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A specialized REIT, Aviv (NYSE:AVIV) has rocked the market with its initial price offering. After setting an initial range of $18 to $20, shares priced at the high end of the range. In its first day of trading on the NYSE, shares are now up 14% to $22.77.

Aviv is a "self administered REIT specializing in the ownership and triple-net leasing of post-acute and long-term care skilled nursing facilities (SNFs)." With over 30 years in the industry, Aviv is a leader in the SNF market and that segment is responsible for over 80% of the company's revenue.

Competitive Strengths

  • Established healthcare REIT with expertise investing in SNFs
  • Strategically diversified portfolio of high-quality properties
  • Strong relationships with large and experienced operators
  • Well-structured triple-net leases with strong coverage
  • Platform built for growth with proven investment track record
  • Attractive capital structure with capacity for growth
  • Experienced management team with significant tenure and ownership

Growth strategies

  • Continue to source investments from existing relationships
  • Identify additional operator relationships
  • Generate additional rent through ongoing property reinvestment program
  • Further enhance our franchise and position as industry leader
  • Strategically pursue opportunities to invest in complementary healthcare properties

One of the things that help Aviv's growth is its contract with facilities. Rent deals are signed for an average of 10 years times. These deals come with rent escalations of around 2% annually. Another thing that helps Aviv is its diversification. No single tenant makes up more than 15.1% of total company revenue. With a presence in 29 states, Aviv counts on revenue from many different regions, helping to alleviate the company from regional risks. Three states make up 10% of more with Texas the highest at 18.3%.

As of December 31st, Aviv owned 258 properties in 29 states. A total of 38 tenants lease the properties from Aviv, paying rental income to the REIT company. The company has many long term contracts in place, providing safety in revenue payments. The average lease has 8.3 years remaining. Only 5% of total leases expire in the next five years.

Aviv has been aggressive in its expansion of properties. In the last five years, the company has acquired 124 properties through 55 separate transactions. Aviv has looked at its tenants in some of its acquisitions. Aviv can acquire properties from tenants to provide cash to the company in return for rental and loan income. Through the 55 deals in the last five years, Aviv has increased its assets by 96%. Aviv is also working on expanding into other healthcare facilities like acute-care hospital and traumatic brain injuries.

Here is a look at financials from the last three years:

2012

2011

2010

Rental Revenue

$117.4 mil

$91.0 mil

$84.1 mil

Interest Loan Revenue

$4.6 mil

$5.2 mil

$5.2 mil

Other Revenue

$1.1 mil

$0.8 mil

$0.1 mil

Total Revenue

$123.2 mil

$97.0 mil

$89.4 mil

Net Income

$5.1 mil

$6.2 mil

$3.8 mil

Modified Funds From Operation$55.4 mil$46.5 mil$56.5 mil

For the next fiscal year, ending March 31st 2014, AVIV has forecasted total revenue to be above $172 million. The company has contract revenue that will total $128.4 million. Income from loan receivables will come in at $43.7 million.

As a REIT, Aviv will have to distribute 90% of its net income to shareholders. The company has announced a plan to distribute 91.9% of its fiscal year net income to shareholders. An initial quarterly dividend will be $0.36, amounting to an annual payout of $1.44. With shares trading at $22.77, this amounts to an annual yield of 6.3%.

One risk with investing in Aviv will be its complicated ownership structure. Lindsay Goldberg, a private equity company, will own 52.5% of shares in Aviv. Public shareholders will own around 30% of the holding company.

With an annual yield of 6.3%, dividend investors should be looking into Aviv. The company has growth, steady income, and acquisitions to power it going forward. Let the dust settle on this IPO and then take a look at this REIT.

Source: Aviv IPO: Healthcare REIT Worth A Look