rent and tenant recoveries
related to $97.9 million of investments, consisting
principally of 17 newly acquired facilities and, to a much
lesser extent, capital expenditures, made during 2008 and
interest income charged on loans made to tenants.
Detailed changes in revenues for the year ended
December 31, 2009 compared to the same period in 2008 were
as follows:
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Rental income increased $10.6 million, or 14.7%, from
$72.1 million for the year ended December 31, 2008 to
$82.8 million for the same period in 2009. The increase was
a result of the additional rent associated with leases of two
newly acquired facilities included in the $17.9 million of
investments made in 2009 and the full year of rent related to
leases of 17 newly acquired facilities included in the
$97.9 million of investments made during 2008.
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Tenant recoveries increased $1.2 million, or 25.4%, from
$4.8 million for the year ended December 31, 2008 to
$6.1 million for the same period in 2009. The increase was
a result of the additional tenant recoveries associated with
real estate taxes for two newly acquired facilities included in
the $17.9 million of investments made in 2009, the full
year of tenant recoveries related to real estate taxes for 17
newly acquired facilities included in the $97.9 million of
investments made during 2008 and to a much lesser extent
increases in tenant recoveries related to increases in real
estate taxes from investments held more than one year.
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Interest on loans to tenants increased $1.6 million, or
87.9%, from $1.9 million for the year ended
December 31, 2008 to $3.5 million for the same period
in 2009. Most of this increase was
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52
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a result of capital expenditures that we made in our properties
for which we receive additional rent and working capital loans
made to operators.
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Expenses
Expenses increased $10.4 million, or 36.5%, from
$28.6 million for the year ended December 31, 2008 to
$39.0 million for the same period in 2009. The increase was
primarily due to expenses recognized in connection with the
companys abandoned initial public offering (IPO) effort in
2009.
Detailed changes in expenses for the year ended
December 31, 2009 compared to the same period in 2008 were
as follows:
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Rent and other operating expenses decreased $476,000, or 43.8%,
from $1.1 million for the year ended December 31, 2008
to $612,000 for the same period in 2009 due to the expiration of
two leases we previously subleased.
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General and administrative expense increased $932,000, or 13.7%,
from $6.8 million for the year ended December 31, 2008
to $7.7 million for the same period in 2009. The increase
was primarily due to increased salaries associated with
additional personnel.
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Offering costs of $6.9 million were expensed for
professional fees and other costs that relate to the abandoned
IPO effort in 2009.
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Real estate tax expense increased $1.1 million, or 21.8%,
from $5.1 million for the year ended December 31, 2008
to $6.2 million for the same period in 2009. The increase
was a result of an increase in real estate expense associated
with two newly acquired facilities included in the
$17.9 million of investments made in 2009 and the full year
of costs associated with 17 newly acquired facilities included
in the $97.9 million of investments made during 2008. To a
far lesser extent the amount of the increase was associated with
year-to-year
increases in real estate taxes related to investments held more
than a year.
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Depreciation expense increased $2.9 million, or 19.9%, from
$14.6 million for the year ended December 31, 2008 to
$17.5 million for the same period in 2009. The increase was
due to incremental depreciation costs associated with two newly
acquired facilities included in the $17.9 million of
investments made in 2009 and the full year of depreciation costs
associated with 17 newly acquired facilities included in the
$97.9 million of investments made during 2008.
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Expense from loss on impairment of assets decreased $932,000,
from $932,000 for the year ended December 31, 2008 to $0
for the same period in 2009. The expense in 2008 was due to the
recognition of a loss incurred on a sale of a property in 2008.
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Other
Income and Expenses Including Income (Loss) from Discontinued
Operations
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|
Interest and other income decreased $1.5 million, or 76.8%,
from $2.0 million for the year ended December 31, 2008
to $466,000 for the same period in 2009. Most of this decrease
was a result of loans made in connection with the
internalization of AAM that were repaid in June 2008.
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Interest expense increased $298,000, or 1.1%, from
$26.3 million for the year ended December 31, 2008 to
$26.6 million for the same period in 2009. The increase was
due to incremental interest costs on additional indebtedness
related to two newly acquired facilities during 2009 and the
full year of interest costs associated with additional
indebtedness incurred in 2008.
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53
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The change in fair value of derivatives increased
$15.7 million, or 180.6%, from expense of $8.7 million
for the year ended December 31, 2008, as compared to income
of $7.0 million for the same period in 2008. This
additional expense in 2008 was a result of a change in the fair
value of our swaps during the period as a result of significant
increases in the
30-day LIBOR.
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Amortization increased $13,000, or 2.4%, from $537,000 for the
year ended December 31, 2008 to $550,000 for the same
period in 2009. The increase was due in part to additional
financing fees incurred in conjunction with additional
indebtedness.
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Property
Acquisitions
During the three months ended March 31, 2011 and 2010, the
Partnerships closed the acquisition of 13 and 4 properties,
respectively. Refer to the Notes to the Consolidated Financial
Statements of the Partnership for further details.
Liquidity
and Capital Resources
We expect to meet our short-term liquidity requirements
generally through net cash provided by operations, existing cash
balances and, if necessary, short-term borrowings. We believe
that the net cash provided by operations and availability under
our revolving credit facility will be adequate to fund our
operating requirements, debt service and the payment of
dividends in accordance with REIT requirements of the federal
income tax laws for the next twelve months. We expect to meet
our long-term liquidity requirements, such as scheduled debt
maturities and property acquisitions, through long-term secured
and unsecured borrowings and the issuance of additional equity
securities.
Our organizational documents do not limit the amount of
indebtedness that we may incur, and we currently do not have a
target leverage ratio. We intend to repay indebtedness incurred
under our credit facilities from time to time, to provide
capacity for acquisitions or otherwise, out of cash flow and
from the proceeds of issuances of additional equity interests
and other securities.
We intend to invest in additional properties and portfolios as
suitable opportunities arise and adequate sources of financing
are available. We are currently evaluating additional potential
investments consistent with the normal course of our business.
These potential investments are in various stages of evaluation
with both existing and new tenants and include acquisitions,
development projects, income producing capital expenditures and
other investment opportunities. There can be no assurance as to
whether or when any portion of these investments will be
completed. Our ability to complete investments is subject to a
number of risks and variables, including our ability to
negotiate mutually agreeable terms with the counterparties and
our ability to finance the purchase price. See Risk
FactorsRisks Relating to Our Business and
OperationsWe may not be successful in identifying and
consummating suitable acquisitions or investment opportunities,
which may impede our growth and negatively affect our results of
operations and may result in the use of a significant amount of
management resources. We expect that future investments in
properties will depend on and will be financed by, in whole or
in part, our existing cash, the proceeds from issuances of
securities or borrowings (including under our acquisition credit
line and our revolving credit facility).
Indebtedness
Outstanding
Our outstanding indebtedness is comprised principally of
borrowings under our existing credit facility and the Notes. We
have a total indebtedness of approximately $454.6 million
as of March 31, 2011. After giving pro forma effect to the
sale of the Old Notes and the use of proceeds therefrom, we
anticipate that we would have had total indebtedness of
approximately $508.4 million as of March 31, 2011.
Substantially all of such indebtedness is scheduled to mature in
late 2015 or thereafter.
54
Contractual
Obligations
The following table shows the amounts due in connection with the
contractual obligations described below as of March 31,
2011 as adjusted to give effect to the sale of the Old Notes in
April 2011 and the use of proceeds therefrom (including future
interest payments):
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Payments Due by Period
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Less than
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More than
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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Total
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(in thousands)
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Mortgage term loan and other notes payable (1)
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$12,583
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$34,859
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$217,085
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(2)
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$
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$264,527
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7 3/4% Senior
Notes due 2019 (3)
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17,438
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46,500
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46,500
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|
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374,917
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|
485,355
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Total
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$30,021
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$81,359
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$263,585
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(2)
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$374,917
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$749,882
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(1) |
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Assumes $199.3 million outstanding under our existing
credit facility after giving effect to use of proceeds from the
Old Notes. Assumes a weighted average interest rate for total
outstanding debt of 7.13%. |
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(2) |
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Primarily relates to maturity of indebtedness under our existing
credit facility in September 2015. Does not give effect to any
amounts to be drawn under the acquisition credit line which
would also mature in September 2015. See Borrowing
Arrangements below. |
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(3) |
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Reflects $300.0 million outstanding of our
73/4%
Senior Notes due 2019. |
Borrowing
Arrangements
Existing
Credit Facility
On September 17, 2010, our subsidiary Aviv
Financing I, L.L.C. entered into a five year credit
agreement with General Electric Capital Corporation, or GE,
which provides a $405.0 million mortgage term loan and a
$100.0 million acquisition credit line. The acquisition
credit line is available for draw until September 2013. The
initial term of the existing credit facility expires in
September 2015 with two one-year extension options, provided
that certain conditions precedent for the extensions are
satisfied, including, without limitation, payment of a fee equal
to 0.25% of the then existing principal balance of the existing
credit facility and meeting certain debt service coverage and
debt yield tests.
Our GE credit facility generally requires the consolidated
borrowers under the facility to maintain a debt service coverage
ratio of 1.50:1.00 and a distribution coverage ratio of
1.10:1.00. In addition, Aviv Healthcare Properties Limited
Partnership and its consolidated subsidiaries must maintain a
debt service coverage ratio of 1.25:1.00 and a debt yield ratio
of greater than 17.25%. We are permitted to include cash on hand
in calculating such debt service coverage ratios. Immediately
following any draw on the acquisition credit line, both before
and after giving effect to such draw, the consolidated borrowers
under the existing credit facility must have a pro forma debt
yield ratio of at least 18%.
Our debt yield ratio is the ratio of (i) either
consolidated EBITDA or rental revenue for the most recently
completed two fiscal quarter period times two to (ii) the
average daily outstanding principal balance of loans outstanding
under the existing credit facility during the period. The
borrowers under the existing credit facility guarantee the
Notes, which guarantees are subordinated to the obligations of
such borrowers under the existing credit facility. In turn, each
guarantor of the Notes that is not a borrower under our existing
credit facility or our revolving credit facility provided
guarantees to the lenders under such facilities, which
guarantees are subordinated to the obligations of such
subsidiaries under the Notes.
55
As of March 31, 2011, we are in compliance with the
financial covenants of our outstanding debt and lease agreements.
7.75% Senior
Notes due 2019
On February 4, 2011, we, through Aviv Healthcare
Properties Limited Partnership and Aviv Healthcare Capital
Corporation, (the Issuers), issued
$200.0 million aggregate principal amount of senior
unsecured notes (the Notes) in a private placement.
The Issuers are majority owned subsidiaries of Aviv REIT, Inc.
(Aviv REIT). The Notes were sold at par, resulting
in gross proceeds of $200.0 million and net proceeds of
approximately $194.5 million after deducting commissions
and expenses. The net proceeds from the offering of the Notes
were used to repay all outstanding indebtedness under our
acquisition credit line and to partially repay our outstanding
mortgage term loan.
The obligations under the Notes are fully and unconditionally
guaranteed, jointly and severally, on an unsecured basis, by
Aviv REIT and certain of our other existing and, subject to
certain exceptions, future subsidiaries.
The Notes are redeemable at the option of the Issuers, in whole
or in part, at any time, and from time to time, on or after
February 15, 2015, at the redemption prices set forth in
the indenture governing the Notes (the Indenture),
plus accrued and unpaid interest to the applicable redemption
date. In addition, prior to February 15, 2015, the Issuers
may redeem all or a portion of the Notes at a redemption price
equal to 100% of the principal amount of the Senior Notes
redeemed, plus a make-whole premium, plus accrued
and unpaid interest to the applicable redemption date. At any
time, or from time to time, on or prior to February 15,
2014, the Issuers may redeem up to 35% of the principal amount
of the Notes, using the proceeds of specific kinds of equity
offerings, at a redemption price of 107.75% of the principal
amount to be redeemed, plus accrued and unpaid interest, if any,
to the applicable redemption date.
The Indenture governing the Notes contains restrictive covenants
that, among other things, restrict the ability of Aviv REIT, the
Issuers and their restricted subsidiaries to: (i) incur or
guarantee additional indebtedness; (ii) incur or guarantee
secured indebtedness; (iii) pay dividends or distributions
on, or redeem or repurchase, their capital stock; (iv) make
certain investments or other restricted payments; (v) sell
assets; (vi) create liens on their assets; (vii) enter
into transactions with affiliates; (viii) merge or
consolidate or sell all or substantially all of their assets;
and (ix) create restrictions on the ability of Aviv REIT
and its restricted subsidiaries to pay dividends or other
amounts to Aviv REIT. The Indenture governing the Notes also
provides for customary events of default, including, but not
limited to, the failure to make payments of interest or premium,
if any, on, or principal of, the Notes, the failure to comply
with certain covenants and agreements specified in the Indenture
for a period of time after notice has been provided, the
acceleration of other indebtedness resulting from the failure to
pay principal on such other indebtedness prior to its maturity,
and certain events of insolvency. If any event of default
occurs, the principal of, premium, if any, and accrued interest
on all the then outstanding Notes may become due and payable
immediately. As of March 31, 2011, we were in compliance
with all applicable financial covenants under the Notes.
Revolving
Credit Facility
In conjunction with the Senior Notes issuance on
February 4, 2011, the Partnership, under Aviv Financing IV,
LLC, entered into a $25.0 million secured revolving credit
facility with Bank of America (the Revolver). On
each payment date, the Partnership shall pay interest only in
arrears on any outstanding principal balance of the Revolver.
The interest rate under our Revolver is generally based on LIBOR
(subject to a floor of 1.0% and subject to our option to elect
to use a prime base rate) plus a margin that is determined by
our leverage ratio from time to time, and the interest rate as
of March 31, 2011 was 6.25%. We are permitted to include
cash on hand in calculating our leverage ratio for periods
through June 30, 2011. The initial term of our Revolver
expires in January 2014 with a one-year extension option. We
have the right to
56
increase the amount of the revolving credit facility by up to
$75.0 million (resulting in total availability of
$100.0 million), provided that certain conditions precedent
are satisfied.
Our revolving credit facility is secured by first lien mortgages
on 14 of our properties, a pledge of the capital stock of our
subsidiaries owning such properties (plus the equity of our
subsidiary that acts as the holding company of the subsidiaries
owning such properties) and other customary collateral,
including an assignment of leases and rents with respect to such
mortgaged properties. The borrowing availability under our
Revolver is subject to a borrowing base calculation based on,
among other factors, the lesser of (i) the amount of a
hypothetical mortgage based on the net revenues for the prior
four quarters (on a pro forma basis for recently acquired
properties) and (ii) 65% of the appraised value, in each
case, of the properties securing our revolving credit facility.
As of March 31, 2011, there was $10.2 million
outstanding on our Revolver.
The Revolver contains customary covenants that include
restrictions on the ability to make acquisitions and other
investments, pay dividends, incur additional indebtedness, and
sell or otherwise transfer certain assets as well as customary
events of default. The secured revolving credit facility also
requires us to comply with specified financial covenants, which
include a maximum leverage ratio, a minimum fixed charge
coverage ratio and a minimum tangible net worth requirement. As
of March 31, 2011, we were in compliance with all
applicable financial covenants under the Revolver.
Subsequent
Event $100 million 7.75% Add-on Senior
Notes
On April 5, 2011, the Partnership issued $100 million
of 7.75% Senior Notes due February 2019 at a price of
$102.75 for an effective yield of 7.16%. The net proceeds from
this issuance were used to pay down $35.7 million of the
mortgage term loan and the remaining proceeds were received as
cash.
Cash
Flows
Three
Months Ended March 31, 2011 Compared to Three Months Ended
March 31, 2010
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Cash provided by operations increased $242,000, or 1.7%, from
$14.0 million for the three months ended March 31,
2010 to $14.3 million for the same period in 2011. The
increase was primarily due to an increase that resulted from
additional rent associated with $109 million of
acquisitions and investments made in the twelve months ending
March 31, 2011.
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Cash used in investing activities increased $14.6 million,
or 188.1%, from cash used of $7.8 million for the three
months ended March 31, 2010 to cash used of
$22.3 million for the same period in 2011. This increase
was largely due to the increase in acquisition and investment
activity in the twelve months ended March 31, 2011, as
compared to the same period in 2010.
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Cash provided by financing activities increased
$19.8 million, or 145.1%, from cash used of
$13.6 million for the three months ended March 31,
2010 to cash provided of $6.2 million for the same period
in 2010. The increase was primarily due to a follow-on equity
investment by Lindsay Goldberg in January 2011 and the issuance
of our Senior Notes in February 2011.
|
Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009
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Cash provided by operations increased $14.6 million, or
36.6%, from $40.0 million for the year ended
December 31, 2009 to $54.7 million for the same period
in 2010. The increase was primarily due to an increase in our
accounts payable, an increase in net income, and an increase in
non-cash stock-based compensation and non-cash loss on
extinguishment of debt.
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Cash used in investing activities increased $36.6 million,
or 95.1%, from cash used of $38.5 million for the year
ended December 31, 2009 to cash used of $75.1 million
for the same
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57
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period in 2010. This increase was largely due to the increase in
investment activity in the year ended December 31, 2010, as
compared to the same period in 2009.
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Cash provided by financing activities increased
$13.3 million, or 286.9%, from $4.6 million for the
year ended December 31, 2009 to $17.9 million for the
same period in 2010. The increase was primarily due to our
transaction with Lindsay Goldberg on September 17, 2010.
|
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
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Cash provided by operations increased $8.0 million, or
24.9%, from $32.0 million for the year ended
December 31, 2008 to $40.0 million for the same period
in 2009. The increase was a result of the additional rent
associated with $17.9 million of investments made in 2009
and the full year of rent related to $97.9 million of
investments made during 2008.
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Cash used in investing activities decreased $50.6 million,
or 56.8%, from $89.1 million for the year ended
December 31, 2008 to $38.5 million for the same period
in 2009. The decrease was primarily due to a decrease in
investment activity.
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Cash provided by financing activities decreased
$45.4 million, or 90.7%, from $50.0 million for the
year ended December 31, 2008 to $4.6 million for the
same period in 2009. The majority of the decrease was due to a
decrease in financing activity.
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Summary
of Significant Accounting Policies
Estimates
The preparation of the financial statements in conformity with
GAAP in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles
of Consolidation
The accompanying consolidated financial statements of Aviv
Healthcare Properties Limited Partnership include the accounts
of the partnership and all controlled subsidiaries and joint
ventures. Aviv Healthcare Properties Limited Partnership
considers itself to control an entity if it is the majority
owner of and has voting control over such entity. The portion of
the net income or loss attributed to third parties is reported
as noncontrolling interests on the consolidated statements of
operations, and such parties portion of the net equity in
such subsidiaries is reported on the consolidated balance sheets
as noncontrolling interests. All significant intercompany
balances and transactions have been eliminated in consolidation.
Rental
Properties
Aviv Healthcare Properties Limited Partnership reports all
acquired properties at their estimated fair value, net of
accumulated depreciation. We periodically assess the carrying
value of rental properties and related intangible assets in
accordance with ASC 360, Property, Plant, and Equipment
(ASC 360), to determine if facts and circumstances exist
that would suggest that assets might be impaired or that the
useful lives should be modified. In the event impairment in
value occurs and a portion of the carrying amount of the rental
properties will not be recovered in part or in whole, a
provision will be recorded to reduce the carrying basis of the
rental properties and related intangibles to their estimated
fair value. The estimated fair value of our rental properties is
determined by using customary industry standard methods that
include discounted cash flow
and/or
direct capitalization analysis.
58
Buildings and building improvements have been assigned estimated
40-year
lives and are depreciated on the straight-line method. Personal
property, furniture, and equipment have been assigned estimated
lives ranging from 7 to 10 years and are generally
depreciated on the straight-line method.
We may advance monies to our lessees for the purchase,
generally, of furniture, fixtures, or equipment or other
purposes. Required minimum lease payments due from the lessee
increase to provide for the repayment of such amounts over a
stated term. These advances in the instance where the
depreciable life of the newly purchased asset is less than the
remaining lease term are reflected as loan receivables on the
consolidated balance sheets, and the incremental lease payments
are bifurcated between principal and interest over the stated
term. In the instance where the depreciable life of the newly
purchased assets is longer than the remaining lease term, the
purchase is recorded as property. In other instances, loans are
made to lessees for working capital and other funding needs and
provide for monthly principal and interest payments generally
ranging from 5 to 10 years.
Purchase
Accounting
In determining the allocation of the purchase price of
partnerships and facilities between net tangible and identified
intangible assets acquired and liabilities assumed, we make
estimates of the fair value of the tangible and intangible
assets and acquired liabilities using information obtained from
multiple sources as a result of preacquisition due diligence,
marketing, leasing activities of our diverse operator base,
industry surveys of critical valuation metrics such as
capitalization rates, discount rates and leasing rates and
appraisals obtained by us as a requirement of the existing
credit facility. We allocate the purchase price of facilities to
net tangible and identified intangible assets acquired based on
their fair values in accordance with the provisions of
ASC 805, Business Combinations (ASC 805). The
determination of fair value involves the use of significant
judgment and estimation.
We determine fair values as follows:
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Other assets acquired and other liabilities assumed are valued
at stated amounts, which approximate fair value.
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Rental properties are valued using discounted cash flow
projections that assume certain future revenue and costs and
consider capitalization and discount rates using current market
conditions. We allocate the purchase price of facilities to net
tangible and identified intangible assets acquired and
liabilities assumed based on their fair values.
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Assumed debt balances are valued at fair value, with the
computed discount/premium amortized over the remaining term of
the obligation.
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We determine the value of land either based on real estate tax
assessed values in relation to the total value of the asset,
internal analyses of recently acquired and existing comparable
properties within our portfolio, or third party appraisals. The
fair value of in-place leases, if any, reflects: (i) above-
and below-market leases, if any, determined by discounting the
difference between the estimated current market rent and the
in-place rentals, the resulting intangible asset or liability of
which is amortized to rental revenue over the remaining life of
the associated lease plus any fixed rate renewal periods if
applicable; (ii) the estimated value of the cost to obtain
tenants, including tenant allowances, tenant improvements, and
leasing commissions, which is amortized over the remaining life
of the associated lease; and (iii) an estimated value of
the absorption period to reflect the value of the rents and
recovery costs foregone during a reasonable
lease-up
period as if the acquired space was vacant, which is amortized
over the remaining life of the associated lease. We also
estimate the value of tenant or other customer relationships
acquired by considering the nature and extent of existing
business relationships with the tenant, growth prospects for
developing new business with such tenant, such tenants
credit quality, expectations of lease renewals with such tenant,
and the potential for significant, additional future leasing
arrangements with such tenant. We amortize such value, if any,
over the
59
expected term of the associated arrangements or leases, which
would include the remaining lives of the related leases. The
amortization is included in the consolidated statements of
operations in rental income.
Revenue
Recognition
Rental income is recognized on a straight-line basis over the
term of the lease when collectability is reasonably assumed.
Differences between rental income earned and amounts due under
the lease are charged or credited, as applicable, to deferred
rent receivable. Income recognized from this policy is titled
deferred rental revenue. Additional rents from expense
reimbursements for insurance, real estate taxes, and certain
other expenses are recognized in the period in which the related
expenses are incurred and are reflected as tenant recoveries on
the consolidated statements of operations.
Derivative
Instruments
We have implemented ASC 815, Derivatives and Hedging
(ASC 815), which establishes accounting and reporting
standards requiring that all derivatives, including certain
derivative instruments embedded in other contracts, be recorded
as either an asset or liability measured at their fair value
unless they qualify for a normal purchase or normal sales
exception. When specific hedge accounting criteria are not met,
ASC 815 requires that changes in a derivatives fair
value be recognized currently in earnings. All of the changes in
the fair market values of our derivative instruments are
recorded in the consolidated statements of operations if the
derivative does not qualify for, or we do not elect to apply,
hedge accounting. In November 2010, we entered into two interest
rate swaps and account for changes in fair value of such hedges
through changes in equity in our financial statements under
hedge accounting.
Lease
Accounting
Aviv Healthcare Properties Limited Partnership, as lessor, makes
a determination with respect to each of its leases whether they
should be accounted for as operating leases or direct financing
leases. The classification criteria is based on estimates
regarding the fair value of the leased facilities, minimum lease
payments, effective cost of funds, the economic life of the
facilities, the existence of a bargain purchase option, and
certain other terms in the lease agreements. Payments received
under operating leases are accounted for in the statement of
operations as rental income for actual rent collected plus or
minus a straight-line adjustment for estimated minimum lease
escalators. Assets subject to operating leases are reported as
rental properties in the consolidated balance sheets. For
facilities leased as direct financing arrangements, an asset
equal to Aviv Healthcare Properties Limited Partnerships
net initial investment is established on the balance sheet
entitled assets under direct financing leases. Payments received
under the financing lease are bifurcated between interest income
and principal amortization to achieve a consistent yield over
the stated lease term using the interest method. Principal
amortization (accretion) is reflected as an adjustment to the
asset subject to a financing lease.
Many of Aviv Healthcare Properties Limited Partnerships
leases contain fixed or formula based rent escalators. To the
extent that the escalator increases are tied to a fixed index or
rate, lease payments are accounted for on a straight-line basis
over the life of the lease.
Stock-Based
Compensation
We follow ASC 718, Stock Compensation (ASC 718),
which requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the
consolidated statements of operations based on their fair
values. We recognize expense for dividend equivalents where
appropriate as dividends are declared, even if not immediately
paid.
60
Income
Taxes
Aviv Healthcare Properties Limited Partnership is a limited
partnership. Therefore, substantially all federal and state
income taxes are recorded by the limited partners of Aviv
Healthcare Properties Limited Partnership. Accordingly, Aviv
Healthcare Properties Limited Partnership does not provide for
federal income taxes. State income taxes were not significant in
any of the periods presented. No uncertain income tax positions
exist.
Aviv REIT intends to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code and applicable
U.S. Treasury regulations relating to REIT qualification.
Aviv REIT intends to make its election to be taxed as a REIT
effective as of its taxable year ending December 31, 2010.
In order to maintain this status, the regulations require us to
distribute at least 90% of our taxable income to stockholders
and meet certain other asset and income tests as well as other
requirements. Assuming REIT qualification, we will generally not
be liable for federal corporate taxes as long as we distribute
100% of our taxable income and net capital gains.
Aviv
Healthcare Properties Limited Partnership
Aviv Healthcare Properties Limited Partnership was formed in
2005 for the purpose of combining various entities with varying
ownership. Aviv Healthcare Properties Limited Partnership
refinanced the respective debt obligations of the contributed
entities, as well as covered the expenses of the transaction
with our credit facilities.
For accounting purposes, in accordance with the provisions of
ASC 805, the largest of the combining entities,
Massachusetts Nursing Homes Limited Partnership
(Massachusetts), was determined to be the accounting
acquiror in the transaction and its assets, liabilities, and
equity continue to be reported in the consolidated financial
statements at their historical cost. All remaining real estate
assets, effective on their respective acquisition dates, were
deemed to have been acquired by Massachusetts and these acquired
assets and liabilities were recorded on such dates at their fair
value in accordance with the purchase method of accounting. The
results of operations for Massachusetts are included for all
periods presented. The results of operations for all other
acquired real estate assets are included for periods subsequent
to their acquisition date.
Prior to October 16, 2007, Aviv Healthcare Properties
Limited Partnership was externally advised by AAM. On
October 16, 2007, the owners of AAM contributed their
ownership interests in AAM to Aviv Healthcare Properties Limited
Partnership in exchange for a newly issued class of partnership
units. Half of the partnerships units were redeemed at the time
of our transaction with Lindsay Goldberg in September 2010.
Prior to the internalization of AAM, Aviv Healthcare Properties
Limited Partnership had no employees and relied solely on AAM
for investment and portfolio management services. At the time of
the internalization, AAM became a wholly owned subsidiary of
Aviv Healthcare Properties Limited Partnership, but the
internalization did not meet all of the requirements for AAM to
be deemed a consolidated subsidiary for financial reporting
purposes. As a result of our transaction with Lindsay Goldberg
in September 2010, AAM became a consolidated subsidiary and is
reported as such for all periods presented.
Aviv
REIT, Inc.
Aviv REIT was incorporated as a Maryland corporation on
July 30, 2010. Aviv REIT is a holding company and its
primary assets are its general partnership interest in and
class G common units of Aviv Healthcare Properties Limited
Partnership.
61
Quantitative
and Qualitative Disclosures About Market Risk
Our future income, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market
interest rates. Market risk refers to the risk of loss from
adverse changes in market prices and interest rates. We use some
derivative financial instruments to manage, or hedge, interest
rate risks related to our borrowings. We do not use derivatives
for trading or speculative purposes and only enter into
contracts with major financial institutions based on their
credit rating and other factors.
We entered into a swap arrangement on November 5, 2010 to
hedge $200 million of floating rate debt. If LIBOR were to
increase by 100 basis points, we do not expect there would
be any significant effect on the interest expense on our pro
forma variable rate debt as our floating rate credit agreement
is subject to a LIBOR floor of 125 basis points. Interest
rate risk amounts were determined by considering the impact of
hypothetical interest rates on our financial instruments. These
analyses do not consider the effect of any change in overall
economic activity that could occur in that environment. Further,
in the event of a change of that magnitude, we may take actions
to further mitigate our exposure to the change. However, due to
the uncertainty of the specific actions that would be taken and
their possible effects, these analyses assume no changes in our
financial structure. The fair value of our debt outstanding as
of March 31, 2011 was approximately $455.4 million.
62
BUSINESS
Our
Company
We operate as a self-administered, self-managed real estate
investment trust, or REIT, that focuses on the ownership of
healthcare properties, principally skilled nursing facilities
(SNFs). We generate our revenues through long-term
triple-net
leases with a diversified group of high quality operators
throughout the United States. Through our predecessor entities,
we have been in the business of financing SNF operators through
triple-net
leases for over 30 years. We believe that we have one of
the largest SNF portfolios in the United States which consisted
of 187 properties, of which 168 were SNFs, with 18,300 licensed
beds in 25 states leased to 32 operators, as of
March 31, 2011. For the twelve months ended
March 31, 2011, our revenues and Adjusted EBITDA were
$95.1 million and $76.4 million, respectively. See
Presentation of Non-GAAP Financial Information and
Portfolio Statistics and Summary Financial
Data.
We believe we are well positioned to benefit from our
diversified portfolio of properties and extensive network of
operator relationships. We focus on cultivating close
relationships with our operators by working closely with them to
help them achieve their business objectives. As a result of
these efforts, we are in a position to effectively manage our
portfolio, make additional investments and continue to expand
our business. From April 2005 through March 2011, we completed
$507.1 million of acquisitions. In 2010, we completed
$79.2 million of acquisitions and investments. In addition,
from January 1, 2011 through the date of this prospectus,
we completed $71.5 million in investments. We target
EBITDAR and EBITDARM coverages that we believe allow us to
balance our rental income with appropriate operating and
financial performance for our operators. Our EBITDAR and
EBITDARM coverages for the twelve months ended December 31,
2010 were 1.4x and 1.8x, respectively, and we have collected
99.5% of the rents owed to us over the last three years.
The structure of our
triple-net
leases has significantly contributed to our consistent and
stable performance and positions us to benefit from a long-term
stream of rental income. Our leases typically have initial terms
of 10 years or more, annual rent escalation provisions of
2% to 3% and typically do not have operator purchase options. We
also seek additional support for the rental income generated by
the leases through guarantees, master leases, cross-default
provisions and security deposits. As of March 31, 2011, the
leases for 185 of our 187 properties were supported by personal
and/or
corporate guarantees.
Our
Competitive Strengths
We believe the following strengths serve as the foundation for
our success:
Track
Record of Disciplined Investing
We, through our predecessor entities, have been in the business
of owning healthcare properties for over 30 years and were
one of the first providers of financing to SNF operators through
triple-net
leases. We are disciplined and selective about the investments
we make and have a strong track record of identifying operators
and attractive markets in which to invest. This has enabled us
to successfully complete $507.1 million of acquisitions
from April 2005 to March 2011, including $79.2 million of
investments in 2010. In addition, from January 1, 2011
through the date of this prospectus, we completed
$71.5 million in investments. In order to effectively
manage our investments, we have implemented systems and
processes to monitor the performance of our operators and
properties, including annual site visits, regular contact with
our operators and quarterly financial reviews.
Large,
Diverse Portfolio
We believe we have one of the largest portfolios of SNFs in the
United States, with significant operator and geographic
diversification. As of March 31, 2011, our portfolio
consisted of 187 properties with 18,330 licensed beds. We lease
our properties to a diversified group of 32 operators with no
single operator
63
representing more than 13.3% of our total rent under existing
leases for the twelve months ended March 31, 2011. Our
properties are located in 25 states, with no state
representing more than 17.6% of our total rent under existing
leases for the twelve months ended March 31, 2011. We
believe our track record and extensive network of industry
relationships puts us in a position to continue to identify and
complete investments that enhance the quality and
diversification of our portfolio.
High
Quality Operators
As a result of our many years of experience and industry
contacts, we have a portfolio of, and an ability to identify,
high quality operators. We believe each of our 32 operators
possesses local market knowledge, hands-on management and a
proven track record. Many of our operators are among the largest
and most established SNF operators in their respective markets,
with management typically possessing 20 years or more of
industry experience. We believe our management teams
extensive experience provides us with a key advantage in
evaluating an operators prospects for success and enables
us to identify the appropriate operator for each of our
properties. As of March 31, 2011, 139 of our 187 properties
are leased to operators with whom we have had a relationship for
at least 5 years, and 71 of our 187 properties are leased
to operators with whom we have had a relationship for at least
10 years.
Attractive
Long-Term Leases
Our existing portfolio of leases and our lease structure
position us to take advantage of a stable, long-term stream of
rental income. Our leases typically have initial terms of
10 years or more, annual rent escalation provisions of 2%
to 3%, guarantees, master lease or cross-default provisions and
security deposits. Our leases typically are co-terminous within
an operator relationship and do not have operator purchase
options. As of March 31, 2011, the leases for 185 of our
187 properties were supported by personal
and/or
corporate guarantees. We proactively seek to extend our leases,
including at the time we make additional acquisitions, capital
expenditures or other investments with our operators. As of
March 31, 2011, our leases had an average remaining term of
8.8 years. Our track record of successfully extending our
leases enables us to benefit from continuity of management by
our operators.
Experienced
Senior Management Team Supported by Strong Equity
Sponsorship
Many members of our management team have been with us for
10 years or more, have significant industry experience and
also have a meaningful ownership stake. Our senior management
team has extensive experience in the SNF industry and other
relevant areas of expertise. Craig Bernfield, our Chairman,
President and Chief Executive Officer and co-founder, has more
than 20 years of experience as an investor in the SNF
industry. In addition, Steven Insoft, our Chief Financial
Officer, also has more than 20 years of experience in our
industry, including with investors, operators and other REITs.
In September 2010, we entered into a new strategic partnership
with an affiliate of Lindsay Goldberg, LLC (Lindsay
Goldberg), a highly regarded private investment firm. We
believe our relationship with Lindsay Goldberg will provide us
with valuable support to facilitate our growth. Lindsay Goldberg
has invested $237.8 million in our companys equity to
date, and has committed to provide additional equity capital to
support our growth.
64
Our
Business Strategies
Our primary goal is to continue our track record of disciplined
investing, which we intend to accomplish through the following
business strategies:
Maintain
Balance Sheet Strength and Liquidity
We plan to maintain a capital structure that will provide
substantial resources and liquidity to support our business and
its continued growth. After giving pro forma effect to the sale
of the Old Notes, we would have had approximately
$92.2 million of liquidity as of March 31, 2011,
consisting of cash and cash equivalents and borrowings expected
to be available under our revolving credit facility. We also
have access to our $100.0 million acquisition credit line
to utilize with the equity we contribute towards future
acquisitions. The acquisition credit line also permits up to
$25.0 million of the $100.0 million total amount to be
used to fund property improvements, for which we typically
receive increased rents. In the future, we intend to use a mix
of debt financing sources, including unsecured term debt, credit
facility borrowings and mortgage debt, to continue to optimize
both our flexibility and cost of capital. In addition, Lindsay
Goldberg has committed to provide additional equity capital to
support our growth.
Continue
to Grow and Enhance Portfolio Diversification
We plan to capitalize on our successful track record by
strategically and opportunistically pursuing new investments
that will further enhance the diversification, strength and
success of our portfolio. We evaluate acquisition opportunities
on an ongoing basis and are in various stages of due diligence,
preliminary discussions or competitive bidding with respect to a
number of potential transactions, some of which would be
significant. We intend to continue to make disciplined
investments in a broad range of property and portfolio
transactions, including through the following strategies:
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Pursue Additional Investments with our Existing Operators
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We intend to work closely with our existing operators to
identify additional investment opportunities in their existing
markets, as well as to leverage our experience and relationships
with them to expand into new markets and property types. We
believe our focus and commitment to relationships are key
factors in our operators decisions to enter into leases
with us. In addition to new property acquisitions, we plan to
continue to support our operators by providing capital for
modernization and improvement of our properties, for which we
typically receive increased rents.
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Expand our Network of Operator Relationships
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We intend to continue to expand our extensive network of
operator relationships that we have built and cultivated over
the years. We plan to strengthen these relationships that have
allowed us to identify a significant number of transactions over
the years. When making new investments, we will continue to
focus on operators that meet our investment criteria, including
our standards for quality and experience of management, credit
worthiness and historical financial and operating performance.
We believe our reputation, experience and credibility will lead
us to relationships with new high quality operators and related
investment opportunities.
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Selectively Diversify into Other Healthcare Property Types
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We intend to continue to acquire assisted living facilities,
independent living facilities, retirement communities, continuum
of care facilities and other healthcare properties. When
pursuing these transactions, we intend to enter into
triple-net
leases with experienced operators that meet our investment
criteria.
65
Our
Portfolio
Our portfolio consists of 187 properties with 18,300 licensed
beds in 25 states leased to 32 operators. As of
March 31, 2010, our properties consisted of 168 SNFs, 9
assisted living facilities, 2 independent living facilities and
8 properties held for strategic repositioning. We lease our
properties to a diversified group of 32 operators with no single
operator representing more than 13.3% of our total rent under
existing leases for the year ended December 31, 2010. We
have a geographically diversified portfolio of properties
located in 25 states with no state representing more than
17.6% of our total rent under existing leases for the twelve
months ended March 31, 2011.
We continually evaluate our portfolio and work with our
operators to identify potential capital expenditure and
modernization projects, which has resulted in an average
effective property age of 28 years based on an independent
third-party appraisal of our properties completed in August 2010.
For the twelve months ended December 31, 2010, our
Portfolio Occupancy was 74.6% and our Quality Mix was 45.0%.
Since 2006, our annual Portfolio Occupancy has remained stable.
When making new investments, we seek to balance these measures
with value and lease rent levels.
The following tables set forth information about our operator
and state diversification as of and for the twelve months
ended March 31, 2011.
Operator
Diversification
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Percentage of
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Number of
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Number of
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Operator
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Total Rent (1)
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Properties
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Licensed Beds
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Evergreen
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13.3
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%
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17
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1,605
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Daybreak
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|
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10.6
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28
|
|
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2,828
|
|
SunMar
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|
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9.4
|
|
|
|
13
|
|
|
|
1,461
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|
ConvaCare
|
|
|
9.1
|
|
|
|
11
|
|
|
|
1,498
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|
Cathedral Rock
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|
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7.5
|
|
|
|
13
|
|
|
|
1,100
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|
Eagle
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|
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5.4
|
|
|
|
10
|
|
|
|
691
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|
Hi-Care
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|
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5.4
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|
|
|
6
|
|
|
|
685
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|
Sun
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|
|
5.0
|
|
|
|
15
|
|
|
|
969
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|
Saber
|
|
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4.9
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|
|
|
12
|
|
|
|
1,469
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|
Brighten
|
|
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4.0
|
|
|
|
1
|
|
|
|
100
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|
Bridgemark
|
|
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4.0
|
|
|
|
6
|
|
|
|
702
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|
Preferred
|
|
|
3.3
|
|
|
|
4
|
|
|
|
561
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|
Benchmark
|
|
|
3.0
|
|
|
|
9
|
|
|
|
814
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|
Deseret
|
|
|
2.3
|
|
|
|
8
|
|
|
|
426
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|
Good Samaritan
|
|
|
1.7
|
|
|
|
2
|
|
|
|
212
|
|
Markleysburg
|
|
|
1.6
|
|
|
|
5
|
|
|
|
502
|
|
Covenant Care
|
|
|
1.3
|
|
|
|
2
|
|
|
|
302
|
|
Hope
|
|
|
1.1
|
|
|
|
2
|
|
|
|
104
|
|
Lion
|
|
|
1.1
|
|
|
|
1
|
|
|
|
330
|
|
Homestead
|
|
|
0.8
|
|
|
|
6
|
|
|
|
613
|
|
Heyde
|
|
|
0.8
|
|
|
|
2
|
|
|
|
157
|
|
Gilmer
|
|
|
0.7
|
|
|
|
1
|
|
|
|
112
|
|
Orion
|
|
|
0.7
|
|
|
|
1
|
|
|
|
109
|
|
24/7
|
|
|
0.6
|
|
|
|
1
|
|
|
|
85
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Number of
|
|
|
Number of
|
|
Operator
|
|
Total Rent (1)
|
|
|
Properties
|
|
|
Licensed Beds
|
|
|
Northpoint
|
|
|
0.5
|
|
|
|
1
|
|
|
|
123
|
|
LTP Generations
|
|
|
0.4
|
|
|
|
2
|
|
|
|
95
|
|
Concepts
|
|
|
0.4
|
|
|
|
2
|
|
|
|
198
|
|
Health Dimensions
|
|
|
0.3
|
|
|
|
1
|
|
|
|
90
|
|
Fountain
|
|
|
0.3
|
|
|
|
1
|
|
|
|
80
|
|
Tana Bell
|
|
|
0.3
|
|
|
|
1
|
|
|
|
37
|
|
Safe Haven
|
|
|
0.2
|
|
|
|
1
|
|
|
|
65
|
|
Maplewood Communities
|
|
|
_0.0
|
|
|
|
2
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
187
|
|
|
|
18,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total rent represents the rent under existing leases for the
twelve months ended March 31, 2011. |
State
Diversification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Number of
|
|
|
Number of
|
|
State
|
|
Total Rent (1)
|
|
|
Properties
|
|
|
Licensed Beds
|
|
|
California
|
|
|
17.6
|
%
|
|
|
22
|
|
|
|
2,300
|
|
Texas
|
|
|
14.9
|
|
|
|
40
|
|
|
|
4,201
|
|
Arkansas
|
|
|
9.5
|
|
|
|
13
|
|
|
|
1,696
|
|
Missouri
|
|
|
8.1
|
|
|
|
14
|
|
|
|
1,460
|
|
Washington
|
|
|
7.1
|
|
|
|
12
|
|
|
|
716
|
|
New Mexico
|
|
|
5.8
|
|
|
|
9
|
|
|
|
782
|
|
Illinois
|
|
|
5.4
|
|
|
|
9
|
|
|
|
1,029
|
|
Ohio
|
|
|
4.9
|
|
|
|
7
|
|
|
|
765
|
|
Massachusetts
|
|
|
4.8
|
|
|
|
14
|
|
|
|
872
|
|
Pennsylvania
|
|
|
4.1
|
|
|
|
5
|
|
|
|
624
|
|
Arizona
|
|
|
3.6
|
|
|
|
5
|
|
|
|
641
|
|
Oregon
|
|
|
2.9
|
|
|
|
6
|
|
|
|
493
|
|
Idaho
|
|
|
2.2
|
|
|
|
5
|
|
|
|
468
|
|
Kansas
|
|
|
1.5
|
|
|
|
7
|
|
|
|
452
|
|
Nebraska
|
|
|
1.3
|
|
|
|
2
|
|
|
|
282
|
|
Michigan
|
|
|
1.2
|
|
|
|
2
|
|
|
|
232
|
|
Minnesota
|
|
|
1.1
|
|
|
|
3
|
|
|
|
162
|
|
Wisconsin
|
|
|
1.1
|
|
|
|
3
|
|
|
|
247
|
|
Nevada
|
|
|
0.9
|
|
|
|
1
|
|
|
|
146
|
|
Montana
|
|
|
0.7
|
|
|
|
2
|
|
|
|
174
|
|
Utah
|
|
|
0.6
|
|
|
|
1
|
|
|
|
85
|
|
Tennessee
|
|
|
0.4
|
|
|
|
1
|
|
|
|
102
|
|
Virginia
|
|
|
0.3
|
|
|
|
1
|
|
|
|
104
|
|
Connecticut
|
|
|
0.0
|
|
|
|
2
|
|
|
|
177
|
|
Florida
|
|
|
0.0
|
|
|
|
1
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
187
|
|
|
|
18,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total rent represents the rent under existing leases for the
twelve months ended March 31, 2011. In the case where the
propertys master lease includes more than one state, rent
was allocated proportionately by number of licensed beds in each
state. |
67
Portfolio
Occupancy
The following table sets forth information about our Portfolio
Occupancy by state as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Portfolio
|
|
State Average
|
State
|
|
Occupancy
|
|
Occupancy (1)
|
|
California
|
|
|
88.4
|
%
|
|
|
84.9
|
%
|
Texas
|
|
|
60.2
|
%
|
|
|
71.3
|
%
|
Arkansas
|
|
|
80.6
|
%
|
|
|
73.0
|
%
|
Missouri
|
|
|
64.7
|
%
|
|
|
72.1
|
%
|
Washington
|
|
|
82.2
|
%
|
|
|
83.0
|
%
|
New Mexico
|
|
|
79.9
|
%
|
|
|
82.2
|
%
|
Illinois
|
|
|
79.9
|
%
|
|
|
78.2
|
%
|
Ohio
|
|
|
81.3
|
%
|
|
|
85.3
|
%
|
Massachusetts
|
|
|
91.3
|
%
|
|
|
88.5
|
%
|
Pennsylvania
|
|
|
94.2
|
%
|
|
|
91.2
|
%
|
|
|
|
(1) |
|
Represents Nursing Facility State Occupancy Rate as reported by
American Health Care Association (AHCA). AHCA occupancy data is
calculated by dividing the sum of all facility patients in the
state occupying certified beds by the sum of all the certified
beds in the state reported at the time of the current standard
survey. The data is based on the most current standard health
surveys conducted in SNFs between December 2008 and December
2010. |
Lease
Expiration
The following table sets forth information regarding the
expiration dates of our leases as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
Number of Properties
|
|
|
Percentage of
|
|
Year
|
|
with Leases Expiring
|
|
|
Total Rent (1)
|
|
|
2011
|
|
|
0
|
|
|
|
0.0
|
|
2012
|
|
|
1
|
|
|
|
0.3
|
|
2013
|
|
|
5
|
|
|
|
3.9
|
|
2014
|
|
|
6
|
|
|
|
0.9
|
|
2015
|
|
|
11
|
|
|
|
4.9
|
|
2016
|
|
|
7
|
|
|
|
5.0
|
|
2017
|
|
|
10
|
|
|
|
3.4
|
|
2018
|
|
|
29
|
|
|
|
20.9
|
|
2019
|
|
|
11
|
|
|
|
9.0
|
|
2020
|
|
|
44
|
|
|
|
17.6
|
|
2021
|
|
|
45
|
|
|
|
22.1
|
|
Thereafter
|
|
|
15
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
184
|
(2)
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total rent represents the rent under existing leases for the
twelve months ended March 31, 2011. |
|
|
|
(2) |
|
The total number of properties with leases expiring excludes
three properties for which we provide asset management services
only, one property subject to a leasehold mortgage and one
property subject to a second mortgage loan. |
68
Our
Industry
We operate as a REIT and own healthcare properties, principally
SNFs, located in the United States. According to The Centers for
Medicare & Medicaid Services, or CMS, healthcare is
one of the largest industries in the United States and total
U.S. healthcare expenditures are projected to grow from
approximately $2.3 trillion in 2008 to approximately $4.5
trillion in 2019. Within the healthcare industry, national
expenditures for SNFs are expected to grow from approximately
$144 billion in 2009 to approximately $246 billion in
2019, according to CMS, representing a compound annual growth
rate, or CAGR, of 5.5%. The SNF market is highly fragmented and,
according to the American Health Care Association, comprises
approximately 15,700 facilities with approximately
1.7 million certified beds as of December 2009.
This growth will be driven, in part, by the aging of the
population and increased life expectancies. According to the
U.S. Census Bureau, the number of Americans aged 65 or
older is expected to increase from approximately 37 million
in 2006 to approximately 55 million in 2020, representing a
CAGR of 2.8%, compared to a total U.S. population CAGR of
0.9% over the same period. In response to growing healthcare
costs, the U.S. federal government has adopted cost
containment measures that encourage the treatment of patients in
more cost effective settings, such as SNFs. As a result, we
believe that many high-acuity patients that would have been
previously treated in long-term acute care hospitals and
in-patient rehabilitation facilities are increasingly being
cared for in SNFs. We believe that these trends will support a
growing demand for the services provided by SNF operators, which
in turn will support a growing demand for our properties.
The growth in the total demand for SNF services has resulted in
a greater need for many of our operators to access capital for
growth, which we believe provides an attractive opportunity for
us to invest in healthcare properties. Operators are
increasingly relying on capital sources, such as our company, to
finance their growth plans for acquisitions and other real
estate-related investments so they may deploy their capital into
their operations. To generate liquidity and operating capital,
operators also often decide to sell real estate assets and lease
them back, enabling them to monetize the value of their real
estate, while maintaining control over their operations. These
sale-leaseback transactions enable us to acquire properties and
benefit from continuity of management.
Competition
The market for making investments in healthcare facilities is
highly competitive and fragmented. We compete with other public
and private companies who provide lease
and/or
mortgage financing to operators of a variety of different types
of healthcare properties. We also face competition leasing
available properties to prospective operators. We compete with
these other companies based on reputation, purchase price and
financing alternatives offered and the relationship that
develops during the term of the lease.
We have experience identifying and underwriting the abilities of
qualified regional and national operators. We believe that this
experience helps us identify new tenant relationships and new
opportunities with existing relationships. We believe that our
historical focus primarily on SNFs has enabled us to develop
broad expertise in the markets in which we compete.
Regulation
Typically, operators of SNFs receive significant funding from
governmental programs and are regulated by the states and the
federal government. Operators of SNFs are subject to federal and
state laws that regulate the type and quality of the nursing
care provided, ancillary services (e.g., respiratory,
occupational, physical and infusion therapies), qualifications
of the administrative personnel and nursing staff, the adequacy
of the physical plant and equipment, distribution of
pharmaceuticals, reimbursement and rate setting and operating
policies. In addition, most, if not all, of our tenants are
subject to extensive laws and regulations pertaining to
healthcare fraud and abuse, including kickbacks and false
claims. The following discussion describes certain material
U.S. federal and state healthcare laws and regulations that
may affect our
69
operations and those of our tenants. However, the discussion
does not address all applicable federal, state and local
healthcare laws and regulations that could affect our operations
and those of our tenants.
|
|
|
|
|
Licensing and Certification. Our tenants and
facilities are subject to regulatory and licensing requirements
of federal, state and local authorities and are periodically
surveyed by them to confirm compliance. Failure to obtain
licensure or loss or suspension of licensure or certification
may prevent a facility from operating or result in a suspension
of reimbursement payments until all licensure or certification
issues have been resolved and the necessary licenses or
certification are obtained or reinstated. Transfers of
operations of SNFs and other healthcare facilities are subject
to regulatory approvals not required for transfers of other
types of commercial operations and real estate.
|
|
|
|
Certificate of Need. Some states require that
SNFs obtain governmental approval, in the form of a Certificate
of Need, or CON, or similar certification, that generally varies
by state and is subject to change, prior to the addition or
construction of new beds, the addition of services or certain
capital expenditures. The CON laws and regulations may restrict
our ability to add new facilities or expand an existing
facilitys size or services. In addition, CON laws may
constrain our ability to lease a particular property to a new
tenant.
|
|
|
|
Medicare and Medicaid Certification. A
significant portion of the revenues of our tenants that operate
SNFs is derived from participation in government-funded
reimbursement programs, primarily Medicare and Medicaid, and
failure to maintain certification to participate in these
programs could result in a loss of funding from such programs.
Medicare and Medicaid laws also require operators of SNFs to
comply with extensive standards governing operations.
|
|
|
|
Fraud and Abuse Laws and Regulations. There
are various highly complex federal and state laws governing a
wide array of referrals, financial relationships and
arrangements and prohibiting fraud by healthcare providers,
including criminal provisions that prohibit financial
inducements for referrals, filing false claims or making false
statements to receive payment or certification under Medicare
and Medicaid, or failing to refund overpayments or improper
payments. Violations of these laws subject persons and entities
to termination from participation in Medicare, Medicaid and
other federally funded healthcare programs or result in the
imposition of treble damages and fines or other penalties.
|
|
|
|
Other Laws. Other laws that impact how our
tenants conduct their operations include: federal and state laws
designed to protect the confidentiality and security of patient
health information; state and local licensure laws; laws
protecting consumers against deceptive practices; laws generally
affecting our tenants management of property and equipment
and how our tenants generally conduct their operations, such as
fire, health and safety, and environmental laws; federal and
state laws affecting assisted living facilities mandating
quality of services and care, and quality of food service;
resident rights (including abuse and neglect laws); and health
standards set by the federal Occupational Safety and Health
Administration.
|
|
|
|
Legislative and Regulatory Developments. On
March 23, 2010, the President signed into law the Patient
Protection and Affordable Care Act (PPACA) and the
Health Care and Education Reconciliation Act of 2010, which
amends the PPACA (collectively, the Health Reform
Laws). Together, these two measures make the most sweeping
and fundamental changes to the U.S. health care system
undertaken since the creation of Medicare and Medicaid. These
new laws include a large number of health-related provisions
that are scheduled to take effect over the next four years,
including expanding Medicaid eligibility, requiring most
individuals to have health insurance, establishing new
regulations on health plans, establishing health insurance
exchanges and modifying certain payment systems to encourage
more cost-effective care and a reduction of inefficiencies and
waste, including through new tools to address fraud and abuse.
|
70
|
|
|
|
|
Because all of our properties are used as healthcare properties,
we will be impacted by the risks associated with the healthcare
industry, including healthcare reform. While the expansion of
healthcare coverage may result in some additional demand for
services provided by tenants, reimbursement levels may be lower
than the costs required to provide such services, which could
materially adversely affect the ability of tenants to generate
profits and pay rent under their lease agreements with us and
thereby could materially adversely affect our business,
financial position or results of operations. The Health Reform
Laws also enhance certain fraud and abuse penalty provisions
that could apply to our operators and tenants in the event of
one or more violations of the federal health care regulatory
laws. In addition, there are provisions that impact the health
coverage that we and our tenants provide to our respective
employees. Furthermore, regulatory proposals and rules are
released on an ongoing basis that may have an impact on the
healthcare system in general and the skilled nursing and
long-term care industries in particular.
|
Environmental
Matters
In addition to environmental risks relating to releases of
hazardous substances, our properties are subject to
environmental laws regulating, among other things, air
emissions, wastewater discharges and the handling and disposal
of wastes, including medical wastes. Certain of our properties
utilize above or underground storage tanks to store heating oil
for use at the properties. Other properties were built during
the time that asbestos-containing building materials were
routinely installed in residential and commercial structures.
Our leases obligate our tenants to comply with applicable
environmental laws and to indemnify us if their noncompliance
results in losses or claims against us. A tenants failure
to comply could result in fines and penalties or the requirement
to undertake corrective actions which may result in significant
costs to the tenant and thus adversely affect their ability to
meet their obligations to us.
Pursuant to U.S. federal, state and local environmental
laws and regulations, a current or previous owner or operator of
real property may be required to investigate, remove
and/or
remediate a release of hazardous substances or other regulated
materials at, or emanating from, such property. Further, under
certain circumstances, such owners or operators of real property
may be held liable for property damage, personal injury
and/or
natural resource damage resulting from or arising in connection
with such releases. Certain of these laws have been interpreted
to be joint and several unless the harm is divisible and there
is a reasonable basis for allocation of responsibility. We also
may be liable under certain of these laws for damage that
occurred prior to our ownership of a property or at a site where
we sent wastes for disposal. The failure to properly remediate a
property may also adversely affect the owners ability to
lease, sell or rent the property or to borrow funds using the
property as collateral.
In connection with the ownership of our current or past
properties and any properties that we may acquire in the future,
we could be legally responsible for environmental liabilities or
costs relating to a release of hazardous substances or other
regulated materials at or emanating from such property. In order
to assess the potential for such liability, we typically engage
a consultant to conduct a limited environmental assessment of
each property prior to acquisition and oversee our properties in
accordance with environmental laws. Most of our leases require
tenants to conduct all activities in compliance with
environmental laws and to indemnify the owner for any harm
caused by the failure to do so. We are not aware of any
environmental issues that are expected to have a material impact
on the operations of any of our properties. See Risk
FactorsRisks Relating to Our Business and Operations.
Insurance
Under the terms of our leases, our tenants are required to
maintain comprehensive general liability, fire, flood,
earthquake, boiler and machinery, nursing home or long-term care
professional liability and extended coverage insurance with
respect to our properties with policy specifications, limits and
deductibles set forth in the lease agreement or other written
agreement between us and the tenant. In some limited situations,
we have agreed in our leases to pay half of the cost of
earthquake insurance. We believe that our properties are covered
by adequate insurance provided by reputable companies and with
commercially
71
reasonable deductibles and limits. Our leases provide that
insurance premiums are the responsibility of the tenant, and our
tenants are responsible for any increases in premiums. In
addition, we carry contingent property and liability coverage
for our properties encumbered by the existing credit facility.
Employees
As of March 31, 2011, we had 22 full-time employees
and two part-time employees. We believe that our relationships
with our employees are good. None of our employees is
represented by a union.
Offices
Our corporate headquarters are located at 303 West Madison
Street, Suite 2400, Chicago, Illinois 60606. We
believe that our current offices are adequate for our present
and future business operations.
Legal
Proceedings
We are not involved in any material litigation nor, to our
knowledge, is any material litigation pending or threatened
against us, other than routine litigation arising out of the
ordinary course of business or which is expected to be covered
by insurance and not expected to materially harm our business,
financial condition or results of operations.
72
MANAGEMENT
Directors
and Executive Officers
Set forth below are the names, ages (as of March 31,
2011) and positions of Aviv REITs directors and
executive officers:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Craig M. Bernfield
|
|
|
50
|
|
|
Chairman of the Board (Class B), Chief Executive Officer and
President
|
Steven J. Insoft
|
|
|
47
|
|
|
Chief Financial Officer and Treasurer
|
Michael W. Dees
|
|
|
37
|
|
|
Director (Class A)
|
Alan E. Goldberg
|
|
|
56
|
|
|
Director (Class A)
|
Robert D. Lindsay
|
|
|
56
|
|
|
Director (Class A)
|
Ari Ryan
|
|
|
36
|
|
|
Director (Class C)
|
J. Russell Triedman
|
|
|
41
|
|
|
Director (Class A)
|
The following are biographical summaries of the experience of
Aviv REITs directors and executive officers.
Craig M. Bernfield. Mr. Bernfield is our
Chief Executive Officer and President and has served in such
capacity since he co-founded Aviv Healthcare Properties Limited
Partnership in 2005. Since September 2010, Mr. Bernfield
has also served as the Chairman of our board of directors. Prior
to co-founding our company, Mr. Bernfield was Chief
Executive Officer and President of Karell Capital Ventures,
Inc., or KCV, which he joined in 1990. KCV managed the entities
that were combined in 2005 in connection with the formation of
Aviv Healthcare Properties Limited Partnership.
Mr. Bernfield has been an investor in the nursing home
industry for approximately 20 years and was the co-founder
of some of the entities that were combined in 2005.
Mr. Bernfield received a J.D. degree from The University of
Chicago Law School and a B.S. degree in Finance from the College
of Business at the University of Illinois at Urbana-Champaign.
Mr. Bernfield brings extensive business, managerial and
leadership experience to our board of directors. With over
20 years of experience as an investor in the SNF industry,
Mr. Bernfield provides the board of directors with a vital
understanding and appreciation of our business and the industry.
His position as co-founder, Chief Executive Officer and
President of our company also make Mr. Bernfield uniquely
qualified to serve as the Chairman of our board of directors.
Steven J. Insoft. Mr. Insoft is our Chief
Financial Officer and Treasurer and has served in such capacity
since 2005. Prior to joining our company in 2005,
Mr. Insoft spent eight years as a Vice President and Senior
Investment Officer of Nationwide Health Properties, Inc., a
publicly-traded REIT. Before that, he was President and Chief
Financial Officer of CMI Senior Housing & Healthcare,
Inc., a privately-held nursing home and assisted living facility
operations and development company, for seven years.
Mr. Insoft received an M.B.A. from Columbia University and
a B.S.E. in Electrical Engineering from the University of
Pennsylvania.
Michael W. Dees. Mr. Dees has served as a
member of our board of directors since September 2010.
Mr. Dees serves as a Partner at Lindsay Goldberg, LLC,
which he joined in 2004. Previously, he worked at Morgan Stanley
in the mergers and acquisitions and the Capital Partners groups
in New York and in the Real Estate Private Equity group in
Tokyo. Mr. Dees also serves as a director of Bell Nursery
Holdings, LLC, Rosetta LLC and Crane & Co., Inc.
Mr. Dees experience advising growth-oriented
companies and his position with an affiliate of Aviv REITs
largest stockholder, LG Aviv L.P., qualify him for service on
our board of directors.
Alan E. Goldberg. Mr. Goldberg has served
as a member of our board of directors since September 2010.
Mr. Goldberg is a Co-Managing Partner of Goldberg Lindsay
& Co., LLC, which he co-founded in 2001. Previously, he
served as Chairman and Chief Executive Officer of Morgan Stanley
Private Equity from
73
February 1998 to January 2001. Mr. Goldberg joined Morgan
Stanley in 1978. Mr. Goldberg serves as a director of
Energy Solutions, Inc., Wacker Construction Equipment AG,
Klöckner & Co. AG, FSB Global Holdings, Inc.,
Alliant Insurance Services, Inc., Keystone Foods Holdings LLC
and Smurfit-Stone Container Corporation. Mr. Goldberg also
serves as a director of FAPS Holdings, Inc., Maine Beverage
Company, LLC, PL Olefins LLC, Continental Energy Systems LLC,
Intermex Holdings, Inc., The Brock Group, Inc., Brightstar
Corp., Rosetta LLC, PL Propylene LLC, RECON Holdings III
Inc., Ambulatory Services of America, Inc., Crane &
Co., Inc., Scandza AS, PSC, LLC, Panadero Aggregates Holdings,
LLC and Pacific Architects and Engineers Incorporated. He also
serves as a trustee of Yeshiva University.
Mr. Goldbergs years of business, financial,
managerial, executive and board experience across a broad
spectrum of industries make him a valuable member of our board
of directors. He also indirectly controls (together with Robert
D. Lindsay) Aviv REITs largest stockholder, LG Aviv L.P.
Robert D. Lindsay. Mr. Lindsay has served
as a member of our board of directors since September 2010.
Mr. Lindsay is a Co-Managing Partner of Goldberg Lindsay
& Co., LLC, which he co-founded in 2001. In addition,
Mr. Lindsay serves as the Managing General Partner of
Bessemer Holdings, which he joined in 1991. Prior to Bessemer
Holdings, Mr. Lindsay was a Managing Director at Morgan
Stanley Private Equity. Mr. Lindsay serves as a director of
Energy Solutions, Inc., Wacker Construction Equipment AG,
Klöckner & Co. AG, FSB Global Holdings, Inc. and
Alliant Insurance Services, Inc. He also serves as President and
CEO of Bessemer Securities LLC, a director of The Bessemer
Group, Incorporated and its subsidiary banks, including Bessemer
Trust Company, N.A., and as a director of Pike Electric
Corporation, FAPS Holdings, Inc., Maine Beverage Company, LLC,
Keystone Foods Holdings LLC, PL Olefins LLC, Continental Energy
Systems LLC, Intermex Holdings, Inc., The Brock Group LLC, Bell
Nursery Holdings, LLC, Brightstar Corporation, Rosetta LLC, PL
Propylene LLC, Ambulatory Services of America, Inc.,
Crane & Co., Inc., Scandza AS, PSC, LLC, Panadero
Aggregates Holdings, LLC and Pacific Architects and Engineers
Incorporated. He also serves as a trustee of the Cold Spring
Harbor Biological Laboratory and St. Pauls School in
Concord, New Hampshire. Mr. Lindsays years of
business, financial, managerial, executive and board experience
across a broad spectrum of industries make him a valuable member
of our board of directors. He also indirectly controls (together
with Alan E. Goldberg) Aviv REITs largest stockholder,
LG Aviv L.P.
Ari Ryan. Mr. Ryan has served as a member
of our board of directors since September 2010. Mr. Ryan is
an independent real estate investor and developer and
entrepreneur. Mr. Ryan participates in real estate
syndications and financing and as a consultant to start up
enterprises of all types. He currently manages a private
commercial and residential real estate portfolio and serves on
the board of directors of the Friends of the Israel Defense
Forces, Western Region. Mr. Ryan is the grandson of the
late Zev Karkomi, our co-founder. Mr. Ryans
entrepreneurial experience in the real estate industry and his
familial connection to our co-founder make him a valuable member
of our board of directors.
J. Russell Triedman. Mr. Triedman
has served as a member of our board of directors since September
2010. Mr. Triedman also serves as a Partner at Lindsay
Goldberg, LLC, which he joined in 2001. Previously, he worked as
a principal at Bessemer Holdings from 2000 to 2001. He also
worked as a Director at Fox Paine & Company, LLC, a
San Francisco-based private equity firm, in the mergers and
acquisitions and high yield finance groups at Cravath,
Swaine & Moore LLP, in the private equity group of
Brown Brothers Harriman & Co. and as a director of
Keystone Foods Holdings LLC and FSB Global Holdings, Inc.
Mr. Triedman also serves as a director of Continental
Energy Systems LLC, Pike Electric Corporation and Pacific
Architects and Engineers Incorporated. Mr. Triedmans
experience advising growth-oriented companies and his position
with an affiliate of Aviv REITs largest stockholder, LG
Aviv L.P., qualify him for service on our board of directors.
Board of
Directors
Aviv REITs charter provides for three classes of
directors: Class A Directors, Class B Directors and
Class C Directors. Each director serves for a term expiring
at the next annual meeting of stockholders and
74
when his successor has been duly elected and qualifies. The
number and identity of directors serving on Aviv REITs
board of directors is determined pursuant to a Stockholders
Agreement (the Stockholders Agreement) entered into
by Aviv REIT, Lindsay Goldberg, an entity formed by
Mr. Bernfield and Mr. Ryan, as representative of
certain limited partners (the Karkomi Investors)
related to the family of Zev Karkomi, who co-founded Aviv
Healthcare Properties Limited Partnership with
Mr. Bernfield. The Stockholders Agreement provides for a
total of eleven votes to be cast at all meetings of Aviv
REITs board of directors. Subject to certain exceptions,
the Class A Directors, who are designated by Lindsay
Goldberg, are entitled to cast a total of four such votes, the
Class B Directors, who are designated by
Mr. Bernfield, are entitled to cast a total of six such
votes and the Class C Directors, who are designated by the
Karkomi Investors, are entitled to cast one such vote. If
Mr. Bernfield dies or becomes disabled, the Class B
Directors will be designated by an individual previously
designated by Mr. Bernfield and agreed to by Lindsay
Goldberg. For additional information regarding our relationship
with Lindsay Goldberg, see Certain Relationships and
Related Transactions.
75
COMPENSATION
DISCUSSION AND ANALYSIS
The primary goal of our executive compensation program is to
attract, motivate and retain top-caliber talent needed to lead
us in achieving business success. Our compensation approach has
traditionally been reflective of the operation of our business
as a closely held private company and the compensation tools
available to us in that structure. Historically, the principal
owners have been solely responsible for setting and adjusting
the overall design of our pay programs for the named executive
officers. Our Chief Executive Officer has negotiated executive
compensation packages as part of the hiring process and reviewed
each executives compensation as part of the annual
performance review and budgeting process.
Historically, in setting or adjusting our executive compensation
packages, management has relied upon going rate
information provided by recruiting firms, our historical pay
practices, and wage increase information from various publicly
available sources when making decisions about the amounts and
forms of compensation provided to our executives. Additionally,
the Chief Executive Officer has considered the following:
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seniority, skill and responsibilities of each executive;
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|
internal equity among pay levels of our executive
officers; and
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the individual performance of each executive officer.
|
Our current executive compensation program consists of the
following elements, each of which is described in more detail
below:
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|
Element
|
|
Description
|
|
Rationale
|
|
Base salary
|
|
Based on position-specific
responsibilities and performance
Paid at a rate established at the
beginning of each year
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|
Required to deliver competitive pay and
attract and retain required talent
|
Annual incentive
|
|
Opportunity to earn a percentage of base
salary based upon performance against pre-determined company and
individual performance objectives
|
|
Provide compensation opportunity that
encourages strong performance and focuses individuals on key
goals
Provide competitive earning opportunity
|
Equity
|
|
|
|
|
1. Class D Units
2. Phantom Class C Units
3. Management Incentive Plan (MIP)
|
|
Differentiated equity awards granted
based on level of responsibility, seniority and/or ability to
influence value creation
|
|
Aligns executives with shareholder value
creation
Provides a long-term incentive vehicle
to provide additional performance-based pay opportunity
Creates a retention mechanism
|
Benefits and Perquisites
|
|
Consistent with those offered to all
employees
|
|
Executives should not receive
preferential perquisite, health or welfare treatment
|
Our compensation philosophy and structure were established in
2008 following our engagement of Towers Perrin, the
Consultant, (now Towers Watson as a result of the
2010 merger between Towers Perrin and Watson Wyatt). Our
principal owners engaged the Consultant to conduct a review of
and assist in formalizing our executive compensation program.
76
The competitive assessment covered base salary levels,
short-term incentive awards, and equity incentive awards for our
named executive officers. Towers Perrin relied on data from
three primary sources in order to define competitive market
compensation levels and assist us in formulating compensation
ranges and in developing incentive program design for our named
executive officers. The three data sources included:
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proxy data obtained from publicly-traded non-healthcare REITs;
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|
proxy data obtained from publicly-traded healthcare industry
REITs; and
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|
|
general industry data obtained from Towers Perrins
compensation database.
|
The review has remained relevant for our organization and
workforce and provided the general framework within which
decisions regarding executive compensation were made for 2010.
Base
salary
Salaries for named executive officers are established based on
position-specific responsibilities, taking into account
competitive market compensation for similar positions, the
skills and experience of the individual, internal equity among
executive officers, individual performance, and other subjective
relevant factors. Base salaries have historically been reviewed
annually and adjustments made where deemed appropriate, or at
other times to reflect significant changes in job
responsibilities or market conditions.
Annual
incentive awards
For fiscal year 2010, bonuses were awarded under our annual
incentive program. Target annual bonus opportunities were set
based on our employee pay structure and internal equity
considerations. Bonuses are paid in lump sum by
March 15th of the following fiscal year.
The table below illustrates the annual incentive award
opportunity levels for our named executive officers, as a
percent of base salary. All employees have the opportunity to
earn a maximum of 150% of their target award, depending on
performance.
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Portion of Award
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|
|
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|
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Tied to Corporate
|
Officer
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|
Threshold
|
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Target
|
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High
|
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Performance
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Craig M. Bernfield
|
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25
|
%
|
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|
50
|
%
|
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|
75
|
%
|
|
|
100
|
%
|
Steven J. Insoft
|
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|
12.5
|
%
|
|
|
25
|
%
|
|
|
37.5
|
%
|
|
|
65
|
%
|
The measures used for the determination of the award are largely
objective and reflect the applicable named executive
officers role in the overall success of our business.
Mr. Insoft also has select departmental and team-based
goals in addition to his corporate performance goals. The
achievement of such departmental and team-based goals is
determined through our formal review process, which includes
both a mid-year and year-end review for each of such named
executive officers.
All employees have some portion of their annual incentive
opportunity tied to the performance of the business as a whole.
The corporate performance goals used in determining 2010 bonuses
are set forth below.
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|
Measure of Corporate Performance
|
|
Weighting (as a % of Total Corporate Component)
|
|
AFFO Growth
|
|
|
50.0
|
%
|
Rent Collection
|
|
|
12.5
|
%
|
EBITDARM Coverage
|
|
|
12.5
|
%
|
Gross Investment
|
|
|
25.0
|
%
|
77
Equity
Awards
D Unit
Awards
Mr. Insoft, along with a number of our employees, has been
granted Class D units.
Mr. Insoft received a grant of 2,000 Class D units in
January of 2006 following his commencement of employment with
us. His award of 2,000 Class D units reflected his relative
status in the organization as the Senior Vice President,
Finance, in consideration of the size of the awards provided to
other employees and expectations for him to become the Chief
Financial Officer and contribute to our long-term success. We
also intended for his award to provide a meaningful retention
value.
The Class D units vest as follows:
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20% on December 31, 2010;
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|
40% on December 31, 2011; and
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40% upon the earlier of:
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|
expiration of a
lock-up
period with respect an initial public offering by
us; and
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|
at the time of certain fundamental transactions
involving Aviv Healthcare Properties Limited Partnership;
|
subject to the named executive officers employment with us
through the applicable vesting date.
Phantom
Class C Units
In 2007, Mr. Insoft was also granted phantom Class C
units with a value equal to 5% of the Class C units as of
any date. Mr. Insoft was granted the phantom Class C
units as part of discussions related to his hiring, given our
desire for him to participate in an equity-based arrangement
that would align him with investors. The final value and terms
and conditions of the grant itself were finalized after his
hiring date. The grant was made in November of 2007 in
recognition of our goals to align him with investors and his
anticipated role as CFO. In addition, we wanted to recognize the
value of unvested awards that Mr. Insoft was forfeiting at
his prior employer in his decision to join our organization.
Of the original phantom Class C units granted, 60% were
settled in 2010 in Class C Units. The remaining 40% of such
phantom Class C units will vest in two tranches, with 20%
vesting on each of December 31 of 2011 and 2012, generally
subject to Mr. Insofts continued employment with us
through the applicable vesting date. The vesting of such phantom
Class C units will accelerate in the event of a
change in control following which Mr. Bernfield
ceases to control our organization. If such phantom Class C
units become vested, then they will be settled in Class C
units or cash at our discretion on January 1, 2018. In
addition, certain earnings on the Class C units underlying
such phantom interest, once vested, are payable annually to
Mr. Insoft until such interest is settled.
Management
Incentive Plan
Each of our named executive officers was granted awards under
our Management Incentive Program (MIP), which was adopted in
2010 in conjunction with our Lindsay Goldberg recapitalization.
Outstanding awards granted under the MIP have two components,
which are described in the table below.
78
|
|
|
|
|
MIP Award Type
|
|
Description
|
|
Vesting Treatment
|
|
Time-Based Nonqualified Stock Options
|
|
Option to purchase shares of Aviv REIT, Inc. at a price
established at the time of grant, subject to time-based vesting
|
|
Annually in 25% tranches over 4 years beginning on 1st
anniversary of grant date, with accelerated vesting upon a
liquidity event, subject to employment with us
through the applicable vesting date
|
Performance-Based Nonqualified Stock Options
|
|
Option to purchase shares of Aviv REIT, Inc. at a price
established at the time of grant, subject to performance-based
vesting
|
|
Fully upon a liquidity event, provided that Lindsay
Goldberg has achieved a 15% internal rate of return on its
investment in us, subject to employment with us through such
date
|
In addition, named executive officers are entitled to receive
dividend equivalents on their time-based and performance-based
nonqualified stock options (NSOs). Dividend equivalents accrued
since the date of grant of each NSO are paid to the named
executive officer upon vesting of the portion of the NSO on
which such dividend equivalent is based. Following vesting and
until the NSO is exercised or terminated, periodic additional
dividend equivalents will be paid generally on the earlier of:
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the last day of the calendar quarter in which such dividends
were paid to shareholders of Aviv REIT, Inc.; and
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|
three business days following the named executive officers
termination of employment with us.
|
Benefits
and perquisites
Each of our named executive officers participates in the
retirement and health/welfare benefit plans generally available
to all employees. In 2010, we did not offer any perquisites to
our named executive officers.
Employment
agreements
We have no agreements in place with either of our named
executive officers, and they are considered at will
employees.
79
EXECUTIVE
COMPENSATION
The following table sets forth the compensation paid to our
Chief Executive Officer and President and our Chief Financial
Officer and Treasurer, each of whom was serving as an executive
officer on December 31, 2010.
Summary
compensation table
The following table sets forth the annual base salary, bonus,
long-term equity incentive awards and other compensation earned
by or granted with respect to our named executive officers
during 2010, 2009 and 2008.
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|
Non-Equity
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|
Stock
|
|
Incentive Plan
|
|
All Other
|
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|
Name and Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Awards(1)
|
|
Compensation ($)
|
|
Compensation ($) (2)
|
|
Total ($)
|
|
Craig M. Bernfield
|
|
|
2010
|
|
|
$
|
490,286
|
|
|
$
|
0
|
|
|
$
|
1,017,138
|
|
|
$
|
275,783
|
|
|
$
|
0
|
|
|
$
|
1,783,207
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|
Chief Executive Officer & President
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2009
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|
$
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480,673
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|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
60,085
|
|
|
$
|
0
|
|
|
$
|
540,758
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|
|
|
|
2008
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|
|
$
|
432,858
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|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
22,620
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|
|
$
|
455,478
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|
Steven J. Insoft
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|
|
2010
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|
|
$
|
300,579
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|
|
$
|
0
|
|
|
$
|
542,492
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|
|
$
|
94,395
|
|
|
$
|
176,225
|
|
|
$
|
1,113,691
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|
Chief Financial Officer & Treasurer
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|
|
2009
|
|
|
$
|
294,685
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|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
50,648
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|
|
$
|
206,798
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|
|
$
|
552,131
|
|
|
|
|
2008
|
|
|
$
|
290,330
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
72,582
|
|
|
$
|
41,611
|
|
|
$
|
404,523
|
|
|
|
|
(1) |
|
Reflects the value of time-based MIP awards which were granted
in 2010. While the time-based NSOs have a grant date fair market
value for financial reporting purposes, the performance-based
NSOs do not, as it is impossible to know at the time of grant
the likelihood of vesting due to the return threshold and
employment requirements. |
|
(2) |
|
Mr. Bernfield was provided a transportation allowance in
2008. Mr. Insoft received distributions from unsettled
Phantom Class C Units in 2008, 2009, and 2010. |
Grants of
plan-based awards
The following table shows certain information relating to our
non-equity incentive plan awards and options to purchase shares
of our common stock granted to the named executive officers in
2010.
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All Other
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All Other
|
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|
Stock
|
|
Option
|
|
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|
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|
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|
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Awards:
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|
Awards:
|
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|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
Number of
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|
Number of
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|
Exercise Price or
|
|
|
|
Fair Value
|
|
|
|
|
Estimated Possible Potential Payments
|
|
Shares of
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|
Securities
|
|
Base Price of
|
|
Grant Date Closing
|
|
of Stock and
|
|
|
|
|
Under Non-Equity Incentive Plan Awards
|
|
Stock or
|
|
Underlying
|
|
Option Awards
|
|
Price of Common
|
|
Option
|
Name
|
|
Grant Date
|
|
Threshold ($)
|
|
Target ($)
|
|
Maximum ($)
|
|
Units (#)
|
|
Options (#)
|
|
($/Share)
|
|
Stock ($/Share)
|
|
Awards
|
|
Craig M. Bernfield
|
|
|
|
|
|
$
|
122,572
|
|
|
$
|
245,143
|
|
|
$
|
367,715
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
9/17/2010(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,167
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
990,861
|
|
|
|
|
9/17/2010(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,334
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
0
|
|
|
|
|
9/30/2010(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
$
|
1,083.93
|
|
|
$
|
1,083.93
|
|
|
$
|
26,277
|
|
|
|
|
9/30/2010(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407
|
|
|
$
|
1,083.93
|
|
|
$
|
1,083.93
|
|
|
$
|
0
|
|
Steven J. Insoft
|
|
|
|
|
|
$
|
37,572
|
|
|
$
|
75,145
|
|
|
$
|
112,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/17/2010(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,889
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
528,452
|
|
|
|
|
9/17/2010(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,778
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
0
|
|
|
|
|
9/30/2010(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
$
|
1,083.93
|
|
|
$
|
1,083.93
|
|
|
$
|
14,040
|
|
|
|
|
9/30/2010(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
|
$
|
1,083.93
|
|
|
$
|
1,083.93
|
|
|
$
|
0
|
|
|
|
|
(1) |
|
Time-based nonqualified stock options. |
80
|
|
|
(2) |
|
Performance-based nonqualified stock options. As noted in the
Summary Compensation Table, there is no grant date fair value
for these awards, as it is impossible to know at the time of
grant the likelihood of vesting due to the return threshold and
employment requirements. |
Outstanding
equity awards at fiscal year end
The following table sets forth certain information concerning
unexercised options held by the named executive officers at
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
|
Market Value of
|
|
|
Unexcerised
|
|
Unexcerised
|
|
Option
|
|
Option
|
|
Number of Shares or
|
|
Shares or Units of
|
|
|
Options-
|
|
Options-
|
|
Exercise
|
|
Expiration
|
|
Units of Stock Not
|
|
Stock that Have
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price
|
|
Date
|
|
Yet Vested
|
|
Not Yet Vested ($)
|
|
Craig M. Bernfield
|
|
|
|
|
|
|
27,501
|
|
|
$
|
1,000.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
611
|
|
|
$
|
1,083.93
|
|
|
|
|
|
|
|
|
|
|
|
Steven J. Insoft
|
|
|
|
|
|
|
14,667
|
|
|
$
|
1,000.00
|
|
|
|
|
|
|
1,600 Class D Units
|
|
$
|
489,392
|
|
|
|
|
|
|
|
|
326
|
|
|
$
|
1,083.93
|
|
|
|
|
|
|
Phantom Class C Units
|
|
$
|
636,288
|
|
Option
exercises and stock vested at fiscal year end
No options were exercised in 2010. The table below shows stock
awards that vested on December 31, 2010. No other awards
vested during the year.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
Name
|
|
Acquired on Vesting
|
|
|
Vesting
|
|
|
Craig M. Bernfield
|
|
|
|
|
|
|
|
|
Steven J. Insoft(1)
|
|
|
400
|
|
|
|
$122,348
|
|
|
|
|
1
|
|
|
|
$318,144
|
|
|
|
|
(1) |
|
Includes 400 Class D Units and 1% of Class C value
vested on
12/31/10. |
Potential
payments upon change of control
As described above, the following will result from certain
change in control transactions:
|
|
|
|
|
40% of the Class D units held by a named executive officer
will become vested upon the earlier of:
|
|
|
|
|
|
expiration of a
lock-up
period with respect an initial public offering by
us; and
|
|
|
|
at the time of certain fundamental transactions
involving Aviv Healthcare Properties Limited Partnership.
|
|
|
|
|
|
Any unvested phantom Class C units held by Mr. Insoft
will become fully vested upon a change in control
following which Mr. Bernfield ceases to control our
organization, subject to his employment with us through such
date.
|
|
|
|
Unvested time-based NSOs under the MIP become vested upon a
liquidity event, subject to employment with us
through such date.
|
81
|
|
|
|
|
Performance-based NSOs under the MIP become fully vested upon a
liquidity event, provided that Lindsay Goldberg has
achieved a 15% internal rate of return on its investment in us,
subject to employment with us through such date.
|
Assuming a change in control event occurred on December 31,
2010, the table below summarizes the estimate of the full
benefit that would be realized by our executives. The table
shows the full value of all equity that would vest related to
the change in control. No other payments or benefits are
provided under a change in control. No payments or benefits are
provided under any other potential termination event.
|
|
|
|
|
Name
|
|
Change-in-Control
|
|
|
Craig M. Bernfield
|
|
|
|
|
Cash Severance
|
|
|
$0
|
|
Class D Unit
|
|
|
$0
|
|
MIP
|
|
|
$1,017,138
|
|
|
|
|
|
|
Total
|
|
|
$1,017,138
|
|
|
|
|
|
|
Steven J. Insoft
|
|
|
|
|
Cash Severance
|
|
|
$0
|
|
Class D Unit
|
|
|
$489,392
|
|
Phantom Class C Unit
|
|
|
$0
|
|
MIP
|
|
|
$542,492
|
|
|
|
|
|
|
Total
|
|
|
$1,031,884
|
|
|
|
|
|
|
82
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Strategic
Equity Transaction with Lindsay Goldberg
In September 2010, we consummated a strategic equity transaction
with an affiliate of Lindsay Goldberg, LLC (Lindsay
Goldberg). Lindsay Goldberg is a private investment firm
that focuses on partnering with well-managed, closely-held
businesses and entrepreneur-led enterprises to help facilitate
growth and value creation in industries such as healthcare,
consumer products, commodity-based manufacturing, energy
services, business services, financial services and energy
infrastructure. Lindsay Goldberg manages approximately
$10 billion of capital across three funds and its team of
investment professionals has collectively completed more than
120 transactions with an aggregate value in excess of
$15 billion. Some of its other investments include ASA
Medical, Brightstar, Brock, Continental Energy Systems,
PetroLogistics and PSC.
In connection with the transaction, Lindsay Goldberg, through
the formation of our current general partner, Aviv REIT, made an
aggregate investment in us, including through the contribution
of limited partnership interests it purchased from certain of
our limited partners concurrently with its investment, of
$217.8 million. Lindsay Goldberg also has committed
(subject to certain conditions) to make additional equity
investments in Aviv REIT, up to an aggregate of
$50.0 million in additional investments ($20.0 million
of which has been funded to date), and may elect to make
additional discretionary equity investments in Aviv REIT. As a
result of the transaction, Lindsay Goldberg owns a majority of
the equity of Aviv REIT.
In connection with the transaction, we entered into a
Stockholders Agreement with Lindsay Goldberg, a representative
of certain limited partners related to the family of Zev Karkomi
and an entity formed by Mr. Bernfield. The Stockholders
Agreement sets forth certain provisions regarding the governance
and control of Aviv REIT. The Stockholders Agreement provides
that, subject to certain exceptions, Lindsay Goldberg is
entitled to designate up to four Class A Directors, with
such directors being entitled to cast a total of four votes on
any matter before the board of directors, Mr. Bernfield is
entitled to designate up to four Class B Directors, with
such directors being entitled to cast a total of six votes on
any matter before the board of directors, and the Karkomi
Investors are entitled to designate one Class C Director,
with such director entitled to cast one vote on any matter
before the board of directors. If Mr. Bernfield dies or
becomes disabled, the Class B Directors will be designated
by an individual previously designated by Mr. Bernfield and
agreed to by Lindsay Goldberg. The Stockholders Agreement also
requires that certain material corporate activities must be
approved by all Class A Directors in addition to the
Class B Directors. Further, during any period in which the
value of the common stock of Aviv REIT held by Lindsay Goldberg,
as calculated at any fiscal year end in accordance with the
Stockholders Agreement among the stockholders of Aviv REIT, is
less than 79.5% of the aggregate amount of investments made by
Lindsay Goldberg in Aviv REIT, the Class A Directors shall
be entitled to cast such number of votes equal to the percentage
of Lindsay Goldbergs fully diluted ownership of Aviv REIT
multiplied by eleven, the Class C Director shall be
entitled to cast one vote and the Class B Directors shall
be entitled to cast any remaining votes.
Loans to
Mr. Insoft
On November 1, 2007, Steven Insoft, our Chief Financial
Officer and Treasurer, was granted phantom partnership units in
Aviv Healthcare Properties Limited Partnership equal to a
percentage of the value of units held by certain of the limited
partners. The award vests ratably over time and may be settled
in cash or in class C units of Aviv Healthcare Properties
Limited Partnership. On September 17, 2010 and
December 31, 2010, Mr. Insofts award vested in
part and Mr. Insoft was awarded class C units
representing the vested portion of his award. In addition, we
paid Mr. Insoft an amount of cash representing the taxes
due on the vested portion of his award. In exchange,
Mr. Insoft executed promissory notes payable to us in the
aggregate principal amount of $311,748.45 that accrued interest
at the then-applicable long-term Federal rate. On April 29,
2011, Mr. Insoft repaid the promissory notes in full. The
aggregate amount repaid was $315,420.92. From the date of
issuance to the date of repayment, Mr. Insoft paid an
aggregate of $5,787.68 of interest on the notes.
83
POLICIES
WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of our policies with respect to
investments, financing and certain other activities. These
policies may be amended and revised from time to time at the
discretion of the board of directors of Aviv REIT. The indenture
governing the Notes offered hereby, our existing credit facility
and our revolving credit facility limit our ability to make
certain investments, incur or guarantee indebtedness or sell our
assets. See Description of Exchange
NotesCovenants and Description of Other
Indebtedness.
Investment
Policies
Investments
in Real Estate or Interests in Real Estate
We conduct all of our investment activities through our
operating partnership and its subsidiaries. Our investment
objectives are to increase cash flow, provide quarterly cash
distributions, maximize the value of our properties and acquire
properties with cash flow growth potential. Additionally, we
will seek to selectively expand and upgrade both our current
properties and any newly-acquired properties. Our business is
focused primarily on healthcare properties, principally SNFs,
and activities directly related thereto. We have not established
a specific policy regarding the relative priority of our
investment objectives. We currently lease our properties to our
tenants pursuant to long-term
triple-net
leases which require the tenant to bear all of the costs
associated with the property. For a discussion of our portfolio
and our business and other strategic objectives, see
Business.
We expect to pursue our investment objectives through the
ownership of properties by our subsidiaries, but may also make
investments in other entities, including joint ventures. We
currently intend to focus on acquiring SNFs in those areas in
which we own and also strategically select new markets when
opportunities are available that meet our investment criteria.
We anticipate that future investment and development activity
will be focused primarily in the United States, but will not be
limited to any geographic area. We intend to engage in such
future investment activities in a manner that is consistent with
requirements applicable to REITs for U.S. federal income
tax purposes. Provided we comply with these requirements,
however, there are no limitations on the percentage of our
assets that may be invested in any one real estate asset.
We may enter into joint ventures from time to time, if we
determine that doing so would be the most effective means of
raising capital. Equity investments may be subject to existing
mortgage financing and other indebtedness or such financing or
indebtedness may be incurred in connection with acquiring
properties, or a combination of these methods. Any such
financing or indebtedness will have priority over our equity
interest in such property. Investments are also subject to our
policy not to be treated as an investment company under the
Investment Company Act of 1940, as amended, or the 1940 Act.
We do not have a specific policy as to the amount or percentage
of our assets which will be invested in any specific property,
but anticipate that our real estate investments will continue to
be diversified among a relatively large number of facilities. As
of March 31, 2011, our portfolio of investments consists of
187 properties located in 25 states leased to 32 operators.
From time to time, we may make investments or agree to terms
that support the objectives of our tenants without necessarily
maximizing our short-term financial return, which may allow us
to build long-term relationships and acquire properties
otherwise unavailable to our competition. We believe these
dynamics create long-term, sustainable relationships and, in
turn, profitability for us.
Purchase,
Sale and Development of Properties
Our policy is to acquire properties primarily for generation of
current income and long-term value. Although we do not currently
intend to sell any properties, we will sell certain properties
where our
84
management determines such properties do not fit our strategic
objectives or where such action would be in the best interest of
our company. From time to time, we may also engage in strategic
development opportunities. These opportunities may involve
replacing or renovating properties in our portfolio that have
become economically obsolete or identifying new sites that
present an attractive opportunity and complement our existing
portfolio.
Investments
in Real Estate Mortgages
While we emphasize equity real estate investments in healthcare
real estate properties, we may invest in mortgages and other
real estate interests consistent with the rules applicable to
REITs. The mortgages in which we may invest may be either first
mortgages or junior mortgages, and may or may not be insured by
a governmental agency. Investments in real estate mortgages are
subject to the risk that one or more borrowers may default and
that the collateral securing mortgages may not be sufficient to
enable us to recover our full investment.
Investments
in Securities or Interests in Entities Primarily Engaged in Real
Estate Activities and Other Issuers
Subject to the gross income and asset requirements required for
REIT qualification, we may, but do not presently intend to,
invest in securities of entities engaged in real estate
activities or securities of other issuers (normally partnership
interests, limited liability company interests or other joint
venture interests in special purpose entities owning
properties), including for the purpose of exercising control
over such entities. We may acquire some, all or substantially
all of the securities or assets of other REITs or entities
engaged in real estate activities where such investment would be
consistent with our investment policies and the REIT
requirements. There are no limitations on the amount or
percentage of our total assets that may be invested in any one
issuer, other than those imposed by the gross income and asset
tests we must meet in order to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the
Code). In any event, we do not intend that our
investments in securities will require us to register as an
investment company under the 1940 Act, and we would
generally divest appropriate securities before any such
registration would be required.
Financing
Policies
We employ leverage in our capital structure in amounts that we
determine from time to time. Our board of directors has not
adopted a policy which limits the total amount of indebtedness
that we may incur, but we will consider a number of factors in
evaluating our level of indebtedness from time to time, as well
as the amount of such indebtedness that will be either fixed or
variable rate. Our charter and bylaws do not limit the amount or
percentage of indebtedness that we may incur nor do they
restrict the form in which our indebtedness will be taken
(including recourse or non-recourse debt, cross collateralized
debt, etc.). We may from time to time modify our debt policy in
light of then-current economic conditions, relative costs of
debt and equity capital, market values of our properties,
general market conditions for debt and equity securities, growth
and acquisition opportunities and other factors.
To the extent that our board of directors or management
determines that it is necessary to raise additional capital, we
may borrow under our credit facilities, issue debt or equity
securities, including additional partnership units, retain
earnings (subject to the REIT distribution requirements for
U.S. federal income tax purposes), assume secured
indebtedness, obtain mortgage financing on a portion of our
owned properties, engage in a joint venture, or employ a
combination of these methods. As long as our operating
partnership is in existence, the proceeds of all equity capital
raised by us will be contributed to our operating partnership in
exchange for additional interests in our operating partnership,
which will dilute the ownership interests of the limited
partners in our operating partnership.
85
Other
Investment Policies
We may, but do not presently intend to, make investments other
than as previously described. We may offer shares of our common
stock or other equity or debt securities in exchange for cash or
property and to repurchase or otherwise re-acquire shares of our
common stock or other equity or debt securities in exchange for
cash or property. We may issue additional series of our
preferred stock from time to time. We have not engaged in
trading, underwriting or the agency distribution or sale of
securities of other issuers and do not intend to do so. At all
times, we intend to make investments in a manner consistent with
the REIT requirements of the Code unless, because of business
circumstances or changes in the Code (or the U.S. Treasury
regulations promulgated thereunder), our board of directors
determines that it is no longer in our best interests for us to
qualify as a REIT. We intend to make investments in such a way
that we will not be treated as an investment company
under the 1940 Act. Our policies with respect to such activities
may be reviewed and modified from time to time by our board of
directors without notice to or the vote of our stockholders.
Lending
Policies
We do not have a policy limiting our ability to make loans to
other persons. Subject to REIT qualification rules, we may make
loans to third parties. For example, we may consider offering
purchase money financing in connection with the sale of
properties where the provision of that financing will increase
the value to be received by us for the property sold or we may
consider making loans to joint ventures in which we or they
participate or may participate in the future. We may choose to
guarantee the debt of certain joint ventures with third parties.
Consideration for those guarantees may include, but are not
limited to, fees, long-term management contracts, options to
acquire additional ownership and promoted equity positions.
86
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Aviv REITs common stock as of
June 1, 2011 for the following: (i) each of Aviv
REITs directors and Named Executive Officers,
(ii) all persons who are directors and executive officers
of Aviv REIT as a group and (iii) any person who is known
by Aviv REIT to be the beneficial owner of more than 5% of Aviv
REITs common stock. No director or Named Executive Officer
is the beneficial owner of Aviv REITs preferred stock, and
no person is known by Aviv REIT to be the beneficial owner of
more than 5% of Aviv REITs preferred stock.
|
|
|
|
|
|
|
|
|
|
|
Amount of Common
|
|
Percent of
|
|
|
Stock Beneficially
|
|
Common
|
Name of Beneficial Owner
|
|
Owned (1)
|
|
Stock
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
Craig M. Bernfield
|
|
|
1
|
|
|
|
*
|
|
Steven J. Insoft.
|
|
|
|
|
|
|
|
|
Michael W. Dees
|
|
|
|
|
|
|
|
|
Alan E. Goldberg
|
|
|
235,897
|
(2)
|
|
|
99.99
|
%
|
Robert D. Lindsay
|
|
|
235,897
|
(2)
|
|
|
99.99
|
%
|
Ari Ryan
|
|
|
|
|
|
|
|
|
J. Russell Triedman
|
|
|
|
|
|
|
|
|
All persons who are directors and executive officers as a
group (7 persons, each of whom is named above)
|
|
|
235,898
|
|
|
|
100.00
|
%
|
5% Stockholder:
|
|
|
|
|
|
|
|
|
LG Aviv L.P.
|
|
|
235,897
|
(3)
|
|
|
99.99
|
%
|
Alan E. Goldberg
|
|
|
235,897
|
(2)
|
|
|
99.99
|
%
|
Robert D. Lindsay
|
|
|
235,897
|
(2)
|
|
|
99.99
|
%
|
|
|
|
(1) |
|
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Percentage ownership is determined
based on 235,898 shares of Aviv REIT common stock
outstanding as of June 1, 2011. Except as indicated in the
footnotes to this table and pursuant to applicable community
property laws, the persons named in the table have sole voting
and investment power with respect to all shares of common stock
beneficially owned. |
|
|
|
(2) |
|
Mr. Lindsay and Mr. Goldberg, through intermediate
entities, indirectly have shared control over LG Aviv L.P., the
majority stockholder of Aviv REIT, Inc. By virtue of this
relationship, they may be deemed to have or share beneficial
ownership of securities held by LG Aviv L.P. Mr. Lindsay
and Mr. Goldberg expressly disclaim beneficial ownership of
such securities, except to the extent of their respective
pecuniary interests therein. The address for Mr. Lindsay
and Mr. Goldberg is
c/o Lindsay
Goldberg LLC, 630 Fifth Avenue, 30th Floor, New York, New
York 10111. |
|
|
|
(3) |
|
Represents 159,903 shares held by LG Aviv L.P. on behalf of
Lindsay Goldberg III REIT AIV L.P., 67,666 shares held
by LG Aviv L.P. on behalf of Lindsay Goldberg IIIA REIT
AIV L.P., 3,383 shares held by LG Aviv L.P. on behalf of
Lindsay Goldberg IIIBT REIT AIV L.P. and 4,945 shares
held by LG Aviv, L.P. (held generally for any co-investment
vehicles and Dean Ventures X, L.L.C.). LG Aviv L.P. disclaims
beneficial ownership of such shares, except to the extent of its
pecuniary interest therein. The address for LG Aviv L.P. is
c/o Lindsay
Goldberg LLC, 630 Fifth Avenue,
30th
Floor, New York, New York, 10111. |
87
The following table sets forth certain information regarding the
beneficial ownership of each class of the partnership units of
Aviv Healthcare Properties Limited Partnership as of
June 1, 2011 for the following: (i) each of Aviv
REITs directors and Named Executive Officers,
(ii) all persons who are directors and executive officers
of Aviv REIT as a group and (iii) any person who is known
by Aviv REIT to be the beneficial owner of more than 5% of Aviv
Healthcare Properties Limited Partnerships units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Class G
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
Class B
|
|
|
|
|
|
Class C
|
|
|
|
|
|
Class D
|
|
|
|
|
|
Class F
|
|
|
|
|
|
Class G
|
|
|
|
|
|
Preferred
|
|
|
Percent of
|
|
|
|
Units
|
|
|
Percent of
|
|
|
Units
|
|
|
Percent of
|
|
|
Units
|
|
|
Percent of
|
|
|
Units
|
|
|
Percent of
|
|
|
Units
|
|
|
Percent of
|
|
|
Units
|
|
|
Percent of
|
|
|
Units
|
|
|
Class G
|
|
|
|
Beneficially
|
|
|
Class A
|
|
|
Beneficially
|
|
|
Class B
|
|
|
Beneficially
|
|
|
Class C
|
|
|
Beneficially
|
|
|
Class D
|
|
|
Beneficially
|
|
|
Class F
|
|
|
Beneficially
|
|
|
Class G
|
|
|
Beneficially
|
|
|
Preferred
|
|
Name of Beneficial Owner
|
|
Owned (1)
|
|
|
Units
|
|
|
Owned (1)
|
|
|
Units
|
|
|
Owned (1)
|
|
|
Units
|
|
|
Owned (1)
|
|
|
Units
|
|
|
Owned (1)
|
|
|
Units
|
|
|
Owned (1)
|
|
|
Units
|
|
|
Owned (1)
|
|
|
Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig M. Bernfield
|
|
|
1,099,793
|
|
|
|
8.2
|
%
|
|
|
932,247
|
|
|
|
20.6
|
%
|
|
|
48.5
|
(2)
|
|
|
48.5
|
%
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
100.0
|
%
|
|
|
235,898
|
(3)
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven J. Insoft.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
(4)
|
|
|
3.0
|
%
|
|
|
400
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael W. Dees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan E. Goldberg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,897
|
(5)
|
|
|
99.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert D. Lindsay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,897
|
(5)
|
|
|
99.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ari Ryan (6)
|
|
|
6,853,477
|
|
|
|
50.9
|
%
|
|
|
2,683,820
|
|
|
|
59.3
|
%
|
|
|
48.5
|
(7)
|
|
|
48.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Russell Triedman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All persons who are directors and executive officers as a
group (7 persons, each of whom is named above)
|
|
|
7,958,988
|
|
|
|
59.1
|
%
|
|
|
3,616,067
|
|
|
|
79.9
|
%
|
|
|
100.0
|
|
|
|
100.0
|
%
|
|
|
900
|
|
|
|
11.2
|
%
|
|
|
100
|
|
|
|
100.0
|
%
|
|
|
235,897
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Unitholder:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aviv REIT, Inc. (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,897
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan E. Goldberg (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,897
|
(5)
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert D. Lindsay (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,897
|
(5)
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig M. Bernfield (9)
|
|
|
1,099,793
|
|
|
|
8.2
|
%
|
|
|
932,247
|
|
|
|
20.6
|
%
|
|
|
48.5
|
(2)
|
|
|
48.5
|
%
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
100.0
|
%
|
|
|
235,898
|
(3)
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven J. Insoft (9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ari Ryan (6)(9)
|
|
|
6,853,477
|
|
|
|
50.9
|
%
|
|
|
2,683,820
|
|
|
|
59.3
|
%
|
|
|
48.5
|
(7)
|
|
|
48.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Percentage ownership is determined
based on 13,467,223 Class A Units, 4,523,145 Class B
Units, 100 Class C Units, 8,050 Class D Units, 100
Class F Units, 235,898 Class G Units and 125
Class G Preferred Units of Aviv Healthcare Properties
Limited Partnership outstanding as of June 1, 2011. Except
as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all
units beneficially owned. |
|
(2) |
|
Includes 1 unit that is held by Mr. Bernfield subject
to a phantom unit award grant to Mr. Insoft. |
|
(3) |
|
Represents 235,897 Class G Units held by Aviv REIT, Inc.
and 1 Class G Unit held by Craig M. Bernfield REIT, L.L.C.
Mr. Bernfield, as Chief Executive Officer and President of
Aviv REIT, Inc., has shared control over Aviv REIT, Inc. By
virtue of his position, he may be deemed to have beneficial
ownership of securities beneficially owned by Aviv REIT, Inc.
Mr. Bernfield expressly disclaims beneficial ownership of
such securities, except to the extent of his pecuniary interest
therein. |
|
(4) |
|
Reflects Class C Units held by Steven J. Insoft
Investments, L.L.C., which is 99% owned by Mr. Insoft and
1% owned by his wife, Susan M. Insoft. Such units are also
pledged as collateral to secure a loan in favor of
Mr. Insoft. |
|
(5) |
|
Mr. Lindsay and Mr. Goldberg, through intermediate
entities, indirectly have shared control over LG Aviv L.P., the
majority stockholder of Aviv REIT, Inc., which is the general
partner of Aviv Healthcare Properties Limited Partnership. By
virtue of this relationship, they may be deemed to have or share
beneficial ownership of securities held by Aviv REIT, Inc.
Mr. Lindsay and Mr. Goldberg expressly disclaim
beneficial ownership of such securities, except to the extent of
their respective pecuniary interests therein. The address for
Mr. Lindsay and Mr. Goldberg is
c/o Lindsay
Goldberg LLC, 630 Fifth Avenue, 30th Floor, New York, New
York 10111. |
|
(6) |
|
Mr. Ryan holds Class A Units, Class B Units and
Class C Units through various trusts and limited liability
companies, of which he is the sole beneficial owner. Such units
are also pledged as collateral to secure various loans. |
88
|
|
|
(7) |
|
Includes 1 unit that is held by Mr. Ryan subject to a
phantom unit award grant to Mr. Insoft. |
|
|
|
(8) |
|
The address for Aviv REIT, Inc. is 303 West Madison Street,
Suite 2400, Chicago, Illinois, 60606. |
|
|
|
(9) |
|
The address for Mr. Bernfield, Mr. Insoft and
Mr. Ryan is
c/o Aviv
REIT, Inc., 303 West Madison Street, Suite 2400,
Chicago, Illinois, 60606. |
No director or Named Executive Officer is the beneficial owner
of Aviv Healthcare Capital Corporations common stock. As
of June 1, 2011, Aviv Healthcare Properties Limited
Partnership was the beneficial owner of 100% of Aviv Healthcare
Capital Corporations common stock. Aviv Healthcare
Properties Limited Partnerships address is
c/o Aviv
REIT, Inc., 303 West Madison Street, Suite 2400,
Chicago, Illinois, 60606.
89
DESCRIPTION
OF OTHER INDEBTEDNESS
Mortgage
Term Loan and Acquisition Credit Line
In September 2010, we refinanced all of our existing mortgage
indebtedness by entering into a secured credit facility (the
existing credit facility) consisting of a
$405.0 million mortgage term loan and a $100.0 million
acquisition credit line. The acquisition credit line may be used
for financing acquisitions and certain property improvements.
Draws on the acquisition credit line are limited to 70% of the
total cost of the applicable acquisition or renovation, and
draws for renovation projects are further limited to an
aggregate of $25.0 million outstanding at any one time.
Aviv Healthcare Properties Limited Partnership provides a
limited unsecured guarantee of the existing credit facility.
The interest rate applicable to the existing credit facility is
based upon LIBOR (subject to adjustment based on the level of
reserves required by the Federal Reserve Bank to be held for
Eurocurrency fundings), subject to a 1.25% floor, plus 4.5%. At
our option, the interest rate may be calculated at the prime
rate plus 4.5%. The interest rate under the existing credit
facility was 5.75% on March 31, 2011.
The balance outstanding under the mortgage term loan as of
March 31, 2011 was $235.4 million. There was no
outstanding balance under the acquisition credit line as of
March 31, 2011. After giving pro forma effect to the
application of the proceeds of the sale of the Old Notes, the
balance outstanding under the mortgage term loan as of
March 31, 2011 would have been $199.3 million and
there would have been no balance outstanding under our
acquisition credit line. The acquisition credit line is
available for draw until September 2013. The initial term of the
existing credit facility expires in September 2015 with two
one-year extension options, provided that certain conditions
precedent for the extensions are satisfied, including, without
limitation, payment of a fee equal to 0.25% of the then existing
principal balance of the existing credit facility and meeting
certain debt service coverage and debt yield tests.
Principal payments on the existing credit facility are payable
in monthly installments. The monthly payment for the mortgage
term loan is based upon a
25-year
amortization schedule. Prior to September 17, 2013, the
monthly payment for the acquisition credit line is interest only
in arrears on any outstanding principal balance of the
acquisition credit line. Following September 17, 2013
through the remainder of the term, the monthly payment for the
acquisition credit line is based upon a
25-year
amortization schedule. Prior September 17, 2013, a fee
equal to 1% per annum of the daily unused balance of the
acquisition credit line is due monthly.
Our existing credit facility generally requires the consolidated
borrowers under the facility to maintain a debt service coverage
ratio of 1.50:1.00 and a distribution coverage ratio of
1.10:1.00. In addition, Aviv Healthcare Properties Limited
Partnership and its consolidated subsidiaries must maintain a
debt service coverage ratio of 1.25:1.00 and a debt yield ratio
of greater than 17.25%. We are permitted to include cash on hand
in calculating such debt service coverage ratios.
Immediately following any draw on the acquisition credit line,
both before and after giving effect to such draw, the
consolidated borrowers under the existing credit facility must
have a pro forma debt yield ratio of at least 18%. Our debt
yield ratio is the ratio of (i) either consolidated EBITDA
or rental revenue for the most recently completed two fiscal
quarter period times two to (ii) the average daily
outstanding principal balance of loans outstanding under the
existing credit facility during the period.
The borrowers under the existing credit facility guarantee the
Notes, which guarantees are subordinated to the obligations of
such borrowers under the existing credit facility. In turn, each
guarantor of the Notes that is not a borrower under our existing
credit facility or our revolving credit facility provided
guarantees to the lenders under such facilities, which
guarantees are subordinated to the obligations of such
subsidiaries under the Notes.
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Senior
Secured Revolving Credit Facility
In February 2011, we entered into a new $25.0 million
senior secured revolving credit facility (the revolving
credit facility). The interest rate under our revolving
credit facility is generally based on LIBOR (subject to a floor
of 1.0% and subject to our option to elect to use a prime base
rate) plus a margin that is determined by our leverage ratio
from time to time, and the interest rate as of March 31,
2011 was 6.25%. We are permitted to include cash on hand in
calculating our leverage ratio for periods through June 30,
2011.
The initial term of our revolving credit facility expires in
January 2014 with a one-year extension option. We have the right
to increase the amount of the revolving credit facility by up to
$75.0 million (resulting in total availability of
$100.0 million), provided that certain conditions precedent
are satisfied. Our revolving credit facility is secured by first
lien mortgages on 14 of our properties, a pledge of the capital
stock of our subsidiaries owning such properties (plus the
equity of our subsidiary that acts as the holding company of the
subsidiaries owning such properties) and other customary
collateral, including an assignment of leases and rents with
respect to such mortgaged properties. The borrowing availability
under our revolving credit facility is subject to a borrowing
base calculation based on, among other factors, the lesser of
(i) the amount of a hypothetical mortgage based on the net
revenues for the prior four quarters (on a pro forma basis for
recently acquired properties) and (ii) 65% of the appraised
value, in each case, of the properties securing our revolving
credit facility. As of the date of this prospectus,
$14.8 million of borrowings are available to us under the
revolving credit facility.
Other
Indebtedness
In November 2010, we entered into a construction and term loan
agreement providing a loan of up to $6.4 million to finance
the renovation of a SNF located in Arkansas. The loan, which is
secured by a first lien on the property, is expected to be
repaid upon completion of the renovations and no later than
December 2013. The interest rate under the agreement is
calculated at the prime rate plus 0.38%. As of March 31,
2011, the principal balance of the loan was $1.3 million.
Also in November 2010, we entered into loan agreements in the
aggregate principal amount of $7.8 million relating to the
acquisition of a SNF located in California. The loans accrue
interest at the rate of 6.0% per annum and are secured by a lien
on the property. Payments of principal and accrued interest are
made monthly and the loan is to be paid in full no later than
December 2015.
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DESCRIPTION
OF EXCHANGE NOTES
The indenture under which the Exchange Notes are to be issued is
the same indenture under which the Old Notes were issued. Any
Old Note that remains outstanding after the completion of the
exchange offer, together with the Exchange Notes issued in
connection with the exchange offer, will be treated as a single
class of securities under the indenture. As used in this
Description of Exchange Notes, except as otherwise
specified or the context otherwise requires, the Old Notes and
the Exchange Notes are referred to together as the
Notes.
The following is a summary of the material provisions of the
indenture governing the Notes among Aviv REIT, Inc., Aviv
Healthcare Properties Limited Partnership, Aviv Healthcare
Capital Corporation, the subsidiary guarantors and The Bank of
New York Mellon Trust Company, N.A., as trustee. It does
not restate that agreement, and we urge you to read the
indenture in its entirety, which is available upon request to
Aviv REIT at the address indicated under Where You Can
Find More Information elsewhere in this prospectus,
because it, and not this description, defines your rights as a
noteholder.
You can find the definitions of certain capitalized terms used
in this description under the subheading Certain
Definitions. The term Partnership as used in
this section refers only to Aviv Healthcare Properties Limited
Partnership and not any of its subsidiaries, the term
Issuers as used in this section refers only to Aviv
Healthcare Properties Limited Partnership and Aviv Healthcare
Capital Corporation and not to any of their subsidiaries and the
term Aviv REIT or Parent as used in this
section refers only to Aviv REIT, Inc. and not to any of its
subsidiaries.
General
On February 4, 2011, the Issuers, Aviv REIT and the
subsidiary guarantors entered into an indenture providing for
the issuance by the Issuers of their
7 3/4% Senior
Notes due 2019, and the Issuers issued an initial $200,000,000
aggregate principal amount of such notes. On April 5, 2011,
the Issuers issued an additional $100,000,000 aggregate
principal amount of
7 3/4% Senior
Notes due 2019. The Issuers may issue additional notes from time
to time under the indenture, subject to the terms and conditions
of the indenture. The Notes and any additional notes issued
under the indenture will be treated as a single class for all
purposes under the indenture, including waivers, amendments,
redemptions and offers to purchase. Additional notes will not
necessarily be fungible with the Notes for U.S. federal
income tax purposes.
The Notes are unsecured senior obligations of the Issuers and
will mature on February 15, 2019. The Notes bear interest
at a rate of 7.750% per annum, payable semiannually to holders
of record at the close of business on the February 1 or the
August 1 immediately preceding the interest payment date on
February 15 and August 15 of each year, commencing
August 15, 2011.
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, in
accordance with the terms of the indenture.
Interest on the Exchange Notes will accrue from February 4,
2011 or from the date of the last payment of interest on the Old
Notes, whichever is later. Interest will be computed on the
basis of a
360-day year
comprised of twelve
30-day
months. We will not pay interest on Old Notes tendered and
accepted for exchange.
The Exchange Notes will be issued only in fully registered form,
without coupons, in denominations of $2,000 of principal amount
and any integral multiple of $1,000 in excess thereof. No
service charge will be made for any registration of transfer or
exchange of Exchange Notes, but the Issuers are entitled to
require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with a
registration of transfer.
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Guaranties
and Subsidiary Guarantors
The Notes are guaranteed on an unsecured senior basis by Aviv
REIT and certain subsidiaries of the Partnership (such
subsidiaries are referred to herein as Senior Guaranty
Subsidiaries) and on an unsecured subordinated basis by
certain other subsidiaries of the Partnership that are borrowers
under our existing Acquisition Line and Term Loan (such
subsidiaries are referred to herein as Subordinated
Guaranty Subsidiaries). The Subordinated Guaranty
Subsidiaries have agreed in the indenture that they will not
incur or suffer to exist any indebtedness that is senior in
right of payment to the applicable Subordinated Guaranty
Subsidiarys guarantee other than the Acquisition Line and
the Term Loan (or any Permitted Refinancing Indebtedness
incurred in exchange for, or the net proceeds of which are used
to refund, refinance or replace, the Acquisition Line or Term
Loan and that was otherwise permitted by the indenture) and any
secured Currency Agreements or Interest Rate Agreements with the
lenders under the Acquisition Line and the Term Loan. See
CovenantsProhibition on Incurrence of Senior
Debt by the Subordinated Guaranty Subsidiaries. Certain
other subsidiaries of the Partnership hold properties that are
subject to mortgages the terms of which prohibit such
subsidiaries from entering into guarantees of other
indebtedness, including the Notes and our revolving credit
facility (such subsidiaries are referred to herein as Real
Property Non-Guarantor Subsidiaries). Accordingly, the
Notes will not be guaranteed by the Real Property Non-Guarantor
Subsidiaries, any Unrestricted Subsidiaries we may create in the
future or any future Restricted Subsidiaries that do not
otherwise guarantee (or become a co-borrower in respect of)
Indebtedness of the Issuers or of a Subsidiary Guarantor that
ranks equally with or subordinate in right of payment to the
Notes (or the applicable Subsidiary Guaranty). As of the date of
this prospectus, there are no Unrestricted Subsidiaries.
Our revenues attributable to the properties held by the
Subordinated Guaranty Subsidiaries were $47.0 million for
the twelve months ended March 31, 2011, and, as of
March 31, 2011, these properties accounted for 56.6% of our
total real estate investments, net of accumulated depreciation.
After giving pro forma effect to the sale of the Old Notes and
the use of proceeds therefrom, as of March 31, 2011, the
Subordinated Guaranty Subsidiaries would have had aggregate
secured indebtedness to third parties of approximately
$199.3 million. Our revenues attributable to the properties
held by the Real Property Non-Guarantor Subsidiaries were
$0.5 million for the twelve months ended March 31,
2011, and, as of March 31, 2011, these properties accounted
for 2.7% of our total real estate investments, net of
accumulated depreciation. As of March 31, 2011, the Real
Property Non-Guarantor Subsidiaries had aggregate mortgage
indebtedness to third parties of approximately $9.1 million.
The guarantees of Aviv REIT and the Subsidiary Guarantors will
be unconditional regardless of the enforceability of the Notes
and the indenture. Subject to certain exceptions, each future
Restricted Subsidiary that subsequently guarantees Indebtedness
of the Issuers or of a Subsidiary Guarantor (or the applicable
Subsidiary Guaranty) will be required to execute a Subsidiary
Guaranty. See CovenantsFuture Guaranties by
Restricted Subsidiaries.
Pursuant to the indenture, (A) a Subsidiary Guarantor may
consolidate with, merge with or into, or transfer all or
substantially all its assets to any other Person to the extent
described below under CovenantsConsolidation,
Merger and Sale of Assets and (B) the Capital Stock
of a Subsidiary Guarantor may be sold or otherwise disposed of
to another Person to the extent described below under
CovenantsLimitation on Asset Sales;
provided, however, that, in the case of a
consolidation, merger or transfer of all or substantially all
the assets of such Subsidiary Guarantor, if such other Person is
not the Parent, the Issuers or a Subsidiary Guarantor, such
Subsidiary Guarantors obligations under its Subsidiary
Guaranty must be expressly assumed by such other Person, except
that such assumption will not be required in the case of:
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(1)
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the sale (including any sale pursuant to any exercise or
remedies by a holder of Indebtedness of the Company or of a
Subsidiary Guarantor) or other disposition (including by way of
consolidation or merger) of a Subsidiary Guarantor, including
the sale or disposition of Capital
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Stock of a Subsidiary Guarantor, following which such Subsidiary
Guarantor is no longer a Subsidiary of the Parent; or
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(2)
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the sale or disposition of all or substantially all the assets
of a Subsidiary Guarantor;
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in each case other than to the Parent or a Subsidiary of the
Parent and as permitted by the indenture and if in connection
therewith the Parent provides a certificate to the trustee to
the effect that the Parent will comply with its obligations
described below under CovenantsLimitation on
Asset Sales in respect of such disposition. Upon any sale
or disposition described in clause (1) or (2) above,
the obligor on the related Subsidiary Guaranty will be released
from its obligations thereunder.
The Subsidiary Guaranty of a Subsidiary Guarantor also will be
released under specified circumstances, including in connection
with a disposition of a Subsidiary Guarantors Capital
Stock if various conditions are satisfied. See
CovenantsFuture Guaranties by Restricted
Subsidiaries.
Optional
Redemption
Optional Redemption. Except as described
below, the Issuers are not entitled to redeem any Notes prior to
February 15, 2015. The Notes will be redeemable at the
option of the Issuers, in whole or in part, at any time, and
from time to time, on and after February 15, 2015, upon not
less than 30 days nor more than 60 days
notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during
the 12-month
period commencing on February 15 of the years indicated below,
in each case together with accrued and unpaid interest thereon
to the redemption date:
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Year
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Redemption Price
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2015
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103.875
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%
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2016
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101.938
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%
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2017 and thereafter
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100.00
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%
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Prior to February 15, 2015, the Issuers will be entitled,
at their option, to redeem all or a portion of the Notes at a
redemption price equal to 100% of the principal amount of the
Notes plus the Applicable Premium as of, and accrued and unpaid
interest to, the redemption date (subject to the right of
holders on the relevant record date to receive interest due on
the relevant interest payment date). Notice of such redemption
must be mailed by first-class mail to each holders
registered address or as otherwise provided in accordance with
the procedures of DTC, not less than 30 nor more than
60 days prior to the redemption date.
Applicable Premium means with respect to a
Note at any redemption date, the greater of (1) 1.00% of
the principal amount of such Note and (2) the excess of
(A) the present value at such redemption date of
(i) the redemption price of such Note on February 15,
2015 (such redemption price being described in the first
paragraph in this Optional Redemption section
exclusive of any accrued interest) plus (ii) all required
remaining scheduled interest payments due on such Note through
February 15, 2015 (but excluding accrued and unpaid
interest to the redemption date), computed using a discount rate
equal to the Adjusted Treasury Rate, over (B) the principal
amount of such Note on such redemption date.
Adjusted Treasury Rate means, with respect to
any redemption date, (1) the yield, under the heading which
represents the average for the immediately preceding week,
appearing in the most recently published statistical release
designated H.15(519) or any successor publication
which is published weekly by the Board of Governors of the
Federal Reserve System and which establishes yields on actively
traded United States Treasury securities adjusted to constant
maturity under the caption Treasury Constant
Maturities, for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months
before or after February 15, 2015, yields for the two
published maturities most closely corresponding to the
Comparable Treasury Issue shall be determined and the Adjusted
Treasury Rate shall be interpolated or extrapolated from such
yields on a straight line basis, rounding to the nearest month)
or (2) if such release (or any successor
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release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per
year equal to the semi-annual equivalent yield to maturity of
the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for
such redemption date, in each case calculated by the Issuers on
the third Business Day immediately preceding the redemption
date, in each case, plus 0.50%.
Comparable Treasury Issue means the United
States Treasury security selected by the Quotation Agent as
having a maturity comparable to the remaining term of the Notes
from the redemption date to February 15, 2015, that would
be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate
debt securities of a maturity most nearly equal to
February 15, 2015.
Comparable Treasury Price means, with respect
to any redemption date, if clause (2) of the Adjusted
Treasury Rate definition is applicable, the average of three, or
such lesser number as is obtained by the Issuers, Reference
Treasury Dealer Quotations for such redemption date.
Quotation Agent means the Reference Treasury
Dealer selected by the Issuers.
Reference Treasury Dealer means each of Banc
of America Securities LLC and its successors and assigns, Morgan
Stanley & Co. Incorporated and its successors and
assigns and RBC Capital Markets, LLC and its successors and
assigns.
Reference Treasury Dealer Quotations means
with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Issuers, of
the bid and asked prices for the Comparable Treasury Issue,
expressed in each case as a percentage of its principal amount,
quoted in writing to the trustee by such Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third
Business Day immediately preceding such redemption date.
Optional Redemption upon Equity Offerings. At
any time, or from time to time, on or prior to February 15,
2014, the Issuers are entitled, at their option, to use an
amount equal to all or a portion of the Net Cash Proceeds of one
or more Equity Offerings to redeem up to 35% of the principal
amount of the Notes (together with any additional notes) issued
under the indenture at a redemption price of 107.750% of the
principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided,
however, that:
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(1)
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at least 65% of the principal amount of Notes originally issued
under the indenture remains outstanding immediately after such
redemption; and
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(2)
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the Issuers make such redemption not more than 120 days
after the consummation of any such Equity Offering.
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The Issuers or their Affiliates are entitled to acquire Notes by
means other than a redemption from time to time, including
through open market purchases, privately negotiated
transactions, tender offers, exchange offers or otherwise, so
long as such acquisition does not otherwise violate the terms of
the indenture, upon such terms and at such prices as the Issuers
or their Affiliates may determine, which may be more or less
than the consideration for which the Notes offered hereby are
being sold and may be less than any redemption price then in
effect and could be for cash or other consideration.
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Selection
and Notice of Redemption for Optional Redemptions
In the event that the Issuers elect to redeem less than all of
the Notes, selection of the Notes for redemption will be made by
the trustee either:
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(1)
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in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are then
listed; or
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(2)
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on a pro rata basis, by lot or by such method as the
trustee will deem fair and appropriate.
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No Notes of a principal amount of $2,000 or less will be
redeemed in part. If a partial redemption is made with the
proceeds of an Equity Offering, the trustee will select the
Notes on a pro rata basis to the extent practicable, by
lot or such other method as the trustee in its sole discretion
shall deem to be fair and appropriate, unless another method is
required by law or applicable exchange or depositary
requirements (subject to DTC procedures). Notice of redemption
will be mailed by first-class mail or as otherwise provided in
accordance with the procedures of DTC at least 30 but not more
than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address, except that
redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a
defeasance of the Notes or a satisfaction and discharge of the
indenture. Notices of redemption may be given prior to the
completion of an Equity Offering, and any redemption or notice
may, at the Issuers discretion, be subject to the
completion of an Equity Offering. Unless the Issuers default in
the payment of the redemption price, on and after the redemption
date, interest will cease to accrue on Notes or portions thereof
called for redemption.
Sinking
Fund
There will be no sinking fund payments for the Notes.
Ranking
The Notes are senior unsecured obligations of the Issuers, and
rank equally in right of payment with other existing and future
unsecured senior Indebtedness of the Issuers. The Notes are
effectively junior to all of the Issuers secured
Indebtedness to the extent of the value of the collateral
securing such debt, including our $25.0 million revolving
credit facility, contractually subordinated to the Indebtedness
of the Subordinated Guaranty Subsidiaries under the Acquisition
Line and the Term Loan (and any secured Currency Agreements and
Interest Rate Agreements provided to the lenders under the
Acquisition Line and the Term Loan, including our existing swap
arrangements relating to $200.0 million of our outstanding
Indebtedness under the Term Loan) and structurally subordinated
to all Indebtedness of the Real Property Non-Guarantor
Subsidiaries. As of March 31, 2011, after giving pro forma
effect to the sale of the Old Notes and the use of proceeds
therefrom:
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(1)
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the Issuers and Subsidiary Guarantors, on a consolidated basis,
would have had approximately $501.0 million of Indebtedness
outstanding, including the Notes, $199.3 million of which
would have been comprised of secured Indebtedness of the
Subordinated Guaranty Subsidiaries outstanding under our Term
Loan (all of which would be contractually and effectively senior
to the subordinated guaranties in favor of the Notes);
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(2)
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the Issuers and Senior Guaranty Subsidiaries would have had
$14.8 million in secured borrowings available under our
revolving credit facility given the borrowing base requirements
of the facility (all of which would be effectively senior to the
Notes to the extent of the value of the underlying assets);
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(3)
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the Subordinated Guaranty Subsidiaries would have had
$100.0 million in secured borrowings available under our
Acquisition Line (all of which would be contractually and
effectively senior to the subordinated guaranties in favor of
the Notes); and
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(4)
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the Real Property Non-Guarantor Subsidiaries would have had
$9.1 million of Indebtedness outstanding (all of which
would have been structurally senior to the Notes).
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The guarantee of each Senior Guaranty Subsidiary is an unsecured
senior obligation of such Senior Guaranty Subsidiary and ranks
equally in right of payment with all existing and future
unsecured senior Indebtedness of such Senior Guaranty
Subsidiary. The guarantee of each Subordinated Guaranty
Subsidiary is an unsecured subordinated obligation of such
Subordinated Guaranty Subsidiary and ranks equally with all
existing and future unsecured senior Indebtedness of such
Subordinated Guaranty Subsidiary except that the such guarantee
is subordinated to the Indebtedness of such Subordinated
Guaranty Subsidiary under the Acquisition Line and the Term Loan
(or any Permitted Refinancing Indebtedness incurred in exchange
for, or the net proceeds of which are used to refund, refinance
or replace, the Acquisition Line or Term Loan and that was
otherwise permitted by the indenture) and any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan. See
Guaranties and Subsidiary Guarantors for a
description of which entities will guarantee the Notes.
Subordination
of Guaranties of Subordinated Guaranty Subsidiaries
The indenture provides that no payments or distributions may be
made by the Subordinated Guaranty Subsidiaries on their
guaranties of the Notes until the full and final payment in cash
and performance of all obligations under the documents governing
the Acquisition Line and the Term Loan and any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan. If any payment or
distribution is received by the Trustee or any holder of Notes
prior to the full and final payment in cash and performance of
all obligations under the documents governing the Acquisition
Line and the Term Loan and any secured Currency Agreements and
Interest Rate Agreements provided to the lenders under the
Acquisition Line and the Term Loan, then the holder thereof will
generally be required to deliver such payment or distribution to
General Electric Capital Corporation in its capacity as
Administrative Agent (the Senior Agent) for the
lenders under the Acquisition Line and the Term Loan and the
counterparties under any secured Currency Agreements and
Interest Rate Agreements provided to the lenders under the
Acquisition Line and the Term Loan to the extent necessary to
pay the Acquisition Line, the Term Loan and any obligations
under any secured Currency Agreements and Interest Rate
Agreements provided to the lenders under the Acquisition Line
and the Term Loan in full in cash, and, until so delivered, the
same shall be held in trust as the property of the Senior Agent
and the lenders under the Acquisition Line and the Term Loan and
the counterparties under any secured Currency Agreements and
Interest Rate Agreements provided to the lenders under the
Acquisition Line and the Term Loan. Notwithstanding the
foregoing, subject to compliance with the documents governing
the Acquisition Line and the Term Loan and any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan, the Subordinated
Guaranty Subsidiaries will be entitled to make dividends and
distributions to their equity owners (including, ultimately, the
Senior Guaranty Subsidiaries and the Issuers which are not
subject to subordination provisions under the indenture).
Neither the Trustee nor any holder of Notes shall challenge the
existence or priority of the Acquisition Line, the Term Loan or
any secured Currency Agreements or Interest Rate Agreements
provided to the lenders under the Acquisition Line and the Term
Loan or declare any of the Subordinated Guaranty
Subsidiaries guaranties of the Notes to be due and payable
or otherwise accelerate the maturity of the principal of such
guaranties until the full and final payment in cash and
performance of all obligations under the documents governing the
Acquisition Line and the Term Loan and any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan.
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Further, neither the Trustee nor any holder of Notes shall
contest the validity, perfection, priority or enforceability of
any Lien granted or ostensibly granted by any Subordinated
Subsidiary Guarantor to, or arising in favor of, the Senior
Agent or any lender under the Acquisition Line or the Term Loan
or any counterparty under any secured Currency Agreements or
Interest Rate Agreements provided to the lenders under the
Acquisition Line and the Term Loan, any payment on the
Acquisition Line, the Term Loan or any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan, or the allowance
of the Acquisition Line, the Term Loan or any secured Currency
Agreements or Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan as a senior secured
claim. Further, neither the Trustee nor any holder of Notes
shall have any right to seek, be party to, or accept any Lien
granted by any Subordinated Subsidiary Guarantor or enforce any
such Lien.
Upon any payment or distribution of the assets of the
Subordinated Guaranty Subsidiaries upon a total or partial
liquidation or dissolution or reorganization of or bankruptcy or
similar proceeding relating to such Subordinated Guaranty
Subsidiaries or their property:
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(1)
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the lenders under the Acquisition Line and the Term Loan and the
counterparties under any secured Currency Agreements and
Interest Rate Agreements provided to the lenders under the
Acquisition Line and the Term Loan shall first be fully and
finally paid in cash before the holders of the Notes are
entitled to receive any payment;
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(2)
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until the Acquisition Line, the Term Loan and any obligations
under any secured Currency Agreements and Interest Rate
Agreements provided to the lenders under the Acquisition Line
and the Term Loan are fully and finally paid in cash, any
payment or distribution to which the holders of the Notes would
be entitled but for the subordination provisions of the
indenture will be made to lenders under the Acquisition Line and
the Term Loan and the counterparties under any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan in accordance with
the priorities then existing among such lenders to the extent
necessary to pay in full all such amounts then remaining unpaid,
except that the holders of the Notes may receive certain
securities that are subordinate and junior in right of payment
to the payment of the Acquisition Line, the Term Loan and any
secured Currency Agreements and Interest Rate Agreements
provided to the lenders under the Acquisition Line and the Term
Loan;
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(3)
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until the Acquisition Line, the Term Loan and any obligations
under any secured Currency Agreements and Interest Rate
Agreements provided to the lenders under the Acquisition Line
and the Term Loan are fully and finally paid in cash,
(i) all or any lenders under the Acquisition Line and the
Term Loan and any counterparties under any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan may provide
financing to the applicable Subordinated Guaranty Subsidiaries
or any of their affiliates and subsidiaries pursuant to
Section 364 of the U.S. federal Bankruptcy Code or
other applicable law on such terms and conditions and in such
amounts as such lenders, in their sole discretion, may decide,
without seeking or obtaining the consent of the Trustee or any
holder of Notes and (ii) the Trustee and the holders of the
Notes shall not oppose or object to the payment of interest as
provided under Section 506(b) and (c) of the
U.S. federal Bankruptcy Code to any lenders under the
Acquisition Line and the Term Loan or counterparties under any
secured Currency Agreements and Interest Rate Agreements
provided to the lenders under the Acquisition Line and the Term
Loan; and
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(4)
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if a distribution is made to holders of Notes that, due to the
subordination provisions of the indenture, should not have been
made to them, such holders of Notes are required to hold it in
trust for the lenders under the Acquisition Line and the Term
Loan and the counterparties under
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any secured Currency Agreements and Interest Rate Agreements
provided to the lenders under the Acquisition Line and the Term
Loan.
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Notwithstanding the foregoing, the holders of the Notes and the
Trustee (i) may file a proof of claim in a bankruptcy or
similar proceeding involving any Subordinated Guaranty
Subsidiary, which proof of claim shall indicate the
subordination provisions of the indenture and (ii) shall be
entitled to file any necessary responsive or defensive pleadings
in opposition to any motion, claim, adversary proceeding or
other pleading made by any Person objecting to or otherwise
seeking the disallowance of the claims of the holders of the
Notes.
The Subordinated Guaranty Subsidiaries have agreed in the
indenture that they will not incur or suffer to exist any
indebtedness that is senior in right of payment to the
applicable Subordinated Guaranty Subsidiarys guaranty
other than the Acquisition Line and the Term Loan (or any
Permitted Refinancing Indebtedness incurred in exchange for, or
the net proceeds of which are used to refund, refinance or
replace, the Acquisition Line or Term Loan and that was
otherwise permitted by the indenture) and any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan. In the event that
the Acquisition Line or the Term Loan are refinanced by
Permitted Refinancing Indebtedness, the subordination provisions
described above will be permitted to apply equivalently to such
Permitted Refinancing Indebtedness.
The subordination provisions described above will not prevent a
Default from occurring under the indenture upon the failure of
the Issuers to pay interest or principal with respect to the
Notes when due by their terms.
Because amounts otherwise payable to the holders of the Notes by
the Subordinated Guaranty Subsidiaries in a bankruptcy or
similar proceeding are required to be paid to the lenders under
the Acquisition Line and the Term Loan and the counterparties
under any secured Currency Agreements and Interest Rate
Agreements provided to the lenders under the Acquisition Line
and the Term Loan instead, the holders of the Notes may receive
less, ratably, than the holders of trade payables or other
unsecured, unsubordinated creditors in any such proceeding.
Holders of the Notes may not be fully repaid if we or the
Subordinated Guaranty Subsidiaries become insolvent or otherwise
fail to make payment on the Notes.
A holder by its acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on
its behalf, to take such action as may be necessary or
appropriate to effectuate the subordination provided for in the
indenture and appoints the Trustee its attorney-in-fact for such
purpose.
Suspension
of Covenants
During a Suspension Period, the Parent and its Restricted
Subsidiaries will not be subject to the following corresponding
provisions of the indenture:
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CovenantsLimitation on Indebtedness;
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CovenantsMaintenance of Total Unencumbered
Assets;
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CovenantsLimitation on Restricted
Payments;
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CovenantsLimitation on Dividend and other
Payment Restrictions Affecting Restricted Subsidiaries;
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CovenantsFuture Guaranties by Restricted
Subsidiaries;
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99
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CovenantsLimitation on Transactions with
Affiliates;
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CovenantsLimitation on Asset Sales;
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CovenantsProhibition on Incurrence of Senior
Debt by the Subordinated Guaranty Subsidiaries; and
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clause (3) of the Consolidation, Merger and Sale of
Assets covenant.
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All other provisions of the indenture will apply at all times
during any Suspension Period so long as any Notes remain
outstanding thereunder.
Suspension Period means any period:
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(1)
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beginning on the date that:
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(A)
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the Notes have Investment Grade Status;
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(B)
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no Default or Event of Default has occurred and is
continuing; and
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(C)
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the Issuers have delivered an officers certificate to the
trustee certifying that the conditions set forth in
clauses (A) and (B) above are satisfied; and
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(2)
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ending on the date (the Reversion Date) that
the Notes cease to have Investment Grade Status.
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On each Reversion Date, all Indebtedness, liens thereon and
dividend blockages incurred during the Suspension Period prior
to such Reversion Date will be deemed to have been outstanding
on the Issue Date.
For purposes of calculating the amount available to be made as
Restricted Payments under clause (C) of the first paragraph
of the Limitation on Restricted Payments
covenant, calculations under that clause will be made with
reference to the Transaction Date, as set forth in that clause.
Accordingly, (x) Restricted Payments made during the
Suspension Period not otherwise permitted pursuant to any of
clauses (1) through (12) under the third paragraph
under the Limitation on Restricted Payments covenant
will reduce the amount available to be made as Restricted
Payments under clause (C) of the first paragraph of such
covenant; provided, however, that the amount
available to be made as a Restricted Payment on the Transaction
Date shall not be reduced to below zero solely as a result of
such Restricted Payments, but may be reduced to below zero as a
result of negative cumulative Adjusted Funds From Operations
during the Suspension Period for the purpose of the first bullet
under clause (C) of the first paragraph of such covenant,
and (y) the items specified in the five bullets under
clause (C) of the first paragraph of such covenant that
occur during the Suspension Period will increase the amount
available to be made as a Restricted Payment under
clause (C) of the first paragraph of such covenant. Any
Restricted Payment made during the Suspension Period that is of
the type described in the third paragraph of the
Limitation on Restricted Payments covenant (other
than the Restricted Payment referred to in clause (2) of
the such third paragraph or an exchange of Capital Stock for
Capital Stock or Indebtedness referred to in clause (3) or
(4) of such third paragraph), and the Net Cash Proceeds
from any issuance of Capital Stock referred to in
clauses (3) and (4) of the third paragraph of the
Limitation on Restricted Payments covenant, shall be
included in calculating the amounts permitted to be incurred
under such clause (C) on each Reversion Date. For purposes
of the Limitation on Asset Sales covenant, on
each Reversion Date, the unutilized Excess Proceeds will be
reset to zero. No Default or Event of Default will be deemed to
have occurred on the Reversion Date (or thereafter) under any
Suspended Covenant solely as a result of any actions taken by
the Parent, the Issuers or any Restricted Subsidiaries thereof,
or events occurring, during the Suspension Period. For purposes
of the Maintenance of Total Unencumbered
Assets covenant, if the Issuers and their Restricted
Subsidiaries are not in compliance with such covenant as of a
Reversion Date, no Default or Event of Default will be deemed to
have occurred for up
100
to 120 days following the Reversion Date, provided that
neither the Issuers nor any of their Restricted Subsidiaries
shall incur any Secured Indebtedness until such time that the
requirements of such covenant have been satisfied.
Covenants
The indenture contains, among others, the following covenants:
Limitation
on Indebtedness
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(1)
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The Parent will not Incur any Indebtedness (including Acquired
Indebtedness) other than the guarantees issued on the Issue
Date, other Indebtedness existing on the Issue Date, and
guarantees of Indebtedness of the Issuers or any other
Restricted Subsidiary of the Parent provided such Indebtedness
is permitted by and Incurred in accordance with this covenant.
The Parent will not permit any of its Restricted Subsidiaries
(including the Issuers) to Incur any Indebtedness (including
Acquired Indebtedness) if, immediately after giving effect to
the Incurrence of such additional Indebtedness and the receipt
and application of the proceeds therefrom, the aggregate
principal amount of all outstanding Indebtedness of the Parent
and its Restricted Subsidiaries on a consolidated basis is
greater than 60% of Adjusted Total Assets.
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(2)
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The Issuers will not, and will not permit any of their
Restricted Subsidiaries to, Incur any Secured Indebtedness
(including Acquired Indebtedness) if, immediately after giving
effect to the Incurrence of such additional Secured Indebtedness
and the receipt and application of the proceeds therefrom, the
aggregate principal amount of all outstanding Secured
Indebtedness of the Issuers and their Restricted Subsidiaries on
a consolidated basis is greater than 40% of Adjusted Total
Assets.
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(3)
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The Parent will not permit any of its Restricted Subsidiaries
(including the Issuers) to Incur any Indebtedness (including
Acquired Indebtedness); provided, however, that
the Issuers or any of the Subsidiary Guarantors may Incur
Indebtedness (including Acquired Indebtedness) if, after giving
effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds therefrom, the Interest Coverage
Ratio of the Issuers and their Restricted Subsidiaries on a
consolidated basis would be at least 2.0 to 1.0.
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(4)
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Notwithstanding paragraphs (1), (2) or (3) above, the
Parent or any of its Restricted Subsidiaries (except as
specified below) may Incur each and all of the following:
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(A)
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Indebtedness of the Parent, the Issuers or any of the Subsidiary
Guarantors outstanding under any Credit Facility at any time in
an aggregate principal amount not to exceed $400 million;
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(B)
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Indebtedness of the Issuers or any of their Restricted
Subsidiaries owed to:
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the Issuers evidenced by an unsubordinated promissory
note, or
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any Restricted Subsidiary;
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provided, however, that any event that results in
any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary of the Issuers or any subsequent transfer of such
Indebtedness (other than to the Issuers or any other Restricted
Subsidiary of the Issuers) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by
this clause (B);
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(C)
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Indebtedness of the Issuers or any of their Restricted
Subsidiaries under Currency Agreements and Interest Rate
Agreements; provided that such agreements (i) are
designed primarily to protect the Issuers or any of their
Restricted Subsidiaries against fluctuations in foreign currency
exchange rates or interest rates (whether fluctuations of fixed
to floating rate interest or floating to fixed rate interest)
and (ii) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations
in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder;
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(D)
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Indebtedness of the Issuers or any of the Subsidiary Guarantors,
to the extent the net proceeds thereof are promptly:
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used to purchase Notes tendered in an Offer to Purchase made as
a result of a Change in Control,
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used to redeem all the Notes as described above under
Optional Redemption,
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deposited to defease the Notes as described below under
Defeasance, or
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deposited to discharge the obligations under the Notes and
indenture as described below under Satisfaction and
Discharge;
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(E)
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(i) Guarantees by the Parent of Indebtedness of the Issuers
or any of the Subsidiary Guarantors, (ii) Guarantees by any
Restricted Subsidiaries of the Issuers of Indebtedness of the
Issuers provided the guarantee of such Indebtedness is permitted
by and made in accordance with the Future Guaranties by
Restricted Subsidiaries covenant described below, and
(iii) any Guarantees by a Subsidiary Guarantor of any
Indebtedness of any other Subsidiary Guarantor;
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(F)
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Existing Indebtedness;
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(G)
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Indebtedness represented by the Notes and the Guaranties issued
on the Issue Date and the exchange notes and related exchange
guarantees to be issued in exchange for such Notes and
Guaranties pursuant to the registration rights agreement;
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(H)
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Indebtedness consisting of obligations to pay insurance premiums
incurred in the ordinary course of business;
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(I)
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Indebtedness in respect of any bankers acceptance, bank
guarantees, letter of credit, warehouse receipt or similar
facilities, and reinvestment obligations related thereto,
entered into in the ordinary course of business;
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(J)
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Indebtedness in respect of workers compensation claims,
self-insurance obligations, indemnities, bankers
acceptances, performance, completion and surety bonds or
guarantees and similar types of obligations in the ordinary
course of business;
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(K)
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Indebtedness represented by cash management obligations and
other obligations in respect of netting services, automatic
clearinghouse arrangements, overdraft protections and similar
arrangements in each case in connection with deposit accounts;
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(L)
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Indebtedness supported by a letter of credit procured by the
Issuers or their Restricted Subsidiaries in a principal amount
not in excess of the stated amount of such letter of credit and
where the underlying Indebtedness would otherwise be permitted;
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102
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(M)
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Guarantees (a) incurred in the ordinary course of business
or (b) constituting Investments that are (i) included
in the calculation of the amount available to be made as
Restricted Payments under clause (C) of the first paragraph
of the Limitation on Restricted Payments
covenant, (ii) made pursuant to clause (11) under the
third paragraph under the Limitation on Restricted
Payments covenant or (iii) made in reliance on
clause (9) or (18) of the definition of
Permitted Investments;
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(N)
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Permitted Refinancing Indebtedness incurred in exchange for, or
the net proceeds of which are used to refund, refinance or
replace, Indebtedness (other than intercompany Indebtedness)
that was permitted by the indenture to be incurred under the
provisions of paragraphs (1), (2) or (3) of this
covenant or clauses (F), (G), (N), (O) or (P) of this
paragraph (4);
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(O)
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Indebtedness of Restricted Subsidiaries that are not Subsidiary
Guarantors in an aggregate principal amount at any time
outstanding not to exceed, when taken together with all then
outstanding net Investments in Unrestricted Subsidiaries and
joint ventures made in reliance on clause (9) of the
definition of Permitted Investments, the greater of
$20 million and 2.0% of the Adjusted Total Assets of such
Restricted Subsidiaries; provided, however, that any
Permitted Refinancing Indebtedness incurred under
clause (N) above in respect of Indebtedness incurred under
this clause (O) shall be deemed to have been incurred under
this clause (O) for purposes of determining the amount of
Indebtedness that may at any time be incurred under this clause
(O); or
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(P)
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additional Indebtedness of the Issuers and Restricted
Subsidiaries in an aggregate principal amount at any time
outstanding not to exceed the greater of $20 million and
2.0% of the Parents Adjusted Total Assets; provided,
however, that any Permitted Refinancing Indebtedness
incurred under clause (N) above in respect of Indebtedness
incurred under this clause (P) shall be deemed to have been
incurred under this clause (P) for purposes of determining
the amount of Indebtedness that may at any time be incurred
under this clause (P).
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(5)
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Notwithstanding any other provision of this Limitation on
Indebtedness covenant, the maximum amount of Indebtedness
that the Parent or any of its Restricted Subsidiaries may Incur
pursuant to this Limitation on Indebtedness covenant
shall not be deemed to be exceeded, with respect to any
outstanding Indebtedness, due solely to the result of
fluctuations in the exchange rates of currencies. Further,
notwithstanding any other provision of this Limitation on
Indebtedness covenant, the maximum principal amount of
Indebtedness, other than obligations under Currency Agreements
and Interest Rate Agreements, that the Subordinated Guaranty
Subsidiaries may Incur pursuant to this Limitation on
Indebtedness covenant shall not exceed $340 million,
which amount shall be permanently reduced by any scheduled
amortization or mandatory repayments (other than out of the net
proceeds of any Permitted Refinancing Indebtedness incurred
which are used to refund, refinance or replace such
Indebtedness) of such Indebtedness of such Subordinated Guaranty
Subsidiaries.
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(6)
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For purposes of determining any particular amount of
Indebtedness under this Limitation on Indebtedness
covenant,
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Indebtedness Incurred and outstanding under the Credit
Agreement, our Acquisition Line or our Term Loan on or prior to
the Issue Date shall be treated as Incurred pursuant to
clause (A) of paragraph (4) of this Limitation
on Indebtedness covenant, and
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Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included.
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103
For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of
more than one of the categories of permitted Indebtedness
described in clauses (A) through (P) of paragraph
(4) above or is entitled to be incurred pursuant to
paragraphs (1), (2) and (3) above, the Issuers shall,
in their sole discretion, be entitled to classify all or a
portion of such item of Indebtedness on the date of its
incurrence or issuance and determine the order of such
incurrence or issuance (and may later reclassify such item of
Indebtedness) and may divide and classify such Indebtedness in
more than one of the types of Indebtedness described. At any
time that the Issuers would be entitled to have incurred any
then outstanding Indebtedness under paragraphs (1), (2) and
(3) of this covenant, such Indebtedness shall be
automatically reclassified into Indebtedness incurred pursuant
to those paragraphs. Indebtedness permitted by this covenant
need not be permitted solely by reference to one provision
permitting such Indebtedness, but may be permitted in part by
one such provision and in part by one or more other provisions
of this covenant permitting such Indebtedness. For the avoidance
of doubt, the outstanding principal amount of any particular
Indebtedness shall be counted only once and any obligations
arising under any guarantee, Lien, letter of credit or similar
instrument supporting such Indebtedness shall not be double
counted.
For purposes of determining compliance with any
U.S. dollar-denominated restriction on the incurrence of
Indebtedness, the U.S. dollar-equivalent principal amount
of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in
effect on the date such Indebtedness was incurred, in the case
of term debt, or first committed, in the case of revolving
credit debt; provided, however, that if such Indebtedness
is incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the
applicable U.S. dollar-denominated restriction to be
exceeded if calculated at the relevant currency exchange rate in
effect on the date of such refinancing, such
U.S. dollar-denominated restriction shall be deemed not to
have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of
such Indebtedness being refinanced, plus the amount of any
reasonable premium (including reasonable tender premiums),
defeasance costs and any reasonable fees and expenses incurred
in connection with the issuance of such new Indebtedness. The
principal amount of any Indebtedness incurred to refinance other
Indebtedness, if incurred in a different currency from the
Indebtedness being refinanced, shall be calculated based on the
currency exchange rate applicable to the currencies in which
such respective Indebtedness is denominated that is in effect on
the date of such refinancing.
Maintenance
of Total Unencumbered Assets
The Issuers and their Restricted Subsidiaries will maintain
Total Unencumbered Assets of not less than 150% of the aggregate
outstanding principal amount of the Unsecured Indebtedness of
the Issuers and their Restricted Subsidiaries on a consolidated
basis.
Limitation
on Restricted Payments
The Parent will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
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(1)
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declare or pay any dividend or make any distribution on or with
respect to Capital Stock of the Parent or of any Restricted
Subsidiary of the Parent held by Persons other than the Parent
or any of its Restricted Subsidiaries, other than
(i) dividends or distributions payable solely in shares of
its Capital Stock (other than Disqualified Stock) and
(ii) pro rata dividends or other distributions made by a
Subsidiary that is not wholly owned to minority stockholders (or
owners of equivalent interests in the event the Subsidiary is
not a corporation);
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(2)
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purchase, redeem, retire or otherwise acquire for value any
shares of Capital Stock of the Parent held by any Person (other
than a Restricted Subsidiary of the Parent);
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(3)
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make any voluntary or optional principal payment, or voluntary
or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the
Issuers
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104
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that is subordinated in right of payment to the Notes or
Indebtedness of a Subsidiary Guarantor that is subordinated in
right of payment to the Subsidiary Guaranty of such Subsidiary
Guarantor, in each case excluding (i) any intercompany
Indebtedness between or among the Parent, the Issuers or any of
the Subsidiary Guarantors and (ii) the payment, purchase,
redemption, defeasance, acquisition or retirement (collectively,
a purchase) of such subordinated Indebtedness
purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each
case due within one year of the date of such purchase; or
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(4)
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make an Investment, other than a Permitted Investment, in any
Person
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(such payments or any other actions described in
clauses (1) through (4) above being collectively
Restricted Payments) if, at the time of, and
after giving effect to, the proposed Restricted Payment:
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(A)
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a Default or Event of Default shall have occurred and be
continuing,
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(B)
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the Issuers could not Incur at least $1.00 of Indebtedness in
compliance with both paragraphs (1) and (3) of the
Limitation on Indebtedness covenant, or
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(C)
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the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board
of Directors of the Parent, whose determination shall be
conclusive and evidenced by a Board Resolution) made after the
Issue Date shall exceed the sum of, without duplication:
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95% of the aggregate amount of the Adjusted Funds From
Operations (or, if the Adjusted Funds From Operations is a loss,
minus 100% of the amount of such loss) accrued on a cumulative
basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter during which
the Issue Date occurs and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports
have been filed with the SEC or provided to the trustee pursuant
to the SEC Reports and Reports to Holders covenant
(or if no such reports have yet been required to be filed with
the SEC pursuant to the indenture, for which internal financial
statements are available), plus
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100% of the aggregate Net Cash Proceeds received by the Parent
after the Issue Date from the issuance and sale of its Capital
Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of the Parent, including from an issuance or sale
permitted by the indenture of Indebtedness of the Parent or any
of its Restricted Subsidiaries for cash subsequent to the Issue
Date upon the conversion of such Indebtedness into Capital Stock
(other than Disqualified Stock) of the Parent but excluding any
options, warrants or other rights that are redeemable at the
option of the holder for cash or Indebtedness, or are required
to be redeemed, prior to the Stated Maturity of the Notes,
plus
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an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person after the
Issue Date resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers
of assets, in each case to the Parent or any of its Restricted
Subsidiaries or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Adjusted
Funds From Operations) or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of Investments) not to
exceed, in each case, the amount of Investments previously made
by the Parent and its Restricted Subsidiaries in such Person or
Unrestricted Subsidiary and treated as a Restricted Payment,
plus
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the fair market value of noncash tangible assets or Capital
Stock acquired in exchange for an issuance of Capital Stock
(other than Disqualified Stock or Capital Stock issued in
exchange for Capital Stock of the Parent utilized pursuant to
clauses (3) or (4) of the second succeeding paragraph)
of the Parent subsequent to the Issue Date (including upon
conversion or exchange of the Common Units for Capital Stock of
the Parent, in which case the fair market value shall equal the
fair market value received upon issuance of such Common Units),
plus
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without duplication, in the event the Parent or any Restricted
Subsidiary of the Parent makes any Investment in a Person that,
as a result of or in connection with such Investment, becomes a
Restricted Subsidiary of the Parent, an amount not to exceed the
amount of Investments previously made by the Parent and its
Restricted Subsidiaries in such Person and treated as a
Restricted Payment.
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Notwithstanding the foregoing, the Parent and any of its
Restricted Subsidiaries may declare or pay any dividend or make
any distribution or take other action (that would have otherwise
been a Restricted Payment) that is necessary to maintain the
Parents status as a REIT under the Code if (i) the
aggregate principal amount of all outstanding Indebtedness of
the Parent and its Restricted Subsidiaries on a consolidated
basis at such time is less than 60% of Adjusted Total Assets and
(ii) no Default or Event of Default shall have occurred and
be continuing.
The foregoing provisions shall not be violated by reason of:
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(1)
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the payment of any dividend or distribution or the consummation
of any redemption within 60 days after the date of
declaration thereof or the giving of a redemption notice related
thereto, as the case may be, if, at said date of declaration or
notice, such payment would comply with the foregoing paragraph;
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(2)
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the payment, redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes or to a Subsidiary
Guaranty including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness
Incurred in compliance with paragraph (1), (2) or
(3) or pursuant to clause (N) of paragraph (4) of
the Limitation on Indebtedness covenant;
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(3)
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(a) the making of any Restricted Payment in exchange for,
or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Parent (other than any Disqualified Stock
or any Capital Stock sold to a Restricted Subsidiary of the
Parent or to an employee stock ownership plan or any trust
established by the Parent) or from substantially concurrent
contributions to the equity capital of the Parent (collectively,
including any such contributions, Refunding Capital
Stock) (with any offering within 90 days deemed
as substantially concurrent); and (b) the declaration and
payment of accrued dividends on any Capital Stock redeemed,
repurchased, retired, defeased or acquired out of the proceeds
of the sale of Refunding Capital Stock within 90 days of
such sale; provided, that the amount of any such proceeds or
contributions that are utilized for any Restricted Payment
pursuant to this clause (3) shall be excluded from the
amount described in the second bullet of clause (4)(C) of this
covenant;
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(4)
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the making of any principal payment on, or the repurchase,
redemption, retirement, defeasance or other acquisition for
value of, Indebtedness of the Issuers that is subordinated in
right of payment to the Notes or Indebtedness of a Subsidiary
Guarantor that is subordinated in right of payment to the
Subsidiary Guaranty of such Subsidiary Guarantor in exchange
for, or out of the proceeds of, an issuance of, shares of the
Capital Stock (other than Disqualified Stock) of the
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Parent within 90 days of such principal payment,
repurchase, redemption, retirement, defeasance or other
acquisition;
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(5)
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payments or distributions to dissenting stockholders pursuant to
applicable law pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with
the provisions of the indenture applicable to mergers,
consolidations and transfers of all or substantially all of the
property and assets of the Parent;
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(6)
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the payment of regularly scheduled cash dividends on shares of
Redeemable Cumulative Preferred Stock in an amount not to exceed
$15,625 per calendar year;
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(7)
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the repurchase, redemption or other acquisition or retirement
for value of any shares of Capital Stock of the Parent held by
any current or former officer, director, consultant or employee
of the Parent or any of its Restricted Subsidiaries (or any
permitted transferees, assigns, estates or heirs of any of the
foregoing); provided, however, the aggregate amount paid
by the Parent and its Restricted Subsidiaries pursuant to this
clause (7) shall not exceed $5.0 million in any
calendar year (excluding for purposes of calculating such amount
the amount paid for Capital Stock repurchased, redeemed,
acquired or retired with the cash proceeds from the repayment of
outstanding loans previously made by the Parent or a Restricted
Subsidiary thereof for the purpose of financing the acquisition
of such Capital Stock), with unused amounts in any calendar year
being carried over for one additional calendar year; provided
further, that such amount in any calendar year may be
increased by an amount not to exceed: (A) the net cash
proceeds from the sale of Capital Stock (other than Disqualified
Stock) of the Parent, in each case, to officers, directors,
consultants or employees of the Parent or any of its
Subsidiaries that occurs after the Issue Date, to the extent
such cash proceeds (i) have not otherwise been and are not
thereafter applied to permit the payment of any other Restricted
Payment or (ii) are not attributable to loans made by the
Parent or a Restricted Subsidiary thereof for the purpose of
financing the acquisition of such Capital Stock, plus
(B) the cash proceeds of key man life insurance policies
received by the Parent and its Restricted Subsidiaries after the
Issue Date, less (C) the amount of any Restricted Payments
previously made pursuant to clauses (A) and (B) of
this clause (7); provided further, however, that
cancellation of Indebtedness owing to the Parent from members of
management of the Parent or any Restricted Subsidiary thereof in
connection with a repurchase of Capital Stock of the Parent
shall not be deemed to constitute a Restricted Payment for
purposes of the indenture;
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(8)
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the repurchase of Capital Stock deemed to occur (i) upon
the exercise of options or warrants if such Capital Stock
represents all or a portion of the exercise price thereof, and
(ii) in connection with the withholding of a portion of the
Capital Stock granted or awarded to a director or an employee to
pay for the taxes payable by such director or employee upon such
grant or award;
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(9)
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upon the occurrence of a Change of Control (or similarly defined
term in other Indebtedness) and within 90 days after
completion of the Offer to Purchase (including the purchase of
all Notes tendered), any repayment, repurchase, redemption,
defeasance or other acquisition or retirement for value of any
Indebtedness of the Issuers or any Subsidiary Guarantor that is
contractually subordinated to the Notes or to any Subsidiary
Guaranty that is required to be repurchased or redeemed pursuant
to the terms thereof as a result of such Change of Control (or
similarly defined term in other Indebtedness), at a purchase
price not greater than 101% of the outstanding principal amount
or liquidation preference thereof (plus accrued and unpaid
interest and liquidated damages, if any);
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(10)
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within 90 days after completion of any offer to repurchase
Notes pursuant to the covenant described above under the caption
Limitation on Asset Sales (including the
purchase of all Notes tendered), any repayment, repurchase,
redemption, defeasance or other acquisition or
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retirement for value of any Indebtedness of the Issuers or any
Subsidiary Guarantor that is contractually subordinated to the
Notes or to any Subsidiary Guaranty that is required to be
repurchased or redeemed pursuant to the terms thereof as a
result of such Asset Sale (or similarly defined term in such
other Indebtedness), at a purchase price not greater than 100%
of the outstanding principal amount or liquidation preference
thereof (plus accrued and unpaid interest and liquidated
damages, if any);
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(11)
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the payment of cash in lieu of the issuance of fractional shares
of Capital Stock upon exercise or conversion of securities
exercisable or convertible into Capital Stock of the
Parent; or
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(12)
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additional Restricted Payments in an aggregate amount not to
exceed $20 million;
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provided, however, that, except in the case of
clauses (1) and (3), no Default or Event of Default shall
have occurred and be continuing or occur as a direct consequence
of the actions or payments set forth therein.
The net amount of any Restricted Payment permitted pursuant to
the second paragraph of this covenant and clause (1) of the
immediately preceding paragraph shall be included in calculating
whether the conditions of clause (C) of the first paragraph
of this covenant have been met with respect to any subsequent
Restricted Payments. The net amount of any Restricted Payment
permitted pursuant to clauses (2) through (12) of the
immediately preceding paragraph shall be excluded in calculating
whether the conditions of clause (C) of the first paragraph
of this covenant have been met with respect to any subsequent
Restricted Payments. The amount of all Restricted Payments
(other than cash) shall be the fair market value on the date of
the Restricted Payment of the asset(s) or securities proposed to
be transferred or issued to or by the Parent or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted
Payment. In determining whether any Restricted Payment is
permitted by this covenant, the Parent and its Restricted
Subsidiaries may allocate all or any portion of such Restricted
Payment among the categories described in clauses (1)
through (12) of the immediately preceding paragraph or
among such categories and the types of Restricted Payments
described in the first paragraph of this covenant (including
categorization in whole or in part as a Permitted Investment);
provided that, at the time of such allocation, all such
Restricted Payments, or allocated portions thereof, would be
permitted under the various provisions of this covenant.
Limitation
on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Parent will not, and will not permit any of its Restricted
Subsidiaries to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to:
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pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted
Subsidiary owned by the Parent or any of its Restricted
Subsidiaries,
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pay any Indebtedness owed to the Parent or any other Restricted
Subsidiary,
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make loans or advances to the Parent or any other Restricted
Subsidiary, or
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transfer its property or assets to the Parent or any other
Restricted Subsidiary.
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The foregoing provisions shall not restrict any encumbrances or
restrictions:
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(1)
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existing under, by reason of or with respect to, the indenture,
the Notes, the Guaranties, the Credit Agreement, the Acquisition
Line, the Term Loan and any other agreement in effect on the
Issue Date as in effect on the Issue Date, and any amendments,
modifications, restatements, extensions, increases, supplements,
refundings, refinancing, renewals or replacements of such
agreements; provided, however, that the encumbrances and
restrictions in any such amendments,
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modifications, restatements, extensions, increases, supplements,
refundings, refinancing, renewals or replacements are not
materially less favorable, taken as a whole, to the holders of
the Notes than those in effect on the Issue Date;
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(2)
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existing under, by reason of or with respect to any other Credit
Facility of the Issuers permitted under the indenture;
provided, however, that the encumbrances and restrictions
contained in the agreement or agreements governing the other
Credit Facility are not materially less favorable, taken as a
whole, to the holders of the Notes than those contained in any
of the Credit Agreement, the Acquisition Line or the Term Loan
(with respect to other credit agreements) or the indenture (with
respect to other indentures), in each case as in effect on the
Issue Date;
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(3)
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existing under, by reason of or with respect to applicable law,
rule, regulation or administrative or court order;
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(4)
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existing with respect to any Person or the property or assets of
such Person acquired by the Parent or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are
not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such
Person so acquired and any amendments, modifications,
restatements, extensions, increases, supplements, refundings,
refinancing, renewals or replacements thereof; provided,
however, that the encumbrances and restrictions in any such
amendments, modifications, restatements, extensions, increases,
supplements, refundings, refinancing, renewals or replacements
are entered into in the ordinary course of business or not
materially less favorable, taken as a whole, to the holders of
the Notes than those contained in the instruments or agreements
with respect to such Person or its property or assets as in
effect on the date of such acquisition;
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(5)
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existing under, by reason of or with respect to provisions in
joint venture, operating or similar agreements to the extent
they are limited in application to the Restricted Subsidiary
party to such agreement;
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(6)
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in the case of the last bullet in the first paragraph of this
Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries covenant:
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that restrict in a customary manner the subletting, assignment
or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset,
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existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or
assets of the Parent or any Restricted Subsidiary not otherwise
prohibited by the indenture,
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existing under, by reason of or with respect to
(i) purchase money obligations for property acquired in the
ordinary course of business or (ii) capital leases or
operating leases that impose encumbrances or restrictions on the
property so acquired or covered thereby, or
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arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or
in the aggregate, detract from the value of property or assets
of the Parent or any Restricted Subsidiary in any manner
material to the Parent and its Restricted Subsidiaries taken as
a whole;
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(7)
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with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or
disposition of the Capital Stock of, or property and assets of,
such Restricted Subsidiary that restricts distributions by that
Restricted Subsidiary pending the closing of such sale or other
disposition;
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(8)
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existing under, by reason of or with respect to Indebtedness
permitted to be incurred pursuant to paragraph (4)(N) of the
covenant described under Limitation on
Indebtedness; provided, that the encumbrances and
restrictions contained in the agreements governing such
Indebtedness are not materially less favorable, taken as a
whole, to the holders of the Notes than those contained in the
agreements governing the Indebtedness being refinanced; and
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(9)
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contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if:
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the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial
covenant contained in such Indebtedness or agreement,
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the encumbrance or restriction is not materially less favorable,
taken as a whole, to the holders of the Notes than is customary
in comparable financings (as determined by the good faith
judgment of the Parent), and
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the Parent, in its good faith, determines that such an
encumbrance or restriction will not materially affect the
Issuers ability to make principal or interest payments on
the Notes.
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Nothing contained in this Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries
covenant shall prevent the Parent or any Restricted Subsidiary
from restricting the sale or other disposition of property or
assets of the Parent or any of its Restricted Subsidiaries that
secure Indebtedness of the Issuers or any of their Restricted
Subsidiaries. For purposes of determining compliance with this
covenant, (1) the priority of any Preferred Stock in
receiving dividends or liquidating distributions prior to
distributions being paid on common stock shall not be deemed a
restriction on the ability to make distributions on Capital
Stock, and (2) the subordination of loans or advances made
to a Restricted Subsidiary to other Indebtedness incurred by
such Restricted Subsidiary shall not be deemed a restriction on
the ability to make loans or advances.
Future
Guaranties by Restricted Subsidiaries
The Parent will not permit any Restricted Subsidiary of the
Issuers, directly or indirectly, to Guarantee any Indebtedness
of the Issuers or of a Subsidiary Guarantor (Guaranteed
Indebtedness), unless in either case such Restricted
Subsidiary within 30 calendar days executes and delivers a
supplemental indenture to the indenture providing for a
Subsidiary Guaranty by such Restricted Subsidiary;
provided, however, that this paragraph shall not
be applicable to any Guarantee of any Restricted Subsidiary that
existed at the time such Person became a Restricted Subsidiary
and was not Incurred in connection with, or in contemplation of,
such person becoming a Restricted Subsidiary. The Parent may
elect, in its sole discretion, to cause any Subsidiary that is
not otherwise required to be a Guarantor to become a Guarantor,
in which case such Subsidiary shall not be required to comply
with the 30 calendar day period described above.
If the Guaranteed Indebtedness:
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ranks equally with the Notes (or the applicable Subsidiary
Guaranty) in right of payment, then the Guarantee of such
Guaranteed Indebtedness shall rank equally with, or subordinate
to, the Subsidiary Guaranty issued pursuant to this covenant in
right of payment; or
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is subordinate in right of payment to the Notes (or the
applicable Subsidiary Guaranty), then the Guarantee of such
Guaranteed Indebtedness shall be subordinated in right of
payment to the Subsidiary Guaranty issued pursuant to this
covenant at least to the extent that the Guaranteed Indebtedness
is subordinated to the Notes (or the applicable Subsidiary
Guaranty).
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110
Any such Subsidiary Guaranty by a Restricted Subsidiary issued
pursuant to this covenant shall provide by its terms that it
shall be automatically and unconditionally released and
discharged:
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(1)
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upon any sale, exchange or transfer (including by way of merger
or consolidation), to any Person not a Subsidiary of the Parent,
of Capital Stock held by the Parent and its Restricted
Subsidiaries in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the indenture) such that, immediately after giving
effect to such transaction, such Restricted Subsidiary would no
longer constitute a Subsidiary of the Parent,
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(2)
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in connection with the merger or consolidation of such
Restricted Subsidiary with (a) an Issuer or (b) any
other Guarantor (provided that the surviving entity remains a
Guarantor),
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(3)
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if the Parent properly designates such Restricted Subsidiary as
an Unrestricted Subsidiary under the indenture,
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(4)
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upon the Legal Defeasance (as defined below) or Covenant
Defeasance (as defined below) or satisfaction and discharge of
the indenture,
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(5)
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upon a liquidation or dissolution of such Restricted Subsidiary
permitted under the indenture, or
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(6)
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upon the release or discharge of the Guarantee that resulted in
the creation of such Subsidiary Guaranty, except a discharge or
release by or as a result of payment under such Guarantee.
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Limitation
on Transactions with Affiliates
The Parent will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, renew or
extend any transaction (including the purchase, sale, lease or
exchange of property or assets, or the rendering of any service)
with any holder (or any Affiliate of such holder) of 10% or more
of any class of Capital Stock of the Parent or with any
Affiliate of the Parent or any of its Restricted Subsidiaries,
in each case involving consideration in excess of
$2.5 million, except upon terms that are not materially
less favorable, taken as a whole, to the Parent or such
Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a
written agreement, at the time of the execution of the agreement
providing therefor, in a comparable arms length
transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply to:
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(1)
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transactions (A) approved by a majority of the
disinterested directors of the Board of Directors of the Parent
or (B) for which the Parent or any Restricted Subsidiary
delivers to the trustee a written opinion of a nationally
recognized investment banking, appraisal or accounting firm
stating that the transaction is fair to the Parent or such
Restricted Subsidiary from a financial point of view;
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(2)
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any transaction solely between the Parent and any of its
Restricted Subsidiaries or solely between Restricted
Subsidiaries;
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(3)
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the payment of reasonable fees and compensation to, and
indemnification and similar arrangements on behalf of, current,
former or future directors of the Parent or any Restricted
Subsidiary;
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(4)
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the issuance or sale of Capital Stock (other than Disqualified
Stock) of the Parent;
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(5)
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any Restricted Payments not prohibited by the
Limitation on Restricted Payments covenant;
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(6)
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any contracts, instruments or other agreements or arrangements
in each case as in effect on the date of the indenture, and any
transactions pursuant thereto or contemplated thereby, or any
amendment, modification or supplemental thereto or any
replacement thereof entered into from time to time, as long as
such agreement or arrangements as so amended, modified,
supplemented or replaced, taken as a whole, is not materially
more disadvantageous to the Parent and the Restricted
Subsidiaries, taken as a whole, at the time executed than the
original agreement or arrangements as in effect on the date of
the indenture;
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(7)
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any employment, consulting, service or termination agreement, or
customary indemnification arrangements, entered into by the
Parent or any Restricted Subsidiary with current, former or
future officers and employees of the Parent or such Restricted
Subsidiary and the payment of compensation to officers and
employees of the Parent or any Restricted Subsidiary (including
amounts paid pursuant to employee benefit plans, employee stock
option or similar plans), in each case in the ordinary course of
business;
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(8)
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loans and advances to officers and employees of the Parent or
any Restricted Subsidiary or guarantees in respect thereof (or
cancellation of such loans, advances or guarantees), for bona
fide business purposes, including for reasonable moving and
relocation, entertainment and travel expenses and similar
expenses, made in the ordinary course of business and consistent
with past practice;
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(9)
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transactions with a Person that is an Affiliate of the Parent
solely because the Parent, directly or indirectly, owns Capital
Stock of, or controls such Person; or
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(10)
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any transaction with a Person who is not an Affiliate
immediately before the consummation of such transaction that
becomes an Affiliate as a result of such transaction.
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Notwithstanding the foregoing, any transaction or series of
related transactions covered by the first paragraph of this
Limitation on Transactions with Affiliates covenant
and not covered by (2) through (11) of the immediately
foregoing paragraph:
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the aggregate amount of which exceeds $10 million in value
must be approved or determined to be fair in the manner provided
for in clause (1)(A) or (B) above; and
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the aggregate amount of which exceeds $25 million in value,
must be determined to be fair in the manner provided for in
clause (1)(B) above.
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Limitation
on Asset Sales
The Parent will not, and will not permit any of its Restricted
Subsidiaries to, consummate any Asset Sale, unless:
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(1)
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the consideration received by the Parent or such Restricted
Subsidiary is at least equal to the fair market value of the
assets sold or disposed of; and
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(2)
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at least 75% of the consideration received consists of cash,
Temporary Cash Investments or Replacement Assets, or a
combination of cash, Temporary Cash Investments or Replacement
Assets; provided, however, that, with respect to the sale
of one or more properties up to 75% of the consideration may
consist of Indebtedness of the purchaser of such properties so
long as such Indebtedness is secured by a first priority Lien on
the property or properties sold.
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For purposes of this provision, each of the following shall be
deemed to be cash:
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(a)
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any liabilities of the Parent or any Restricted Subsidiary (as
shown on the most recent consolidated balance sheet of the
Parent and its Restricted Subsidiaries other than contingent
liabilities and liabilities that are by their terms subordinated
to the Notes or any Guaranty) that are assumed by the transferee
of any such assets pursuant to an agreement that releases the
Parent or any such Restricted Subsidiary from further liability
with respect to such liabilities or that are assumed by contract
or operation of law;
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(b)
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any securities, notes or other obligations received by the
Issuers or any such Restricted Subsidiary from such transferee
that are converted by the Issuers or such Restricted Subsidiary
into cash or Temporary Cash Investments within 180 days (to
the extent of the cash or Temporary Cash Investments received in
that conversion); and
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(c)
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any Designated Non-Cash Consideration received by the Issuers or
any such Restricted Subsidiary in such Asset Sale having an
aggregate fair market value, taken together with all other
Designated Non-Cash Consideration received pursuant to this
clause (c) that is at the time outstanding, not to exceed
the greater of (x) $20 million and (y) 2.0% of
the Parents Adjusted Total Assets at the time of the
receipt of such Designated Non-Cash Consideration, with the fair
market value of each item of Designated Non-Cash Consideration
being measured at the time received and without giving effect to
subsequent changes in value.
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Within 365 days after the receipt of any Net Cash Proceeds
from an Asset Sale, the Parent or any such Restricted Subsidiary
may apply such Net Cash Proceeds to:
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(1)
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prepay, repay, redeem or purchase Pari Passu Indebtedness of the
Issuer or a Subsidiary Guarantor that is Secured Indebtedness
(in each case other than Indebtedness owed to the Parent or an
Affiliate of the Parent);
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(2)
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make an Investment in (provided such Investment is in the form
of Capital Stock), or to acquire all or substantially all of the
assets of, a Person engaged in a Permitted Business if, in the
case of an Investment, such Person is, or will become as a
result thereof, a Restricted Subsidiary;
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(3)
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prepay, repay, redeem or purchase Pari Passu Indebtedness of the
Issuer or of any Subsidiary Guarantor or any Indebtedness of a
Restricted Subsidiary that is not a Subsidiary Guarantor;
provided, however, that if the Parent, the Issuers or a
Subsidiary Guarantor shall so prepay, repay, redeem or purchase
any such Pari Passu Indebtedness, the Issuers will equally and
ratably reduce obligations under the Notes if the Notes are then
prepayable or, if the Notes may not then be prepaid, the Issuers
shall make an offer (in accordance with the procedures set forth
below) with the ratable proceeds to all holders to purchase
their Notes at 100% of the principal amount thereof, plus
accrued but unpaid interest, if any, thereon, up to the
principal amount of Notes that would otherwise be prepaid;
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(4)
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fund all or a portion of an optional redemption of the Notes as
described under Optional Redemption;
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(5)
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make one or more capital expenditures;
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(6)
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acquire Replacement Assets to be used or that are useful in a
Permitted Business; or
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(7)
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undertake any combination of the foregoing;
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113
provided, that the Parent will be deemed to have complied
with the provisions described in clauses (2), (5) and
(6) of this paragraph if and to the extent that, within
365 days after the Asset Sale that generated the Net Cash
Proceeds, the Parent or any of its Restricted Subsidiaries has
entered into and not abandoned or rejected a binding agreement
to acquire the assets or Capital Stock of a Permitted Business,
make a capital expenditure or acquire Replacement Assets in
compliance with the provisions described in clauses (2),
(5) and (6) of this paragraph, and that acquisition,
purchase or capital expenditure is thereafter completed within
180 days after the end of such
365-day
period. Pending the final application of any such excess Net
Cash Proceeds, the Parent may temporarily reduce the revolving
Indebtedness under any Credit Facility or otherwise invest such
excess Net Cash Proceeds in any manner that is not prohibited by
the indenture. The amount of such excess Net Cash Proceeds
required to be applied (or to be committed to be applied) during
such 365 day period as set forth in this paragraph and not
so applied by the end of such period shall constitute
Excess Proceeds.
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not previously subject to an Offer to
Purchase pursuant to this Limitation on Asset Sales
covenant totals at least $15 million, the Issuers shall
commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the holders of
the Notes and, to the extent required by the terms of any Pari
Passu Indebtedness, to all holders of such Pari Passu
Indebtedness on a pro rata basis an aggregate principal
amount of Notes (and Pari Passu Indebtedness) equal to the
Excess Proceeds on such date, at a purchase price equal to 100%
of the principal amount of the Notes (and Pari Passu
Indebtedness), plus, in each case, accrued and unpaid interest
(if any) to the Payment Date. If any Excess Proceeds remain
after consummation of an Offer to Purchase, the Parent may use
such Excess Proceeds for any purpose not prohibited by the
indenture. If the aggregate purchase price of the Notes and the
other Pari Passu Indebtedness tendered into such Offer to
Purchase exceeds the amount of Excess Proceeds, the Parent shall
select the Notes to be purchased on a pro rata basis but in
round denominations, which in the case of the Notes will be
denominations of $2,000 initial principal amount and multiples
of $1,000 thereafter. Upon completion of each Offer to Purchase,
the amount of Excess Proceeds shall be reset at zero. The Parent
may satisfy the foregoing obligation with respect to any Net
Cash Proceeds prior to the expiration of the relevant
365 day period (as such period may be extended in
accordance with the indenture). Nothing in this paragraph shall
preclude the Issuers from making an Offer to Purchase even if
the amount of Excess Proceeds not previously subject to an Offer
to Purchase pursuant to this Limitation on Asset
Sales covenant totals less than $15 million.
Prohibition
on Incurrence of Senior Debt by the Subordinated Guaranty
Subsidiaries
The Subordinated Guaranty Subsidiaries will not incur or suffer
to exist any Indebtedness that is senior in right of payment to
the applicable Subordinated Guaranty Subsidiarys guarantee
other than the Acquisition Line and the Term Loan (or any
Permitted Refinancing Indebtedness incurred in exchange for, or
the net proceeds of which are used to refund, refinance or
replace, the Acquisition Line or Term Loan and that was
otherwise permitted by the indenture) and any secured Currency
Agreements and Interest Rate Agreements provided to the lenders
under the Acquisition Line and the Term Loan.
Consolidation,
Merger and Sale of Assets
The Parent will not consolidate with or merge with or into, or
sell, convey, transfer or otherwise dispose of all or
substantially all of its and its Restricted Subsidiaries
(taken as a whole) property and assets (as an entirety or
substantially an entirety in one transaction or a series of
related transactions) to, any Person or permit any Person to
merge with or into the Parent unless:
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(1)
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the Parent shall be the continuing Person, or the Person (if
other than the Parent) formed by such consolidation or into
which the Parent is merged or that acquired such property and
assets of the Parent shall be a corporation, limited liability
company, partnership (including a limited partnership) or trust
organized and validly existing under the laws of the United
States of America or any state or jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and
delivered to the trustee, all of the obligations of the Parent
on its
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114
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Guaranty and under the indenture (provided that in the case of a
limited liability company, partnership (including a limited
partnership) or trust, there shall also be a corporation
organized and validly existing under the laws of the United
States of America or any state or jurisdiction thereof which
shall expressly jointly with such limited liability company,
partnership (including a limited partnership) or trust, assume,
by a supplemental indenture, executed and delivered to the
trustee, all of the obligations of the Parent on its Guaranty
and under the indenture);
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(2)
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immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
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(3)
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immediately after giving effect to such transaction and any
related financing transactions as if the same had occurred at
the beginning of the applicable four-quarter period, on a pro
forma basis the Issuers, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur
at least $1.00 of Indebtedness in compliance with both
paragraphs (1) and (3) of the Limitation
on Indebtedness covenant; provided, however, that
this clause (3) shall not apply to a consolidation or
merger with or into a Wholly Owned Restricted
Subsidiary; and
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(4)
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the Parent delivers to the trustee an officers certificate
(attaching the arithmetic computations to demonstrate compliance
with clause (3) above) and an opinion of counsel, in each
case stating that such consolidation, merger or transfer and
such supplemental indenture complies with this covenant and that
all conditions precedent provided for herein relating to such
transaction have been complied with and, with respect to the
opinion of counsel, that the supplemental indenture constitutes
a valid and binding obligation enforceable against the Parent,
or the Person (if other than the Parent) formed by such
consolidation or into which the Parent is merged or that
acquired all or substantially all of the Parents and its
Restricted Subsidiaries property and assets;
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provided, however, that clause (3) above does
not apply if, in the good faith determination of the Board of
Directors of the Parent, whose determination shall be evidenced
by a Board Resolution, the principal purpose of such transaction
is to change the state of domicile of the Parent; provided
further, however, that any such transaction shall not
have as one of its purposes the evasion of the foregoing
limitations.
The Parent will not permit the Issuers or any Subsidiary
Guarantor to consolidate with or merge with or into, or convey
or transfer, in one transaction or a series of transactions, all
or substantially all of its assets to any Person unless:
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(1)
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the resulting, surviving or transferee Person (if not such
Issuer or such Subsidiary) shall be a Person organized and
existing under the laws of the jurisdiction under which such
Issuer or Subsidiary was organized or under the laws of the
United States of America or any state or jurisdiction thereof,
and such Person shall expressly assume, by a supplemental
indenture, all the obligations of such Issuer or Subsidiary
Guarantor, as applicable, under the Notes or its Subsidiary
Guaranty, as applicable; provided, however, that the
foregoing requirement will not apply in the case of a Subsidiary
Guarantor or all or substantially all of its assets
(x) that has been disposed of in its entirety to another
Person (other than to the Parent or an Affiliate of the Parent),
whether through a merger, consolidation or sale of Capital Stock
or assets or (y) that, as a result of the disposition of
all or a portion of its Capital Stock, ceases to be a
Subsidiary, so long as, in both cases, in connection therewith
the Parent provides an Officers Certificate to the trustee
to the effect that the Parent will comply with its obligations
under the covenant described under Limitation on
Asset Sales;
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(2)
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immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting,
surviving or transferee Person as a result of such transaction
as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be
continuing; and
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115
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(3)
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the Parent delivers to the trustee an officers certificate
and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture, if any,
complies with the indenture and, with respect to the opinion of
counsel, that the supplemental indenture constitutes a valid and
binding obligation enforceable against the Issuers, the
Subsidiary Guarantors, the Parent and the surviving Persons.
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Notwithstanding the foregoing, any Subsidiary Guarantor may
(i) merge with an Affiliate of the Parent or an Affiliate
of the Parent or a Restricted Subsidiary of the Parent or
another Subsidiary Guarantor solely for the purpose of changing
the state of domicile of the Subsidiary Guarantor,
(ii) merge with or into or transfer all or part of its
properties and assets to another Subsidiary Guarantor, the
Issuers or the Parent (provided that this clause (ii) shall
not permit a Senior Guaranty Subsidiary to merge with or into or
transfer all or part of its properties and assets to any
Subordinated Guaranty Subsidiary), or (iii) convert into a
corporation, partnership, limited partnership, limited liability
company or trust organized under the laws of the jurisdiction of
organization of such Subsidiary Guarantor.
Repurchase
of Notes upon a Change of Control
The Issuers shall commence, within 30 days of the
occurrence of a Change of Control, and consummate an Offer to
Purchase for all Notes then outstanding, at a purchase price
equal to 101% of the principal amount of the Notes, plus accrued
and unpaid interest (if any) to the Payment Date.
There can be no assurance that the Issuers will have sufficient
funds available at the time of any Change of Control to make any
debt payment (including repurchases of Notes) required by the
foregoing covenant (as well as any covenant that may be
contained in other securities of the Issuers that might be
outstanding at the time). The above covenant requiring the
Issuers to repurchase the Notes will, unless consents are
obtained, require the Issuers to repay all indebtedness then
outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note
repurchase.
The Issuers will not be required to make an Offer to Purchase
upon a Change of Control if a third party makes the Offer to
Purchase in the manner, at the times and otherwise in compliance
with the requirements set forth in the indenture applicable to a
Offer to Purchase made by the Issuers and purchases all Notes
validly tendered and not withdrawn under such Offer to Purchase
or if notice of redemption has been given pursuant to
Optional Redemption above. Notwithstanding anything
to the contrary contained herein, an Offer to Purchase may be
made in advance of a Change of Control, subject to one or more
conditions precedent, including but not limited to the
consummation of such Change of Control, if a definitive
agreement is in place for the Change of Control at the time the
Offer to Purchase is made.
The Change of Control purchase feature of the Notes may in
certain circumstances make more difficult or discourage a sale
or takeover of the Parent and, thus, the removal of incumbent
management. The Change of Control purchase feature is a result
of negotiations between the Initial Purchasers and the Parent.
As of the Issue Date, we have no present intention to engage in
a transaction involving a Change of Control, although it is
possible that we could decide to do so in the future. Subject to
the limitations discussed below, we could, in the future, enter
into certain transactions, including acquisitions, refinancings
or other recapitalizations, that would not constitute a Change
of Control under the indenture, but that could increase the
amount of indebtedness outstanding at such time or otherwise
affect our capital structure or credit ratings. Restrictions on
our ability to incur additional Indebtedness are contained in
the covenant described under
CovenantsLimitations on Indebtedness.
Such restrictions in the indenture can be waived only with the
consent of the holders of a majority in principal amount of the
Notes then outstanding. Except for the limitations contained in
such covenants, however, the indenture does not contain any
covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
The Term Loan, the Acquisition Line and the Credit Agreement
provide that the occurrence of certain change of control events
with respect to the Parent would constitute a default
thereunder. Future credit
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agreements that the Parent enters into may contain similar
provisions. Such defaults could result in amounts outstanding
under the Term Loan, the Acquisition Line and the Credit
Agreement and such other agreements being declared immediately
due and payable or lending commitments being terminated.
The definition of Change of Control includes a phrase relating
to the sale, exchange or other transfer of all or
substantially all of the properties or assets of the
Parent and its Subsidiaries, taken as a whole. Although there is
a limited body of case law interpreting the phrase
substantially all, there is no precise established
definition of the phrase under applicable law. Accordingly, the
ability of a holder of Notes to require the Issuers to
repurchase such Notes as a result of a sale, exchange or other
transfer of less than all of the assets of the Parent and its
Subsidiaries taken as a whole to another Person or group may be
uncertain. Because the Parent and its Subsidiaries are in the
business of leasing their assets, the lease of all or
substantially all of the assets of the Parent and its
Subsidiaries would not constitute a Change of Control.
A Change of Control would be triggered at such time as the
majority of the members of the Board of Directors of the Parent
no longer include individuals who constitute the Board of
Directors of the Parent on the Issue Date (together with any new
or replacement directors whose election or nomination was
approved by a vote of at least a majority of the members of the
Board of Directors then in office who were members on the Issue
Date or whose election or nomination was so approved or whose
election was made in accordance with any voting agreement to
which Parent is then a party). You should note, however, that
recent case law suggests that, in the event that incumbent
directors are replaced as a result of a contested election, the
Parent may nevertheless avoid triggering a Change of Control
under a clause similar to the provision described in the prior
sentence if the outgoing directors were to approve the new
directors for the purpose of such Change of Control clause.
The provisions under the indenture relative to the Issuers
obligation to make an offer to repurchase the Notes as a result
of a Change of Control may be waived or modified with the
written consent of the holders of a majority in principal amount
of the Notes.
The Issuers will comply, to the extent applicable, with the
requirements of Section 14(e) of, and Rule 14e-1 under, the
Exchange Act and any other securities laws and regulations in
connection with the repurchase of the Notes as a result of a
Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of
Control provisions of the indenture, the Issuers will comply
with the applicable securities laws and regulations and will not
be deemed to have breached their obligations under the Change of
Control provisions of the indenture by virtue of such compliance.
SEC
Reports and Reports to Holders
Whether or not the Parent is then required to file reports with
the SEC, the Parent shall file with the SEC all such reports and
other information as it would be required to file with the SEC
by Sections 13(a) or 15(d) under the Exchange Act if it was
subject thereto; provided, however, that, if
filing such documents by the Parent with the SEC is not
permitted under the Exchange Act, the Parent shall, within
15 days after the time the Parent would be required to file
such information with the SEC if it were subject to
Section 13 or 15(d) under the Exchange Act, provide such
documents and reports to the trustee and upon written request
supply copies of such documents and reports to any holder and
shall post such documents and reports on the Parents
public website. The Parent shall supply the trustee and each
holder, without cost to such holder, copies of such reports and
other information.
Notwithstanding the foregoing, such requirements to file such
reports shall be deemed satisfied either (1) prior to the
report required for the fiscal quarter ending June 30, 2011
by providing the financial information (including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations section) that would be
required by such reports to the trustee and upon written request
supplying copies of such information to any holder and posting
such information on the Parents public website or
(2) prior to and including the report required for the
fiscal quarter ending June 30, 2011 to the extent the
117
information required by such reports is contained in the
exchange offer registration statement or shelf registration
statement required by the registration rights agreement then on
file with the SEC, including any amendments thereto.
So long as permitted by the SEC, at any time that either
(x) one or more Subsidiaries of the Parent is an
Unrestricted Subsidiary or (y) the Parent holds directly
any material assets (including Capital Stock) other than the
Capital Stock of the Issuers and, in either case, such
Unrestricted Subsidiary or other assets taken together would
represent 5% or more of the Total Assets of the Parent and its
Subsidiaries as of the latest quarterly financial statements,
then the quarterly and annual financial information required by
this covenant will include a reasonably detailed presentation,
either in Managements Discussion and Analysis of
Financial Condition and Results of Operations or any other
comparable section, of the financial condition and results of
operations of the Issuers and their Restricted Subsidiaries
separate from the financial condition and results of operations
of such Unrestricted Subsidiaries and other material assets of
the Parent.
Beginning with the results and information for the fiscal
quarter ending June 30, 2011, the Parent shall also, within
a reasonably prompt period of time following the disclosure of
the annual and quarterly information required above, conduct a
conference call with respect to such information and results of
operations for the relevant reporting period. No fewer than
three Business Days prior to (i) the disclosure of the
annual, quarterly and periodic information required above and
(ii) the date of the conference call required to be held in
accordance with the preceding sentence, the Parent shall issue a
press release to the appropriate internationally recognized wire
services announcing the date that such information will be
available and the time and date of such conference call.
Notwithstanding anything herein to the contrary, the Parent will
not be deemed to have failed to comply with any of its
obligations under this covenant for purposes of clause (4)
under Events of Default until 30 days after the
date any report hereunder is due.
Events of
Default
Events of Default under the indenture include the following:
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(1)
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default in the payment of principal of, or premium, if any, on
any Note when they are due and payable at maturity, upon
acceleration, redemption or otherwise;
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(2)
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default in the payment of interest on any Note when they are due
and payable, and such default continues for a period of
30 days;
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(3)
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default in the performance or breach of the provisions of the
indenture applicable to mergers, consolidations and transfers of
all or substantially all of the assets of the Parent or the
failure by the Issuers to consummate an Offer to Purchase in
accordance with the CovenantsLimitations on
Asset Sales or Repurchase of Notes upon a
Change of Control covenants;
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(4)
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the Parent defaults in the performance of or breaches any other
covenant or agreement of the Parent in the indenture or under
the Notes (other than a default specified in clause (1),
(2) or (3) above) and such default or breach continues
for 60 consecutive days after written notice by the trustee or
the holders of 25% or more in aggregate principal amount of the
Notes;
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(5)
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there occurs with respect to any issue or issues of Indebtedness
of the Parent or any Significant Subsidiary having an
outstanding principal amount of $20 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created,
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118
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an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration, and/or
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the failure to make a principal payment at the final (but not
any interim) fixed maturity and such defaulted payment shall not
have been made, waived or extended within 30 days of such
payment default;
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(6)
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any final and non-appealable judgment or order (not covered by
insurance) for the payment of money in excess of
$20 million in the aggregate for all such final judgments
or orders against all such Persons (treating any deductibles,
self-insurance or retention as not covered by insurance):
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shall be rendered against the Parent or any Significant
Subsidiary and shall not be paid or discharged, and
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there shall be any period of 60 consecutive days following entry
of the final judgment or order that causes the aggregate amount
for all such final judgments or orders outstanding and not paid
or discharged against all such Persons to exceed
$20 million during which a stay of enforcement of such
final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
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(7)
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a court of competent jurisdiction enters a decree or order for:
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relief in respect of the Parent or any Significant Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect,
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appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Parent or any
Significant Subsidiary or for all or substantially all of the
property and assets of the Parent or any Significant
Subsidiary, or
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the winding up or liquidation of the affairs of the Parent or
any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60
consecutive days; or
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(8)
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the Parent or any Significant Subsidiary:
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commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary
case under such law,
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consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of the Parent or such Significant Subsidiary
or for all or substantially all of the property and assets of
the Parent or such Significant Subsidiary, or
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effects any general assignment for the benefit of its creditors.
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If an Event of Default (other than an Event of Default specified
in clause (7) or (8) above that occurs with respect to
the Parent or the Issuers) occurs and is continuing under the
indenture, the trustee or the holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by
written notice to the Issuers (and to the trustee if such notice
is given by the holders), may, and the trustee at the request of
the holders of at least 25% in aggregate principal amount of the
Notes then outstanding shall, declare the principal
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of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration,
such principal of, premium, if any, and accrued interest shall
be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in
clause (5) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and
annulled if the event of default triggering such Event of
Default pursuant to clause (5) shall be remedied or cured
by the Parent or the relevant Significant Subsidiary or waived
by the holders of the relevant Indebtedness within 60 days
after the declaration of acceleration with respect thereto.
If an Event of Default specified in clause (7) or
(8) above occurs with respect to the Parent or the Issuers,
the principal of, premium, if any, and accrued interest on the
Notes then outstanding shall automatically become and be
immediately due and payable without any declaration or other act
on the part of the trustee or any holder. The holders of at
least a majority in principal amount of the outstanding Notes by
written notice to the Issuers and to the trustee, may waive all
past defaults and rescind and annul a declaration of
acceleration and its consequences if:
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all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the Notes that
have become due solely by such declaration of acceleration, have
been cured or waived, and
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the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction.
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As to the waiver of defaults, see Modification and
Waiver.
The holders of at least a majority in aggregate principal amount
of the outstanding Notes may direct the time, method and place
of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred on the
trustee. However, the trustee may refuse to follow any direction
that conflicts with law or the indenture, that may involve the
trustee in personal liability, or that the trustee determines in
good faith may be unduly prejudicial to the rights of holders of
Notes not joining in the giving of such direction and may take
any other action it deems proper that is not inconsistent with
any such direction received from holders of Notes. A holder may
not pursue any remedy with respect to the indenture or the Notes
unless:
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(1)
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the holder gives the trustee written notice of a continuing
Event of Default;
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(2)
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the holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the trustee to
pursue the remedy;
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(3)
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such holder or holders offer the trustee indemnity satisfactory
to the trustee against any costs, liability or expense;
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(4)
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the trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
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(5)
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during such
60-day
period, the holders of a majority in aggregate principal amount
of the outstanding Notes do not give the trustee a direction
that is inconsistent with the request.
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However, such limitations do not apply to the right of any
holder of a Note to receive payment of the principal of,
premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment on or after the due date
expressed in the Notes, which right shall not be impaired or
affected without the consent of the holder.
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The indenture requires certain officers of the Parent to
certify, on or before a date not more than 120 days after
the end of each fiscal year, that a review has been conducted of
the activities of the Parent and its Restricted Subsidiaries and
of its performance under the indenture and that the Parent has
fulfilled all obligations thereunder, or, if there has been a
default in fulfillment of any such obligation, specifying each
such default and the nature and status thereof. The Parent will
also be obligated to notify the trustee of any default or
defaults in the performance of any covenants or agreements under
the indenture within 30 days of becoming aware of any such
default unless such default has been cured before the end of the
30 day period.
Defeasance
The Issuers may, at their option and at any time, elect to have
their obligations and the obligations of the Guarantors
discharged with respect to the outstanding Notes (Legal
Defeasance) and cure all then existing Events of
Default. Legal Defeasance means that the Issuers and the
Guarantors shall be deemed to have paid and discharged the
entire indebtedness represented by the Notes and the Guaranties,
and the indenture shall cease to be of further effect as to all
outstanding Notes and Guaranties, except as to
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(1)
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rights of holders to receive payments in respect of the
principal of and interest on the Notes when such payments are
due from the trust funds referred to below,
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(2)
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the Issuers obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance
of an office or agency for payment and money for security
payments held in trust,
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(3)
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the rights, powers, trust, duties, and immunities of the
trustee, and the Issuers obligations in connection
therewith, and
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(4)
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the Legal Defeasance provisions of the indenture.
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In addition, the Issuers may, at their option and at any time,
elect to have their obligations and the obligations of the
Guarantors released with respect to most of the covenants under
the indenture, except as described otherwise in the indenture
(Covenant Defeasance), and thereafter any
omission to comply with such obligations shall not constitute a
Default. In the event Covenant Defeasance occurs, certain Events
of Default (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) will no longer apply. The
Issuers may exercise their Legal Defeasance option regardless of
whether they previously exercised Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
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(1)
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the Issuers must irrevocably deposit with the trustee, in trust,
for the benefit of the holders, U.S. legal tender,
U.S. Government Obligations or a combination thereof, in
such amounts as will be sufficient (without reinvestment) in the
opinion of a nationally recognized firm of independent public
accountants selected by the Issuers, to pay the principal of and
interest on the Notes on the stated date for payment or on the
redemption date of the Notes,
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(2)
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in the case of Legal Defeasance, the Issuers shall have
delivered to the trustee an opinion of counsel in the United
States confirming that:
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(a)
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the Issuers have received from, or there has been published by
the Internal Revenue Service, a ruling, or
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(b)
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since the date of the indenture, there has been a change in the
applicable U.S. federal income tax law,
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121
in either case to the effect that, and based thereon this
opinion of counsel shall confirm that, the holders will not
recognize income, gain or loss for U.S. federal income tax
purposes as a result of the Legal Defeasance and will be subject
to U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Legal Defeasance had not occurred,
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(3)
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in the case of Covenant Defeasance, the Issuers shall have
delivered to the trustee an opinion of counsel in the United
States reasonably acceptable to the trustee confirming that the
holders will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if the Covenant
Defeasance had not occurred,
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(4)
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no Default shall have occurred and be continuing on the date of
such deposit (other than a Default resulting from the borrowing
of funds to be applied to such deposit and any similar and
simultaneous deposit relating to other Indebtedness and, in each
case, the granting of Liens on the funds deposited in connection
therewith),
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(5)
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the Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any
other material agreement or instrument (other than the
indenture) to which the Parent or any of its Subsidiaries is a
party or by which the Parent or any of its Subsidiaries is bound
(other than any such Default or default relating to any
Indebtedness being defeased from any borrowing of funds to be
applied to such deposit and any similar and simultaneous deposit
relating to such Indebtedness, and the granting of Liens on the
funds deposited in connection therewith),
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(6)
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the Issuers shall have delivered to the trustee an
officers certificate stating that the deposit was not made
by them with the intent of preferring the holders over any other
creditors of the Issuers or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the
Issuers or others, and
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(7)
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the Issuers shall have delivered to the trustee an
officers certificate and an opinion of counsel, each
stating that the conditions provided for in, in the case of the
officers certificate, clauses (1) through
(6) and, in the case of the opinion of counsel,
clauses (2) and/or (3) and (5) of this paragraph
have been complied with.
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Satisfaction
and Discharge
The indenture will be discharged and will cease to be of further
effect (except as to surviving rights or registration of
transfer or exchange of the Notes, as expressly provided for in
the indenture) as to all outstanding Notes when
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(a)
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all the Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid
and Notes for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Issuers and
thereafter repaid to the Issuers or discharged from such trust)
have been delivered to the trustee for cancellation; or
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(b)
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all Notes not theretofore delivered to the trustee for
cancellation (1) have become due and payable or
(2) will become due and payable within one year, or are to
be called for redemption within one year, under arrangements
reasonably satisfactory to the trustee for the giving of notice
of redemption by the trustee in the name, and at the expense, of
the Issuers, and the Issuers have irrevocably deposited or
caused to be deposited with the trustee funds in
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an amount sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the
trustee for cancellation, for principal of, premium, if any, and
interest on the Notes to the date of maturity or redemption, as
the case may be, together with irrevocable instructions from the
Issuers directing the trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be;
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(2)
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the Issuers have paid all other sums payable under the indenture
by the Parent or the Issuers; and
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(3)
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the Issuers have delivered to the trustee an officers
certificate and an opinion of counsel stating that all
conditions precedent under the indenture relating to the
satisfaction and discharge of the indenture have been complied
with.
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Modification
and Waiver
Subject to certain limited exceptions, modifications and
amendments of the indenture may be made by the Issuers and the
trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or
amendment may, without the consent of each holder affected
thereby:
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(1)
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change the Stated Maturity of the principal of, or any
installment of interest on, any Note,
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(2)
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reduce the principal amount of, or premium, if any, or interest
on, any Note,
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(3)
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change the place of payment of principal of, or premium, if any,
or interest on, any Note,
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(4)
|
impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note,
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(5)
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reduce the above-stated percentage of outstanding Notes the
consent of whose holders is necessary to modify or amend the
indenture,
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(6)
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waive a default in the payment of principal of, premium, if any,
or interest on the Notes (except a rescission of the declaration
of acceleration of the Notes by the holders of at least a
majority in aggregate principal amount of the Notes then
outstanding and a waiver of the payment default that resulted
from such acceleration, so long as all other existing Events of
Default, other than the nonpayment of the principal of, premium,
if any, and interest on the Notes that have become due solely by
such declaration of acceleration, have been cured or waived),
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(7)
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voluntarily release a Guarantor of the Notes, except as
permitted by the indenture,
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(8)
|
reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose holders is necessary for
waiver of compliance with certain provisions of the indenture or
for waiver of certain defaults, or
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(9)
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modify or change any provisions of the indenture affecting the
ranking of the Notes or the Guaranties as to right of payment or
in any manner adverse to the holders of the Notes in any
material.
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Notwithstanding the preceding, without the consent of any
holder, the Parent, the Issuers, the Subsidiary Guarantors and
the trustee may amend the indenture:
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(1)
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to cure any ambiguity, omission, defect or inconsistency;
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123
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(2)
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to provide for the assumption by a successor corporation or
other entity of the obligations of the Parent, the Issuers or
any Subsidiary Guarantor under the indenture;
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(3)
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to provide for uncertificated Notes in addition to or in place
of certificated Notes;
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(4)
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to add guaranties with respect to the Notes, including any
Subsidiary Guaranties, or to secure the Notes;
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(5)
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to add to the covenants of the Parent, the Issuers or a
Subsidiary Guarantor for the benefit of the holders or to
surrender any right or power conferred upon the Parent, the
Issuers or a Subsidiary Guarantor;
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(6)
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to make any change that does not adversely affect the rights of
any Holder in any material respect;
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(7)
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to comply with any requirement of the SEC in order to effect or
maintain the qualification of the indenture under the
Trust Indenture Act;
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(8)
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to make any amendment to the provisions of the indenture
relating to the transfer and legending of Notes; provided,
however, that (a) compliance with the indenture as so
amended would not result in Notes being transferred in violation
of the Securities Act or any other applicable securities law and
(b) such amendment does not materially and adversely affect
the rights of holders to transfer Notes;
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(9)
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to conform the text of the indenture or the Guaranties or the
Notes to any provision of the Description of Notes
section of the offering memoranda relating to the Old Notes to
the extent that such provision in the Description of
Notes section of the offering memoranda relating to the
Old Notes was intended to be a substantially verbatim recitation
of a provision of the indenture, the Guaranties or the Notes;
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(10)
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to evidence and provide for the acceptance of appointment by a
successor trustee, provided that the successor trustee is
otherwise qualified and eligible to act as such under the terms
of the indenture;
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(11)
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to release a Subsidiary Guarantor from its Subsidiary Guaranty
as permitted by and in accordance with the indenture;
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(12)
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to provide for a reduction in the minimum denominations of the
Notes;
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(13)
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to comply with the rules of any applicable securities
depositary; or
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(14)
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to provide for the issuance of additional notes and related
guarantees in accordance with the limitations set forth in the
indenture.
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The consent of the holders is not necessary under the indenture
to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the
proposed amendment.
After an amendment under the indenture becomes effective, the
Parent is required to mail to holders a notice briefly
describing such amendment. However, the failure to give such
notice to all holders, or any defect therein, will not impair or
affect the validity of the amendment.
Neither the Parent nor any Affiliate of the Parent may, directly
or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder for
or as an inducement to any
124
consent, waiver or amendment of any of the terms or provisions
of the indenture or the Notes unless such consideration is
offered to all holders and is paid to all holders that so
consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or
agreement.
No
Personal Liability of Incorporators, Stockholders, Officers,
Directors, or Employees
The indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the Notes
or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or
agreement of the Parent, the Issuers or the Guarantors in the
indenture, or in any of the Notes or Guarantees or because of
the creation of any Indebtedness represented thereby, shall be
had against any incorporator, stockholder, officer, director,
employee or controlling person of the Parent, the Issuers or the
Subsidiary Guarantors or of any successor Person thereof. Each
holder, by accepting the Notes, waives and releases all such
liability.
Concerning
the Trustee
The indenture provides that, except during the continuance of a
Default, the trustee will not be liable, except for the
performance of such duties as are specifically set forth in the
indenture. If an Event of Default has occurred and is
continuing, the trustee will use the same degree of care and
skill in its exercise of the rights and powers vested in it
under the indenture as a prudent person would exercise under the
circumstances in the conduct of such persons own affairs.
The trustee shall be under no obligation to exercise any of the
rights or powers vested in it by the indenture at the request or
direction of any of the holders pursuant to the indenture,
unless such holders shall have offered to the trustee security
or indemnity satisfactory to the trustee against the costs,
expenses and liabilities which might be incurred by it in
compliance with such request or direction.
The indenture and provisions of the Trust Indenture Act of
1939 incorporated by reference into the indenture contain
limitations on the rights of the trustee, should it become a
creditor of the Parent or the Issuers, to obtain payment of
claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or
otherwise. The trustee is permitted to engage in other
transactions; provided, however, that if it
acquires any conflicting interest, it must eliminate such
conflict or resign.
Certain
Definitions
Set forth below are definitions of certain terms contained in
the indenture that are used in this Description of Exchange
Notes. Please refer to the indenture for the definition of other
capitalized terms used in this Description of Exchange Notes
that are not defined below.
Acquired Indebtedness means Indebtedness of a
Person existing at the time such Person becomes a Restricted
Subsidiary or that is assumed in connection with an Asset
Acquisition from such Person by a Restricted Subsidiary and not
incurred by such Person in connection with, or in anticipation
of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition; provided, however, that Indebtedness of such
Person that is redeemed, defeased, retired or otherwise repaid
at the time of or immediately upon consummation of the
transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
Acquisition Line means the $100 million
revolving credit line under a credit agreement dated as of
September 17, 2010, among Aviv Financing I, L.L.C., as
the parent borrower, the other borrowers named therein, General
Electric Capital Corporation, as administrative agent and a
lender, and the other lenders named therein.
125
Adjusted Consolidated EBITDA means, for any
period, Adjusted Consolidated Net Income for such period
plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income (without
duplication):
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(1)
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Consolidated Interest Expense;
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(2)
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provision for taxes based on income or profits or capital gains,
including federal, state, provincial, franchise, excise and
similar taxes and foreign withholding taxes;
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(3)
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depreciation and amortization (including amortization or
impairment write-offs of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid
in a prior period);
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(4)
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the amount of integration costs deducted (and not added back) in
such period in computing Adjusted Consolidated Net Income,
including any one-time direct transaction or restructuring costs
incurred in connection with acquisitions, not to exceed for any
period 10% of Adjusted Consolidated EBITDA (calculated on a pro
forma basis for any relevant transaction giving rise to the
calculation of Adjusted Consolidated EBITDA but before giving
effect to the costs described in this clause (4));
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(5)
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proceeds from any business interruption insurance;
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(6)
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any non-cash compensation expense attributable to grants of
stock options, restricted stock or similar rights to officers,
directors and employees of the Parent and any of its
Subsidiaries;
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(7)
|
all extraordinary or non-recurring non-cash gain or loss or
expense, together with any related provision for taxes; and
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(8)
|
all other non-cash items (other than deferred rental loss)
reducing Adjusted Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve
is, or is required by GAAP to be, made), including any
impairment charge or asset write-offs or write-downs related to
intangible assets (including goodwill) and long-lived assets
pursuant to GAAP, less all non-cash items (other than
deferred rental income) increasing Adjusted Consolidated Net
Income, all as determined on a consolidated basis for the Parent
and its Restricted Subsidiaries in conformity with GAAP.
|
Notwithstanding the preceding, the income taxes of, and the
depreciation and amortization and other non-cash items of, a
Subsidiary shall be added (or subtracted) to Adjusted
Consolidated Net Income to compute Adjusted Consolidated EBITDA
only to the extent (and in the same proportion) that net income
of such Subsidiary was included in calculating Adjusted
Consolidated Net Income.
Adjusted Consolidated Net Income means, for
any period, the aggregate net income (or loss) (before giving
effect to cash dividends on preferred stock of the Parent or
charges resulting from the redemption of preferred stock of the
Parent) of the Parent and its Restricted Subsidiaries for such
period determined on a consolidated basis in conformity with
GAAP; provided, however, that the following items shall
be excluded in computing Adjusted Consolidated Net Income,
without duplication:
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(1)
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the net income of any Person, other than the Parent or a
Restricted Subsidiary, except to the extent of the amount of
dividends or other distributions actually paid in cash (or to
the extent converted into cash) or Temporary Cash Investments to
the Parent or any of its Restricted Subsidiaries by such Person
during such period;
|
126
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(2)
|
the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted
Subsidiary, unless such restrictions with respect to the
declaration and payment of dividends or distributions have been
properly waived for such entire period; provided,
however, that Adjusted Consolidated Net Income will be
increased by the amount of dividends or other distributions or
other payments made in cash (or to the extent converted into
cash) or Temporary Cash Investments to the Parent or a
Restricted Subsidiary thereof in respect of such period, to the
extent not already included therein;
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(3)
|
the cumulative effect of a change in accounting principles;
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(4)
|
costs associated with initiating public company reporting,
including compliance with the Sarbanes-Oxley Act of 2002, not to
exceed an aggregate of $5.0 million;
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(5)
|
any after-tax gains or losses attributable to Asset
Sales; and
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(6)
|
all extraordinary gains and extraordinary losses.
|
Adjusted Funds From Operations for any period
means Adjusted Consolidated Net Income for such period, plus
depreciation and amortization of real property (including
furniture and equipment) and other real estate assets and
excluding (to the extent such amount was added or deducted, as
applicable, in calculating such Adjusted Consolidated Net
Income):
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(1)
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gains or losses from (a) the restructuring or refinancing
of Indebtedness or (b) sales of properties;
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(2)
|
non-cash asset impairment charges;
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(3)
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non-cash charges related to redemptions of Preferred Stock of
the Parent;
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(4)
|
any non-cash compensation expense attributable to grants of
stock options, restricted stock or similar rights to officers,
directors and employees of the Parent and any of its
Subsidiaries;
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(5)
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the amortization of financing fees and the write-off of
financing costs;
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(6)
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deferred rental income (loss); and
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(7)
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any other non-cash charges associated with the sale or
settlement of any Interest Rate Agreement or other hedging or
derivative instruments.
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Adjusted Total Assets means, for any Person,
the sum of:
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(1)
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Total Assets for such Person as of the end of the fiscal quarter
preceding the Transaction Date; and
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(2)
|
any increase in Total Assets following the end of such quarter
determined on a pro forma basis, including any pro forma
increase in Total Assets resulting from the application of the
proceeds of any additional Indebtedness.
|
Affiliate means, as applied to any Person,
any other Person directly or indirectly controlling, controlled
by, or under direct or indirect common control with, such
Person. For purposes of this definition, control
(including, with correlative meanings, the terms
controlling, controlled by
and under common
127
control with), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise.
Asset Acquisition means:
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(1)
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an investment by the Parent or any of its Restricted
Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Parent or any of its Restricted
Subsidiaries; provided, however, that such Persons
primary business is related, ancillary, incidental or
complementary to the businesses of the Issuers or any of their
Restricted Subsidiaries on the date of such investment; or
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(2)
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an acquisition by the Parent or any of its Restricted
Subsidiaries from any other Person of assets that constitute all
or substantially all of a division or line of business, or one
or more properties, of such Person; provided, however,
that the assets and properties acquired are related, ancillary,
incidental or complementary to the businesses of the Issuers or
any of their Restricted Subsidiaries on the date of such
acquisition.
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Asset Disposition means the sale or other
disposition by the Parent or any of its Restricted Subsidiaries,
other than to the Parent, the Issuers or another Restricted
Subsidiary, of:
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(1)
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all or substantially all of the Capital Stock of any Restricted
Subsidiary; or
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(2)
|
all or substantially all of the assets that constitute a
division or line of business, or one or more properties, of the
Parent or any of its Restricted Subsidiaries.
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Asset Sale means any sale, transfer or other
disposition, including by way of merger, consolidation or Sale
and Leaseback Transaction, in one transaction or a series of
related transactions by the Parent or any of its Restricted
Subsidiaries to any Person other than the Parent, the Issuers or
any of their Restricted Subsidiaries of:
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(1)
|
all or any of the Capital Stock of any Restricted Subsidiary of
the Parent;
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(2)
|
all or substantially all of the assets that constitute a
division or line of business of the Parent or any of its
Restricted Subsidiaries; or
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(3)
|
any property and assets of the Parent or any of its Restricted
Subsidiaries outside the ordinary course of business of the
Parent or such Restricted Subsidiary and, in each case, that is
not governed by the provisions of the indenture applicable to
mergers, consolidations and sales of assets of the Parent;
|
provided, however, that Asset Sale shall not
include:
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the lease or sublease of any Real Estate Asset;
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|
sales, leases, assignments, licenses, sublicenses, subleases or
other dispositions of inventory, receivables and other current
assets;
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the sale, conveyance, transfer, disposition or other transfer of
all or substantially all of the assets of the Parent as
permitted by the covenant described under Consolidation,
Merger and Sale of Assets;
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the license or sublicense of intellectual property or other
general intangibles;
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128
|
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|
the issuance of Capital Stock by a Restricted Subsidiary in
which the percentage interest (direct and indirect) in the
Capital Stock of such Restricted Subsidiary owned by the Parent
after giving effect to such issuance is at least equal to the
percentage interest prior to such issuance;
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any issuance of Capital Stock (other than Disqualified Stock) by
the Parent or the Issuers in order to acquire assets used or
useful in a Permitted Business;
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the surrender or waiver of contract rights or the settlement,
release or surrender of a contract, tort or other litigation
claim in the ordinary course of business;
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any Restricted Payment permitted by the Limitation on
Restricted Payments covenant or that constitutes a
Permitted Investment;
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|
sales, transfers or other dispositions of assets with a fair
market value not in excess of $5.0 million in any
transaction or series of related transactions;
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sales or other dispositions of assets for consideration at least
equal to the fair market value of the assets sold or disposed
of, to the extent that the consideration received would satisfy
clause (2) of the third paragraph of the Limitation
on Asset Sales covenant;
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sales or other dispositions of cash or Temporary Cash
Investments;
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the creation, granting, perfection or realization of any Lien
permitted under the indenture;
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the lease, assignment or sublease of property in the ordinary
course of business so long as the same does not materially
interfere with the business of the Parent and its Restricted
Subsidiaries, taken as a whole;
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any transfer or other disposition constituting a taking,
seizure, condemnation or other eminent domain
proceeding; and
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sales, exchanges, transfers or other dispositions of damaged,
worn-out or obsolete or otherwise unsuitable or unnecessary
equipment or assets that, in the Parents reasonable
judgment, are no longer used or useful in the business of the
Parent or its Restricted Subsidiaries and any sale or
disposition of property in connection with scheduled
turnarounds, maintenance and equipment and facility updates.
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Attributable Debt in respect of a Sale and
Leaseback Transaction means, at the time of determination, the
present value of the total obligations of the lessee for net
rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction. For purposes hereof such
present value shall be calculated using a discount rate equal to
the rate of interest implicit in such Sale and Leaseback
Transaction, determined by the lessee in good faith on a basis
consistent with comparable determinations of Capitalized Lease
Obligations under GAAP; provided, however, that if such
sale and leaseback transaction results in a Capitalized Lease
Obligation, the amount of Indebtedness represented thereby will
be determined in accordance with the definition of
Capitalized Lease Obligations.
Average Life means at any date of
determination with respect to any debt security, the quotient
obtained by dividing:
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(1)
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the sum of the products of:
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the number of years from such date of determination to the dates
of each successive scheduled principal payment of such debt
security; and
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129
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the amount of such principal payment, by
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(2)
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the sum of all such principal payments.
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Board of Directors means, as to any Person,
the board of directors (or similar governing body) of such
Person or any duly authorized committee thereof.
Board Resolution means, with respect to any
Person, a copy of a resolution certified by the Secretary or an
Assistant Secretary of such Person to have been duly adopted by
the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to
the trustee.
Business Day means a day other than a
Saturday, Sunday or any other day on which banking institutions
in New York City are authorized or required by law, regulation
or executive order to close.
Capital Stock means, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting),
including partnership or limited liability company interests,
whether general or limited, and including options, warrants and
other rights to purchase such shares, interests, participations
or other equivalents, in the equity of such Person, whether
outstanding on the Issue Date or issued thereafter, including
all Common Stock and Preferred Stock.
Capitalized Lease means, as applied to any
Person, any lease of any property, whether real, personal or
mixed, of which the discounted present value of the rental
obligations of such Person as lessee, in conformity with GAAP,
is required to be capitalized on the balance sheet of such
Person. For clarity purposes, GAAP for purposes of this
definition shall be deemed GAAP as in effect on the date of the
indenture.
Capitalized Lease Obligations means, at the
time any determination is to be made, the amount of the
liability in respect of a Capitalized Lease that would at that
time be required to be capitalized on a balance sheet in
accordance with GAAP.
Change of Control means the occurrence of one
or more of the following events:
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(1)
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any sale, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of
the assets of the Parent and its Subsidiaries taken as a whole
to any person or group (as such terms
are defined in Sections 13(d) and 14(d)(2) of the Exchange
Act), together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of the indenture)
(other than to a Permitted Holder, the Parent or its Restricted
Subsidiaries); provided, however, that for the avoidance
of doubt, the lease of all or substantially all of the assets of
the Parent and its Subsidiaries taken as a whole shall not
constitute a Change of Control;
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(2)
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a person or group (as such terms are
defined in Sections 13(d) and 14(d)(2) of the Exchange
Act), other than a Permitted Holder, becomes the ultimate
beneficial owner (as defined in
Rule 13d-3
under the Exchange Act) of more than 50% of the total voting
power of the Voting Stock of the Parent on a fully diluted basis;
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(3)
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the approval by the holders of Capital Stock of the Parent of
any plan or proposal for the liquidation or dissolution of the
Parent (whether or not otherwise in compliance with the
provisions of the indenture); or
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(4)
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individuals who on the Issue Date constitute the Board of
Directors (together with any new or replacement directors whose
election by the Board of Directors or whose nomination by the
Board of Directors for election by the Parents
shareholders was (a) approved by a vote of at least a
majority of the members of the Board of Directors then still in
office who either were members
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of the Board of Directors on the Issue Date or whose election or
nomination for election was so approved or (b) made in
accordance with any voting agreement to which the Parent is then
a party and which was in effect on the Issue Date) cease for any
reason to constitute a majority of the members of the Board of
Directors then in office.
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Code means the Internal Revenue Code of 1986,
as amended.
Common Stock means, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting)
that have no preference on liquidation or with respect to
distributions over any other class of Capital Stock, including
partnership interests, whether general or limited, of such
Persons equity, whether outstanding on the Issue Date or
issued thereafter, including all series and classes of common
stock.
Common Units means the common units of the
Partnership, each having the rights and obligations set forth in
the Partnerships limited partnership agreement, as such
agreement may be amended from time to time.
Consolidated Interest Expense means, for any
period, the aggregate amount of interest expense, less the
aggregate amount of interest income for such period, in respect
of Indebtedness of the Parent and the Restricted Subsidiaries
during such period, all as determined on a consolidated basis in
conformity with GAAP including (without duplication):
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the interest portion of any deferred payment obligations;
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all commissions, discounts and other fees and expenses owed with
respect to letters of credit and bankers acceptance
financing;
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the net cash costs associated with Interest Rate Agreements and
Indebtedness that is Guaranteed or secured by assets of the
Parent or any of its Restricted Subsidiaries; and
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all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be
paid or to be accrued by the Parent and its Restricted
Subsidiaries;
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excluding, to the extent included in interest expense
above, (A) the amount of such interest expense of any
Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (2) of the
definition thereof (but only in the same proportion as the net
income of such Restricted Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income pursuant to
clause (2) of the definition thereof), as determined on a
consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP and (B) (i) accretion
of accrual of discounted liabilities not constituting
Indebtedness, (ii) any expense resulting from the
discounting of any outstanding Indebtedness in connection with
the application of purchase accounting in connection with any
acquisition, (iii) amortization of deferred financing fees,
debt issuance costs, commissions, fees and expenses,
(iv) any expensing of bridge, commitment or other financing
fees (but not revolving loan commitment fees) and
(v) non-cash costs associated with Interest Rate Agreements
and Currency Agreements.
Credit Agreement means the Credit Agreement,
dated as of February 4, 2011, by and among the Restricted
Subsidiaries of the Parent now or hereafter party thereto as
borrowers or guarantors, the Parent as guarantor, the lenders
party thereto in their capacities as lenders thereunder and Bank
of America, N.A., as administrative agent, together with the
related documents thereto (including any guarantee agreements
and security documents).
Credit Facility means one or more credit or
debt facilities (including any credit or debt facilities
provided under the Credit Agreement, Term Loan or Acquisition
Line), financings, commercial paper
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facilities, note purchase agreements or other debt instruments,
indentures or agreements, providing for revolving credit loans,
term loans, notes, securities, letters of credit or other debt
obligations, in each case, as amended, restated, modified,
renewed, refunded, restructured, supplemented, replaced or
refinanced in whole or in part from time to time, including any
amendment increasing the amount of Indebtedness incurred or
available to be borrowed thereunder, extending the maturity of
any Indebtedness incurred thereunder or contemplated thereby or
deleting, adding or substituting one or more parties thereto
(whether or not such added or substituted parties are banks or
other lenders or investors).
Currency Agreement means any foreign exchange
contract, currency swap agreement or other similar agreement or
arrangement.
Default means any event that is, or after
notice or passage of time or both would be, an Event of Default.
Designated Non-cash Consideration means the
fair market value of non-cash consideration received by the
Parent or any of its Restricted Subsidiaries in connection with
an Asset Sale that is so designated as Designated Non-cash
Consideration pursuant to an Officers Certificate, setting
forth the basis of such valuation, executed by the principal
financial officer of the Parent, less the amount of cash or
Temporary Cash Investments received in connection with a
subsequent sale of or collection on such Designated Non-cash
Consideration.
Disqualified Stock means any class or series
of Capital Stock of any Person that by its terms or otherwise is:
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(1)
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required to be redeemed on or prior to the date that is
91 days after the Stated Maturity of the Notes;
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(2)
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redeemable at the option of the holder of such class or series
of Capital Stock, at any time on or prior to the date that is
91 days after the Stated Maturity of the Notes (other than
into shares of Capital Stock that is not Disqualified
Stock); or
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(3)
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convertible into or exchangeable for Capital Stock referred to
in clause (1) or (2) above or Indebtedness having a
scheduled maturity on or prior to the date that is 91 days
after the Stated Maturity of the Notes;
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provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase
or redeem such Capital Stock upon the occurrence of an
asset sale or change of control
occurring prior to the Stated Maturity of the Notes shall not
constitute Disqualified Stock if the asset sale or
change of control provisions applicable to such
Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in Limitation
on Asset Sales and Repurchase of Notes upon a Change
of Control covenants described above and such Capital
Stock specifically provides that such Person will not repurchase
or redeem any such stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described
above under the caption CovenantsLimitation on
Restricted Payments. Disqualified Stock shall not include
Capital Stock which is issued to any plan for the benefit of
employees of the Parent or its Subsidiaries or by any such plan
to such employees solely because it may be required to be
repurchased by the Parent or its Subsidiaries in order to
satisfy applicable statutory or regulatory obligations.
Disqualified Stock shall not include Common Units.
Equity Offering means a public or private
offering of Capital Stock (other than Disqualified Stock) of the
Parent or any successor entity of the Parent permitted pursuant
to the indenture.
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Exchange Act means the Securities Exchange
Act of 1934, as amended, or any successor statute or statutes
thereto.
Existing Indebtedness means the aggregate
principal amount of Indebtedness of the Parent and its
Subsidiaries that was in existence on the date of the indenture
until such amounts are repaid.
fair market value means the price that would
be paid in an arms-length transaction between an informed
and willing seller under no compulsion to sell and an informed
and willing buyer under no compulsion to buy. For purposes of
determining compliance with the provisions of the indenture
described under the caption Covenants, any
determination that the fair market value of assets other than
cash or Temporary Cash Investments is equal to or greater than
$20 million will be as determined in good faith by the
Board of Directors of the Parent, whose determination shall be
conclusive if evidenced by a Board Resolution, and otherwise by
the principal financial officer of the Parent acting in good
faith, each of whose determination will be conclusive.
Four Quarter Period means, for purposes of
calculating the Interest Coverage Ratio with respect to any
Transaction Date, the then most recent four fiscal quarters
prior to such Transaction Date for which reports have been filed
with the SEC or provided to the trustee pursuant to the
CovenantsSEC Reports and Reports to
Holders covenant (or if no such reports have yet been
required to be filed with the SEC, for which internal financial
statements are available).
GAAP means generally accepted accounting
principles in the United States of America as in effect as of
the Issue Date, including those set forth in the opinions and
pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity
as approved by a significant segment of the accounting
profession. Except as otherwise specifically provided in the
indenture, all ratios and computations contained or referred to
in the indenture shall be computed in conformity with GAAP
applied on a consistent basis. For clarity purposes, in
determining whether a lease is a Capitalized Lease or an
operating lease and whether interest expense exists, such
determination shall be made in accordance with GAAP as in effect
on the date of the indenture.
Guarantee means any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any
Indebtedness of any other Person and, without limiting the
generality of the foregoing, any obligation of such Person:
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(1)
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to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness of such other Person (whether
arising by virtue of partnership arrangements, or by agreements
to keep-well or to maintain financial statement conditions or
otherwise); or
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(2)
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entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole
or in part);
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provided, however, that the term Guarantee
shall not include endorsements for collection or deposit in the
ordinary course of business. The term Guarantee used
as a verb has a corresponding meaning.
Guarantor means the Parent and each
Subsidiary Guarantor.
Guaranty means a Guaranty by each Guarantor
for payment of the Notes by such Guarantor.
Incur means, with respect to any
Indebtedness, to incur, create, issue, assume, Guarantee or
otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Acquired
Indebtedness; provided, however, that neither the accrual
of interest, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, nor the
accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
133
Indebtedness means, with respect to any
Person at any date of determination (without duplication):
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(1)
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all indebtedness of such Person for borrowed money;
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(2)
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all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
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(3)
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the face amount of letters of credit or other similar
instruments (excluding obligations with respect to letters of
credit (including trade letters of credit) securing obligations
(other than obligations described in (1) or (2) above
or (5), (6) or (7) below) entered into in the ordinary
course of business of such Person to the extent such letters of
credit are not drawn upon or, if drawn upon, to the extent such
drawing is reimbursed no later than the fifth Business Day
following receipt by such Person of a demand for reimbursement);
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(4)
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all unconditional obligations of such Person to pay the deferred
and unpaid purchase price of property or services, which
purchase price is due more than six months after the date of
placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade
Payables;
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(5)
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all Capitalized Lease Obligations and Attributable Debt;
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(6)
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all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by
such Person; provided, however, that the amount of such
Indebtedness shall be the lesser of (A) the fair market
value of such asset at that date of determination and
(B) the amount of such Indebtedness;
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(7)
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all Indebtedness of other Persons Guaranteed by such Person to
the extent such Indebtedness is Guaranteed by such
Person; and
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(8)
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to the extent not otherwise included in this definition or the
definition of Consolidated Interest Expense, obligations under
Currency Agreements and Interest Rate Agreements.
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The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional
obligations of the type described above and, with respect to
obligations under any Guarantee, the maximum liability upon the
occurrence of the contingency giving rise to the obligation;
provided, however, that:
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the amount outstanding at any time of any Indebtedness issued
with original issue discount shall be deemed to be the face
amount with respect to such Indebtedness less the remaining
unamortized portion of the original issue discount of such
Indebtedness at the date of determination in conformity with
GAAP;
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Indebtedness shall not include any liability for foreign,
federal, state, local or other taxes;
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Indebtedness shall not include any indemnification, earnouts,
adjustment or holdback of purchase price or similar obligations,
in each case, incurred or assumed in connection with the
acquisition or disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by
any Person acquiring all or any portion of such business, assets
or Subsidiary for the purpose of financing such
acquisition; and
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Indebtedness shall not include contingent obligations under
performance bonds, performance guarantees, surety bonds, appeal
bonds or similar obligations incurred in the ordinary course of
business and consistent with past practices.
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134
Interest Coverage Ratio means, on any
Transaction Date, the ratio of:
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the aggregate amount of Adjusted Consolidated EBITDA for the
then applicable Four Quarter Period to
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the aggregate Consolidated Interest Expense during such Four
Quarter Period.
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In making the foregoing calculation,
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(1)
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pro forma effect shall be given to any Indebtedness
Incurred or repaid (other than in connection with an Asset
Acquisition or Asset Disposition) during the period
(Reference Period) commencing on the first
day of the Four Quarter Period and ending on the Transaction
Date (other than Indebtedness Incurred or repaid under a
revolving credit or similar arrangement), in each case as if
such Indebtedness had been Incurred or repaid on the first day
of such Reference Period;
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(2)
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Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a
pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Transaction
Date (taking into account any Interest Rate Agreement applicable
to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months or, if shorter, at
least equal to the remaining term of such Indebtedness) had been
the applicable rate for the entire period;
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(3)
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pro forma effect shall be given to Asset Dispositions,
Asset Acquisitions and Permitted Mortgage Investments (including
giving pro forma effect to the application of proceeds of
any Asset Disposition and any Indebtedness Incurred or repaid in
connection with any such Asset Acquisitions or Asset
Dispositions) that occur during such Reference Period or
subsequent to the end of the related Four Quarter Period as if
they had occurred and such proceeds had been applied on the
first day of such Reference Period and after giving effect to
Pro Forma Cost Savings;
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(4)
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pro forma effect shall be given to asset dispositions and
asset acquisitions (including giving pro forma effect to
(i) the application of proceeds of any asset disposition
and any Indebtedness Incurred or repaid in connection with any
such asset acquisitions or asset dispositions, (ii) expense
and cost reductions calculated on a basis consistent with
Regulation S-X
under the Exchange Act and (iii) Pro Forma Cost Savings)
that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Parent or any of
its Restricted Subsidiaries during such Reference Period but
subsequent to the end of the related Four Quarter Period and
that would have constituted Asset Dispositions or Asset
Acquisitions during such Reference Period but subsequent to the
end of the related Four Quarter Period had such transactions
occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions
or Asset Acquisitions and had occurred on the first day of such
Reference Period;
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(5)
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the Consolidated Interest Expense attributable to discontinued
operations, as determined in accordance with GAAP, shall be
excluded, but only to the extent that the obligations giving
rise to such Consolidated Interest Expense will not be
obligations of the specified Person or any of its Restricted
Subsidiaries following the Transaction Date; and
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(6)
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consolidated interest expense attributable to interest on any
Indebtedness (whether existing or being incurred) computed on a
pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Transaction
Date (taking into account any Interest Rate Agreement applicable
to such Indebtedness if such Interest Rate Agreement has a
remaining term
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in excess of 12 months or, if shorter, at least equal to
the remaining term of such Indebtedness) had been the applicable
rate for the entire period. Interest on Indebtedness that may
optionally be determined at an interest rate based on a factor
of a prime or similar rate, a Eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the
rate actually chosen, or, if not, then based upon such
operational rate chosen as the Parent may designate. Interest on
any Indebtedness under a revolving credit facility computed on a
pro forma basis shall be computed based on the average
daily balance of such Indebtedness during the applicable period
except as set forth in clause (1) of this definition.
Interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by a
responsible financial or accounting officer of the Parent to be
the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP;
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provided, however, that to the extent that
clause (3) or (4) of this paragraph requires that
pro forma effect be given to an Asset Acquisition, Asset
Disposition, Permitted Mortgage Investment, asset acquisition or
asset disposition, as the case may be, such pro forma
calculation shall be based upon the four full fiscal
quarters immediately preceding the Transaction Date of the
Person, or division or line of business, or one or more
properties, of the Person that is acquired or disposed of to the
extent that such financial information is available or otherwise
a reasonable estimate thereof is available.
Interest Rate Agreement means any interest
rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or
other similar agreement or arrangement with respect to interest
rates.
Investment in any Person means any direct or
indirect advance, loan or other extension of credit (including
by way of Guarantee or similar arrangement, but excluding
advances to customers in the ordinary course of business that
are, in conformity with GAAP, recorded as accounts receivable on
the consolidated balance sheet of the Parent and its Restricted
Subsidiaries and commission, travel and similar advances to
employees, directors, officers, managers and consultants in each
case made in the ordinary course of business) or capital
contribution to (by means of any transfer of cash or other
property (tangible or intangible) to others or any payment for
property or services solely for the account or use of others, or
otherwise), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by,
such Person and shall include:
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(1)
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the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary; and
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(2)
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the fair market value of the Capital Stock (or any other
Investment) held by the Parent or any of its Restricted
Subsidiaries of (or in) any Person that has ceased to be a
Restricted Subsidiary;
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provided, however, that the fair market value of the
Investment remaining in any Person that has ceased to be a
Restricted Subsidiary shall be deemed not to exceed the
aggregate amount of Investments previously made in such Person
valued at the time such Investments were made, less the net
reduction of such Investments. For purposes of the definition of
Unrestricted Subsidiary and the Limitation on
Restricted Payments covenant described above:
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Investment shall include the fair market value of
the assets (net of liabilities (other than liabilities to the
Parent or any of its Restricted Subsidiaries)) of any Restricted
Subsidiary at the time such Restricted Subsidiary is designated
an Unrestricted Subsidiary;
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the fair market value of the assets (net of liabilities (other
than liabilities to the Parent or any of its Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted
Subsidiary shall be considered a reduction in outstanding
Investments; and
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any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such
transfer.
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Investment Grade Status means, with respect
to the Parent or the Issuers, when the Notes have both
(1) a rating of Baa3 or higher from
Moodys and (2) a rating of BBB- or higher
from S&P (or, if either such agency ceases to rate the
Notes for reasons outside the control of the Parent, the
equivalent investment grade credit rating from any other
nationally recognized statistical rating
organization within the meaning of
Rule 15c3-l(c)(2)(vi)(F)
under the Exchange Act selected by the Parent as a replacement
agency), in each case published by the applicable agency.
Issue Date means February 4, 2011.
Lien means any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any
conditional sale or other title retention agreement or lease in
the nature thereof or any agreement to give any security
interest).
Moodys means Moodys Investors
Service, Inc. and its successors.
Net Cash Proceeds means:
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(1)
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with respect to any Asset Sale, the proceeds of such Asset Sale
in the form of cash or Temporary Cash Investments, including
payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or
Temporary Cash Investments (except to the extent such
obligations are financed or sold with recourse to the Parent or
any of its Restricted Subsidiaries) and proceeds from the
conversion or sale of other property received when converted to
or sold for cash or cash equivalents, net of:
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brokerage commissions and other fees and expenses (including
fees and expenses of counsel and investment bankers) related to
such Asset Sale;
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provisions for all taxes actually paid or payable as a result of
such Asset Sale by the Parent and its Restricted Subsidiaries,
taken as a whole, after taking into account any available tax
credits or deductions and any tax sharing arrangements;
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payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either
(A) is secured by a Lien on the property or assets sold or
(B) is required to be paid as a result of such sale;
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so long as after giving pro forma effect to any such
distribution (i) the aggregate principal amount of all
outstanding Indebtedness of the Parent and its Restricted
Subsidiaries on a consolidated basis at such time is less than
60% of Adjusted Total Assets; and (ii) no Default or Event
of Default shall have occurred and be continuing, the amount
required to be distributed to the holders of Parents
Capital Stock as a result of such Asset Sale in order for Parent
to maintain its status as a REIT and any related pro rata
distributions to holders of the Partnerships Capital
Stock; and
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amounts reserved by the Parent and its Restricted Subsidiaries
against any liabilities associated with such Asset Sale,
including pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset
Sale, all as determined on a consolidated basis in conformity
with GAAP; and
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(2)
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with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or
Temporary Cash Investments, including payments in respect of
deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in
the form of cash or Temporary Cash Investments (except to the
extent such obligations are financed or sold with recourse to
the Parent or any of its Restricted Subsidiaries) and proceeds
from the conversion of other property received when converted to
cash or Temporary Cash Investments, net of attorneys fees,
accountants fees, underwriters or placement
agents fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with
such issuance or sale and net of tax paid or payable as a result
thereof.
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Offer to Purchase means an offer to purchase
Notes by the Issuers from the holders commenced by sending a
notice to the trustee and each holder electronically or by first
class mail at its registered address or otherwise in accordance
with the procedures of DTC stating:
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(1)
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the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a
pro rata basis;
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(2)
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the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than
60 days from the date such notice is mailed) (the
Payment Date);
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(3)
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that any Note not tendered will continue to accrue interest
pursuant to its terms;
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(4)
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that, unless the Issuers default in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment
Date;
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(5)
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that holders electing to have a Note purchased pursuant to the
Offer to Purchase will be required to surrender the Note,
together with the form entitled Option of the Holder to
Elect Purchase on the reverse side of the Note completed,
to the Paying Agent at the address specified in the notice or
otherwise in accordance with DTCs applicable procedures
prior to the close of business on the Business Day immediately
preceding the Payment Date;
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(6)
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that holders will be entitled to withdraw their election by
using the ATOP System in accordance with DTCs applicable
procedures or if the Paying Agent receives, not later than the
close of business on the third Business Day immediately
preceding the Payment Date, a telegram, facsimile transmission
or letter or instruction to DTC, as applicable, setting forth
the name of such holder, the principal amount of Notes delivered
for purchase and, if applicable, a statement that such holder is
withdrawing his election to have such Notes purchased; and
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(7)
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that holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided, however, that
each Note purchased and each new Note issued shall be in a
principal amount of $2,000 or integral multiples of $1,000 in
excess thereof.
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On the Payment Date, the Issuers shall:
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accept for payment on a pro rata basis Notes or portions
thereof tendered pursuant to an Offer to Purchase;
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deposit with the Paying Agent no later than 12:00 p.m. New
York City time money sufficient to pay the purchase price of all
Notes or portions thereof so accepted; and
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promptly thereafter deliver, or cause to be delivered, to the
trustee all Notes or portions thereof so accepted together with
an Officers Certificate specifying the Notes or portions
thereof accepted for payment by the Issuers.
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The Paying Agent shall promptly wire to the holders of Notes so
accepted payment in an amount equal to the purchase price, and
the trustee shall promptly authenticate and mail to such holders
a new Note equal in principal amount to any unpurchased portion
of any Note surrendered (and in the case of Notes held in book
entry form, the trustee shall hold such global notes as
custodian for DTC); provided, however, that each Note
purchased and each new Note issued shall be in a principal
amount of $2,000 or integral multiples of $1,000 in excess
thereof. The Issuers will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date.
The Issuers will comply with
Rule 14e-l
under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations
are applicable, in the event that the Issuers are required to
repurchase Notes pursuant to an Offer to Purchase.
Pari Passu Indebtedness means any
Indebtedness of the Issuers or any Guarantor that ranks pari
passu in right of payment with, or senior in right of
payment to, the Notes or the Guaranty thereof by such Guarantor,
as applicable, including Indebtedness outstanding under the
Credit Agreement, the Acquisition Line and the Term Loan.
Permitted Business means any business
activity (including Permitted Mortgage Investments) in which the
Parent and its Restricted Subsidiaries are engaged or propose to
be engaged in (as described in the offering memoranda relating
to the Old Notes) on the Issue Date, any business activity
related to properties customarily constituting assets of a
healthcare REIT, or any business reasonably related, ancillary
or complementary thereto, or reasonable expansions or extensions
thereof.
Permitted Holders means LG Aviv L.P. (and any
other investment fund that is an Affiliate of Lindsay Goldberg
LLC) and Craig Bernfield.
Permitted Investment means:
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(1)
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an Investment in (a) the Parent or any of its Restricted
Subsidiaries or (b) a Person that will, upon the making of
such Investment, become a Restricted Subsidiary or be merged or
consolidated with or into or transfer or convey all or
substantially all its assets to, the Parent or any of its
Restricted Subsidiaries and, in each case, any Investment held
by such Person, provided that such Investment was not
acquired by such Person in contemplation of such acquisition,
merger, consolidation or transfer, and provided further
that such Investment was not an Investment in any Subordinated
Guaranty Subsidiary consisting of any Real Estate Assets in
existence on the Issue Date of any of the Issuers or the Senior
Guaranty Subsidiaries;
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(2)
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investments in cash and Temporary Cash Investments;
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(3)
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Investments made by the Parent or its Restricted Subsidiaries as
a result of consideration received in connection with an Asset
Sale made in compliance with the Limitation on Asset
Sales covenant or from any other disposition or transfer
of assets not constituting an Asset Sale;
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(4)
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Investments represented by Guarantees that are otherwise
permitted under the indenture;
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(5)
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payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP;
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(6)
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Investments received in satisfaction of judgments or in
settlements of debt or compromises of obligations incurred in
the ordinary course of business;
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139
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(7)
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any Investment acquired solely in exchange for Capital Stock
(other than Disqualified Stock) of the Parent or the
Partnership, which the Parent or the Partnership did not receive
in exchange for a cash payment, Indebtedness or Disqualified
Stock, but excluding any new cash Investments made thereafter;
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(8)
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any Investment existing on the Issue Date;
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(9)
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Investments in Unrestricted Subsidiaries and joint ventures in
an aggregate amount, taken together with all other Investments
made in reliance on this clause and all Indebtedness then
outstanding pursuant to clause 4(O) of the covenant
described under CovenantsLimitation on
Indebtedness, not to exceed the greater of
$20 million and 2.0% of Adjusted Total Assets (net of, with
respect to the Investment in any particular Person, the cash
return thereon received after the Issue Date as a result of any
sale for cash, repayment, redemption, liquidating distribution
or other cash realization (not included in Adjusted Consolidated
Net Income), not to exceed the amount of Investments in such
Person made after the Issue Date in reliance on this clause);
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(10)
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obligations under Currency Agreements and Interest Rate
Agreements otherwise permitted under the indenture;
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(11)
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Permitted Mortgage Investments;
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(12)
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any transaction which constitutes an Investment to the extent
permitted and made in accordance with the provisions of the
second paragraph of the covenant described under
CovenantsLimitation on Transactions with
Affiliates (except transactions described under clauses
(1), (5), (9) and (10) of such paragraph);
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(13)
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any Investment consisting of prepaid expenses, negotiable
instruments held for collection and lease, endorsements for
deposit or collection in the ordinary course of business,
utility or workers compensation, performance and similar
deposits entered into as a result of the operations of the
business in the ordinary course of business;
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(14)
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pledges or deposits by a Person under workers compensation laws,
unemployment insurance laws or similar legislation, or deposits
in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a
party, or deposits as security for contested taxes or import
duties or for the payment of rent, in each case incurred in the
ordinary course of business;
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(15)
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any Investment acquired by the Parent or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or
accounts receivable held by the Parent or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of
such other Investment or accounts receivable or (b) as a
result of a foreclosure by the Parent or any of its Restricted
Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in
default;
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(16)
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any Investment consisting of a loan or advance to officers,
directors or employees of the Parent or any of its Restricted
Subsidiaries (a) in connection with the purchase by such
Persons of Capital Stock of the Parent or (b) made in the
ordinary course of business not to exceed $2.5 million at
any one time outstanding;
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(17)
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any Investment made in connection with the funding of
contributions under any non-qualified employee retirement plan
or similar employee compensation plan in an amount not to exceed
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140
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the amount of compensation expenses recognized by the Parent and
any of its Restricted Subsidiaries in connection with such
plans; and
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(18)
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additional Investments not to exceed the greater of
$25 million and 2.5% of Adjusted Total Assets at any time
outstanding.
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Permitted Mortgage Investment means any
Investment in secured notes, mortgages, deeds of trust,
collateralized mortgage obligations, commercial mortgage-backed
securities, other secured debt securities, secured debt
derivatives or other secured debt instruments, so long as such
investment relates directly or indirectly to real property that
constitutes or is used as a skilled nursing home center,
hospital, assisted living facility, independent living facility,
medical office or other property customarily constituting an
asset of a real estate investment trust specializing in
healthcare or senior housing property.
Permitted Refinancing Indebtedness means any
Indebtedness of the Parent or any of its Restricted Subsidiaries
issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other
Indebtedness (including Acquired Indebtedness) of the Parent or
any of its Restricted Subsidiaries (other than intercompany
Indebtedness); provided that:
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(1)
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the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded
(plus all accrued interest thereon and the amount of any
reasonably determined premium necessary to accomplish such
refinancing and such reasonable fees and expenses incurred in
connection therewith);
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(2)
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such Permitted Refinancing Indebtedness has:
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(a)
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a final maturity date later than (x) the final maturity
date of the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded or (y) the date that is
91 days after the maturity of the Notes, and
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(b)
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an Average Life equal to or greater than the Average Life of the
Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded or 91 days more than the Average Life
of the Notes;
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(3)
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if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is contractually subordinated in
right of payment to the Notes or any Guaranty, such Permitted
Refinancing Indebtedness is contractually subordinated in right
of payment to the Notes or such Guaranty on terms at least as
favorable to the holders of Notes as those contained in the
documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
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(4)
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if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is pari passu in right of payment
with the Notes or any Guaranty, such Permitted Refinancing
Indebtedness is pari passu in right of payment with, or
subordinated in right of payment to, the Notes or such
Guaranty; and
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(5)
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such Indebtedness is incurred either (a) by the Parent, an
Issuer or any Subsidiary Guarantor or (b) by the Restricted
Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
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Person means any individual, corporation,
partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision
thereof or any other entity.
141
Preferred Stock means, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting)
that have a preference on liquidation or with respect to
distributions over any other class of Capital Stock, including
preferred partnership interests, whether general or limited, or
such Persons preferred or preference stock, whether
outstanding on the Issue Date or issued thereafter, including
all series and classes of such preferred or preference stock.
Pro Forma Cost Savings means, with respect to
any period, the reductions in costs (including such reductions
resulting from employee terminations, facilities consolidations
and closings, standardization of employee benefits and
compensation policies, consolidation of property, casualty and
other insurance coverage and policies, standardization of sales
and distribution methods, reductions in taxes other than income
taxes) that occurred during such period that are
(1) directly attributable to an asset acquisition or
(2) implemented and that are supportable and quantifiable
by the underlying records of such business, as if, in the case
of each of clauses (1) and (2), all such reductions in
costs had been effected as of the beginning of such period,
decreased by any incremental expenses incurred or to be incurred
during such period in order to achieve such reduction in costs,
all such costs to be determined in good faith by the chief
financial officer of the Parent.
Real Estate Assets of a Person means, as of
any date, the real estate assets of such Person and its
Restricted Subsidiaries on such date, on a consolidated basis
determined in accordance with GAAP.
Real Estate Revenues means, with respect to
any Real Estate Asset of the Parent and its Restricted
Subsidiaries owned as of December 31, 2010, the annualized
rental revenues for such Real Estate Asset, calculated based on
the monthly rental revenue for such Real Estate Asset as of
December 31, 2010 and assuming such Real Estate Asset had
been held by the Parent and its Restricted Subsidiaries during
the four-quarter period ended December 31, 2010, all as set
forth on a schedule attached to the indenture.
Redeemable Cumulative Preferred Stock means
the 12.5% Series A Redeemable Cumulative Preferred Stock of
the Parent existing on the Issue Date having a maximum
liquidation preference of $125,000.
Replacement Assets means (1) tangible
non-current assets that will be used or useful in a Permitted
Business or (2) substantially all the assets of a Permitted
Business or a majority of the Voting Stock of any Person engaged
in a Permitted Business that will become on the date of
acquisition thereof a Restricted Subsidiary.
Restricted Subsidiary means, with respect to
a Person, any Subsidiary of such Person other than an
Unrestricted Subsidiary. Unless the context otherwise requires,
any reference herein to a Restricted Subsidiary
shall be to a Restricted Subsidiary of the Issuers. For the
avoidance of doubt, the Issuers are considered Restricted
Subsidiaries of the Parent for purposes of the indenture.
Sale and Leaseback Transaction means any
direct or indirect arrangement with any Person or to which any
such Person is a party, providing for the leasing to the Parent
or any Restricted Subsidiary of any property, whether owned by
the Parent or any such Restricted Subsidiary at the Issue Date
or later acquired, which has been or is to be sold or
transferred by the Parent or any such Restricted Subsidiary to
such Person or any other Person from whom funds have been or are
to be advanced by such Person on the security of such property.
Secured Indebtedness means any Indebtedness
secured by a Lien upon the property of the Parent or any of its
Restricted Subsidiaries.
Senior Guaranty Subsidiaries means all
Subsidiary Guarantors other than the Subordinated Guaranty
Subsidiaries.
142
Significant Subsidiary, with respect to any
Person, means any Restricted Subsidiary of such Person that
satisfies the criteria for a significant subsidiary
set forth in
Rule 1-02(w)
of
Regulation S-X
under the Exchange Act.
S&P means Standard &
Poors Ratings Services and its successors.
Stated Maturity means:
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(1)
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with respect to any debt security, the date specified in such
debt security as the fixed date on which the final installment
of principal of such debt security is due and payable; and
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(2)
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with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such debt
security as the fixed date on which such installment is due and
payable,
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provided, that Stated Maturity shall not include any
contingent obligations to repay, redeem or repurchase any such
interest or principal prior to the date originally scheduled for
the payment thereof.
Subordinated Guaranty Subsidiaries means
(i) the Subsidiary Guarantors that are borrowers or
guarantors in respect of the Acquisition Line or the Term Loan
on the Issue Date plus (ii) any Subsidiary Guarantors that
become borrowers or guarantors in respect of the Acquisition
Line or the Term Loan (or any Permitted Refinancing Indebtedness
incurred in exchange for, or the net proceeds of which are used
to refund, refinance or replace, the Acquisition Line or Term
Loan and that was otherwise permitted by the indenture, to the
extent such Permitted Refinancing Indebtedness is designated by
the Issuers as Designated Senior Debt for purposes
of the indenture) in the future in connection with acquisitions
or other investments but, in case of this clause (ii), excluding
any Restricted Subsidiaries of the Issuers in existence on the
Issue Date that are not party to the credit agreement governing
the Acquisition Line or the Term Loan on the Issue Date;
provided, however, that any Subsidiary Guarantor
that ceases to be a borrower or guarantor in respect of the
Acquisition Line or the Term Loan (or such Permitted Refinancing
Indebtedness) in accordance with the terms thereof shall, from
and after such date, no longer be a Subordinated Subsidiary
Guarantor for purposes of the indenture (but, for the avoidance
of doubt, shall remain a Subsidiary Guarantor unless released in
accordance with the terms of the indenture).
Subsidiary means, with respect to any Person,
any corporation, association or other business entity of which
more than 50% of the voting power of the outstanding Voting
Stock is owned, directly or indirectly, by such Person and one
or more other Subsidiaries of such Person and the accounts of
which would be consolidated with those of such Person in its
consolidated financial statements in accordance with GAAP, if
such statements were prepared as of such date.
Subsidiary Guarantors means (i) each
Subsidiary of the Issuers on the Issue Date, including the
Senior Guaranty Subsidiaries and the Subordinated Guaranty
Subsidiaries, but excluding the Real Property Non-Guarantor
Subsidiaries, and (ii) each other Person that is required
to become a Guarantor by the terms of the indenture after the
Issue Date, in each case, until such Person is released from its
Subsidiary Guaranty.
Subsidiary Guaranty means a Guaranty by a
Subsidiary Guarantor.
Temporary Cash Investment means any of the
following:
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(1)
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United States dollars;
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(2)
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direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by
the United States of America or any agency thereof;
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143
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(3)
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time deposit accounts, term deposit accounts, time deposits,
bankers acceptances, certificates of deposit, Eurodollar
time deposits and money market deposits maturing within twelve
months or less of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the
United States of America or any state or jurisdiction thereof,
and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $500 million and
has outstanding debt which is rated A (or such
similar equivalent rating) or higher by at least one
nationally recognized statistical rating
organization (within the meaning of
Rule 15c3-l(c)(2)(vi)(F)
under the Exchange Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor;
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(4)
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repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in
clauses (2) and (3) above entered into with a bank
meeting the qualifications described in clause (3) above;
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(5)
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commercial paper, maturing not more than six months after the
date of acquisition, issued by a corporation (other than an
Affiliate of the Parent) organized and in existence under the
laws of the United States of America or any state or
jurisdiction thereof with a rating at the time as of which any
investment therein is made of
P-2
(or higher) according to Moodys or
A-2
(or higher) according to S&P;
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(6)
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securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by
any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority
thereof, and rated at least A by S&P or
Moodys; and
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(7)
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any fund investing substantially all of its assets in
investments that constitute Temporary Cash Investments of the
kinds described in clauses (1) through (6) of this
definition.
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Term Loan means the $405 million term
loan under a credit agreement dated as of September 17,
2010, among Aviv Financing I, L.L.C., as the parent
borrower, the other borrowers named therein, General Electric
Capital Corporation, as administrative agent and a lender, and
the other lenders named therein.
Total Assets means, for any Person as of any
date, the sum of (i) in the case of any Real Estate Assets
that were owned as of December 31, 2010, the Real Estate
Revenues specified for such Real Estate Assets divided by
0.0975, plus (ii) the cost (original cost plus capital
improvements before depreciation and amortization) of all Real
Estate Assets acquired after December 31, 2010 that are
then owned by such Person or any of its Restricted Subsidiaries,
plus (iii) the book value of all assets (excluding Real
Estate Assets, intangibles and deferred rent receivable) of such
Person and its Restricted Subsidiaries on a consolidated basis
determined in accordance with GAAP.
Total Unencumbered Assets means, for any
Person as of any date, the Total Assets of such Person and its
Restricted Subsidiaries as of such date, that do not secure any
portion of Secured Indebtedness, on a consolidated basis
determined in accordance with GAAP.
Trade Payables means, with respect to any
Person, any accounts payable or any other indebtedness or
monetary obligation to trade creditors created, assumed or
Guaranteed by such Person or any of its Subsidiaries arising in
the ordinary course of business in connection with the
acquisition of goods or services.
Transaction Date means, with respect to the
Incurrence of any Indebtedness by the Parent or any of its
Restricted Subsidiaries, the date such Indebtedness is to be
Incurred and, with respect to any Restricted Payment, the date
such Restricted Payment is to be made.
144
Unrestricted Subsidiary means
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(1)
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any Subsidiary of the Issuers that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Parent in the manner provided below; and
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(2)
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any Subsidiary of an Unrestricted Subsidiary.
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Except during a Suspension Period, the Board of Directors of the
Parent may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary of the Issuers) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital
Stock of, or owns or holds any Lien on any property of, the
Parent or any of its Restricted Subsidiaries; provided,
however, that:
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any Guarantee by the Parent or any of its Restricted
Subsidiaries of any Indebtedness of the Subsidiary being so
designated shall be deemed an Incurrence of such
Indebtedness and an Investment by the Parent or such
Restricted Subsidiary (or all, if applicable) at the time of
such designation;
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either (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) if such Subsidiary has
assets greater than $1,000, such designation would be permitted
under the Limitation on Restricted Payments covenant
described above; and
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if applicable, the Incurrence of Indebtedness and the Investment
referred to in the first bullet of this proviso would be
permitted under the Limitation on Indebtedness and
Limitation on Restricted Payments covenants
described above.
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The Board of Directors of the Parent may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that:
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no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such
designation; and
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all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if
Incurred at such time, have been permitted to be Incurred (and
shall be deemed to have been Incurred) for all purposes of the
indenture.
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Any such designation by the Board of Directors of the Parent
shall be evidenced to the trustee by promptly filing with the
trustee a copy of the Board Resolution giving effect to such
designation and an officers certificate certifying that
such designation complied with the foregoing provisions.
Unsecured Indebtedness means any Indebtedness
of the Parent or any of its Restricted Subsidiaries that is not
Secured Indebtedness.
U.S. Government Obligations means direct
obligations of, obligations guaranteed by, or participations in
pools consisting solely of obligations of or obligations
guaranteed by, the United States of America for the payment of
which obligations or guarantee the full faith and credit of the
United States of America is pledged and that are not callable or
redeemable at the option of the issuer thereof.
Voting Stock means with respect to any
Person, Capital Stock of any class or kind ordinarily having the
power to vote for the election of directors, managers or other
voting members of the governing body of such Person.
Wholly Owned means, with respect to any
Subsidiary of any Person, the ownership of all of the
outstanding Capital Stock of such Subsidiary (other than any
directors qualifying shares or Investments by individuals
mandated by applicable law) by such Person or one or more Wholly
Owned Subsidiaries of such Person.
145
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
To ensure compliance with IRS Circular 230, you are hereby
informed that any discussion of U.S. federal tax issues set
forth in this prospectus was written in connection with the
promotion and marketing by the Issuer of the Notes. Such
discussion is not intended or written to be legal or tax advice
to any person and it is not intended or written to be used, and
cannot be used, by any person for the purpose of avoiding any
U.S. federal tax penalties that may be imposed on such
person. You should seek advice based on your particular
circumstances from an independent tax advisor.
The following is a general discussion of the material
U.S. federal income tax consequences to beneficial owners
of the Notes of (i) the exchange of the Old Notes for
Exchange Notes pursuant to the exchange offer and (ii) the
acquisition, ownership, and disposition of the Notes. This
discussion is based upon the Internal Revenue Code of 1986, as
amended (the Code), the U.S. Treasury
regulations promulgated thereunder, administrative
pronouncements and judicial decisions, all as of the date hereof
and all of which are subject to change, possibly on a
retroactive basis.
This discussion applies only to beneficial owners of Old Notes
whose Old Notes are tendered and accepted in the exchange offer
and that have held the Old Notes, and will hold the Exchange
Notes, as capital assets within the meaning of
section 1221 of the Code. This discussion does not address
all aspects of U.S. federal income taxation that might be
important to particular investors in light of their individual
circumstances or the U.S. federal income tax consequences
applicable to special classes of taxpayers, such as banks and
other financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, tax-exempt
organizations, partnerships (or entities properly classified as
partnerships for U.S. federal income tax purposes) or other
pass-through entities, dealers in securities or currencies,
traders in securities that elect to use a
mark-to-market
method of accounting, persons liable for U.S. federal
alternative minimum tax, U.S. Holders (as defined below)
whose functional currency is not the U.S. dollar, former
citizens or residents of the United States, and persons holding
the Notes as part of a hedging or conversion transaction or a
straddle. The discussion does not address any foreign, state,
local or non-income tax consequences of the acquisition,
ownership or disposition of the Notes to beneficial owners of
the Notes.
As used in this prospectus, the term
U.S. Holder means a beneficial owner of a Note
who or which is for U.S. federal income tax purposes:
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a citizen or individual resident of the United States;
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a corporation (or other entity properly classified as a
corporation for U.S. federal income tax purposes) created
or organized in or under the laws of the United States, any
state within the United States, or the District of Columbia;
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an estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust, if (i) a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more United States persons (as defined in the
Code) have the authority to control all substantial decisions of
the trust, or (ii) in the case of a trust that was treated
as a domestic trust under the laws in effect before 1997, a
valid election is in place under applicable U.S. Treasury
regulations to treat such trust as a domestic trust.
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The term
Non-U.S. Holder
means any beneficial owner of a Note who or which is not a
U.S. Holder and is not a partnership or other entity
properly classified as a partnership for U.S. federal
income tax purposes. For the purposes of this prospectus,
U.S. Holders and
Non-U.S. Holders
are referred to collectively as Holders.
146
If a partnership or other entity properly classified as a
partnership for U.S. federal income tax purposes is a
beneficial owner of a Note, the tax treatment of a partner will
generally depend upon the status of the partner and the
activities of the entity. Such entities and partners in such
entities should consult their own tax advisors about the
U.S. federal income and other tax consequences of the
acquisition, ownership and disposition of a Note.
This discussion is for general purposes only. Holders should
consult their own tax advisors regarding the application of the
U.S. federal income tax laws to their particular situations
and the consequences under federal estate or gift tax laws, as
well as foreign, state or local laws and tax treaties, and the
possible effects of changes in tax laws.
U.S.
Federal Income Taxation of U.S. Holders
Exchange
Offer
The exchange of the Old Notes for the Exchange Notes pursuant to
the exchange offer will not be a taxable event for
U.S. federal income tax purposes because the Exchange Notes
will not be considered to differ materially in kind or extent
from the Old Notes. As a result, a U.S. Holder will not be
required to recognize any gain or loss as a result of an
exchange of Old Notes for Exchange Notes. In addition, each
U.S. Holder will have the same tax basis and holding period
in the Exchange Notes as the Old Notes.
Payments
of Interest
Stated interest on Notes beneficially owned by a
U.S. Holder generally will be taxable as ordinary interest
income at the time payments are accrued or are received in
accordance with the U.S. Holders regular method of
accounting for U.S. federal income tax purposes.
Pre-Issuance
Accrued Stated Interest
A portion of the price paid upon initial issuance for an Old
Note issued on April 5, 2011, was allocable to stated
interest that accrued prior to the date the Note was
issued (the pre-issuance accrued stated interest).
We intend to take the position that a portion of the stated
interest received, in an amount equal to the pre-issuance
accrued stated interest, on the first interest payment date of
such a Note should be treated as a return of the pre-issuance
accrued stated interest to an initial Holder of the Note and not
as a payment of stated interest on the Note. Amounts treated as
a return to the U.S. Holder of pre-issuance accrued stated
interest should not be taxable when received but should reduce a
U.S. Holders adjusted tax basis in a Note by a
corresponding amount.
Amortizable
Bond Premium
If a U.S. Holder purchases a Note for an amount (excluding any
amounts that are treated as pre-issuance accrued stated interest
as described above) that exceeds the sum of all amounts payable
on the Note after the purchase date other than stated interest,
a U.S. Holder will be considered to have purchased the Note
with amortizable bond premium equal to that excess. A
U.S. Holder generally may elect to amortize the premium
using a constant yield method over the remaining term of the
Note and may offset income otherwise required to be included in
respect of the Note during any taxable year by the amortized
amount of such excess for the taxable year. The election to
amortize premium on a constant yield method will also apply to
all debt obligations (other than debt obligations the interest
on which is excludable from gross income) a U.S. Holder
holds at the beginning of or acquires in or after the first
taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service. If
a U.S. Holder does not elect to amortize bond premium, that
premium will decrease the gain or increase the loss that the
U.S. Holder would otherwise recognize on the sale,
exchange, redemption or other disposition of the Note.
147
Market
Discount
If a U.S. Holder acquires a Note in a secondary market
transaction for an amount that is less than, in general, its
principal amount, the amount of such difference is treated as
market discount for U.S. federal income tax
purposes to such U.S. Holder, unless such difference is
considered to be de minimis, as described in
section 1278(a)(2)(C) of the Code. Under the market
discount rules of the Code, a U.S. Holder is required to
treat any principal payment on, or any gain on the sale,
exchange or redemption or other taxable disposition of, a Note
as ordinary income to the extent of the accrued market discount
that has not previously been included in income. In general, the
amount of market discount that has accrued is determined on a
ratable basis, although in certain circumstances an election may
be made to accrue market discount on a constant interest basis.
A U.S. Holder may not be allowed to deduct immediately a
portion of the interest expense on any indebtedness incurred or
maintained to purchase or to carry Notes with market discount. A
U.S. Holder may elect to include market discount in income
currently as it accrues, in which case the interest deferral
rule set forth in the preceding sentence will not apply. Such an
election will apply to all debt instruments acquired on or after
the first day of the taxable year to which such election applies
and is irrevocable without the consent of the IRS. The tax basis
in a Note will be increased by the amount of market discount
included in income as a result of such election.
U.S. Holders are urged to consult their tax advisors
regarding the tax consequences of the acquisition, ownership,
and disposition of Notes with market discount.
Payments
under Certain Events
In certain circumstances, we may be obligated to pay amounts in
excess of the stated interest on and stated redemption price at
maturity of the Notes. See, e.g., Description of Exchange
NotesOptional Redemption and Description of
Exchange NotesRepurchase of Notes Upon a Change of
Control. These contingencies could subject the Notes to
the provisions of the U.S. Treasury regulations relating to
contingent payment debt instruments. We believe and
intend to take the position that the foregoing contingencies
should not result in the Notes being treated as contingent
payment debt instruments. Our position is binding on a holder,
unless the holder discloses in the proper manner to the Internal
Revenue Service that it is taking a different position. If the
Internal Revenue Service were to successfully challenge this
position, the amount, timing and character of payments under the
Notes may differ, which could increase the present value of a
U.S. Holders U.S. federal income tax liability
with respect to the Notes. The remainder of this discussion
assumes that the Notes will not be treated as contingent payment
debt instruments.
Sale,
Exchange or Redemption of the Notes
Upon the sale, redemption, exchange (other than pursuant to the
exchange offer) or other taxable disposition of the Notes, a
U.S. Holder generally will recognize gain or loss equal to
the difference, if any, between (i) the amount realized
upon the sale, exchange, redemption or other taxable disposition
of the Notes, other than amounts attributable to accrued and
unpaid interest (which will be taxed as ordinary interest income
to the extent such interest has not been previously included in
income), and (ii) the U.S. Holders adjusted tax
basis in the Notes. The amount realized by a U.S. Holder is
the sum of cash plus the fair market value of all other property
received on such sale, exchange, redemption or other taxable
disposition. A U.S. Holders adjusted tax basis in the
Notes generally will be its cost for the Notes increased by the
amount of any market discount previously included in the
U.S. Holders gross income and decreased by
(i) any amortized premium on the Notes and (ii) any
pre-issuance accrued stated interest.
Except as described above under Payments under
Certain Events and Market Discount, the
gain or loss a U.S. Holder recognizes on the sale,
exchange, redemption or other taxable disposition of the Notes
generally will be capital gain or loss. Such gain or loss
generally will be long-term capital gain or loss if a
U.S. Holder has held the Notes for more than 12 consecutive
months. For non-corporate U.S. Holders, long-term capital
gains are currently taxed at a lower rate than ordinary income.
The deductibility of capital losses is subject to limitations. A
U.S. Holder should consult its own tax advisor regarding
the deductibility of capital losses in its particular
circumstances.
148
Backup
Withholding and Information Reporting
In general, a U.S. Holder that is not an exempt
recipient will be subject to U.S. federal backup
withholding tax at the applicable rate (currently 28%) with
respect to payments on the Notes and the proceeds of a sale,
exchange, redemption or other taxable disposition of the Notes,
unless the U.S. Holder provides its taxpayer identification
number to the paying agent and certifies, under penalties of
perjury, that it is not subject to backup withholding on an
Internal Revenue Service
Form W-9
(Request for Taxpayer Identification Number and Certification)
and otherwise complies with the applicable requirements of the
backup withholding rules. Backup withholding is not an
additional tax. The amount of any backup withholding from a
payment to a U.S. Holder may be allowed as a credit against
such U.S. Holders U.S. federal income tax
liability and may entitle such U.S. Holder to a refund,
provided the required information is furnished to the Internal
Revenue Service in a timely manner. In addition, payments on the
Notes made to, and the proceeds of a sale or other taxable
disposition by, a U.S. Holder that is not an exempt
recipient generally will be subject to information reporting
requirements.
U.S.
Federal Income Taxation of
Non-U.S.
Holders
Payments
of Interest
Subject to the discussion below under Backup
Withholding and Information Reporting, a
Non-U.S. Holder
generally will not be subject to U.S. federal withholding
tax on interest paid on the Notes so long as:
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the
Non-U.S. Holder
does not actually or constructively own 10% or more of the total
combined voting power of all of the stock of Aviv Healthcare
Capital Corporation entitled to vote;
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the
Non-U.S. Holder
is not a controlled foreign corporation that is
related to us, actually or by attribution, through stock
ownership;
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the
Non-U.S. Holder
does not actually or constructively own 10% or more of the
capital or profits interest in Aviv Healthcare Properties
Limited Partnership; and
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either (i) the
Non-U.S. Holder
certifies under penalties of perjury on Internal Revenue Service
Form W-8BEN
(Certificate of Foreign Status of Beneficial Owner for United
States Tax Withholding) or a suitable substitute form that it is
not a United States person (as defined in the Code), and
provides its name and address, and U.S. taxpayer
identification number, if any, or (ii) a securities
clearing organization, bank or other financial institution that
holds customers securities in the ordinary course of its
trade or business and holds the Notes on behalf of the
Non-U.S. Holder
certifies under penalties of perjury that the certification
referred to in clause (i) has been received from the
Non-U.S. Holder,
and furnishes to us a copy thereof.
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A
Non-U.S. Holder
that does not qualify for exemption from withholding as
described above generally will be subject to withholding of
U.S. federal income tax at a rate of 30% on payments of
interest on the Notes. A
Non-U.S. Holder
may be entitled to the benefits of an income tax treaty under
which interest on the Notes is subject to a reduced rate of
U.S. withholding tax or is exempt from
U.S. withholding tax, provided the
Non-U.S. Holder
furnishes us a properly completed and executed Internal Revenue
Service
Form W-8BEN
claiming the reduction or exemption and the
Non-U.S. Holder
complies with any other applicable procedures.
Special rules regarding exemption from, or reduced rates of,
U.S. withholding tax may apply in the case of Notes held by
partnerships or certain types of trusts. Partnerships and trusts
that are prospective purchasers should consult their tax
advisors regarding special rules that may be applicable in their
particular circumstances.
149
Sale,
Exchange or Redemption of the Notes
Generally, any gain recognized by a
Non-U.S. Holder
on the sale, exchange, redemption or other taxable disposition
of a Note (other than amounts attributable to accrued and unpaid
interest, which will be treated as described under
Payments of Interest above) will be exempt
from U.S. federal income and withholding tax, unless:
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the gain is effectively connected with the
Non-U.S. Holders
conduct of a trade or business within the United States (and, if
a treaty applies, is attributable to a permanent establishment
maintained by the
Non-U.S. Holder
in the United States); or
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the
Non-U.S. Holder
is an individual who is present in the United States for
183 days or more during the taxable year, and certain other
conditions are met.
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Effectively
Connected Income
If interest, gain or other income recognized by a
Non-U.S. Holder
on a Note is effectively connected with the
Non-U.S. Holders
conduct of a trade or business within the United States (and, if
a treaty applies, is attributable to a permanent establishment
maintained by the
Non-U.S. Holder
in the United States), the
Non-U.S. Holder
will not be subject to the withholding tax discussed above if
the
Non-U.S. Holder
provides us with a properly completed and executed Internal
Revenue Service
Form W-8ECI
(Certificate of Foreign Persons Claim That Income Is
Effectively Connected With the Conduct of a Trade or Business in
the United States), but the
Non-U.S. Holder
generally will be subject to U.S. federal income tax on
such interest, gain or other income as if it were a United
States person (as defined in the Code). In addition to such
U.S. federal income tax, if the
Non-U.S. Holder
is a corporation, it may be subject to an additional 30% branch
profits tax.
Backup
Withholding and Information Reporting
We must report annually to the Internal Revenue Service and to a
Non-U.S. Holder
the amount of interest paid to such
Non-U.S. Holder
and the tax withheld from those payments. These reporting
requirements apply regardless of whether U.S. withholding
tax on such payments was reduced or eliminated by any applicable
tax treaty or otherwise. Copies of the information returns
reporting those payments and the amounts withheld may also be
made available to the tax authorities in the country where a
Non-U.S. Holder
is a resident under the provisions of an applicable income tax
treaty or agreement.
Under some circumstances, U.S. Treasury regulations require
backup withholding and additional information reporting on
payments of interest and other reportable payments.
Such backup withholding and additional information reporting
will not apply to payments on the Notes made by us or our paying
agent to a
Non-U.S. Holder
if the certification described above under Payments
of Interest is received from the
Non-U.S. Holder.
Backup withholding and information reporting generally will not
apply to payments of proceeds from the sale or other disposition
of a Note made to a
Non-U.S. Holder
by or through the foreign office of a broker. However,
information reporting requirements, and possibly backup
withholding, will apply if such broker is, for U.S. federal
income tax purposes, a United States person (as defined in the
Code) or has certain other enumerated connections with the
United States, unless such broker has documentary evidence in
its records that the
Non-U.S. Holder
is not a United States person (as defined in the Code) and
certain other conditions are met, or the
Non-U.S. Holder
otherwise establishes an exemption. Payments of proceeds from
the sale or other disposition of a Note made to a
Non-U.S. Holder
by or through the U.S. office of a broker are subject to
information reporting and backup withholding at the applicable
rate unless the
Non-U.S. Holder
certifies, under penalties of perjury, that it is not a United
States person (as defined in the Code) and it satisfies certain
other conditions or otherwise establishes an exemption. Backup
withholding is not an additional tax. A
150
Non-U.S. Holder
may obtain a refund or credit against its U.S. federal
income tax liability of any amounts withheld under the backup
withholding rules, provided the required information is
furnished to the Internal Revenue Service in a timely matter.
Non-U.S. Holders
should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the
procedures for obtaining such an exemption, if available.
The U.S. federal income tax discussion set forth above
is included for general information only and may not be
applicable depending upon a Holders particular situation.
Prospective purchasers of the Notes should consult their own tax
advisors with respect to the tax consequences to them of the
acquisition, ownership and disposition of the Notes, including
the tax consequences under state, local, estate, foreign and
other tax laws and tax treaties and the possible effects of
changes in U.S. or other tax laws.
151
PLAN OF
DISTRIBUTION
If you are a broker-dealer that receives Exchange Notes for your
own account pursuant to the exchange offer, you must acknowledge
that you will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such
Exchange Notes. This prospectus, as it may be amended or
supplemented from time to time, may be used in connection with
resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making
activities or other trading activities. To the extent any
broker-dealer participates in the exchange offer and so notifies
us, we have agreed, for 180 days after the exchange offer
is consummated, to make this prospectus, as amended or
supplemented, available to that broker-dealer for use in
connection with resales, and will promptly send additional
copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests those
documents in the letter of transmittal.
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We will not receive any proceeds from any sale of Exchange Notes
by broker-dealers.
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Exchange Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in
one or more transactions in the
over-the-counter
market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods
of resale, at prevailing market prices at the time of resale, at
prices related to such prevailing market prices or at negotiated
prices.
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Any resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the
purchasers or any such Exchange Notes.
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Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an underwriter
within the meaning of the Securities Act, and any profit on any
such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting
compensation under the Securities Act.
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The letter of transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.
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We have agreed to pay all expenses incident to the exchange
offer (other than commissions and concessions of any
broker-dealer), subject to certain prescribed limitations, and
will provide indemnification against certain liabilities,
including certain liabilities that may arise under the
Securities Act, to broker-dealers that make a market in the Old
Notes and exchange Old Notes in the exchange offer for Exchange
Notes.
By its acceptance of the exchange offer, any broker-dealer that
receives Exchange Notes pursuant to the exchange offer hereby
agrees to notify us prior to using the prospectus in connection
with the sale or transfer of Exchange Notes. It also agrees
that, upon receipt of notice from us of the happening of any
event which makes any statement in this prospectus untrue in any
material respect or which requires the making of any changes in
this prospectus in order to make the statements therein not
misleading or which may impose upon us disclosure obligations
that may have a material adverse effect on us (which notice we
agree to deliver promptly to such broker-dealer), such
broker-dealer will suspend use of this prospectus until we have
notified such broker-dealer that delivery of this prospectus may
resume and have furnished copies of any amendment or supplement
to this prospectus to such broker-dealer.
152
LEGAL
MATTERS
Certain legal matters relating to the validity of the Exchange
Notes will be passed upon by Sidley Austin LLP, Chicago,
Illinois. Certain legal matters relating to Maryland law will be
passed upon by Venable LLP. Certain legal matters relating to
New Mexico law will be passed upon by Jones & Smith
Law Firm, LLC. Certain legal matters relating to Texas law will
be passed upon by McDonald Sanders, P.C.
EXPERTS
The consolidated financial statements and schedule of Aviv REIT,
Inc. and Subsidiaries and Aviv Healthcare Properties Limited
Partnership and Subsidiaries as of December 31, 2010 and
2009 and for each of the three years in the period ended
December 31, 2010 included in this prospectus and
registration statement have been audited by Ernst &
Young LLP, independent registered public accounting firm, as set
forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given on the
authority of such firm as experts in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
The Issuers and the guarantors are not currently subject to the
periodic reporting and other informational requirements of the
Exchange Act. Following the offering of the Exchange Notes, the
Issuers and the guarantors will file periodic reports and other
information with the SEC.
We have filed with the SEC a registration statement on
Form S-4,
including exhibits and schedules filed with the registration
statement, under the Securities Act with respect to the Exchange
Notes being offered hereby. This prospectus, which forms a part
of the registration statement, does not contain all of the
information set forth in the registration statement. For further
information with respect to us and the Exchange Notes, reference
is made to the registration statement, including the exhibits
and schedules to the registration statement. Statements
contained in this prospectus as to the contents of any contract
or other document referred to in this prospectus are not
necessarily complete and, where that contract or other document
is an exhibit to the registration statement, we refer you to the
full text of the contract or other document filed as an exhibit
to the registration statement.
Copies of the registration statement, including the exhibits and
schedules to the registration statement, may be examined without
charge at the public reference room of the SEC,
100 F Street, N.E., Room 1580, Washington, DC
20549. Information about the operation of the public reference
room may be obtained by calling the SEC at
1-800-SEC-0330.
Copies of all or a portion of the registration statement can be
obtained from the public reference room of the SEC upon payment
of prescribed fees. Our SEC filings, including our registration
statement, are also available to you on the SECs website
at www.sec.gov. The SEC filings of the Issuers and the
guarantors will be made available free of charge at our website
at www.avivreit.com. We are not incorporating by reference into
this prospectus the information on our website, and you should
not consider it to be a part of this prospectus. Information may
also be obtained from us at Aviv REIT, Inc., 303 West
Madison Street, Chicago, Illinois, 60606, Attention: Investor
Relations, telephone
(312) 855-0930.
We have not authorized anyone to give you any information or to
make any representations about us or the transactions we discuss
in this prospectus other than those contained in this
prospectus. If you are given any information or representations
about these matters that is not discussed in this prospectus,
you must not rely on that information.
153
INDEX TO
FINANCIAL STATEMENTS
AVIV
REIT, INC. AND SUBSIDIARIES
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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FINANCIAL STATEMENT SCHEDULE
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F-29
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AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND
SUBSIDIARIES
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F-34
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F-35
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F-36
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F-37
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F-38
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F-39
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FINANCIAL STATEMENT SCHEDULE
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F-68
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AVIV REIT, INC. AND SUBSIDIARIES
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F-73
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F-74
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F-75
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F-76
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F-77
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AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND
SUBSIDIARIES
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F-91
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F-92
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F-93
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F-94
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F-95
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All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable or have been omitted because sufficient
information has been included in the notes to the Consolidated
Financial Statements.
F-1
AVIV
REIT, INC. AND SUBSIDIARIES
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and the Stockholders
Aviv REIT, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Aviv REIT, Inc. and Subsidiaries (the Company) as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, changes in equity, and cash flows for
each of the three years in the period ended December 31,
2010. Our audits also included the financial statement schedule
listed in the accompanying index to the financial statements.
These financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Aviv REIT, Inc. and Subsidiaries at
December 31, 2010 and 2009, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2010 in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
Chicago, Illinois
March 15, 2011
except for Schedule III, as to which the date is
April 28, 2011
F-2
AVIV
REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$13,029,474
|
|
|
|
$15,542,507
|
|
Deferred rent receivable
|
|
|
30,660,773
|
|
|
|
27,715,217
|
|
Due from related parties
|
|
|
|
|
|
|
15,816
|
|
Tenant receivables
|
|
|
1,168,842
|
|
|
|
2,407,737
|
|
Rental properties and financing leases, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
76,466,020
|
|
|
|
69,844,477
|
|
Buildings and improvements
|
|
|
615,806,273
|
|
|
|
555,931,485
|
|
Assets under direct financing leases
|
|
|
10,777,184
|
|
|
|
10,633,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
703,049,477
|
|
|
|
636,409,268
|
|
Less accumulated depreciation
|
|
|
(75,948,944
|
)
|
|
|
(58,673,377
|
)
|
|
|
|
|
|
|
|
|
|
Net rental properties
|
|
|
627,100,533
|
|
|
|
577,735,891
|
|
Deferred finance costs, net
|
|
|
9,957,636
|
|
|
|
989,658
|
|
Loan receivables
|
|
|
36,610,638
|
|
|
|
28,970,129
|
|
Other assets
|
|
|
12,872,323
|
|
|
|
11,753,540
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$731,400,219
|
|
|
|
$665,130,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
$6,012,809
|
|
|
|
$3,241,478
|
|
Tenant security and escrow deposits
|
|
|
13,658,384
|
|
|
|
12,314,790
|
|
Other liabilities
|
|
|
25,996,492
|
|
|
|
31,936,322
|
|
Mortgage and other notes payable
|
|
|
440,575,916
|
|
|
|
480,105,226
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
486,243,601
|
|
|
|
527,597,816
|
|
Class E Preferred Units
|
|
|
|
|
|
|
62,970,571
|
|
Equity:
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock (par value $0.01; 227,002 shares outstanding)
|
|
|
2,270
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
223,838,999
|
|
|
|
|
|
Accumulated deficit
|
|
|
(2,261,839
|
)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
2,188,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
223,767,585
|
|
|
|
|
|
Partners equity
|
|
|
|
|
|
|
73,385,093
|
|
Noncontrolling interests
|
|
|
21,389,033
|
|
|
|
1,177,015
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
245,156,618
|
|
|
|
74,562,108
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
$731,400,219
|
|
|
|
$665,130,495
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
AVIV
REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$84,490,144
|
|
|
|
$82,775,078
|
|
|
|
$72,142,847
|
|
Tenant recoveries
|
|
|
6,441,786
|
|
|
|
6,055,703
|
|
|
|
4,830,733
|
|
Interest on loans to lesseescapital expenditures
|
|
|
1,779,620
|
|
|
|
1,662,107
|
|
|
|
725,939
|
|
Interest on loans to lesseesworking capital and capital
lease
|
|
|
3,446,226
|
|
|
|
1,830,791
|
|
|
|
1,133,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
96,157,776
|
|
|
|
92,323,679
|
|
|
|
78,832,665
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
574,646
|
|
|
|
612,185
|
|
|
|
1,088,220
|
|
General and administrative
|
|
|
10,725,122
|
|
|
|
7,741,087
|
|
|
|
6,808,795
|
|
Offering costs
|
|
|
|
|
|
|
6,863,948
|
|
|
|
|
|
Real estate taxes
|
|
|
6,475,230
|
|
|
|
6,231,776
|
|
|
|
5,116,431
|
|
Depreciation
|
|
|
17,853,799
|
|
|
|
17,527,656
|
|
|
|
14,615,770
|
|
Loss on impairment
|
|
|
96,000
|
|
|
|
|
|
|
|
931,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
35,724,797
|
|
|
|
38,976,652
|
|
|
|
28,560,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
60,432,979
|
|
|
|
53,347,027
|
|
|
|
50,271,820
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
133,286
|
|
|
|
466,177
|
|
|
|
2,012,046
|
|
Interest expense
|
|
|
(22,722,785
|
)
|
|
|
(26,570,071
|
)
|
|
|
(26,272,012
|
)
|
Change in fair value of derivatives
|
|
|
2,931,309
|
|
|
|
6,987,825
|
|
|
|
(8,673,771
|
)
|
Amortization of deferred financing costs
|
|
|
(1,008,059
|
)
|
|
|
(550,327
|
)
|
|
|
(536,620
|
)
|
Gain on sale of assets, net
|
|
|
511,552
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
(2,295,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(22,450,259
|
)
|
|
|
(19,666,396
|
)
|
|
|
(33,470,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
37,982,720
|
|
|
|
33,680,631
|
|
|
|
16,801,463
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
72,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
37,982,720
|
|
|
|
33,680,631
|
|
|
|
16,874,193
|
|
Distributions and accretion on Class E Preferred Units
|
|
|
(17,371,893
|
)
|
|
|
(14,569,875
|
)
|
|
|
(8,842,980
|
)
|
Net income allocable to common units of
Partnership/noncontrolling interests
|
|
|
(16,779,731
|
)
|
|
|
(19,110,756
|
)
|
|
|
(8,031,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to stockholders
|
|
|
$3,831,096
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$37,982,720
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instrument
|
|
|
4,094,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
$42,087,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to stockholders
|
|
|
$3,831,096
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instruments, net of noncontrolling
interest of $1,906,277
|
|
|
2,188,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income allocable to stockholders
|
|
|
$6,019,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
AVIV
REIT, INC. AND SUBSIDIARIES
Years
Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In-
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Partners
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
income
|
|
|
Equity
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$92,835,547
|
|
|
|
$1,422,456
|
|
|
|
$94,258,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,719,167
|
|
|
|
155,026
|
|
|
|
16,874,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,349,494
|
|
|
|
|
|
|
|
1,349,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406,000
|
|
|
|
|
|
|
|
406,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to partners and accretion on Class E
Preferred Units and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,394,877
|
)
|
|
|
(621,621
|
)
|
|
|
(35,016,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,915,331
|
|
|
|
955,861
|
|
|
|
77,871,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,459,477
|
|
|
|
221,154
|
|
|
|
33,680,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,399,117
|
|
|
|
|
|
|
|
8,399,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406,000
|
|
|
|
|
|
|
|
406,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to partners and accretion on Class E
Preferred Units and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,794,832
|
)
|
|
|
|
|
|
|
(45,794,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,385,093
|
|
|
|
1,177,015
|
|
|
|
74,562,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,583,743
|
|
|
|
230,305
|
|
|
|
30,814,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,500
|
|
|
|
|
|
|
|
304,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to partners and accretion on Class E
Preferred Units and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,635,411
|
)
|
|
|
|
|
|
|
(68,635,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268,902
|
|
|
|
268,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,001,453
|
)
|
|
|
|
|
|
|
(17,001,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of equity at Merger date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,636,472
|
)
|
|
|
18,636,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal at September 17, 2010 (MergerSee Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,312,694
|
|
|
|
20,312,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock (unit)-based compensation
|
|
|
|
|
|
|
|
|
|
|
337,598
|
|
|
|
|
|
|
|
|
|
|
|
337,598
|
|
|
|
|
|
|
|
989,900
|
|
|
|
1,327,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,251,962
|
)
|
|
|
(5,251,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
227,002
|
|
|
|
2,270
|
|
|
|
234,977,172
|
|
|
|
|
|
|
|
|
|
|
|
234,979,442
|
|
|
|
|
|
|
|
94,548
|
|
|
|
235,073,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of raising capital
|
|
|
|
|
|
|
|
|
|
|
(11,475,771
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,475,771
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,475,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,188,155
|
|
|
|
2,188,155
|
|
|
|
|
|
|
|
1,906,277
|
|
|
|
4,094,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,092,935
|
)
|
|
|
|
|
|
|
(6,092,935
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,092,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,831,096
|
|
|
|
|
|
|
|
3,831,096
|
|
|
|
|
|
|
|
3,337,576
|
|
|
|
7,168,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
227,002
|
|
|
|
$2,270
|
|
|
|
$223,838,999
|
|
|
|
$(2,261,839
|
)
|
|
|
$2,188,155
|
|
|
|
$223,767,585
|
|
|
|
$
|
|
|
|
$21,389,033
|
|
|
|
$245,156,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
AVIV
REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$37,982,720
|
|
|
|
$33,680,631
|
|
|
|
$16,874,193
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
17,853,799
|
|
|
|
17,527,656
|
|
|
|
14,661,586
|
|
Amortization
|
|
|
1,008,059
|
|
|
|
550,327
|
|
|
|
536,620
|
|
Change in fair value of derivatives
|
|
|
(2,931,309
|
)
|
|
|
(6,987,825
|
)
|
|
|
8,673,771
|
|
Deferred rental income
|
|
|
(3,056,430
|
)
|
|
|
(6,388,600
|
)
|
|
|
(5,531,005
|
)
|
Rental income from intangible amortization, net
|
|
|
(3,681,109
|
)
|
|
|
(2,097,655
|
)
|
|
|
(2,518,376
|
)
|
Non-cash stock (unit)-based compensation
|
|
|
1,631,998
|
|
|
|
406,000
|
|
|
|
406,000
|
|
Gain on sale of assets, net
|
|
|
(511,552
|
)
|
|
|
|
|
|
|
|
|
Non-cash loss on extinguishment of debt
|
|
|
1,437,233
|
|
|
|
|
|
|
|
|
|
Loss on impairment of assets
|
|
|
96,000
|
|
|
|
|
|
|
|
931,629
|
|
Loss on disposal of assets, net
|
|
|
|
|
|
|
|
|
|
|
183,903
|
|
Reserve for uncollectible loans
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from related parties
|
|
|
15,816
|
|
|
|
10,000
|
|
|
|
642,662
|
|
Tenant receivables
|
|
|
(317,123
|
)
|
|
|
(365,523
|
)
|
|
|
(2,087,939
|
)
|
Other assets
|
|
|
177,666
|
|
|
|
3,022,578
|
|
|
|
(2,439,953
|
)
|
Accounts payable and accrued expenses
|
|
|
3,357,961
|
|
|
|
145,652
|
|
|
|
1,634,170
|
|
Tenant security deposits and other liabilities
|
|
|
866,527
|
|
|
|
1,141,304
|
|
|
|
978,499
|
|
Due to related parties
|
|
|
|
|
|
|
(602,253
|
)
|
|
|
(897,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
54,680,256
|
|
|
|
40,042,292
|
|
|
|
32,048,304
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of rental properties
|
|
|
(54,884,043
|
)
|
|
|
(16,375,694
|
)
|
|
|
(94,392,262
|
)
|
Sales of rental properties
|
|
|
4,085,825
|
|
|
|
|
|
|
|
3,071,177
|
|
Payment of earn-out provision for previously acquired rental
properties
|
|
|
(9,600,731
|
)
|
|
|
|
|
|
|
|
|
Capital improvements and other developments
|
|
|
(7,883,130
|
)
|
|
|
(13,507,673
|
)
|
|
|
(1,833,252
|
)
|
Proceeds of collections on loan receivables to related parties
|
|
|
|
|
|
|
|
|
|
|
32,000,000
|
|
Loan receivables funded to others, net
|
|
|
(6,834,568
|
)
|
|
|
(8,609,528
|
)
|
|
|
(17,440,989
|
)
|
Funding of direct financing leases, net
|
|
|
|
|
|
|
|
|
|
|
(10,479,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(75,116,647
|
)
|
|
|
(38,492,895
|
)
|
|
|
(89,074,649
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
442,789,570
|
|
|
|
35,651,073
|
|
|
|
80,915,249
|
|
Repayment of debt
|
|
|
(482,522,690
|
)
|
|
|
(19,091,756
|
)
|
|
|
(4,218,338
|
)
|
Payment of financing costs
|
|
|
(10,567,931
|
)
|
|
|
(102,803
|
)
|
|
|
|
|
Payment for swap termination
|
|
|
(3,380,160
|
)
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
235,342,892
|
|
|
|
|
|
|
|
|
|
Cost of raising capital
|
|
|
(11,475,771
|
)
|
|
|
|
|
|
|
|
|
Redemption of Class E Preferred Units and warrants
|
|
|
(92,001,451
|
)
|
|
|
|
|
|
|
|
|
Redemption of Class F Units
|
|
|
(23,602,649
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of warrants
|
|
|
|
|
|
|
8,399,117
|
|
|
|
1,349,494
|
|
Net proceeds from issuance of Class E Preferred Units
|
|
|
|
|
|
|
17,898,975
|
|
|
|
1,813,836
|
|
Cash distributions to partners
|
|
|
(36,658,452
|
)
|
|
|
(38,122,989
|
)
|
|
|
(29,849,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
17,923,358
|
|
|
|
4,631,617
|
|
|
|
50,010,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,513,033
|
)
|
|
|
6,181,014
|
|
|
|
(7,015,854
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
15,542,507
|
|
|
|
9,361,493
|
|
|
|
16,377,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
$13,029,474
|
|
|
|
$15,542,507
|
|
|
|
$9,361,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
$20,983,000
|
|
|
|
$27,771,260
|
|
|
|
$25,447,062
|
|
Supplemental disclosure of noncash activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends payable to stockholders
|
|
|
$6,092,935
|
|
|
|
$
|
|
|
|
|
|
Accrued distributions payable to partners
|
|
|
$5,246,840
|
|
|
|
$3,650,000
|
|
|
|
$395,046
|
|
Write-off of deferred rent receivable
|
|
|
$3,367,164
|
|
|
|
$
|
|
|
|
$
|
|
Write-off of in-place lease intangibles, net
|
|
|
$1,392,034
|
|
|
|
$
|
|
|
|
$
|
|
Write-off of deferred finance costs, net
|
|
|
$1,235,969
|
|
|
|
$
|
|
|
|
$
|
|
Write-off of debt discount
|
|
|
$202,307
|
|
|
|
$
|
|
|
|
$
|
|
Mortgage and other notes payable assumed
|
|
|
$
|
|
|
|
$
|
|
|
|
$5,350,939
|
|
See accompanying notes to consolidated financial statements.
F-6
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
|
|
1.
|
Description
of Operations and Formation
|
Aviv REIT, Inc., a Maryland corporation, and Subsidiaries (the
REIT) is the sole general partner of Aviv Healthcare Properties
Limited Partnership, a Delaware limited partnership, and
Subsidiaries (the Partnership). The Partnership is a majority
owned subsidiary that owns all of the real estate properties. In
these footnotes, the Company refers generically to Aviv REIT,
Inc., the Partnership, and their subsidiaries. The Partnership
was formed in 2005 and directly or indirectly owned or leased
181 and 169 properties, principally skilled nursing facilities,
across the United States at December 31, 2010 and 2009,
respectively. The Company generates the majority of its revenues
by entering into long-term
triple-net
leases with qualified local, regional, and national operators.
In addition to the base rent, leases provide for tenants to pay
the Company an ongoing escrow for real estate taxes.
Furthermore, all operating and maintenance costs of the
buildings are the responsibility of the tenants. Substantially
all depreciation expense reflected in the consolidated
statements of operations relates to the ownership of senior
living properties. The Company manages its business as a single
business segment as defined in Accounting Standards Codification
(ASC) 280, Segment Reporting.
The Partnership is the general partner of Aviv Healthcare
Properties Operating Partnership I, L.P. (the Operating
Partnership), a Delaware limited partnership. The Operating
Partnership has six wholly owned subsidiaries: Aviv Development
JV, LLC (Aviv Development), a Delaware limited liability
company; Aviv Financing I, LLC (Aviv Financing I), a
Delaware limited liability company; Aviv Financing II, LLC (Aviv
Financing II), a Delaware limited liability company; Aviv
Financing III, LLC (Aviv Financing III), a Delaware limited
liability company; Aviv Financing IV, LLC (Aviv Financing IV), a
Delaware limited liability company; and Aviv Financing V,
LLC (Aviv Financing V), a Delaware limited liability company.
On September 17, 2010, the Partnership entered into an
agreement (the Merger Agreement), by and among the REIT, Aviv
Healthcare Merger Sub LP, a Delaware limited partnership of
which the REIT is the general partner (Merger Sub), Aviv
Healthcare Merger Sub Partner LLC, a Delaware limited liability
company and a wholly owned subsidiary of the REIT, and the
Partnership. Pursuant to the Merger Agreement, the Partnership
merged (the Merger) with and into Merger Sub, with Merger Sub
continuing as the surviving entity with the identical name (the
Surviving Partnership). Following the Merger, the REIT remains
as the sole general partner of the Surviving Partnership and the
Surviving Partnership, as the successor to the Partnership,
became the general partner of the Operating Partnership. All of
the business, assets, and operations will continue to be held by
the Operating Partnership and its subsidiaries. The REITs
equity interest in the Surviving Partnership will be linked to
future investments in the REIT, such that future equity
issuances by the REIT (pursuant to the Stockholders Agreement,
the REITs management incentive plan or otherwise as agreed
between the parties) will result in a corresponding increase in
the REITs equity interest in the Surviving Partnership.
The REIT is authorized to issue 2 million shares of common
stock (par value $0.01) and 1,000 shares of preferred stock
(par value $1,000). At December 31, 2010, there are
227,002 shares of common stock and 125 shares of
preferred stock outstanding. Dividends on each outstanding share
of preferred stock accrue on a daily basis at the rate of 12.5%
per annum of the sum of $1,000 plus all accumulated and unpaid
dividends thereon which are in arrears. The REIT makes annual
distributions on the shares in the aggregate amount of $15,625
per year. With respect to the payment of dividends or other
distributions and the distribution of the REITs assets
upon dissolution, liquidation, or winding up, the preferred
stock will be senior to all other classes and series of stock of
the REIT. Due to the immateriality, the preferred stock has not
been shown separately in the consolidated balance sheets.
As a result of the common control of the REIT (which was newly
formed) and the Partnership, the Merger, for accounting
purposes, did not result in any adjustment to the historical
carrying value of the assets or liabilities of the Partnership.
The REIT was funded in September 2010 with approximately
$235 million from its stockholders. The REIT contributed
the net proceeds of its capital raise to the Partnership in
exchange
F-7
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
for Class G Units in the Partnership. Periods prior to
September 17, 2010 represent the results of operations and
financial condition of the Partnership, as predecessor to the
Company.
The operating results of the Surviving Partnership are allocated
based upon the respective economic interests therein. For the
period from September 17, 2010 through December 31,
2010, the REIT owned 53.4% of the Surviving Partnership.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Estimates
The preparation of the financial statements in conformity with
U.S. generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Noncontrolling
Interests
In December 2007, the Financial Accounting Standards Board
(FASB) issued ASC 810, Consolidations (ASC
810) to improve the relevance, comparability, and
transparency of the financial information that a reporting
entity provides in its consolidated financial statements by
establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. ASC 810 is effective for
fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008.
Effective January 1, 2009, the Company retrospectively
adopted the provisions of ASC 810, which requires a
noncontrolling interest in a subsidiary to be reported as equity
and the amount of consolidated net income specifically
attributable to the noncontrolling interest to be included
within consolidated net income.
ASC 810 also requires consistency in the manner of reporting
changes in the parents ownership interest and requires
fair value measurement of any noncontrolling equity investment
retained in a deconsolidation. Further, as a result of the
adoption of ASC 810, net income attributable to
noncontrolling interests is now excluded from the determination
of consolidated net income.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of the REIT, the Surviving Partnership, the Operating
Partnership, and all controlled subsidiaries and joint ventures.
The Company considers itself to control an entity if it is the
majority owner of and has voting control over such entity. The
portion of the net income or loss attributed to third parties is
reported as net income allocable to noncontrolling interests on
the consolidated statements of operations, and such
parties portion of the net equity in such subsidiaries is
reported on the consolidated balance sheets as noncontrolling
interests. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and
Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid
short-term investments with original maturities of three months
or less. The Company maintains cash and cash equivalents in
United States banking
F-8
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
institutions that exceed amounts insured by the Federal Deposit
Insurance Corporation. The Company believes the risk of loss
from exceeding this insured level is minimal.
Rental
Properties
The Company periodically assesses the carrying value of rental
properties and related intangible assets in accordance with
ASC 360, Property, Plant, and Equipment (ASC 360),
to determine if facts and circumstances exist that would suggest
that assets might be impaired or that the useful lives should be
modified. In the event impairment in value occurs and a portion
of the carrying amount of the rental properties will not be
recovered in part or in whole, a provision will be recorded to
reduce the carrying basis of the rental properties and related
intangibles to their estimated fair value. The estimated fair
value of the Companys rental properties is determined by
using customary industry standard methods that include
discounted cash flow
and/or
direct capitalization analysis. As part of the impairment
evaluation during 2010, a building in Hometown, Texas was
impaired for $96,000 to reflect the difference between the book
value and estimated selling price less costs to dispose. The
property was sold on December 31, 2010, with an immaterial
gain subsequent to the impairment of $96,000 previously taken.
As part of the impairment evaluation during 2008, the Company
recorded a loss on the anticipated sale of a building of
approximately $932,000.
Buildings and building improvements have been assigned estimated
40-year
lives and are depreciated on the straight-line method. Personal
property, furniture, and equipment have been assigned estimated
lives ranging from 7 to 10 years and are depreciated on the
straight-line method.
The Company may advance monies to its lessees for the purchase,
generally, of furniture, fixtures, or equipment or other
purposes. Required minimum lease payments due from the lessee
increase to provide for the repayment of such amounts over a
stated term. These advances in the instance where the
depreciable life of the newly purchased asset is less than the
remaining lease term are reflected as loan receivables on the
consolidated balance sheets, and the incremental lease payments
are bifurcated between principal and interest over the stated
term. In the instance where the depreciable life of the newly
purchased assets is longer than the remaining lease term, the
purchase is recorded as property. In other instances, explicit
loans are made to lessees for working capital and other funding
needs and provide for monthly principal and interest payments
generally ranging from 5 to 10 years. Such advances, net of
repayments, equaled $36,610,638 and $28,970,129 at
December 31, 2010 and 2009, respectively.
Purchase
Accounting
In determining the allocation of the purchase price of
partnerships and facilities between net tangible and identified
intangible assets acquired and liabilities assumed, the Company
makes estimates of the fair value of the tangible and intangible
assets and acquired liabilities using information obtained from
multiple sources as a result of preacquisition due diligence,
marketing, leasing activities of the Companys diverse
operator base, industry surveys of critical valuation metrics
such as capitalization rates, discount rates and leasing rates
and appraisals obtained as a requirement of the Mortgage. The
Company allocates the purchase price of facilities to net
tangible and identified intangible assets acquired based on
their fair values in accordance with the provisions of
ASC 805, Business Combinations (ASC 805). The
determination of fair value involves the use of significant
judgment and estimation.
The Company determines fair values as follows:
|
|
|
|
|
Other assets acquired and other liabilities assumed are valued
at stated amounts, which approximate fair value.
|
F-9
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
|
|
|
|
|
Rental properties are valued using discounted cash flow
projections that assume certain future revenue and costs and
consider capitalization and discount rates using current market
conditions. The Company allocates the purchase price of
facilities to net tangible and identified intangible assets
acquired and liabilities assumed based on their fair values.
|
|
|
|
Assumed debt balances are valued at fair value, with the
computed discount/premium amortized over the remaining term of
the obligation.
|
The Company determines the value of land either based on real
estate tax assessed values in relation to the total value of the
asset, internal analyses of recently acquired and existing
comparable properties within the Companys portfolio, or
third party appraisals. The fair value of in-place leases, if
any, reflects: (i) above- and below-market leases, if any,
determined by discounting the difference between the estimated
current market rent and the in-place rentals, the resulting
intangible asset or liability of which is amortized to rental
revenue over the remaining life of the associated lease plus any
fixed rate renewal periods if applicable; (ii) the
estimated value of the cost to obtain tenants, including tenant
allowances, tenant improvements, and leasing commissions, which
is amortized over the remaining life of the associated lease;
and (iii) an estimated value of the absorption period to
reflect the value of the rents and recovery costs foregone
during a reasonable
lease-up
period as if the acquired space was vacant, which is amortized
over the remaining life of the associated lease. The Company
also estimates the value of tenant or other customer
relationships acquired by considering the nature and extent of
existing business relationships with the tenant, growth
prospects for developing new business with such tenant, such
tenants credit quality, expectations of lease renewals
with such tenant, and the potential for significant, additional
future leasing arrangements with such tenant. The Company
amortizes such value, if any, over the expected term of the
associated arrangements or leases, which would include the
remaining lives of the related leases. The amortization is
included in the consolidated statements of operations in rental
income.
Prior to the Merger on September 17, 2010, Aviv Asset
Management, L.L.C. (AAM) was a non-consolidated management
company to the Partnership based on the application of
appropriate accounting guidance (as discussed in Footnote 11).
Upon the Merger, AAM became a consolidated entity of the Company
and is presented as such for all periods included herein with
all periods shown at historical cost (carryover basis with no
adjustments to fair value). This treatment is in accordance with
ASC 805 due to the fact that AAM was under common control
prior and subsequent to the Merger.
Revenue
Recognition
Rental income is recognized on a straight-line basis over the
term of the lease when collectibility is reasonably assumed.
Differences between rental income earned and amounts due under
the lease are charged or credited, as applicable, to deferred
rent receivable. Income recognized from this policy is titled
deferred rental revenue. Additional rents from expense
reimbursements for insurance, real estate taxes, and certain
other expenses are recognized in the period in which the related
expenses are incurred and are reflected as tenant recoveries on
the consolidated statements of operations.
F-10
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
Below is a summary of the components of rental income for the
years ended December 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Rental income
|
|
|
$77,752,605
|
|
|
|
$74,288,823
|
|
|
|
$64,093,466
|
|
Deferred rental revenue
|
|
|
3,056,430
|
|
|
|
6,388,600
|
|
|
|
5,531,005
|
|
Rental income from intangible amortization
|
|
|
3,681,109
|
|
|
|
2,097,655
|
|
|
|
2,518,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental income
|
|
|
$84,490,144
|
|
|
|
$82,775,078
|
|
|
|
$72,142,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2010, deferred rental
revenue includes an off-setting write-off (expense) of deferred
rent receivable of $3,367,164 due to the terminations of leases
and replacement of operators.
Lease
Accounting
The Company, as lessor, makes a determination with respect to
each of its leases whether they should be accounted for as
operating leases or direct financing leases. The classification
criteria is based on estimates regarding the fair value of the
leased facilities, minimum lease payments, effective cost of
funds, the economic life of the facilities, the existence of a
bargain purchase option, and certain other terms in the lease
agreements. Payments received under operating leases are
accounted for in the statement of operations as rental income
for actual rent collected plus or minus a straight-line
adjustment for estimated minimum lease escalators. Assets
subject to operating leases are reported as rental properties in
the consolidated balance sheets. For facilities leased as direct
financing arrangements, an asset equal to the Companys net
initial investment is established on the balance sheet titled
assets under direct financing leases. Payments received under
the financing lease are bifurcated between interest income and
principal amortization to achieve a consistent yield over the
stated lease term using the interest method. Principal
amortization (accretion) is reflected as an adjustment to the
asset subject to a financing lease. Such accretion was $143,878,
$153,983, and $95,793 for the years ended December 31,
2010, 2009, and 2008, respectively.
All of the Companys leases contain fixed or formula-based
rent escalators. To the extent that the escalator increases are
tied to a fixed index or rate, lease payments are accounted for
on a straight-line basis over the life of the lease.
Deferred
Finance Costs
Deferred finance costs are being amortized using the
straight-line method, which approximates the interest method,
over the term of the respective underlying debt agreement.
Loan
Receivables
Loan receivables consist of capital improvement loans to tenants
and working capital loans to operators. Loan receivables are
carried at their principal amount outstanding. Management,
periodically evaluates outstanding loans and notes receivable
for collectability. When management identifies potential loan
impairment indicators, such as nonpayment under the loan
documents, impairment of the underlying collateral, financial
difficulty of the operator, or other circumstances that may
impair full execution of the loan documents, and management
believes it is probable that all amounts will not be collected
under the contractual terms of the loan, the loan is written
down to the present value of the expected future cash flows. As
of December 31, 2010, loan receivable reserves amounted to
$750,000. No other circumstances exist that
F-11
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
would suggest that additional reserves are necessary at the
balance sheet date. As of December 31, 2009, loan
receivable reserves are immaterial.
Stock-Based
Compensation
The Company follows ASC 718, Stock Compensation (ASC 718),
which requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the
consolidated statements of operations based on their grant date
fair values. On September 17, 2010, the Company adopted a
2010 Management Incentive Plan (the Plan) as part of the Merger
transaction. A pro-rata allocation of non-cash stock-based
compensation expense is made to the Company for awards granted
under the Plan. The Plans non-cash stock-based
compensation expense by the Company since the Merger date
through December 31, 2010 is summarized in Footnote 9.
Fair
Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures, (ASC
820) establishes a three-level valuation hierarchy for
disclosure of fair value measurements. The valuation hierarchy
is based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. A financial
instruments categorization within the valuation hierarchy
is based upon the lowest level of input that is significant to
the fair value measurement. The three levels are defined as
follows:
|
|
|
|
|
Level 1Inputs to the valuation methodology are quoted
prices (unadjusted) for identical assets or;
|
|
|
|
Level 2Inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument; and
|
|
|
|
Level 3Inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
|
The Companys interest rate swaps are valued using models
developed internally by the respective counterparty that use as
their basis readily observable market parameters and are
classified within Level 2 of the valuation hierarchy.
Cash and cash equivalents, cash and escrow
depositsrestricted, and derivative financial instruments
are reflected in the accompanying consolidated balance sheets at
amounts considered by management to reasonably approximate fair
value. Management estimates the fair value of its long-term debt
using a discounted cash flow analysis based upon the
Companys current borrowing rate for debt with similar
maturities and collateral securing the indebtedness. The Company
had outstanding mortgage and other notes payable obligations
with a carrying value of approximately $440.6 million and
$480.1 million as of December 31, 2010 and 2009,
respectively. The estimated fair value of debt
(Level 2) as of December 31, 2010 approximated
its carrying value based upon interest rates available to the
Company on similar borrowings, and was $458.4 million as of
December 31, 2009.
Derivative
Instruments
The Company has implemented ASC 815, Derivatives and
Hedging (ASC 815), which establishes accounting and
reporting standards requiring that all derivatives, including
certain derivative instruments
F-12
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
embedded in other contracts, be recorded as either an asset or
liability measured at their fair value unless they qualify for a
normal purchase or normal sales exception. When specific hedge
accounting criteria are not met, ASC 815 requires that
changes in a derivatives fair value be recognized
currently in earnings. Changes in the fair market values of the
Companys derivative instruments are recorded in the
consolidated statements of operations if the derivative does not
qualify for or the Company does not elect to apply hedge
accounting. If the derivative is deemed to be eligible for hedge
accounting, such changes are reported in accumulated other
comprehensive income within the consolidated statements of
changes in equity, exclusive of ineffectiveness amounts, which
are recognized as adjustments to net income.
Initial
Public Offering Costs
During 2009, the Company pursued an initial public offering (the
IPO) of common stock. Costs related to the IPO incurred by the
Company were capitalized on the consolidated balance sheets in
other assets as they were incurred.
On November 2, 2009, the Company abandoned its IPO effort.
As a result, the Company wrote off the IPO costs incurred to
date to the consolidated statement of operations. In the year
ended December 31, 2009, approximately $6.9 million of
IPO-related costs were expensed.
Income
Taxes
For federal income tax purposes, the Company intends to elect,
with the filing of its initial 1120 REIT, U.S. Income Tax
Return for Real Estate Investment Trusts, to be taxed as a Real
Estate Investment Trust (REIT) effective at the time of the
Merger. To qualify as a REIT, the Company must meet certain
organizational, income, asset and distribution tests. The
Company currently intends to comply with these requirements and
maintain REIT status. If the Company fails to qualify as a REIT
in any taxable year, the Company will be subject to federal
income taxes at regular corporate rates (including any
applicable alternative minimum tax) and may not elect REIT
status for four subsequent years. However, the Company may still
be subject to federal excise tax. In addition, the Company may
be subject to certain state and local income and franchise
taxes. Historically, the Company and its predecessor have
generally only incurred certain state and local income and
franchise taxes, but these amounts were immaterial in any of the
years presented. Prior to the Merger, the Partnership was a
limited partnership and the consolidated operating results were
included in the income tax returns of the individual partners.
No uncertain income tax positions exist as of December 31,
2010 and 2009, respectively.
The rental properties of the Company have an income tax basis of
approximately $598,846,000 as of December 31, 2010.
Dividends paid to common stockholders, for federal income tax
purposes, are as follows:
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|
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|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2010
|
|
Per Share:
|
|
|
|
|
Ordinary income
|
|
|
$12.52
|
|
Return of capital
|
|
|
14.30
|
|
|
|
|
|
|
Totals
|
|
|
$26.82
|
|
|
|
|
|
|
F-13
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
Risks and
Uncertainties
The Company is subject to certain risks and uncertainties
affecting the healthcare industry as a result of healthcare
legislation and continuing regulation by federal, state, and
local governments. Additionally, the Company is subject to risks
and uncertainties as a result of changes affecting operators of
nursing home facilities due to the actions of governmental
agencies and insurers to limit the growth in cost of healthcare
services.
Reclassifications
Certain prior period amounts have been reclassified to conform
to the current financial statement presentation, with no effect
on the Companys consolidated financial position or results
of operations.
|
|
3.
|
Rental
Property Activity
|
The Company had the following rental property activity during
2010 as described below:
|
|
|
|
|
In March 2010, Aviv Financing III recognized an additional
$8,121,000 addition to the purchase price for the August 2008
acquisitions of eight properties in California and Oregon from
an unrelated third party as per the guidance within
ASC 805. The addition is related to the earn-out provision
defined at closing. Such $8,121,000 additions along with
$1,480,000 previously accrued amounts at December 31, 2009
related to the acquisitions of two properties in April 2009 in
California and Nevada under Aviv Financing I, were paid out
in the amount of approximately $9,601,000.
|
|
|
|
In June 2010, Aviv Financing III acquired a property in
Tennessee from an unrelated third party for a purchase price of
approximately $3,380,000. The Company financed this purchase
through cash.
|
|
|
|
In July 2010, Aviv Financing I disposed of two properties in
California to an unrelated third party for a total selling price
of approximately $3,988,000, which resulted in a gain on
disposal of approximately $582,000. The proceeds from the sale
were primarily used to pay down a portion of the existing Credit
Facility (see Footnote 7) by approximately $3,883,000.
|
|
|
|
In September 2010, Aviv Financing I acquired a property in
Virginia from an unrelated third party for a purchase price of
approximately $5,000,000. The Company financed this purchase
through borrowings of approximately $3,162,000 under the
Revolver (see Footnote 7).
|
|
|
|
In October 2010, Aviv Financing I acquired four properties in
Missouri from various unrelated third parties for a purchase
price of approximately $10,460,000. The Company financed this
purchase through borrowings of approximately $7,718,000 under
the Revolver (see Footnote 7).
|
|
|
|
In November 2010, Aviv Financing III acquired a property in
California from an unrelated third party for a purchase price of
approximately $11,500,000. The Company financed this purchase
through borrowings of approximately $7,800,000 under an
acquisition loan.
|
|
|
|
In December 2010, Aviv Financing III acquired a property in
Connecticut from an unrelated third party for a purchase price
of approximately $2,600,000. The Company financed this purchase
through cash.
|
F-14
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
|
|
|
|
|
In December 2010, Aviv Financing I acquired four properties in
Kansas, Texas and Connecticut, from unrelated third parties for
a purchase price of approximately $21,944,000. The Company
financed this purchase through borrowings of approximately
$15,666,000 under the Revolver (see Footnote 7).
|
|
|
|
In December 2010, Aviv Financing I sold a property located in
Texas to an unrelated third party for a sales price of
approximately $96,000.
|
In accordance with ASC 805, the Company allocated the
approximate net purchase price of these properties acquired in
2010 as follows:
|
|
|
|
|
Land
|
|
|
$7,094,000
|
|
Buildings and improvements
|
|
|
55,911,000
|
|
|
|
|
|
|
Borrowings and available cash
|
|
|
$63,005,000
|
|
|
|
|
|
|
The Company had the following rental property activity during
2009 as described below:
|
|
|
|
|
In January 2009, Aviv Financing III acquired a property in
Arkansas from an unrelated third party for a purchase price of
approximately $5,250,000. The Company financed this purchase
through borrowings of approximately $2,625,000 via an
acquisition loan, which was subsequently paid in full in August
2009.
|
|
|
|
In April 2009, Aviv Financing III acquired two properties
in California and Nevada from an unrelated third party for a
purchase price of approximately $12,606,000. The Company
financed this purchase through borrowings of approximately
$8,625,000 via an acquisition loan.
|
In accordance with ASC 805, the Company allocated the
approximate net purchase price of these properties acquired in
2009 as follows:
|
|
|
|
|
Land
|
|
|
$4,675,000
|
|
Buildings and improvements
|
|
|
13,181,000
|
|
|
|
|
|
|
Borrowings and available cash
|
|
|
$17,856,000
|
|
|
|
|
|
|
The Company acquired additional rental properties during 2008 as
described below:
|
|
|
|
|
In April 2008, Aviv Financing I acquired vacant land in Arkansas
from an unrelated third party for a purchase price of
approximately $625,000 to be used for construction of a
replacement facility and acquired two properties in Arkansas
from an unrelated third party for a purchase price of
approximately $12,800,000. The Company financed this purchase
through borrowings of approximately $9,785,000 under the Credit
Facility and from proceeds from the issuance of Class E
Units.
|
|
|
|
In August 2008, Aviv Financing I acquired eight properties in
California and Oregon from an unrelated third party for a
purchase price of approximately $60,600,000. The Company
financed this purchase through borrowings of approximately
$47,400,000 under the Credit Facility.
|
F-15
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
|
|
|
|
|
In September 2008, Aviv Financing I acquired a property in
Illinois from an unrelated third party for a purchase price of
approximately $6,200,000. The Company financed this purchase
through borrowings of approximately $5,571,000 via the
assumption of HUD debt.
|
|
|
|
In November 2008, Aviv Financing I acquired four properties in
Arkansas from an unrelated third party for a purchase price of
approximately $19,617,500. The Company financed this purchase
through borrowings of approximately $15,694,000 under the Credit
Facility.
|
|
|
|
In December 2008, Aviv Financing I acquired two properties, in
two separate transactions, in Kansas and California from an
unrelated third party for a purchase price of approximately
$3,350,000. The Company financed this purchase through
borrowings of approximately $2,680,000 under the Credit Facility.
|
In accordance with ASC 805, the Company allocated the
approximate net purchase price plus any related closing costs of
these properties acquired in 2008 as follows:
|
|
|
|
|
Land
|
|
|
$12,719,000
|
|
Buildings and improvements
|
|
|
80,325,000
|
|
Assets under direct financing leases
|
|
|
10,390,000
|
|
Mortgage and other notes payable assumed
|
|
|
(5,571,000
|
)
|
|
|
|
|
|
Borrowings and issuances of Class E Units
|
|
|
$97,863,000
|
|
|
|
|
|
|
The Company considers renewals on below-market leases when
ascribing value to the in-place lease intangible liabilities at
the date of a property acquisition. In those instances where the
renewal lease rate pursuant to the terms of the lease does not
adjust to a current market rent, the Company evaluates whether
the stated renewal rate is below current market rates and
considers the past and current operations of the property, the
current rent coverage ratio of the tenant, and the number of
years until potential renewal option exercise. If renewal is
considered probable based on these factors, an additional lease
intangible liability is recorded at acquisition and amortized
over the renewal period.
|
|
4.
|
Deferred
Finance Costs
|
The following summarizes the Companys deferred finance
costs at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Gross amount
|
|
|
$10,567,931
|
|
|
|
$2,620,295
|
|
Accumulated amortization
|
|
|
(610,295
|
)
|
|
|
(1,630,637
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$9,957,636
|
|
|
|
$989,658
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs is reported in the
amortization expense line item in the consolidated statements of
operations.
F-16
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
The estimated annual amortization of the deferred finance costs
for each of the five succeeding years is as follows:
|
|
|
|
|
2011
|
|
|
$2,116,711
|
|
2012
|
|
|
2,116,711
|
|
2013
|
|
|
2,116,021
|
|
2014
|
|
|
2,108,699
|
|
2015
|
|
|
1,499,494
|
|
|
|
|
|
|
Total
|
|
|
$9,957,636
|
|
|
|
|
|
|
The following summarizes the Companys loan receivables at
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance
|
|
|
$28,970,129
|
|
|
|
$20,360,601
|
|
New capital improvement loans issued
|
|
|
1,415,579
|
|
|
|
2,816,733
|
|
Working capital and other loans issued
|
|
|
14,705,259
|
|
|
|
7,963,189
|
|
Reserve for uncollectible loans
|
|
|
(750,000
|
)
|
|
|
|
|
Loan amortization and repayments
|
|
|
(7,730,329
|
)
|
|
|
(2,170,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$36,610,638
|
|
|
|
$28,970,129
|
|
|
|
|
|
|
|
|
|
|
During 2010 and 2009, the Company funded loans for both working
capital and capital improvement purposes to various operators
and tenants. All loans held by the Company accrue interest. The
payments received from the operator or tenant cover both
interest accrued as well as amortization of the principal
balance due. Any payments received from the tenant or operator
made outside of the normal loan amortization schedule are
considered principal prepayments and reduce the outstanding loan
receivables balance.
Interest income earned on loan receivables for the years ended
December 31, 2010, 2009, and 2008 was $3,823,223,
$2,117,461, and $909,645, respectively.
|
|
6.
|
In-Place
Lease Intangibles
|
The following summarizes the Companys in-place lease
intangibles classified as part of other assets or other
liabilities at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Gross amount
|
|
|
$8,393,488
|
|
|
|
$25,798,147
|
|
|
|
$11,336,489
|
|
|
|
$34,275,494
|
|
Accumulated amortization
|
|
|
(3,049,093
|
)
|
|
|
(14,049,691
|
)
|
|
|
(3,836,456
|
)
|
|
|
(16,690,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$5,344,395
|
|
|
|
$11,748,456
|
|
|
|
$7,500,033
|
|
|
|
$17,585,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
The estimated annual amortization expense of the identified
intangibles for each of the five succeeding years is as follows:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
2011
|
|
|
$644,570
|
|
|
|
$2,065,305
|
|
2012
|
|
|
644,570
|
|
|
|
1,953,351
|
|
2013
|
|
|
636,847
|
|
|
|
1,838,732
|
|
2014
|
|
|
461,961
|
|
|
|
923,735
|
|
2015
|
|
|
402,147
|
|
|
|
678,961
|
|
Thereafter
|
|
|
2,554,300
|
|
|
|
4,288,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5,344,395
|
|
|
|
$11,748,456
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the in-place lease intangible assets
for the years ended December 31, 2010, 2009, and 2008 was
$743,890, $986,871, and $1,020,315, respectively. Accretion for
the in-place lease intangible liabilities for the years ended
December 31, 2010, 2009, and 2008 was $2,468,500,
$3,084,525, and $3,538,691 respectively.
During 2010, the Company wrote-off in-place lease intangible
assets of $2,943,001 with accumulated amortization of
$1,531,253, and in-place lease intangible liabilities of
$8,477,347 with accumulated accretion of $5,109,101, for a net
recognition of $1,956,498 in rental income from intangible
amortization, respectively.
F-18
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
|
|
7.
|
Mortgage
and Other Notes Payable
|
The Companys mortgage and other notes payable consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Mortgage (interest rate of 5.75% on December 31, 2010)
|
|
|
$402,794,111
|
|
|
|
$
|
|
Revolver (interest rate of 5.75% on December 31, 2010)
|
|
|
28,677,230
|
|
|
|
|
|
Construction loan (interest rate of 5.95% on December 31,
2010)
|
|
|
1,312,339
|
|
|
|
|
|
Acquisition loans (interest rate of 6.00% on December 31,
2010)
|
|
|
7,792,236
|
|
|
|
|
|
Term A loans (interest rates of 3.25% on December 31, 2009)
|
|
|
|
|
|
|
7,000,000
|
|
Term A loan (interest rate of 2.73% on December 31, 2009)
|
|
|
|
|
|
|
150,000,000
|
|
Term A loan (interest rate of 2.73% on December 31, 2009)
|
|
|
|
|
|
|
50,000,000
|
|
Term B loans (interest rates of 3.25% on December 31, 2009)
|
|
|
|
|
|
|
11,062,192
|
|
Term B loan (interest of 2.73% on December 31, 2009)
|
|
|
|
|
|
|
200,000,000
|
|
Construction loan (interest rates of 3.25% on December 31,
2009)
|
|
|
|
|
|
|
5,188,837
|
|
Construction loan (interest rate of 5.00% on December 31,
2009)
|
|
|
|
|
|
|
7,187,276
|
|
HUD-related debt (interest rates ranging from 5.23% to 7.25% on
eight HUD properties)
|
|
|
|
|
|
|
29,154,033
|
|
Other loan (interest rates of 3.75% on December 31, 2009)
|
|
|
|
|
|
|
12,000,000
|
|
Acquisition loan (interest rate of 4.50% on December 31,
2009)
|
|
|
|
|
|
|
8,512,888
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$440,575,916
|
|
|
|
$480,105,226
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the Merger, Aviv Financing I refinanced its
debt by paying off all existing mortgages on September 17,
2010 in the amount of $471,064,380 (outstanding balances at the
Merger), and entering into a five-year credit agreement (the
Credit Agreement) that provided a $405 million mortgage
term loan facility (the Mortgage) and a $100 million
revolver (the Revolver).
The
Mortgage
Principal payments on the Mortgage are payable in monthly
installments beginning on November 1, 2010. The payment
schedule for the Mortgage is based upon a
25-year
mortgage style amortization as defined in the Credit Agreement.
Interest rates, at the Companys option, are based upon the
base rate or Eurodollar base rate (0.29% at December 31,
2010 with a 1.25% floor) plus 4.5%. The base rate, as defined in
the Credit Agreement, is the rate announced from time to time by
the Base Rate Bank as its prime rate. The Base Rate
Bank is Bank of America, N.A. The balance outstanding on the
Term Loan as of December 31, 2010 was $402.8 million.
This loan matures in September 2015 and has two one-year
extensions.
F-19
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
The
Revolver
Under the Credit Agreement, the Company also has a
$100 million Revolver. On each payment date, the Company
shall pay interest only in arrears on any outstanding principal
balance of the Revolver. Interest rates, at the Companys
option, are based upon the base rate or Eurodollar base rate
(0.29% at December 31, 2010 with a 1.25% floor) plus 4.5%.
The base rate, as defined in the GE Credit Agreement, is the
rate announced from time to time by the Base Rate Bank as its
prime rate. The Base Rate Bank is Bank of America,
N.A. Additionally, an unused fee equal to 1% per annum of the
daily unused balance on the Revolver is due monthly.
As of December 31, 2010, approximately $28.7 million
had been drawn on The Revolver. The ability to draw on the
Revolver terminates in September 2013 at which time principal
and interest are payable until the Revolver maturity date in
September 2015.
Other
Loans
On November 1, 2010, a subsidiary of Aviv
Financing III entered into two acquisition loan agreements
on the same terms that provided for borrowings of
$7.8 million. Principal and interest payments are due
monthly beginning on December 1, 2010 through the maturity
date of December 1, 2015. Interest is a fixed rate of
6.00%. These loans are collateralized by a skilled nursing
facility controlled by Aviv Financing III. The balance
outstanding on these loans at December 31, 2010 was
approximately $7.8 million.
On November 12, 2010, a subsidiary of Aviv
Financing III entered into a construction loan agreement
that provides for borrowings up to $6.4 million.
Interest-only payments at the prime rate (3.25% at
December 31, 2010) plus 0.38%, or a minimum of 5.95%,
are due monthly from December 1, 2010 through April 1,
2012. From May 1, 2012 through the maturity date of
December 1, 2013, monthly payments of principal and
interest are due based on a
20-year
amortization schedule. This loan is collateralized by a skilled
nursing facility controlled by Aviv Financing III. The balance
outstanding on this loan at December 31, 2010 was
approximately $1.3 million.
Future annual maturities of all debt obligations for five fiscal
years subsequent to December 31, 2010, are as follows:
|
|
|
|
|
2011
|
|
|
$7,321,285
|
|
2012
|
|
|
7,717,628
|
|
2013
|
|
|
9,650,608
|
|
2014
|
|
|
9,227,220
|
|
2015
|
|
|
406,659,175
|
|
|
|
|
|
|
|
|
|
$440,575,916
|
|
|
|
|
|
|
|
|
8.
|
Partnership
Equity and Incentive Program
|
In conjunction with the formation of the Partnership, the
Partnership issued 10,323,213 Class A Units and 3,294,733
Class B Units in exchange for all ownership interests of
the Roll-up
contributed to the Partnership in 2005. The Partnership issued
an additional 3,144,010 Class A Units and 1,228,372
Class B Units in 2006. The Class A Units issued as a
result of the formation of the Partnership have a par value of
$10.00 per unit, while Class A Units issued on
December 29, 2006, as a result of the addition of
additional properties have a par value of $11.49 per unit.
Operating distributions accrue at the rate of 10% per year for
F-20
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
Class A Units. The Class A Units have distribution
preference, which decreases ratably after the full return of
capital to the Class A Unitholders through distributions,
and also have a liquidation preference and a profit interest in
the event of sale, disposition, or refinancing as defined in the
Agreement of Limited Partnership (the Partnership Agreement).
Also in connection with the formation of the Partnership, the
Partnership awarded Class C Unit profit interests. These
Class C Units do not have a par value, and no capital was
contributed in consideration for their issuance. These
Class C Units were issued to the General Partner of the
Partnership, which is owned by two parties that have significant
ownership holdings in the Partnership. When operating
distributions are paid in full to the Class A Units as
described above, the Class B and Class C Units receive
all excess distributions, with 40% to Class B Unitholders
and 60% to the Class C Unitholders until the Class B
Units receive $3 million in any partnership year to the
extent that all Class B Units have been issued per the
Partnership Agreement. After reaching this threshold, the
remaining distributions are allocated 100% to the Class C
Unitholders.
The Class D Units represent profit interests in the
Partnership, which may be granted periodically to employees of
AAM. A total of 10,000 Class D Units have been authorized.
A total of 8,050 and 7,800 Class D Units are outstanding at
December 31, 2010 and 2009, respectively. The Class D
Units are not entitled to any distributions of the Partnership,
except in the event of sale, disposition, or refinancing as
defined. Class C Units also have an interest in these
proceeds. The terms of the Class D Units were amended at
the Merger. Part of the Class D Units are defined as
performance-based awards under ASC 718 and require
employment of the recipient on the date of sale, disposition, or
refinancing (Liquidity Event). If the employee is no longer
employed on such date, the award is forfeited. For accounting
purposes, the grant date fair value will be recognized as an
expense when a Liquidity Event becomes imminent and such fair
value on the grant date was determined to be $0.9 million.
The remainder of the Class D Units are time-based awards
under ASC 718 and such fair value determined on the grant
date is recognized over the vesting period. During 2010, 3,220
of the time-based D Units vested, resulting in the recognition
of $888,400 in expense. No expense relating to these awards was
recognized in 2009.
Distributions to the Partnership partners are summarized as
follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
Class E
|
|
Class F
|
|
Class G
|
|
2010
|
|
|
$13,594,547
|
|
|
|
$2,894,457
|
|
|
|
$12,683,113
|
|
|
|
$
|
|
|
|
$5,342,466
|
|
|
|
$3,792,881
|
|
|
|
$6,092,935
|
|
2009
|
|
|
$13,562,740
|
|
|
|
$2,894,457
|
|
|
|
$10,339,900
|
|
|
|
$
|
|
|
|
$6,898,235
|
|
|
|
$4,430,085
|
|
|
|
$
|
|
2008
|
|
|
$13,562,740
|
|
|
|
$2,774,081
|
|
|
|
$4,161,121
|
|
|
|
$
|
|
|
|
$4,692,899
|
|
|
|
$5,223,778
|
|
|
|
$
|
|
Weighted-average Units outstanding are summarized as follows for
the respective years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
Class E
|
|
Class F
|
|
Class G
|
|
2010
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
7,386
|
|
|
|
5,342,489
|
|
|
|
4,597,432
|
|
|
|
65,338
|
|
2009
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
8,033
|
|
|
|
6,901,950
|
|
|
|
5,369,800
|
|
|
|
|
|
2008
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
9,006
|
|
|
|
4,693,784
|
|
|
|
5,369,800
|
|
|
|
|
|
The Partnership had established an officer incentive program
linked to its future value. Awards vest annually over a
five-year period assuming continuing employment by the
recipient. The awards can be settled in Class C Units or
cash at the Companys discretion at the settlement date of
December 31, 2012. For accounting purposes, expense
recognition under the program commenced in 2008, and the related
expense for
F-21
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
the year ended December 31, 2010, 2009, and 2008 was
approximately $406,000, $406,000, and $406,000, respectively.
As a result of the Merger on September 17, 2010, such
incentive program was modified such that 40% of the previously
granted award settled immediately on the Merger date with
another 20% vesting and settling on December 31, 2010. The
remaining 40% will vest equally on December 31, 2011 and
December 31, 2012, and will settle in 2018, subject to the
terms and conditions of the amended incentive program agreement.
In accordance with ASC 718, CompensationStock
Compensation (ASC 718), such incentive program will continue
to be expensed through general and administrative expenses as
non-cash compensation on the statements of operations through
the ultimate vesting date of December 31, 2012.
On September 17, 2010, the Company adopted a 2010
Management Incentive Plan (the Plan) as part of the Merger
transaction.
In connection with the Merger, 64,168 options were granted to
certain members of management and advisory board members on
September 17, 2010 with an exercise price of $1,000 per
option. Two thirds of the options granted, or
42,778 shares, are performance based awards whose criteria
for vesting is tied to a future liquidity event (as defined) and
also contingent upon meeting certain return thresholds (as
defined). At this time, the Company does not believe it is
probable that these options will vest and therefore has not
recorded any expense in the December 31, 2010 financial
statements in accordance with ASC 718. The grant date fair
value associated with all performance based award options of the
Company aggregates approximately $4.0 million as of
December 31, 2010. One third, or 21,390 shares, of the
options granted were time based awards and the service period
for these options is four years with shares vesting at a rate of
25% on September 17, 2010, 2011, 2012, and 2013.
An additional 1,425 options were granted to certain members of
management and advisory board members on September 30, 2010
with an exercise price of $1,084 per option. Two thirds of the
options granted, or 949 shares, are performance based
awards (as defined above). One third, or 476 shares, of the
options granted were time based awards (as defined above). The
grant date fair value of each time based award is charged to
non-cash compensation expense on a graded basis over the vesting
period. No option awards were granted prior to
September 17, 2010. The following table represents the time
based option awards activity for the year ended
December 31, 2010.
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
Outstanding at beginning of period
|
|
|
|
|
Granted
|
|
|
21,866
|
|
Exercised
|
|
|
|
|
Cancelled/Forfeited
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
21,866
|
|
Options exercisable at end of period
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
|
$108.55
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
9.72
|
|
|
|
|
|
|
F-22
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
The following table represents the time based option awards
outstanding for the year ended December 31, 2010 as well as
other Plan data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Contractual Life
|
|
Weighted Average
|
Range of Exercise Prices
|
|
Outstanding
|
|
(Years)
|
|
Exercise Price
|
|
$1,000$1,084
|
|
|
21,866
|
|
|
|
9.72
|
|
|
|
$1,002
|
|
The Company has used the Black-Scholes option pricing model to
estimate the grant date fair value of the options. The following
table includes the assumptions that were made in estimating the
grant date fair value for options awarded in 2010.
|
|
|
|
|
|
|
2010 Grants
|
|
Dividend yield
|
|
|
10.28
|
%
|
Risk-free interest rate
|
|
|
2.1
|
%
|
Expected life
|
|
|
7.0 years
|
|
Estimated volatility
|
|
|
38.00
|
%
|
Weighted average exercise price
|
|
|
$1,001.83
|
|
Weighted average fair value of options granted (per option)
|
|
|
$108.55
|
|
The Company recorded non-cash compensation expenses of $337,598
for the year ended December 31, 2010, related to the time
based stock options accounted for as equity awards, as a
component of general and administrative expenses in the
consolidated statements of operations.
At December 31, 2010, the total compensation cost related
to outstanding, non-vested time based equity option awards that
are expected to be recognized as compensation cost in the future
aggregates approximately $2,036,000.
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
2011
|
|
|
$1,056,730
|
|
2012
|
|
|
572,691
|
|
2013
|
|
|
298,647
|
|
2014
|
|
|
107,809
|
|
|
|
|
|
|
Total
|
|
|
$2,035,877
|
|
|
|
|
|
|
Dividend equivalent rights associated with the Plan, amounted to
$586,630 for the year ended December 31, 2010, which were
incurred during the fourth quarter of 2010, and are included in
general and administrative expense in the consolidated
statements of operations. These dividend rights will be paid in
four installments as the option vests.
|
|
10.
|
Minimum
Future Rentals
|
The Companys rental properties are leased under
noncancelable
triple-net
operating leases. Under the provisions of the leases, the
Company receives fixed minimum monthly rentals, generally with
annual increases, and the tenants are responsible for the
payment of all operating expenses, including repairs and
maintenance, insurance, and real estate taxes of the property
throughout the term of the leases.
F-23
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
At December 31, 2010, future minimum annual rentals to be
received under the noncancelable lease terms are as follows:
|
|
|
|
|
2011
|
|
|
$84,992,545
|
|
2012
|
|
|
88,174,683
|
|
2013
|
|
|
90,498,508
|
|
2014
|
|
|
88,768,851
|
|
2015
|
|
|
88,841,343
|
|
Thereafter
|
|
|
473,832,636
|
|
|
|
|
|
|
|
|
|
$915,108,566
|
|
|
|
|
|
|
Related party receivables and payables represent amounts due
from/to various affiliates of the Company, including advances to
members of the Company, amounts due to certain acquired
companies and limited liability companies for transactions
occurring prior to the formation of the Company, and various
advances to entities controlled by affiliates of the
Companys management.
The Partnership had entered into a management agreement, as
amended, effective April 1, 2005, with AAM, an entity
affiliated by common ownership. Under the management agreement,
AAM had been granted the exclusive right to oversee the
portfolio of the Partnership, providing, among other
administrative services, accounting and all required financial
services; legal administration and regulatory compliance;
investor, tenant, and lender relationship services; and
transactional support to the Partnership. Except as otherwise
provided in the Partnership Agreement, all management powers of
the business and affairs of the Partnership are exclusively
vested in the General Partner. The annual fee for such services
equals six-tenths of one percent (0.6%) of the aggregate fair
market value of the properties as determined by the Partnership
and AAM annually. This fee arrangement was amended as discussed
below. In addition, the Partnership reimbursed AAM for all
reasonable and necessary
out-of-pocket
expenses incurred in AAMs conduct of its business,
including, but not limited to, travel, legal, appraisal, and
brokerage fees, fees and expenses incurred in connection with
the acquisition, disposition, or refinancing of any property,
and reimbursement of compensation and benefits of the officers
and employees of AAM. This agreement was terminated on
September 17, 2010 when the Merger occurred, effectively
consolidating AAM into the Company, and eliminating the
necessity for reimbursement.
On October 16, 2007, the Company legally acquired AAM
through a Manager Contribution and Exchange Agreement dated
October 16, 2007 (the Contribution Agreement). As
stipulated in the Contribution Agreement and the Second Amended
and Restated Agreement of Limited Company on October 16,
2007 (Partnership Agreement), the Company issued a new class of
Company Unit, Class F Units, as consideration to the
contributing members of AAM. The contributing members of AAM
served as the general partner of the Partnership. The
Class F Units have subordinated payment and liquidity
preference to the Class E Units but are senior in payment
and liquidity preference, where applicable, to the Class A,
B, C, and D Units of the Partnership. The Class F Units
paid in quarterly installments an annual dividend of 8.25% of
the preliminary face amount of $53,698,000. The preliminary
pricing was based upon trading multiples of comparably sized
publicly traded healthcare REITs. The ultimate Class F Unit
valuation was subject to a
true-up
formula at the time of a Liquidity Event, as defined in the
Partnership Agreement.
For accounting purposes, prior to the Merger, AAM had not been
consolidated by the Company, nor had any value been ascribed to
the Class F Units issued due to the ability of the
Class E Unitholders to
F-24
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
unwind the acquisition as described above. Such action was
outside the control of the Company, and accordingly, the
acquisition is not viewed as having been consummated. The
dividends earned by the Class F Unitholders were reflected
as a component of management fees as described above. Subsequent
to October 16, 2007, the fee for management services to the
Company are equal to the dividend earned on the Class F
Unit and was reported as management fee expense.
Under certain circumstances, the Partnership Agreement did
permit the Class E Unitholders to unwind this transaction
and requires the Company to redeem the Class F Units by
returning to the affiliates all membership interests in AAM. On
September 17, 2010, the Company settled the investment with
JER Aviv Acquisition, LLC (JER). For accounting purposes, this
treatment triggered the retroactive consolidation of AAM by the
Company. The original and follow-on investments of Class E
Unitholders were made subject to the Unit Purchase Agreement and
related documents (UPA) between the Company and JER dated
May 26, 2006.
The UPA did not give either party the right to settle the
investment prior to May 26, 2011. However, the UPA did have
an economic arrangement as to how either party could settle the
arrangement on or after that date. This economic construct
guided the discussions and negotiations of settlement. The UPA
allowed the Company to call the E Units and warrants anytime
after May 26, 2011 as long as it provided JER with a 15%
IRR from date of inception. The IRR would be calculated
factoring interim distributions as well as exit payments. The
units were settled for $92,001,451 contemporaneous with the
Merger. A portion of the settlement related to outstanding
warrants held by JER and originally issued in connection with
the E Units issuance.
Coincident with the Merger, 50% of the Class F Unit was
purchased and settled by the Company for $23,602,649 and is
reported as a component of distributions to partners and
accretion on Class E Preferred Units in the consolidated
statements of changes in equity. The remaining Class F
Units will pay in quarterly installments an annual dividend of
9.38% of the face amount of $23,602,649.
During the periods presented, the Company was party to various
interest rate swaps, which were purchased to fix the variable
interest rate on the denoted notional amount under the original
debt agreements.
At December 31, 2009, the Company was party to the
following interest rate swaps, which were purchased to fix the
variable interest rate on the denoted notional amount under the
Original and Amended Credit Agreements and on the acquisition
loan, which was obtained in April 2009:
|
|
|
Total notional amount
|
|
$289,976,000
|
Fixed interest rates range
|
|
1.54% 5.20%
|
Effective date range
|
|
April 18, 2005 July 17, 2009
|
Termination date range
|
|
February 26, 2010 September 16, 2011
|
Asset balance at December 31, 2009 (included in other
assets)
|
|
$
|
Liability balance at December 31, 2009 (included in other
liabilities)
|
|
$6,311,470
|
On September 17, 2010 in connection with the extinguishment
of the original credit facility, the Company settled all related
interest rate swaps at a fair value of $3,380,160.
F-25
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
At December 31, 2010, the Company is party to two interest
rate swaps, with identical terms for $100 million each.
They were purchased to fix the variable interest rate on the
denoted notional amount under the Mortgage which was obtained in
September, 2010, and qualify for hedge accounting. For
presentational purposes they are shown as one derivative due to
the identical nature of their economic terms.
|
|
|
Total notional amount
|
|
$200,000,000
|
Fixed rates
|
|
6.49% (1.99% effective swap base rate plus 4.5% spread per
credit agreement)
|
Floor rate
|
|
1.25%
|
Effective date
|
|
November 9, 2010
|
Termination date
|
|
September 17, 2015
|
Asset balance at December 31, 2010 (included in other
assets)
|
|
$4,094,432
|
Liability balance at December 31, 2010 (included in other
liabilities)
|
|
$
|
The fair value of each interest rate swap agreement may increase
or decrease due to changes in market conditions but will
ultimately decrease to zero over the term of each respective
agreement.
For the years ended December 31, 2010, 2009, and 2008, the
Company recognized approximately $2.9 million and
$7.0 million of net income, and recognized approximately
$8.7 million of net expense, respectively, in the
consolidated statements of operations related to the change in
the fair value of interest rate swap agreements, where the
Company did not elect to apply hedge accounting.
The following table provides the Companys derivative
assets and liabilities carried at fair value as measured on a
recurring basis as of December 31, 2010 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Other
|
|
|
Significant
|
|
|
|
Total Carrying
|
|
|
in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Value at
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
December 31, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative assets
|
|
|
$4,094
|
|
|
|
$
|
|
|
|
$4,094
|
|
|
|
$
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4,094
|
|
|
|
$
|
|
|
|
$4,094
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys derivative assets and liabilities include
interest rate swaps that effectively convert a portion of the
Companys variable rate debt to fixed rate debt. The
derivative positions are valued using models developed
internally by the respective counterparty that use as their
basis readily observable market parameters (such as forward
yield curves) and are classified within Level 2 of the
valuation hierarchy. The Company considers its own credit risk
as well as the credit risk of its counterparties when evaluating
the fair value of its derivatives.
|
|
13.
|
Commitments
and Contingencies
|
The Company has a contractual arrangement with a tenant to
reimburse quality assurance fees levied by the California
Department of Health Care Services from August 1, 2005
through July 31, 2008. The Company is obligated to
reimburse the fees to the tenant if and when the state withholds
these fees from the tenants Medi-Cal reimbursements
associated with 5 facilities that were formerly leased to
Trinity Health
F-26
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
Systems. The total possible obligation for these fees is
$1,655,286, of which approximately $1.0M has been paid to date.
For the year ended December 31, 2010, the Companys
indemnity expense for these fees was $1,003,000 which equaled
the actual amount paid during the period.
Judicial proceedings seeking declaratory relief for these fees
are in process which if successful would provide for recovery of
such amounts from the State of California. The Company has
certain rights to seek relief against Trinity Health Systems for
monies paid out under the indemnity claim; however, it is
uncertain whether the Company will be successful in receiving
any amounts from Trinity.
In the normal course of business, the Company is involved in
legal actions arising from the ownership of its property. In
managements opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to
have a material adverse effect on the financial position,
operations, or liquidity of the Company.
|
|
14.
|
Concentration
of Credit Risk
|
As of December 31, 2010, the Companys portfolio of
investments consisted of 181 healthcare facilities, located in
24 states and operated by 32 third party operators. At
December 31, 2010, approximately 50.7% (measured as a
percentage of total assets) were leased by five private
operators: Evergreen Healthcare (13.6%), Daybreak Healthcare
(12.4%), Sun Mar Healthcare (9.0%), HiCare (8.1%), and Convacare
(7.6%). No other operator represents more than 6.3% of our total
assets. The five states in which the Company had its highest
concentration of total assets were California (19.3%), Texas
(16.3%), Missouri (9.6%), Arkansas (8.0%), and Pennsylvania
(6.1%) at December 31, 2010.
For the year ended December 31, 2010, the Companys
rental income from operations totaled approximately
$84.5 million, of which approximately $11.6 million
was from Evergreen Healthcare (13.7%), $9.1 million from
Daybreak Healthcare (10.7%), and $9.1 million was from Sun
Mar Healthcare (10.7%). No other operator generated more than
8.3% of the Companys rental income from operations for the
year ended December 31, 2010.
Below is a summary of unaudited financial information as of and
for the year ended December 31, 2009 for the two lessees
(operators) of our properties whose total assets, in the
aggregate, exceeds 10% of the Companys total assets at
December 31, 2010. Financial performance under the terms of
lease agreements with these lessees is, by agreement, guaranteed
by the entities whose financial data is as follows:
|
|
|
|
|
|
|
|
|
|
|
Evergreen
|
|
|
|
|
Healthcare
|
|
Daybreak
|
|
Financial position
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
$50,975,393
|
|
|
|
$14,723,053
|
|
Noncurrent assets
|
|
|
41,653,895
|
|
|
|
37,043,192
|
|
Current liabilities
|
|
|
60,991,351
|
|
|
|
42,847,531
|
|
Noncurrent liabilities
|
|
|
115,053,022
|
|
|
|
57,073,485
|
|
(Deficit) equity
|
|
|
(83,415,085
|
)
|
|
|
(48,154,771
|
)
|
Results of operations
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$260,280,330
|
|
|
|
$248,922,846
|
|
Gross profit
|
|
|
21,988,553
|
|
|
|
19,982,130
|
|
Income from continuing operations
|
|
|
5,773,223
|
|
|
|
9,143,933
|
|
Net income
|
|
|
7,757,958
|
|
|
|
8,802,933
|
|
F-27
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
On January 4, 2011, Aviv Financing I acquired a property in
Kansas from an unrelated third party for a purchase price of
$3,045,000. The Company financed this purchase through
borrowings of $2,131,000 under the Mortgage (as described in
Footnote 7).
On February 4, 2011, the Company issued $200 million
in Senior Notes at 7.75%. The proceeds from this bond issuance
were used to pay down $194 million of the Mortgage.
On March 1, 2011, the Company replaced an operator of three
buildings in Pennsylvania and one in Massachusetts from the
operator Brighten to the operator Saber. The Company anticipates
that it will recognize a charge to write-off a deferred rent
receivable balance relating to the terminated lease of
approximately $2.4 million in the first quarter of 2011.
The Company has evaluated events subsequent to December 31,
2010 through March 15, 2011, and determined that no events
other than those noted above would require additional disclosure.
F-28
AVIV
REIT, INC. AND SUBSIDIARIES
SCHEDULE III
Rental Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized Subsequent
|
|
|
Gross Amount Carried at
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
to Acquisition
|
|
|
December 31, 2010 (g)
|
|
|
|
|
|
|
|
|
in Statement
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
|
|
|
Impairment /
|
|
|
|
|
|
Buildings &
|
|
|
Accumulated
|
|
|
Year of
|
|
|
Date
|
|
|
of Operations
|
Description
|
|
Asset
|
|
|
Encumbrances
|
|
|
City
|
|
State
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Dispositions
|
|
|
Land
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Computed
|
|
SunBridge Care/Rehab-Broadway
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Methuen
|
|
MA
|
|
$
|
31,469
|
|
|
$
|
495,552
|
|
|
$
|
|
|
|
$
|
(130,000
|
)
|
|
$
|
31,469
|
|
|
$
|
365,552
|
|
|
$
|
(155,360
|
)
|
|
|
1910
|
|
|
|
1993
|
|
|
40 years
|
SunBridgeColonial Heights
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lawrence
|
|
MA
|
|
|
63,160
|
|
|
|
958,681
|
|
|
|
|
|
|
|
(225,000
|
)
|
|
|
63,160
|
|
|
|
733,681
|
|
|
|
(311,815
|
)
|
|
|
1963
|
|
|
|
1993
|
|
|
40 years
|
SunBridgeFall River
|
|
|
(c
|
)
|
|
|
(2
|
)
|
|
Fall River
|
|
MA
|
|
|
90,707
|
|
|
|
1,308,677
|
|
|
|
|
|
|
|
(1,308,677
|
)
|
|
|
90,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care CenterGlenwood
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lowell
|
|
MA
|
|
|
82,483
|
|
|
|
1,210,652
|
|
|
|
|
|
|
|
(252,500
|
)
|
|
|
82,483
|
|
|
|
958,152
|
|
|
|
(407,210
|
)
|
|
|
1964
|
|
|
|
1993
|
|
|
40 years
|
SunBridgeHammond House
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Worchester
|
|
MA
|
|
|
42,062
|
|
|
|
663,598
|
|
|
|
488,598
|
|
|
|
(663,598
|
)
|
|
|
42,062
|
|
|
|
488,598
|
|
|
|
(207,654
|
)
|
|
|
1965
|
|
|
|
1993
|
|
|
40 years
|
SunBridge for North Reading
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
North Reading
|
|
MA
|
|
|
113,195
|
|
|
|
1,567,397
|
|
|
|
|
|
|
|
(252,500
|
)
|
|
|
113,195
|
|
|
|
1,314,897
|
|
|
|
(558,831
|
)
|
|
|
1966
|
|
|
|
1993
|
|
|
40 years
|
Robbin House Nursing and Rehab
|
|
|
(c
|
)
|
|
|
(2
|
)
|
|
Quincy
|
|
MA
|
|
|
66,000
|
|
|
|
1,051,668
|
|
|
|
|
|
|
|
(1,051,668
|
)
|
|
|
66,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care CenterRosewood
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Fall River
|
|
MA
|
|
|
31,893
|
|
|
|
512,984
|
|
|
|
|
|
|
|
(142,500
|
)
|
|
|
31,893
|
|
|
|
370,484
|
|
|
|
(157,455
|
)
|
|
|
1882
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care/Rehab-Sandalwood
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Oxford
|
|
MA
|
|
|
64,435
|
|
|
|
940,982
|
|
|
|
497,782
|
|
|
|
(192,500
|
)
|
|
|
64,435
|
|
|
|
1,246,264
|
|
|
|
(345,474
|
)
|
|
|
1966
|
|
|
|
1993
|
|
|
40 years
|
SunBridgeSpring Valley
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Worchester
|
|
MA
|
|
|
71,084
|
|
|
|
1,030,725
|
|
|
|
|
|
|
|
(205,000
|
)
|
|
|
71,084
|
|
|
|
825,725
|
|
|
|
(350,933
|
)
|
|
|
1960
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care/Rehab-Town Manor
|
|
|
(c
|
)
|
|
|
(2
|
)
|
|
Lawrence
|
|
MA
|
|
|
89,790
|
|
|
|
1,305,518
|
|
|
|
|
|
|
|
(1,305,518
|
)
|
|
|
89,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care/Rehab-Woodmill
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lawrence
|
|
MA
|
|
|
61,210
|
|
|
|
946,028
|
|
|
|
|
|
|
|
(235,000
|
)
|
|
|
61,210
|
|
|
|
711,028
|
|
|
|
(302,187
|
)
|
|
|
1965
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care/Rehab-Worcester
|
|
|
(c
|
)
|
|
|
(2
|
)
|
|
Worchester
|
|
MA
|
|
|
92,512
|
|
|
|
1,374,636
|
|
|
|
|
|
|
|
(1,374,636
|
)
|
|
|
92,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
40 years
|
Countryside Community
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
South Haven
|
|
MI
|
|
|
221,000
|
|
|
|
4,239,161
|
|
|
|
12,959
|
|
|
|
|
|
|
|
221,000
|
|
|
|
4,252,120
|
|
|
|
(705,011
|
)
|
|
|
1975
|
|
|
|
2005
|
|
|
40 years
|
Pepin Manor
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Pepin
|
|
WI
|
|
|
318,000
|
|
|
|
1,569,959
|
|
|
|
(12,959
|
)
|
|
|
|
|
|
|
318,000
|
|
|
|
1,557,000
|
|
|
|
(263,494
|
)
|
|
|
1978
|
|
|
|
2005
|
|
|
40 years
|
Highland Health Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Highland
|
|
IL
|
|
|
189,921
|
|
|
|
1,723,523
|
|
|
|
|
|
|
|
|
|
|
|
189,921
|
|
|
|
1,723,523
|
|
|
|
(306,689
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Nebraska Skilled Nursing/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Omaha
|
|
NE
|
|
|
211,000
|
|
|
|
6,694,584
|
|
|
|
|
|
|
|
(1,510
|
)
|
|
|
209,490
|
|
|
|
6,694,584
|
|
|
|
(1,258,022
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Casa Real
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Santa Fe
|
|
NM
|
|
|
1,029,800
|
|
|
|
2,692,295
|
|
|
|
213,902
|
|
|
|
|
|
|
|
1,029,800
|
|
|
|
2,906,197
|
|
|
|
(574,086
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Clayton Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Clayton
|
|
NM
|
|
|
41,000
|
|
|
|
790,476
|
|
|
|
|
|
|
|
|
|
|
|
41,000
|
|
|
|
790,476
|
|
|
|
(193,131
|
)
|
|
|
1960
|
|
|
|
2005
|
|
|
40 years
|
Country Cottage Care/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Hobbs
|
|
NM
|
|
|
9,000
|
|
|
|
671,536
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
|
|
671,536
|
|
|
|
(191,863
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Bloomfield Nursing/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bloomfield
|
|
NM
|
|
|
343,800
|
|
|
|
4,736,296
|
|
|
|
|
|
|
|
|
|
|
|
343,800
|
|
|
|
4,736,296
|
|
|
|
(807,094
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Espanola Valley Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Espanola
|
|
NM
|
|
|
216,000
|
|
|
|
4,143,364
|
|
|
|
|
|
|
|
|
|
|
|
216,000
|
|
|
|
4,143,364
|
|
|
|
(779,524
|
)
|
|
|
1984
|
|
|
|
2005
|
|
|
40 years
|
Sunshine Haven Lordsburg
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lordsburg
|
|
NM
|
|
|
57,041
|
|
|
|
1,881,927
|
|
|
|
|
|
|
|
|
|
|
|
57,041
|
|
|
|
1,881,927
|
|
|
|
(296,396
|
)
|
|
|
1972
|
|
|
|
2005
|
|
|
40 years
|
Silver City Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Silver City
|
|
NM
|
|
|
305,000
|
|
|
|
5,843,505
|
|
|
|
|
|
|
|
|
|
|
|
305,000
|
|
|
|
5,843,505
|
|
|
|
(967,107
|
)
|
|
|
1984
|
|
|
|
2005
|
|
|
40 years
|
Raton Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Raton
|
|
NM
|
|
|
128,000
|
|
|
|
1,509,456
|
|
|
|
|
|
|
|
|
|
|
|
128,000
|
|
|
|
1,509,456
|
|
|
|
(355,369
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Red Rocks Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Gallup
|
|
NM
|
|
|
329,000
|
|
|
|
3,952,779
|
|
|
|
|
|
|
|
|
|
|
|
329,000
|
|
|
|
3,952,779
|
|
|
|
(711,360
|
)
|
|
|
1978
|
|
|
|
2005
|
|
|
40 years
|
Heritage Villa Nursing/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Dayton
|
|
TX
|
|
|
18,000
|
|
|
|
435,568
|
|
|
|
9,400
|
|
|
|
|
|
|
|
18,000
|
|
|
|
444,968
|
|
|
|
(91,614
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Wellington Oaks Nursing/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Ft. Worth
|
|
TX
|
|
|
137,000
|
|
|
|
1,147,400
|
|
|
|
(9,400
|
)
|
|
|
|
|
|
|
137,000
|
|
|
|
1,138,000
|
|
|
|
(245,095
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Seven Oaks Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bonham
|
|
TX
|
|
|
63,000
|
|
|
|
2,583,389
|
|
|
|
|
|
|
|
|
|
|
|
63,000
|
|
|
|
2,583,389
|
|
|
|
(460,092
|
)
|
|
|
1970
|
|
|
|
2005
|
|
|
40 years
|
Birchwood Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Cooper
|
|
TX
|
|
|
96,000
|
|
|
|
2,726,580
|
|
|
|
8,304
|
|
|
|
|
|
|
|
96,000
|
|
|
|
2,734,884
|
|
|
|
(475,340
|
)
|
|
|
1966
|
|
|
|
2005
|
|
|
40 years
|
Smith Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Wolfe City
|
|
TX
|
|
|
49,000
|
|
|
|
1,010,304
|
|
|
|
(8,304
|
)
|
|
|
|
|
|
|
49,000
|
|
|
|
1,002,000
|
|
|
|
(191,906
|
)
|
|
|
1946
|
|
|
|
2005
|
|
|
40 years
|
Blanco Villa Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
San Antonio
|
|
TX
|
|
|
341,847
|
|
|
|
1,931,216
|
|
|
|
951,592
|
|
|
|
|
|
|
|
341,847
|
|
|
|
2,882,808
|
|
|
|
(443,687
|
)
|
|
|
1969
|
|
|
|
2005
|
|
|
40 years
|
Forest Hill Nursing Center
|
|
|
(a
|
)
|
|
|
|
|
|
Ft. Worth
|
|
TX
|
|
|
87,904
|
|
|
|
1,764,129
|
|
|
|
|
|
|
|
(1,852,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Garland Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Garland
|
|
TX
|
|
|
56,509
|
|
|
|
1,058,409
|
|
|
|
191,111
|
|
|
|
|
|
|
|
56,509
|
|
|
|
1,249,520
|
|
|
|
(225,703
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Hillcrest Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Wylie
|
|
TX
|
|
|
209,992
|
|
|
|
2,683,768
|
|
|
|
5,438
|
|
|
|
|
|
|
|
209,992
|
|
|
|
2,689,206
|
|
|
|
(476,581
|
)
|
|
|
1975
|
|
|
|
2005
|
|
|
40 years
|
Mansfield Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Mansfield
|
|
TX
|
|
|
486,958
|
|
|
|
2,142,550
|
|
|
|
(17,723
|
)
|
|
|
|
|
|
|
486,958
|
|
|
|
2,124,827
|
|
|
|
(404,319
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Westridge Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lancaster
|
|
TX
|
|
|
625,790
|
|
|
|
1,847,633
|
|
|
|
(15,270
|
)
|
|
|
|
|
|
|
625,790
|
|
|
|
1,832,363
|
|
|
|
(410,108
|
)
|
|
|
1973
|
|
|
|
2005
|
|
|
40 years
|
Clifton Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Clifton
|
|
TX
|
|
|
125,000
|
|
|
|
2,974,643
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
2,974,643
|
|
|
|
(567,727
|
)
|
|
|
1995
|
|
|
|
2005
|
|
|
40 years
|
Brownwood Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Brownwood
|
|
TX
|
|
|
140,000
|
|
|
|
3,463,711
|
|
|
|
10,284
|
|
|
|
|
|
|
|
140,000
|
|
|
|
3,473,995
|
|
|
|
(599,581
|
)
|
|
|
1968
|
|
|
|
2005
|
|
|
40 years
|
Irving Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Irving
|
|
TX
|
|
|
137,000
|
|
|
|
1,248,284
|
|
|
|
(10,284
|
)
|
|
|
|
|
|
|
137,000
|
|
|
|
1,238,000
|
|
|
|
(247,394
|
)
|
|
|
1972
|
|
|
|
2005
|
|
|
40 years
|
Stanton Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Stanton
|
|
TX
|
|
|
261,000
|
|
|
|
1,017,599
|
|
|
|
11,707
|
|
|
|
|
|
|
|
261,000
|
|
|
|
1,029,306
|
|
|
|
(197,262
|
)
|
|
|
1972
|
|
|
|
2005
|
|
|
40 years
|
Valley Mills Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Valley Mills
|
|
TX
|
|
|
34,000
|
|
|
|
1,091,210
|
|
|
|
(8,977
|
)
|
|
|
|
|
|
|
34,000
|
|
|
|
1,082,233
|
|
|
|
(200,522
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Hometown Care Center
|
|
|
(a
|
)
|
|
|
|
|
|
Moody
|
|
TX
|
|
|
13,000
|
|
|
|
328,263
|
|
|
|
|
|
|
|
(341,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1960
|
|
|
|
2005
|
|
|
40 years
|
Shuksan Healthcare Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bellingham
|
|
WA
|
|
|
61,000
|
|
|
|
491,085
|
|
|
|
1,983,432
|
|
|
|
|
|
|
|
61,000
|
|
|
|
2,474,517
|
|
|
|
(190,602
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Orange Villa Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Orange
|
|
TX
|
|
|
97,500
|
|
|
|
1,948,490
|
|
|
|
17,468
|
|
|
|
|
|
|
|
97,500
|
|
|
|
1,965,958
|
|
|
|
(360,449
|
)
|
|
|
1973
|
|
|
|
2005
|
|
|
40 years
|
Pinehurst Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Orange
|
|
TX
|
|
|
98,500
|
|
|
|
2,072,051
|
|
|
|
22,567
|
|
|
|
|
|
|
|
98,500
|
|
|
|
2,094,618
|
|
|
|
(397,450
|
)
|
|
|
1955
|
|
|
|
2005
|
|
|
40 years
|
Wheeler Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Wheeler
|
|
TX
|
|
|
17,000
|
|
|
|
1,369,290
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
|
|
1,369,290
|
|
|
|
(267,284
|
)
|
|
|
1982
|
|
|
|
2005
|
|
|
40 years
|
North Pointe Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Watauga
|
|
TX
|
|
|
1,061,000
|
|
|
|
3,845,890
|
|
|
|
|
|
|
|
|
|
|
|
1,061,000
|
|
|
|
3,845,890
|
|
|
|
(653,486
|
)
|
|
|
1999
|
|
|
|
2005
|
|
|
40 years
|
ABC Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Harrisonville
|
|
MO
|
|
|
143,500
|
|
|
|
1,922,391
|
|
|
|
120,802
|
|
|
|
|
|
|
|
143,500
|
|
|
|
2,043,193
|
|
|
|
(331,744
|
)
|
|
|
1970
|
|
|
|
2005
|
|
|
40 years
|
Camden Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Harrisonville
|
|
MO
|
|
|
189,000
|
|
|
|
2,531,961
|
|
|
|
(20,961
|
)
|
|
|
|
|
|
|
189,000
|
|
|
|
2,511,000
|
|
|
|
(408,394
|
)
|
|
|
1977
|
|
|
|
2005
|
|
|
40 years
|
Cedar Valley Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Rayton
|
|
MO
|
|
|
252,000
|
|
|
|
3,375,981
|
|
|
|
(13,026
|
)
|
|
|
|
|
|
|
252,000
|
|
|
|
3,362,955
|
|
|
|
(603,031
|
)
|
|
|
1978
|
|
|
|
2005
|
|
|
40 years
|
Monett Healthcare Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Monett
|
|
MO
|
|
|
259,000
|
|
|
|
3,469,761
|
|
|
|
(24,261
|
)
|
|
|
|
|
|
|
259,000
|
|
|
|
3,445,500
|
|
|
|
(589,519
|
)
|
|
|
1976
|
|
|
|
2005
|
|
|
40 years
|
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized Subsequent
|
|
|
Gross Amount Carried at
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
to Acquisition
|
|
|
December 31, 2010 (g)
|
|
|
|
|
|
|
|
|
in Statement
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
|
|
|
Impairment /
|
|
|
|
|
|
Buildings &
|
|
|
Accumulated
|
|
|
Year of
|
|
|
Date
|
|
|
of Operations
|
Description
|
|
Asset
|
|
|
Encumbrances
|
|
|
City
|
|
State
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Dispositions
|
|
|
Land
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Computed
|
|
White Ridge Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lees Summit
|
|
MO
|
|
|
292,250
|
|
|
|
3,914,964
|
|
|
|
2,174
|
|
|
|
|
|
|
|
292,250
|
|
|
|
3,917,138
|
|
|
|
(653,116
|
)
|
|
|
1986
|
|
|
|
2005
|
|
|
40 years
|
The Orchards Rehab/Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lewiston
|
|
ID
|
|
|
201,000
|
|
|
|
4,319,316
|
|
|
|
35,324
|
|
|
|
|
|
|
|
201,000
|
|
|
|
4,354,640
|
|
|
|
(842,587
|
)
|
|
|
1958
|
|
|
|
2005
|
|
|
40 years
|
SunBridge for Payette
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Payette
|
|
ID
|
|
|
179,000
|
|
|
|
3,165,530
|
|
|
|
(26,331
|
)
|
|
|
|
|
|
|
179,000
|
|
|
|
3,139,199
|
|
|
|
(471,310
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Magic Valley Manor-Assisted Living
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Wendell
|
|
ID
|
|
|
177,000
|
|
|
|
405,331
|
|
|
|
1,005,334
|
|
|
|
|
|
|
|
177,000
|
|
|
|
1,410,665
|
|
|
|
(107,671
|
)
|
|
|
1911
|
|
|
|
2005
|
|
|
40 years
|
McCall Rehab and Living Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
McCall
|
|
ID
|
|
|
213,000
|
|
|
|
675,976
|
|
|
|
(5,624
|
)
|
|
|
|
|
|
|
213,000
|
|
|
|
670,352
|
|
|
|
(124,288
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Menlo Park Health Care
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Portland
|
|
OR
|
|
|
112,000
|
|
|
|
2,205,297
|
|
|
|
|
|
|
|
|
|
|
|
112,000
|
|
|
|
2,205,297
|
|
|
|
(480,167
|
)
|
|
|
1959
|
|
|
|
2005
|
|
|
40 years
|
Burton Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Burlington
|
|
WA
|
|
|
115,000
|
|
|
|
1,169,629
|
|
|
|
|
|
|
|
|
|
|
|
115,000
|
|
|
|
1,169,629
|
|
|
|
(198,964
|
)
|
|
|
1930
|
|
|
|
2005
|
|
|
40 years
|
Columbia View Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Cathlamet
|
|
WA
|
|
|
49,200
|
|
|
|
504,900
|
|
|
|
|
|
|
|
|
|
|
|
49,200
|
|
|
|
504,900
|
|
|
|
(101,682
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Pinehurst Park Terrace
|
|
|
(a
|
)
|
|
|
|
|
|
Seattle
|
|
WA
|
|
|
|
|
|
|
360,236
|
|
|
|
|
|
|
|
(360,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1955
|
|
|
|
2005
|
|
|
40 years
|
Grandview Healthcare Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Grandview
|
|
WA
|
|
|
19,300
|
|
|
|
1,155,216
|
|
|
|
163,826
|
|
|
|
|
|
|
|
19,300
|
|
|
|
1,319,041
|
|
|
|
(274,822
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Hillcrest Manor
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Sunnyside
|
|
WA
|
|
|
102,000
|
|
|
|
1,638,826
|
|
|
|
259,309
|
|
|
|
|
|
|
|
102,000
|
|
|
|
1,898,135
|
|
|
|
(350,221
|
)
|
|
|
1970
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Foothills Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Phoenix
|
|
AZ
|
|
|
500,000
|
|
|
|
4,537,644
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
4,537,644
|
|
|
|
(991,956
|
)
|
|
|
1997
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Hot Springs Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Hot Springs
|
|
MT
|
|
|
103,500
|
|
|
|
1,942,861
|
|
|
|
19,412
|
|
|
|
|
|
|
|
103,500
|
|
|
|
1,962,273
|
|
|
|
(330,310
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Polson Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Polson
|
|
MT
|
|
|
121,000
|
|
|
|
2,357,612
|
|
|
|
(19,412
|
)
|
|
|
|
|
|
|
121,000
|
|
|
|
2,338,200
|
|
|
|
(423,288
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Sun City Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Sun City
|
|
AZ
|
|
|
476,231
|
|
|
|
5,697,720
|
|
|
|
60,161
|
|
|
|
|
|
|
|
476,231
|
|
|
|
5,757,881
|
|
|
|
(1,026,236
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Sunset Gardens at Mesa
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Mesa
|
|
AZ
|
|
|
123,000
|
|
|
|
1,640,673
|
|
|
|
(13,547
|
)
|
|
|
|
|
|
|
123,000
|
|
|
|
1,627,126
|
|
|
|
(278,318
|
)
|
|
|
1974
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Mesa Christian Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Mesa
|
|
AZ
|
|
|
466,000
|
|
|
|
6,231,061
|
|
|
|
(46,614
|
)
|
|
|
(615,000
|
)
|
|
|
466,000
|
|
|
|
5,569,447
|
|
|
|
(1,132,671
|
)
|
|
|
1973
|
|
|
|
2005
|
|
|
40 years
|
Evergreen The Dalles Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
The Dalles
|
|
OR
|
|
|
200,000
|
|
|
|
3,831,789
|
|
|
|
91,952
|
|
|
|
|
|
|
|
200,000
|
|
|
|
3,923,741
|
|
|
|
(621,833
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Vista Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
LaGrande
|
|
OR
|
|
|
281,000
|
|
|
|
4,783,790
|
|
|
|
248,354
|
|
|
|
|
|
|
|
281,000
|
|
|
|
5,032,144
|
|
|
|
(754,391
|
)
|
|
|
1961
|
|
|
|
2005
|
|
|
40 years
|
Whitman Health and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Colfax
|
|
WA
|
|
|
231,000
|
|
|
|
6,271,162
|
|
|
|
38,289
|
|
|
|
|
|
|
|
231,000
|
|
|
|
6,309,451
|
|
|
|
(952,131
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Fountain Retirement Hotel
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Youngtown
|
|
AZ
|
|
|
101,300
|
|
|
|
1,939,835
|
|
|
|
60,000
|
|
|
|
|
|
|
|
101,300
|
|
|
|
1,999,835
|
|
|
|
(364,404
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Gilmer Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Gilmer
|
|
TX
|
|
|
257,000
|
|
|
|
2,992,894
|
|
|
|
285,320
|
|
|
|
|
|
|
|
257,000
|
|
|
|
3,278,214
|
|
|
|
(525,138
|
)
|
|
|
1967
|
|
|
|
2005
|
|
|
40 years
|
Columbus Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Columbus
|
|
WI
|
|
|
352,000
|
|
|
|
3,476,920
|
|
|
|
|
|
|
|
|
|
|
|
352,000
|
|
|
|
3,476,920
|
|
|
|
(556,076
|
)
|
|
|
1950
|
|
|
|
2005
|
|
|
40 years
|
San Juan Rehab and Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Anacortes
|
|
WA
|
|
|
625,000
|
|
|
|
1,184,855
|
|
|
|
2,041,630
|
|
|
|
|
|
|
|
625,000
|
|
|
|
3,226,485
|
|
|
|
(434,490
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Faribault
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Faribault
|
|
MN
|
|
|
70,000
|
|
|
|
1,484,598
|
|
|
|
102,124
|
|
|
|
|
|
|
|
70,000
|
|
|
|
1,586,722
|
|
|
|
(299,989
|
)
|
|
|
1958
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Owatonna
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Owatonna
|
|
MN
|
|
|
125,000
|
|
|
|
2,321,296
|
|
|
|
(19,308
|
)
|
|
|
|
|
|
|
125,000
|
|
|
|
2,301,988
|
|
|
|
(404,188
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Willmar
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Wilmar
|
|
MN
|
|
|
70,000
|
|
|
|
1,341,155
|
|
|
|
(11,156
|
)
|
|
|
|
|
|
|
70,000
|
|
|
|
1,329,999
|
|
|
|
(241,644
|
)
|
|
|
1998
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Florence Heights
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Omaha
|
|
NE
|
|
|
413,000
|
|
|
|
3,516,247
|
|
|
|
4,353
|
|
|
|
|
|
|
|
413,000
|
|
|
|
3,520,600
|
|
|
|
(702,614
|
)
|
|
|
1999
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Ogden
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Ogden
|
|
UT
|
|
|
233,800
|
|
|
|
4,478,450
|
|
|
|
600,306
|
|
|
|
|
|
|
|
233,800
|
|
|
|
5,078,756
|
|
|
|
(731,670
|
)
|
|
|
1977
|
|
|
|
2005
|
|
|
40 years
|
Prescott Manor Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Prescott
|
|
AR
|
|
|
43,500
|
|
|
|
1,461,860
|
|
|
|
83,303
|
|
|
|
|
|
|
|
43,500
|
|
|
|
1,545,163
|
|
|
|
(334,126
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Star City Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Star City
|
|
AR
|
|
|
28,000
|
|
|
|
1,068,891
|
|
|
|
80,123
|
|
|
|
|
|
|
|
28,000
|
|
|
|
1,149,014
|
|
|
|
(188,464
|
)
|
|
|
1969
|
|
|
|
2005
|
|
|
40 years
|
Westview Manor of Peabody
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Peabody
|
|
KS
|
|
|
22,000
|
|
|
|
502,177
|
|
|
|
|
|
|
|
|
|
|
|
22,000
|
|
|
|
502,177
|
|
|
|
(88,314
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Orchard Grove Extended Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Benton Harbor
|
|
MI
|
|
|
166,000
|
|
|
|
3,185,496
|
|
|
|
261,000
|
|
|
|
|
|
|
|
166,000
|
|
|
|
3,446,496
|
|
|
|
(562,899
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Marysville Care Center
|
|
|
(a
|
)
|
|
|
|
|
|
Marysville
|
|
CA
|
|
|
281,000
|
|
|
|
1,319,608
|
|
|
|
|
|
|
|
(1,600,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Yuba City Care Center
|
|
|
(a
|
)
|
|
|
|
|
|
Yuba City
|
|
CA
|
|
|
177,385
|
|
|
|
2,129,584
|
|
|
|
|
|
|
|
(2,306,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Lexington Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lexington
|
|
MO
|
|
|
151,000
|
|
|
|
2,943,170
|
|
|
|
325,142
|
|
|
|
|
|
|
|
151,000
|
|
|
|
3,268,312
|
|
|
|
(547,569
|
)
|
|
|
1970
|
|
|
|
2005
|
|
|
40 years
|
Twin Falls Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Twin Falls
|
|
ID
|
|
|
448,000
|
|
|
|
5,144,793
|
|
|
|
|
|
|
|
|
|
|
|
448,000
|
|
|
|
5,144,793
|
|
|
|
(861,945
|
)
|
|
|
1961
|
|
|
|
2005
|
|
|
40 years
|
Gordon Lane Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Fullerton
|
|
CA
|
|
|
2,982,000
|
|
|
|
3,648,346
|
|
|
|
|
|
|
|
|
|
|
|
2,982,000
|
|
|
|
3,648,346
|
|
|
|
(601,035
|
)
|
|
|
1966
|
|
|
|
2005
|
|
|
40 years
|
Sierra View Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Baldwin Park
|
|
CA
|
|
|
868,400
|
|
|
|
1,748,141
|
|
|
|
6,377
|
|
|
|
|
|
|
|
868,400
|
|
|
|
1,754,518
|
|
|
|
(328,218
|
)
|
|
|
1938
|
|
|
|
2005
|
|
|
40 years
|
Villa Maria Care Center
|
|
|
(a
|
)
|
|
|
|
|
|
Long Beach
|
|
CA
|
|
|
139,600
|
|
|
|
766,778
|
|
|
|
|
|
|
|
(906,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1951
|
|
|
|
2005
|
|
|
40 years
|
High Street Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Oakland
|
|
CA
|
|
|
246,000
|
|
|
|
684,695
|
|
|
|
11,776
|
|
|
|
|
|
|
|
246,000
|
|
|
|
696,471
|
|
|
|
(119,939
|
)
|
|
|
1961
|
|
|
|
2005
|
|
|
40 years
|
MacArthur Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Oakland
|
|
CA
|
|
|
246,000
|
|
|
|
1,415,776
|
|
|
|
(11,776
|
)
|
|
|
|
|
|
|
246,000
|
|
|
|
1,404,000
|
|
|
|
(327,535
|
)
|
|
|
1960
|
|
|
|
2005
|
|
|
40 years
|
Pomona Vista Alzheimers Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Pomona
|
|
CA
|
|
|
403,000
|
|
|
|
954,853
|
|
|
|
|
|
|
|
|
|
|
|
403,000
|
|
|
|
954,853
|
|
|
|
(183,337
|
)
|
|
|
1959
|
|
|
|
2005
|
|
|
40 years
|
Rose Convalescent Hospital
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Baldwin Park
|
|
CA
|
|
|
1,308,000
|
|
|
|
486,043
|
|
|
|
|
|
|
|
|
|
|
|
1,308,000
|
|
|
|
486,043
|
|
|
|
(108,342
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Country Oaks Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Pomona
|
|
CA
|
|
|
1,393,000
|
|
|
|
2,426,180
|
|
|
|
|
|
|
|
|
|
|
|
1,393,000
|
|
|
|
2,426,180
|
|
|
|
(411,755
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Nursing/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Effingham
|
|
IL
|
|
|
317,388
|
|
|
|
3,461,794
|
|
|
|
|
|
|
|
|
|
|
|
317,388
|
|
|
|
3,461,794
|
|
|
|
(597,007
|
)
|
|
|
1974
|
|
|
|
2005
|
|
|
40 years
|
Deseret at Hutchinson
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Hutchinson
|
|
KS
|
|
|
180,000
|
|
|
|
2,546,991
|
|
|
|
|
|
|
|
|
|
|
|
180,000
|
|
|
|
2,546,991
|
|
|
|
(444,460
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Northridge Healthcare/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Little Rock
|
|
AR
|
|
|
465,000
|
|
|
|
3,011,597
|
|
|
|
55,320
|
|
|
|
|
|
|
|
465,000
|
|
|
|
3,066,917
|
|
|
|
(739,800
|
)
|
|
|
1969
|
|
|
|
2005
|
|
|
40 years
|
Doctors Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Salem
|
|
IL
|
|
|
125,000
|
|
|
|
4,663,792
|
|
|
|
900,001
|
|
|
|
|
|
|
|
125,000
|
|
|
|
5,563,793
|
|
|
|
(813,829
|
)
|
|
|
1972
|
|
|
|
2005
|
|
|
40 years
|
Woodland Hills Health/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Little Rock
|
|
AR
|
|
|
270,000
|
|
|
|
4,006,007
|
|
|
|
|
|
|
|
|
|
|
|
270,000
|
|
|
|
4,006,007
|
|
|
|
(573,775
|
)
|
|
|
1979
|
|
|
|
2005
|
|
|
40 years
|
North Richland Hills
|
|
|
(a
|
)
|
|
|
|
|
|
North Richland Hills
|
|
TX
|
|
|
980,458
|
|
|
|
|
|
|
|
5,067,466
|
|
|
|
(6,047,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
2005
|
|
|
40 years
|
Chenal Heights
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Little Rock
|
|
AR
|
|
|
1,411,446
|
|
|
|
|
|
|
|
7,279,170
|
|
|
|
|
|
|
|
1,411,446
|
|
|
|
7,279,170
|
|
|
|
(779,257
|
)
|
|
|
2008
|
|
|
|
2006
|
|
|
40 years
|
Willis Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Willis
|
|
TX
|
|
|
212,000
|
|
|
|
2,407,367
|
|
|
|
|
|
|
|
|
|
|
|
212,000
|
|
|
|
2,407,367
|
|
|
|
(318,112
|
)
|
|
|
1975
|
|
|
|
2006
|
|
|
40 years
|
Blanchette Place Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
St. Charles
|
|
MO
|
|
|
1,300,000
|
|
|
|
10,777,312
|
|
|
|
8,579
|
|
|
|
|
|
|
|
1,300,000
|
|
|
|
10,785,891
|
|
|
|
(1,262,366
|
)
|
|
|
1994
|
|
|
|
2006
|
|
|
40 years
|
Cathedral Gardens Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
St. Louis
|
|
MO
|
|
|
1,600,000
|
|
|
|
9,524,876
|
|
|
|
64,333
|
|
|
|
|
|
|
|
1,600,000
|
|
|
|
9,589,209
|
|
|
|
(1,152,494
|
)
|
|
|
1979
|
|
|
|
2006
|
|
|
40 years
|
Heritage Park Skilled Care
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Rolla
|
|
MO
|
|
|
1,200,000
|
|
|
|
7,840,918
|
|
|
|
59,900
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
7,900,818
|
|
|
|
(900,973
|
)
|
|
|
1993
|
|
|
|
2006
|
|
|
40 years
|
Oak Forest Skilled Care
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Ballwin
|
|
MO
|
|
|
550,000
|
|
|
|
3,995,129
|
|
|
|
29,766
|
|
|
|
|
|
|
|
550,000
|
|
|
|
4,024,895
|
|
|
|
(482,989
|
)
|
|
|
2004
|
|
|
|
2006
|
|
|
40 years
|
Richland Care and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Olney
|
|
IL
|
|
|
350,000
|
|
|
|
2,484,264
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
2,484,264
|
|
|
|
(336,295
|
)
|
|
|
2004
|
|
|
|
2006
|
|
|
40 years
|
Bonham Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bonham
|
|
TX
|
|
|
76,000
|
|
|
|
1,129,849
|
|
|
|
|
|
|
|
|
|
|
|
76,000
|
|
|
|
1,129,849
|
|
|
|
(141,112
|
)
|
|
|
1969
|
|
|
|
2006
|
|
|
40 years
|
F-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized Subsequent
|
|
|
Gross Amount Carried at
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
to Acquisition
|
|
|
December 31, 2010 (g)
|
|
|
|
|
|
|
|
|
in Statement
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
|
|
|
Impairment /
|
|
|
|
|
|
Buildings &
|
|
|
Accumulated
|
|
|
Year of
|
|
|
Date
|
|
|
of Operations
|
Description
|
|
Asset
|
|
|
Encumbrances
|
|
|
City
|
|
State
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Dispositions
|
|
|
Land
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Computed
|
|
Columbus Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Columbus
|
|
TX
|
|
|
150,000
|
|
|
|
1,808,552
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
1,808,552
|
|
|
|
(240,436
|
)
|
|
|
1974
|
|
|
|
2006
|
|
|
40 years
|
Denison Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Denison
|
|
TX
|
|
|
178,000
|
|
|
|
1,945,000
|
|
|
|
|
|
|
|
|
|
|
|
178,000
|
|
|
|
1,945,000
|
|
|
|
(244,184
|
)
|
|
|
1958
|
|
|
|
2006
|
|
|
40 years
|
Falfurrias Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Falfurias
|
|
TX
|
|
|
92,000
|
|
|
|
1,065,000
|
|
|
|
|
|
|
|
|
|
|
|
92,000
|
|
|
|
1,065,000
|
|
|
|
(145,673
|
)
|
|
|
1974
|
|
|
|
2006
|
|
|
40 years
|
Houston Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Houston
|
|
TX
|
|
|
228,000
|
|
|
|
2,451,893
|
|
|
|
|
|
|
|
|
|
|
|
228,000
|
|
|
|
2,451,893
|
|
|
|
(307,071
|
)
|
|
|
1976
|
|
|
|
2006
|
|
|
40 years
|
Kleburg County Nursing/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Kingsville
|
|
TX
|
|
|
315,000
|
|
|
|
3,688,676
|
|
|
|
|
|
|
|
|
|
|
|
315,000
|
|
|
|
3,688,676
|
|
|
|
(461,642
|
)
|
|
|
1947
|
|
|
|
2006
|
|
|
40 years
|
Terry Haven Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Mount Vernon
|
|
TX
|
|
|
180,000
|
|
|
|
1,970,861
|
|
|
|
|
|
|
|
|
|
|
|
180,000
|
|
|
|
1,970,861
|
|
|
|
(268,797
|
)
|
|
|
2004
|
|
|
|
2006
|
|
|
40 years
|
Deseret at Mansfield
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Mansfield
|
|
OH
|
|
|
146,000
|
|
|
|
2,689,968
|
|
|
|
15,748
|
|
|
|
|
|
|
|
146,000
|
|
|
|
2,705,716
|
|
|
|
(303,991
|
)
|
|
|
1980
|
|
|
|
2006
|
|
|
40 years
|
Clarkston Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Clarkston
|
|
WA
|
|
|
161,633
|
|
|
|
7,038,367
|
|
|
|
379,678
|
|
|
|
|
|
|
|
161,633
|
|
|
|
7,418,045
|
|
|
|
(1,021,418
|
)
|
|
|
1970
|
|
|
|
2006
|
|
|
40 years
|
Highland Terrace Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Camas
|
|
WA
|
|
|
592,776
|
|
|
|
3,921,159
|
|
|
|
466,188
|
|
|
|
|
|
|
|
592,776
|
|
|
|
4,387,347
|
|
|
|
(710,452
|
)
|
|
|
1970
|
|
|
|
2006
|
|
|
40 years
|
Richland Rehabilitation Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Richland
|
|
WA
|
|
|
693,000
|
|
|
|
9,307,000
|
|
|
|
145,819
|
|
|
|
|
|
|
|
693,000
|
|
|
|
9,452,819
|
|
|
|
(1,041,376
|
)
|
|
|
2004
|
|
|
|
2006
|
|
|
40 years
|
Evergreen Milton-Freewater Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Milton Freewater
|
|
OR
|
|
|
700,000
|
|
|
|
5,403,570
|
|
|
|
|
|
|
|
|
|
|
|
700,000
|
|
|
|
5,403,570
|
|
|
|
(656,622
|
)
|
|
|
1965
|
|
|
|
2006
|
|
|
40 years
|
Douglas Rehab and Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Matoon
|
|
IL
|
|
|
250,000
|
|
|
|
2,390,779
|
|
|
|
|
|
|
|
(13,246
|
)
|
|
|
250,000
|
|
|
|
2,377,533
|
|
|
|
(288,233
|
)
|
|
|
1963
|
|
|
|
2006
|
|
|
40 years
|
Hillside Living Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Yorkville
|
|
IL
|
|
|
560,000
|
|
|
|
3,073,603
|
|
|
|
|
|
|
|
(3,168
|
)
|
|
|
560,000
|
|
|
|
3,070,436
|
|
|
|
(397,561
|
)
|
|
|
1963
|
|
|
|
2006
|
|
|
40 years
|
Arbor View Nursing / Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Zion
|
|
IL
|
|
|
147,000
|
|
|
|
5,235,290
|
|
|
|
142,766
|
|
|
|
(12,556
|
)
|
|
|
147,000
|
|
|
|
5,365,500
|
|
|
|
(591,422
|
)
|
|
|
1970
|
|
|
|
2006
|
|
|
40 years
|
Ashford Hall
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Irving
|
|
TX
|
|
|
1,746,000
|
|
|
|
11,418,567
|
|
|
|
113,706
|
|
|
|
(142,702
|
)
|
|
|
1,746,000
|
|
|
|
11,389,571
|
|
|
|
(1,332,568
|
)
|
|
|
1964
|
|
|
|
2006
|
|
|
40 years
|
Belmont Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Madison
|
|
WI
|
|
|
480,000
|
|
|
|
1,861,061
|
|
|
|
6,207
|
|
|
|
|
|
|
|
480,000
|
|
|
|
1,867,268
|
|
|
|
(263,247
|
)
|
|
|
1974
|
|
|
|
2006
|
|
|
40 years
|
Blue Ash Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Cincinnati
|
|
OH
|
|
|
125,000
|
|
|
|
6,278,450
|
|
|
|
447,530
|
|
|
|
|
|
|
|
125,000
|
|
|
|
6,725,980
|
|
|
|
(884,229
|
)
|
|
|
1969
|
|
|
|
2006
|
|
|
40 years
|
West Chester Nursing/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
West Chester
|
|
OH
|
|
|
100,000
|
|
|
|
5,663,460
|
|
|
|
368,689
|
|
|
|
|
|
|
|
100,000
|
|
|
|
6,032,149
|
|
|
|
(788,653
|
)
|
|
|
1965
|
|
|
|
2006
|
|
|
40 years
|
Wilmington Nursing/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Willmington
|
|
OH
|
|
|
125,000
|
|
|
|
6,078,450
|
|
|
|
472,389
|
|
|
|
|
|
|
|
125,000
|
|
|
|
6,550,839
|
|
|
|
(855,492
|
)
|
|
|
1951
|
|
|
|
2006
|
|
|
40 years
|
Extended Care Hospital of Riverside
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Riverside
|
|
CA
|
|
|
1,091,000
|
|
|
|
5,646,826
|
|
|
|
|
|
|
|
(26,375
|
)
|
|
|
1,091,000
|
|
|
|
5,620,451
|
|
|
|
(986,069
|
)
|
|
|
1967
|
|
|
|
2006
|
|
|
40 years
|
Heritage Manor
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Monterey Park
|
|
CA
|
|
|
1,585,508
|
|
|
|
9,274,154
|
|
|
|
|
|
|
|
(23,200
|
)
|
|
|
1,585,508
|
|
|
|
9,250,954
|
|
|
|
(1,438,143
|
)
|
|
|
1965
|
|
|
|
2006
|
|
|
40 years
|
French Park Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Santa Ana
|
|
CA
|
|
|
1,076,447
|
|
|
|
5,983,614
|
|
|
|
596,442
|
|
|
|
|
|
|
|
1,076,447
|
|
|
|
6,580,056
|
|
|
|
(751,009
|
)
|
|
|
1967
|
|
|
|
2006
|
|
|
40 years
|
North Valley Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Tujunga
|
|
CA
|
|
|
613,800
|
|
|
|
5,031,473
|
|
|
|
|
|
|
|
(25,382
|
)
|
|
|
613,800
|
|
|
|
5,006,091
|
|
|
|
(694,919
|
)
|
|
|
1967
|
|
|
|
2006
|
|
|
40 years
|
Villa Rancho Bernardo Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
San Diego
|
|
CA
|
|
|
1,425,347
|
|
|
|
9,652,911
|
|
|
|
65,350
|
|
|
|
(57,067
|
)
|
|
|
1,425,347
|
|
|
|
9,661,194
|
|
|
|
(1,158,654
|
)
|
|
|
1994
|
|
|
|
2006
|
|
|
40 years
|
Austin Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Austin
|
|
TX
|
|
|
1,501,040
|
|
|
|
4,504,643
|
|
|
|
(28,091
|
)
|
|
|
|
|
|
|
1,501,040
|
|
|
|
4,476,552
|
|
|
|
(453,696
|
)
|
|
|
2007
|
|
|
|
2007
|
|
|
40 years
|
Dove Hill Care Center and Villas
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Hamilton
|
|
TX
|
|
|
58,397
|
|
|
|
5,781,296
|
|
|
|
|
|
|
|
|
|
|
|
58,397
|
|
|
|
5,781,296
|
|
|
|
(546,194
|
)
|
|
|
1998
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Medford
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Medford
|
|
MA
|
|
|
2,365,610
|
|
|
|
6,612,915
|
|
|
|
279,220
|
|
|
|
|
|
|
|
2,365,610
|
|
|
|
6,892,135
|
|
|
|
(760,794
|
)
|
|
|
1978
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Ambler
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Ambler
|
|
PA
|
|
|
370,010
|
|
|
|
5,111,673
|
|
|
|
(1,035,832
|
)
|
|
|
|
|
|
|
370,010
|
|
|
|
4,075,841
|
|
|
|
(440,750
|
)
|
|
|
1963
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Broomall
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Broomall
|
|
PA
|
|
|
607,870
|
|
|
|
3,930,013
|
|
|
|
590,503
|
|
|
|
|
|
|
|
607,870
|
|
|
|
4,520,516
|
|
|
|
(486,790
|
)
|
|
|
1955
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Bryn Mawr
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bryn Mawr
|
|
PA
|
|
|
708,300
|
|
|
|
6,352,474
|
|
|
|
270,668
|
|
|
|
|
|
|
|
708,300
|
|
|
|
6,623,142
|
|
|
|
(715,261
|
)
|
|
|
1972
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Julia Ribaudo
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lake Ariel
|
|
PA
|
|
|
369,050
|
|
|
|
7,559,765
|
|
|
|
320,189
|
|
|
|
|
|
|
|
369,050
|
|
|
|
7,879,954
|
|
|
|
(863,484
|
)
|
|
|
1980
|
|
|
|
2007
|
|
|
40 years
|
Good Samaritan Nursing Home
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Avon
|
|
OH
|
|
|
393,813
|
|
|
|
8,856,210
|
|
|
|
108,495
|
|
|
|
|
|
|
|
393,813
|
|
|
|
8,964,705
|
|
|
|
(1,021,738
|
)
|
|
|
1964
|
|
|
|
2007
|
|
|
40 years
|
Belleville Illinois
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Belleville
|
|
IL
|
|
|
670,481
|
|
|
|
3,431,286
|
|
|
|
|
|
|
|
|
|
|
|
670,481
|
|
|
|
3,431,286
|
|
|
|
(316,664
|
)
|
|
|
1978
|
|
|
|
2007
|
|
|
40 years
|
Homestead Various Leases (f)
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
|
|
TX
|
|
|
345,197
|
|
|
|
4,352,982
|
|
|
|
5,503
|
|
|
|
|
|
|
|
345,197
|
|
|
|
4,358,485
|
|
|
|
(426,639
|
)
|
|
|
|
|
|
|
2007
|
|
|
40 years
|
Byrd Haven Nursing Home
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Searcy
|
|
AR
|
|
|
772,501
|
|
|
|
2,413,388
|
|
|
|
748,914
|
|
|
|
|
|
|
|
772,501
|
|
|
|
3,162,302
|
|
|
|
(217,762
|
)
|
|
|
1961
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Arvin Healthcare
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Arvin
|
|
CA
|
|
|
900,000
|
|
|
|
4,764,928
|
|
|
|
758,102
|
|
|
|
|
|
|
|
1,020,441
|
|
|
|
5,402,589
|
|
|
|
(358,175
|
)
|
|
|
1984
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Bakersfield Healthcare
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bakersfield
|
|
CA
|
|
|
1,000,000
|
|
|
|
12,154,112
|
|
|
|
1,760,333
|
|
|
|
|
|
|
|
1,133,824
|
|
|
|
13,780,621
|
|
|
|
(823,504
|
)
|
|
|
1987
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Lakeport Healthcare
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lakeport
|
|
CA
|
|
|
1,100,000
|
|
|
|
5,237,033
|
|
|
|
848,046
|
|
|
|
|
|
|
|
1,247,206
|
|
|
|
5,937,873
|
|
|
|
(402,652
|
)
|
|
|
1987
|
|
|
|
2008
|
|
|
40 years
|
New Hope Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Tracy
|
|
CA
|
|
|
1,900,000
|
|
|
|
10,293,920
|
|
|
|
1,631,837
|
|
|
|
|
|
|
|
2,154,265
|
|
|
|
11,671,491
|
|
|
|
(710,325
|
)
|
|
|
1987
|
|
|
|
2008
|
|
|
40 years
|
Olive Ridge Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Oroville
|
|
CA
|
|
|
800,000
|
|
|
|
8,609,470
|
|
|
|
1,259,211
|
|
|
|
|
|
|
|
907,059
|
|
|
|
9,761,622
|
|
|
|
(630,582
|
)
|
|
|
1987
|
|
|
|
2008
|
|
|
40 years
|
Twin Oaks Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Chico
|
|
CA
|
|
|
1,300,000
|
|
|
|
8,397,558
|
|
|
|
1,297,764
|
|
|
|
|
|
|
|
1,473,971
|
|
|
|
9,521,351
|
|
|
|
(633,441
|
)
|
|
|
1988
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
LaGrande
|
|
OR
|
|
|
1,400,000
|
|
|
|
808,374
|
|
|
|
295,533
|
|
|
|
|
|
|
|
1,587,353
|
|
|
|
916,554
|
|
|
|
(77,183
|
)
|
|
|
1975
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Bremerton Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bremerton
|
|
WA
|
|
|
650,000
|
|
|
|
1,366,315
|
|
|
|
269,831
|
|
|
|
|
|
|
|
736,985
|
|
|
|
1,549,160
|
|
|
|
(102,387
|
)
|
|
|
1969
|
|
|
|
2008
|
|
|
40 years
|
Four Fountains
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Belleville
|
|
IL
|
|
|
989,489
|
|
|
|
5,007,411
|
|
|
|
|
|
|
|
|
|
|
|
989,489
|
|
|
|
5,007,411
|
|
|
|
(306,137
|
)
|
|
|
1972
|
|
|
|
2008
|
|
|
40 years
|
Brookside Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Little Rock
|
|
AR
|
|
|
750,690
|
|
|
|
4,421,289
|
|
|
|
1,395,023
|
|
|
|
|
|
|
|
750,690
|
|
|
|
5,816,312
|
|
|
|
(342,731
|
)
|
|
|
1969
|
|
|
|
2008
|
|
|
40 years
|
Skilcare Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Jonesboro
|
|
AR
|
|
|
417,050
|
|
|
|
7,007,007
|
|
|
|
|
|
|
|
|
|
|
|
417,050
|
|
|
|
7,007,007
|
|
|
|
(464,260
|
)
|
|
|
1973
|
|
|
|
2008
|
|
|
40 years
|
Stoneybrook Health & Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Benton
|
|
AR
|
|
|
250,230
|
|
|
|
3,170,134
|
|
|
|
|
|
|
|
|
|
|
|
250,230
|
|
|
|
3,170,134
|
|
|
|
(225,932
|
)
|
|
|
1968
|
|
|
|
2008
|
|
|
40 years
|
Trumann Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Trumann
|
|
AR
|
|
|
166,820
|
|
|
|
3,587,185
|
|
|
|
|
|
|
|
|
|
|
|
166,820
|
|
|
|
3,587,185
|
|
|
|
(234,968
|
)
|
|
|
1971
|
|
|
|
2008
|
|
|
40 years
|
Deseret at McPherson
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
McPherson
|
|
KS
|
|
|
92,000
|
|
|
|
1,874,921
|
|
|
|
|
|
|
|
|
|
|
|
92,000
|
|
|
|
1,874,921
|
|
|
|
(112,646
|
)
|
|
|
1970
|
|
|
|
2008
|
|
|
40 years
|
Mission Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Riverside
|
|
CA
|
|
|
230,000
|
|
|
|
1,209,977
|
|
|
|
|
|
|
|
|
|
|
|
230,000
|
|
|
|
1,209,977
|
|
|
|
(74,749
|
)
|
|
|
1957
|
|
|
|
2008
|
|
|
40 years
|
New Byrd Haven Nursing Home
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Searcy
|
|
AR
|
|
|
|
|
|
|
10,213,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,213,112
|
|
|
|
(471,615
|
)
|
|
|
2009
|
|
|
|
2009
|
|
|
40 years
|
Evergreen Health & Rehab of Petaluma
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Petaluma
|
|
CA
|
|
|
748,668
|
|
|
|
2,459,910
|
|
|
|
|
|
|
|
|
|
|
|
748,668
|
|
|
|
2,459,910
|
|
|
|
(165,331
|
)
|
|
|
1969
|
|
|
|
2009
|
|
|
40 years
|
Evergreen Mountain View Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Carson City
|
|
NV
|
|
|
3,454,723
|
|
|
|
5,942,468
|
|
|
|
|
|
|
|
|
|
|
|
3,454,723
|
|
|
|
5,942,468
|
|
|
|
(287,022
|
)
|
|
|
1977
|
|
|
|
2009
|
|
|
40 years
|
Little Rock Health and Rehab
|
|
|
(a
|
)
|
|
|
(1
|
)
|
|
Little Rock
|
|
AR
|
|
|
471,169
|
|
|
|
4,778,831
|
|
|
|
714,336
|
|
|
|
|
|
|
|
471,169
|
|
|
|
5,493,168
|
|
|
|
(281,236
|
)
|
|
|
1971
|
|
|
|
2009
|
|
|
40 years
|
Hidden Acres Health Care
|
|
|
(a
|
)
|
|
|
|
|
|
Mount Pleasant
|
|
TN
|
|
|
67,413
|
|
|
|
3,312,587
|
|
|
|
|
|
|
|
|
|
|
|
67,413
|
|
|
|
3,312,587
|
|
|
|
(51,346
|
)
|
|
|
1979
|
|
|
|
2010
|
|
|
40 years
|
Community Care and Rehab
|
|
|
(a
|
)
|
|
|
(1
|
)
|
|
Riverside
|
|
CA
|
|
|
1,648,067
|
|
|
|
9,851,933
|
|
|
|
|
|
|
|
|
|
|
|
1,648,067
|
|
|
|
9,851,933
|
|
|
|
(54,681
|
)
|
|
|
1965
|
|
|
|
2010
|
|
|
40 years
|
Heritage Gardens of Portageville
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Portageville
|
|
MO
|
|
|
223,658
|
|
|
|
3,088,802
|
|
|
|
|
|
|
|
|
|
|
|
223,658
|
|
|
|
3,088,802
|
|
|
|
(21,731
|
)
|
|
|
1995
|
|
|
|
2010
|
|
|
40 years
|
Heritage Gardens of Greenville
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Greenville
|
|
MO
|
|
|
118,925
|
|
|
|
2,218,775
|
|
|
|
|
|
|
|
|
|
|
|
118,925
|
|
|
|
2,218,775
|
|
|
|
(15,970
|
)
|
|
|
1990
|
|
|
|
2010
|
|
|
40 years
|
F-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized Subsequent
|
|
|
Gross Amount Carried at
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
to Acquisition
|
|
|
December 31, 2010 (g)
|
|
|
|
|
|
|
|
|
in Statement
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
|
|
|
Impairment /
|
|
|
|
|
|
Buildings &
|
|
|
Accumulated
|
|
|
Year of
|
|
|
Date
|
|
|
of Operations
|
Description
|
|
Asset
|
|
|
Encumbrances
|
|
|
City
|
|
State
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Dispositions
|
|
|
Land
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Computed
|
|
Heritage Gardens of Senath
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Senath
|
|
MO
|
|
|
108,843
|
|
|
|
2,773,194
|
|
|
|
159,590
|
|
|
|
|
|
|
|
108,843
|
|
|
|
2,932,785
|
|
|
|
(20,543
|
)
|
|
|
1980
|
|
|
|
2010
|
|
|
40 years
|
Heritage Gardens of Senath South
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Senath
|
|
MO
|
|
|
72,805
|
|
|
|
1,854,998
|
|
|
|
|
|
|
|
|
|
|
|
72,805
|
|
|
|
1,854,998
|
|
|
|
(13,592
|
)
|
|
|
1980
|
|
|
|
2010
|
|
|
40 years
|
The Carrington
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lynchburg
|
|
VA
|
|
|
705,888
|
|
|
|
4,294,112
|
|
|
|
|
|
|
|
|
|
|
|
705,888
|
|
|
|
4,294,112
|
|
|
|
(27,603
|
)
|
|
|
1994
|
|
|
|
2010
|
|
|
40 years
|
Arma Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Arma
|
|
KS
|
|
|
57,452
|
|
|
|
2,897,772
|
|
|
|
|
|
|
|
|
|
|
|
57,452
|
|
|
|
2,897,772
|
|
|
|
|
|
|
|
1970
|
|
|
|
2010
|
|
|
40 years
|
Great Bend Health & Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Great Bend
|
|
KS
|
|
|
111,482
|
|
|
|
4,588,518
|
|
|
|
|
|
|
|
|
|
|
|
111,482
|
|
|
|
4,588,518
|
|
|
|
|
|
|
|
1965
|
|
|
|
2010
|
|
|
40 years
|
Maplewood at Norwalk
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Norwalk
|
|
CT
|
|
|
1,589,950
|
|
|
|
1,010,050
|
|
|
|
197,189
|
|
|
|
|
|
|
|
1,589,950
|
|
|
|
1,207,239
|
|
|
|
|
|
|
|
1983
|
|
|
|
2010
|
|
|
40 years
|
Carrizo Springs Nursing & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Carrizo Springs
|
|
TX
|
|
|
45,317
|
|
|
|
1,954,683
|
|
|
|
|
|
|
|
|
|
|
|
45,317
|
|
|
|
1,954,683
|
|
|
|
|
|
|
|
1965
|
|
|
|
2010
|
|
|
40 years
|
Maplewood at Orange
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Orange
|
|
CT
|
|
|
1,133,533
|
|
|
|
11,155,287
|
|
|
|
|
|
|
|
|
|
|
|
1,133,533
|
|
|
|
11,155,287
|
|
|
|
|
|
|
|
1999
|
|
|
|
2010
|
|
|
40 years
|
Aviv Asset Management
|
|
|
(d
|
)
|
|
|
|
|
|
Chicago
|
|
IL
|
|
|
|
|
|
|
|
|
|
|
377,544
|
|
|
|
|
|
|
|
|
|
|
|
377,544
|
|
|
|
(129,892
|
)
|
|
|
|
|
|
|
|
|
|
|
Skagit Aviv
|
|
|
(e
|
)
|
|
|
|
|
|
Mt. Vernon
|
|
WA
|
|
|
|
|
|
|
|
|
|
|
396,702
|
|
|
|
|
|
|
|
|
|
|
|
396,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,935,771
|
|
|
$
|
597,669,579
|
|
|
$
|
39,341,658
|
|
|
$
|
(21,674,715
|
)
|
|
$
|
76,466,020
|
|
|
$
|
615,806,273
|
|
|
$
|
(75,948,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
under direct financing leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
Initial Cost to
|
|
Accretion/
|
|
Impairment/
|
|
Carried at
|
|
Year of
|
|
Date
|
Description
|
|
Asset
|
|
Encumbrances
|
|
City
|
|
State
|
|
Company
|
|
Amortization
|
|
Dispositions
|
|
December 31, 2010
|
|
Construction
|
|
Acquired
|
|
Fountain Lake
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
|
Hot Springs
|
|
|
|
AR
|
|
|
$
|
10,418,738
|
|
|
$
|
358,446
|
|
|
$
|
|
|
|
$
|
10,777,184
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,418,738
|
|
|
$
|
358,446
|
|
|
$
|
|
|
|
$
|
10,777,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Skilled Nursing Facilities (SNFs)
|
|
(b)
|
|
Assisted Living Facilities (ALFs)
|
|
(c)
|
|
Vacant Land
|
|
(d)
|
|
Assets relating to corporate office
space
|
|
(e)
|
|
Developmental asset
|
|
(f)
|
|
Includes six properties all located
in Texas
|
|
(g)
|
|
The aggregate cost for federal
income tax purposes of the real estate as of December 31,
2010 is $598,846,000 (unaudited)
|
|
|
|
|
|
|
Encumbrances:
|
|
(1) Standalone first mortgage
|
|
|
|
|
|
(2) Aviv primary credit facility (GE credit facility)
|
AVIV
REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Reconciliation of real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
636,409,268
|
|
|
$
|
606,691,800
|
|
|
$
|
505,585,195
|
|
Additions during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
63,005,000
|
|
|
|
17,856,000
|
|
|
|
103,521,125
|
|
Development of rental properties and capital expenditures
|
|
|
7,815,209
|
|
|
|
11,861,468
|
|
|
|
8,630,503
|
|
Dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of assets
|
|
|
(4,084,000
|
)
|
|
|
|
|
|
|
(10,138,645
|
)
|
Impairment (i)
|
|
|
(96,000
|
)
|
|
|
|
|
|
|
(906,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
703,049,477
|
|
|
$
|
636,409,268
|
|
|
$
|
606,691,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
58,673,377
|
|
|
$
|
42,091,996
|
|
|
$
|
29,961,048
|
|
Additions during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
17,853,799
|
|
|
|
17,527,656
|
|
|
|
14,615,770
|
|
Dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of assets
|
|
|
(578,232
|
)
|
|
|
(946,275
|
)
|
|
|
(2,459,571
|
)
|
Impairment (i)
|
|
|
|
|
|
|
|
|
|
|
(25,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
75,948,944
|
|
|
$
|
58,673,377
|
|
|
$
|
42,091,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Represents the write-down of carrying cost and accumulated
depreciation on assets where impairment charges were taken. |
F-33
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND
SUBSIDIARIES
The Board of Directors and the Partners
Aviv Healthcare Properties Limited Partnership and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Aviv Healthcare Properties Limited Partnership and Subsidiaries
(the Partnership) as of December 31, 2010 and 2009, and the
related consolidated statements of operations, changes in
equity, and cash flows for each of the three years in the period
ended December 31, 2010. Our audits also included the
financial statement schedule listed in the accompanying index to
the financial statements. These financial statements and
schedule are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Partnerships internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Partnerships internal control over financial
reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Aviv Healthcare Properties Limited
Partnership and Subsidiaries at December 31, 2010 and 2009,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2010 in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
Chicago, Illinois
March 15, 2011
except for Note 16 and Schedule III, as to which the
date is
April 28, 2011
F-34
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$13,028,474
|
|
|
|
$15,542,507
|
|
Deferred rent receivable
|
|
|
30,660,773
|
|
|
|
27,715,217
|
|
Due from related parties
|
|
|
|
|
|
|
15,816
|
|
Tenant receivables
|
|
|
1,168,842
|
|
|
|
2,407,737
|
|
Rental properties and financing leases, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
76,466,020
|
|
|
|
69,844,477
|
|
Buildings and improvements
|
|
|
615,806,273
|
|
|
|
555,931,485
|
|
Assets under direct financing leases
|
|
|
10,777,184
|
|
|
|
10,633,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
703,049,477
|
|
|
|
636,409,268
|
|
Less accumulated depreciation
|
|
|
(75,948,944
|
)
|
|
|
(58,673,377
|
)
|
|
|
|
|
|
|
|
|
|
Net rental properties
|
|
|
627,100,533
|
|
|
|
577,735,891
|
|
Deferred finance costs, net
|
|
|
9,957,636
|
|
|
|
989,658
|
|
Loan receivables
|
|
|
36,610,638
|
|
|
|
28,970,129
|
|
Other assets
|
|
|
12,872,323
|
|
|
|
11,753,540
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$731,399,219
|
|
|
|
$665,130,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
$6,012,809
|
|
|
|
$3,241,478
|
|
Tenant security and escrow deposits
|
|
|
13,658,384
|
|
|
|
12,314,790
|
|
Other liabilities
|
|
|
25,996,492
|
|
|
|
31,936,322
|
|
Mortgage and other notes payable
|
|
|
440,575,916
|
|
|
|
480,105,226
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
486,243,601
|
|
|
|
527,597,816
|
|
Class E Preferred Units
|
|
|
|
|
|
|
62,970,571
|
|
Equity:
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
241,061,186
|
|
|
|
73,385,093
|
|
Noncontrolling interests
|
|
|
|
|
|
|
1,177,015
|
|
Accumulated other comprehensive income
|
|
|
4,094,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
245,155,618
|
|
|
|
74,562,108
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
$731,399,219
|
|
|
|
$665,130,495
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-35
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$84,490,144
|
|
|
|
$82,775,078
|
|
|
|
$72,142,847
|
|
Tenant recoveries
|
|
|
6,441,786
|
|
|
|
6,055,703
|
|
|
|
4,830,733
|
|
Interest on loans to lesseescapital expenditures
|
|
|
1,779,620
|
|
|
|
1,662,107
|
|
|
|
725,939
|
|
Interest on loans to lesseesworking capital and capital
lease
|
|
|
3,446,226
|
|
|
|
1,830,791
|
|
|
|
1,133,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
96,157,776
|
|
|
|
92,323,679
|
|
|
|
78,832,665
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
574,646
|
|
|
|
612,185
|
|
|
|
1,088,220
|
|
General and administrative
|
|
|
10,725,122
|
|
|
|
7,741,087
|
|
|
|
6,808,795
|
|
Offering costs
|
|
|
|
|
|
|
6,863,948
|
|
|
|
|
|
Real estate taxes
|
|
|
6,475,230
|
|
|
|
6,231,776
|
|
|
|
5,116,431
|
|
Depreciation
|
|
|
17,853,799
|
|
|
|
17,527,656
|
|
|
|
14,615,770
|
|
Loss on impairment
|
|
|
96,000
|
|
|
|
|
|
|
|
931,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
35,724,797
|
|
|
|
38,976,652
|
|
|
|
28,560,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
60,432,979
|
|
|
|
53,347,027
|
|
|
|
50,271,820
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
133,286
|
|
|
|
466,177
|
|
|
|
2,012,046
|
|
Interest expense
|
|
|
(22,722,785
|
)
|
|
|
(26,570,071
|
)
|
|
|
(26,272,012
|
)
|
Change in fair value of derivatives
|
|
|
2,931,309
|
|
|
|
6,987,825
|
|
|
|
(8,673,771
|
)
|
Amortization of deferred financing costs
|
|
|
(1,008,059
|
)
|
|
|
(550,327
|
)
|
|
|
(536,620
|
)
|
Gain on sale of assets, net
|
|
|
511,552
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
(2,295,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(22,450,259
|
)
|
|
|
(19,666,396
|
)
|
|
|
(33,470,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
37,982,720
|
|
|
|
33,680,631
|
|
|
|
16,801,463
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
72,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
37,982,720
|
|
|
|
33,680,631
|
|
|
|
16,874,193
|
|
Distributions and accretion on Class E Preferred Units
|
|
|
(17,371,893
|
)
|
|
|
(14,569,875
|
)
|
|
|
(8,842,980
|
)
|
Net income allocable to noncontrolling interests
|
|
|
(241,622
|
)
|
|
|
(221,154
|
)
|
|
|
(155,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
|
$20,369,205
|
|
|
|
$18,889,602
|
|
|
|
$7,876,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
|
$37,982,720
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instruments
|
|
|
4,094,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income allocable to common units
|
|
|
$42,077,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-36
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Years
Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
Partners
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Equity
|
|
|
Income
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance at January 1, 2008
|
|
|
$92,835,547
|
|
|
|
$
|
|
|
|
$1,422,456
|
|
|
|
$94,258,003
|
|
Net income
|
|
|
16,719,167
|
|
|
|
|
|
|
|
155,026
|
|
|
|
16,874,193
|
|
Issuance of warrants
|
|
|
1,349,494
|
|
|
|
|
|
|
|
|
|
|
|
1,349,494
|
|
Non-cash stock-based compensation
|
|
|
406,000
|
|
|
|
|
|
|
|
|
|
|
|
406,000
|
|
Distributions to partners and accretion on Class E
Preferred Units and other
|
|
|
(34,394,877
|
)
|
|
|
|
|
|
|
(621,621
|
)
|
|
|
(35,016,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
76,915,331
|
|
|
|
|
|
|
|
955,861
|
|
|
|
77,871,192
|
|
Net income
|
|
|
33,459,477
|
|
|
|
|
|
|
|
221,154
|
|
|
|
33,680,631
|
|
Issuance of warrants
|
|
|
8,399,117
|
|
|
|
|
|
|
|
|
|
|
|
8,399,117
|
|
Non-cash stock-based compensation
|
|
|
406,000
|
|
|
|
|
|
|
|
|
|
|
|
406,000
|
|
Distributions to partners and accretion on Class E
Preferred Units and other
|
|
|
(45,794,832
|
)
|
|
|
|
|
|
|
|
|
|
|
(45,794,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
73,385,093
|
|
|
|
|
|
|
|
1,177,015
|
|
|
|
74,562,108
|
|
Net income
|
|
|
37,741,098
|
|
|
|
|
|
|
|
241,622
|
|
|
|
37,982,720
|
|
Non-cash stock-based compensation
|
|
|
1,631,998
|
|
|
|
|
|
|
|
|
|
|
|
1,631,998
|
|
Distributions to partners and accretion on Class E
Preferred Units
|
|
|
(79,980,308
|
)
|
|
|
|
|
|
|
|
|
|
|
(79,980,308
|
)
|
Redemption of warrants
|
|
|
(17,001,453
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,001,453
|
)
|
Capital contributions
|
|
|
223,597,219
|
|
|
|
|
|
|
|
268,902
|
|
|
|
223,866,121
|
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
|
4,094,432
|
|
|
|
|
|
|
|
4,094,432
|
|
Capital contributions of noncontrolling interests
|
|
|
1,687,539
|
|
|
|
|
|
|
|
(1,687,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
$241,061,186
|
|
|
|
$4,094,432
|
|
|
|
$
|
|
|
|
$245,155,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-37
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$37,982,720
|
|
|
|
$33,680,631
|
|
|
|
$16,874,193
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
17,853,799
|
|
|
|
17,527,656
|
|
|
|
14,661,586
|
|
Amortization
|
|
|
1,008,059
|
|
|
|
550,327
|
|
|
|
536,620
|
|
Change in fair value of derivatives
|
|
|
(2,931,309
|
)
|
|
|
(6,987,825
|
)
|
|
|
8,673,771
|
|
Deferred rental income
|
|
|
(3,056,430
|
)
|
|
|
(6,388,600
|
)
|
|
|
(5,531,005
|
)
|
Rental income from intangible amortization, net
|
|
|
(3,681,109
|
)
|
|
|
(2,097,655
|
)
|
|
|
(2,518,376
|
)
|
Non-cash stock-based compensation
|
|
|
1,631,998
|
|
|
|
406,000
|
|
|
|
406,000
|
|
Loss on impairment of assets
|
|
|
96,000
|
|
|
|
|
|
|
|
931,629
|
|
Non-cash loss on extinguishment of debt
|
|
|
1,437,233
|
|
|
|
|
|
|
|
|
|
Gain on sale of assets, net
|
|
|
(511,552
|
)
|
|
|
|
|
|
|
|
|
Loss on disposal of assets, net
|
|
|
|
|
|
|
|
|
|
|
183,903
|
|
Reserve for uncollectible loans
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from related parties
|
|
|
15,816
|
|
|
|
10,000
|
|
|
|
642,662
|
|
Tenant receivables
|
|
|
(317,123
|
)
|
|
|
(365,523
|
)
|
|
|
(2,087,939
|
)
|
Other assets
|
|
|
177,666
|
|
|
|
3,022,578
|
|
|
|
(2,439,953
|
)
|
Accounts payable and accrued expenses
|
|
|
3,357,961
|
|
|
|
145,652
|
|
|
|
1,634,170
|
|
Tenant security deposits and other liabilities
|
|
|
866,527
|
|
|
|
1,141,304
|
|
|
|
978,499
|
|
Due to related parties
|
|
|
|
|
|
|
(602,253
|
)
|
|
|
(897,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
54,680,256
|
|
|
|
40,042,292
|
|
|
|
32,048,304
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of rental properties
|
|
|
4,085,825
|
|
|
|
|
|
|
|
3,071,177
|
|
Purchase of rental properties
|
|
|
(54,884,043
|
)
|
|
|
(16,375,694
|
)
|
|
|
(94,392,262
|
)
|
Capital improvements and other developments
|
|
|
(7,883,130
|
)
|
|
|
(13,507,673
|
)
|
|
|
(1,833,252
|
)
|
Payment of earn-out provision for previously acquired rental
properties
|
|
|
(9,600,731
|
)
|
|
|
|
|
|
|
|
|
Loan receivables funded to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of collections on loan receivables to related parties
|
|
|
|
|
|
|
|
|
|
|
32,000,000
|
|
Loan receivables funded to others, net
|
|
|
(6,834,568
|
)
|
|
|
(8,609,528
|
)
|
|
|
(17,440,989
|
)
|
Funding of direct financing leases, net
|
|
|
|
|
|
|
|
|
|
|
(10,479,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(75,116,647
|
)
|
|
|
(38,492,895
|
)
|
|
|
(89,074,649
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
442,789,570
|
|
|
|
35,651,073
|
|
|
|
80,915,249
|
|
Repayment of debt
|
|
|
(482,522,690
|
)
|
|
|
(19,091,756
|
)
|
|
|
(4,218,338
|
)
|
Payment of financing costs
|
|
|
(10,567,931
|
)
|
|
|
(102,803
|
)
|
|
|
|
|
Payment for swap termination
|
|
|
(3,380,160
|
)
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
223,866,121
|
|
|
|
|
|
|
|
|
|
Redemption of Class E Preferred Units and warrants
|
|
|
(92,001,451
|
)
|
|
|
|
|
|
|
|
|
Redemption of Class F Units
|
|
|
(23,602,649
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of warrants
|
|
|
|
|
|
|
8,399,117
|
|
|
|
1,349,494
|
|
Net proceeds from issuance of Class E Preferred Units
|
|
|
|
|
|
|
17,898,975
|
|
|
|
1,813,836
|
|
Cash distributions to partners
|
|
|
(36,658,452
|
)
|
|
|
(38,122,989
|
)
|
|
|
(29,849,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
17,922,358
|
|
|
|
4,631,617
|
|
|
|
50,010,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,514,033
|
)
|
|
|
6,181,014
|
|
|
|
(7,015,854
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
15,542,507
|
|
|
|
9,361,493
|
|
|
|
16,377,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
$13,028,474
|
|
|
|
$15,542,507
|
|
|
|
$9,361,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
$20,983,000
|
|
|
|
$27,771,260
|
|
|
|
$25,447,062
|
|
Supplemental disclosure of noncash activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued distributions payable to partners
|
|
|
$11,339,775
|
|
|
|
$3,650,000
|
|
|
|
$395,046
|
|
Write-off of deferred rent receivable
|
|
|
$3,367,164
|
|
|
|
$
|
|
|
|
$
|
|
Write-off of in-place lease intangibles, net
|
|
|
$1,392,034
|
|
|
|
$
|
|
|
|
$
|
|
Write-off of deferred finance costs, net
|
|
|
$1,235,969
|
|
|
|
$
|
|
|
|
$
|
|
Write-off of debt discount
|
|
|
$202,307
|
|
|
|
$
|
|
|
|
$
|
|
Mortgage and other notes payable assumed
|
|
|
$
|
|
|
|
$
|
|
|
|
$5,350,939
|
|
See accompanying notes to consolidated financial statements.
F-38
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
|
|
1.
|
Description
of Operations and Formation
|
Aviv Healthcare Properties Limited Partnership, a Delaware
limited partnership, and Subsidiaries, (the Partnership) was
formed in 2005 and directly or indirectly owned or leased 181
and 169 properties, principally skilled nursing facilities,
across the United States at December 31, 2010 and 2009,
respectively. The Partnership generates the majority of its
revenues by entering into long-term
triple-net
leases with qualified local, regional, and national operators.
In addition to the base rent, leases provide for tenants to pay
the Partnership an ongoing escrow for real estate taxes.
Furthermore, all operating and maintenance costs of the
buildings are the responsibility of the tenants. Substantially
all depreciation expense reflected in the consolidated
statements of operations relates to the ownership of senior
living properties. The Partnership manages its business as a
single business segment as defined in Accounting Standards
Codification (ASC) 280, Segment Reporting.
The Partnership is the general partner and 99.245% owner of Aviv
Healthcare Properties Operating Partnership I, L.P. (the
Operating Partnership), a Delaware limited partnership at
December 31, 2010. A fractional interest in the Operating
Partnership was owned by a related party, Aviv Healthcare LLC,
and was shown as a component of noncontrolling interest through
the Merger date, at which time the interest was contributed by
the related party to the Partnership. The Operating Partnership
has six wholly owned subsidiaries: Aviv Development JV, LLC
(Aviv Development), a Delaware limited liability company; Aviv
Financing I, LLC (Aviv Financing I), a Delaware limited
liability company; Aviv Financing II, LLC (Aviv Financing II), a
Delaware limited liability company; Aviv Financing III, LLC
(Aviv Financing III), a Delaware limited liability company; Aviv
Financing IV, LLC (Aviv Financing IV), a Delaware limited
liability company; and Aviv Financing V, LLC (Aviv
Financing V), a Delaware limited liability company.
On September 17, 2010, the Partnership entered into an
agreement (the Merger Agreement), by and among Aviv REIT, Inc.,
a Maryland corporation (the Company), Aviv Healthcare Merger Sub
LP, a Delaware limited partnership of which the Company is the
general partner (Merger Sub), Aviv Healthcare Merger Sub Partner
LLC, a Delaware limited liability company and a wholly owned
subsidiary of the Company, and the Partnership. Effective on
such date, the Company is the sole general partner of the
Partnership. Pursuant to the Merger Agreement, the Partnership
merged (the Merger) with and into Merger Sub, with Merger Sub
continuing as the surviving entity with the identical name (the
Surviving Partnership). Following the Merger, the Company
remains as the sole general partner of the Surviving Partnership
and the Surviving Partnership, as the successor to the
Partnership, became the general partner of the Operating
Partnership. All of the business, assets and operations will
continue to be held by the Operating Partnership and its
subsidiaries. The Companys equity interest in the
Surviving Partnership will be linked to future investments in
the Company, such that future equity issuances by the Company
(pursuant to the Stockholders Agreement, the Companys
management incentive plan or otherwise as agreed between the
parties) will result in a corresponding increase in the
Companys equity interest in the Surviving Partnership. The
Company is authorized to issue 2 million shares of common
stock (par value ($0.01) and 1,000 shares of preferred
stock (par value $1,000). At December 31, 2010, there are
227,002 shares of common stock and 125 shares of
preferred stock outstanding.
As a result of the common control of the Company (which was
newly formed) and the Partnership, the Merger, for accounting
purposes, did not result in any adjustment to the historical
carrying value of the assets or liabilities of the Partnership.
The Company was funded in September 2010 with approximately
$235 million from its stockholders and such amount, net of
costs, was contributed to the Partnership in September 2010 in
exchange for Class G Units in the Partnership. At
December 31, 2010, the Company owns 53.4% of the economic
interests of the Partnership.
F-39
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
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|
2.
|
Summary
of Significant Accounting Policies
|
Estimates
The preparation of the financial statements in conformity with
U.S. generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Noncontrolling
Interests
In December 2007, the Financial Accounting Standards Board
(FASB) issued ASC 810, Consolidations (ASC
810) to improve the relevance, comparability, and
transparency of the financial information that a reporting
entity provides in its consolidated financial statements by
establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. ASC 810 is effective for
fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008.
Effective January 1, 2009, the Partnership retrospectively
adopted the provisions of ASC 810, which requires a
noncontrolling interest in a subsidiary to be reported as equity
and the amount of consolidated net income specifically
attributable to the noncontrolling interest to be included
within consolidated net income.
ASC 810 also requires consistency in the manner of reporting
changes in the parents ownership interest and requires
fair value measurement of any noncontrolling equity investment
retained in a deconsolidation. Further, as a result of the
adoption of ASC 810, net income attributable to
noncontrolling interests is now excluded from the determination
of consolidated net income.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of the Partnership, the Surviving Partnership, the
Operating Partnership, and all controlled subsidiaries and joint
ventures. The Partnership considers itself to control an entity
if it is the majority owner of and has voting control over such
entity. The portion of the net income or loss attributed to
third parties is reported as net income allocable to
noncontrolling interests on the consolidated statements of
operations, and such parties portion of the net equity in
such subsidiaries is reported on the consolidated balance sheets
as noncontrolling interests. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash and
Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid
short-term investments with original maturities of three months
or less. The Partnership maintains cash and cash equivalents in
United States banking institutions that exceed amounts insured
by the Federal Deposit Insurance Corporation. The Partnership
believes the risk of loss from exceeding this insured level is
minimal.
Rental
Properties
The Partnership periodically assesses the carrying value of
rental properties and related intangible assets in accordance
with ASC 360, Property, Plant, and Equipment (ASC
360), to determine if facts and
F-40
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
circumstances exist that would suggest that assets might be
impaired or that the useful lives should be modified. In the
event impairment in value occurs and a portion of the carrying
amount of the rental properties will not be recovered in part or
in whole, a provision will be recorded to reduce the carrying
basis of the rental properties and related intangibles to their
estimated fair value. The estimated fair value of the
Partnerships rental properties is determined by using
customary industry standard methods that include discounted cash
flow and/or
direct capitalization analysis. As part of the impairment
evaluation during 2010, a building in Hometown, Texas was
impaired for $96,000 to reflect the difference between the book
value and estimated selling price less costs to dispose. The
property was sold on December 31, 2010, with an immaterial
gain subsequent to the impairment of $96,000 previously taken.
As part of the impairment evaluation during 2008, the
Partnership recorded a loss on the anticipated sale of a
building of approximately $932,000.
Buildings and building improvements have been assigned estimated
40-year
lives and are depreciated on the straight-line method. Personal
property, furniture, and equipment have been assigned estimated
lives ranging from 7 to 10 years and are depreciated on the
straight-line method.
The Partnership may advance monies to its lessees for the
purchase, generally, of furniture, fixtures, or equipment or
other purposes. Required minimum lease payments due from the
lessee increase to provide for the repayment of such amounts
over a stated term. These advances in the instance where the
depreciable life of the newly purchased asset is less than the
remaining lease term are reflected as loan receivables on the
consolidated balance sheets, and the incremental lease payments
are bifurcated between principal and interest over the stated
term. In the instance where the depreciable life of the newly
purchased assets is longer than the remaining lease term, the
purchase is recorded as property. In other instances, explicit
loans are made to lessees for working capital and other funding
needs and provide for monthly principal and interest payments
generally ranging from 5 to 10 years. Such advances, net of
repayments, equaled $36,610,638 and $28,970,129 at
December 31, 2010 and 2009, respectively.
Purchase
Accounting
In determining the allocation of the purchase price of
partnerships and facilities between net tangible and identified
intangible assets acquired and liabilities assumed, the
Partnership makes estimates of the fair value of the tangible
and intangible assets and acquired liabilities using information
obtained from multiple sources as a result of preacquisition due
diligence, marketing, leasing activities of the
Partnerships diverse operator base, industry surveys of
critical valuation metrics such as capitalization rates,
discount rates and leasing rates and appraisals obtained as a
requirement of the Mortgage. The Partnership allocates the
purchase price of facilities to net tangible and identified
intangible assets acquired based on their fair values in
accordance with the provisions of ASC 805, Business
Combinations (ASC 805). The determination of fair value
involves the use of significant judgment and estimation.
The Partnership determines fair values as follows:
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Other assets acquired and other liabilities assumed are valued
at stated amounts, which approximate fair value.
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Rental properties are valued using discounted cash flow
projections that assume certain future revenue and costs and
consider capitalization and discount rates using current market
conditions. The Partnership allocates the purchase price of
facilities to net tangible and identified intangible assets
acquired and liabilities assumed based on their fair values.
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F-41
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
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|
|
|
|
Assumed debt balances are valued at fair value, with the
computed discount/premium amortized over the remaining term of
the obligation.
|
The Partnership determines the value of land either based on
real estate tax assessed values in relation to the total value
of the asset, internal analyses of recently acquired and
existing comparable properties within the Partnerships
portfolio, or third party appraisals. The fair value of in-place
leases, if any, reflects: (i) above- and below-market
leases, if any, determined by discounting the difference between
the estimated current market rent and the in-place rentals, the
resulting intangible asset or liability of which is amortized to
rental revenue over the remaining life of the associated lease
plus any fixed rate renewal periods if applicable; (ii) the
estimated value of the cost to obtain tenants, including tenant
allowances, tenant improvements, and leasing commissions, which
is amortized over the remaining life of the associated lease;
and (iii) an estimated value of the absorption period to
reflect the value of the rents and recovery costs foregone
during a reasonable
lease-up
period as if the acquired space was vacant, which is amortized
over the remaining life of the associated lease. The Partnership
also estimates the value of tenant or other customer
relationships acquired by considering the nature and extent of
existing business relationships with the tenant, growth
prospects for developing new business with such tenant, such
tenants credit quality, expectations of lease renewals
with such tenant, and the potential for significant, additional
future leasing arrangements with such tenant. The Partnership
amortizes such value, if any, over the expected term of the
associated arrangements or leases, which would include the
remaining lives of the related leases. The amortization is
included in the consolidated statements of operations in rental
income.
Prior to the Merger on September 17, 2010, Aviv Asset
Management, L.L.C. (AAM) was a non-consolidated management
company to the Partnership based on the application of
appropriate accounting guidance (as discussed in Footnote 11).
Upon the Merger, AAM became a consolidated entity of the
Partnership and is presented as such for all periods included
herein with all periods shown at historical cost (carryover
basis with no adjustments to fair value). This treatment is in
accordance with ASC 805 due to the fact that AAM was under
common control prior and subsequent to the Merger.
Revenue
Recognition
Rental income is recognized on a straight-line basis over the
term of the lease when collectibility is reasonably assumed.
Differences between rental income earned and amounts due under
the lease are charged or credited, as applicable, to deferred
rent receivable. Income recognized from this policy is titled
deferred rental revenue. Additional rents from expense
reimbursements for insurance, real estate taxes, and certain
other expenses are recognized in the period in which the related
expenses are incurred and are reflected as tenant recoveries on
the consolidated statements of operations.
Below is a summary of the components of rental income for the
years ended December 31, 2010, 2009, and 2008:
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|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Rental income
|
|
|
$77,752,605
|
|
|
|
$74,288,823
|
|
|
|
$64,093,466
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|
Deferred rental revenue
|
|
|
3,056,430
|
|
|
|
6,388,600
|
|
|
|
5,531,005
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|
Rental income from intangible amortization
|
|
|
3,681,109
|
|
|
|
2,097,655
|
|
|
|
2,518,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental income
|
|
|
$84,490,144
|
|
|
|
$82,775,078
|
|
|
|
$72,142,847
|
|
|
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F-42
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
During the year ended December 31, 2010, deferred rental
revenue includes an off-setting write-off (expense) of deferred
rent receivable of $3,367,164 due to the terminations of leases
and replacement of operators.
Lease
Accounting
The Partnership, as lessor, makes a determination with respect
to each of its leases whether they should be accounted for as
operating leases or direct financing leases. The classification
criteria is based on estimates regarding the fair value of the
leased facilities, minimum lease payments, effective cost of
funds, the economic life of the facilities, the existence of a
bargain purchase option, and certain other terms in the lease
agreements. Payments received under operating leases are
accounted for in the statement of operations as rental income
for actual rent collected plus or minus a straight-line
adjustment for estimated minimum lease escalators. Assets
subject to operating leases are reported as rental properties in
the consolidated balance sheets. For facilities leased as direct
financing arrangements, an asset equal to the Partnerships
net initial investment is established on the balance sheet
titled assets under direct financing leases. Payments received
under the financing lease are bifurcated between interest income
and principal amortization to achieve a consistent yield over
the stated lease term using the interest method. Principal
amortization (accretion) is reflected as an adjustment to the
asset subject to a financing lease. Such accretion was $143,878,
$153,983, and $95,793 for the years ended December 31,
2010, 2009, and 2008, respectively.
All of the Partnerships leases contain fixed or
formula-based rent escalators. To the extent that the escalator
increases are tied to a fixed index or rate, lease payments are
accounted for on a straight-line basis over the life of the
lease.
Deferred
Finance Costs
Deferred finance costs are being amortized using the
straight-line method, which approximates the interest method,
over the term of the respective underlying debt agreement.
Loan
Receivables
Loan receivables consist of capital improvement loans to tenants
and working capital loans to operators. Loan receivables are
carried at their principal amount outstanding. Management,
periodically evaluates outstanding loans and notes receivable
for collectability. When management identifies potential loan
impairment indicators, such as nonpayment under the loan
documents, impairment of the underlying collateral, financial
difficulty of the operator, or other circumstances that may
impair full execution of the loan documents, and management
believes it is probable that all amounts will not be collected
under the contractual terms of the loan, the loan is written
down to the present value of the expected future cash flows. As
of December 31, 2010, loan receivable reserves amounted to
$750,000. No other circumstances exist that would suggest that
additional reserves are necessary at the balance sheet date. As
of December 31, 2009, loan receivable reserves are
immaterial.
Stock-Based
Compensation
The Partnership follows ASC 718, Stock Compensation (ASC
718), which requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the consolidated statements of operations based on their grant
date fair values. On September 17, 2010, the Company
adopted a 2010 Management Incentive Plan (the Plan) as part of
the Merger transaction. As recipients of the awards under the
Plan are employed by or associated with the Partnership, the
Partnership records the compensation
F-43
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
expense for all awards granted under the Plan. The non-cash
stock-based compensation expense recognized by the Partnership
since the Merger date, under the Plan, through December 31,
2010 is summarized in Footnote 9.
Fair
Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures, (ASC
820) establishes a three-level valuation hierarchy for
disclosure of fair value measurements. The valuation hierarchy
is based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. A financial
instruments categorization within the valuation hierarchy
is based upon the lowest level of input that is significant to
the fair value measurement. The three levels are defined as
follows:
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Level 1Inputs to the valuation methodology are quoted
prices (unadjusted) for identical assets or;
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Level 2Inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument; and
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Level 3Inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
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The Partnerships interest rate swaps are valued using
models developed internally by the respective counterparty that
use as their basis readily observable market parameters and are
classified within Level 2 of the valuation hierarchy.
Cash and cash equivalents, cash and escrow
depositsrestricted, and derivative financial instruments
are reflected in the accompanying consolidated balance sheets at
amounts considered by management to reasonably approximate fair
value. Management estimates the fair value of its long-term debt
using a discounted cash flow analysis based upon the
Partnerships current borrowing rate for debt with similar
maturities and collateral securing the indebtedness. The
Partnership had outstanding mortgage and other notes payable
obligations with a carrying value of approximately
$440.6 million and $480.1 million as of
December 31, 2010 and 2009, respectively. The estimated
fair value of debt (Level 2) as of December 31,
2010 approximated its carrying value based upon interest rates
available to the Partnership on similar borrowings, and was
$458.4 million as of December 31, 2009.
Derivative
Instruments
The Partnership has implemented ASC 815, Derivatives and
Hedging (ASC 815), which establishes accounting and
reporting standards requiring that all derivatives, including
certain derivative instruments embedded in other contracts, be
recorded as either an asset or liability measured at their fair
value unless they qualify for a normal purchase or normal sales
exception. When specific hedge accounting criteria are not met,
ASC 815 requires that changes in a derivatives fair
value be recognized currently in earnings. Changes in the fair
market values of the Partnerships derivative instruments
are recorded in the consolidated statements of operations if the
derivative does not qualify for or the Partnership does not
elect to apply hedge accounting. If the derivative is deemed to
be eligible for hedge accounting, such changes are reported in
accumulated other comprehensive income within the consolidated
statements of changes in equity, exclusive of ineffectiveness
amounts, which are recognized as adjustments to net income.
F-44
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
Initial
Public Offering Costs
During 2009, the Partnership pursued an initial public offering
(the IPO) of common stock. Costs related to the IPO incurred by
the Partnership were capitalized on the consolidated balance
sheets in other assets as they were incurred.
On November 2, 2009, the Partnership abandoned its IPO
effort. As a result, the Partnership wrote off the IPO costs
incurred to date to the consolidated statement of operations. In
the year ended December 31, 2009, approximately
$6.9 million of IPO-related costs were expensed.
Income
Taxes
As a limited partnership, the consolidated operating results are
included in the income tax returns of the individual partners.
Accordingly, the Partnership does not provide for federal income
taxes. State income taxes were not significant in any of the
periods presented. No uncertain income tax positions exist as of
December 31, 2010, and December 31, 2009, respectively.
Risks and
Uncertainties
The Partnership is subject to certain risks and uncertainties
affecting the healthcare industry as a result of healthcare
legislation and continuing regulation by federal, state, and
local governments. Additionally, the Partnership is subject to
risks and uncertainties as a result of changes affecting
operators of nursing home facilities due to the actions of
governmental agencies and insurers to limit the growth in cost
of healthcare services.
Reclassifications
Certain prior period amounts have been reclassified to conform
to the current financial statement presentation, with no effect
on the Partnerships consolidated financial position or
results of operations.
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3.
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Rental
Property Activity
|
The Partnership had the following rental property activity
during 2010 as described below:
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In March 2010, Aviv Financing III recognized an additional
$8,121,000 addition to the purchase price for the August 2008
acquisitions of eight properties in California and Oregon from
an unrelated third party as per the guidance within
ASC 805. The addition is related to the earn-out provision
defined at closing. Such $8,121,000 additions along with
$1,480,000 previously accrued amounts at December 31, 2009
related to the acquisitions of two properties in April 2009 in
California and Nevada under Aviv Financing I, were paid out
in the amount of approximately $9,601,000.
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In June 2010, Aviv Financing III acquired a property in
Tennessee from an unrelated third party for a purchase price of
approximately $3,380,000. The Partnership financed this purchase
through cash.
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In July 2010, Aviv Financing I disposed of two properties in
California to an unrelated third party for a total selling price
of approximately $3,988,000, which resulted in a gain on
disposal
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F-45
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
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of approximately $582,000. The proceeds from the sale were
primarily used to pay down a portion of the existing Credit
Facility (see Footnote 7) by approximately $3,883,000.
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In September 2010, Aviv Financing I acquired a property in
Virginia from an unrelated third party for a purchase price of
approximately $5,000,000. The Partnership financed this purchase
through borrowings of approximately $3,162,000 under the
Revolver (See Footnote 7).
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In October 2010, Aviv Financing I acquired four properties in
Missouri from various unrelated third parties for a purchase
price of approximately $10,460,000. The Partnership financed
this purchase through borrowings of approximately $7,718,000
under the Revolver (see Footnote 7).
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In November 2010, Aviv Financing III acquired a property in
California from an unrelated third party for a purchase price of
approximately $11,500,000. The Partnership financed this
purchase through borrowings of approximately $7,800,000 under an
acquisition loan.
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In December 2010, Aviv Financing III acquired a property in
Connecticut from an unrelated third party for a purchase price
of approximately $2,600,000. The Partnership financed this
purchase through cash.
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In December 2010, Aviv Financing I acquired four properties in
Kansas, Texas and Connecticut, from unrelated third parties for
a purchase price of approximately $21,944,000. The Partnership
financed this purchase through borrowings of approximately
$15,666,000 under the Revolver (see Footnote 7).
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In December 2010, Aviv Financing I sold a property located in
Texas to an unrelated third party for a sales price of
approximately $96,000.
|
In accordance with ASC 805, the Partnership allocated the
approximate net purchase price of these properties acquired in
2010 as follows:
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Land
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$7,094,000
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Buildings and improvements
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55,911,000
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Borrowings and available cash
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$63,005,000
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The Partnership had the following rental property activity
during 2009 as described below:
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In January 2009, Aviv Financing III acquired a property in
Arkansas from an unrelated third party for a purchase price of
approximately $5,250,000. The Partnership financed this purchase
through borrowings of approximately $2,625,000 via an
acquisition loan, which was subsequently paid in full in August
2009.
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In April 2009, Aviv Financing III acquired two properties
in California and Nevada from an unrelated third party for a
purchase price of approximately $12,606,000. The Partnership
financed this purchase through borrowings of approximately
$8,625,000 via an acquisition loan.
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F-46
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
In accordance with ASC 805, the Partnership allocated the
approximate net purchase price of these properties acquired in
2009 as follows:
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Land
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$4,675,000
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Buildings and improvements
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13,181,000
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Borrowings and available cash
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$17,856,000
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The Partnership acquired additional rental properties during
2008 as described below:
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In April 2008, Aviv Financing I acquired vacant land in Arkansas
from an unrelated third party for a purchase price of
approximately $625,000 to be used for construction of a
replacement facility and acquired two properties in Arkansas
from an unrelated third party for a purchase price of
approximately $12,800,000. The Partnership financed this
purchase through borrowings of approximately $9,785,000 under
the Credit Facility and from proceeds from the issuance of
Class E Units.
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In August 2008, Aviv Financing I acquired eight properties in
California and Oregon from an unrelated third party for a
purchase price of approximately $60,600,000. The Partnership
financed this purchase through borrowings of approximately
$47,400,000 under the Credit Facility.
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In September 2008, Aviv Financing I acquired a property in
Illinois from an unrelated third party for a purchase price of
approximately $6,200,000. The Partnership financed this purchase
through borrowings of approximately $5,571,000 via the
assumption of HUD debt.
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In November 2008, Aviv Financing I acquired four properties in
Arkansas from an unrelated third party for a purchase price of
approximately $19,617,500. The Partnership financed this
purchase through borrowings of approximately $15,694,000 under
the Credit Facility.
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In December 2008, Aviv Financing I acquired two properties, in
two separate transactions, in Kansas and California from an
unrelated third party for a purchase price of approximately
$3,350,000. The Partnership financed this purchase through
borrowings of approximately $2,680,000 under the Credit Facility.
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In accordance with ASC 805, the Partnership allocated the
approximate net purchase price plus any related closing costs of
these properties acquired in 2008 as follows:
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Land
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$12,719,000
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Buildings and improvements
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80,325,000
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Assets under direct financing leases
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10,390,000
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Mortgage and other notes payable assumed
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(5,571,000
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)
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Borrowings and issuances of Class E Units
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$97,863,000
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The Partnership considers renewals on below-market leases when
ascribing value to the in-place lease intangible liabilities at
the date of a property acquisition. In those instances where the
renewal lease rate pursuant to the terms of the lease does not
adjust to a current market rent, the Partnership evaluates
whether the stated renewal rate is below current market rates
and considers the past and current operations of the
F-47
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
property, the current rent coverage ratio of the tenant, and the
number of years until potential renewal option exercise. If
renewal is considered probable based on these factors, an
additional lease intangible liability is recorded at acquisition
and amortized over the renewal period.
|
|
4.
|
Deferred
Finance Costs
|
The following summarizes the Partnerships deferred finance
costs at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Gross amount
|
|
|
$10,567,931
|
|
|
|
$2,620,295
|
|
Accumulated amortization
|
|
|
(610,295
|
)
|
|
|
(1,630,637
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$9,957,636
|
|
|
|
$989,658
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs is reported in the
amortization expense line item in the consolidated statements of
operations.
The estimated annual amortization of the deferred finance costs
for each of the five succeeding years is as follows:
|
|
|
|
|
2011
|
|
|
$2,116,711
|
|
2012
|
|
|
2,116,711
|
|
2013
|
|
|
2,116,021
|
|
2014
|
|
|
2,108,699
|
|
2015
|
|
|
1,499,494
|
|
|
|
|
|
|
Total
|
|
|
$9,957,636
|
|
|
|
|
|
|
The following summarizes the Partnerships loan receivables
at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance
|
|
|
$28,970,129
|
|
|
|
$20,360,601
|
|
New capital improvement loans issued
|
|
|
1,415,579
|
|
|
|
2,816,733
|
|
Working capital and other loans issued
|
|
|
14,705,259
|
|
|
|
7,963,189
|
|
Reserve for uncollectible loans
|
|
|
(750,000
|
)
|
|
|
|
|
Loan amortization and repayments
|
|
|
(7,730,329
|
)
|
|
|
(2,170,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$36,610,638
|
|
|
|
$28,970,129
|
|
|
|
|
|
|
|
|
|
|
During 2010 and 2009, the Partnership funded loans for both
working capital and capital improvement purposes to various
operators and tenants. All loans held by the Partnership accrue
interest. The payments received from the operator or tenant
cover both interest accrued as well as amortization of the
principle balance due. Any payments received from the tenant or
operator made outside of the normal loan amortization schedule
are considered principal prepayments and reduce the outstanding
loan receivables balance.
F-48
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
Interest income earned on loan receivables for the years ended
December 31, 2010, 2009, and 2008, was $3,823,223,
$2,117,461, and $909,645, respectively.
|
|
6.
|
In-Place
Lease Intangibles
|
The following summarizes the Partnerships in-place lease
intangibles classified as part of other assets or other
liabilities at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Gross amount
|
|
|
$8,393,488
|
|
|
|
$25,798,147
|
|
|
|
$11,336,489
|
|
|
|
$34,275,494
|
|
Accumulated amortization
|
|
|
(3,049,093
|
)
|
|
|
(14,049,691
|
)
|
|
|
(3,836,456
|
)
|
|
|
(16,690,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$5,344,395
|
|
|
|
$11,748,456
|
|
|
|
$7,500,033
|
|
|
|
$17,585,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated annual amortization expense of the identified
intangibles for each of the five succeeding years is as follows:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
2011
|
|
|
$644,570
|
|
|
|
$2,065,305
|
|
2012
|
|
|
644,570
|
|
|
|
1,953,351
|
|
2013
|
|
|
636,847
|
|
|
|
1,838,732
|
|
2014
|
|
|
461,961
|
|
|
|
923,735
|
|
2015
|
|
|
402,147
|
|
|
|
678,961
|
|
Thereafter
|
|
|
2,554,300
|
|
|
|
4,288,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5,344,395
|
|
|
|
$11,748,456
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the in-place lease intangible assets
for the years ended December 31, 2010, 2009, and 2008 was
$743,890, $986,871, and $1,020,315, respectively. Accretion for
the in-place lease intangible liabilities for the years ended
December 31, 2010, 2009, and 2008 was $2,468,500,
$3,084,525, and $3,538,691, respectively.
During 2010, the Partnership wrote-off in-place lease intangible
assets of $2,943,001 with accumulated amortization of
$1,531,253, and in-place lease intangible liabilities of
$8,477,347 with accumulated accretion of $5,109,101, for a net
recognition of $1,956,498 in rental income from intangible
amortization, respectively.
F-49
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
|
|
7.
|
Mortgage
and Other Notes Payable
|
The Partnerships mortgage and other notes payable
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Mortgage (interest rate of 5.75% on December 31, 2010)
|
|
|
$402,794,111
|
|
|
|
$
|
|
Revolver (interest rate of 5.75% on December 31, 2010)
|
|
|
28,677,230
|
|
|
|
|
|
Construction loan (interest rate of 5.95% on December 31,
2010)
|
|
|
1,312,339
|
|
|
|
|
|
Acquisition loans (interest rate of 6.00% on December 31,
2010)
|
|
|
7,792,236
|
|
|
|
|
|
Term A loans (interest rates of 3.25% on December 31, 2009)
|
|
|
|
|
|
|
7,000,000
|
|
Term A loan (interest rate of 2.73% on December 31, 2009)
|
|
|
|
|
|
|
150,000,000
|
|
Term A loan (interest rate of 2.73% on December 31, 2009)
|
|
|
|
|
|
|
50,000,000
|
|
Term B loans (interest rates of 3.25% on December 31, 2009)
|
|
|
|
|
|
|
11,062,192
|
|
Term B loan (interest of 2.73% on December 31, 2009)
|
|
|
|
|
|
|
200,000,000
|
|
Construction loan (interest rates of 3.25% on December 31,
2009)
|
|
|
|
|
|
|
5,188,837
|
|
Construction loan (interest rate of 5.00% on December 31,
2009)
|
|
|
|
|
|
|
7,187,276
|
|
HUD-related debt (interest rates ranging from 5.23% to 7.25% on
eight HUD properties)
|
|
|
|
|
|
|
29,154,033
|
|
Other loan (interest rates of 3.75% on December 31, 2009)
|
|
|
|
|
|
|
12,000,000
|
|
Acquisition loan (interest rate of 4.50% on December 31,
2009)
|
|
|
|
|
|
|
8,512,888
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$440,575,916
|
|
|
|
$480,105,226
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the Merger, Aviv Financing I refinanced its
debt by paying off all existing mortgages on September 17,
2010 in the amount of $471,064,380 (outstanding balances at the
Merger), and entering into a five-year credit agreement (the
Credit Agreement) that provided a $405 million mortgage
term loan facility (the Mortgage) and a $100 million
revolver (the Revolver).
The
Mortgage
Principal payments on the Mortgage are payable in monthly
installments beginning on November 1, 2010. The payment
schedule for the Mortgage is based upon a
25-year
mortgage style amortization as defined in the Credit Agreement.
Interest rates, at the Partnerships option, are based upon
the base rate or Eurodollar base rate (0.29% at
December 31, 2010 with a 1.25% floor) plus 4.5%. The base
rate, as defined in the Credit Agreement, is the rate announced
from time to time by the Base Rate Bank as its prime
rate. The Base Rate Bank is Bank of America, N.A. The
balance outstanding on the Term Loan as of December 31,
2010 was $402.8 million. This loan matures in September
2015 and has two one-year extensions.
F-50
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
The
Revolver
Under the Credit Agreement, the Partnership also has a
$100 million Revolver. On each payment date, the
Partnership shall pay interest only in arrears on any
outstanding principal balance of the Revolver. Interest rates,
at the Partnerships option, are based upon the base rate
or Eurodollar base rate (0.29% at December 31, 2010 with a
1.25% floor) plus 4.5%. The base rate, as defined in the GE
Credit Agreement, is the rate announced from time to time by the
Base Rate Bank as its prime rate. The Base Rate Bank
is Bank of America, N.A. Additionally, an unused fee equal to 1%
per annum of the daily unused balance on the Revolver is due
monthly.
As of December 31, 2010, approximately $28.7 million
had been drawn on The Revolver. The ability to draw on the
Revolver terminates in September 2013 at which time principal
and interest are payable until the Revolver maturity date in
September 2015.
Other
Loans
On November 1, 2010, a subsidiary of Aviv
Financing III entered into two acquisition loan agreements
of the same terms that provided for borrowings of
$7.8 million. Principal and interest payments are due
monthly beginning on December 1, 2010 through the maturity
date of December 1, 2015. Interest is a fixed rate of
6.00%. These loans are collateralized by a skilled nursing
facility controlled by Aviv Financing III. The balance
outstanding on these loans at December 31, 2010 was
approximately $7.8 million.
On November 12, 2010, a subsidiary of Aviv
Financing III entered into a construction loan agreement
that provides for borrowings up to $6.4 million.
Interest-only payments at the prime rate (3.25% at
December 31, 2010) plus 0.38%, or a minimum of 5.95%,
are due monthly from December 1, 2010 through April 1,
2012. From May 1, 2012 through the maturity date of
December 1, 2013, monthly payments of principal and
interest are due based on a
20-year
amortization schedule. This loan is collateralized by a skilled
nursing facility controlled by Aviv Financing III. The balance
outstanding on this loan at December 31, 2010 was
approximately $1.3 million.
Future annual maturities of all debt obligations for five fiscal
years subsequent to December 31, 2010, are as follows:
|
|
|
|
|
2011
|
|
|
$7,321,285
|
|
2012
|
|
|
7,717,628
|
|
2013
|
|
|
9,650,608
|
|
2014
|
|
|
9,227,220
|
|
2015
|
|
|
406,659,175
|
|
|
|
|
|
|
|
|
|
$440,575,916
|
|
|
|
|
|
|
|
|
8.
|
Partners
Equity and Incentive Program
|
In conjunction with the formation of the Partnership, the
Partnership issued 10,323,213 Class A Units and 3,294,733
Class B Units in exchange for all ownership interests of
the Roll-up
contributed to the Partnership in 2005. The Partnership issued
an additional 3,144,010 Class A Units and 1,228,372
Class B Units in 2006. The Class A Units issued as a
result of the formation of the Partnership have a par value of
$10.00 per unit, while Class A Units issued on
December 29, 2006, as a result of the addition of
additional properties have a par value of $11.49 per unit.
Operating distributions accrue at the rate of 10% per year for
F-51
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
Class A Units. The Class A Units have distribution
preference, which decreases ratably after the full return of
capital to the Class A Unitholders through distributions,
and also have a liquidation preference and a profit interest in
the event of sale, disposition, or refinancing as defined in the
Agreement of Limited Partnership (the Partnership Agreement).
Also in connection with the formation of the Partnership, the
Partnership awarded Class C Unit profit interests. These
Class C Units do not have a par value, and no capital was
contributed in consideration for their issuance. These
Class C Units were issued to the General Partner of the
Partnership, which is owned by two parties that have significant
ownership holdings in the Partnership. When operating
distributions are paid in full to the Class A Units as
described above, the Class B and Class C Units receive
all excess distributions, with 40% to Class B Unitholders
and 60% to the Class C Unitholders until the Class B
Units receive $3 million in any partnership year to the
extent that all Class B Units have been issued per the
Partnership Agreement. After reaching this threshold, the
remaining distributions are allocated 100% to the Class C
Unitholders.
The Class D Units represent profit interests in the
Partnership, which may be granted periodically to employees of
AAM. A total of 10,000 Class D Units have been authorized.
A total of 8,050 and 7,800 Class D Units are outstanding at
December 31, 2010 and 2009, respectively. The Class D
Units are not entitled to any distributions of the Partnership,
except in the event of sale, disposition, or refinancing as
defined. Class C Units also have an interest in these
proceeds. The terms of the Class D Units were amended at
the Merger. Part of the Class D Units are defined as
performance-based awards under ASC 718 and require
employment of the recipient on the date of sale, disposition, or
refinancing (Liquidity Event). If the employee is no longer
employed on such date, the award is forfeited. For accounting
purposes, the grant date fair value will be recognized as an
expense when a Liquidity Event becomes imminent and such fair
value on the grant date was determined to be $0.9 million.
The remainder of the Class D Units are time-based awards
under ACS 718 and such fair value determined on the grant date
is recognized over the vesting period. During 2010, 3,220 of the
time-based D Units vested, resulting in the recognition of
$888,400 in expense. No expense relating to these awards was
recognized in 2009.
Distributions to the Partnership partners are summarized as
follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
Class E
|
|
Class F
|
|
Class G
|
|
2010
|
|
|
$13,594,547
|
|
|
|
$2,894,457
|
|
|
|
$12,683,113
|
|
|
|
$
|
|
|
|
$5,342,466
|
|
|
|
$3,792,881
|
|
|
|
$6,092,935
|
|
2009
|
|
|
$13,562,740
|
|
|
|
$2,894,457
|
|
|
|
$10,339,900
|
|
|
|
$
|
|
|
|
$6,898,235
|
|
|
|
$4,430,085
|
|
|
|
$
|
|
2008
|
|
|
$13,562,740
|
|
|
|
$2,774,081
|
|
|
|
$4,161,121
|
|
|
|
$
|
|
|
|
$4,692,899
|
|
|
|
$5,223,778
|
|
|
|
$
|
|
Weighted-average Units outstanding are summarized as follows for
the respective years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
Class E
|
|
Class F
|
|
Class G
|
|
2010
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
7,386
|
|
|
|
5,342,489
|
|
|
|
4,597,432
|
|
|
|
65,338
|
|
2009
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
8,033
|
|
|
|
6,901,950
|
|
|
|
5,369,800
|
|
|
|
|
|
2008
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
9,006
|
|
|
|
4,693,784
|
|
|
|
5,369,800
|
|
|
|
|
|
The Partnership had established an officer incentive program
linked to its future value. Awards vest annually over a
five-year period assuming continuing employment by the
recipient. The awards can be settled in Class C Units or
cash at the Partnerships discretion at the settlement date
of December 31, 2012. For accounting purposes, expense
recognition under the program commenced in 2008, and the related
expense for the year ended December 31, 2010, 2009, and
2008 was approximately $406,000, $406,000, and $406,000,
respectively.
F-52
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
As a result of the Merger on September 17, 2010, such
incentive program was modified such that 40% of the previously
granted award settled immediately on the Merger date with
another 20% vesting and settling on December 31, 2010. The
remaining 40% will vest equally on December 31, 2011 and
December 31, 2012, and will settle in 2018, subject to the
terms and conditions of the amended incentive program agreement.
In accordance with ASC 718, CompensationStock
Compensation (ASC 718), such incentive program will continue
to be expensed through general and administrative expenses as
non-cash compensation on the statements of operations through
the ultimate vesting date of December 31, 2012.
The Parterships equity balance that is projected on the
consolidated balance sheets is split between the general partner
and limited partners in the amount of $221,578,430 and
$19,482,756 at December 31, 2010, respectively.
On September 17, 2010, the Company adopted a 2010
Management Incentive Plan (the Plan) as part of the Merger
transaction. As recipients of the awards under the Plan are
employed by or associated with the Partnership, the Partnership
records the compensation expense for all awards granted under
the Plan.
In connection with the Merger, 64,168 options were granted to
certain members of management and advisory board members on
September 17, 2010 with an exercise price of $1,000 per
option. Two thirds of the options granted, or
42,778 shares, are performance based awards whose criteria
for vesting is tied to a future liquidity event (as defined) and
also contingent upon meeting certain return thresholds (as
defined). At this time, the Partnership does not believe it is
probable that these options will vest and therefore has not
recorded any expense in the December 31, 2010 financial
statements in accordance with ASC 718. The grant date fair
value associated with all performance based award options
aggregates approximately $4.0 million as of
December 31, 2010. One third, or 21,390 shares, of the
options granted were time based awards and the service period
for these options is four years with shares vesting at a rate of
25% on September 17, 2010, 2011, 2012, and 2013.
An additional 1,425 options were granted to certain members of
management and advisory board members on September 30, 2010
with an exercise price of $1,084 per option. Two thirds of the
options granted, or 949 shares, are performance based
awards (as defined above). One third, or 476 shares, of the
options granted were time based awards (as defined above). The
grant date fair value of each time based award is charged to
non-cash compensation expense on a graded basis over the vesting
period. No option awards were granted prior to
September 17, 2010. The following table represents the time
based option awards activity for the year ended
December 31, 2010.
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
Outstanding at beginning of period
|
|
|
|
|
Granted
|
|
|
21,866
|
|
Exercised
|
|
|
|
|
Cancelled/Forfeited
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
21,866
|
|
Options exercisable at end of period
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
|
$108.55
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
9.72
|
|
|
|
|
|
|
F-53
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
The following table represents the time based option awards
outstanding for the year ended December 31, 2010 as well as
other Plan data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Weighted
|
|
|
|
|
Contractual Life
|
|
Average
|
Range of Exercise Prices
|
|
Outstanding
|
|
(Years)
|
|
Exercise Price
|
|
$1,000$1,084
|
|
|
21,866
|
|
|
|
9.72
|
|
|
|
$1,002
|
|
The Black-Scholes option pricing model has been used to estimate
the grant date fair value of the options. The following table
includes the assumptions that were made in estimating the grant
date fair value for options awarded in 2010.
|
|
|
|
|
|
|
2010 Grants
|
|
Dividend yield
|
|
|
10.28
|
%
|
Risk-free interest rate
|
|
|
2.1
|
%
|
Expected life
|
|
|
7.0 years
|
|
Estimated volatility
|
|
|
38.00
|
%
|
Weighted average exercise price
|
|
|
$1,001.83
|
|
Weighted average fair value of options granted (per option)
|
|
|
$108.55
|
|
The Partnership recorded non-cash compensation expenses of
$337,598 for the year ended December 31, 2010, related to
the time based stock options accounted for as equity awards, as
a component of general and administrative expenses in the
consolidated statements of operations.
At December 31, 2010, the total compensation cost related
to outstanding, non-vested time based equity option awards that
are expected to be recognized as compensation cost in the future
aggregates approximately $2,036,000.
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
2011
|
|
|
$1,056,730
|
|
2012
|
|
|
572,691
|
|
2013
|
|
|
298,647
|
|
2014
|
|
|
107,809
|
|
|
|
|
|
|
Total
|
|
|
$2,035,877
|
|
|
|
|
|
|
Dividend equivalent rights associated with the Plan, amounted to
$586,630 for the year ended December 31, 2010, which were
incurred during the fourth quarter of 2010, and are included in
general and administrative expense in the consolidated
statements of operations. These dividend rights will be paid in
four installments as the option vests.
|
|
10.
|
Minimum
Future Rentals
|
The Partnerships rental properties are leased under
noncancelable
triple-net
operating leases. Under the provisions of the leases, the
Partnership receives fixed minimum monthly rentals, generally
with annual increases, and the tenants are responsible for the
repayment of all operating expenses, including repairs and
maintenance, insurance, and real estate taxes of the property
throughout the term of the leases.
F-54
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
At December 31, 2010, future minimum annual rentals to be
received under the noncancelable lease terms are as follows:
|
|
|
|
|
2011
|
|
|
$84,992,545
|
|
2012
|
|
|
88,174,683
|
|
2013
|
|
|
90,498,508
|
|
2014
|
|
|
88,768,851
|
|
2015
|
|
|
88,841,343
|
|
Thereafter
|
|
|
473,832,636
|
|
|
|
|
|
|
|
|
|
$915,108,566
|
|
|
|
|
|
|
Related party receivables and payables represent amounts due
from/to various affiliates of the Partnership, including
advances to members of the Partnership, amounts due to certain
acquired companies and limited liability companies for
transactions occurring prior to the formation of the
Partnership, and various advances to entities controlled by
affiliates of the Partnerships management.
The Partnership had entered into a management agreement, as
amended, effective April 1, 2005, with AAM, an entity
affiliated by common ownership. Under the management agreement,
AAM had been granted the exclusive right to oversee the
portfolio of the Partnership, providing, among other
administrative services, accounting and all required financial
services; legal administration and regulatory compliance;
investor, tenant, and lender relationship services; and
transactional support to the Partnership. Except as otherwise
provided in the Partnership Agreement, all management powers of
the business and affairs of the Partnership are exclusively
vested in the General Partner. The annual fee for such services
equals six-tenths of one percent (0.6%) of the aggregate fair
market value of the properties as determined by the Partnership
and AAM annually. This fee arrangement was amended as discussed
below. In addition, the Partnership reimbursed AAM for all
reasonable and necessary
out-of-pocket
expenses incurred in AAMs conduct of its business,
including, but not limited to, travel, legal, appraisal, and
brokerage fees, fees and expenses incurred in connection with
the acquisition, disposition, or refinancing of any property,
and reimbursement of compensation and benefits of the officers
and employees of AAM. This agreement was terminated on
September 17, 2010 when the Merger occurred, effectively
consolidating AAM into the Partnership, and eliminating the
necessity for reimbursement.
On October 16, 2007, the Partnership legally acquired AAM
through a Manager Contribution and Exchange Agreement dated
October 16, 2007 (the Contribution Agreement). As
stipulated in the Contribution Agreement and the Second Amended
and Restated Agreement of Limited Partnership on
October 16, 2007 (Partnership Agreement), the Partnership
issued a new class of Partnership Unit, Class F Units, as
consideration to the contributing members of AAM. The
contributing members of AAM served as the general partner of the
Partnership. The Class F Units have subordinated payment
and liquidity preference to the Class E Units but are
senior in payment and liquidity preference, where applicable, to
the Class A, B, C, and D Units of the Partnership. The
Class F Units paid in quarterly installments an annual
dividend of 8.25% of the preliminary face amount of $53,698,000.
The preliminary pricing was based upon trading multiples of
comparably sized publicly traded healthcare REITs. The ultimate
Class F Unit valuation was subject to a
true-up
formula at the time of a Liquidity Event, as defined in the
Partnership Agreement.
For accounting purposes, prior to the Merger, AAM had not been
consolidated by the Partnership, nor had any value been ascribed
to the Class F Units issued due to the ability of the
Class E Unitholders to
F-55
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
unwind the acquisition as described above. Such action was
outside the control of the Partnership, and accordingly, the
acquisition is not viewed as having been consummated. The
dividends earned by the Class F Unitholders were reflected
as a component of management fees as described above. Subsequent
to October 16, 2007, the fee for management services to the
Partnership are equal to the dividend earned on the Class F
Unit and was reported as management fee expense.
Under certain circumstances, the Partnership Agreement did
permit the Class E Unitholders to unwind this transaction
and required the Partnership to redeem the Class F Units by
returning to the affiliates all membership interests in AAM. On
September 17, 2010, the Partnership settled the investment
with JER Aviv Acquisition, LLC (JER). For accounting purposes,
this treatment triggered the retroactive consolidation of AAM by
the Partnership. The original and follow-on investments of
Class E Unitholders were made subject to the Unit Purchase
Agreement and related documents (UPA) between the Partnership
and JER dated May 26, 2006.
The UPA did not give either party the right to settle the
investment prior to May 26, 2011. However, the UPA did have
an economic arrangement as to how either party could settle the
arrangement on or after that date. This economic construct
guided the discussions and negotiations of settlement. The UPA
allowed the Partnership to call the E Units and warrants anytime
after May 26, 2011 as long as it provided JER with a 15%
IRR from date of inception. The IRR would be calculated
factoring interim distributions as well as exit payments. The
units were settled for $92,001,451 contemporaneous with the
Merger. A portion of the settlement related to outstanding
warrants held by JER and originally issued in connection with
the E Units issuance.
Coincident with the Merger, 50% of the Class F Unit was
purchased and settled by the Partnership for $23,602,649 and is
reported as a component of distributions to partners and
accretion on Class E Preferred Units in the consolidated
statements of changes in equity. The remaining Class F
Units will pay in quarterly installments an annual dividend of
9.38% of the face amount of $23,602,649.
During the periods presented, the Partnership was party to
various interest rate swaps, which were purchased to fix the
variable interest rate on the denoted notional amount under the
original debt agreements.
At December 31, 2009, the Partnership was party to the
following interest rate swaps, which were purchased to fix the
variable interest rate on the denoted notional amount under the
Original and Amended Credit Agreements and on the acquisition
loan, which was obtained in April 2009:
|
|
|
Total notional amount
|
|
$289,976,000
|
Fixed interest rates range
|
|
1.54%5.20%
|
Effective date range
|
|
April 18, 2005July 17, 2009
|
Termination date range
|
|
February 26, 2010September 16, 2011
|
Asset balance at December 31, 2009 (included in other
assets)
|
|
$
|
Liability balance at December 31, 2009 (included in other
liabilities)
|
|
$6,311,470
|
On September 17, 2010 in connection with the extinguishment
of the original credit facility, the Partnership settled all
related interest rate swaps at a fair value of $3,380,160.
F-56
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
At December 31, 2010, the Partnership is party to two
interest rate swaps, with identical terms for $100 million
each. They were purchased to fix the variable interest rate on
the denoted notional amount under the Mortgage which was
obtained in September, 2010, and qualify for hedge accounting.
For presentational purposes they are shown as one derivative due
to the identical nature of their economic terms.
|
|
|
Total notional amount
|
|
$200,000,000
|
Fixed rates
|
|
6.49% (1.99% effective swap base rate plus 4.5% spread per
credit agreement)
|
Floor rate
|
|
1.25%
|
Effective date
|
|
November 9, 2010
|
Termination date
|
|
September 17, 2015
|
Asset balance at December 31, 2010 (included in other
assets)
|
|
$4,094,432
|
Liability balance at December 31, 2010 (included in other
liabilities)
|
|
$
|
The fair value of each interest rate swap agreement may increase
or decrease due to changes in market conditions but will
ultimately decrease to zero over the term of each respective
agreement.
For the years ended December 31, 2010, 2009, and 2008, the
Partnership recognized approximately $2.9 million and
$7.0 million of net income, and recognized approximately
$8.7 million of next expense, respectively, in the
consolidated statements of operations related to the change in
the fair value of interest rate swap agreements where the
Partnership did not elect to apply hedge accounting.
The following table provides the Partnerships derivative
assets and liabilities carried at fair value as measured on a
recurring basis as of December 31, 2010 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Total Carrying
|
|
|
Quoted Prices
|
|
|
Other
|
|
|
Significant
|
|
|
|
Value at
|
|
|
in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative assets
|
|
|
$4,094
|
|
|
|
$
|
|
|
|
$4,094
|
|
|
|
$
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4,094
|
|
|
|
$
|
|
|
|
$4,094
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Partnerships derivative assets and liabilities include
interest rate swaps that effectively convert a portion of the
Partnerships variable rate debt to fixed rate debt. The
derivative positions are valued using models developed
internally by the respective counterparty that use as their
basis readily observable market parameters (such as forward
yield curves) and are classified within Level 2 of the
valuation hierarchy. The Partnership considers its own credit
risk as well as the credit risk of its counterparties when
evaluating the fair value of its derivatives.
|
|
13.
|
Commitments
and Contingencies
|
The Partnership has a contractual arrangement with a tenant to
reimburse quality assurance fees levied by the California
Department of Health Care Services from August 1, 2005
through July 31, 2008. The Partnership is obligated to
reimburse the fees to the tenant if and when the state withholds
these fees from the tenants Medi-Cal reimbursements
associated with 5 facilities that were formerly leased to
Trinity Health
F-57
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
Systems. The total possible obligation for these fees is
$1,655,286, of which approximately $1.0M has been paid to date.
For the year ended December 31, 2010, the
Partnerships indemnity expense for these fees was
$1,003,000 which equaled the actual amount paid during the
period.
Judicial proceedings seeking declaratory relief for these fees
are in process which if successful would provide for recovery of
such amounts from the State of California. The Partnership has
certain rights to seek relief against Trinity Health Systems for
monies paid out under the indemnity claim; however, it is
uncertain whether the Partnership will be successful in
receiving any amounts from Trinity.
In the normal course of business, the Partnership is involved in
legal actions arising from the ownership of its property. In
managements opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to
have a material adverse effect on the financial position,
operations, or liquidity of the Partnership.
|
|
14.
|
Concentration
of Credit Risk
|
As of December 31, 2010, the Partnerships portfolio
of investments consisted of 181 healthcare facilities, located
in 24 states and operated by 32 third party operators. At
December 31, 2010, approximately 50.7% (measured as a
percentage of total assets) were leased by five private
operators: Evergreen Healthcare (13.6%), Daybreak Healthcare
(12.4%), Sun Mar Healthcare (9.0%), HiCare (8.1%), and Convacare
(7.6%). No other operator represents more than 6.3% of our total
assets. The five states in which the Partnership had its highest
concentration of total assets were California (19.3%), Texas
(16.3%), Missouri (9.6%), Arkansas (8.0%), and Pennsylvania
(6.1%) at December 31, 2010.
For the year ended December 31, 2010, the
Partnerships rental income from operations totaled
approximately $84.5 million, of which approximately
$11.6 million was from Evergreen Healthcare (13.7%),
$9.1 million from Daybreak Healthcare (10.7%), and
$9.1 million was from Sun Mar Healthcare (10.7%). No other
operator generated more than 8.3% of the Partnerships
rental income from operations for the year ended
December 31, 2010.
Below is a summary of unaudited financial information as of and
for the year ended December 31, 2009 for the two lessees
(operators) of our properties whose total assets, in the
aggregate, exceeds 10% of the Partnerships total assets at
December 31, 2010. Financial performance under the terms of
lease agreements with these lessees is, by agreement, guaranteed
by the entities whose financial data is as follows:
|
|
|
|
|
|
|
|
|
|
|
Evergreen
|
|
|
Financial Position
|
|
Healthcare
|
|
Daybreak
|
|
Current assets
|
|
|
$50,975,393
|
|
|
|
$14,723,053
|
|
Noncurrent assets
|
|
|
41,653,895
|
|
|
|
37,043,192
|
|
Current liabilities
|
|
|
60,991,351
|
|
|
|
42,847,531
|
|
Noncurrent liabilities
|
|
|
115,053,022
|
|
|
|
57,073,485
|
|
(Deficit) equity
|
|
|
(83,415,085
|
)
|
|
|
(48,154,771
|
)
|
Results of operations
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$260,280,330
|
|
|
|
$248,922,846
|
|
Gross profit
|
|
|
21,988,553
|
|
|
|
19,982,130
|
|
Income from continuing operations
|
|
|
5,773,223
|
|
|
|
9,143,933
|
|
Net income
|
|
|
7,757,958
|
|
|
|
8,802,933
|
|
F-58
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
On January 4, 2011, Aviv Financing I acquired a property in
Kansas from an unrelated third party for a purchase price of
$3,045,000. The Partnership financed this purchase through
borrowings of $2,131,000 under the Mortgage (as described in
Footnote 7).
On February 4, 2011, the Partnership issued
$200 million in Senior Notes at 7.75%. The proceeds from
this bond issuance were used to pay down $194 million of
the Mortgage.
On March 1, 2011, the Partnership replaced an operator of
three buildings in Pennsylvania and one in Massachusetts from
the operator Brighten to the operator Saber. The Partnership
anticipates that it will recognize a charge to write-off a
deferred rent receivable of approximately $2.4 million in
the first quarter of 2011.
The Partnership has evaluated events subsequent to
December 31, 2010 through March 15, 2011, and
determined that no events other than those noted above would
require additional disclosure.
|
|
16.
|
Condensed
Consolidating Information
|
We and certain of our direct and indirect wholly owned
subsidiaries (the Wholly Owned Subsidiary
Guarantors) fully and unconditionally guaranteed, on a
joint and several basis, the obligation to pay principal and
interest with respect to our Senior Notes issued in February
2011. These Senior Notes were issued by Aviv Healthcare
Properties Limited Partnership and Aviv Healthcare Capital
Corporation. Separate financial statements of the guarantors are
not provided as the consolidating financial information
contained herein provides a more meaningful disclosure to allow
investors to determine the nature of the assets held by and the
operations of the respective guarantor and non-guarantor
subsidiaries. Other wholly owned subsidiaries
(Non-Guarantor Subsidiaries) that were not included
among the Guarantors were not obligated with respect to the
Senior Notes. The Non-Guarantor Subsidiaries are subject to
mortgages. The following summarizes our condensed consolidating
information as of December 31, 2010 and 2009 and for the
years ended December 31, 2010, 2009, and 2008:
F-59
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$12,126,776
|
|
|
|
$908,612
|
|
|
|
$(6,914
|
)
|
|
|
$
|
|
|
|
$13,028,474
|
|
Net rental properties
|
|
|
|
|
|
|
609,972,113
|
|
|
|
17,128,420
|
|
|
|
|
|
|
|
627,100,533
|
|
Deferred financing costs, net
|
|
|
100,000
|
|
|
|
9,834,291
|
|
|
|
23,345
|
|
|
|
|
|
|
|
9,957,636
|
|
Other
|
|
|
13,380,055
|
|
|
|
67,896,040
|
|
|
|
36,481
|
|
|
|
|
|
|
|
81,312,576
|
|
Investment in and due from related parties, net
|
|
|
232,906,755
|
|
|
|
(42,847,014
|
)
|
|
|
(6,964,810
|
)
|
|
|
(183,094,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$258,513,586
|
|
|
|
$645,764,042
|
|
|
|
$10,216,522
|
|
|
|
$(183,094,931
|
)
|
|
|
$731,399,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other notes payable
|
|
|
$
|
|
|
|
$431,471,341
|
|
|
|
$9,104,575
|
|
|
|
$
|
|
|
|
$440,575,916
|
|
Due to related parties
|
|
|
6,092,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,092,936
|
|
Tenant security and escrow deposits
|
|
|
|
|
|
|
13,422,705
|
|
|
|
235,679
|
|
|
|
|
|
|
|
13,658,384
|
|
Accounts payable and accrued expenses
|
|
|
1,431,564
|
|
|
|
4,102,506
|
|
|
|
478,739
|
|
|
|
|
|
|
|
6,012,809
|
|
Other liabilities
|
|
|
5,833,468
|
|
|
|
14,070,088
|
|
|
|
|
|
|
|
|
|
|
|
19,903,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,357,968
|
|
|
|
463,066,640
|
|
|
|
9,818,993
|
|
|
|
|
|
|
|
486,243,601
|
|
Total equity
|
|
|
245,155,618
|
|
|
|
182,697,402
|
|
|
|
397,529
|
|
|
|
(183,094,931
|
)
|
|
|
245,155,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
$258,513,586
|
|
|
|
$645,764,042
|
|
|
|
$10,216,522
|
|
|
|
$(183,094,931
|
)
|
|
|
$731,399,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$256,598
|
|
|
|
$15,285,909
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$15,542,507
|
|
Net rental properties
|
|
|
|
|
|
|
572,626,869
|
|
|
|
5,109,022
|
|
|
|
|
|
|
|
577,735,891
|
|
Deferred financing costs, net
|
|
|
|
|
|
|
989,658
|
|
|
|
|
|
|
|
|
|
|
|
989,658
|
|
Other
|
|
|
10,240,463
|
|
|
|
60,376,547
|
|
|
|
229,613
|
|
|
|
|
|
|
|
70,846,623
|
|
Investment in and due from related parties, net
|
|
|
144,389,145
|
|
|
|
665,364
|
|
|
|
(4,833,054
|
)
|
|
|
(140,205,639
|
)
|
|
|
15,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$154,886,206
|
|
|
|
$649,944,347
|
|
|
|
$505,581
|
|
|
|
$(140,205,639
|
)
|
|
|
$665,130,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other notes payable
|
|
|
$12,000,000
|
|
|
|
$468,105,226
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$480,105,226
|
|
Due to related parties
|
|
|
|
|
|
|
392,954
|
|
|
|
|
|
|
|
(392,954
|
)
|
|
|
|
|
Tenant security and escrow deposits
|
|
|
|
|
|
|
12,184,527
|
|
|
|
130,263
|
|
|
|
|
|
|
|
12,314,790
|
|
Accounts payable and accrued expenses
|
|
|
1,703,527
|
|
|
|
1,537,951
|
|
|
|
|
|
|
|
|
|
|
|
3,241,478
|
|
Other liabilities
|
|
|
3,650,000
|
|
|
|
28,286,322
|
|
|
|
|
|
|
|
|
|
|
|
31,936,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
17,353,527
|
|
|
|
510,506,980
|
|
|
|
130,263
|
|
|
|
(392,954
|
)
|
|
|
527,597,816
|
|
Class E Preferred Units
|
|
|
62,970,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,970,571
|
|
Total equity
|
|
|
74,562,108
|
|
|
|
139,437,367
|
|
|
|
375,318
|
|
|
|
(139,812,685
|
)
|
|
|
74,562,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
$154,886,206
|
|
|
|
$649,944,347
|
|
|
|
$505,581
|
|
|
|
$(140,205,639
|
)
|
|
|
$665,130,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$
|
|
|
|
$84,164,837
|
|
|
|
$325,307
|
|
|
|
$
|
|
|
|
$84,490,144
|
|
Tenant recoveries
|
|
|
|
|
|
|
6,361,304
|
|
|
|
80,482
|
|
|
|
|
|
|
|
6,441,786
|
|
Interest on loans to lessees
|
|
|
1,384,731
|
|
|
|
3,841,115
|
|
|
|
|
|
|
|
|
|
|
|
5,225,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,384,731
|
|
|
|
94,367,256
|
|
|
|
405,789
|
|
|
|
|
|
|
|
96,157,776
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
31,142
|
|
|
|
543,504
|
|
|
|
|
|
|
|
|
|
|
|
574,646
|
|
General and administrative
|
|
|
3,645,948
|
|
|
|
7,050,071
|
|
|
|
29,103
|
|
|
|
|
|
|
|
10,725,122
|
|
Real estate taxes
|
|
|
|
|
|
|
6,394,748
|
|
|
|
80,482
|
|
|
|
|
|
|
|
6,475,230
|
|
Depreciation
|
|
|
|
|
|
|
17,658,861
|
|
|
|
194,938
|
|
|
|
|
|
|
|
17,853,799
|
|
Loss on impairment
|
|
|
|
|
|
|
96,000
|
|
|
|
|
|
|
|
|
|
|
|
96,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,677,090
|
|
|
|
31,743,184
|
|
|
|
304,523
|
|
|
|
|
|
|
|
35,724,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(2,292,359
|
)
|
|
|
62,624,072
|
|
|
|
101,266
|
|
|
|
|
|
|
|
60,432,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(300,317
|
)
|
|
|
(22,070,890
|
)
|
|
|
(79,052
|
)
|
|
|
|
|
|
|
(22,450,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(2,592,676
|
)
|
|
|
40,553,182
|
|
|
|
22,214
|
|
|
|
|
|
|
|
37,982,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions and accretion on Class E Preferred units
|
|
|
(17,371,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,371,893
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(241,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(241,622
|
)
|
Equity in income (loss) of subsidiaries
|
|
|
40,575,396
|
|
|
|
|
|
|
|
|
|
|
|
(40,575,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
|
$20,369,205
|
|
|
|
$40,553,182
|
|
|
|
$22,214
|
|
|
|
$(40,575,396
|
)
|
|
|
$20,369,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$
|
|
|
|
$82,139,906
|
|
|
|
$635,172
|
|
|
|
$
|
|
|
|
$82,775,078
|
|
Tenant recoveries
|
|
|
|
|
|
|
5,977,940
|
|
|
|
77,763
|
|
|
|
|
|
|
|
6,055,703
|
|
Interest on loans to lessees
|
|
|
355,037
|
|
|
|
3,137,861
|
|
|
|
|
|
|
|
|
|
|
|
3,492,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
355,037
|
|
|
|
91,255,707
|
|
|
|
712,935
|
|
|
|
|
|
|
|
92,323,679
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
|
|
|
|
612,185
|
|
|
|
|
|
|
|
|
|
|
|
612,185
|
|
General and administrative
|
|
|
1,977,321
|
|
|
|
5,696,708
|
|
|
|
67,058
|
|
|
|
|
|
|
|
7,741,087
|
|
Offering costs
|
|
|
6,863,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,863,948
|
|
Real estate taxes
|
|
|
|
|
|
|
6,154,013
|
|
|
|
77,763
|
|
|
|
|
|
|
|
6,231,776
|
|
Depreciation
|
|
|
|
|
|
|
17,386,677
|
|
|
|
140,979
|
|
|
|
|
|
|
|
17,527,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
8,841,269
|
|
|
|
29,849,583
|
|
|
|
285,800
|
|
|
|
|
|
|
|
38,976,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(8,486,232
|
)
|
|
|
61,406,124
|
|
|
|
427,135
|
|
|
|
|
|
|
|
53,347,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(459,317
|
)
|
|
|
(19,155,259
|
)
|
|
|
(51,820
|
)
|
|
|
|
|
|
|
(19,666,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(8,945,549
|
)
|
|
|
42,250,865
|
|
|
|
375,315
|
|
|
|
|
|
|
|
33,680,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions and accretion on Class E Preferred units
|
|
|
(14,569,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,569,875
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(221,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(221,154
|
)
|
Equity in income (loss) of subsidiaries
|
|
|
42,626,180
|
|
|
|
|
|
|
|
|
|
|
|
(42,626,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
|
$18,889,602
|
|
|
|
$42,250,865
|
|
|
|
$375,315
|
|
|
|
$(42,626,180
|
)
|
|
|
$18,889,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$
|
|
|
|
$72,142,847
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$72,142,847
|
|
Tenant recoveries
|
|
|
|
|
|
|
4,830,733
|
|
|
|
|
|
|
|
|
|
|
|
4,830,733
|
|
Interest on loans to lessees
|
|
|
182,037
|
|
|
|
1,677,048
|
|
|
|
|
|
|
|
|
|
|
|
1,859,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
182,037
|
|
|
|
78,650,628
|
|
|
|
|
|
|
|
|
|
|
|
78,832,665
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
3,538
|
|
|
|
1,084,682
|
|
|
|
|
|
|
|
|
|
|
|
1,088,220
|
|
General and administrative
|
|
|
1,839,623
|
|
|
|
4,969,172
|
|
|
|
|
|
|
|
|
|
|
|
6,808,795
|
|
Real estate taxes
|
|
|
|
|
|
|
5,116,431
|
|
|
|
|
|
|
|
|
|
|
|
5,116,431
|
|
Depreciation
|
|
|
|
|
|
|
14,615,770
|
|
|
|
|
|
|
|
|
|
|
|
14,615,770
|
|
Loss on impairment
|
|
|
|
|
|
|
931,629
|
|
|
|
|
|
|
|
|
|
|
|
931,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,843,161
|
|
|
|
26,717,684
|
|
|
|
|
|
|
|
|
|
|
|
28,560,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(1,661,124
|
)
|
|
|
51,932,944
|
|
|
|
|
|
|
|
|
|
|
|
50,271,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(2,381,631
|
)
|
|
|
(31,088,726
|
)
|
|
|
|
|
|
|
|
|
|
|
(33,470,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
(4,042,755
|
)
|
|
|
20,844,218
|
|
|
|
|
|
|
|
|
|
|
|
16,801,463
|
|
Discontinued operations
|
|
|
|
|
|
|
72,730
|
|
|
|
|
|
|
|
|
|
|
|
72,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(4,042,755
|
)
|
|
|
20,916,948
|
|
|
|
|
|
|
|
|
|
|
|
16,874,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions and accretion on Class E Preferred units
|
|
|
(8,842,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,842,980
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(155,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155,026
|
)
|
Equity in income (loss) of subsidiaries
|
|
|
20,916,948
|
|
|
|
|
|
|
|
|
|
|
|
(20,916,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
|
$7,876,187
|
|
|
|
$20,916,948
|
|
|
|
$
|
|
|
|
$(20,916,948
|
)
|
|
|
$7,876,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-64
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash (used in) provided by operating activities
|
|
|
$(70,625,627
|
)
|
|
|
$122,178,599
|
|
|
|
$3,127,284
|
|
|
|
$
|
|
|
|
$54,680,256
|
|
Net cash used in investing activities
|
|
|
(2,734,426
|
)
|
|
|
(60,167,884
|
)
|
|
|
(12,214,337
|
)
|
|
|
|
|
|
|
(75,116,647
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
|
|
|
|
433,677,230
|
|
|
|
9,112,340
|
|
|
|
|
|
|
|
442,789,570
|
|
Repayment of debt
|
|
|
(12,000,000
|
)
|
|
|
(470,514,925
|
)
|
|
|
(7,765
|
)
|
|
|
|
|
|
|
(482,522,690
|
)
|
Payment of financing costs
|
|
|
(100,000
|
)
|
|
|
(10,443,495
|
)
|
|
|
(24,436
|
)
|
|
|
|
|
|
|
(10,567,931
|
)
|
Payment for swap termination
|
|
|
|
|
|
|
(3,380,160
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,380,160
|
)
|
Capital contributions
|
|
|
223,866,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,866,121
|
|
Redemption of Class E Preferred Units and warrants
|
|
|
(92,001,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,001,451
|
)
|
Redemption of Class F units
|
|
|
|
|
|
|
(23,602,649
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,602,649
|
)
|
Cash distributions to partners
|
|
|
(34,534,439
|
)
|
|
|
(2,124,013
|
)
|
|
|
|
|
|
|
|
|
|
|
(36,658,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
85,230,231
|
|
|
|
(76,388,012
|
)
|
|
|
9,080,139
|
|
|
|
|
|
|
|
17,922,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
11,870,178
|
|
|
|
(14,377,297
|
)
|
|
|
(6,914
|
)
|
|
|
|
|
|
|
(2,514,033
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
256,598
|
|
|
|
15,285,909
|
|
|
|
|
|
|
|
|
|
|
|
15,542,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
$12,126,776
|
|
|
|
$908,612
|
|
|
|
$(6,914
|
)
|
|
|
$
|
|
|
|
$13,028,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by operating activities
|
|
|
$16,614,404
|
|
|
|
$18,177,888
|
|
|
|
$5,250,000
|
|
|
|
$
|
|
|
|
$40,042,292
|
|
Net cash used in investing activities
|
|
|
(7,160,265
|
)
|
|
|
(26,082,630
|
)
|
|
|
(5,250,000
|
)
|
|
|
|
|
|
|
(38,492,895
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
|
|
|
|
33,026,073
|
|
|
|
2,625,000
|
|
|
|
|
|
|
|
35,651,073
|
|
Repayment of debt
|
|
|
(1,500,000
|
)
|
|
|
(14,966,756
|
)
|
|
|
(2,625,000
|
)
|
|
|
|
|
|
|
(19,091,756
|
)
|
Payment of financing costs
|
|
|
|
|
|
|
(102,803
|
)
|
|
|
|
|
|
|
|
|
|
|
(102,803
|
)
|
Proceeds from issuance of warrants
|
|
|
8,399,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,399,117
|
|
Net proceeds from issuance of Class E Preferred Units
|
|
|
17,898,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,898,975
|
|
Cash distributions to partners
|
|
|
(33,695,587
|
)
|
|
|
(4,427,402
|
)
|
|
|
|
|
|
|
|
|
|
|
(38,122,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(8,897,495
|
)
|
|
|
13,529,112
|
|
|
|
|
|
|
|
|
|
|
|
4,631,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
556,644
|
|
|
|
5,624,370
|
|
|
|
|
|
|
|
|
|
|
|
6,181,014
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
(300,046
|
)
|
|
|
9,661,539
|
|
|
|
|
|
|
|
|
|
|
|
9,361,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
$256,598
|
|
|
|
$15,285,909
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$15,542,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by operating activities
|
|
|
$22,563,622
|
|
|
|
$9,484,682
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$32,048,304
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(89,074,649
|
)
|
|
|
|
|
|
|
|
|
|
|
(89,074,649
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
|
|
|
|
80,915,249
|
|
|
|
|
|
|
|
|
|
|
|
80,915,249
|
|
Repayment of debt
|
|
|
(1,500,000
|
)
|
|
|
(2,718,338
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,218,338
|
)
|
Proceeds from issuance of warrants
|
|
|
1,349,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,349,494
|
|
Net proceeds from issuance of Class E Preferred Units
|
|
|
1,813,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,813,836
|
|
Cash distributions to partners
|
|
|
(24,625,972
|
)
|
|
|
(5,223,778
|
)
|
|
|
|
|
|
|
|
|
|
|
(29,849,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(22,962,642
|
)
|
|
|
72,973,133
|
|
|
|
|
|
|
|
|
|
|
|
50,010,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(399,020
|
)
|
|
|
(6,616,834
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,015,854
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
98,974
|
|
|
|
16,278,373
|
|
|
|
|
|
|
|
|
|
|
|
16,377,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
$(300,046
|
)
|
|
|
$9,661,539
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$9,361,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-67
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND
SUBSIDIARIES
SCHEDULE III
Rental Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized Subsequent
|
|
|
Gross Amount Carried at
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
to Acquisition
|
|
|
December 31, 2010 (g)
|
|
|
|
|
|
|
|
|
in Statement
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
|
|
|
Impairment /
|
|
|
|
|
|
Buildings &
|
|
|
Accumulated
|
|
|
Year of
|
|
|
Date
|
|
|
of Operations
|
Description
|
|
Asset
|
|
|
Encumbrances
|
|
|
City
|
|
State
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Dispositions
|
|
|
Land
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Computed
|
|
SunBridge Care/Rehab-Broadway
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Methuen
|
|
MA
|
|
$
|
31,469
|
|
|
$
|
495,552
|
|
|
$
|
|
|
|
$
|
(130,000
|
)
|
|
$
|
31,469
|
|
|
$
|
365,552
|
|
|
$
|
(155,360
|
)
|
|
|
1910
|
|
|
|
1993
|
|
|
40 years
|
SunBridgeColonial Heights
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lawrence
|
|
MA
|
|
|
63,160
|
|
|
|
958,681
|
|
|
|
|
|
|
|
(225,000
|
)
|
|
|
63,160
|
|
|
|
733,681
|
|
|
|
(311,815
|
)
|
|
|
1963
|
|
|
|
1993
|
|
|
40 years
|
SunBridgeFall River
|
|
|
(c
|
)
|
|
|
(2
|
)
|
|
Fall River
|
|
MA
|
|
|
90,707
|
|
|
|
1,308,677
|
|
|
|
|
|
|
|
(1,308,677
|
)
|
|
|
90,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care CenterGlenwood
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lowell
|
|
MA
|
|
|
82,483
|
|
|
|
1,210,652
|
|
|
|
|
|
|
|
(252,500
|
)
|
|
|
82,483
|
|
|
|
958,152
|
|
|
|
(407,210
|
)
|
|
|
1964
|
|
|
|
1993
|
|
|
40 years
|
SunBridgeHammond House
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Worchester
|
|
MA
|
|
|
42,062
|
|
|
|
663,598
|
|
|
|
488,598
|
|
|
|
(663,598
|
)
|
|
|
42,062
|
|
|
|
488,598
|
|
|
|
(207,654
|
)
|
|
|
1965
|
|
|
|
1993
|
|
|
40 years
|
SunBridge for North Reading
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
North Reading
|
|
MA
|
|
|
113,195
|
|
|
|
1,567,397
|
|
|
|
|
|
|
|
(252,500
|
)
|
|
|
113,195
|
|
|
|
1,314,897
|
|
|
|
(558,831
|
)
|
|
|
1966
|
|
|
|
1993
|
|
|
40 years
|
Robbin House Nursing and Rehab
|
|
|
(c
|
)
|
|
|
(2
|
)
|
|
Quincy
|
|
MA
|
|
|
66,000
|
|
|
|
1,051,668
|
|
|
|
|
|
|
|
(1,051,668
|
)
|
|
|
66,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care CenterRosewood
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Fall River
|
|
MA
|
|
|
31,893
|
|
|
|
512,984
|
|
|
|
|
|
|
|
(142,500
|
)
|
|
|
31,893
|
|
|
|
370,484
|
|
|
|
(157,455
|
)
|
|
|
1882
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care/Rehab-Sandalwood
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Oxford
|
|
MA
|
|
|
64,435
|
|
|
|
940,982
|
|
|
|
497,782
|
|
|
|
(192,500
|
)
|
|
|
64,435
|
|
|
|
1,246,264
|
|
|
|
(345,474
|
)
|
|
|
1966
|
|
|
|
1993
|
|
|
40 years
|
SunBridgeSpring Valley
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Worchester
|
|
MA
|
|
|
71,084
|
|
|
|
1,030,725
|
|
|
|
|
|
|
|
(205,000
|
)
|
|
|
71,084
|
|
|
|
825,725
|
|
|
|
(350,933
|
)
|
|
|
1960
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care/Rehab-Town Manor
|
|
|
(c
|
)
|
|
|
(2
|
)
|
|
Lawrence
|
|
MA
|
|
|
89,790
|
|
|
|
1,305,518
|
|
|
|
|
|
|
|
(1,305,518
|
)
|
|
|
89,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care/Rehab-Woodmill
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lawrence
|
|
MA
|
|
|
61,210
|
|
|
|
946,028
|
|
|
|
|
|
|
|
(235,000
|
)
|
|
|
61,210
|
|
|
|
711,028
|
|
|
|
(302,187
|
)
|
|
|
1965
|
|
|
|
1993
|
|
|
40 years
|
SunBridge Care/Rehab-Worcester
|
|
|
(c
|
)
|
|
|
(2
|
)
|
|
Worchester
|
|
MA
|
|
|
92,512
|
|
|
|
1,374,636
|
|
|
|
|
|
|
|
(1,374,636
|
)
|
|
|
92,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
40 years
|
Countryside Community
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
South Haven
|
|
MI
|
|
|
221,000
|
|
|
|
4,239,161
|
|
|
|
12,959
|
|
|
|
|
|
|
|
221,000
|
|
|
|
4,252,120
|
|
|
|
(705,011
|
)
|
|
|
1975
|
|
|
|
2005
|
|
|
40 years
|
Pepin Manor
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Pepin
|
|
WI
|
|
|
318,000
|
|
|
|
1,569,959
|
|
|
|
(12,959
|
)
|
|
|
|
|
|
|
318,000
|
|
|
|
1,557,000
|
|
|
|
(263,494
|
)
|
|
|
1978
|
|
|
|
2005
|
|
|
40 years
|
Highland Health Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Highland
|
|
IL
|
|
|
189,921
|
|
|
|
1,723,523
|
|
|
|
|
|
|
|
|
|
|
|
189,921
|
|
|
|
1,723,523
|
|
|
|
(306,689
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Nebraska Skilled Nursing/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Omaha
|
|
NE
|
|
|
211,000
|
|
|
|
6,694,584
|
|
|
|
|
|
|
|
(1,510
|
)
|
|
|
209,490
|
|
|
|
6,694,584
|
|
|
|
(1,258,022
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Casa Real
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Santa Fe
|
|
NM
|
|
|
1,029,800
|
|
|
|
2,692,295
|
|
|
|
213,902
|
|
|
|
|
|
|
|
1,029,800
|
|
|
|
2,906,197
|
|
|
|
(574,086
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Clayton Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Clayton
|
|
NM
|
|
|
41,000
|
|
|
|
790,476
|
|
|
|
|
|
|
|
|
|
|
|
41,000
|
|
|
|
790,476
|
|
|
|
(193,131
|
)
|
|
|
1960
|
|
|
|
2005
|
|
|
40 years
|
Country Cottage Care/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Hobbs
|
|
NM
|
|
|
9,000
|
|
|
|
671,536
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
|
|
671,536
|
|
|
|
(191,863
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Bloomfield Nursing/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bloomfield
|
|
NM
|
|
|
343,800
|
|
|
|
4,736,296
|
|
|
|
|
|
|
|
|
|
|
|
343,800
|
|
|
|
4,736,296
|
|
|
|
(807,094
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Espanola Valley Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Espanola
|
|
NM
|
|
|
216,000
|
|
|
|
4,143,364
|
|
|
|
|
|
|
|
|
|
|
|
216,000
|
|
|
|
4,143,364
|
|
|
|
(779,524
|
)
|
|
|
1984
|
|
|
|
2005
|
|
|
40 years
|
Sunshine Haven Lordsburg
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lordsburg
|
|
NM
|
|
|
57,041
|
|
|
|
1,881,927
|
|
|
|
|
|
|
|
|
|
|
|
57,041
|
|
|
|
1,881,927
|
|
|
|
(296,396
|
)
|
|
|
1972
|
|
|
|
2005
|
|
|
40 years
|
Silver City Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Silver City
|
|
NM
|
|
|
305,000
|
|
|
|
5,843,505
|
|
|
|
|
|
|
|
|
|
|
|
305,000
|
|
|
|
5,843,505
|
|
|
|
(967,107
|
)
|
|
|
1984
|
|
|
|
2005
|
|
|
40 years
|
Raton Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Raton
|
|
NM
|
|
|
128,000
|
|
|
|
1,509,456
|
|
|
|
|
|
|
|
|
|
|
|
128,000
|
|
|
|
1,509,456
|
|
|
|
(355,369
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Red Rocks Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Gallup
|
|
NM
|
|
|
329,000
|
|
|
|
3,952,779
|
|
|
|
|
|
|
|
|
|
|
|
329,000
|
|
|
|
3,952,779
|
|
|
|
(711,360
|
)
|
|
|
1978
|
|
|
|
2005
|
|
|
40 years
|
Heritage Villa Nursing/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Dayton
|
|
TX
|
|
|
18,000
|
|
|
|
435,568
|
|
|
|
9,400
|
|
|
|
|
|
|
|
18,000
|
|
|
|
444,968
|
|
|
|
(91,614
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Wellington Oaks Nursing/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Ft. Worth
|
|
TX
|
|
|
137,000
|
|
|
|
1,147,400
|
|
|
|
(9,400
|
)
|
|
|
|
|
|
|
137,000
|
|
|
|
1,138,000
|
|
|
|
(245,095
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Seven Oaks Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bonham
|
|
TX
|
|
|
63,000
|
|
|
|
2,583,389
|
|
|
|
|
|
|
|
|
|
|
|
63,000
|
|
|
|
2,583,389
|
|
|
|
(460,092
|
)
|
|
|
1970
|
|
|
|
2005
|
|
|
40 years
|
Birchwood Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Cooper
|
|
TX
|
|
|
96,000
|
|
|
|
2,726,580
|
|
|
|
8,304
|
|
|
|
|
|
|
|
96,000
|
|
|
|
2,734,884
|
|
|
|
(475,340
|
)
|
|
|
1966
|
|
|
|
2005
|
|
|
40 years
|
Smith Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Wolfe City
|
|
TX
|
|
|
49,000
|
|
|
|
1,010,304
|
|
|
|
(8,304
|
)
|
|
|
|
|
|
|
49,000
|
|
|
|
1,002,000
|
|
|
|
(191,906
|
)
|
|
|
1946
|
|
|
|
2005
|
|
|
40 years
|
Blanco Villa Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
San Antonio
|
|
TX
|
|
|
341,847
|
|
|
|
1,931,216
|
|
|
|
951,592
|
|
|
|
|
|
|
|
341,847
|
|
|
|
2,882,808
|
|
|
|
(443,687
|
)
|
|
|
1969
|
|
|
|
2005
|
|
|
40 years
|
Forest Hill Nursing Center
|
|
|
(a
|
)
|
|
|
|
|
|
Ft. Worth
|
|
TX
|
|
|
87,904
|
|
|
|
1,764,129
|
|
|
|
|
|
|
|
(1,852,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Garland Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Garland
|
|
TX
|
|
|
56,509
|
|
|
|
1,058,409
|
|
|
|
191,111
|
|
|
|
|
|
|
|
56,509
|
|
|
|
1,249,520
|
|
|
|
(225,703
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Hillcrest Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Wylie
|
|
TX
|
|
|
209,992
|
|
|
|
2,683,768
|
|
|
|
5,438
|
|
|
|
|
|
|
|
209,992
|
|
|
|
2,689,206
|
|
|
|
(476,581
|
)
|
|
|
1975
|
|
|
|
2005
|
|
|
40 years
|
Mansfield Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Mansfield
|
|
TX
|
|
|
486,958
|
|
|
|
2,142,550
|
|
|
|
(17,723
|
)
|
|
|
|
|
|
|
486,958
|
|
|
|
2,124,827
|
|
|
|
(404,319
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Westridge Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lancaster
|
|
TX
|
|
|
625,790
|
|
|
|
1,847,633
|
|
|
|
(15,270
|
)
|
|
|
|
|
|
|
625,790
|
|
|
|
1,832,363
|
|
|
|
(410,108
|
)
|
|
|
1973
|
|
|
|
2005
|
|
|
40 years
|
Clifton Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Clifton
|
|
TX
|
|
|
125,000
|
|
|
|
2,974,643
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
2,974,643
|
|
|
|
(567,727
|
)
|
|
|
1995
|
|
|
|
2005
|
|
|
40 years
|
Brownwood Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Brownwood
|
|
TX
|
|
|
140,000
|
|
|
|
3,463,711
|
|
|
|
10,284
|
|
|
|
|
|
|
|
140,000
|
|
|
|
3,473,995
|
|
|
|
(599,581
|
)
|
|
|
1968
|
|
|
|
2005
|
|
|
40 years
|
Irving Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Irving
|
|
TX
|
|
|
137,000
|
|
|
|
1,248,284
|
|
|
|
(10,284
|
)
|
|
|
|
|
|
|
137,000
|
|
|
|
1,238,000
|
|
|
|
(247,394
|
)
|
|
|
1972
|
|
|
|
2005
|
|
|
40 years
|
Stanton Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Stanton
|
|
TX
|
|
|
261,000
|
|
|
|
1,017,599
|
|
|
|
11,707
|
|
|
|
|
|
|
|
261,000
|
|
|
|
1,029,306
|
|
|
|
(197,262
|
)
|
|
|
1972
|
|
|
|
2005
|
|
|
40 years
|
Valley Mills Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Valley Mills
|
|
TX
|
|
|
34,000
|
|
|
|
1,091,210
|
|
|
|
(8,977
|
)
|
|
|
|
|
|
|
34,000
|
|
|
|
1,082,233
|
|
|
|
(200,522
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Hometown Care Center
|
|
|
(a
|
)
|
|
|
|
|
|
Moody
|
|
TX
|
|
|
13,000
|
|
|
|
328,263
|
|
|
|
|
|
|
|
(341,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1960
|
|
|
|
2005
|
|
|
40 years
|
Shuksan Healthcare Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bellingham
|
|
WA
|
|
|
61,000
|
|
|
|
491,085
|
|
|
|
1,983,432
|
|
|
|
|
|
|
|
61,000
|
|
|
|
2,474,517
|
|
|
|
(190,602
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Orange Villa Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Orange
|
|
TX
|
|
|
97,500
|
|
|
|
1,948,490
|
|
|
|
17,468
|
|
|
|
|
|
|
|
97,500
|
|
|
|
1,965,958
|
|
|
|
(360,449
|
)
|
|
|
1973
|
|
|
|
2005
|
|
|
40 years
|
Pinehurst Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Orange
|
|
TX
|
|
|
98,500
|
|
|
|
2,072,051
|
|
|
|
22,567
|
|
|
|
|
|
|
|
98,500
|
|
|
|
2,094,618
|
|
|
|
(397,450
|
)
|
|
|
1955
|
|
|
|
2005
|
|
|
40 years
|
Wheeler Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Wheeler
|
|
TX
|
|
|
17,000
|
|
|
|
1,369,290
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
|
|
1,369,290
|
|
|
|
(267,284
|
)
|
|
|
1982
|
|
|
|
2005
|
|
|
40 years
|
North Pointe Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Watauga
|
|
TX
|
|
|
1,061,000
|
|
|
|
3,845,890
|
|
|
|
|
|
|
|
|
|
|
|
1,061,000
|
|
|
|
3,845,890
|
|
|
|
(653,486
|
)
|
|
|
1999
|
|
|
|
2005
|
|
|
40 years
|
ABC Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Harrisonville
|
|
MO
|
|
|
143,500
|
|
|
|
1,922,391
|
|
|
|
120,802
|
|
|
|
|
|
|
|
143,500
|
|
|
|
2,043,193
|
|
|
|
(331,744
|
)
|
|
|
1970
|
|
|
|
2005
|
|
|
40 years
|
Camden Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Harrisonville
|
|
MO
|
|
|
189,000
|
|
|
|
2,531,961
|
|
|
|
(20,961
|
)
|
|
|
|
|
|
|
189,000
|
|
|
|
2,511,000
|
|
|
|
(408,394
|
)
|
|
|
1977
|
|
|
|
2005
|
|
|
40 years
|
Cedar Valley Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Rayton
|
|
MO
|
|
|
252,000
|
|
|
|
3,375,981
|
|
|
|
(13,026
|
)
|
|
|
|
|
|
|
252,000
|
|
|
|
3,362,955
|
|
|
|
(603,031
|
)
|
|
|
1978
|
|
|
|
2005
|
|
|
40 years
|
Monett Healthcare Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Monett
|
|
MO
|
|
|
259,000
|
|
|
|
3,469,761
|
|
|
|
(24,261
|
)
|
|
|
|
|
|
|
259,000
|
|
|
|
3,445,500
|
|
|
|
(589,519
|
)
|
|
|
1976
|
|
|
|
2005
|
|
|
40 years
|
F-68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized Subsequent
|
|
|
Gross Amount Carried at
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
to Acquisition
|
|
|
December 31, 2010 (g)
|
|
|
|
|
|
|
|
|
in Statement
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
|
|
|
Impairment /
|
|
|
|
|
|
Buildings &
|
|
|
Accumulated
|
|
|
Year of
|
|
|
Date
|
|
|
of Operations
|
Description
|
|
Asset
|
|
|
Encumbrances
|
|
|
City
|
|
State
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Dispositions
|
|
|
Land
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Computed
|
|
White Ridge Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lees Summit
|
|
MO
|
|
|
292,250
|
|
|
|
3,914,964
|
|
|
|
2,174
|
|
|
|
|
|
|
|
292,250
|
|
|
|
3,917,138
|
|
|
|
(653,116
|
)
|
|
|
1986
|
|
|
|
2005
|
|
|
40 years
|
The Orchards Rehab/Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lewiston
|
|
ID
|
|
|
201,000
|
|
|
|
4,319,316
|
|
|
|
35,324
|
|
|
|
|
|
|
|
201,000
|
|
|
|
4,354,640
|
|
|
|
(842,587
|
)
|
|
|
1958
|
|
|
|
2005
|
|
|
40 years
|
SunBridge for Payette
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Payette
|
|
ID
|
|
|
179,000
|
|
|
|
3,165,530
|
|
|
|
(26,331
|
)
|
|
|
|
|
|
|
179,000
|
|
|
|
3,139,199
|
|
|
|
(471,310
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Magic Valley Manor-Assisted Living
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Wendell
|
|
ID
|
|
|
177,000
|
|
|
|
405,331
|
|
|
|
1,005,334
|
|
|
|
|
|
|
|
177,000
|
|
|
|
1,410,665
|
|
|
|
(107,671
|
)
|
|
|
1911
|
|
|
|
2005
|
|
|
40 years
|
McCall Rehab and Living Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
McCall
|
|
ID
|
|
|
213,000
|
|
|
|
675,976
|
|
|
|
(5,624
|
)
|
|
|
|
|
|
|
213,000
|
|
|
|
670,352
|
|
|
|
(124,288
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Menlo Park Health Care
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Portland
|
|
OR
|
|
|
112,000
|
|
|
|
2,205,297
|
|
|
|
|
|
|
|
|
|
|
|
112,000
|
|
|
|
2,205,297
|
|
|
|
(480,167
|
)
|
|
|
1959
|
|
|
|
2005
|
|
|
40 years
|
Burton Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Burlington
|
|
WA
|
|
|
115,000
|
|
|
|
1,169,629
|
|
|
|
|
|
|
|
|
|
|
|
115,000
|
|
|
|
1,169,629
|
|
|
|
(198,964
|
)
|
|
|
1930
|
|
|
|
2005
|
|
|
40 years
|
Columbia View Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Cathlamet
|
|
WA
|
|
|
49,200
|
|
|
|
504,900
|
|
|
|
|
|
|
|
|
|
|
|
49,200
|
|
|
|
504,900
|
|
|
|
(101,682
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Pinehurst Park Terrace
|
|
|
(a
|
)
|
|
|
|
|
|
Seattle
|
|
WA
|
|
|
|
|
|
|
360,236
|
|
|
|
|
|
|
|
(360,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1955
|
|
|
|
2005
|
|
|
40 years
|
Grandview Healthcare Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Grandview
|
|
WA
|
|
|
19,300
|
|
|
|
1,155,216
|
|
|
|
163,826
|
|
|
|
|
|
|
|
19,300
|
|
|
|
1,319,041
|
|
|
|
(274,822
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Hillcrest Manor
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Sunnyside
|
|
WA
|
|
|
102,000
|
|
|
|
1,638,826
|
|
|
|
259,309
|
|
|
|
|
|
|
|
102,000
|
|
|
|
1,898,135
|
|
|
|
(350,221
|
)
|
|
|
1970
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Foothills Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Phoenix
|
|
AZ
|
|
|
500,000
|
|
|
|
4,537,644
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
4,537,644
|
|
|
|
(991,956
|
)
|
|
|
1997
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Hot Springs Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Hot Springs
|
|
MT
|
|
|
103,500
|
|
|
|
1,942,861
|
|
|
|
19,412
|
|
|
|
|
|
|
|
103,500
|
|
|
|
1,962,273
|
|
|
|
(330,310
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Polson Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Polson
|
|
MT
|
|
|
121,000
|
|
|
|
2,357,612
|
|
|
|
(19,412
|
)
|
|
|
|
|
|
|
121,000
|
|
|
|
2,338,200
|
|
|
|
(423,288
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Sun City Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Sun City
|
|
AZ
|
|
|
476,231
|
|
|
|
5,697,720
|
|
|
|
60,161
|
|
|
|
|
|
|
|
476,231
|
|
|
|
5,757,881
|
|
|
|
(1,026,236
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Sunset Gardens at Mesa
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Mesa
|
|
AZ
|
|
|
123,000
|
|
|
|
1,640,673
|
|
|
|
(13,547
|
)
|
|
|
|
|
|
|
123,000
|
|
|
|
1,627,126
|
|
|
|
(278,318
|
)
|
|
|
1974
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Mesa Christian Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Mesa
|
|
AZ
|
|
|
466,000
|
|
|
|
6,231,061
|
|
|
|
(46,614
|
)
|
|
|
(615,000
|
)
|
|
|
466,000
|
|
|
|
5,569,447
|
|
|
|
(1,132,671
|
)
|
|
|
1973
|
|
|
|
2005
|
|
|
40 years
|
Evergreen The Dalles Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
The Dalles
|
|
OR
|
|
|
200,000
|
|
|
|
3,831,789
|
|
|
|
91,952
|
|
|
|
|
|
|
|
200,000
|
|
|
|
3,923,741
|
|
|
|
(621,833
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Vista Health Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
LaGrande
|
|
OR
|
|
|
281,000
|
|
|
|
4,783,790
|
|
|
|
248,354
|
|
|
|
|
|
|
|
281,000
|
|
|
|
5,032,144
|
|
|
|
(754,391
|
)
|
|
|
1961
|
|
|
|
2005
|
|
|
40 years
|
Whitman Health and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Colfax
|
|
WA
|
|
|
231,000
|
|
|
|
6,271,162
|
|
|
|
38,289
|
|
|
|
|
|
|
|
231,000
|
|
|
|
6,309,451
|
|
|
|
(952,131
|
)
|
|
|
1985
|
|
|
|
2005
|
|
|
40 years
|
Fountain Retirement Hotel
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Youngtown
|
|
AZ
|
|
|
101,300
|
|
|
|
1,939,835
|
|
|
|
60,000
|
|
|
|
|
|
|
|
101,300
|
|
|
|
1,999,835
|
|
|
|
(364,404
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Gilmer Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Gilmer
|
|
TX
|
|
|
257,000
|
|
|
|
2,992,894
|
|
|
|
285,320
|
|
|
|
|
|
|
|
257,000
|
|
|
|
3,278,214
|
|
|
|
(525,138
|
)
|
|
|
1967
|
|
|
|
2005
|
|
|
40 years
|
Columbus Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Columbus
|
|
WI
|
|
|
352,000
|
|
|
|
3,476,920
|
|
|
|
|
|
|
|
|
|
|
|
352,000
|
|
|
|
3,476,920
|
|
|
|
(556,076
|
)
|
|
|
1950
|
|
|
|
2005
|
|
|
40 years
|
San Juan Rehab and Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Anacortes
|
|
WA
|
|
|
625,000
|
|
|
|
1,184,855
|
|
|
|
2,041,630
|
|
|
|
|
|
|
|
625,000
|
|
|
|
3,226,485
|
|
|
|
(434,490
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Faribault
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Faribault
|
|
MN
|
|
|
70,000
|
|
|
|
1,484,598
|
|
|
|
102,124
|
|
|
|
|
|
|
|
70,000
|
|
|
|
1,586,722
|
|
|
|
(299,989
|
)
|
|
|
1958
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Owatonna
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Owatonna
|
|
MN
|
|
|
125,000
|
|
|
|
2,321,296
|
|
|
|
(19,308
|
)
|
|
|
|
|
|
|
125,000
|
|
|
|
2,301,988
|
|
|
|
(404,188
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Willmar
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Wilmar
|
|
MN
|
|
|
70,000
|
|
|
|
1,341,155
|
|
|
|
(11,156
|
)
|
|
|
|
|
|
|
70,000
|
|
|
|
1,329,999
|
|
|
|
(241,644
|
)
|
|
|
1998
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Florence Heights
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Omaha
|
|
NE
|
|
|
413,000
|
|
|
|
3,516,247
|
|
|
|
4,353
|
|
|
|
|
|
|
|
413,000
|
|
|
|
3,520,600
|
|
|
|
(702,614
|
)
|
|
|
1999
|
|
|
|
2005
|
|
|
40 years
|
Infinia at Ogden
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Ogden
|
|
UT
|
|
|
233,800
|
|
|
|
4,478,450
|
|
|
|
600,306
|
|
|
|
|
|
|
|
233,800
|
|
|
|
5,078,756
|
|
|
|
(731,670
|
)
|
|
|
1977
|
|
|
|
2005
|
|
|
40 years
|
Prescott Manor Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Prescott
|
|
AR
|
|
|
43,500
|
|
|
|
1,461,860
|
|
|
|
83,303
|
|
|
|
|
|
|
|
43,500
|
|
|
|
1,545,163
|
|
|
|
(334,126
|
)
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Star City Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Star City
|
|
AR
|
|
|
28,000
|
|
|
|
1,068,891
|
|
|
|
80,123
|
|
|
|
|
|
|
|
28,000
|
|
|
|
1,149,014
|
|
|
|
(188,464
|
)
|
|
|
1969
|
|
|
|
2005
|
|
|
40 years
|
Westview Manor of Peabody
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Peabody
|
|
KS
|
|
|
22,000
|
|
|
|
502,177
|
|
|
|
|
|
|
|
|
|
|
|
22,000
|
|
|
|
502,177
|
|
|
|
(88,314
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Orchard Grove Extended Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Benton Harbor
|
|
MI
|
|
|
166,000
|
|
|
|
3,185,496
|
|
|
|
261,000
|
|
|
|
|
|
|
|
166,000
|
|
|
|
3,446,496
|
|
|
|
(562,899
|
)
|
|
|
1971
|
|
|
|
2005
|
|
|
40 years
|
Marysville Care Center
|
|
|
(a
|
)
|
|
|
|
|
|
Marysville
|
|
CA
|
|
|
281,000
|
|
|
|
1,319,608
|
|
|
|
|
|
|
|
(1,600,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1965
|
|
|
|
2005
|
|
|
40 years
|
Yuba City Care Center
|
|
|
(a
|
)
|
|
|
|
|
|
Yuba City
|
|
CA
|
|
|
177,385
|
|
|
|
2,129,584
|
|
|
|
|
|
|
|
(2,306,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Lexington Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lexington
|
|
MO
|
|
|
151,000
|
|
|
|
2,943,170
|
|
|
|
325,142
|
|
|
|
|
|
|
|
151,000
|
|
|
|
3,268,312
|
|
|
|
(547,569
|
)
|
|
|
1970
|
|
|
|
2005
|
|
|
40 years
|
Twin Falls Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Twin Falls
|
|
ID
|
|
|
448,000
|
|
|
|
5,144,793
|
|
|
|
|
|
|
|
|
|
|
|
448,000
|
|
|
|
5,144,793
|
|
|
|
(861,945
|
)
|
|
|
1961
|
|
|
|
2005
|
|
|
40 years
|
Gordon Lane Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Fullerton
|
|
CA
|
|
|
2,982,000
|
|
|
|
3,648,346
|
|
|
|
|
|
|
|
|
|
|
|
2,982,000
|
|
|
|
3,648,346
|
|
|
|
(601,035
|
)
|
|
|
1966
|
|
|
|
2005
|
|
|
40 years
|
Sierra View Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Baldwin Park
|
|
CA
|
|
|
868,400
|
|
|
|
1,748,141
|
|
|
|
6,377
|
|
|
|
|
|
|
|
868,400
|
|
|
|
1,754,518
|
|
|
|
(328,218
|
)
|
|
|
1938
|
|
|
|
2005
|
|
|
40 years
|
Villa Maria Care Center
|
|
|
(a
|
)
|
|
|
|
|
|
Long Beach
|
|
CA
|
|
|
139,600
|
|
|
|
766,778
|
|
|
|
|
|
|
|
(906,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1951
|
|
|
|
2005
|
|
|
40 years
|
High Street Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Oakland
|
|
CA
|
|
|
246,000
|
|
|
|
684,695
|
|
|
|
11,776
|
|
|
|
|
|
|
|
246,000
|
|
|
|
696,471
|
|
|
|
(119,939
|
)
|
|
|
1961
|
|
|
|
2005
|
|
|
40 years
|
MacArthur Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Oakland
|
|
CA
|
|
|
246,000
|
|
|
|
1,415,776
|
|
|
|
(11,776
|
)
|
|
|
|
|
|
|
246,000
|
|
|
|
1,404,000
|
|
|
|
(327,535
|
)
|
|
|
1960
|
|
|
|
2005
|
|
|
40 years
|
Pomona Vista Alzheimers Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Pomona
|
|
CA
|
|
|
403,000
|
|
|
|
954,853
|
|
|
|
|
|
|
|
|
|
|
|
403,000
|
|
|
|
954,853
|
|
|
|
(183,337
|
)
|
|
|
1959
|
|
|
|
2005
|
|
|
40 years
|
Rose Convalescent Hospital
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Baldwin Park
|
|
CA
|
|
|
1,308,000
|
|
|
|
486,043
|
|
|
|
|
|
|
|
|
|
|
|
1,308,000
|
|
|
|
486,043
|
|
|
|
(108,342
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Country Oaks Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Pomona
|
|
CA
|
|
|
1,393,000
|
|
|
|
2,426,180
|
|
|
|
|
|
|
|
|
|
|
|
1,393,000
|
|
|
|
2,426,180
|
|
|
|
(411,755
|
)
|
|
|
1964
|
|
|
|
2005
|
|
|
40 years
|
Evergreen Nursing/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Effingham
|
|
IL
|
|
|
317,388
|
|
|
|
3,461,794
|
|
|
|
|
|
|
|
|
|
|
|
317,388
|
|
|
|
3,461,794
|
|
|
|
(597,007
|
)
|
|
|
1974
|
|
|
|
2005
|
|
|
40 years
|
Deseret at Hutchinson
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Hutchinson
|
|
KS
|
|
|
180,000
|
|
|
|
2,546,991
|
|
|
|
|
|
|
|
|
|
|
|
180,000
|
|
|
|
2,546,991
|
|
|
|
(444,460
|
)
|
|
|
1963
|
|
|
|
2005
|
|
|
40 years
|
Northridge Healthcare/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Little Rock
|
|
AR
|
|
|
465,000
|
|
|
|
3,011,597
|
|
|
|
55,320
|
|
|
|
|
|
|
|
465,000
|
|
|
|
3,066,917
|
|
|
|
(739,800
|
)
|
|
|
1969
|
|
|
|
2005
|
|
|
40 years
|
Doctors Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Salem
|
|
IL
|
|
|
125,000
|
|
|
|
4,663,792
|
|
|
|
900,001
|
|
|
|
|
|
|
|
125,000
|
|
|
|
5,563,793
|
|
|
|
(813,829
|
)
|
|
|
1972
|
|
|
|
2005
|
|
|
40 years
|
Woodland Hills Health/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Little Rock
|
|
AR
|
|
|
270,000
|
|
|
|
4,006,007
|
|
|
|
|
|
|
|
|
|
|
|
270,000
|
|
|
|
4,006,007
|
|
|
|
(573,775
|
)
|
|
|
1979
|
|
|
|
2005
|
|
|
40 years
|
North Richland Hills
|
|
|
(a
|
)
|
|
|
|
|
|
North Richland Hills
|
|
TX
|
|
|
980,458
|
|
|
|
|
|
|
|
5,067,466
|
|
|
|
(6,047,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
2005
|
|
|
40 years
|
Chenal Heights
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Little Rock
|
|
AR
|
|
|
1,411,446
|
|
|
|
|
|
|
|
7,279,170
|
|
|
|
|
|
|
|
1,411,446
|
|
|
|
7,279,170
|
|
|
|
(779,257
|
)
|
|
|
2008
|
|
|
|
2006
|
|
|
40 years
|
Willis Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Willis
|
|
TX
|
|
|
212,000
|
|
|
|
2,407,367
|
|
|
|
|
|
|
|
|
|
|
|
212,000
|
|
|
|
2,407,367
|
|
|
|
(318,112
|
)
|
|
|
1975
|
|
|
|
2006
|
|
|
40 years
|
Blanchette Place Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
St. Charles
|
|
MO
|
|
|
1,300,000
|
|
|
|
10,777,312
|
|
|
|
8,579
|
|
|
|
|
|
|
|
1,300,000
|
|
|
|
10,785,891
|
|
|
|
(1,262,366
|
)
|
|
|
1994
|
|
|
|
2006
|
|
|
40 years
|
Cathedral Gardens Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
St. Louis
|
|
MO
|
|
|
1,600,000
|
|
|
|
9,524,876
|
|
|
|
64,333
|
|
|
|
|
|
|
|
1,600,000
|
|
|
|
9,589,209
|
|
|
|
(1,152,494
|
)
|
|
|
1979
|
|
|
|
2006
|
|
|
40 years
|
Heritage Park Skilled Care
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Rolla
|
|
MO
|
|
|
1,200,000
|
|
|
|
7,840,918
|
|
|
|
59,900
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
7,900,818
|
|
|
|
(900,973
|
)
|
|
|
1993
|
|
|
|
2006
|
|
|
40 years
|
Oak Forest Skilled Care
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Ballwin
|
|
MO
|
|
|
550,000
|
|
|
|
3,995,129
|
|
|
|
29,766
|
|
|
|
|
|
|
|
550,000
|
|
|
|
4,024,895
|
|
|
|
(482,989
|
)
|
|
|
2004
|
|
|
|
2006
|
|
|
40 years
|
Richland Care and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Olney
|
|
IL
|
|
|
350,000
|
|
|
|
2,484,264
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
2,484,264
|
|
|
|
(336,295
|
)
|
|
|
2004
|
|
|
|
2006
|
|
|
40 years
|
Bonham Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bonham
|
|
TX
|
|
|
76,000
|
|
|
|
1,129,849
|
|
|
|
|
|
|
|
|
|
|
|
76,000
|
|
|
|
1,129,849
|
|
|
|
(141,112
|
)
|
|
|
1969
|
|
|
|
2006
|
|
|
40 years
|
F-69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized Subsequent
|
|
|
Gross Amount Carried at
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
to Acquisition
|
|
|
December 31, 2010 (g)
|
|
|
|
|
|
|
|
|
in Statement
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
|
|
|
Impairment /
|
|
|
|
|
|
Buildings &
|
|
|
Accumulated
|
|
|
Year of
|
|
|
Date
|
|
|
of Operations
|
Description
|
|
Asset
|
|
|
Encumbrances
|
|
|
City
|
|
State
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Dispositions
|
|
|
Land
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Computed
|
|
Columbus Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Columbus
|
|
TX
|
|
|
150,000
|
|
|
|
1,808,552
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
1,808,552
|
|
|
|
(240,436
|
)
|
|
|
1974
|
|
|
|
2006
|
|
|
40 years
|
Denison Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Denison
|
|
TX
|
|
|
178,000
|
|
|
|
1,945,000
|
|
|
|
|
|
|
|
|
|
|
|
178,000
|
|
|
|
1,945,000
|
|
|
|
(244,184
|
)
|
|
|
1958
|
|
|
|
2006
|
|
|
40 years
|
Falfurrias Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Falfurias
|
|
TX
|
|
|
92,000
|
|
|
|
1,065,000
|
|
|
|
|
|
|
|
|
|
|
|
92,000
|
|
|
|
1,065,000
|
|
|
|
(145,673
|
)
|
|
|
1974
|
|
|
|
2006
|
|
|
40 years
|
Houston Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Houston
|
|
TX
|
|
|
228,000
|
|
|
|
2,451,893
|
|
|
|
|
|
|
|
|
|
|
|
228,000
|
|
|
|
2,451,893
|
|
|
|
(307,071
|
)
|
|
|
1976
|
|
|
|
2006
|
|
|
40 years
|
Kleburg County Nursing/Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Kingsville
|
|
TX
|
|
|
315,000
|
|
|
|
3,688,676
|
|
|
|
|
|
|
|
|
|
|
|
315,000
|
|
|
|
3,688,676
|
|
|
|
(461,642
|
)
|
|
|
1947
|
|
|
|
2006
|
|
|
40 years
|
Terry Haven Nursing and Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Mount Vernon
|
|
TX
|
|
|
180,000
|
|
|
|
1,970,861
|
|
|
|
|
|
|
|
|
|
|
|
180,000
|
|
|
|
1,970,861
|
|
|
|
(268,797
|
)
|
|
|
2004
|
|
|
|
2006
|
|
|
40 years
|
Deseret at Mansfield
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Mansfield
|
|
OH
|
|
|
146,000
|
|
|
|
2,689,968
|
|
|
|
15,748
|
|
|
|
|
|
|
|
146,000
|
|
|
|
2,705,716
|
|
|
|
(303,991
|
)
|
|
|
1980
|
|
|
|
2006
|
|
|
40 years
|
Clarkston Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Clarkston
|
|
WA
|
|
|
161,633
|
|
|
|
7,038,367
|
|
|
|
379,678
|
|
|
|
|
|
|
|
161,633
|
|
|
|
7,418,045
|
|
|
|
(1,021,418
|
)
|
|
|
1970
|
|
|
|
2006
|
|
|
40 years
|
Highland Terrace Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Camas
|
|
WA
|
|
|
592,776
|
|
|
|
3,921,159
|
|
|
|
466,188
|
|
|
|
|
|
|
|
592,776
|
|
|
|
4,387,347
|
|
|
|
(710,452
|
)
|
|
|
1970
|
|
|
|
2006
|
|
|
40 years
|
Richland Rehabilitation Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Richland
|
|
WA
|
|
|
693,000
|
|
|
|
9,307,000
|
|
|
|
145,819
|
|
|
|
|
|
|
|
693,000
|
|
|
|
9,452,819
|
|
|
|
(1,041,376
|
)
|
|
|
2004
|
|
|
|
2006
|
|
|
40 years
|
Evergreen Milton-Freewater Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Milton Freewater
|
|
OR
|
|
|
700,000
|
|
|
|
5,403,570
|
|
|
|
|
|
|
|
|
|
|
|
700,000
|
|
|
|
5,403,570
|
|
|
|
(656,622
|
)
|
|
|
1965
|
|
|
|
2006
|
|
|
40 years
|
Douglas Rehab and Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Matoon
|
|
IL
|
|
|
250,000
|
|
|
|
2,390,779
|
|
|
|
|
|
|
|
(13,246
|
)
|
|
|
250,000
|
|
|
|
2,377,533
|
|
|
|
(288,233
|
)
|
|
|
1963
|
|
|
|
2006
|
|
|
40 years
|
Hillside Living Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Yorkville
|
|
IL
|
|
|
560,000
|
|
|
|
3,073,603
|
|
|
|
|
|
|
|
(3,168
|
)
|
|
|
560,000
|
|
|
|
3,070,436
|
|
|
|
(397,561
|
)
|
|
|
1963
|
|
|
|
2006
|
|
|
40 years
|
Arbor View Nursing / Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Zion
|
|
IL
|
|
|
147,000
|
|
|
|
5,235,290
|
|
|
|
142,766
|
|
|
|
(12,556
|
)
|
|
|
147,000
|
|
|
|
5,365,500
|
|
|
|
(591,422
|
)
|
|
|
1970
|
|
|
|
2006
|
|
|
40 years
|
Ashford Hall
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Irving
|
|
TX
|
|
|
1,746,000
|
|
|
|
11,418,567
|
|
|
|
113,706
|
|
|
|
(142,702
|
)
|
|
|
1,746,000
|
|
|
|
11,389,571
|
|
|
|
(1,332,568
|
)
|
|
|
1964
|
|
|
|
2006
|
|
|
40 years
|
Belmont Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Madison
|
|
WI
|
|
|
480,000
|
|
|
|
1,861,061
|
|
|
|
6,207
|
|
|
|
|
|
|
|
480,000
|
|
|
|
1,867,268
|
|
|
|
(263,247
|
)
|
|
|
1974
|
|
|
|
2006
|
|
|
40 years
|
Blue Ash Nursing and Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Cincinnati
|
|
OH
|
|
|
125,000
|
|
|
|
6,278,450
|
|
|
|
447,530
|
|
|
|
|
|
|
|
125,000
|
|
|
|
6,725,980
|
|
|
|
(884,229
|
)
|
|
|
1969
|
|
|
|
2006
|
|
|
40 years
|
West Chester Nursing/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
West Chester
|
|
OH
|
|
|
100,000
|
|
|
|
5,663,460
|
|
|
|
368,689
|
|
|
|
|
|
|
|
100,000
|
|
|
|
6,032,149
|
|
|
|
(788,653
|
)
|
|
|
1965
|
|
|
|
2006
|
|
|
40 years
|
Wilmington Nursing/Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Willmington
|
|
OH
|
|
|
125,000
|
|
|
|
6,078,450
|
|
|
|
472,389
|
|
|
|
|
|
|
|
125,000
|
|
|
|
6,550,839
|
|
|
|
(855,492
|
)
|
|
|
1951
|
|
|
|
2006
|
|
|
40 years
|
Extended Care Hospital of Riverside
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Riverside
|
|
CA
|
|
|
1,091,000
|
|
|
|
5,646,826
|
|
|
|
|
|
|
|
(26,375
|
)
|
|
|
1,091,000
|
|
|
|
5,620,451
|
|
|
|
(986,069
|
)
|
|
|
1967
|
|
|
|
2006
|
|
|
40 years
|
Heritage Manor
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Monterey Park
|
|
CA
|
|
|
1,585,508
|
|
|
|
9,274,154
|
|
|
|
|
|
|
|
(23,200
|
)
|
|
|
1,585,508
|
|
|
|
9,250,954
|
|
|
|
(1,438,143
|
)
|
|
|
1965
|
|
|
|
2006
|
|
|
40 years
|
French Park Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Santa Ana
|
|
CA
|
|
|
1,076,447
|
|
|
|
5,983,614
|
|
|
|
596,442
|
|
|
|
|
|
|
|
1,076,447
|
|
|
|
6,580,056
|
|
|
|
(751,009
|
)
|
|
|
1967
|
|
|
|
2006
|
|
|
40 years
|
North Valley Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Tujunga
|
|
CA
|
|
|
613,800
|
|
|
|
5,031,473
|
|
|
|
|
|
|
|
(25,382
|
)
|
|
|
613,800
|
|
|
|
5,006,091
|
|
|
|
(694,919
|
)
|
|
|
1967
|
|
|
|
2006
|
|
|
40 years
|
Villa Rancho Bernardo Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
San Diego
|
|
CA
|
|
|
1,425,347
|
|
|
|
9,652,911
|
|
|
|
65,350
|
|
|
|
(57,067
|
)
|
|
|
1,425,347
|
|
|
|
9,661,194
|
|
|
|
(1,158,654
|
)
|
|
|
1994
|
|
|
|
2006
|
|
|
40 years
|
Austin Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Austin
|
|
TX
|
|
|
1,501,040
|
|
|
|
4,504,643
|
|
|
|
(28,091
|
)
|
|
|
|
|
|
|
1,501,040
|
|
|
|
4,476,552
|
|
|
|
(453,696
|
)
|
|
|
2007
|
|
|
|
2007
|
|
|
40 years
|
Dove Hill Care Center and Villas
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Hamilton
|
|
TX
|
|
|
58,397
|
|
|
|
5,781,296
|
|
|
|
|
|
|
|
|
|
|
|
58,397
|
|
|
|
5,781,296
|
|
|
|
(546,194
|
)
|
|
|
1998
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Medford
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Medford
|
|
MA
|
|
|
2,365,610
|
|
|
|
6,612,915
|
|
|
|
279,220
|
|
|
|
|
|
|
|
2,365,610
|
|
|
|
6,892,135
|
|
|
|
(760,794
|
)
|
|
|
1978
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Ambler
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Ambler
|
|
PA
|
|
|
370,010
|
|
|
|
5,111,673
|
|
|
|
(1,035,832
|
)
|
|
|
|
|
|
|
370,010
|
|
|
|
4,075,841
|
|
|
|
(440,750
|
)
|
|
|
1963
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Broomall
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Broomall
|
|
PA
|
|
|
607,870
|
|
|
|
3,930,013
|
|
|
|
590,503
|
|
|
|
|
|
|
|
607,870
|
|
|
|
4,520,516
|
|
|
|
(486,790
|
)
|
|
|
1955
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Bryn Mawr
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bryn Mawr
|
|
PA
|
|
|
708,300
|
|
|
|
6,352,474
|
|
|
|
270,668
|
|
|
|
|
|
|
|
708,300
|
|
|
|
6,623,142
|
|
|
|
(715,261
|
)
|
|
|
1972
|
|
|
|
2007
|
|
|
40 years
|
Brighten at Julia Ribaudo
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lake Ariel
|
|
PA
|
|
|
369,050
|
|
|
|
7,559,765
|
|
|
|
320,189
|
|
|
|
|
|
|
|
369,050
|
|
|
|
7,879,954
|
|
|
|
(863,484
|
)
|
|
|
1980
|
|
|
|
2007
|
|
|
40 years
|
Good Samaritan Nursing Home
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Avon
|
|
OH
|
|
|
393,813
|
|
|
|
8,856,210
|
|
|
|
108,495
|
|
|
|
|
|
|
|
393,813
|
|
|
|
8,964,705
|
|
|
|
(1,021,738
|
)
|
|
|
1964
|
|
|
|
2007
|
|
|
40 years
|
Belleville Illinois
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Belleville
|
|
IL
|
|
|
670,481
|
|
|
|
3,431,286
|
|
|
|
|
|
|
|
|
|
|
|
670,481
|
|
|
|
3,431,286
|
|
|
|
(316,664
|
)
|
|
|
1978
|
|
|
|
2007
|
|
|
40 years
|
Homestead Various Leases (f)
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
|
|
TX
|
|
|
345,197
|
|
|
|
4,352,982
|
|
|
|
5,503
|
|
|
|
|
|
|
|
345,197
|
|
|
|
4,358,485
|
|
|
|
(426,639
|
)
|
|
|
|
|
|
|
2007
|
|
|
40 years
|
Byrd Haven Nursing Home
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Searcy
|
|
AR
|
|
|
772,501
|
|
|
|
2,413,388
|
|
|
|
748,914
|
|
|
|
|
|
|
|
772,501
|
|
|
|
3,162,302
|
|
|
|
(217,762
|
)
|
|
|
1961
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Arvin Healthcare
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Arvin
|
|
CA
|
|
|
900,000
|
|
|
|
4,764,928
|
|
|
|
758,102
|
|
|
|
|
|
|
|
1,020,441
|
|
|
|
5,402,589
|
|
|
|
(358,175
|
)
|
|
|
1984
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Bakersfield Healthcare
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bakersfield
|
|
CA
|
|
|
1,000,000
|
|
|
|
12,154,112
|
|
|
|
1,760,333
|
|
|
|
|
|
|
|
1,133,824
|
|
|
|
13,780,621
|
|
|
|
(823,504
|
)
|
|
|
1987
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Lakeport Healthcare
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lakeport
|
|
CA
|
|
|
1,100,000
|
|
|
|
5,237,033
|
|
|
|
848,046
|
|
|
|
|
|
|
|
1,247,206
|
|
|
|
5,937,873
|
|
|
|
(402,652
|
)
|
|
|
1987
|
|
|
|
2008
|
|
|
40 years
|
New Hope Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Tracy
|
|
CA
|
|
|
1,900,000
|
|
|
|
10,293,920
|
|
|
|
1,631,837
|
|
|
|
|
|
|
|
2,154,265
|
|
|
|
11,671,491
|
|
|
|
(710,325
|
)
|
|
|
1987
|
|
|
|
2008
|
|
|
40 years
|
Olive Ridge Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Oroville
|
|
CA
|
|
|
800,000
|
|
|
|
8,609,470
|
|
|
|
1,259,211
|
|
|
|
|
|
|
|
907,059
|
|
|
|
9,761,622
|
|
|
|
(630,582
|
)
|
|
|
1987
|
|
|
|
2008
|
|
|
40 years
|
Twin Oaks Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Chico
|
|
CA
|
|
|
1,300,000
|
|
|
|
8,397,558
|
|
|
|
1,297,764
|
|
|
|
|
|
|
|
1,473,971
|
|
|
|
9,521,351
|
|
|
|
(633,441
|
)
|
|
|
1988
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
LaGrande
|
|
OR
|
|
|
1,400,000
|
|
|
|
808,374
|
|
|
|
295,533
|
|
|
|
|
|
|
|
1,587,353
|
|
|
|
916,554
|
|
|
|
(77,183
|
)
|
|
|
1975
|
|
|
|
2008
|
|
|
40 years
|
Evergreen Bremerton Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Bremerton
|
|
WA
|
|
|
650,000
|
|
|
|
1,366,315
|
|
|
|
269,831
|
|
|
|
|
|
|
|
736,985
|
|
|
|
1,549,160
|
|
|
|
(102,387
|
)
|
|
|
1969
|
|
|
|
2008
|
|
|
40 years
|
Four Fountains
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Belleville
|
|
IL
|
|
|
989,489
|
|
|
|
5,007,411
|
|
|
|
|
|
|
|
|
|
|
|
989,489
|
|
|
|
5,007,411
|
|
|
|
(306,137
|
)
|
|
|
1972
|
|
|
|
2008
|
|
|
40 years
|
Brookside Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Little Rock
|
|
AR
|
|
|
750,690
|
|
|
|
4,421,289
|
|
|
|
1,395,023
|
|
|
|
|
|
|
|
750,690
|
|
|
|
5,816,312
|
|
|
|
(342,731
|
)
|
|
|
1969
|
|
|
|
2008
|
|
|
40 years
|
Skilcare Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Jonesboro
|
|
AR
|
|
|
417,050
|
|
|
|
7,007,007
|
|
|
|
|
|
|
|
|
|
|
|
417,050
|
|
|
|
7,007,007
|
|
|
|
(464,260
|
)
|
|
|
1973
|
|
|
|
2008
|
|
|
40 years
|
Stoneybrook Health & Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Benton
|
|
AR
|
|
|
250,230
|
|
|
|
3,170,134
|
|
|
|
|
|
|
|
|
|
|
|
250,230
|
|
|
|
3,170,134
|
|
|
|
(225,932
|
)
|
|
|
1968
|
|
|
|
2008
|
|
|
40 years
|
Trumann Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Trumann
|
|
AR
|
|
|
166,820
|
|
|
|
3,587,185
|
|
|
|
|
|
|
|
|
|
|
|
166,820
|
|
|
|
3,587,185
|
|
|
|
(234,968
|
)
|
|
|
1971
|
|
|
|
2008
|
|
|
40 years
|
Deseret at McPherson
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
McPherson
|
|
KS
|
|
|
92,000
|
|
|
|
1,874,921
|
|
|
|
|
|
|
|
|
|
|
|
92,000
|
|
|
|
1,874,921
|
|
|
|
(112,646
|
)
|
|
|
1970
|
|
|
|
2008
|
|
|
40 years
|
Mission Nursing Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Riverside
|
|
CA
|
|
|
230,000
|
|
|
|
1,209,977
|
|
|
|
|
|
|
|
|
|
|
|
230,000
|
|
|
|
1,209,977
|
|
|
|
(74,749
|
)
|
|
|
1957
|
|
|
|
2008
|
|
|
40 years
|
New Byrd Haven Nursing Home
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Searcy
|
|
AR
|
|
|
|
|
|
|
10,213,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,213,112
|
|
|
|
(471,615
|
)
|
|
|
2009
|
|
|
|
2009
|
|
|
40 years
|
Evergreen Health & Rehab of Petaluma
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Petaluma
|
|
CA
|
|
|
748,668
|
|
|
|
2,459,910
|
|
|
|
|
|
|
|
|
|
|
|
748,668
|
|
|
|
2,459,910
|
|
|
|
(165,331
|
)
|
|
|
1969
|
|
|
|
2009
|
|
|
40 years
|
Evergreen Mountain View Health & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Carson City
|
|
NV
|
|
|
3,454,723
|
|
|
|
5,942,468
|
|
|
|
|
|
|
|
|
|
|
|
3,454,723
|
|
|
|
5,942,468
|
|
|
|
(287,022
|
)
|
|
|
1977
|
|
|
|
2009
|
|
|
40 years
|
Little Rock Health and Rehab
|
|
|
(a
|
)
|
|
|
(1
|
)
|
|
Little Rock
|
|
AR
|
|
|
471,169
|
|
|
|
4,778,831
|
|
|
|
714,336
|
|
|
|
|
|
|
|
471,169
|
|
|
|
5,493,168
|
|
|
|
(281,236
|
)
|
|
|
1971
|
|
|
|
2009
|
|
|
40 years
|
Hidden Acres Health Care
|
|
|
(a
|
)
|
|
|
|
|
|
Mount Pleasant
|
|
TN
|
|
|
67,413
|
|
|
|
3,312,587
|
|
|
|
|
|
|
|
|
|
|
|
67,413
|
|
|
|
3,312,587
|
|
|
|
(51,346
|
)
|
|
|
1979
|
|
|
|
2010
|
|
|
40 years
|
Community Care and Rehab
|
|
|
(a
|
)
|
|
|
(1
|
)
|
|
Riverside
|
|
CA
|
|
|
1,648,067
|
|
|
|
9,851,933
|
|
|
|
|
|
|
|
|
|
|
|
1,648,067
|
|
|
|
9,851,933
|
|
|
|
(54,681
|
)
|
|
|
1965
|
|
|
|
2010
|
|
|
40 years
|
Heritage Gardens of Portageville
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Portageville
|
|
MO
|
|
|
223,658
|
|
|
|
3,088,802
|
|
|
|
|
|
|
|
|
|
|
|
223,658
|
|
|
|
3,088,802
|
|
|
|
(21,731
|
)
|
|
|
1995
|
|
|
|
2010
|
|
|
40 years
|
Heritage Gardens of Greenville
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Greenville
|
|
MO
|
|
|
118,925
|
|
|
|
2,218,775
|
|
|
|
|
|
|
|
|
|
|
|
118,925
|
|
|
|
2,218,775
|
|
|
|
(15,970
|
)
|
|
|
1990
|
|
|
|
2010
|
|
|
40 years
|
F-70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized Subsequent
|
|
|
Gross Amount Carried at
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
to Acquisition
|
|
|
December 31, 2010 (g)
|
|
|
|
|
|
|
|
|
in Statement
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
|
|
|
Impairment /
|
|
|
|
|
|
Buildings &
|
|
|
Accumulated
|
|
|
Year of
|
|
|
Date
|
|
|
of Operations
|
Description
|
|
Asset
|
|
|
Encumbrances
|
|
|
City
|
|
State
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Dispositions
|
|
|
Land
|
|
|
Improvements
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
Computed
|
|
Heritage Gardens of Senath
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Senath
|
|
MO
|
|
|
108,843
|
|
|
|
2,773,194
|
|
|
|
159,590
|
|
|
|
|
|
|
|
108,843
|
|
|
|
2,932,785
|
|
|
|
(20,543
|
)
|
|
|
1980
|
|
|
|
2010
|
|
|
40 years
|
Heritage Gardens of Senath South
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Senath
|
|
MO
|
|
|
72,805
|
|
|
|
1,854,998
|
|
|
|
|
|
|
|
|
|
|
|
72,805
|
|
|
|
1,854,998
|
|
|
|
(13,592
|
)
|
|
|
1980
|
|
|
|
2010
|
|
|
40 years
|
The Carrington
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Lynchburg
|
|
VA
|
|
|
705,888
|
|
|
|
4,294,112
|
|
|
|
|
|
|
|
|
|
|
|
705,888
|
|
|
|
4,294,112
|
|
|
|
(27,603
|
)
|
|
|
1994
|
|
|
|
2010
|
|
|
40 years
|
Arma Care Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Arma
|
|
KS
|
|
|
57,452
|
|
|
|
2,897,772
|
|
|
|
|
|
|
|
|
|
|
|
57,452
|
|
|
|
2,897,772
|
|
|
|
|
|
|
|
1970
|
|
|
|
2010
|
|
|
40 years
|
Great Bend Health & Rehab Center
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Great Bend
|
|
KS
|
|
|
111,482
|
|
|
|
4,588,518
|
|
|
|
|
|
|
|
|
|
|
|
111,482
|
|
|
|
4,588,518
|
|
|
|
|
|
|
|
1965
|
|
|
|
2010
|
|
|
40 years
|
Maplewood at Norwalk
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Norwalk
|
|
CT
|
|
|
1,589,950
|
|
|
|
1,010,050
|
|
|
|
197,189
|
|
|
|
|
|
|
|
1,589,950
|
|
|
|
1,207,239
|
|
|
|
|
|
|
|
1983
|
|
|
|
2010
|
|
|
40 years
|
Carrizo Springs Nursing & Rehab
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
Carrizo Springs
|
|
TX
|
|
|
45,317
|
|
|
|
1,954,683
|
|
|
|
|
|
|
|
|
|
|
|
45,317
|
|
|
|
1,954,683
|
|
|
|
|
|
|
|
1965
|
|
|
|
2010
|
|
|
40 years
|
Maplewood at Orange
|
|
|
(b
|
)
|
|
|
(2
|
)
|
|
Orange
|
|
CT
|
|
|
1,133,533
|
|
|
|
11,155,287
|
|
|
|
|
|
|
|
|
|
|
|
1,133,533
|
|
|
|
11,155,287
|
|
|
|
|
|
|
|
1999
|
|
|
|
2010
|
|
|
40 years
|
Aviv Asset Management
|
|
|
(d
|
)
|
|
|
|
|
|
Chicago
|
|
IL
|
|
|
|
|
|
|
|
|
|
|
377,544
|
|
|
|
|
|
|
|
|
|
|
|
377,544
|
|
|
|
(129,892
|
)
|
|
|
|
|
|
|
|
|
|
|
Skagit Aviv
|
|
|
(e
|
)
|
|
|
|
|
|
Mt. Vernon
|
|
WA
|
|
|
|
|
|
|
|
|
|
|
396,702
|
|
|
|
|
|
|
|
|
|
|
|
396,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,935,771
|
|
|
$
|
597,669,579
|
|
|
$
|
39,341,658
|
|
|
$
|
(21,674,715
|
)
|
|
$
|
76,466,020
|
|
|
$
|
615,806,273
|
|
|
$
|
(75,948,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
under direct financing leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
Initial Cost to
|
|
Accretion/
|
|
Impairment/
|
|
Carried at
|
|
Year of
|
|
Date
|
Description
|
|
Asset
|
|
Encumbrances
|
|
City
|
|
State
|
|
Company
|
|
Amortization
|
|
Dispositions
|
|
December 31, 2010
|
|
Construction
|
|
Acquired
|
|
Fountain Lake
|
|
|
(a
|
)
|
|
|
(2
|
)
|
|
|
Hot Springs
|
|
|
|
AR
|
|
|
$
|
10,418,738
|
|
|
$
|
358,446
|
|
|
$
|
|
|
|
$
|
10,777,184
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,418,738
|
|
|
$
|
358,446
|
|
|
$
|
|
|
|
$
|
10,777,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Skilled Nursing Facilities (SNFs)
|
|
(b)
|
|
Assisted Living Facilities (ALFs)
|
|
(c)
|
|
Vacant Land
|
|
(d)
|
|
Assets relating to corporate office
space
|
|
(e)
|
|
Developmental asset
|
|
(f)
|
|
Includes six properties all located
in Texas
|
|
(g)
|
|
The aggregate cost for federal
income tax purposes of the real estate as of December 31,
2010 is $598,846,000 (unaudited)
|
|
|
|
|
|
|
Encumbrances:
|
|
(1) Standalone first mortgage
|
|
|
|
|
|
(2) Aviv primary credit facility (GE credit facility)
|
F-71
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND
SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Reconciliation of real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
636,409,268
|
|
|
$
|
606,691,800
|
|
|
$
|
505,585,195
|
|
Additions during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
63,005,000
|
|
|
|
17,856,000
|
|
|
|
103,521,125
|
|
Development of rental properties and capital expenditures
|
|
|
7,815,209
|
|
|
|
11,861,468
|
|
|
|
8,630,503
|
|
Dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of assets
|
|
|
(4,084,000
|
)
|
|
|
|
|
|
|
(10,138,645
|
)
|
Impairment (i)
|
|
|
(96,000
|
)
|
|
|
|
|
|
|
(906,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
703,049,477
|
|
|
$
|
636,409,268
|
|
|
$
|
606,691,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
58,673,377
|
|
|
$
|
42,091,996
|
|
|
$
|
29,961,048
|
|
Additions during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
17,853,799
|
|
|
|
17,527,656
|
|
|
|
14,615,770
|
|
Dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of assets
|
|
|
(578,232
|
)
|
|
|
(946,275
|
)
|
|
|
(2,459,571
|
)
|
Impairment (i)
|
|
|
|
|
|
|
|
|
|
|
(25,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
75,948,944
|
|
|
$
|
58,673,377
|
|
|
$
|
42,091,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Represents the write-down of carrying cost and accumulated
depreciation on assets where impairment charges were taken. |
AVIV
REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$11,091,932
|
|
|
|
$13,029,474
|
|
Deferred rent receivable
|
|
|
29,427,858
|
|
|
|
30,660,773
|
|
Tenant receivables, net
|
|
|
1,699,085
|
|
|
|
1,168,842
|
|
Rental properties and financing leases, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
78,754,371
|
|
|
|
76,466,020
|
|
Buildings and improvements
|
|
|
641,556,663
|
|
|
|
615,806,273
|
|
Assets under direct financing leases
|
|
|
10,814,648
|
|
|
|
10,777,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731,125,682
|
|
|
|
703,049,477
|
|
Less accumulated depreciation
|
|
|
(80,747,512
|
)
|
|
|
(75,948,944
|
)
|
|
|
|
|
|
|
|
|
|
Net rental properties
|
|
|
650,378,170
|
|
|
|
627,100,533
|
|
Deferred finance costs, net
|
|
|
13,057,896
|
|
|
|
9,957,636
|
|
Loan receivables, net
|
|
|
30,726,794
|
|
|
|
36,610,638
|
|
Other assets
|
|
|
11,196,114
|
|
|
|
12,872,323
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$747,577,849
|
|
|
|
$731,400,219
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
$7,047,687
|
|
|
|
$6,012,809
|
|
Tenant security and escrow deposits
|
|
|
14,132,190
|
|
|
|
13,658,384
|
|
Other liabilities
|
|
|
24,752,208
|
|
|
|
25,996,492
|
|
Mortgage and other notes payable
|
|
|
454,623,647
|
|
|
|
440,575,916
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
500,555,732
|
|
|
|
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
|
|
|
234,138,378
|
|
|
|
223,838,999
|
|
Accumulated deficit
|
|
|
(7,284,941
|
)
|
|
|
(2,261,839
|
)
|
Accumulated other comprehensive income
|
|
|
2,464,837
|
|
|
|
2,188,155
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
229,320,633
|
|
|
|
223,767,585
|
|
Noncontrolling interests
|
|
|
17,701,484
|
|
|
|
21,389,033
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
247,022,117
|
|
|
|
245,156,618
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
$747,577,849
|
|
|
|
$731,400,219
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-73
AVIV
REIT, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$19,690,091
|
|
|
|
$21,150,335
|
|
Tenant recoveries
|
|
|
1,688,996
|
|
|
|
1,529,054
|
|
Interest on loans to lesseescapital expenditures
|
|
|
406,697
|
|
|
|
450,668
|
|
Interest on loans to lesseesworking capital and capital
lease
|
|
|
925,412
|
|
|
|
680,530
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
22,711,196
|
|
|
|
23,810,587
|
|
Expenses
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
201,664
|
|
|
|
169,330
|
|
General and administrative
|
|
|
3,468,576
|
|
|
|
1,424,248
|
|
Real estate taxes
|
|
|
1,689,094
|
|
|
|
1,605,430
|
|
Depreciation
|
|
|
4,798,568
|
|
|
|
4,361,901
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10,157,902
|
|
|
|
7,560,909
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
12,553,294
|
|
|
|
16,249,678
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
5,615
|
|
|
|
63,298
|
|
Interest expense
|
|
|
(7,556,185
|
)
|
|
|
(5,865,316
|
)
|
Change in fair value of derivatives
|
|
|
|
|
|
|
1,320,721
|
|
Amortization of deferred financing costs
|
|
|
(678,995
|
)
|
|
|
(139,295
|
)
|
Loss on extinguishment of debt
|
|
|
(3,143,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(11,372,573
|
)
|
|
|
(4,620,592
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,180,721
|
|
|
|
11,629,086
|
|
Distributions and accretion on Class E Preferred Units
|
|
|
|
|
|
|
(3,998,770
|
)
|
Net income allocable to common units of
Partnership/noncontrolling interests
|
|
|
(538,442
|
)
|
|
|
(7,630,316
|
)
|
|
|
|
|
|
|
|
|
|
Net income allocable to stockholders
|
|
|
$642,279
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$1,180,721
|
|
|
|
|
|
Unrealized gain on derivative instrument
|
|
|
508,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
$1,689,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to stockholders
|
|
|
$642,279
|
|
|
|
|
|
Unrealized gain on derivative instrument, net of noncontrolling
interest portion of $231,952
|
|
|
276,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income allocable to stockholders
|
|
|
$918,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-74
AVIV
REIT, INC. AND SUBSIDIARIES
Three Months Ended March 31, 2011
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In-
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance at January 1, 2011
|
|
|
227,002
|
|
|
|
$2,270
|
|
|
|
$223,838,999
|
|
|
|
$(2,261,839
|
)
|
|
|
$2,188,155
|
|
|
|
$223,767,585
|
|
|
|
$21,389,033
|
|
|
|
$245,156,618
|
|
Non-cash stock (unit)-based compensation
|
|
|
|
|
|
|
|
|
|
|
299,468
|
|
|
|
|
|
|
|
|
|
|
|
299,468
|
|
|
|
286,977
|
|
|
|
586,445
|
|
Distributions to partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,744,920
|
)
|
|
|
(4,744,920
|
)
|
Capital contributions
|
|
|
8,895
|
|
|
|
89
|
|
|
|
9,999,911
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
10,000,000
|
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276,682
|
|
|
|
276,682
|
|
|
|
231,952
|
|
|
|
508,634
|
|
Dividends to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,665,381
|
)
|
|
|
|
|
|
|
(5,665,381
|
)
|
|
|
|
|
|
|
(5,665,381
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642,279
|
|
|
|
|
|
|
|
642,279
|
|
|
|
538,442
|
|
|
|
1,180,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
|
235,897
|
|
|
|
$2,359
|
|
|
|
$234,138,378
|
|
|
|
$(7,284,941
|
)
|
|
|
$2,464,837
|
|
|
|
$229,320,633
|
|
|
|
$17,701,484
|
|
|
|
$247,022,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-75
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(unaudited)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$1,180,721
|
|
|
|
$11,629,086
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,798,568
|
|
|
|
4,361,901
|
|
Amortization
|
|
|
678,995
|
|
|
|
139,295
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
(1,320,721
|
)
|
Deferred rental expense (income), net
|
|
|
1,165,922
|
|
|
|
(95,393
|
)
|
Rental income from intangible amortization, net
|
|
|
(362,196
|
)
|
|
|
(1,770,665
|
)
|
Non-cash stock (unit)-based compensation
|
|
|
586,445
|
|
|
|
101,500
|
|
Non-cash loss on extinguishment of debt
|
|
|
3,143,008
|
|
|
|
|
|
Reserve for uncollectible loan receivables
|
|
|
157,317
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Tenant receivables
|
|
|
(530,243
|
)
|
|
|
(709,641
|
)
|
Other assets
|
|
|
2,023,699
|
|
|
|
(99,672
|
)
|
Accounts payable and accrued expenses
|
|
|
669,320
|
|
|
|
353,846
|
|
Tenant security deposits and other liabilities
|
|
|
744,836
|
|
|
|
1,424,730
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,256,392
|
|
|
|
14,014,266
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Purchase of rental properties
|
|
|
(24,825,776
|
)
|
|
|
|
|
Capital improvements and other developments
|
|
|
(3,250,430
|
)
|
|
|
(2,151,823
|
)
|
Loan receivables received from (funded to) others, net
|
|
|
5,726,527
|
|
|
|
(5,604,469
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(22,349,679
|
)
|
|
|
(7,756,292
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
210,200,000
|
|
|
|
|
|
Repayment of debt
|
|
|
(196,152,269
|
)
|
|
|
(2,563,125
|
)
|
Payment of financing costs
|
|
|
(6,556,704
|
)
|
|
|
|
|
Capital contributions
|
|
|
10,000,000
|
|
|
|
|
|
Cash distributions to partners
|
|
|
(5,246,840
|
)
|
|
|
(11,075,273
|
)
|
Cash dividends to stockholders
|
|
|
(6,088,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
6,155,745
|
|
|
|
(13,638,398
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,937,542
|
)
|
|
|
(7,380,424
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
13,029,474
|
|
|
|
15,542,507
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
$11,091,932
|
|
|
|
$8,162,083
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
$6,093,599
|
|
|
|
$5,967,777
|
|
Supplemental disclosure of noncash activity
|
|
|
|
|
|
|
|
|
Accrued dividends payable to stockholders
|
|
|
$5,665,381
|
|
|
|
$
|
|
Accrued distributions payable to partners
|
|
|
$4,744,920
|
|
|
|
$5,124,590
|
|
Earn-out accrual and addition to rental properties
|
|
|
$
|
|
|
|
$8,120,656
|
|
Write-off of deferred rent receivable
|
|
|
$3,026,968
|
|
|
|
$2,233,768
|
|
Write-off of in-place lease intangibles, net
|
|
|
$
|
|
|
|
$1,224,594
|
|
Write-off of deferred financing costs, net
|
|
|
$3,143,008
|
|
|
|
$
|
|
See accompanying notes to consolidated financial statements
F-76
AVIV
REIT, INC. AND SUBSIDIARIES
Three
Months Ended March 31, 2011 and 2010
|
|
1.
|
Description
of Operations and Formation
|
Aviv REIT, Inc., a Maryland corporation, and Subsidiaries (the
REIT) is the sole general partner of Aviv Healthcare Properties
Limited Partnership, a Delaware limited partnership, and
Subsidiaries (the Partnership). The Partnership is a majority
owned subsidiary that owns all of the real estate properties. In
these footnotes, the Company refers generically to Aviv REIT,
Inc., the Partnership, and their subsidiaries. The Partnership
was formed in 2005 and directly or indirectly owned or leased
187 properties, principally skilled nursing facilities, across
the United States at March 31, 2011. The Company generates
the majority of its revenues by entering into long-term
triple-net
leases with qualified local, regional, and national operators.
In addition to the base rent, leases provide for tenants to pay
the Company an ongoing escrow for real estate taxes.
Furthermore, all operating and maintenance costs of the
buildings are the responsibility of the tenants. Substantially
all depreciation expense reflected in the consolidated
statements of operations relates to the ownership of senior
living properties. The Company manages its business as a single
business segment as defined in Accounting Standards Codification
(ASC) 280, Segment Reporting.
The Partnership is the general partner of Aviv Healthcare
Properties Operating Partnership I, L.P. (the Operating
Partnership), a Delaware limited partnership. The Operating
Partnership has five wholly owned subsidiaries: Aviv
Financing I, LLC (Aviv Financing I), a Delaware limited
liability company; Aviv Financing II, LLC (Aviv Financing II), a
Delaware limited liability company; Aviv Financing III, LLC
(Aviv Financing III), a Delaware limited liability company; Aviv
Financing IV, LLC (Aviv Financing IV), a Delaware limited
liability company; and Aviv Financing V, LLC (Aviv
Financing V), a Delaware limited liability company.
On September 17, 2010, the Partnership entered into an
agreement (the Merger Agreement), by and among the REIT, Aviv
Healthcare Merger Sub LP, a Delaware limited partnership of
which the REIT is the general partner (Merger Sub), Aviv
Healthcare Merger Sub Partner LLC, a Delaware limited liability
company and a wholly owned subsidiary of the REIT, and the
Partnership. Pursuant to the Merger Agreement, the Partnership
merged (the Merger) with and into Merger Sub, with Merger Sub
continuing as the surviving entity with the identical name (the
Surviving Partnership). Following the Merger, the REIT remains
as the sole general partner of the Surviving Partnership and the
Surviving Partnership, as the successor to the Partnership,
became the general partner of the Operating Partnership. All of
the business, assets and operations will continue to be held by
the Operating Partnership and its subsidiaries. The REITs
equity interest in the Surviving Partnership will be linked to
future investments in the REIT, such that future equity
issuances by the REIT (pursuant to the Stockholders Agreement,
the REITs management incentive plan or otherwise as agreed
between the parties) will result in a corresponding increase in
the REITs equity interest in the Surviving Partnership.
The REIT is authorized to issue 2 million shares of common
stock (par value ($0.01) and 1,000 shares of preferred
stock (par value $1,000)). At March 31, 2011, there are
235,897 shares of common stock and 125 shares of
preferred stock outstanding. Dividends on each outstanding share
of preferred stock accrue on a daily basis at the rate of 12.5%
per annum of the sum of $1,000 plus all accumulated and unpaid
dividends thereon which are in arrears. The REIT makes annual
distributions on the shares in the aggregate amount of $15,625
per year. With respect to the payment of dividends or other
distributions and the distribution of the REITs assets
upon dissolution, liquidation, or winding up, the preferred
stock will be senior to all other classes and series of stock of
the REIT. The preferred stock has not been shown separately in
the consolidated balance sheets, is immaterial, and included in
additional
paid-in-capital.
F-77
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
As a result of the common control of the REIT (which was newly
formed) and the Partnership, the Merger, for accounting
purposes, did not result in any adjustment to the historical
carrying value of the assets or liabilities of the Partnership.
The REIT was funded in September 2010 with approximately
$235 million from its stockholders. The REIT contributed
the net proceeds of its capital raise to the Partnership in
exchange for Class G Units in the Partnership. Periods
prior to September 17, 2010 represent the results of
operations and financial condition of the Partnership, as
predecessor to the Company. An additional $10 million was
contributed by the REITs stockholders on January 25,
2011.
The operating results of the Surviving Partnership are allocated
based upon the respective economic interests therein. For the
period ended March 31, 2011, the REIT owned 54.4% of the
Surviving Partnership.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Estimates
The preparation of the financial statements in conformity with
U.S. generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of the REIT, the Surviving Partnership, the Operating
Partnership, and all controlled subsidiaries and joint ventures.
The Company considers itself to control an entity if it is the
majority owner of and has voting control over such entity or the
power to control a variable interest entity. The portion of the
net income or loss attributed to third parties is reported as
net income allocable to noncontrolling interests on the
consolidated statements of operations, and such parties
portion of the net equity in such subsidiaries is reported on
the consolidated balance sheets as noncontrolling interests. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Quarterly
Reporting
The accompanying unaudited financial statements and notes of the
Company as of March 31, 2011 and for the three months ended
March 31, 2011 and 2010 have been prepared in accordance
with GAAP for interim financial information. Accordingly,
certain information and footnote disclosures normally included
in financial statements prepared under GAAP have been condensed
or omitted pursuant to such rules. In the opinion of management,
all adjustments considered necessary for a fair presentation of
the Companys balance sheets, statements of operations,
statement of changes in equity, and statements of cash flows
have been included and are of a normal and recurring nature.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
for the Company for the years ended December 31, 2010,
2009, and 2008. The consolidated statements of operations and
cash flows for the three months ended March 31, 2011 and
2010 are not necessarily indicative of full year results.
F-78
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
Rental
Properties
The Company periodically assesses the carrying value of rental
properties and related intangible assets in accordance with
ASC 360, Property, Plant, and Equipment (ASC 360),
to determine if facts and circumstances exist that would suggest
that assets might be impaired or that the useful lives should be
modified. In the event impairment in value occurs and a portion
of the carrying amount of the rental properties will not be
recovered in part or in whole, a provision will be recorded to
reduce the carrying basis of the rental properties and related
intangibles to their estimated fair value. The estimated fair
value of the Companys rental properties is determined by
using customary industry standard methods that include
discounted cash flow
and/or
direct capitalization analysis.
Revenue
Recognition
Rental income is recognized on a straight-line basis over the
term of the lease when collectibility is reasonably assumed.
Differences between rental income earned and amounts due under
the lease are charged or credited, as applicable, to deferred
rent receivable. Income recognized from this policy is titled
deferred rental income. Additional rents from expense
reimbursements for insurance, real estate taxes, and certain
other expenses are recognized in the period in which the related
expenses are incurred and are reflected as tenant recoveries on
the consolidated statements of operations.
Below is a summary of the components of rental income for the
respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Rental income
|
|
|
$20,493,817
|
|
|
|
$19,284,277
|
|
Deferred rental (expense) income, net
|
|
|
(1,165,922
|
)
|
|
|
95,393
|
|
Rental income from intangible amortization
|
|
|
362,196
|
|
|
|
1,770,665
|
|
|
|
|
|
|
|
|
|
|
Total rental income
|
|
|
$19,690,091
|
|
|
|
$21,150,335
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2011 and 2010,
deferred rental revenue includes a write-off (expense) of
deferred rent receivable of $3,026,968 and $2,233,768,
respectively, due to the early termination of leases and
replacement of operators.
Lease
Accounting
The Company, as lessor, makes a determination with respect to
each of its leases whether they should be accounted for as
operating leases or direct financing leases. The classification
criteria is based on estimates regarding the fair value of the
leased facilities, minimum lease payments, effective cost of
funds, the economic life of the facilities, the existence of a
bargain purchase option, and certain other terms in the lease
agreements. Payments received under operating leases are
accounted for in the statement of operations as rental income
for actual rent collected plus or minus a straight-line
adjustment for estimated minimum lease escalators. Assets
subject to operating leases are reported as rental properties in
the consolidated balance sheets. For facilities leased as direct
financing arrangements, an asset equal to the Companys net
initial investment is established on the balance sheet titled
assets under direct financing leases. Payments received under
the financing lease are bifurcated between interest income and
principal amortization to achieve a consistent yield over the
stated lease term using the interest method. Principal
amortization (accretion) is reflected as an adjustment to the
asset subject to a
F-79
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
financing lease. Such accretion was $37,465 and $38,540 for the
three months ended March 31, 2011 and 2010, respectively.
All of the Companys leases contain fixed or formula-based
rent escalators. To the extent that the escalator increases are
tied to a fixed index or rate, lease payments are accounted for
on a straight-line basis over the life of the lease.
Loan
Receivables
Loan receivables consist of capital improvement loans to tenants
and working capital loans to operators. Loan receivables are
carried at their principal amount outstanding. Management
periodically evaluates outstanding loans and notes receivable
for collectability. When management identifies potential loan
impairment indicators, such as nonpayment under the loan
documents, impairment of the underlying collateral, financial
difficulty of the operator, or other circumstances that may
impair full execution of the loan documents, and management
believes it is probable that all amounts will not be collected
under the contractual terms of the loan, the loan is written
down to the present value of the expected future cash flows. As
of March 31, 2011 and December 31, 2010, loan
receivable reserves amounted to $907,317 and $750,000,
respectively. No other circumstances exist that would suggest
that additional reserves are necessary at the balance sheet
dates.
Stock-Based
Compensation
The Company follows ASC 718, Stock Compensation (ASC 718),
which requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the
consolidated statements of operations based on their grant date
fair values. On September 17, 2010, the Company adopted a
2010 Management Incentive Plan (the Plan) as part of the Merger
transaction. A pro-rata allocation of non-cash stock-based
compensation expense is made to the Company and noncontrolling
interests for awards granted under the Plan. The Plans
non-cash stock-based compensation expense by the Company through
March 31, 2011 is summarized in Footnote 9.
Fair
Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures (ASC
820), establishes a three-level valuation hierarchy for
disclosure of fair value measurements. The valuation hierarchy
is based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. A financial
instruments categorization within the valuation hierarchy
is based upon the lowest level of input that is significant to
the fair value measurement. The three levels are defined as
follows:
|
|
|
|
|
Level 1Inputs to the valuation methodology are quoted
prices (unadjusted) for identical assets or;
|
|
|
|
Level 2Inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument; and
|
|
|
|
Level 3Inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
|
F-80
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
The Companys interest rate swaps are valued using models
developed internally by the respective counterparty that use as
their basis readily observable market parameters and are
classified within Level 2 of the valuation hierarchy.
Cash and cash equivalents and derivative financial instruments
are reflected in the accompanying consolidated balance sheets at
amounts considered by management to reasonably approximate fair
value. Management estimates the fair value of its long-term debt
using a discounted cash flow analysis based upon the
Companys current borrowing rate for debt with similar
maturities and collateral securing the indebtedness. The Company
had outstanding mortgage and other notes payable obligations
with a carrying value of approximately $454.6 million and
$440.6 million as of March 31, 2011 and
December 31, 2010, respectively. The fair values of debt as
of March 31, 2011 and December 31, 2010 approximate
carrying value based upon interest rates available to the
Company on similar borrowings.
Derivative
Instruments
The Company has implemented ASC 815, Derivatives and
Hedging (ASC 815), which establishes accounting and
reporting standards requiring that all derivatives, including
certain derivative instruments embedded in other contracts, be
recorded as either an asset or liability measured at their fair
value unless they qualify for a normal purchase or normal sales
exception. When specific hedge accounting criteria are not met,
ASC 815 requires that changes in a derivatives fair
value be recognized currently in earnings. Changes in the fair
market values of the Companys derivative instruments are
recorded in the consolidated statements of operations if the
derivative does not qualify for or the Company does not elect to
apply hedge accounting. If the derivative is deemed to be
eligible for hedge accounting, such changes are reported in
accumulated other comprehensive income within the consolidated
statement of changes in equity, exclusive of ineffectiveness
amounts, which are recognized as adjustments to net income.
Income
Taxes
For federal income tax purposes, the Company intends to elect,
with the filing of its initial 1120 REIT, U.S. Income Tax
Return for Real Estate Investment Trusts, to be taxed as a Real
Estate Investment Trust (REIT) effective at the time of the
Merger. To qualify as a REIT, the Company must meet certain
organizational, income, asset and distribution tests. The
Company currently intends to comply with these requirements and
maintain REIT status. If the Company fails to qualify as a REIT
in any taxable year, the Company will be subject to federal
income taxes at regular corporate rates (including any
applicable alternative minimum tax) and may not elect REIT
status for four subsequent years. However, the Company may still
be subject to federal excise tax. In addition, the Company may
be subject to certain state and local income and franchise
taxes. Historically, the Company and its predecessor have
generally only incurred certain state and local income and
franchise taxes, but these amounts were immaterial in each of
the periods presented. Prior to the Merger, the Partnership was
a limited partnership and the consolidated operating results
were included in the income tax returns of the individual
partners. No uncertain income tax positions exist as of
March 31, 2011 or December 31, 2010.
The rental properties of the Company have an income tax basis of
approximately $627,663,049 as of March 31, 2011.
F-81
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
Business
Combinations
The Company applies ASC 805, Business Combinations
(ASC 805), in determining how to account for and identify
business combinations while allocating fair value to tangible
and identified intangible assets acquired and liabilities
assumed. Prior to the Merger on September 17, 2010, Aviv
Asset Management, L.L.C. (AAM) was a non-consolidated management
company to the Partnership based on the application of
appropriate accounting guidance (as discussed in Footnote 10).
Upon the Merger, AAM became a consolidated entity of the Company
and is presented as such for all periods included herein with
all periods shown at historical cost (carryover basis with no
adjustments to fair value). This treatment is in accordance with
ASC 805 due to the fact that AAM was under common control
prior and subsequent to the Merger.
Reclassifications
Certain prior period amounts have been reclassified to conform
to the current financial statement presentation, with no effect
on the Companys consolidated financial position or results
of operations.
|
|
3.
|
Rental
Property Activity
|
The Company had the following rental property activity during
the three months ended March 31, 2011 as described below:
|
|
|
|
|
In January 2011, Aviv Financing I acquired a property in Kansas
from an unrelated third party for a purchase price of
$3,045,000. The Company financed this purchase through cash and
borrowings of $2,131,000 under the Mortgage (see Footnote 7).
|
|
|
|
In March 2011, Aviv Financing II acquired a property in
Pennsylvania from an unrelated third party for a purchase price
of approximately $2,200,000. The Company financed this purchase
through cash.
|
|
|
|
In March 2011, Aviv Financing II acquired a property in
Ohio from an unrelated third party for a purchase price of
approximately $9,581,000. The Company financed this purchase
through cash.
|
|
|
|
In March 2011, Aviv Financing II acquired a property in
Florida from an unrelated third party for a purchase price of
approximately $10,000,000. The Company financed this purchase
through borrowings of $10,200,000 under the Revolver (see
Footnote 7).
|
The Company considers renewals on below-market leases when
ascribing value to the in-place lease intangible liabilities at
the date of a property acquisition. In those instances where the
renewal lease rate pursuant to the terms of the lease does not
adjust to a current market rent, the Company evaluates whether
the stated renewal rate is below current market rates and
considers the past and current operations of the property, the
current rent coverage ratio of the tenant, and the number of
years until potential renewal option exercise. If renewal is
considered probable based on these factors, an additional lease
intangible liability is recorded at acquisition and amortized
over the renewal period.
F-82
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
The following summarizes the Companys loan receivables at:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Beginning balance, January 1, 2011 and 2010, respectively
|
|
|
$36,610,638
|
|
|
|
$28,970,129
|
|
New capital improvement loans issued
|
|
|
66,338
|
|
|
|
1,415,579
|
|
Working capital and other loans issued
|
|
|
613,858
|
|
|
|
14,705,259
|
|
Reserve for uncollectible loans
|
|
|
(157,317
|
)
|
|
|
(750,000
|
)
|
Loan amortization and repayments
|
|
|
(6,406,723
|
)
|
|
|
(7,730,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$30,726,794
|
|
|
|
$36,610,638
|
|
|
|
|
|
|
|
|
|
|
The Companys reserve for uncollectible loan receivables
balances at March 31, 2011 and December 31, 2010 was
$907,317 and $750,000, respectively. The activity for the three
months ended March 31, 2011 consisted of additional
reserves of $157,317.
During 2011 and 2010, the Company funded loans for both working
capital and capital improvement purposes to various operators
and tenants. All loans held by the Company accrue interest. The
payments received from the operator or tenant cover both
interest accrued as well as amortization of the principal
balance due. Any payments received from the tenant or operator
made outside of the normal loan amortization schedule are
considered principal prepayments and reduce the outstanding loan
receivables balance.
Interest income earned on loan receivables for the three months
ended March 31, 2011 and 2010 was $978,514 and $782,306,
respectively.
|
|
5.
|
Deferred
Finance Costs
|
The following summarizes the Companys deferred finance
costs at:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Gross amount
|
|
|
$13,965,324
|
|
|
|
$10,567,931
|
|
Accumulated amortization
|
|
|
(907,428
|
)
|
|
|
(610,295
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$13,057,896
|
|
|
|
$9,957,636
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs is reported in the
amortization expense line item in the consolidated statements of
operations.
During the three months ended March 31, 2011, the Company
wrote-off deferred financing costs of $3,524,869 with $381,861
accumulated amortization associated with the Mortgage (see
Footnote 7) pay down for a net recognition as loss on
extinguishment of debt of $3,143,008.
F-83
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
6.
|
In-Place
Lease Intangibles
|
The following summarizes the Companys in-place lease
intangibles classified as part of other assets or other
liabilities at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Gross amount
|
|
|
$8,393,488
|
|
|
|
$25,798,147
|
|
|
|
$8,393,488
|
|
|
|
$25,798,147
|
|
Accumulated amortization
|
|
|
(3,210,236
|
)
|
|
|
(14,573,030
|
)
|
|
|
(3,049,093
|
)
|
|
|
(14,049,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$5,183,252
|
|
|
|
$11,225,117
|
|
|
|
$5,344,395
|
|
|
|
$11,748,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the in-place lease intangible assets
for the three months ended March 31, 2011 and 2010 was
$161,143 and $243,721, respectively. Accretion for the in-place
lease intangible liabilities for the three months ended
March 31, 2011 and 2010 was $523,339 and $789,792,
respectively.
As of March 31, 2010, the Company wrote-off in-place lease
intangible assets of $2,678,000 with accumulated amortization of
$1,316,232, and in-place lease intangible liabilities of
$4,660,000 with accumulated accretion of $2,073,638, for a net
recognition of $1,224,594 in rental income from intangible
amortization. These write-offs were in connection with
properties that had been transitioned to new operators.
|
|
7.
|
Mortgage
and Other Notes Payable
|
The Companys mortgage and other notes payable consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Mortgage (interest rates of 5.75% on March 31, 2011 and
December 31, 2010, respectively)
|
|
|
$235,350,523
|
|
|
|
$402,794,111
|
|
Acquisition Credit Line (interest rates of 5.75% on
March 31, 2011 and December 31, 2010, respectively)
|
|
|
|
|
|
|
28,677,230
|
|
Revolver (interest rate of 6.25% on March 31, 2011)
|
|
|
10,200,000
|
|
|
|
|
|
Construction loan (interest rates of 5.95% on March 31,
2011 and December 31, 2010, respectively)
|
|
|
1,312,339
|
|
|
|
1,312,339
|
|
Acquisition loans (interest rates of 6.00% on March 31,
2011 and December 31, 2010, respectively)
|
|
|
7,760,785
|
|
|
|
7,792,236
|
|
Senior Notes (interest rate of 7.75%, on March 31, 2011
|
|
|
200,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$454,623,647
|
|
|
|
$440,575,916
|
|
|
|
|
|
|
|
|
|
|
Senior
Notes
On February 4, 2011, Aviv Healthcare Properties Limited
Partnership and Aviv Healthcare Capital Corporation (the
Issuers) issued $200 million of Senior Notes (the Senior
Notes). The Company
F-84
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
is a guarantor of the Issuers Senior Notes. The Senior Notes are
unsecured senior obligations of the Issuers and will mature on
February 15, 2019. The Senior Notes bear interest at a rate
of 7.750% per annum, payable semiannually to holders of record
at the close of business on the February 1 or the August 1
immediately preceding the interest payment date on February 15
and August 15 of each year, commencing August 15, 2011. The
Company used the proceeds, amongst other things, to pay down
approximately $165.9 million on the Mortgage and the
balance of $28.7 million on the Acquisition Credit Line.
Revolver
In conjunction with the Senior Notes issuance on
February 4, 2011, the Company, under Aviv Financing IV,
LLC, acquired a $25 million revolver with Bank of America
(the Revolver). On each payment date, the Company shall pay
interest only in arrears on any outstanding principal balance of
the Revolver. Interest rates are based upon the base rate (3.25%
at March 31, 2011) plus the applicable percentage
based on the consolidated leverage ratio (3.00% at
March 31, 2011). The base rate is the rate announced by
Bank of America as the prime rate. Additionally, an
unused fee equal to 0.5% per annum of the daily unused balance
on the Revolver is due monthly. The Revolver commitment
terminates in February 2014.
|
|
8.
|
Partnership
Equity and Incentive Program
|
Distributions to the Partnerships partners are summarized
as follows for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
Class E
|
|
Class F
|
|
Class G
|
|
2011
|
|
|
$2,066,628
|
|
|
|
$849,812
|
|
|
|
$1,274,719
|
|
|
$
|
|
|
$
|
|
|
|
$553,761
|
|
|
|
$5,665,381
|
|
2010
|
|
|
$3,390,685
|
|
|
|
$1,897,169
|
|
|
|
2,845,753
|
|
|
$
|
|
|
$1,849,315
|
|
|
|
$1,092,350
|
|
|
|
$
|
|
Weighted-average Units outstanding are summarized as follows for
the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
Class E
|
|
Class F
|
|
Class G
|
|
2011
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
8,050
|
|
|
|
|
|
|
|
2,684,900
|
|
|
|
233,551
|
|
2010
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
7,714
|
|
|
|
7,500,000
|
|
|
|
5,369,800
|
|
|
|
|
|
The Partnership had established an officer incentive program
linked to its future value. Awards vest annually over a
five-year period assuming continuing employment by the
recipient. The awards can be settled in Class C Units or
cash at the Companys discretion at the settlement date of
December 31, 2012. For accounting purposes, expense
recognition under the program commenced in 2008, and the related
expense for the three months ended March 31, 2011 and 2010
was approximately $101,500 and $101,500, respectively.
As a result of the Merger on September 17, 2010, such
incentive program was modified such that 40% of the previously
granted award settled immediately on the Merger date with
another 20% vesting and settling on December 31, 2010. The
remaining 40% will vest equally on December 31, 2011 and
December 31, 2012, and will settle in 2018, subject to the
terms and conditions of the amended incentive program agreement.
In accordance with ASC 718, CompensationStock
Compensation (ASC 718), such incentive program will continue
to be expensed through general and administrative expenses
F-85
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
as non-cash compensation on the statements of operations through
the ultimate vesting date of December 31, 2012.
On September 17, 2010, the Company adopted a 2010
Management Incentive Plan (the Plan) as part of the Merger
transaction.
The following table represents the time based option awards
activity for the three months ended March 31, 2011.
|
|
|
|
|
|
|
March 31, 2011
|
|
|
Outstanding at beginning of period
|
|
|
21,866
|
|
Granted
|
|
|
456
|
|
Exercised
|
|
|
|
|
Cancelled/Forfeited
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
22,322
|
|
Options exercisable at end of period
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
|
$149.09
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
9.48
|
|
|
|
|
|
|
The following table represents the time based option awards
outstanding at March 31, 2011 as well as other Plan data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Weighted
|
|
|
|
|
Contractual Life
|
|
Average
|
Range of Exercise Prices
|
|
Outstanding
|
|
(Years)
|
|
Exercise Price
|
|
$1,000$1,124
|
|
|
22,322
|
|
|
|
9.48
|
|
|
|
$1,004
|
|
The Company has used the Black-Scholes option pricing model to
estimate the grant date fair value of the options. The following
table includes the assumptions that were made in estimating the
grant date fair value for options awarded in 2011.
|
|
|
|
|
|
|
2011 Grants
|
|
Dividend yield
|
|
|
9.16
|
%
|
Risk-free interest rate
|
|
|
2.72
|
%
|
Expected life
|
|
|
7.0 years
|
|
Estimated volatility
|
|
|
38.00
|
%
|
Weighted average exercise price
|
|
|
$1,124.22
|
|
Weighted average fair value of options granted (per option)
|
|
|
$149.09
|
|
The Company recorded non-cash compensation expenses of $299,468
for the three months ended March 31, 2011, related to the
time based stock options accounted for as equity awards, as a
component of general and administrative expenses in the
consolidated statements of operations.
F-86
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
At March 31, 2011, the total compensation cost related to
outstanding, non-vested time based equity option awards that are
expected to be recognized as compensation cost in the future
aggregates to approximately $1,804,000.
|
|
|
|
|
For the Period Ended December 31,
|
|
Options
|
|
|
2011
|
|
|
$791,093
|
|
2012
|
|
|
591,886
|
|
2013
|
|
|
309,028
|
|
2014
|
|
|
112,338
|
|
2015
|
|
|
48
|
|
|
|
|
|
|
Total
|
|
|
$1,804,393
|
|
|
|
|
|
|
Dividend equivalent rights associated with the Plan amounted to
$535,728 for the three months ended March 31, 2011, and are
included in general and administrative expense in the
consolidated statements of operations. These dividend rights
will be paid in four installments as the option vests.
Related party receivables and payables represent amounts due
from/to various affiliates of the Company, including advances to
members of the Company, amounts due to certain acquired
companies and limited liability companies for transactions
occurring prior to the formation of the Company, and various
advances to entities controlled by affiliates of the
Companys management. An officer of the Company received a
loan and such loan had a balance of $311,748 at March 31,
2011, which was paid off in full subsequent to that date.
The Partnership had entered into a management agreement, as
amended, effective April 1, 2005, with AAM, an entity
affiliated by common ownership. Under the management agreement,
AAM had been granted the exclusive right to oversee the
portfolio of the Partnership, providing, among other
administrative services, accounting and all required financial
services; legal administration and regulatory compliance;
investor, tenant, and lender relationship services; and
transactional support to the Partnership. Except as otherwise
provided in the Partnership Agreement, all management powers of
the business and affairs of the Partnership are exclusively
vested in the General Partner. The annual fee for such services
equals six-tenths of one percent (0.6%) of the aggregate fair
market value of the properties as determined by the Partnership
and AAM annually. This fee arrangement was amended as discussed
below. In addition, the Partnership reimbursed AAM for all
reasonable and necessary
out-of-pocket
expenses incurred in AAMs conduct of its business,
including, but not limited to, travel, legal, appraisal, and
brokerage fees, fees and expenses incurred in connection with
the acquisition, disposition, or refinancing of any property,
and reimbursement of compensation and benefits of the officers
and employees of AAM. This agreement was terminated on
September 17, 2010 when the Merger occurred, effectively
consolidating AAM into the Company, and eliminating the
necessity for reimbursement.
On October 16, 2007, the Company legally acquired AAM
through a Manager Contribution and Exchange Agreement dated
October 16, 2007 (the Contribution Agreement). As
stipulated in the Contribution Agreement and the Second Amended
and Restated Agreement of Limited Partnership on
October 16, 2007 (Partnership Agreement), the Company
issued a new class of Company Unit, Class F Units, as
consideration to the contributing members of AAM. The
contributing members of AAM served as the general partner of the
Partnership. The Class F Units have subordinated payment
and liquidity preference to the Class E Units but are
senior in payment and liquidity preference, where applicable, to
F-87
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
the Class A, B, C, and D Units of the Partnership. The
Class F Units paid in quarterly installments an annual
dividend of 8.25% of the preliminary face amount of $53,698,000.
The preliminary pricing was based upon trading multiples of
comparably sized publicly traded healthcare REITs. The ultimate
Class F Unit valuation was subject to a
true-up
formula at the time of a Liquidity Event, as defined in the
Partnership Agreement.
For accounting purposes, prior to the Merger, AAM had not been
consolidated by the Company, nor had any value been ascribed to
the Class F Units issued due to the ability of the
Class E Unitholders to unwind the acquisition as described
above. Such action was outside the control of the Company, and
accordingly, the acquisition is not viewed as having been
consummated. The dividends earned by the Class F
Unitholders were reflected as a component of management fees as
described above. Prior to the Merger, the fee for management
services to the Company are equal to the dividend earned on the
Class F Unit.
Under certain circumstances, the Partnership Agreement did
permit the Class E Unitholders to unwind this transaction
and requires the Company to redeem the Class F Units by
returning to the affiliates all membership interests in AAM. On
September 17, 2010, the Company settled the investment with
JER Aviv Acquisition, LLC (JER). For accounting purposes, this
treatment triggered the retroactive consolidation of AAM by the
Company. The original and follow-on investments of Class E
unitholders were made subject to the Unit Purchase Agreement and
related documents (UPA) between the Company and JER dated
May 26, 2006.
The UPA did not give either party the right to settle the
investment prior to May 26, 2011. However, the UPA did have
an economic arrangement as to how either party could settle the
arrangement on or after that date. This economic construct
guided the discussions and negotiations of settlement. The UPA
allowed the Company to call the E Units and warrants anytime
after May 26, 2011 as long as it provided JER with a 15%
IRR from date of inception. The IRR would be calculated
factoring interim distributions as well as exit payments. The
units were settled for $92,001,451 contemporaneous with the
Merger. A portion of the settlement related to outstanding
warrants held by JER and originally issued in connection with
the E units issuance.
Coincident with the Merger, 50% of the Class F Unit was
purchased and settled by the Company for $23,602,649 and is
reported as a component of distributions to partners and
accretion on Class E Preferred Units in the consolidated
statements of changes in equity. The remaining Class F
Units will pay in quarterly installments an annual dividend of
9.38% of the face amount of $23,602,649.
During the periods presented, the Company was party to various
interest rate swaps, which were purchased to fix the variable
interest rate on the denoted notional amount under the original
debt agreements.
At March 31, 2011, the Company is party to two interest
rate swaps, with identical terms for $100 million each.
They were purchased to fix the variable interest rate on the
denoted notional amount under the Mortgage which was obtained in
September, 2010, and qualify for hedge accounting. For
presentational purposes they are shown as one derivative due to
the identical nature of their economic terms.
F-88
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
|
Total notional amount
|
|
$200,000,000
|
Fixed rates
|
|
6.49% (1.99% effective swap base rate plus 4.5% spread per
credit agreement)
|
Floor rate
|
|
1.25%
|
Effective date
|
|
November 9, 2010
|
Termination date
|
|
September 17, 2015
|
Asset balance at March 31, 2011 (included in other assets)
|
|
$4,603,066
|
Liability balance at March 31, 2011 (included in other
liabilities)
|
|
$
|
The fair value of each interest rate swap agreement may increase
or decrease due to changes in market conditions but will
ultimately decrease to zero over the term of each respective
agreement.
For the three months ended March 31, 2011 and 2010, the
Company recognized $0 and $1,320,721 of net income,
respectively, in the consolidated statements of operations
related to the change in the fair value of these interest rate
swap agreements, where the Company did not elect to apply hedge
accounting. Such instruments that did not elect to apply hedge
accounting were settled at the Merger date.
The following table provides the Companys derivative
assets and liabilities carried at fair value as measured on a
recurring basis as of March 31, 2011 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Total Carrying
|
|
|
Quoted Prices
|
|
|
Other
|
|
|
Significant
|
|
|
|
Value at
|
|
|
in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
March 31,
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative assets
|
|
|
$4,603
|
|
|
|
$
|
|
|
|
$4,603
|
|
|
|
$
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4,603
|
|
|
|
$
|
|
|
|
$4,603
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys derivative assets and liabilities include
interest rate swaps that effectively convert a portion of the
Companys variable rate debt to fixed rate debt. The
derivative positions are valued using models developed by the
respective counterparty that use as their basis readily
observable market parameters (such as forward yield curves) and
are classified within Level 2 of the valuation hierarchy.
The Company considers its own credit risk as well as the credit
risk of its counterparties when evaluating the fair value of its
derivatives.
|
|
12.
|
Commitments
and Contingencies
|
The Company has a contractual arrangement with a tenant to
reimburse quality assurance fees levied by the California
Department of Health Care Services from August 1, 2005
through July 31, 2008. The Company is obligated to
reimburse the fees to the tenant if and when the state withholds
these fees from the tenants Medi-Cal reimbursements
associated with 5 facilities that were formerly leased to
Trinity Health Systems. The total possible obligation for these
fees is $1,655,286, of which approximately $1.0M has been paid
to date. For the three months ended March 31, 2011, and
2010, the Companys indemnity expense for these fees was $0
and $183,000, respectively, which equaled the actual amount paid
during the period.
F-89
AVIV
REIT, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
Judicial proceedings seeking declaratory relief for these fees
are in process which if successful would provide for recovery of
such amounts from the State of California. The Company has
certain rights to seek relief against Trinity Health Systems for
monies paid out under the indemnity claim; however, it is
uncertain whether the Company will be successful in receiving
any amounts from Trinity.
In the normal course of business, the Company is involved in
legal actions arising from the ownership of its property. In
managements opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to
have a material adverse effect on the financial position,
operations, or liquidity of the Company.
|
|
13.
|
Concentration
of Credit Risk
|
As of March 31, 2011, the Companys portfolio of
investments consisted of 187 healthcare facilities, located in
25 states and operated by 31 third party operators. At
March 31, 2011, approximately 50.7% (measured as a
percentage of total assets) were leased by five private
operators: Evergreen Healthcare (13.6%), Daybreak Healthcare
(12.4%), Sun Mar Healthcare (9.1%), Hi-Care Management (8.0%),
and Convacare Management (7.6%). No other operator represents
more than 6.3% of our total assets. The five states in which the
Company had its highest concentration of total assets were
California (19.4%), Texas (16.3%), Missouri (9.5%), Arkansas
(8.1%), and New Mexico (5.9%) at March 31, 2011.
For the three months ended March 31, 2011, the
Companys rental income from operations totaled
approximately $19.7 million, of which approximately
$3.0 million was from Evergreen Healthcare (15.1%),
$2.4 million was from Sun Mar Healthcare (12.1%),
$2.3 million was from Daybreak Venture (11.8%),
$1.7 million was from Cathedral Rock Corporation
(8.9%), and $1.6 million was from ConvaCare Management
(8.3%). No other operator generated more than 6.0% of the
Companys rental income from operations for the three
months ended March 31, 2011.
On April 5, 2011, the Company issued $100 million in
Senior Notes at 7.75%. The proceeds from this bond issuance were
used to pay down $35.7 million of the Mortgage and the
remaining proceeds were received as cash.
On April 28, 2011 Aviv Financing II acquired three
properties in Ohio from an unrelated third party for a purchase
price of $9,250,000. The Company financed this purchase with
cash.
On April 29, 2011 Aviv Financing II acquired six
properties in Texas, Kansas, and Missouri from unrelated third
parties for a purchase price of $17,570,000. The Company
financed this purchase with cash.
On May 2, 2011, Aviv Financing II acquired three
properties in Kansas from an unrelated third party for a
purchase price of approximately $2,273,000. The Company financed
this purchase with cash.
On May 3, 2011, Aviv Financing II acquired a property
in Connecticut from an unrelated third party for a purchase
price of $12,000,000. The Company financed this purchase with
cash.
The Company has evaluated events subsequent to March 31,
2011 through May 18, 2011, and determined that no events
other than those noted above would require changes to the
consolidated financial statements or additional disclosure.
F-90
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$10,504,302
|
|
|
|
$13,028,474
|
|
Deferred rent receivable
|
|
|
29,427,858
|
|
|
|
30,660,773
|
|
Tenant receivables, net
|
|
|
1,699,085
|
|
|
|
1,168,842
|
|
Rental properties and financing leases, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
78,754,371
|
|
|
|
76,466,020
|
|
Buildings and improvements
|
|
|
641,556,663
|
|
|
|
615,806,273
|
|
Assets under direct financing leases
|
|
|
10,814,648
|
|
|
|
10,777,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731,125,682
|
|
|
|
703,049,477
|
|
Less accumulated depreciation
|
|
|
(80,747,512
|
)
|
|
|
(75,948,944
|
)
|
|
|
|
|
|
|
|
|
|
Net rental properties
|
|
|
650,378,170
|
|
|
|
627,100,533
|
|
Deferred finance costs, net
|
|
|
13,057,896
|
|
|
|
9,957,636
|
|
Loan receivables, net
|
|
|
30,726,794
|
|
|
|
36,610,638
|
|
Other assets
|
|
|
11,196,114
|
|
|
|
12,872,323
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$746,990,219
|
|
|
|
$731,399,219
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
$7,047,687
|
|
|
|
$6,012,809
|
|
Tenant security and escrow deposits
|
|
|
14,132,190
|
|
|
|
13,658,384
|
|
Other liabilities
|
|
|
24,165,578
|
|
|
|
25,996,492
|
|
Mortgage and other notes payable
|
|
|
454,623,647
|
|
|
|
440,575,916
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
499,969,102
|
|
|
|
486,243,601
|
|
Equity:
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
242,418,051
|
|
|
|
241,061,186
|
|
Accumulated other comprehensive income
|
|
|
4,603,066
|
|
|
|
4,094,432
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
247,021,117
|
|
|
|
245,155,618
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
$746,990,219
|
|
|
|
$731,399,219
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-91
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$19,690,091
|
|
|
|
$21,150,335
|
|
Tenant recoveries
|
|
|
1,688,996
|
|
|
|
1,529,054
|
|
Interest on loans to lesseescapital expenditures
|
|
|
406,697
|
|
|
|
450,668
|
|
Interest on loans to lesseesworking capital and capital
lease
|
|
|
925,412
|
|
|
|
680,530
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
22,711,196
|
|
|
|
23,810,587
|
|
Expenses
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
201,664
|
|
|
|
169,330
|
|
General and administrative
|
|
|
3,468,576
|
|
|
|
1,424,248
|
|
Real estate taxes
|
|
|
1,689,094
|
|
|
|
1,605,430
|
|
Depreciation
|
|
|
4,798,568
|
|
|
|
4,361,901
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10,157,902
|
|
|
|
7,560,909
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
12,553,294
|
|
|
|
16,249,678
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
5,615
|
|
|
|
63,298
|
|
Interest expense
|
|
|
(7,556,185
|
)
|
|
|
(5,865,316
|
)
|
Change in fair value of derivatives
|
|
|
|
|
|
|
1,320,721
|
|
Amortization of deferred financing costs
|
|
|
(678,995
|
)
|
|
|
(139,295
|
)
|
Loss on extinguishment of debt
|
|
|
(3,143,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(11,372,573
|
)
|
|
|
(4,620,592
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,180,721
|
|
|
|
11,629,086
|
|
Distributions and accretion on Class E Preferred Units
|
|
|
|
|
|
|
(3,998,770
|
)
|
Net income allocable to noncontrolling interests
|
|
|
|
|
|
|
(79,617
|
)
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
|
$1,180,721
|
|
|
|
$7,550,699
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
|
$1,180,721
|
|
|
|
|
|
Unrealized gain on derivative instruments
|
|
|
508,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income allocable to common units
|
|
|
$1,689,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-92
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Three
Months Ended March 31, 2011
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Partners
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Equity
|
|
|
Income
|
|
|
Equity
|
|
|
Balance at January 1, 2011
|
|
|
$241,061,186
|
|
|
|
$4,094,432
|
|
|
|
$245,155,618
|
|
Non-cash stock-based compensation
|
|
|
586,445
|
|
|
|
|
|
|
|
586,445
|
|
Distributions to partners
|
|
|
(10,410,301
|
)
|
|
|
|
|
|
|
(10,410,301
|
)
|
Capital contributions
|
|
|
10,000,000
|
|
|
|
|
|
|
|
10,000,000
|
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
|
508,634
|
|
|
|
508,634
|
|
Net income
|
|
|
1,180,721
|
|
|
|
|
|
|
|
1,180,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
|
$242,418,051
|
|
|
|
$4,603,066
|
|
|
|
$247,021,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-93
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(unaudited)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$1,180,721
|
|
|
|
$11,629,086
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,798,568
|
|
|
|
4,361,901
|
|
Amortization
|
|
|
678,995
|
|
|
|
139,295
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
(1,320,721
|
)
|
Deferred rental expense (income), net
|
|
|
1,165,922
|
|
|
|
(95,393
|
)
|
Rental income from intangible amortization, net
|
|
|
(362,196
|
)
|
|
|
(1,770,665
|
)
|
Non-cash stock-based compensation
|
|
|
586,445
|
|
|
|
101,500
|
|
Non-cash loss on extinguishment of debt
|
|
|
3,143,008
|
|
|
|
|
|
Reserve for uncollectible loan receivables
|
|
|
157,317
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Tenant receivables
|
|
|
(530,243
|
)
|
|
|
(709,641
|
)
|
Other assets
|
|
|
2,023,699
|
|
|
|
(99,672
|
)
|
Accounts payable and accrued expenses
|
|
|
669,320
|
|
|
|
353,346
|
|
Tenant security deposits and other liabilities
|
|
|
158,206
|
|
|
|
1,424,730
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
13,669,762
|
|
|
|
14,013,766
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Purchase of rental properties
|
|
|
(24,825,776
|
)
|
|
|
|
|
Capital improvements and other developments
|
|
|
(3,250,430
|
)
|
|
|
(2,151,823
|
)
|
Loan receivables received from (funded to) others, net
|
|
|
5,726,527
|
|
|
|
(5,604,469
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(22,349,679
|
)
|
|
|
(7,756,292
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
210,200,000
|
|
|
|
|
|
Repayment of debt
|
|
|
(196,152,269
|
)
|
|
|
(2,563,125
|
)
|
Payment of financing costs
|
|
|
(6,556,704
|
)
|
|
|
|
|
Capital contributions
|
|
|
10,000,000
|
|
|
|
|
|
Cash distributions to partners
|
|
|
(11,335,282
|
)
|
|
|
(11,075,273
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
6,155,745
|
|
|
|
(13,638,398
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,524,172
|
)
|
|
|
(7,380,924
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
13,028,474
|
|
|
|
15,542,507
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
$10,504,302
|
|
|
|
$8,161,583
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
$6,093,599
|
|
|
|
$5,967,777
|
|
Supplemental disclosure of noncash activity
|
|
|
|
|
|
|
|
|
Accrued distributions payable to partners
|
|
|
$10,410,301
|
|
|
|
$5,124,590
|
|
Earn-out accrual and addition to rental properties
|
|
|
$
|
|
|
|
$8,120,656
|
|
Write-off of deferred rent receivable
|
|
|
$3,026,968
|
|
|
|
$2,233,768
|
|
Write-off of in-place lease intangibles, net
|
|
|
$
|
|
|
|
$1,224,594
|
|
Write-off of deferred finance costs, net
|
|
|
$3,143,008
|
|
|
|
$
|
|
See accompanying notes to consolidated financial statements
F-94
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Three Months Ended March 31, 2011 and 2010
|
|
1.
|
Description
of Operations and Formation
|
Aviv Healthcare Properties Limited Partnership, a Delaware
limited partnership, and Subsidiaries (the Partnership) was
formed in 2005 and directly or indirectly owned or leased 187
properties, principally skilled nursing facilities, across the
United States at March 31, 2011. The Partnership generates
the majority of its revenues by entering into long-term
triple-net
leases with qualified local, regional, and national operators.
In addition to the base rent, leases provide for tenants to pay
the Partnership an ongoing escrow for real estate taxes.
Furthermore, all operating and maintenance costs of the
buildings are the responsibility of the tenants. Substantially
all depreciation expense reflected in the consolidated
statements of operations relates to the ownership of senior
living properties. The Partnership manages its business as a
single business segment as defined in Accounting Standards
Codification (ASC) 280, Segment Reporting.
The Partnership is the general partner of Aviv Healthcare
Properties Operating Partnership I, L.P. (the Operating
Partnership), a Delaware limited partnership. The Operating
Partnership has five wholly owned subsidiaries: Aviv
Financing I, LLC (Aviv Financing I), a Delaware limited
liability company; Aviv Financing II, LLC (Aviv Financing II), a
Delaware limited liability company; Aviv Financing III, LLC
(Aviv Financing III), a Delaware limited liability company; Aviv
Financing IV, LLC (Aviv Financing IV), a Delaware limited
liability company; and Aviv Financing V, LLC (Aviv
Financing V), a Delaware limited liability company.
On September 17, 2010, the Partnership entered into an
agreement (the Merger Agreement), by and among Aviv REIT, Inc.
(the Company), a Maryland corporation, Aviv Healthcare Merger
Sub LP (Merger Sub), a Delaware limited partnership of which the
Company is the general partner, Aviv Healthcare Merger Sub
Partner LLC, a Delaware limited liability company and a wholly
owned subsidiary of the Company, and the Partnership. Effective
on such date, the Company is the sole general partner of the
Partnership. Pursuant to the Merger Agreement, the Partnership
merged with and into the Merger Sub (the Merger), with Merger
Sub continuing as the surviving entity with the identical name
(the Surviving Partnership). Following the Merger, the Company
remains as the sole general partner of the Surviving Partnership
and the Surviving Partnership, as the successor to the
Partnership, became the general partner of the Operating
Partnership.
All of the business, assets and operations will continue to be
held by the Operating Partnership and its subsidiaries. The
Companys equity interest in the Surviving Partnership will
be linked to future investments in the Company, such that future
equity issuances by the Company (pursuant to the Stockholders
Agreement, the Companys management incentive plan or
otherwise as agreed between the parties) will result in a
corresponding increase in the Companys equity interest in
the Surviving Partnership. The Company is authorized to issue
two million shares of common stock (par value ($0.01) and
1,000 shares of preferred stock (par value $1,000). At
March 31, 2011, there are 235,897 shares of common
stock and 125 shares of preferred stock outstanding.
As a result of the common control of the Company (which was
newly formed) and the Partnership, the Merger, for accounting
purposes, did not result in any adjustment to the historical
carrying value of the assets or liabilities of the Partnership.
The Company was funded in September 2010 with approximately
$235 million from its stockholders, and such amounts, net
of costs, was contributed to the Partnership in September 2010
in exchange for Class G Units in the Partnership. An
additional $10 million was contributed by the
Companys stockholders on January 25, 2011. For the
period ended March 31, 2011, the Company owned 54.4% of the
Partnership.
F-95
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
2.
|
Summary
of Significant Accounting Policies
|
Estimates
The preparation of the financial statements in conformity with
U.S. generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of the Partnership, the Surviving Partnership, the
Operating Partnership, and all controlled subsidiaries and joint
ventures. The Partnership considers itself to control an entity
if it is the majority owner of and has voting control over such
entity or the power to control a variable interest entity. The
portion of the net income or loss attributed to third parties is
reported as net income allocable to noncontrolling interests on
the consolidated statements of operations, and such
parties portion of the net equity in such subsidiaries is
reported on the consolidated balance sheets as noncontrolling
interests. All significant intercompany balances and
transactions have been eliminated in consolidation.
Quarterly
Reporting
The accompanying unaudited financial statements and notes of the
Partnership as of March 31, 2011 and for the three months
ended March 31, 2011 and 2010 have been prepared in
accordance with GAAP for interim financial information.
Accordingly, certain information and footnote disclosures
normally included in financial statements prepared under GAAP
have been condensed or omitted pursuant to such rules. In the
opinion of management, all adjustments considered necessary for
a fair presentation of the Partnerships balance sheets,
statements of operations, statement of changes in equity, and
statements of cash flows have been included and are of a normal
and recurring nature. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes for the Partnership for the years ended
December 31, 2010, 2009, and 2008. The consolidated
statements of operations and cash flows for the three months
ended March 31, 2011 and 2010 are not necessarily
indicative of full year results.
Rental
Properties
The Partnership periodically assesses the carrying value of
rental properties and related intangible assets in accordance
with ASC 360, Property, Plant, and Equipment (ASC
360), to determine if facts and circumstances exist that would
suggest that assets might be impaired or that the useful lives
should be modified. In the event impairment in value occurs and
a portion of the carrying amount of the rental properties will
not be recovered in part or in whole, a provision will be
recorded to reduce the carrying basis of the rental properties
and related intangibles to their estimated fair value. The
estimated fair value of the Partnerships rental properties
is determined by using customary industry standard methods that
include discounted cash flow
and/or
direct capitalization analysis.
F-96
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
Revenue
Recognition
Rental income is recognized on a straight-line basis over the
term of the lease when collectibility is reasonably assumed.
Differences between rental income earned and amounts due under
the lease are charged or credited, as applicable, to deferred
rent receivable. Income recognized from this policy is titled
deferred rental income. Additional rents from expense
reimbursements for insurance, real estate taxes, and certain
other expenses are recognized in the period in which the related
expenses are incurred and are reflected as tenant recoveries on
the consolidated statements of operations.
Below is a summary of the components of rental income for the
respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Rental income
|
|
|
$20,493,817
|
|
|
|
$19,284,277
|
|
Deferred rental (expense) income, net
|
|
|
(1,165,922
|
)
|
|
|
95,393
|
|
Rental income from intangible amortization
|
|
|
362,196
|
|
|
|
1,770,665
|
|
|
|
|
|
|
|
|
|
|
Total rental income
|
|
|
$19,690,091
|
|
|
|
$21,150,335
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2011 and 2010,
deferred rental revenue includes a write-off (expense) of
deferred rent receivable of $3,026,968 and $2,233,768,
respectively, due to the early termination of leases and
replacement of operators.
Lease
Accounting
The Partnership, as lessor, makes a determination with respect
to each of its leases whether they should be accounted for as
operating leases or direct financing leases. The classification
criteria is based on estimates regarding the fair value of the
leased facilities, minimum lease payments, effective cost of
funds, the economic life of the facilities, the existence of a
bargain purchase option, and certain other terms in the lease
agreements. Payments received under operating leases are
accounted for in the statement of operations as rental income
for actual rent collected plus or minus a straight-line
adjustment for estimated minimum lease escalators. Assets
subject to operating leases are reported as rental properties in
the consolidated balance sheets. For facilities leased as direct
financing arrangements, an asset equal to the Partnerships
net initial investment is established on the balance sheet
titled assets under direct financing leases. Payments received
under the financing lease are bifurcated between interest income
and principal amortization to achieve a consistent yield over
the stated lease term using the interest method. Principal
amortization (accretion) is reflected as an adjustment to the
asset subject to a financing lease. Such accretion was $37,465
and $38,540 for the three months ended March 31, 2011 and
2010, respectively.
All of the Partnerships leases contain fixed or
formula-based rent escalators. To the extent that the escalator
increases are tied to a fixed index or rate, lease payments are
accounted for on a straight-line basis over the life of the
lease.
Loan
Receivables
Loan receivables consist of capital improvement loans to tenants
and working capital loans to operators. Loan receivables are
carried at their principal amount outstanding. Management
periodically evaluates outstanding loans and notes receivable
for collectability. When management identifies potential
F-97
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
loan impairment indicators, such as nonpayment under the loan
documents, impairment of the underlying collateral, financial
difficulty of the operator, or other circumstances that may
impair full execution of the loan documents, and management
believes it is probable that all amounts will not be collected
under the contractual terms of the loan, the loan is written
down to the present value of the expected future cash flows. As
of March 31, 2011 and December 31, 2010, loan
receivable reserves amounted to $907,317 and $750,000,
respectively. No other circumstances exist that would suggest
that additional reserves are necessary at the balance sheet
dates.
Stock-Based
Compensation
The Partnership follows ASC 718, Stock Compensation (ASC
718), which requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the consolidated statements of operations based on their grant
date fair values. On September 17, 2010, the Company
adopted a 2010 Management Incentive Plan (the Plan) as part of
the Merger transaction. A pro-rata allocation of non-cash
stock-based compensation expense is made to the Partnership for
awards granted under the Plan. The Plans non-cash
stock-based compensation expense by the Partnership through
March 31, 2011 is summarized in Footnote 9.
Fair
Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures (ASC
820), establishes a three-level valuation hierarchy for
disclosure of fair value measurements. The valuation hierarchy
is based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. A financial
instruments categorization within the valuation hierarchy
is based upon the lowest level of input that is significant to
the fair value measurement. The three levels are defined as
follows:
|
|
|
|
|
Level 1Inputs to the valuation methodology are quoted
prices (unadjusted) for identical assets or;
|
|
|
|
Level 2Inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument; and
|
|
|
|
Level 3Inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
|
The Partnerships interest rate swaps are valued using
models developed internally by the respective counterparty that
use as their basis readily observable market parameters and are
classified within Level 2 of the valuation hierarchy.
Cash and cash equivalents and derivative financial instruments
are reflected in the accompanying consolidated balance sheets at
amounts considered by management to reasonably approximate fair
value. Management estimates the fair value of its long-term debt
using a discounted cash flow analysis based upon the
Partnerships current borrowing rate for debt with similar
maturities and collateral securing the indebtedness. The
Partnership had outstanding mortgage and other notes payable
obligations with a carrying value of approximately
$454.6 million and $440.6 million as of March 31,
2011 and December 31, 2010, respectively. The fair values
of debt as of March 31, 2011 and December 31, 2010
approximate carrying value based upon interest rates available
to the Partnership on similar borrowings.
F-98
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
Derivative
Instruments
The Partnership has implemented ASC 815, Derivatives and
Hedging (ASC 815), which establishes accounting and
reporting standards requiring that all derivatives, including
certain derivative instruments embedded in other contracts, be
recorded as either an asset or liability measured at their fair
value unless they qualify for a normal purchase or normal sales
exception. When specific hedge accounting criteria are not met,
ASC 815 requires that changes in a derivatives fair
value be recognized currently in earnings. Changes in the fair
market values of the Partnerships derivative instruments
are recorded in the consolidated statements of operations if the
derivative does not qualify for or the Partnership does not
elect to apply hedge accounting. If the derivative is deemed to
be eligible for hedge accounting, such changes are reported in
accumulated other comprehensive income within the consolidated
statement of changes in equity, exclusive of ineffectiveness
amounts, which are recognized as adjustments to net income.
Income
Taxes
As a limited partnership, the consolidated operating results are
included in the income tax returns of the individual partners.
Accordingly, the Partnership does not provide for federal income
taxes. State income taxes were not significant in any of the
periods presented. No uncertain income tax positions exist as of
March 31, 2011 or December 31, 2010.
Business
Combinations
The Partnership applies ASC 805, Business Combinations
(ASC 805), in determining how to account for and identify
business combinations while allocating fair value to tangible
and identified intangible assets acquired and liabilities
assumed. Prior to the Merger on September 17, 2010, Aviv
Asset Management, L.L.C. (AAM) was a non-consolidated management
company to the Partnership based on the application of
appropriate accounting guidance (as discussed in Footnote 10).
Upon the Merger, AAM became a consolidated entity of the
Partnership and is presented as such for all periods included
herein with all periods shown at historical cost (carryover
basis with no adjustments to fair value). This treatment is in
accordance with ASC 805 due to the fact that AAM was under
common control prior and subsequent to the Merger.
Reclassifications
Certain prior period amounts have been reclassified to conform
to the current financial statement presentation, with no effect
on the Partnerships consolidated financial position or
results of operations.
|
|
3.
|
Rental
Property Activity
|
The Partnership had the following rental property activity
during the three months ended March 31, 2011 as described
below:
|
|
|
|
|
In January 2011, Aviv Financing I acquired a property in Kansas
from an unrelated third party for a purchase price of
$3,045,000. The Partnership financed this purchase through cash
and borrowings of $2,131,000 under the Mortgage (see Footnote 7).
|
F-99
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
|
|
|
In March 2011, Aviv Financing II acquired a property in
Pennsylvania from an unrelated third party for a purchase price
of approximately $2,200,000. The Partnership financed this
purchase through cash.
|
|
|
|
In March 2011, Aviv Financing II acquired a property in
Ohio from an unrelated third party for a purchase price of
approximately $9,581,000. The Partnership financed this purchase
through cash.
|
|
|
|
In March 2011, Aviv Financing II acquired a property in
Florida from an unrelated third party for a purchase price of
approximately $10,000,000. The Partnership financed this
purchase through borrowings of $10,200,000 under the Revolver
(see Footnote 7).
|
The Partnership considers renewals on below-market leases when
ascribing value to the in-place lease intangible liabilities at
the date of a property acquisition. In those instances where the
renewal lease rate pursuant to the terms of the lease does not
adjust to a current market rent, the Partnership evaluates
whether the stated renewal rate is below current market rates
and considers the past and current operations of the property,
the current rent coverage ratio of the tenant, and the number of
years until potential renewal option exercise. If renewal is
considered probable based on these factors, an additional lease
intangible liability is recorded at acquisition and amortized
over the renewal period.
The following summarizes the Partnerships loan receivables
at:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
Beginning balance, January 1, 2011 and 2010, respectively
|
|
|
$36,610,638
|
|
|
|
$28,970,129
|
|
New capital improvement loans issued
|
|
|
66,338
|
|
|
|
1,415,579
|
|
Working capital and other loans issued
|
|
|
613,858
|
|
|
|
14,705,259
|
|
Reserve for uncollectible loans
|
|
|
(157,317
|
)
|
|
|
(750,000
|
)
|
Loan amortization and repayments
|
|
|
(6,406,723
|
)
|
|
|
(7,730,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$30,726,794
|
|
|
|
$36,610,638
|
|
|
|
|
|
|
|
|
|
|
The Partnerships reserve for uncollectible loan
receivables balances at March 31, 2011 and
December 31, 2010 was $907,317 and $750,000, respectively.
The activity for the three months ended March 31, 2011
consisted of additional reserves of $157,317.
During 2011 and 2010, the Partnership funded loans for both
working capital and capital improvement purposes to various
operators and tenants. All loans held by the Partnership accrue
interest. The payments received from the operator or tenant
cover both interest accrued as well as amortization of the
principal balance due. Any payments received from the tenant or
operator made outside of the normal loan amortization schedule
are considered principal prepayments and reduce the outstanding
loan receivables balance.
Interest income earned on loan receivables for the three months
ended March 31, 2011 and 2010 was $978,514 and $782,306,
respectively.
F-100
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
5.
|
Deferred
Finance Costs
|
The following summarizes the Partnerships deferred finance
costs at:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
Gross amount
|
|
|
$13,965,324
|
|
|
|
$10,567,931
|
|
Accumulated amortization
|
|
|
(907,428
|
)
|
|
|
(610,295
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$13,057,896
|
|
|
|
$9,957,636
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs is reported in the
amortization expense line item in the consolidated statements of
operations.
During the three months ended March 31, 2011, the
Partnership wrote-off deferred financing costs of $3,524,869
with $381,861 accumulated amortization associated with the
Mortgage (see Footnote 7) pay down for a net recognition as
loss on extinguishment of debt of $3,143,008.
|
|
6.
|
In-Place
Lease Intangibles
|
The following summarizes the Partnerships in-place lease
intangibles classified as part of other assets or other
liabilities at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Gross amount
|
|
|
$8,393,488
|
|
|
|
$25,798,147
|
|
|
|
$8,393,488
|
|
|
|
$25,798,147
|
|
Accumulated amortization
|
|
|
(3,210,236
|
)
|
|
|
(14,573,030
|
)
|
|
|
(3,049,093
|
)
|
|
|
(14,049,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$5,183,252
|
|
|
|
$11,225,117
|
|
|
|
$5,344,395
|
|
|
|
$11,748,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the in-place lease intangible assets
for the three months ended March 31, 2011 and 2010 was
$161,143 and $243,721, respectively. Accretion for the in-place
lease intangible liabilities for the three months ended
March 31, 2011 and 2010 was $523,339 and $789,792,
respectively.
As of March 31, 2010, the Partnership wrote-off in-place
lease intangible assets of $2,678,000 with accumulated
amortization of $1,316,232, and in-place lease intangible
liabilities of $4,660,000 with accumulated accretion of
$2,073,638, for a net recognition of $1,224,594 in rental income
from intangible amortization. These write-offs were in
connection with properties that had been transitioned to new
operators.
F-101
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
7.
|
Mortgage
and Other Notes Payable
|
The Partnerships mortgage and other notes payable
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Mortgage (interest rates of 5.75% on March 31, 2011 and
December 31, 2010, respectively)
|
|
|
$235,350,523
|
|
|
|
$402,794,111
|
|
Acquisition Credit Line (interest rates of 5.75% on
March 31, 2011 and December 31, 2010, respectively)
|
|
|
|
|
|
|
28,677,230
|
|
Revolver (interest rate of 6.25% on March 31, 2011)
|
|
|
10,200,000
|
|
|
|
|
|
Construction loan (interest rates of 5.95% on March 31,
2011 and December 31, 2010, respectively)
|
|
|
1,312,339
|
|
|
|
1,312,339
|
|
Acquisition loans (interest rates of 6.00% on March 31,
2011 and December 31, 2010, respectively)
|
|
|
7,760,785
|
|
|
|
7,792,236
|
|
Senior Notes (interest rate of 7.75%, on March 31, 2011
|
|
|
200,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$454,623,647
|
|
|
|
$440,575,916
|
|
|
|
|
|
|
|
|
|
|
Senior
Notes
On February 4, 2011, Aviv Healthcare Properties Limited
Partnership and Aviv Healthcare Capital Corporation (the
Issuers) issued $200 million of Senior Notes (the Senior
Notes). The Company is a guarantor of the Issuers Senior Notes.
The Senior Notes are unsecured senior obligations of the Issuers
and will mature on February 15, 2019. The Senior Notes bear
interest at a rate of 7.750% per annum, payable semiannually to
holders of record at the close of business on the February 1 or
the August 1 immediately preceding the interest payment date on
February 15 and August 15 of each year, commencing
August 15, 2011. The Partnership used the proceeds, amongst
other things, to pay down approximately $165.9 million on
the Mortgage and the balance of $28.7 million on the
Acquisition Credit Line.
Revolver
In conjunction with the Senior Notes issuance on
February 4, 2011, the Partnership, under Aviv Financing IV,
LLC, acquired a $25 million revolver with Bank of America
(the Revolver). On each payment date, the Partnership shall pay
interest only in arrears on any outstanding principal balance of
the Revolver. Interest rates are based upon the base rate (3.25%
at March 31, 2011) plus the applicable percentage
based on the consolidated leverage ratio (3.00% at
March 31, 2011). The base rate is the rate announced by
Bank of America as the prime rate. Additionally, an
unused fee equal to 0.5% per annum of the daily unused balance
on the Revolver is due monthly. The Revolver commitment
terminates in February 2014.
F-102
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
8.
|
Partnership
Equity and Incentive Program
|
Distributions to the Partnerships partners are summarized
as follows for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class D
|
|
|
Class E
|
|
|
Class F
|
|
|
Class G
|
|
|
2011
|
|
|
$2,066,628
|
|
|
|
$849,812
|
|
|
|
$1,274,719
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$553,761
|
|
|
|
$5,665,381
|
|
2010
|
|
|
$3,390,685
|
|
|
|
$1,897,169
|
|
|
|
$2,845,753
|
|
|
|
$
|
|
|
|
$1,849,315
|
|
|
|
$1,092,350
|
|
|
|
$
|
|
Weighted-average Units outstanding are summarized as follows for
the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class D
|
|
|
Class E
|
|
|
Class F
|
|
|
Class G
|
|
|
2011
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
8,050
|
|
|
|
|
|
|
|
2,684,900
|
|
|
|
233,551
|
|
2010
|
|
|
13,467,223
|
|
|
|
4,523,145
|
|
|
|
2
|
|
|
|
7,714
|
|
|
|
7,500,000
|
|
|
|
5,369,800
|
|
|
|
|
|
The Partnership had established an officer incentive program
linked to its future value. Awards vest annually over a
five-year period assuming continuing employment by the
recipient. The awards can be settled in Class C Units or
cash at the Partnerships discretion at the settlement date
of December 31, 2012. For accounting purposes, expense
recognition under the program commenced in 2008, and the related
expense for the three months ended March 31, 2011 and 2010
was approximately $101,500 and $101,500, respectively.
As a result of the Merger on September 17, 2010, such
incentive program was modified such that 40% of the previously
granted award settled immediately on the Merger date with
another 20% vesting and settling on December 31, 2010. The
remaining 40% will vest equally on December 31, 2011 and
December 31, 2012, and will settle in 2018, subject to the
terms and conditions of the amended incentive program agreement.
In accordance with ASC 718, CompensationStock
Compensation (ASC 718), such incentive program will continue
to be expensed through general and administrative expenses as
non-cash compensation on the statements of operations through
the ultimate vesting date of December 31, 2012.
The Partnerships equity balance that is presented on the
consolidated balance sheets is split between the general partner
and limited partners in the amounts of $226,854,796 and
$15,563,255 at March 31, 2011, respectively. The
Partnerships equity balance that is presented on the
consolidated balance sheets is split between the general partner
and limited partners in the amounts of $221,578,430 and
$19,482,756 at December 31, 2010, respectively.
On September 17, 2010, the Company adopted a 2010
Management Incentive Plan (the Plan) as part of the Merger
transaction.
F-103
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
The following table represents the time based option awards
activity for the three months ended March 31, 2011.
|
|
|
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
Outstanding at beginning of period
|
|
|
21,866
|
|
Granted
|
|
|
456
|
|
Exercised
|
|
|
|
|
Cancelled/Forfeited
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
22,322
|
|
Options exercisable at end of period
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
|
$149.09
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
9.48
|
|
|
|
|
|
|
The following table represents the time based option awards
outstanding for at March 31, 2011 as well as other Plan
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Weighted
|
|
|
|
|
Contractual Life
|
|
Average
|
Range of Exercise Prices
|
|
Outstanding
|
|
(Years)
|
|
Exercise Price
|
|
$1,000$1,124
|
|
|
22,322
|
|
|
|
9.48
|
|
|
|
$1,004
|
|
The Partnership has used the Black-Scholes option pricing model
to estimate the grant date fair value of the options. The
following table includes the assumptions that were made in
estimating the grant date fair value for options awarded in 2011.
|
|
|
|
|
|
|
2011 Grants
|
|
Dividend yield
|
|
|
9.16
|
%
|
Risk-free interest rate
|
|
|
2.72
|
%
|
Expected life
|
|
|
7.0 years
|
|
Estimated volatility
|
|
|
38.00
|
%
|
Weighted average exercise price
|
|
|
$1,124.22
|
|
Weighted average fair value of options granted (per option)
|
|
|
$149.09
|
|
The Partnership recorded non-cash compensation expenses of
$299,468 for the three months ended March 31, 2011, related
to the time based stock options accounted for as equity awards,
as a component of general and administrative expenses in the
consolidated statements of operations.
At March 31, 2011, the total compensation cost related to
outstanding, non-vested time based equity option awards that are
expected to be recognized as compensation cost in the future
aggregates to approximately $1,804,000.
F-104
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
|
|
|
For the Period Ended December 31,
|
|
Options
|
|
|
2011
|
|
|
$791,093
|
|
2012
|
|
|
591,886
|
|
2013
|
|
|
309,028
|
|
2014
|
|
|
112,338
|
|
2015
|
|
|
48
|
|
|
|
|
|
|
Total
|
|
|
$1,804,393
|
|
|
|
|
|
|
Dividend equivalent rights associated with the Plan amounted to
$535,728 for the three months ended March 31, 2011, and are
included in general and administrative expense in the
consolidated statements of operations. These dividend rights
will be paid in four installments as the option vests.
Related party receivables and payables represent amounts due
from/to various affiliates of the Partnership, including
advances to members of the Partnership, amounts due to certain
acquired companies and limited liability companies for
transactions occurring prior to the formation of the
Partnership, and various advances to entities controlled by
affiliates of the Partnerships management. An officer of
the Company received a loan and such loan had a balance of
$311,748 at March 31, 2011, which was paid off in full
subsequent to that date.
The Partnership had entered into a management agreement, as
amended, effective April 1, 2005, with AAM, an entity
affiliated by common ownership. Under the management agreement,
AAM had been granted the exclusive right to oversee the
portfolio of the Partnership, providing, among other
administrative services, accounting and all required financial
services; legal administration and regulatory compliance;
investor, tenant, and lender relationship services; and
transactional support to the Partnership. Except as otherwise
provided in the Partnership Agreement, all management powers of
the business and affairs of the Partnership are exclusively
vested in the General Partner. The annual fee for such services
equals six-tenths of one percent (0.6%) of the aggregate fair
market value of the properties as determined by the Partnership
and AAM annually. This fee arrangement was amended as discussed
below. In addition, the Partnership reimbursed AAM for all
reasonable and necessary
out-of-pocket
expenses incurred in AAMs conduct of its business,
including, but not limited to, travel, legal, appraisal, and
brokerage fees, fees and expenses incurred in connection with
the acquisition, disposition, or refinancing of any property,
and reimbursement of compensation and benefits of the officers
and employees of AAM. This agreement was terminated on
September 17, 2010 when the Merger occurred, effectively
consolidating AAM into the Partnership, and eliminating the
necessity for reimbursement.
On October 16, 2007, the Partnership legally acquired AAM
through a Manager Contribution and Exchange Agreement dated
October 16, 2007 (the Contribution Agreement). As
stipulated in the Contribution Agreement and the Second Amended
and Restated Agreement of Limited Partnership on
October 16, 2007 (Partnership Agreement), the Partnership
issued a new class of Partnership Unit, Class F Units, as
consideration to the contributing members of AAM. The
contributing members of AAM served as the general partner of the
Partnership. The Class F Units have subordinated payment
and liquidity preference to the Class E Units but are
senior in payment and liquidity preference, where applicable, to
the Class A, B, C, and D Units of the Partnership. The
Class F Units paid in quarterly installments an annual
dividend of 8.25% of the preliminary face amount of $53,698,000.
The preliminary pricing was based upon trading multiples of
comparably sized publicly traded healthcare
F-105
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
REITs. The ultimate Class F Unit valuation was subject to a
true-up
formula at the time of a Liquidity Event, as defined in the
Partnership Agreement.
For accounting purposes, prior to the Merger, AAM had not been
consolidated by the Partnership, nor had any value been ascribed
to the Class F Units issued due to the ability of the
Class E Unitholders to unwind the acquisition as described
above. Such action was outside the control of the Partnership,
and accordingly, the acquisition is not viewed as having been
consummated. The dividends earned by the Class F
Unitholders were reflected as a component of management fees as
described above. Prior to the Merger, the fee for management
services to the Partnership are equal to the dividend earned on
the Class F Unit.
Under certain circumstances, the Partnership Agreement did
permit the Class E Unitholders to unwind this transaction
and requires the Partnership to redeem the Class F Units by
returning to the affiliates all membership interests in AAM. On
September 17, 2010, the Partnership settled the investment
with JER Aviv Acquisition, LLC (JER). For accounting purposes,
this treatment triggered the retroactive consolidation of AAM by
the Partnership. The original and follow-on investments of
Class E unitholders were made subject to the Unit Purchase
Agreement and related documents (UPA) between the Partnership
and JER dated May 26, 2006.
The UPA did not give either party the right to settle the
investment prior to May 26, 2011. However, the UPA did have
an economic arrangement as to how either party could settle the
arrangement on or after that date. This economic construct
guided the discussions and negotiations of settlement. The UPA
allowed the Partnership to call the E Units and warrants anytime
after May 26, 2011 as long as it provided JER with a 15%
IRR from date of inception. The IRR would be calculated
factoring interim distributions as well as exit payments. The
units were settled for $92,001,451 contemporaneous with the
Merger. A portion of the settlement related to outstanding
warrants held by JER and originally issued in connection with
the E units issuance.
Coincident with the Merger, 50% of the Class F Unit was
purchased and settled by the Partnership for $23,602,649 and is
reported as a component of distributions to partners and
accretion on Class E Preferred Units in the consolidated
statements of changes in equity. The remaining Class F
Units will pay in quarterly installments an annual dividend of
9.38% of the face amount of $23,602,649.
As of March 31, 2011 and December 31, 2010, the
Partnership has a due to related party payable to the Company
for distributions to be made by the Company to the stockholders
of $5,669,876 and $6,092,936, respectively.
During the periods presented, the Partnership was party to
various interest rate swaps, which were purchased to fix the
variable interest rate on the denoted notional amount under the
original debt agreements.
At March 31, 2011, the Partnership is party to two interest
rate swaps, with identical terms for $100 million each.
They were purchased to fix the variable interest rate on the
denoted notional amount under the Mortgage which was obtained in
September, 2010, and qualify for hedge accounting. For
presentational purposes they are shown as one derivative due to
the identical nature of their economic terms.
F-106
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
|
|
|
Total notional amount
|
|
$200,000,000
|
Fixed rates
|
|
6.49% (1.99% effective swap base rate plus 4.5% spread per
credit agreement)
|
Floor rate
|
|
1.25%
|
Effective date
|
|
November 9, 2010
|
Termination date
|
|
September 17, 2015
|
Asset balance at March 31, 2011 (included in other assets)
|
|
$4,603,066
|
Liability balance at March 31, 2011 (included in other
liabilities)
|
|
$
|
The fair value of each interest rate swap agreement may increase
or decrease due to changes in market conditions but will
ultimately decrease to zero over the term of each respective
agreement.
For the three months ended March 31, 2011 and 2010, the
Partnership recognized $0 and $1,320,721 of net income,
respectively, in the consolidated statements of operations
related to the change in the fair value of these interest rate
swap agreements, where the Partnership did not elect to apply
hedge accounting. Such instruments that did not elect to apply
hedge accounting were settled at the Merger date.
The following table provides the Partnerships derivative
assets and liabilities carried at fair value as measured on a
recurring basis as of March 31, 2011 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Total Carrying
|
|
|
Quoted Prices
|
|
|
Other
|
|
|
Significant
|
|
|
|
Value at
|
|
|
in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
March 31,
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative assets
|
|
|
$4,603
|
|
|
|
$
|
|
|
|
$4,603
|
|
|
|
$
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4,603
|
|
|
|
$
|
|
|
|
$4,603
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Partnerships derivative assets and liabilities include
interest rate swaps that effectively convert a portion of the
Partnerships variable rate debt to fixed rate debt. The
derivative positions are valued using models developed by the
respective counterparty that use as their basis readily
observable market parameters (such as forward yield curves) and
are classified within Level 2 of the valuation hierarchy.
The Partnership considers its own credit risk as well as the
credit risk of its counterparties when evaluating the fair value
of its derivatives.
|
|
12.
|
Commitments
and Contingencies
|
The Partnership has a contractual arrangement with a tenant to
reimburse quality assurance fees levied by the California
Department of Health Care Services from August 1, 2005
through July 31, 2008. The Partnership is obligated to
reimburse the fees to the tenant if and when the state withholds
these fees from the tenants Medi-Cal reimbursements
associated with 5 facilities that were formerly leased to
Trinity Health Systems. The total possible obligation for these
fees is $1,655,286, of which approximately $1.0M has been paid
to date. For the three months ended March 31, 2011, and
2010, the Partnerships indemnity expense for these fees
was $0 and $183,000, respectively, which equaled the actual
amount paid during the period.
F-107
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
Judicial proceedings seeking declaratory relief for these fees
are in process which if successful would provide for recovery of
such amounts from the State of California. The Partnership has
certain rights to seek relief against Trinity Health Systems for
monies paid out under the indemnity claim; however, it is
uncertain whether the Partnership will be successful in
receiving any amounts from Trinity.
In the normal course of business, the Partnership is involved in
legal actions arising from the ownership of its property. In
managements opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to
have a material adverse effect on the financial position,
operations, or liquidity of the Partnership.
|
|
13.
|
Concentration
of Credit Risk
|
As of March 31, 2011, the Partnerships portfolio of
investments consisted of 187 healthcare facilities, located in
25 states and operated by 31 third party operators. At
March 31, 2011, approximately 50.7% (measured as a
percentage of total assets) were leased by five private
operators: Evergreen Healthcare (13.6%), Daybreak Healthcare
(12.4%), Sun Mar Healthcare (9.1%), Hi-Care Management (8.0%),
and Convacare Management (7.6%). No other operator represents
more than 6.3% of our total assets. The five states in which the
Partnership had its highest concentration of total assets were
California (19.4%), Texas (16.3%), Missouri (9.5%), Arkansas
(8.1%), and New Mexico (5.9%) at March 31, 2011.
For the three months ended March 31, 2011, the
Partnerships rental income from operations totaled
approximately $19.7 million, of which approximately
$3.0 million was from Evergreen Healthcare (15.1%),
$2.4 million was from Sun Mar Healthcare (12.1%),
$2.3 million was from Daybreak Venture (11.8%),
$1.7 million was from Cathedral Rock Corporation (8.9%),
and $1.6 million was from ConvaCare Management (8.3%). No
other operator generated more than 6.0% of the
Partnerships rental income from operations for the three
months ended March 31, 2011.
On April 5, 2011, the Partnership issued $100 million
in Senior Notes at 7.75%. The proceeds from this bond issuance
were used to pay down $35.7 million of the Mortgage and the
remaining proceeds were received as cash.
On April 28, 2011 Aviv Financing II acquired three
properties in Ohio from an unrelated third party for a purchase
price of $9,250,000. The Partnership financed this purchase with
cash.
On April 29, 2011 Aviv Financing II acquired six
properties in Texas, Kansas, and Missouri from unrelated third
parties for a purchase price of $17,570,000. The Partnership
financed this purchase with cash.
On May 2, 2011, Aviv Financing II acquired three
properties in Kansas from an unrelated third party for a
purchase price of approximately $2,273,000. The Partnership
financed this purchase with cash.
On May 3, 2011, Aviv Financing II acquired a property
in Connecticut from an unrelated third party for a purchase
price of $12,000,000. The Partnership financed this purchase
with cash.
F-108
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(unaudited)(Continued)
The Partnership has evaluated events subsequent to
March 31, 2011 through May 18, 2011, and determined
that no events other than those noted above would require
changes to the consolidated financial statements or additional
disclosure.
|
|
15.
|
Condensed
Consolidating Information
|
We and certain of our direct and indirect wholly owned
subsidiaries (the Wholly Owned Subsidiary
Guarantors) fully and unconditionally guaranteed, on a
joint and several basis, the obligation to pay principal and
interest with respect to our Senior Notes issued in February
2011. Separate financial statements of the guarantors are not
provided as the consolidating financial information contained
herein provides a more meaningful disclosure to allow investors
to determine the nature of the assets held by and the operations
of the respective guarantor and non-guarantor subsidiaries.
Other wholly owned subsidiaries (Non-Guarantor
Subsidiaries) that were not included among the Guarantors
were not obligated with respect to the Senior Notes. The
Non-Guarantor Subsidiaries are subject to mortgages. The
following summarizes our condensed consolidating information as
of March 31, 2011 and December 31, 2010 and for the
three months ended March 31, 2011 and 2010:
F-109
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
the Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,424,243
|
|
|
$
|
126,974
|
|
|
$
|
(46,915
|
)
|
|
$
|
|
|
|
$
|
10,504,302
|
|
Net rental properties
|
|
|
|
|
|
|
632,540,085
|
|
|
|
17,838,085
|
|
|
|
|
|
|
|
650,378,170
|
|
Deferred financing costs, net
|
|
|
6,028,981
|
|
|
|
7,007,572
|
|
|
|
21,343
|
|
|
|
|
|
|
|
13,057,896
|
|
Other
|
|
|
9,594,582
|
|
|
|
63,401,908
|
|
|
|
53,361
|
|
|
|
|
|
|
|
73,049,851
|
|
Investment in and due from related parties, net
|
|
|
435,594,673
|
|
|
|
(239,351,384
|
)
|
|
|
(7,390,102
|
)
|
|
|
(188,853,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
461,642,479
|
|
|
$
|
463,725,155
|
|
|
$
|
10,475,772
|
|
|
$
|
(188,853,187
|
)
|
|
$
|
746,990,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other notes payable
|
|
$
|
200,000,000
|
|
|
$
|
245,550,522
|
|
|
$
|
9,073,125
|
|
|
$
|
|
|
|
$
|
454,623,647
|
|
Due to related parties
|
|
|
5,669,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,669,876
|
|
Tenant security and escrow deposits
|
|
|
25,000
|
|
|
|
13,870,961
|
|
|
|
236,229
|
|
|
|
|
|
|
|
14,132,190
|
|
Accounts payable and accrued expenses
|
|
|
3,643,808
|
|
|
|
2,745,298
|
|
|
|
658,581
|
|
|
|
|
|
|
|
7,047,687
|
|
Other liabilities
|
|
|
5,282,678
|
|
|
|
13,213,024
|
|
|
|
|
|
|
|
|
|
|
|
18,495,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
214,621,362
|
|
|
|
275,379,805
|
|
|
|
9,967,935
|
|
|
|
|
|
|
|
499,969,102
|
|
Total equity
|
|
|
247,021,117
|
|
|
|
188,345,350
|
|
|
|
507,837
|
|
|
|
(188,853,187
|
)
|
|
|
247,021,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
461,642,479
|
|
|
$
|
463,725,155
|
|
|
$
|
10,475,772
|
|
|
$
|
(188,853,187
|
)
|
|
$
|
746,990,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-110
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
the Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,126,776
|
|
|
$
|
908,612
|
|
|
$
|
(6,914
|
)
|
|
$
|
|
|
|
$
|
13,028,474
|
|
Net rental properties
|
|
|
|
|
|
|
609,972,113
|
|
|
|
17,128,420
|
|
|
|
|
|
|
|
627,100,533
|
|
Deferred financing costs, net
|
|
|
100,000
|
|
|
|
9,834,291
|
|
|
|
23,345
|
|
|
|
|
|
|
|
9,957,636
|
|
Other
|
|
|
13,380,055
|
|
|
|
67,896,040
|
|
|
|
36,481
|
|
|
|
|
|
|
|
81,312,576
|
|
Investment in and due from related parties, net
|
|
|
232,906,755
|
|
|
|
(42,847,014
|
)
|
|
|
(6,964,810
|
)
|
|
|
(183,094,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
258,513,586
|
|
|
$
|
645,764,042
|
|
|
$
|
10,216,522
|
|
|
$
|
(183,094,931
|
)
|
|
$
|
731,399,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other notes payable
|
|
$
|
|
|
|
$
|
431,471,341
|
|
|
$
|
9,104,575
|
|
|
$
|
|
|
|
$
|
440,575,916
|
|
Due to related parties
|
|
|
6,092,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,092,936
|
|
Tenant security and escrow deposits
|
|
|
|
|
|
|
13,422,705
|
|
|
|
235,679
|
|
|
|
|
|
|
|
13,658,384
|
|
Accounts payable and accrued expenses
|
|
|
1,431,564
|
|
|
|
4,102,506
|
|
|
|
478,739
|
|
|
|
|
|
|
|
6,012,809
|
|
Other liabilities
|
|
|
5,833,468
|
|
|
|
14,070,088
|
|
|
|
|
|
|
|
|
|
|
|
19,903,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,357,968
|
|
|
|
463,066,640
|
|
|
|
9,818,993
|
|
|
|
|
|
|
|
486,243,601
|
|
Total equity
|
|
|
245,155,618
|
|
|
|
182,697,402
|
|
|
|
397,529
|
|
|
|
(183,094,931
|
)
|
|
|
245,155,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
258,513,586
|
|
|
$
|
645,764,042
|
|
|
$
|
10,216,522
|
|
|
$
|
(183,094,931
|
)
|
|
$
|
731,399,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-111
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
the Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
|
|
|
$
|
19,343,806
|
|
|
$
|
346,285
|
|
|
$
|
|
|
|
$
|
19,690,091
|
|
Tenant recoveries
|
|
|
|
|
|
|
1,658,925
|
|
|
|
30,071
|
|
|
|
|
|
|
|
1,688,996
|
|
Interest on loans to lessees
|
|
|
361,144
|
|
|
|
970,965
|
|
|
|
|
|
|
|
|
|
|
|
1,332,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
361,144
|
|
|
|
21,973,696
|
|
|
|
376,356
|
|
|
|
|
|
|
|
22,711,196
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
39,137
|
|
|
|
162,527
|
|
|
|
|
|
|
|
|
|
|
|
201,664
|
|
General and administrative
|
|
|
1,711,598
|
|
|
|
1,756,828
|
|
|
|
150
|
|
|
|
|
|
|
|
3,468,576
|
|
Real estate taxes
|
|
|
|
|
|
|
1,659,023
|
|
|
|
30,071
|
|
|
|
|
|
|
|
1,689,094
|
|
Depreciation
|
|
|
|
|
|
|
4,681,392
|
|
|
|
117,176
|
|
|
|
|
|
|
|
4,798,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,750,735
|
|
|
|
8,259,770
|
|
|
|
147,397
|
|
|
|
|
|
|
|
10,157,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(1,389,591
|
)
|
|
|
13,713,926
|
|
|
|
228,959
|
|
|
|
|
|
|
|
12,553,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(2,516,408
|
)
|
|
|
(8,737,512
|
)
|
|
|
(118,653
|
)
|
|
|
|
|
|
|
(11,372,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(3,905,999
|
)
|
|
|
4,976,414
|
|
|
|
110,306
|
|
|
|
|
|
|
|
1,180,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income (loss) of subsidiaries
|
|
|
5,086,720
|
|
|
|
|
|
|
|
|
|
|
|
(5,086,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
$
|
1,180,721
|
|
|
$
|
4,976,414
|
|
|
$
|
110,306
|
|
|
$
|
(5,086,720
|
)
|
|
$
|
1,180,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-112
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
the Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
|
|
|
$
|
20,990,600
|
|
|
$
|
159,735
|
|
|
$
|
|
|
|
$
|
21,150,335
|
|
Tenant recoveries
|
|
|
|
|
|
|
1,509,613
|
|
|
|
19,441
|
|
|
|
|
|
|
|
1,529,054
|
|
Interest on loans to lessees
|
|
|
272,052
|
|
|
|
859,146
|
|
|
|
|
|
|
|
|
|
|
|
1,131,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
272,052
|
|
|
|
23,359,359
|
|
|
|
179,176
|
|
|
|
|
|
|
|
23,810,587
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other operating expenses
|
|
|
|
|
|
|
169,330
|
|
|
|
|
|
|
|
|
|
|
|
169,330
|
|
General and administrative
|
|
|
436,011
|
|
|
|
987,837
|
|
|
|
400
|
|
|
|
|
|
|
|
1,424,248
|
|
Real estate taxes
|
|
|
|
|
|
|
1,585,989
|
|
|
|
19,441
|
|
|
|
|
|
|
|
1,605,430
|
|
Depreciation
|
|
|
|
|
|
|
4,327,108
|
|
|
|
34,793
|
|
|
|
|
|
|
|
4,361,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
436,011
|
|
|
|
7,070,264
|
|
|
|
54,634
|
|
|
|
|
|
|
|
7,560,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(163,959
|
)
|
|
|
16,289,095
|
|
|
|
124,542
|
|
|
|
|
|
|
|
16,249,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(96,711
|
)
|
|
|
(4,523,881
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,620,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(260,670
|
)
|
|
|
11,765,214
|
|
|
|
124,542
|
|
|
|
|
|
|
|
11,629,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions and accretion on Class E Preferred units
|
|
|
(3,998,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,998,770
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(79,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,617
|
)
|
Equity in income (loss) of subsidiaries
|
|
|
11,889,756
|
|
|
|
|
|
|
|
|
|
|
|
(11,889,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common units
|
|
$
|
7,550,699
|
|
|
$
|
11,765,214
|
|
|
$
|
124,542
|
|
|
$
|
(11,889,756
|
)
|
|
$
|
7,550,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-113
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
the Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(199,908,610
|
)
|
|
$
|
212,760,082
|
|
|
$
|
818,290
|
|
|
$
|
|
|
|
$
|
13,669,762
|
|
Net cash provide by (used in) investing activities
|
|
|
4,945,998
|
|
|
|
(26,468,836
|
)
|
|
|
(826,841
|
)
|
|
|
|
|
|
|
(22,349,679
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
200,000,000
|
|
|
|
10,200,000
|
|
|
|
|
|
|
|
|
|
|
|
210,200,000
|
|
Repayment of debt
|
|
|
|
|
|
|
(196,120,819
|
)
|
|
|
(31,450
|
)
|
|
|
|
|
|
|
(196,152,269
|
)
|
Payment of financing costs
|
|
|
(5,704,107
|
)
|
|
|
(852,597
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,556,704
|
)
|
Capital contributions
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
Cost of raising capital
|
|
|
299,468
|
|
|
|
(299,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions to partners
|
|
|
(11,335,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,335,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
193,260,079
|
|
|
|
(187,072,884
|
)
|
|
|
(31,450
|
)
|
|
|
|
|
|
|
6,155,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,702,533
|
)
|
|
|
(781,638
|
)
|
|
|
(40,001
|
)
|
|
|
|
|
|
|
(2,524,172
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
12,126,776
|
|
|
|
908,612
|
|
|
|
(6,914
|
)
|
|
|
|
|
|
|
13,028,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
10,424,243
|
|
|
$
|
126,974
|
|
|
$
|
(46,915
|
)
|
|
$
|
|
|
|
$
|
10,504,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-114
AVIV
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to
the Consolidated Financial Statements(Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Issuers
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
9,930,733
|
|
|
$
|
4,083,433
|
|
|
$
|
(400
|
)
|
|
$
|
|
|
|
$
|
14,013,766
|
|
Net cash used in investing activities
|
|
|
(1,467,921
|
)
|
|
|
(6,288,371
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,756,292
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
|
|
(750,000
|
)
|
|
|
(1,813,125
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,563,125
|
)
|
Cash distributions to partners
|
|
|
(9,982,923
|
)
|
|
|
(1,092,350
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,075,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(10,732,923
|
)
|
|
|
(2,905,475
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,638,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,270,111
|
)
|
|
|
(5,110,413
|
)
|
|
|
(400
|
)
|
|
|
|
|
|
|
(7,380,924
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
256,598
|
|
|
|
15,285,909
|
|
|
|
|
|
|
|
|
|
|
|
15,542,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
(2,013,513
|
)
|
|
$
|
10,175,496
|
|
|
$
|
(400
|
)
|
|
$
|
|
|
|
$
|
8,161,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-115
$300,000,000
Aviv Healthcare Properties
Limited Partnership
Aviv Healthcare Capital
Corporation
Exchange Offer for
7 3/4% Senior
Notes due 2019
PROSPECTUS
July 21, 2011
Until October 19, 2011, all dealers that effect
transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This
is in addition to the dealers obligation to deliver a
prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.