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Based in Chicago, IL, Aviv REIT (NYSE:AVIV) scheduled a $251 million IPO with a market capitalization of $804 million for Thursday, March 21, 2013.

Eight IPOs are scheduled for the week of March 18th. The full IPO calendar is available here.

S-11A filed March 11, 2013.

Manager, Joint Managers: Morgan Stanley; BofA Merrill Lynch; Goldman, Sachs
Co Managers: Citigroup; RBC Capital Markets; SunTrust Robinson Humphrey; RBS; CSCA

SUMMARY

  • AVIV is a skilled nursing home REIT.
  • Recent IPO REITs have sold off the first day.
  • However, comparing AVIV with its sector AVIV looks attractively priced.

OBSERVATIONS

All recent REITs have shown first day losses.

However, comparing AVIV with the sector stocks, AVIV plans to IPO at the lowest price to book.

Comparing payout rates, AVIV's rate is the highest of the sector stocks compared, at 7.6%.

Compare to healthcare REITs with exposure to skilled nursing facilities

Market

Price to

Price to tangible

Cap ($mm)

Book Value

Book Value

Payout Rate

Aviv REIT

$804

1.5

1.7

7.60%

Health Care REIT (NYSE:HCN)

$17,040

1.7

1.9

4.68%

Omega Healthcare Investors (NYSE:OHI)

$3,200

3.2

3.2

6.35%

Sabra Health Care REIT (NASDAQ:SBRA)

$1,030

3.4

3.4

4.91%

Glossary

CONCLUSION

  • Ok short term
  • Investors who have a longer time horizon (3-4 weeks) should hold.

BUSINESS
AVIV is a self-administered REIT specializing in the ownership of post-acute and long-term care skilled nursing facilities, or SNFs. AVIV has been in the business of investing in SNFs for over 30 years, including through predecessors.

AVIV's properties are leased through triple-net leases to third-party operators who have responsibility for the operation of the facilities. AVIV receives a cash rental stream from these operators under leases.

AVIV believes that it owns one of the largest and highest-quality SNF portfolios in the United States.

As of December 31, 2012, AVIV's portfolio consisted of 258 properties in 29 states leased to 38 tenants who represent many of the largest and most experienced operators in the industry.

The portfolio is geographically diversified, with no state representing more than 18.3% of the total contractual rent as of December 31, 2012. No single tenant represented more than 15.1% of total contractual rent as of December 31, 2012.

RELATIONSHIPS
AVIV has developed strong relationships with, and triple-net lease our properties to, many of the largest and most experienced operators in the United States.

AVIV cultivates long-term relationships with tenants. As of December 31, 2012, 70% of AVIV's properties are leased to tenants with whom AVIV has had a relationship for at least five years. Many properties are leased to tenants with whom AVIV has had a relationship for at least ten years.

AVIV believes it will continue to access potential new investment opportunities as a result of relationships with existing tenants and our network of other market-leading operators.

LEASE TERMS
Tenants are responsible for all operating costs and expenses related to the property, including maintenance and repair obligations and other capital expenditures.

Leases typically have initial terms of 10 years or more and include annual rent escalators of approximately 2%.

AVIV often enters into lease extensions during the term of the lease in connection with additional acquisitions, reinvestment projects and other opportunities that arise.

Leases representing 99% of the contractual rent as of December 31, 2012 are supported by personal and/or corporate guarantees and 88% represent master leases or leases with cross-default provisions. These provisions provide AVIV with significant credit support for rents.

AVIV leases also typically require security deposits of several months' rent. As of December 31, 2012, only 7% of leases are scheduled to expire before 2018.

WHERE PAYMENTS COME FROM
The majority of these third-party payments come from the federal Medicare program and state Medicaid programs. AVIV's operators 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 the operators' revenues

DIVIDEND POLICY
AVIV intends to make regular quarterly distributions to holders of common stock, at the rate of $.36 per quarter.

On an annualized basis, this would be $1.44 per share, or an annual distribution rate of approximately 7.6%, based on an assumed initial public offering price of $19.00 per share, the midpoint of the IPO range.

AVIV estimates that this initial annual distribution rate will represent 91.9% of estimated cash available for distribution for the twelve months ending December 31, 2013.

Going forward, AVIV intends to make regular quarterly distributions to holders of common stock equal to an annual distribution rate of 91.9% of cash available for distributions

TAX CONSEQUENCES
AVIV anticipates that, at least initially, distributions will exceed the then current and accumulated earnings and profits as determined for U.S. federal income tax purposes for that period.

As a result, AVIV expects that a portion of distributions will represent a return of capital for U.S. federal income tax purposes, and will reduce the stockholder's adjusted basis of his or her common stock.

PRINCIPAL STOCKHOLDER
In 2010, AVIV consummated a strategic equity transaction with Lindsay Goldberg through which the Aviv REIT was formed. In connection with the transaction and subsequent investments, Lindsay Goldberg has invested $376.8 million to support AVIV's growth and purchase of interests from certain of limited partners.

Lindsay Goldberg is a private equity investment firm based in New York with approximately $9 billion of capital under management that focuses on partnering with entrepreneurial management teams and closely held and family-owned businesses.

USE OF PROCEEDS
AVIV expects to net $230 million from its IPO.

Proceeds going to the operating partnership, which is expected to use the proceeds plus $75 million of a new Term Loan as follows:

Repay debt of $191 million
Pay $3.8 million in connection with termination of hedging agreements
Balance for general corporate purposes.

Disclaimer: This AVIV IPO report is based on a reading and analysis of AVIV's S-11 filing which can be found here and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Aviv REIT