S-11 1 c27579sv11.htm REGISTRATION STATEMENT sv11
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As filed with the Securities and Exchange Commission on June 30, 2008
Registration No. 333-      
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM S-11
FOR REGISTRATION UNDER
THE SECURITIES ACT OF 1933 OF SECURITIES
OF CERTAIN REAL ESTATE COMPANIES
 
 
 
 
AVIV REIT, INC.
(Exact Name of Registrant as Specified in Governing Instruments)
 
 
Aviv REIT, Inc.
303 West Madison Street
Suite 2400
Chicago, IL 60606
(312) 855-0930
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
 
Craig M. Bernfield
Chief Executive Officer
Aviv REIT, Inc.
303 West Madison Street
Suite 2400
Chicago, IL 60606
(312) 855-0930
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
 
 
 
 
Copies to:
 
     
Steven Sutherland
Robert L. Verigan
Sidley Austin LLP
One South Dearborn Street
Chicago, IL 60603
(312) 853-7000
  David J. Goldschmidt
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
(212) 735-3000
 
 
 
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer o  
Accelerated filer o
  Non-accelerated filer þ
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
CALCULATION OF REGISTRATION FEE
 
             
      Proposed Maximum
     
Title of Securities
    Aggregate Offering
    Amount of
to be Registered     Price(1)(2)     Registration Fee
Common Stock, par value $0.01 per share
    $200,000,000     $7,860
             
 
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes offering price of shares of common stock that the underwriters have the option to purchase to cover over-allotments, if any.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.
 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
PRELIMINARY PROSPECTUS SUPPLEMENT SUBJECT TO COMPLETION JUNE 30, 2008
 
               Shares
 
AVIVLOGO
 
Common Stock
 
This is the initial public offering of our common stock. No public market currently exists for our common stock. We are offering           shares of our common stock and the selling stockholders identified in this prospectus are offering           shares of our common stock. We will not receive any proceeds from the sale of our common stock by the selling stockholders. We expect the public offering price to be between $      and $      per share.
 
We will apply to have our common stock listed on The New York Stock Exchange under the symbol “AVI”.
 
Shares of our common stock are subject to ownership limitations that are intended to assist us in qualifying and maintaining our qualification as a real estate investment trust. Our charter contains certain restrictions relating to the ownership and transfer of our common stock, including, subject to certain exceptions, an 8.3% ownership limit.
 
Investing in our common stock involves a high degree of risk. Before buying any shares, you should read the discussion of material risks of investing in our common stock in “Risk Factors” beginning on page 14 of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
                 
    Per share     Total  
   
Public offering price
  $                     $             
 
 
Underwriting discounts and commissions
  $       $    
 
 
Proceeds, before expenses, to us
  $       $    
 
 
Proceeds, before expenses, to the selling stockholders
  $       $    
 
 
 
The underwriters may also purchase up to an additional           shares of our common stock from us and from certain of the selling stockholders at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any, within 30 days of the date of this prospectus. Of these additional shares that the underwriters may purchase to cover over-allotments, if any, up to           shares will be offered by us and up to shares will be offered by the selling stockholders. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $          , the total proceeds, before expenses, to us will be $          , and the total proceeds, before expenses, to the selling stockholders will be $          .
 
The underwriters are offering the common stock as set forth under “Underwriting.” Delivery of the shares will be made on or about        , 2008.
 
Joint Book-Running Managers
 
UBS Investment Bank Banc of America Securities LLC
 
 
Co-Managers
 
Wachovia Securities  
  Morgan Keegan & Company, Inc.                 
                 Stifel Nicolaus


 

 
You should rely only on the information contained in this prospectus and any free writing prospectus provided or approved by us. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. 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 shares of our common stock.
 
Until          , 2008 (25 days after the date of this prospectus), all dealers that effect transactions in the securities offered hereby, 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.
 
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Prospectus 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 shares of common stock we are offering 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 invest in our common stock.
 
Unless the context requires otherwise or except as otherwise noted, as used in this prospectus the words “Aviv,” “we,” “company,” “us” and “our” refer to Aviv REIT, Inc. and its subsidiaries, including our operating partnership, Aviv Healthcare Properties Operating Limited Partnership and, where the context requires, our predecessor partnership, Aviv Healthcare Properties Limited Partnership. 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 are a self-administered real estate investment trust, or REIT, that focuses on the ownership, acquisition and development of healthcare properties, principally skilled nursing facilities, or SNFs. We generate our revenues by entering into long-term triple-net leases with qualified local, regional and national operators throughout the United States. We believe that we have one of the largest portfolios of triple-net leased SNFs in the United States. As of March 31, 2008, our portfolio consisted of 156 properties with 15,187 licensed beds in 20 states leased to 33 operators. For the year ended December 31, 2007 and for the quarter ended March 31, 2008, our revenues were $72.4 million and $19.2 million, respectively.
 
We, through our predecessor entities, have been in the business of financing operators of SNFs for over 25 years. We focus on cultivating close relationships with our tenants and work closely with them to help them achieve their business objectives. As a result of these efforts, we are in a position to make additional investments and expand our business. We make our investments primarily through sale-leaseback and acquisition-lease transactions, although we also offer our tenants a variety of other forms of financing, including ground-up development-lease transactions and tenant loans.
 
Since April 2005, we made approximately $318 million of acquisitions, principally SNFs. These acquisitions consisted of 75 properties with 8,134 licensed beds in 15 states leased to 23 operators. We have a long, successful track record of acquisitions, developments and other investments involving healthcare properties, principally SNFs. We have an active pipeline of acquisitions and development projects and we expect this pipeline to continue in the future.
 
We believe that market conditions are favorable for SNF investments. We expect our tenants to benefit from the aging of the U.S. population. New supply of SNFs is limited by regulatory requirements in many states, which should also enhance our tenants’ cash flows. The nursing home market is highly fragmented, with only 6.9% of SNFs in the United States owned by publicly-traded healthcare REITs, as of December 31, 2007. Accordingly, we believe that there is substantial opportunity for us to continue to make attractive investments in SNF assets.
 
OUR COMPETITIVE STRENGTHS
 
We believe the following strengths serve as the foundation for our business:
 
Ø  Relationship Focused Business.  We believe that our tenants’ success translates into our success. Over the past 25 years, our management team has developed an extensive network of relationships with qualified local, regional and national operators of SNFs throughout the United States. We work closely with our tenants to help them achieve their business objectives and thereby strengthen our


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relationships. We believe our strong reputation allows us to continue to expand this network. Our close relationships with our tenants have resulted in consistent repeat business. 118 of our 156 properties are leased to operators with whom we have had a relationship for at least 5 years, and 63 of our 156 properties are leased to operators with whom we have had a relationship for at least 10 years.
 
Ø  Ability to Identify Talented Operators.  As a result of our many years of experience, industry contacts and insight, we are able to identify qualified local, regional and national operators to successfully triple-net lease our properties. We seek operators that possess local market knowledge, demonstrate hands-on management, have proven track records, are management owned and controlled and emphasize patient care. We are able to identify talented operators that fall below the radar of other capital sources. Our management team’s experience gives us a key advantage to make sound judgments about an operator’s character and professional ability.
 
Ø  Disciplined Investing.  We are disciplined and selective about the investments we make. Our underwriting process includes thorough evaluations of the track record and history of each operator, the facility condition, the market area for each building and the reimbursement environment. We pursue a strategy of multiple tenants in each of our markets and multiple facilities for each of our tenants. We only make investments that meet the high standard and profile we look for. This approach has contributed to our ability to collect 99.9% of our rent over the three years ended December 31, 2007.
 
Ø  Active Pipeline and Established Acquisition Track Record.  We, through our predecessor entities, have been in the business of financing operators of SNFs for over 25 years. Since April 2005, we made approximately $318 million in acquisitions, principally SNFs. We have an active pipeline of acquisitions and development projects and we expect this pipeline to continue in the future. We focus on investments with attractive yields, with new and existing tenants, in new and existing states and that create long-term value for us and our tenants.
 
Ø  Diversified Portfolio with Attractive Leases.  We lease our properties to a diversified group of 33 operators with no single operator representing more than 16.3% of our rent under existing leases for the quarter ended March 31, 2008. We have a geographically diversified portfolio of properties located in 20 states, with no state representing more than 18.4% of our rent under existing leases for the quarter ended March 31, 2008. Our properties are subject to long-term triple-net leases and typically have annual escalations of 2%-3%. As of March 31, 2008, our leases had an average remaining existing term of 10.2 years. As of March 31, 2008, 130 of our 156 properties were subject to master leases or were cross-defaulted, which provides additional credit support for the performance of an individual property.
 
Ø  Proactive Portfolio Management.  We have implemented effective systems to monitor the performance of our tenants and properties. We have regular and ongoing contact with our tenants, visit our properties on a regular basis, and closely monitor the financial and overall performance of each property. All of this knowledge helps position us to re-lease properties on a proactive basis as it becomes necessary or desirable. In addition, our daily focus on portfolio management enables us to identify strategic opportunities to fund capital expenditures, which enhance a facility’s physical plant, market position, occupancy and growth prospects.
 
Ø  Experienced Senior Management Team with Significant Ownership.  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. Craig Bernfield, our Chairman, President and Chief Executive Officer, and Zev Karkomi, our Chairman Emeritus, have more than 45 years of combined experience in the acquisition, development and disposition of SNFs and other healthcare facilities. Messrs. Karkomi and Bernfield co-founded our predecessor partnership. Upon consummation of this offering, Messrs. Karkomi and Bernfield and certain of their related parties will have fully diluted ownership (including OP Units in our operating partnership, which are convertible into shares of our common stock) of     % and     %, respectively.


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OUR STRATEGY
 
The primary elements of our growth strategy are to:
 
Ø  Continue to Develop and Expand Our Relationships.  While we believe that many of our competitors seek to accumulate properties, we strive to accumulate relationships. We work closely with our tenants to identify acquisition, development and other investment opportunities in their local markets, as well as new markets. This strategy is a catalyst for our growth and enhances our existing relationships. We intend to continue to expand and improve our extensive network of relationships that we have built and cultivated over the years.
 
Ø  Identify Additional Talented Operators and Acquisition Opportunities.  We will continue to expand our portfolio by identifying additional talented operators and SNF acquisition opportunities. We intend to capitalize on our active pipeline as well as our successful track record of acquisition and growth. When making investments in properties, we will continue to focus on qualified local, regional and national operators that meet our investment criteria, including our standards for quality and experience of management. We also expect to continue to work with our tenants to help them identify new acquisition opportunities. We have more than five professionals focused on sourcing, pursuing and executing transactions and an experienced team that supports the acquisition and underwriting process.
 
Ø  Strategically Offer Tenants Additional Capital.  We plan to continue to support our tenants by opportunistically providing capital to them for a variety of purposes, including capital expenditures, modernization of facilities and loans. These investments support our tenants and allow us to create additional revenue from our existing portfolio. These investments also frequently enable us to extend our lease terms prior to expiration.
 
Ø  Pursue Strategic Development Opportunities.  We work closely with our tenants to identify strategic development opportunities. These opportunities may involve replacing or renovating buildings in our portfolio that may become less competitive. We also endeavor to identify new developments that present an attractive opportunity and complement our existing portfolio. We strive to pursue these projects with existing operator relationships, working together to identify, design, develop and construct the projects. We have recently completed new developments in Arkansas, Texas and Washington, and have new developments in process in Arkansas, Illinois, Texas and Washington.
 
Ø  Opportunistically Acquire Other Healthcare Property Types.  We opportunistically acquire assisted living facilities, independent living facilities, retirement communities and facilities offering a continuum of care. When evaluating these transactions, we will seek to enter into triple-net leases with experienced operators that meet our investment criteria.


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OUR PORTFOLIO
 
As of March 31, 2008, our portfolio consisted of 156 properties, principally SNFs, with 15,187 beds in 20 states leased to 33 operators. This portfolio consisted of 151 owned properties, two leased properties and three properties for which we provide asset management services only. As of March 31, 2008, 130 of our 156 properties were subject to master leases or were cross-defaulted.
 
The following tables summarize information about our properties as of March 31, 2008:
 
             
    Operator diversification
    Number of
  Number of
  Percentage of
Operator(1)   properties   licensed beds   total rent(2)
 
 
Cathedral Rock
  18   1,704   16.3%
Daybreak
  28   2,728   13.0%
SunMar
  6   890   8.8%
Evergreen
  11   1,138   8.2%
Eagle
  11   830   7.6%
Brighten
  5   645   6.5%
SunBridge
  15   973   6.2%
Saber
  5   578   4.3%
Infinia
  5   403   3.4%
Deaconess
  5   544   3.2%
Other (23 operators)
  47   4,754   22.5%
             
Total
  156   15,187   100.0%
             
 
 
(1) 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 and properties may not be subject to master leases or cross-defaulted. In addition, we use the words “operator” and “tenant” interchangeably when referring to these unaffiliated third parties.
 
(2) Total rent represents the rent under existing leases for the quarter ended March 31, 2008.
 
             
    State diversification
    Number of
  Number of
  Percentage of
State   properties   licensed beds   total rent(1)
 
 
Texas
  42   4,275   18.4%
California
  16   1,511   12.6%
Missouri
  10   1,190   9.7%
Washington
  12   779   8.0%
New Mexico
  9   782   6.8%
Ohio
  6   672   6.1%
Illinois
  8   882   6.1%
Massachusetts
  14   877   5.9%
Pennsylvania
  4   503   5.2%
Arizona
  5   691   4.7%
Other (10 states)
  30   3,025   16.5%
             
Total
  156   15,187   100.0%
             
 
 
(1) Total rent represents the rent under existing leases for the quarter ended March 31, 2008.


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RECENT DEVELOPMENTS
 
In June 2008, we entered into a contract to purchase nine facilities and simultaneously lease them back to Evergreen. Seven of these facilities are in California, one is in Washington and one is in Oregon. The purchase price is $72.0 million of which $8.5 million is subject to an earn-out provision.
 
In May 2008, we entered into a contract to purchase six acres of land in Salado, Texas for $600,000. We intend to develop, design and build, with Cathedral Rock, a new 120-bed facility and triple-net lease it to Cathedral Rock.
 
In May 2008, we entered into a contract to purchase six buildable acres of land in Mt. Vernon, Washington for $1.5 million. We intend to develop, design and construct, with Eagle, a new 120-bed facility and triple-net lease it to Eagle.
 
In April 2008, we purchased an eight acre parcel of land in Searcy, Arkansas for $625,000. We are in the process of developing, designing and constructing, with Convacare, a new 140-bed facility which we will triple-net lease to Convacare.
 
In April 2008, we purchased an 85-bed facility in Searcy, Arkansas for $2.6 million and simultaneously leased it back to Convacare. We plan to renovate the facility and convert it to residential care use. We also plan to use the facility’s bed rights to build a new facility on land we purchased in Searcy, Arkansas, as described above.
 
In April 2008, we purchased a 120-bed facility in Hot Springs, Arkansas for $10.4 million and simultaneously leased it back to Convacare. The facility was opened by Convacare in 2007.
 
In April 2008, we sold our interest in a joint venture that owned a recently constructed 132-bed facility in North Richland Hills, Texas for $2.8 million. We co-developed the facility in 2006 with a joint venture partner and leased the facility to Stonegate.
 
OUR INDUSTRY AND MARKET OPPORTUNITY
 
We are a REIT that invests in healthcare facilities, 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 $2.1 trillion in 2006 to $4.3 trillion in 2017. Within the healthcare industry, national nursing home expenditures are expected to grow from approximately $125 billion in 2006 to $218 billion in 2017, according to CMS, representing a compound annual growth rate, or CAGR, of 5.2%. The nursing home market is highly fragmented and, according to the American Health Care Association, comprises approximately 15,800 facilities with approximately 1.7 million certified beds as of December 2007.
 
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 48 million in 2017, representing a CAGR of 2.5%, compared to a total U.S. population CAGR of 0.8% over the same period. In response to growing healthcare costs, the 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 tenants to access capital for growth. Tenants are increasingly relying on capital sources such as us to finance acquisitions so they may deploy their capital into their operations. To generate liquidity, tenants also often decide to sell real estate assets and lease them back. These sale-leaseback transactions help our tenants realize the full value of their real estate with 100% financing, which is not generally available with conventional mortgage loans.


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OUR STRUCTURE
 
UPREIT Structure.  Following the consummation of this offering, we will conduct our business through a traditional umbrella partnership REIT, or UPREIT, in which our properties are owned by our operating partnership, Aviv Healthcare Properties Operating Limited Partnership, and direct and indirect subsidiaries of our operating partnership. See “Our Structure—Recapitalization Transactions.” A wholly owned subsidiary of ours will be the sole general partner of our operating partnership and our wholly owned subsidiary and the limited partners of our predecessor partnership will initially own all of the limited partnership units of our operating partnership, which we refer to as “OP Units.”
 
Recapitalization Transactions.  Immediately prior to the consummation of this offering, we will effect certain transactions, which we refer to as the “Recapitalization Transactions,” which will simplify our capital structure. As a result of the Recapitalization Transactions and upon the consummation of this offering, we will be a holding company and our primary assets will be our general partnership interest in our operating partnership and OP Units (in each case, through one of our subsidiaries) representing approximately     % of the issued and outstanding OP Units of our operating partnership as of the consummation of this offering (approximately     % if the underwriters exercise their over-allotment option in full).
 
The following chart reflects an overview of our organizational structure immediately following consummation of the Recapitalization Transactions and this offering:
 
(CHART)


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SUMMARY RISK FACTORS
 
An investment in our common stock involves significant risks. You should carefully consider the matters discussed in the section “Risk Factors” beginning on page 14 prior to deciding whether to invest in our common stock. These risks include, but are not limited to, the following:
 
Ø  We have never operated as a REIT or a public company and therefore may have difficulty operating our business in compliance with the regulatory requirements applicable to REITs and to public companies.
 
Ø  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 could result in our tenants being unable to meet their obligations to us.
 
Ø  Our business is dependent upon our tenants’ successfully operating their businesses, and their failure to do so could have a material adverse effect on us successfully and profitably operating our business.
 
Ø  Our cash available for distributions may not be sufficient to make distributions at expected levels.
 
Ø  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 could result in our tenants being unable to meet their obligations to us.
 
Ø  Our substantial indebtedness could adversely affect our financial condition.
 
Ø  Upon the consummation of this offering, Mr. Karkomi, our Chairman Emeritus, and Mr. Bernfield, our Chairman, Chief Executive Officer and President, and certain of their respective related parties will have significant equity ownership interests and the ability to exercise significant influence over our company and any matter presented to our stockholders.
 
Ø  Our charter and bylaws and certain provisions of Maryland law may limit the ability of a third party to acquire control of our company.
 
Ø  Our failure to qualify or remain qualified as a REIT would have significant adverse consequences to us and the value of our common stock.
 
Ø  If you purchase shares of common stock in this offering, you will experience immediate and significant dilution in the net tangible book value per share of our common stock.
 
TAX STATUS
 
We intend to operate in a manner that will allow us to qualify as a REIT for federal income tax purposes. We believe that our investments and proposed method of operation will enable us to meet the requirements for qualification as a REIT for federal income tax purposes. As a REIT, we will be required to satisfy a number of organizational and operational requirements, including a requirement that we annually distribute at least 90% of our REIT taxable income to our stockholders. As a REIT, we generally will not be subject to federal income tax on REIT taxable income we currently distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax at regular corporate rates, and we may not be able to qualify for treatment as a REIT for that year and the next four years. Even if we qualify as a REIT, we will be subject to some federal, state and local taxes on our income or property.
 
RESTRICTIONS ON OWNERSHIP OF OUR COMMON STOCK
 
In order to assist us in complying with the limitations on the concentration of ownership of REIT stock imposed by the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, our charter generally prohibits any person (other than a person who has been granted an exception as described below, or an excepted holder) from actually or constructively owning more than 8.3% (by value or by number of shares, whichever is more restrictive) of our common stock or 8.3% (by value or by number of shares, whichever is more restrictive) of our outstanding stock of all classes and series. We


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refer to these restrictions, collectively, as the ownership limit. Our charter permits our board of directors to make an exception to these limits or create a different limit on ownership, or excepted holder limit, if the stockholder seeking the exception or excepted holder limit makes certain representations and agreements. Our board of directors may not make an exception to the ownership limit or create an excepted holder limit if ownership by the excepted holder in excess of the ownership limit would cause us to fail to qualify as a REIT. In addition, different ownership limits will apply to Mr. Karkomi, our Chairman Emeritus, certain of his affiliates, family members and estates and trusts and Mr. Bernfield, our Chairman, Chief Executive Officer and President, certain of his affiliates, family members and estates and trusts. These limits will allow Mr. Karkomi, certain of his affiliates, family members and estates and trusts, as an excepted holder, and Mr. Bernfield, certain of his affiliates, family members and estates and trusts, as an excepted holder, to each hold up to 12.0% (by value or by number of shares, whichever is more restrictive) of our common stock or up to 12.0% (by value or by number of shares, whichever is more restrictive) of our outstanding stock.
 
DISTRIBUTION POLICY AND PAYMENT OF DISTRIBUTIONS
 
We intend to distribute to our stockholders each year all or substantially all of our REIT net taxable income so as to avoid paying corporate income tax and excise tax on our REIT income and to qualify for the tax benefits afforded to REITs under the Code. However, the actual amount, timing and frequency of distributions will be determined by our board of directors based upon a variety of factors deemed relevant by our directors, including our results of operations and our debt service obligations. See “Distribution Policy.”
 
CORPORATE INFORMATION
 
We were incorporated as a Maryland corporation on June 18, 2008 and intend to qualify as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2008. Our corporate offices are located at 303 West Madison Street, Suite 2400, Chicago, Illinois 60606. Our telephone 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.


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The offering
 
Common stock we are offering           shares
 
Common stock being offered by the selling stockholders           shares
 
Total shares of common stock being offered           shares
 
Common stock to be outstanding immediately after this offering           shares
 
Use of proceeds We estimate that the net proceeds to us from this offering after expenses will be approximately $      , or approximately $     if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $      per share, the midpoint of the range indicated on the cover of this prospectus. We intend to contribute the net proceeds from this offering to our operating partnership in exchange for OP Units of our operating partnership. Our operating partnership intends to use those net proceeds to (i) redeem approximately $      of existing units of our predecessor partnership held by affiliates of Zev Karkomi, our Chairman Emeritus, and Craig Bernfield, our Chairman, Chief Executive Officer and President, and (ii) repay approximately $      of outstanding borrowings under our existing credit facilities. See “Use of Proceeds.”
 
We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.
 
Proposed New York Stock Exchange symbol AVI
 
The number of shares of our common stock to be outstanding immediately after this offering is based on           shares that would have been outstanding as of March 31, 2008 on a pro forma basis giving effect to the Recapitalization Transactions.
 
The number of shares of our common stock to be outstanding immediately after this offering excludes:
 
  Ø            shares of common stock reserved for issuance under options to purchase common stock to be granted upon consummation of this offering with exercise prices equal to the initial public offering price;
 
  Ø            shares of common stock available for future issuance under our 2008 long-term stock incentive plan; and
 
  Ø            shares of common stock that may be issued by us upon redemption of           OP Units outstanding.
 
Unless otherwise stated, all information in this prospectus assumes that the underwriters do not exercise their option to purchase up to           shares of our common stock to cover over-allotments, if any.


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Summary financial and pro forma data
 
You should read the following summary historical consolidated financial, pro forma and other data in connection with “Selected Financial Data,” “Unaudited Pro Forma Condensed Consolidated Financial Data,” “Management’s 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, 2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005 have been derived from the audited historical consolidated financial statements of our predecessor partnership, Aviv Healthcare Properties Limited Partnership, appearing elsewhere in this prospectus. The summary historical consolidated balance sheet as of December 31, 2005 has been derived from the audited historical consolidated financial statements of our predecessor partnership which are not included in this prospectus. The summary historical consolidated financial data as of March 31, 2008 and for the quarters ended March 31, 2008 and 2007 have been derived from the unaudited historical financial statements of our predecessor partnership appearing elsewhere in this prospectus. The unaudited historical financial statements include all adjustments, consisting of normal recurring adjustments, which we consider necessary for a fair presentation of our predecessor partnership’s 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.
 
The summary pro forma financial data as of March 31, 2008 presents our consolidated financial position giving pro forma effect to the consolidation (acquisition) of our former asset manager, Aviv Asset Management, L.L.C., or AAM, the elimination of intercompany activity as a result of the consolidation of AAM, the repayment of certain loans to entities controlled by Messrs. Karkomi and Bernfield, the Recapitalization Transactions, this offering and the application of the net proceeds of this offering as described under “Use of Proceeds,” as if such transactions had occurred on March 31, 2008.
 
The summary pro forma condensed consolidated statements of operations for the year ended December 31, 2007 and the three months ended March 31, 2008 and 2007 present our consolidated results of operations giving pro forma effect to the consolidation of AAM, the elimination of intercompany activity as a result of the consolidation of AAM, the repayment of certain loans to entities controlled by Messrs. Karkomi and Bernfield, the Recapitalization Transactions, this offering and the application of the net proceeds of this offering as described under “Use of Proceeds,” as if such transactions had occurred on the first day of the period presented.
 
The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions and this offering, on the historical financial information of our predecessor partnership.


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    Year ended December 31,     Three months ended March 31,  
                      2007
                2007
    2008
 
                      Pro forma
                Pro forma
    Pro forma
 
Operating information   2005     2006     2007     as adjusted     2007     2008     as adjusted     as adjusted  
   
    (in thousands)  
 
Revenues
                                                               
Rental income
  $ 26,086     $ 42,658     $ 67,713     $             $ 15,656     $ 17,810     $           $        
Tenant recoveries
    1,909       2,690       4,273               1,020       1,318                  
Interest on loans to tenants
    7       330       370               90       96                  
                                                                 
Total revenues
    28,002       45,678       72,356               16,766       19,224                  
Operating expenses
                                                               
Rent and other operating expenses
    658       553       450               82       112                  
General and administrative
    3,400       6,261       8,092               1,865       2,891                  
Real estate taxes
    1,869       2,664       4,306               1,041       1,318                  
Change in fair value of derivatives
    (2,058 )     (262 )     6,946               877       6,460                  
Compensation expense, issuance of Class C Units profit interest
    13,525                                                  
Depreciation
    4,817       8,158       12,934               3,025       3,464                  
Loss on impairment of assets
                2,987                                      
Other
    261       305       272               70       52                  
                                                                 
Total expenses
    22,472       17,679       35,987               6,960       14,297                  
                                                                 
Operating income
    5,530       27,999       36,369               9,806       4,927                  
Other income and expenses
                                                               
Interest income
    215       534       1,414               26       731                  
Interest expense
    (8,832 )     (15,767 )     (24,254 )             (5,444 )     (6,573 )                
Amortization of deferred financing costs
    (392 )     (2,353 )     (439 )             (121 )     (152 )                
                                                                 
Total other income and expenses
    (9,009 )     (17,586 )     (23,279 )             (5,539 )     (5,994 )                
                                                                 
(Loss) income before gain on disposition of assets, minority interests, and discontinued operations
    (3,479 )     10,413       13,090               4,267       (1,067 )                
Gain on disposition of assets
          500                                            
Minority interests
    21       (82 )     50               (27 )     6                  
                                                                 
(Loss) income from continuing operations
    (3,458 )     10,831       13,140               4,240       (1,061 )                
Discontinued operations, net of minority interests
    738       (102 )     (16 )             (26 )     195                  
                                                                 
Net (loss) income
    (2,720 )     10,729       13,124               4,214       (866 )                
Distributions and accretion on Class E Preferred Units
          (1,218 )     (6,554 )             (1,222 )     (2,061 )                
                                                                 
Net (loss) income allocable to common units
  $ (2,720 )   $ 9,511     $ 6,570     $             $ 2,992     $ (2,927 )   $       $  
                                                                 
 


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    As of March 31, 2008(1)  
                Pro forma
 
Balance sheet information   Actual     Pro forma     as adjusted  
   
    (in thousands)  
 
Net investment in real estate
  $ 472,474     $ 472,474     $            
Cash and cash equivalents
    8,856       40,857          
Loan receivables
    39,756       7,756          
Total assets
    555,754       606,885          
Total debt
    385,246       385,246          
Total liabilities
    438,123       437,753          
Minority interests
    1,478       117,631          
Total stockholders’ equity
    83,763       1          
Total liabilities and stockholders’ equity
    555,754       606,885          
 
 
(1) The summary balance sheet data as of March 31, 2008 is presented (a) on an actual basis for our predecessor partnership, (b) on a pro forma basis to give effect to the Recapitalization Transactions, the consolidation of AAM and the repayment of certain loans by entities controlled by Messrs. Karkomi and Bernfield and (c) on a pro forma adjusted basis to give effect to the transactions described in (b), the sale by us pursuant to this offering of           shares of common stock at an assumed initial public offering price of $      per share, the midpoint of the range set forth on the cover page of this prospectus, and the application of the net proceeds from this offering as described in “Use of Proceeds.”
 
                                                                 
    Year ended December 31,     Three months ended March 31,  
                      2007
                2007
    2008
 
                      Pro forma as
                Pro forma as
    Pro forma as
 
Other information   2005     2006     2007     adjusted     2007     2008     adjusted     adjusted  
   
    (in thousands)        
 
Funds from operations
  $ 2,226     $ 18,524     $ 26,280     $       $ 7,239     $ 2,598     $       $    
EBITDA
    9,580       33,946       47,041               11,832       8,526                  
Cash Flows
                                                               
Provided by operating activities
    7,765       20,524       25,167               2,762       5,571                  
Used in investing activities
    (11,581 )     (81,026 )     (68,249 )             (42,993 )     (471 )                
Provided by (used in) financing activities
    16,815       59,204       46,646               42,085       (12,386 )                
 
We consider funds from operations, or FFO, and earnings before interest, tax, depreciation and amortization, or EBITDA, to be key measures of our performance which should be considered along with, but not as an alternative to, net income and cash flow as a measure of operating performance and liquidity. As defined by the National Association of Real Estate Investment Trusts, or NAREIT, FFO represents net income (computed in accordance with generally accepted accounting principles, or 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. We define EBITDA as net income plus interest expense, tax, depreciation and amortization less rental income from intangible amortization.

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We believe that FFO and EBITDA are important supplemental measures of our operating performance. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. The term FFO was designed by the real estate industry, and the term EBITDA is similarly used, to address this issue. Because FFO excludes depreciation and amortization unique to real estate, gains from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year or with other REITs, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. We believe that EBITDA is similarly used to evaluate operating performance between periods and among REITs by excluding the effect of depreciation, amortization, interest expense and rental income from intangible amortization.
 
We offer these measures to assist the users of our financial performance under GAAP, but FFO and EBITDA are not financial measures recognized under GAAP 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 pay dividends or make distributions. In addition, our calculations of FFO and EBITDA are not necessarily comparable to FFO or EBITDA as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. Investors in our securities should not rely on these measures as a substitute for any GAAP measure, including net income.
 
The following table is a reconciliation of our net (loss) income to FFO:
 
                                                                 
    Year ended December 31,     Three months ended March 31,  
                      2007
                2007
    2008
 
                      Pro forma as
                Pro forma as
    Pro forma as
 
Funds from operations   2005     2006     2007     adjusted     2007     2008     adjusted     adjusted  
   
    (in thousands)                    
 
Net (loss) income
  $ (2,720 )   $ 10,729     $ 13,124     $              $4,214     $ (866 )   $             $          
Depreciation
    4,946       8,295       13,156               3,025       3,464                  
Gain on sale of assets
          (500 )                                          
                                                                 
Funds From Operations
  $ 2,226     $ 18,524     $ 26,280     $             $ 7,239     $ 2,598     $             $          
                                                                 
                                                                 
 
The following table is a reconciliation of our net (loss) income to EBITDA:
 
                                                                 
    Year ended December 31,     Three months ended March 31,  
                      2007
                2007
    2008
 
                      Pro forma as
                Pro forma as
    Pro forma as
 
EBITDA   2005     2006     2007     adjusted     2007     2008     adjusted     adjusted  
   
    (in thousands)                    
 
Net (loss) income
  $ (2,720 )   $ 10,729     $ 13,124     $             $ 4,214     $ (866 )   $             $          
Interest expense
    8,832       15,767       24,254               5,444       6,573                  
Depreciation and amortization
    5,338       10,648       13,596               3,146       3,616                  
Rental income from intangible amortization
    (1,870 )     (3,198 )     (3,933 )             (972 )     (797 )                
                                                                 
Earnings Before Interest Tax Depreciation and Amortization
  $ 9,580     $ 33,946     $ 47,041     $             $ 11,832     $ 8,526     $             $          
                                                                 


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Risk factors
 
An investment in our common stock involves significant risks. You should consider the following risks in addition to information set forth elsewhere in this prospectus before making your investment decision. 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. If this were to happen, the price of our common stock could decline significantly and you could lose all or a part of your investment.
 
RISKS RELATING TO OUR BUSINESS AND OPERATIONS
 
Certain operators account for a significant percentage of our rental income.
 
For the quarter ended March 31, 2008, 16.3% of our total rent under existing leases was from Cathedral Rock, which operates 18 of our properties in Illinois, Missouri, New Mexico and Texas, and approximately 13.0% of our total rent under existing leases was from Daybreak, which operates 28 of our properties in Texas. No other operator generated more than 8.8% of our total rent under existing leases for the quarter ended March 31, 2008.
 
The failure or inability of any of these operators to meet their obligations to us could materially reduce our rental income and net income, which could in turn reduce the amount of dividends we pay and cause our stock price to decline.
 
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 quarter ended March 31, 2008, the three states from which we derived the largest amount of rent under existing leases were Texas (18.4%), California (12.6%) and Missouri (9.7%). 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 face increasing competition for the acquisition of healthcare properties, principally SNFs, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions.
 
We compete with many other businesses engaged in real estate investment activities for the acquisition of healthcare properties, principally SNFs, including local, regional and national operators and acquirers and developers of healthcare real estate properties. The competition for healthcare real estate properties may significantly increase the price we might pay for SNFs or other healthcare properties we seek to acquire and our competitors may succeed in acquiring those facilities themselves. In addition, SNF operators with whom we attempt to do business may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible


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Risk factors
 
 
operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition may result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for SNFs or other healthcare properties, our business, financial condition and results of operations, our ability to make distributions to our stockholders and the trading price of our common stock may be materially and adversely affected.
 
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.
 
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. We may not be successful in identifying suitable properties or other assets that meet our acquisition criteria or in consummating acquisitions or investments on satisfactory terms or at all. Failure to identify or consummate acquisitions or investment opportunities, or to integrate successfully any acquired properties without substantial expense, delay or other operational or financial problems, would slow our growth, which could in turn adversely affect our stock price.
 
Our ability to acquire properties on favorable terms may be constrained by the following significant risks:
 
Ø  competition from other real estate investors with significant capital, including other publicly-traded REITs and institutional investment funds;
 
Ø  competition from other potential acquirers may significantly increase the purchase price for a property we acquire, which could reduce our growth prospects;
 
Ø  unsatisfactory results of our due diligence investigations or failure to meet other customary closing conditions; and
 
Ø  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, our ability to make distributions to our stockholders and the trading price of our common stock may be materially and adversely affected.
 
Our systems may not be adequate to support our growth.
 
We cannot assure you that we will be able to adapt our portfolio management, administrative, accounting and operational systems, or hire and retain sufficient operational staff, to support any growth we may experience. Our failure to successfully oversee our current portfolio of properties or any future acquisitions or developments could have a material adverse effect on our results of operations and financial conditions and our ability to make distributions.
 
We rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future investments necessary to grow our business or meet maturing commitments.
 
In order to qualify as a REIT under the Code, we will be required, among other things, to distribute each year to our stockholders at least 90% of our REIT taxable income. Because of this distribution requirement, we may not be able to fund, from cash retained from operations, all of our future capital needs, including capital needs to make investments and to satisfy or refinance maturing commitments. As a result, we expect to rely on external sources of capital, including debt and equity financing. If we are unable to obtain needed capital at all or only on unfavorable terms from these sources, we might not be able to make the investments needed to expand our business, or to meet our obligations and commitments as they mature. Our access to capital will depend upon a number of factors over which


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Risk factors
 
 
we have little or no control, including general market conditions, the market’s perception of our current and potential future earnings and cash distributions and the market price of the shares of our capital stock. We may not be in position to take advantage of attractive investment opportunities for growth in the event that we are unable to access the capital markets on a timely basis or we are only able to obtain financing on unfavorable terms.
 
Our ability to raise capital to expand our business through sales of equity will depend, in part, on the market price of our common stock, and our failure to meet market expectations with respect to our business could negatively impact the market price of our common stock and limit our ability to sell equity.
 
The availability of equity capital to us will depend, in part, on the market price of our common stock which, in turn, will depend upon various market conditions and other factors that may change from time to time including:
 
Ø  the extent of investor interest;
 
Ø  our ability to satisfy the distribution requirements applicable to REITs;
 
Ø  the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;
 
Ø  our financial performance and that of our tenants;
 
Ø  the contents of analyst reports about us and the REIT industry;
 
Ø  general stock and bond market conditions, including changes in interest rates on fixed income securities, which may lead prospective purchasers of our common stock to demand a higher annual yield from future distributions;
 
Ø  our failure to maintain or increase our dividend, which is dependent, to a large part, on growth of funds from operations which, in turn, depends upon increased revenues from additional investments and rental increases; and
 
Ø  other factors such as governmental regulatory action and changes in REIT tax laws.
 
The market value of the equity securities of a REIT is generally based upon the market’s perception of the REIT’s current and potential future earnings and cash distributions. Our failure to meet the market’s expectation with regard to future earnings and cash distributions would likely adversely affect the market price of our common stock.
 
We are subject to risks associated with debt financing, which could negatively impact our business, limit our ability to make distributions to our stockholders and to repay maturing debt.
 
Financing for future investments and our maturing commitments may be provided by borrowings under our credit facility, private or public offerings of debt, the assumption of secured indebtedness, mortgage financing on a portion of our owned portfolio or through joint ventures. Upon the consummation of this offering, we expect to refinance a portion of our existing indebtedness. 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 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 pay distributions to our stockholders and to repay all maturing debt. 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 and the amount of dividends we are able to pay. Moreover, additional debt financing increases the amount of our leverage.


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Risk factors
 
 
Our substantial indebtedness could adversely affect our financial condition.
 
We have substantial indebtedness and we may increase our indebtedness in the future. Following the anticipated application of the net proceeds of this offering to reduce our debt, we anticipate that we would have had total debt of approximately $      million as of March 31, 2008, based on an initial public offering price of $      per share, the midpoint of the range indicated on the cover of this prospectus. Our level of indebtedness could have important consequences to our stockholders. For example, it could:
 
Ø  limit our ability to satisfy our obligations with respect to holders of our capital stock;
 
Ø  increase our vulnerability to general adverse economic and industry conditions;
 
Ø  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;
 
Ø  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;
 
Ø  require us to pledge as collateral substantially all of our assets;
 
Ø  require us to maintain certain debt coverage and financial ratios at specified levels, thereby reducing our financial flexibility;
 
Ø  limit our ability to make material acquisitions or take advantage of business opportunities that may arise;
 
Ø  expose us to fluctuations in interest rates, to the extent our borrowings bear variable rates of interests;
 
Ø  limit our flexibility in planning for, or reacting to, changes in our business and industry; and
 
Ø  place us at a potential competitive disadvantage compared to our competitors that have less debt.
 
Failure to hedge effectively against interest rate changes may adversely affect our results of operations and our ability to make distributions to our stockholders.
 
Upon consummation of this offering and application of the net proceeds of this offering to reduce our debt, we expect to have approximately $      in variable interest rate debt outstanding, based on an assumed initial public offering price of $      per share, the midpoint of the range indicated on the cover of this prospectus. We currently seek to manage our exposure to interest rate volatility by using interest rate swap arrangements that involve risk, including the risk that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that these arrangements may result in higher interest rates than we would otherwise have. Moreover, no hedging activity can completely insulate us from the risks associated with changes in interest rates. Failure to hedge effectively against interest rate changes may materially adversely affect results of operations and our ability to make distributions to our stockholders.
 
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


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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 cannot assure you that we will 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 performance of our properties may have a material adverse effect on our business, financial condition, results of operations, our ability to make distributions to our stockholders and the trading price of our common stock.
 
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 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.
 
Our assets may be subject to impairment charges.
 
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and legal structure. If we determine that a significant impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse affect on our results of operations and funds from operations in the period in which the write-off occurs. As part of our impairment evaluation at December 31, 2007, we recorded a charge of approximately $3.0 million.
 
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 or remediation of, or related releases of, certain 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 and 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 owner’s 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


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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. As of March 31, 2008, we had 16 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. Our employment agreements with our executive officers provide that their employment may be terminated by either party at any time. 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.
 
RISKS RELATING TO OUR TENANTS AND THE SKILLED NURSING FACILITY INDUSTRY
 
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 properties may not be 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. These adverse developments could arise due to a number of factors, including those described in the risk factors below.
 
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.


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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:
 
Ø  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. Facilities may also be affected by changes in accreditation standards or procedures of accrediting agencies that are recognized by governments in the certification process. State licensing laws require operators of SNFs and other healthcare facilities to comply with extensive standards governing operations. State agencies administering those laws regularly inspect such facilities and investigate complaints. If a tenant does not continue to meet all regulatory requirements, that tenant may lose its ability to provide or bill and receive payment for healthcare services. In such event, revenues from those facilities could be reduced or eliminated for an extended period of time or permanently. 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.
 
Ø  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. CON laws in those states that have them generally require an applicant to demonstrate the need for constructing a new facility, expanding an existing facility, changing the ownership or control of an existing licensed facility, or terminating services that have been approved through the CON process. The CON laws and regulations may restrict our ability to add new facilities or expand an existing facility’s size or services. In addition, CON laws may constrain our ability to lease a particular property to a new tenant.
 
Ø  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. Medicare and Medicaid laws also require operators of SNFs to comply with extensive standards governing operations. Federal and state agencies administering those laws regularly inspect such facilities and investigate complaints. From time to time, our tenants are notified of potential penalties, financial or otherwise, relating to facilities operated by them, and such penalties have been imposed from time to time. If they are unable to cure deficiencies which have been identified or which are identified in the future, such sanctions may be imposed and if imposed may adversely affect our tenants’ revenues, which may affect their ability to meet their obligations to us.
 
Ø  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. Governments are devoting increasing attention and resources to anti-fraud initiatives against healthcare providers. The Office of the Inspector General of the U.S. Department of Health and Human Services has announced a number of new and ongoing initiatives for 2008 to study instances of potential Medicare and Medicaid overbilling and/or fraud in SNFs. Violations of these laws subject persons and entities to termination from participation in Medicare, Medicaid and other federally funded healthcare programs. In addition, the federal False Claims Act allows a private individual with knowledge of fraud to bring a claim on behalf of the federal government and earn a percentage of


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the federal government’s recovery. Because of these incentives, these so-called ”whistleblower” suits have become more frequent. The violation of any of these laws or regulations by a tenant may result in the imposition of treble damages and fines or other penalties, which may affect that tenant’s ability to meet its obligations to us or to continue operating the facility.
 
Ø  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.
 
Ø  Legislative and Regulatory Developments.  Legislative proposals are often introduced or proposed in Congress and in some state legislatures that would effect changes in the healthcare system. Enactment of the Medicare prescription drug benefit and other expansions of coverage could result in financial pressures on the Medicare program that might result in future legislative and regulatory changes that would impact our tenants. In addition, the healthcare industry faces additional costs associated with mandated initiatives to improve quality of care and reduce medical errors throughout the industry and cost-containment initiatives by public and private payors. 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. 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. In 2007, CMS instituted a Special Focus Facility, or SFF, initiative to stimulate improvement in the quality of care for SNFs with a history of compliance difficulties. Properties are identified based on SNFs that have more problems than other SNFs (about twice the average number of deficiencies), more serious problems than most SNFs and a pattern of problems that has persisted over a long period of time (generally three years). CMS requires that SFFs be visited by survey teams twice as frequently as other nursing homes (about twice per year). Within approximately 24 months after a facility is identified as a SFF, CMS expects one of three outcomes: improvement and graduation from the list; termination from participation in Medicare; or an extension of time to continue showing improvement.
 
Our tenants depend on reimbursement from government and other third-party payors and reimbursement rates from such payors may be reduced.
 
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 facility’s 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


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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.
 
Possible changes in the acuity profile of our tenants’ residents as well as payor mix and payment methodologies may significantly affect the profitability of our tenants.
 
The sources and amounts of our tenants’ revenues are determined by a number of factors, including licensed bed capacity, occupancy, the acuity profile of residents and the rate of reimbursement. Changes in the acuity profile of the residents as well as payor mix among private pay, Medicare and Medicaid may significantly affect our tenants’ profitability and which may affect their ability to meet their obligations to us.
 
Our tenants’ labor costs may increase with a potential shortage of qualified personnel.
 
The market for qualified nurses, healthcare professionals and other key personnel is highly competitive and our tenants may experience difficulties in attracting and retaining qualified personnel. Increases in labor costs due to higher wages and greater benefits required to attract and retain qualified healthcare personnel incurred by our tenants could affect their ability to meet their obligations to us. This situation could be particularly acute in certain states that have enacted legislation establishing or increasing minimum staffing requirements.
 
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 tenant’s 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


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substantial additional liabilities, which could result in its bankruptcy or insolvency or have a material adverse effect on the tenant’s 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.
 
Delays in our tenants’ collection of their accounts receivable could adversely affect their cash flows and financial condition and their ability to meet their obligations to us.
 
Prompt billing and collection are important factors in the liquidity of our tenants. Billing and collection of accounts receivable are subject to the complex regulations that govern Medicare and Medicaid reimbursement and rules imposed by non-government payors. The inability of our tenants to bill and collect on a timely basis pursuant to these regulations and rules could subject them to payment delays that could negatively impact their cash flows and ultimately their financial condition and their ability to meet their obligations to us.
 
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 no 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 tenant’s lease and could have a material adverse effect on our business, financial condition and results of operations, our ability to make distributions to our stockholders and the trading price of our common stock.
 
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 the trading price of our common stock.
 
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 the


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trading price of our common stock. Furthermore, dealing with a tenant’s bankruptcy or other default may divert management’s attention and cause us to incur substantial legal and other costs.
 
If one or more of our tenants files for bankruptcy relief, the 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 tenant’s properties leased from us, or are cross-defaulted with other leases, and consequently, 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 Bankruptcy Code generally requires that a debtor must assume or reject a contract in its entirety. Thus, a debtor cannot 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 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.
 
Increased competition may affect the ability of our tenants to meet their obligations to us.
 
The healthcare industry is highly competitive. Our tenants are competing with numerous other companies providing similar healthcare services or alternatives such as long-term acute care hospitals, in-patient rehabilitation facilities, home health agencies, hospices, life care at home, community-based service programs, retirement communities and convalescent centers. We cannot be certain that our tenants will be able to achieve performance levels that will enable them to meet their obligations to us.
 
RISKS RELATING TO OUR ORGANIZATION AND STRUCTURE
 
After the consummation of this offering, our primary assets will be our general partner interest in our operating partnership and OP Units in our operating partnership and, as a result, we will depend on distributions from our operating partnership to pay dividends and expenses.
 
After the consummation of this offering, we will be a holding company and will have no material assets other than our general partner interest and OP Units in our operating partnership. We intend to cause our operating partnership to make distributions to limited partners, including us, in an amount sufficient to allow us to qualify as a REIT for federal income tax purposes and to pay all our expenses. To the extent we need funds and our operating partnership is restricted from making distributions under applicable law or otherwise, or if our operating partnership is otherwise unable to provide such funds, the failure to make such distributions could materially adversely affect our liquidity and financial condition.
 
Members of our management and board of directors will be unitholders of our operating partnership, and their interests may differ from those of our public stockholders.
 
After the consummation of this offering, members of our management and board of directors will also be holders of OP Units of our operating partnership. Those unitholders may have conflicting interests with holders of our common stock. For example, holders of OP Units may have different tax positions


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from us or holders of our common stock, which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness and how to structure future transactions.
 
Upon the consummation of this offering and the Recapitalization Transactions, Mr. Karkomi, our Chairman Emeritus, and Mr. Bernfield, our Chairman, Chief Executive Officer and President, and certain of their respective affiliates, family members and estates and trusts will own shares of common stock and OP Units representing     % and     %, respectively, of our outstanding common stock on a fully-diluted basis and will have the ability to exercise significant influence over our company and any matter presented to our stockholders.
 
Upon the consummation of this offering and the Recapitalization Transactions, Mr. Karkomi, our Chairman Emeritus, and Mr. Bernfield, our Chairman, Chief Executive Officer and President, and certain of their respective affiliates, family members and estates and trusts will own shares of common stock and OP Units representing     % and     %, respectively, of our outstanding common stock on a fully-diluted basis. Consequently, each of them individually or, to the extent their interests are aligned, collectively may be able to influence the outcome of matters submitted for stockholder action, including the election of our board of directors and approval of significant corporate transactions, including business combinations, consolidations and mergers and the determination of our day-to-day corporate and management policies. Therefore, each of them will have substantial influence over us and could exercise influence in a manner that is not in the best interests of our other stockholders. This concentration of ownership might also have the effect of delaying or preventing a change of control that our stockholders may view as beneficial.
 
We have never operated as a REIT or as a public company and therefore may have difficulty in successfully and profitably operating our business in compliance with the regulatory requirements applicable to REITs and to public companies.
 
Prior to this offering, we have not operated as a REIT or complied with the numerous technical restrictions and limitations set forth in the Code, as applicable to REITs. We also have no experience operating as a public company, or complying with regulatory requirements applicable to public companies, including the Sarbanes-Oxley Act of 2002. As a result, we cannot assure you that we will be able to successfully operate as a REIT, execute our business strategies as a public company, or comply with regulatory requirements applicable to REITs or public companies, and you should be especially cautious in drawing conclusions about the ability of our management team to operate our business.
 
We are subject to significant anti-takeover provisions.
 
Our charter and bylaws contain various procedural and other requirements which could make it difficult for stockholders to effect certain corporate actions. Upon the consummation of this offering, our board of directors will be divided into three classes and the members of our board of directors will be elected for terms that are staggered. Our board of directors also has the power to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of any class or series of stock, to issue additional shares of common stock or preferred stock and to fix the terms of one or more classes or series of stock without stockholder approval. These provisions, along with the ownership limit and certain provisions of Maryland law described below, could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our securities. See “Certain provisions of Maryland law and of our charter and bylaws.”
 
Our charter restricts the ownership and transfer of our outstanding stock.
 
In order for us to qualify as a REIT, no more than 50% of the value of outstanding shares of our stock may be owned, actually or constructively, by five or fewer individuals at any time during the last half of


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each taxable year. Subject to some exceptions, our charter prohibits any stockholder from owning actually or constructively more than 8.3% (by value or number of shares, whichever is more restrictive) of our outstanding common stock or of our outstanding stock of all classes and series. Our charter’s constructive ownership rules are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 8.3% of our outstanding stock by an individual or entity could cause that individual or entity to own constructively in excess of 8.3% of our outstanding stock, and thus be subject to our charter’s ownership limit. Our charter also prohibits any person from owning shares of our stock that would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT. Any attempt to own or transfer shares of our common stock in violation of these restrictions may result in the shares being automatically transferred to a charitable trust or may be void.
 
Certain provisions of Maryland law may limit the ability of a third party to acquire control of our company.
 
Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of delaying, deferring or preventing a transaction or a change of control of our company that might involve a premium price for holders of our common stock or otherwise be in their best interests.
 
Subject to certain limitations, provisions of the MGCL prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our stock or an affiliate or associate of us who beneficially owned 10% or more of the voting power of our stock during the previous two years) or an affiliate of the interested stockholder for five years after the most recent date on which the stockholder became an interested stockholder. After the five year period, business combinations between us and an interested stockholder or an affiliate of the interested stockholder must generally either provide a minimum price to our stockholders or be approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding stock and at least two-third of the votes entitled to be cast by stockholders other than the interested stockholder and its affiliates and associates.
 
These provisions of the MGCL relating to business combinations do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that the interested stockholder becomes an interested stockholder. As permitted by the statute, our board of directors has by resolution exempted Mr. Karkomi, his affiliates and associates and all persons acting in concert with the foregoing, and Mr. Bernfield, his affiliates and associates and all persons acting in concert with the foregoing, from the business combination provisions of the MGCL and, consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations between us and these persons. As a result, these persons may be able to enter into business combinations with us that may not be in the best interests of our stockholders without compliance by our company with the supermajority vote requirements and the other provisions of the statute.
 
The MGCL also provides that control shares (which are shares of our stock which, when aggregated with other shares that the acquiror owns or is entitled to direct the exercise of voting power (other than solely by virtue of a revocable proxy), entitle the stockholder to exercise at least 10% but less than 33%, at least 33% but less than 50% or at least 50% of the voting power in the election of directors) generally have no voting rights except to the extent approved by stockholders (other than the holder of the control shares, our officers and our directors who are also our employees) entitled to cast at least two-thirds of the votes entitled to be cast on the matter. As permitted by Maryland law, our bylaws contain a provision exempting from the provisions of the MGCL relating to control share acquisitions any and all acquisitions by any person of our common stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future.


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Additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to elect to be subject to certain provisions relating to corporate governance that may have the effect of delaying, deferring or preventing a transaction or a change of control of our company that might involve a premium to the market price of our common stock or otherwise be in our stockholders’ best interests.
 
Upon the consummation of this offering, we will already be subject to all of these provisions, either by provisions of our charter and bylaws unrelated to Subtitle 8 or by reason of an election in our charter to be subject to certain provisions of Subtitle 8.
 
We may change our investment strategies and policies without stockholder approval.
 
Our board of directors, without the approval of our stockholders, may alter our investment strategies and policies if it determines that a change is in our best interests. The methods of implementing our investment strategies and policies may vary as new investments and financing techniques are developed.
 
We have identified material weaknesses in our internal controls and 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 stock price.
 
Commencing in fiscal 2009, we will be required to perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to begin reporting in 2010 on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. We have commenced developing internal audit functions, but we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We may experience deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. For instance, in connection with the financial statement audits of our predecessor partnership for the years ended December 31, 2007 and for the years ended December 31, 2006 and 2005, our independent registered public accounting firm informed us that they had identified material weaknesses in our internal controls as defined by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which our internal controls do not reduce to a low level the risk that misstatements caused by error or fraud in amounts that are material to our audited financial statements may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. The material weaknesses reported by our independent registered public accounting firm for these periods related to the design of the controls surrounding our financial statement closing process and our lack of adequate resources and detailed supervisory review to prepare and oversee annual closing procedures of our records and/or the required reconciliation preparation on a timely basis.
 
We have been and will continue to be involved in a substantial effort to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any deficiencies identified and test their operation. During 2008, we took measures to improve the effectiveness of our internal controls by strengthening our internal staffing and technical expertise in financial accounting and SEC reporting, implementing executive-level review of financial statements and complex transactions, enhancing and segregating duties within our accounting and finance department and upgrading our accounting software systems. We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify. However, the existence of a material weakness is an indication that there is a more than remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period, and the process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system


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Risk factors
 
 
of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot be certain that we will be able to successfully complete the procedures, certification and attestation requirements of Section 404 or that we or our independent registered public accounting firm will not identify additional material weaknesses in our internal control over financial reporting. If we fail to comply with the requirements of Section 404 or if we or our independent registered public accounting firm identify and report a material weakness, it may affect the reliability of our internal control over financial reporting, which could adversely affect the market price of our stock and we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities, which would require additional financial and management resources.
 
RISKS RELATING TO OUR TAX STATUS AND OTHER TAX RELATED MATTERS
 
Our failure to qualify or remain qualified as a REIT would have significant adverse consequences to us and the value of our common stock.
 
We intend to operate in a manner that will allow us to qualify as a REIT for U.S. federal income tax purposes under the Code. We have not requested and do not plan to request a ruling from the 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 distribution to our stockholders for each of the years involved because:
 
Ø  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;
 
Ø  we also could be subject to the U.S. federal alternative minimum tax and possibly increased state and local taxes; and
 
Ø  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.
 
In addition, if we lose our qualification as a REIT, we will not be required to make distributions to stockholders, and all distributions to our stockholders will be subject to tax as regular corporate dividends to the extent of our current and accumulated earnings and profits. This means that our U.S. individual stockholders would be taxed on our dividends at a maximum U.S. federal income tax rate of 15% (through 2010), and our corporate stockholders generally would be entitled to the dividends received deduction with respect to such dividends, subject, in each case, to applicable limitations under the Code.
 
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 qualify as a REIT. The complexity of these provisions and of the applicable U.S. Treasury Department regulations, or Treasury 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 qualify as a REIT. In order to qualify 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 and raise capital, and would adversely affect the value of our common stock.


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Risk factors
 
 
Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flow.
 
Even if we qualify 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.
 
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 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.
 
Dividends payable by REITs generally do not qualify for reduced tax rates.
 
The maximum tax rate for dividends payable by domestic corporations to individual U.S. stockholders (as such term is defined under “U.S. Federal Income Tax Considerations” below), is 15% (through the end of 2010). Dividends payable by REITs, however, are generally not eligible for the reduced rates. The more favorable rates applicable to regular corporate dividends could cause stockholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.
 
In addition, the relative attractiveness of real estate in general may be adversely affected by the favorable tax treatment given to corporate dividends, which could negatively affect the value of our properties.
 
Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.
 
To qualify as a REIT for U.S. federal income tax purposes, we continually must satisfy tests concerning, among other things, the sources of our income, the type and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income, asset-diversification or distribution requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments.
 
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 does not constitute “gross income” for purposes of the 95% gross income test, but would generally constitute non-qualifying income for purposes of the 75% 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,


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Risk factors
 
 
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. 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.
 
RISKS RELATING TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK
 
If you purchase shares of common stock in this offering, you will experience immediate and significant dilution in the net tangible book value per share of our common stock.
 
We expect the initial public offering price of our common stock to be substantially higher than the book value per share of our outstanding common stock immediately after this offering. If you purchase our common stock in this offering, you will incur immediate dilution of approximately $      in the book value per share of common stock from the price you pay for our common stock in this offering, based on an assumed initial public offering price of $      per share, the midpoint of the range indicated on the cover of this prospectus. See “Dilution” for further discussion of how your ownership interest in us will be immediately diluted.
 
There is currently no public market for our common stock and an active trading market for our common stock may never develop following this offering.
 
Prior to this offering, there has been no public market for our common stock. We intend to list all of our shares of common stock on the NYSE under the symbol “AVI”. However, an active trading market for our common stock may never develop or be sustained. If an active trading market does not develop, you may have difficulty selling any shares that you buy.
 
The market price of our common stock may be volatile, which could cause the value of your investment to fluctuate and possibly decline significantly.
 
Even if an active trading market develops for our common stock after this offering, the market price of our common stock may be highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market price of our common stock. Some of the factors that could negatively affect our share price or result in fluctuations in the price of our stock include:
 
Ø  actual or anticipated variations in our quarterly operating results;
 
Ø  changes in our funds from operations or earnings estimates;
 
Ø  increases in market interest rates may lead purchasers of our shares to demand a higher yield;
 
Ø  changes in market valuations of similar companies;
 
Ø  adverse market reaction to any increased indebtedness we incur in the future;
 
Ø  additions or departures of key personnel;
 
Ø  actions by stockholders;


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Risk factors
 
 
 
Ø  speculation in the press or investment community;
 
Ø  general market, economic and political conditions;
 
Ø  our operating performance and the performance of other similar companies;
 
Ø  changes in accounting principles; and
 
Ø  passage of legislation or other regulatory developments that adversely affect us or our industry.
 
Market interest rates may have an effect on the value of our common stock.
 
One of the factors that investors may consider in deciding whether to buy or sell our common stock is our distribution rate as a percentage of our stock price, relative to market interest rates. If market interest rates increase, prospective investors may desire a higher distribution or interest rate on our common stock or seek securities paying higher dividends or interest. The market price of our common stock likely will be based primarily on the earnings that we derive from rental income with respect to our properties and our related distributions to stockholders, and not from the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions can affect the market value of our common stock. For instance, if interest rates rise, it is likely that the market price of our common stock will decrease because potential investors may require a higher dividend yield on our common stock as market rates on interest-bearing securities, such as bonds, rise. In addition, rising interest rates would result in increased interest expense on our variable rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and make distributions to stockholders.
 
Future sales of shares of our common stock may depress the price of our shares.
 
We cannot predict whether future issuances of shares of our common stock or the availability of shares for resale in the open market will decrease the market price per share of our common stock. Any sales of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, may cause the market price of our shares to decline. Upon the consummation of this offering and the Recapitalization Transactions, all shares of common stock sold in this offering will be freely tradable without restriction (other than the ownership limit and the other restrictions on ownership and transfer of our stock as set forth in our charter), unless the shares are owned by one of our affiliates or subject to the lock-up agreements described below. See “Shares Eligible for Future Sale.”
 
We, each of our directors and executive officers, and certain of our existing security holders that will hold           shares immediately following this offering have agreed, with limited exceptions, that we and they will not, without the prior written consent of UBS Securities LLC and Banc of America Securities LLC on behalf of the underwriters, during the period ending 180 days after the date of this prospectus (subject to extension under certain circumstances), among other things, directly or indirectly, offer to sell, sell or otherwise dispose of any shares of our common stock or file a registration statement with the SEC relating to the offering of any shares of our common stock.
 
Subsequent to consummation of this offering, we intend to file a registration statement on Form S-8 to register all shares of common stock reserved for issuance under our 2008 long-term stock incentive plan, and once we register these shares they can be freely sold in the public market after issuance. Certain of our existing stockholders are party to registration rights agreements with us. Pursuant to those agreements, and after the lock-up agreements pertaining to this offering expire, these stockholders will have the right to demand that we register under the Securities Act for resale all or a portion of the approximately           shares of our common stock or OP Units, which would be exchanged for shares of common stock held by the stockholders who are parties to those agreements. Registration of the sale of these shares of our common stock would facilitate their sale into the public market. If any or all of these holders cause a large number of their shares to be sold in the public market, such sales could reduce the trading price of our common stock and could impede our ability to raise future capital.


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Risk factors
 
 
The exercise of any options or the vesting of any restricted stock granted to our directors, executive officers and other employees under our 2008 long-term stock incentive plan, the issuance of our common stock in connection with facility, portfolio or business acquisitions and other issuances of our common stock could have an adverse effect on the market price of the shares of our common stock. The existence of options and shares of our common stock reserved for issuance as restricted stock or upon exercise of options may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities. In addition, future sales of shares of our common stock by us may be dilutive to existing stockholders.
 
Our cash available for distributions may not be sufficient to make distributions at expected levels.
 
Our estimated initial annual distributions represent     % of our estimated initial cash available for distributions for the twelve months ending March 31, 2009 as calculated in “Distribution Policy.” We may be unable to pay our estimated initial annual distributions to stockholders out of cash available for distributions as calculated in “Distribution Policy.” If sufficient cash is not available for distributions from our operations, we may have to fund distributions from working capital or to borrow to provide funds for such distributions, or to reduce the amount of such distributions. In the event the underwriters’ over-allotment option is exercised, pending investment of the proceeds therefrom, our ability to pay such distributions out of cash from our operations may be further adversely affected.


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Special note regarding forward-looking statements
 
This prospectus includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. You can identify forward-looking statements by their use of forward-looking words, such as “may,” “will,” “anticipates,” “expect,” “believe,” “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 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 are disclosed under “Risk Factors” and elsewhere in this prospectus. These factors include, among others:
 
Ø  uncertainties relating to the operations of our tenants, including those relating to reimbursement by government and other third-party payors, compliance with regulatory requirements and occupancy levels;
 
Ø  regulatory, reimbursement and other changes in the healthcare industry;
 
Ø  the performance and reputation of our tenants;
 
Ø  competition in the financing of healthcare facilities;
 
Ø  our ability to oversee our portfolio;
 
Ø  our ability to re-lease or sell any of our properties;
 
Ø  our ability to successfully engage in strategic acquisitions and investments;
 
Ø  the effect of economic and market conditions generally and, particularly, in the healthcare industry;
 
Ø  the availability and cost of capital;
 
Ø  changes in interest rates;
 
Ø  the amount and yield of any additional investments;
 
Ø  changes in tax laws and regulations affecting REITs; and
 
Ø  our ability to maintain our status as a REIT.
 
Except as required by law, 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.


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Our structure
 
Following the consummation of this offering, we will conduct our business through a traditional umbrella partnership REIT, or UPREIT, in which our properties are owned by our operating partnership, Aviv Healthcare Properties Operating Limited Partnership, and direct and indirect subsidiaries of our operating partnership. A wholly owned subsidiary of ours will be the sole general partner of the operating partnership. Our wholly owned subsidiary and the limited partners of our predecessor partnership (including our directors and executive officers) will initially own all of the limited partnership units of our operating partnership, which we refer to as “OP Units.” In the future, we may issue OP Units to third parties from time to time in connection with acquisitions or other transactions.
 
The following chart reflects an overview of our organizational structure immediately following consummation of the Recapitalization Transactions and this offering:
 
(CHART)


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Our structure
 
 
RECAPITALIZATION TRANSACTIONS
 
Immediately prior to the consummation of this offering, we will effect certain transactions, which we refer to as the “Recapitalization Transactions,” which will simplify the capital structure of our operating partnership. Prior to this offering, the capital structure of our predecessor partnership, Aviv Healthcare Properties Limited Partnership, consisted of six classes of partnership units, each of which had different capital accounts and each of which was entitled to different distributions.
 
Pursuant to the Recapitalization Transactions, certain classes of our predecessor partnership will be exchanged for an aggregate of           OP Units. Certain other units of our predecessor partnership held by entities controlled by Messrs. Karkomi and Bernfield will be redeemed with some of the proceeds of this offering by payment to those entities of an aggregate amount equal to $     . As a result, pursuant to the Recapitalization Transactions, prior to the consummation of this offering, our operating partnership, Aviv Healthcare Properties Operating Limited Partnership, will have a single class of OP Units. Following the Recapitalization Transactions, the OP Units held by limited partners of our operating partnership will be redeemable for cash, subject to our election to acquire the OP Units in exchange for shares of our common stock, on a one-for-one basis, as described under “Description of the Partnership Agreement of Our Operating Partnership.”
 
We will contribute $      of the net proceeds of this offering to our operating partnership in exchange for           OP Units (          OP Units if the underwriters exercise their over-allotment option in full). The remaining OP Units of our operating partnership will be held by the existing holders of partnership interests in our predecessor partnership, including our directors and executive officers. The selling stockholders identified in this prospectus will exchange          of the OP Units received by them pursuant to the Recapitalization Transactions for           shares of our common stock, which they are offering as part of this offering.
 
As a result of the Recapitalization Transactions and upon the consummation of this offering, we will be a holding company and our primary assets will be our general partnership interest and OP Units in our operating partnership (in each case, through one of our subsidiaries) constituting approximately     % of the issued and outstanding OP Units of our operating partnership as of the consummation of this offering (approximately     % if the underwriters exercise their over-allotment option in full).


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Use of proceeds
 
We estimate that the net proceeds to us from the sale by us of          shares of common stock will be approximately $      million, or $      million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $      per share, which is the midpoint of the range set forth on the cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses of approximately $      payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders.
 
We intend to contribute the net proceeds to us from this offering to our operating partnership in exchange for OP Units of our operating partnership. Our operating partnership intends to use those net proceeds to (i) redeem approximately $      of existing units of our operating partnership held by Zev Karkomi, our Chairman Emeritus, and related parties and Craig Bernfield, our Chairman, Chief Executive Officer and President, and related parties and (ii) repay $      of outstanding borrowings under our existing credit facilities in connection with the refinancing of all or a portion of our existing credit facilities.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $     , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
Pending any ultimate use of any portion of the proceeds from this offering, our operating partnership intends to invest the proceeds in a variety of capital preservation investments, including short-term, interest-bearing instruments such as U.S. government securities and municipal bonds.
 
         
   
    (in millions)  
 
Sources of funds
       
Proceeds from common stock offered hereby(1)
  $          
         
Total
  $  
         
Uses of funds
       
Repayment of existing indebtedness(2)
  $    
Redemption of existing units of operating partnership
       
Fees and expenses(3)
       
         
Total
  $  
         
 
 
(1) Assumes no exercise of the underwriters’ over-allotment option.
 
(2) Repayment of existing indebtedness is expected to include:
 
  Ø  repayment of $     million under our existing credit facilities; as of March 31, 2008, the outstanding balance under our existing credit facilities was $331.4 million at an interest rate of LIBOR plus 2.50% with a maturity date of September 2011;
 
  Ø  repayment of $     million under an unsecured promissory note to be used for additional investments in our properties; as of March 31, 2008, the outstanding balance under the promissory note was $4.0 million at an interest rate of LIBOR plus 2.25% with a maturity date of January 2009;
 
  Ø  repayment of $     million under a secured promissory note relating to a construction loan; as of March 31, 2008, the outstanding balance under the promissory note was $5.9 million at an interest rate equal to the prime rate with a maturity date of March 2010; and
 
  Ø  repayment of $     million under an unsecured promissory note with LaSalle Bank National Association; as of March 31, 2008, the outstanding balance under the promissory note was $14.6 million at an interest rate of 5.25% with a maturity date of December 2010.
 
(3) Includes anticipated underwriting discounts and commissions and other expenses related to this offering.


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Distribution policy
 
We intend to make regular quarterly distributions to holders of our common stock. We intend to pay a pro rata initial distribution with respect to the period commencing on the consummation of this offering and ending           , based on a distribution of $      per share for a full quarter. On an annualized basis, this would be $      per share, or an annual distribution rate of approximately     % based on an assumed initial public offering price of $      per share, the midpoint of the range indicated on the cover of this prospectus. We estimate that this initial annual distribution rate will represent approximately     % of estimated cash available for distribution for the twelve months ending March 31, 2009. If the underwriters exercise their over-allotment option in full, and we maintain our expected distribution per share, our total distribution would increase by $      and our distribution ratio would increase to  %. We have estimated our cash available for distribution to our common stockholders for the 12 months ending March 31, 2009 based on adjustments to our pro forma as adjusted net income available to common stockholders before allocation to minority interest for the 12 months ended March 31, 2008 (giving effect to this offering and the Recapitalization Transactions), as described below. This estimate was based upon the historical operating results of the properties and the Recapitalization Transactions and does not take into account any additional investments and their associated cash flows, unanticipated expenditures we may have to make or any debt we may incur. In estimating our cash available for distribution to holders of our common stock, we have made certain assumptions as reflected in the table and footnotes below. Unless our operating cash flow increases, we expect that we will be required to either fund future distributions from borrowings under our credit facilities or to reduce such distributions. If we use working capital or borrowings under our credit facilities to fund these distributions, this will reduce the cash we have available to fund our acquisition and development activities and other growth initiatives.
 
Our estimate of cash available for distribution does not include the effect of any changes in our working capital resulting from changes in our working capital accounts. Our estimate also does not reflect the amount of cash estimated to be used for investing activities. It also does not reflect the amount of cash estimated to be used for financing activities, other than scheduled amortization of our debt upon consummation of this offering and the Recapitalization Transactions. Our estimate includes the reduction in interest expense from the repayment of debt that will be funded with offering proceeds. Although we have included all material investing and financing activities that we have commitments to undertake as of March 31, 2008, during the twelve months ending March 31, 2009, we may undertake additional investing and/or financing activities. Any such investing and/or financing activities may have a material effect on our estimate of cash available for distribution. Because we have made the assumptions set forth above in estimating cash available for distribution, we do not intend this estimate to be a projection or forecast of our actual results of operations or our liquidity, and have estimated cash available for distribution for the sole purpose of determining the amount of our initial annual distribution rate. Our estimate of cash available for distribution should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP) or as an indicator of our liquidity or our ability to pay dividends or make distributions. In addition, the methodology upon which we made the adjustments described below is not necessarily intended to be a basis for determining future distributions.
 
We intend to maintain our initial distribution rate for the twelve-month period following consummation of this offering unless actual results of operations, economic conditions or other factors differ materially from the assumptions used in our estimate. Distributions made by us will be authorized by our board of directors out of funds legally available therefor and will be dependent upon a number of factors, including restrictions under applicable law. We believe that our estimate of cash available for distribution constitutes a reasonable basis for setting the initial distribution; however, no assurance can


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Distribution policy
 
 
be given that the estimate will prove accurate, and actual distributions may therefore be significantly different from the expected distributions.
 
We anticipate that, at least initially, our distributions will exceed our then current and accumulated earnings and profits as determined for U.S. federal income tax purposes due to non-cash expenses, primarily depreciation and amortization charges that we expect to incur. Therefore, a portion of our distributions may represent a return of capital for U.S. federal income tax purposes. Distributions in excess of our current and accumulated earnings and profits and not treated by us as a dividend will not be taxable to a U.S. stockholder under current U.S. federal income tax law to the extent those distributions do not exceed the stockholder’s adjusted tax basis in his or her common stock, but rather will reduce the stockholder’s adjusted basis of his or her common stock. Therefore, the gain (or loss) recognized on the sale of that common stock or upon our liquidation will be increased (or decreased) accordingly. To the extent those distributions exceed a taxable U.S. stockholder’s adjusted tax basis in his or her common stock, they will be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. The percentage of our stockholder distributions that exceeds our current and accumulated earnings and profits may vary substantially from year to year. For a more complete discussion of the tax treatment of distributions to holders of our common stock, see “U.S. Federal Income Tax Considerations.”
 
U.S. federal income tax law requires that a REIT distribute annually at least 90% of its net taxable income, excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income including net capital gains. For more information, please see “U.S. Federal Income Tax Considerations.” We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs. However, under some circumstances, we may be required to pay distributions in excess of cash available for distribution in order to meet these distribution requirements and we may need to borrow funds to make those distributions.
 
We cannot assure you that our estimated distributions will be made or sustained. Any distributions we pay in the future will depend upon our actual results of operations, economic conditions and other factors that could differ materially from our current expectations. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see “Risk Factors.” If our properties do not generate sufficient cash flow to allow cash to be distributed by us, we may be required to fund distributions from working capital, or borrowings under our credit facilities or reduce such distributions. We do not expect our credit facilities to contain provisions that restrict the use of the facilities to fund distributions.


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Distribution policy
 
 
The following table describes our pro forma as adjusted net income before minority interests for the twelve months ended March 31, 2008, and the adjustments we have made in order to estimate our initial cash available for distribution for the twelve months ending March 31, 2009. The table reflects our consolidated information, including the limited partners’ interest in our operating partnership. Each unit in our operating partnership may be exchanged for cash or, at our option, one share of our common stock.
 
         
   
(dollars in thousands, except per share data)      
 
Pro forma as adjusted net income before minority interests for the year ended December 31, 2007
  $          
Less: Pro forma as adjusted net income before minority interests for the three months ended March 31, 2007
       
Less: Gain (loss) in fair value of derivatives for the three months ended March 31, 2007(1)
       
Add: Pro forma as adjusted net income before minority interests for the three months ended March 31, 2008
       
Add: Gain (loss) in fair value of derivatives for the three months ended March 31, 2008(1)
       
         
Pro forma as adjusted net income before minority interests for the 12 months ended March 31, 2008
  $  
         
Add: Pro forma real estate depreciation and amortization(2)
       
Add: Amortization of deferred financing costs(3)
       
Add: Non-cash compensation expense(4)
       
Add: Change in fair value of derivatives(1)
       
Add: Net increases in contractual rent income(5)
       
Less: Net decreases in contractual rent income due to lease expirations(6)
       
Less: Net effect of straight-line rents and acquired in-place lease intangibles(7)
       
         
Estimated cash flows from operating activities for the 12 months ending March 31, 2009
  $  
         
Estimated cash flows from investing activities for the 12 months ending March 31, 2009
  $  
         
Estimated cash flows from financing activities for the 12 months ending March 31, 2009(8)
  $  
         
Estimated cash available for distribution for the 12 months ending March 31, 2009
  $  
         
Estimated annual distribution for the 12 months ending March 31, 2009 (including distributions to minority interests)
       
Distribution excess (shortfall)(9)
       
Estimated distribution per share/ OP unit for the 12 months ending March 31, 2008(10)
       
Distribution ratio based on estimated cash available for distribution to our holders of common stock/OP units(11)
       
 
 
(1) The change in the fair value of our derivative instruments is recorded as a non-cash income or expense item in our statement of operations.
 
                 
   (2 )   Pro forma as adjusted real estate depreciation and amortization for the 12 months ended December 31, 2007   $          
        Less: Pro forma as adjusted real estate depreciation and amortization for the three months ended March 31, 2007        
        Add: Pro forma as adjusted real estate depreciation and amortization for the three months ended March 31, 2008        
                 
            $    
                 
 
(3) Pro forma as adjusted amortization of financing costs for the 12 months ended March 31, 2008.
 
(4) Pro forma as adjusted compensation expense related to certain option awards.
 
(5) Represents the net increases in contractual rental income from existing leases and from new leases and renewals that were not in effect for the entire 12-month period ended March 31, 2008 or that


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Distribution policy
 
 
will take effect during the 12-month period ending March 31, 2009 based upon leases entered into subsequent to March 31, 2008. Annual contractual rents typically increase 2-3% per annum.
 
(6) Assumes a  % lease renewal rate with respect to leases expiring after March 31, 2008 and prior to April 1, 2009, based on our  % average lease renewal rate for the three years ended December 31, 2007.
 
(7) Represents the conversion of estimated rental revenues for the 12 months ending March 31, 2008 from a straight-line accrual basis, which includes amortization of lease intangibles, to a cash basis of recognition. The adjustment has been computed as follows (amounts in thousands):
 
         
Pro forma as adjusted straight-line rent adjustment for the 12 months ended March 31, 2008
  $          
Less: Amortization of lease intangibles
       
         
    $  
         
 
(8) Represents scheduled principal amortization of our debt and the Recapitalization Transactions for the 12 months ending March 31, 2009.
 
(9) Unless our operating cash flow increases, we expect that we will be required to fund future distributions from borrowings under our credit facilities or to reduce such distributions.
 
(10) Based on a total of           shares of our common stock to be outstanding upon closing of the offering, on a fully diluted basis, consisting of           shares to be sold in the offering, assuming no exercise of the underwriters’ over-allotment option, and           OP units. If the underwriters’ over-allotment option is exercised in full, our initial annual distribution would increase by $      million and our distribution ratio would increase to  %. We do not intend to use the proceeds from the over-allotment option to fund distributions, but to the extent we use these proceeds to fund distributions, these payments will be treated as a return of capital to our stockholders.
 
(11) Calculated as estimated annual distribution per share/OP Unit divided by our cash available for distribution per share/OP Unit for the 12 months ending March 31, 2009.


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Capitalization
 
The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2008:
 
Ø  on an actual basis for our predecessor partnership;
 
Ø  on a pro forma basis to give effect to the Recapitalization Transactions, the consolidation of AAM and the repayment of certain loans by entities controlled by Messrs. Karkomi and Bernfield; and
 
Ø  on a pro forma as adjusted basis to give effect to the transactions described in the previous bullet, the sale by us pursuant to this offering of           shares of common stock at an assumed initial public offering price of $     per share, the midpoint of the range set forth on the cover of this prospectus and the application of the net proceeds from this offering as described in “Use of Proceeds.”
 
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $     , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
You should read this table in connection with “Use of Proceeds,” “Selected Financial Information,” “Unaudited Pro Forma Condensed Consolidated Financial Data,” “Management’s 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, 2008  
                Pro forma
 
    Actual     Pro forma     as adjusted  
   
    (dollars in thousands)  
 
Cash and cash equivalents
  $ 8,856     $ 40,857     $          
Total debt
    385,246       385,246          
Minority interests
    1,478       117,631          
Class E preferred units
    32,390                
Class F preferred units
          51,500          
                         
Partners’ equity
    83,763                
Common stock
          1          
Additional paid-in-capital
                   
                         
Total equity
    83,763       1          
                         
Total capitalization
  $ 502,877     $ 554,378     $  
                         


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Dilution
 
If you invest in our common stock in this offering, you will experience dilution to the extent of the difference between the initial public offering price per share you pay in this offering and the net tangible book value per share of our common stock immediately after this offering. Our pro forma net tangible book value as of March 31, 2008 was approximately $116.5 million, or approximately $      per share, after giving effect to the Recapitalization Transactions. We calculate pro forma net tangible book value per share by dividing our predecessor partnership’s net tangible book value, which is equal to our predecessor partnership’s total assets less intangible assets (including goodwill, unamortized debt issuance costs and deferred offering costs) and total liabilities (excluding minority interest), by the number of shares that would have been outstanding as of March 31, 2008, after giving effect to the Recapitalization Transactions.
 
After giving effect to the sale by us of           shares of common stock in this offering and after deducting the underwriting discount and estimated offering expenses payable by us, our pro forma net tangible book value would have been approximately $      million, or approximately $      per share of common stock, as of March 31, 2008, based on an initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus. This represents an immediate increase in pro forma net tangible book value per share of approximately $      to existing shareholders and an immediate dilution in pro forma net tangible book value of approximately $      per share to new public investors. The following table illustrates this calculation on a per share basis:
 
                 
Assumed initial public offering price per share
          $        
Pro forma net tangible book value per share at March 31, 2008
  $                  
Increase in net tangible book value per share attributable to this offering
               
                 
Pro forma net tangible book value per share after this offering
               
                 
Dilution per share to new common stockholders
          $          
                 
 
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share of common stock would increase (decrease) our pro forma net tangible book value by $      million, our pro forma net tangible book value per share after this offering by $      per share, and the dilution to new investors in this offering by $      per share, assuming the number of shares of common stock offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.
 
The following table summarizes, on the same pro forma basis as of March 31, 2008, the differences between the existing equity holders and the new common stockholders in this offering with respect to the number of shares purchased from us, the total consideration paid, and the average price per share paid before deducting the underwriting discount and estimated offering expenses payable by us.
 
                                         
    Shares purchased     Total consideration     Average price
 
    Number     Percentage     Amount     Percentage     per share  
   
 
Existing equity holders
                %   $             %   $    
New investors
                                  $        
                                         
Total
            100.0 %   $         100.0 %        
                                         


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Dilution
 
 
If the underwriters’ option to purchase additional common stock to cover any over-allotment is exercised in full, the pro forma net tangible book value per share as of March 31, 2008 would be approximately $      per share and the dilution in pro forma net tangible book value per share to new common stockholders would be $      per share. Furthermore, the percentage of our shares held by existing equity owners would decrease to approximately     % and the percentage of our common stock held by new common stockholders would increase to approximately     %.


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Selected financial data
 
You should read the following selected historical consolidated data in connection with “Management’s 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, 2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005 have been derived from the audited historical consolidated financial statements of our predecessor partnership, Aviv Healthcare Properties Limited Partnership, appearing elsewhere in this prospectus. The selected historical consolidated balance sheet as of December 31, 2005 has been derived from the audited historical consolidated financial statements of our predecessor partnership, Aviv Healthcare Properties Limited Partnership, which is not included in this prospectus. The selected historical financial data as of December 31, 2004 and 2003 and for the years ended December 31, 2004 and 2003 have been derived from the unaudited financial statements of Massachusetts Nursing Homes Limited Partnership (“Massachusetts”), which are not included in this prospectus. Massachusetts was deemed to be the accounting acquiror in connection with the formation and recapitalization of our predecessor partnership in 2005. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Predecessor Partnership.” The selected historical consolidated financial data as of March 31, 2008 and for the quarters ended March 31, 2008 and 2007 have been derived from the unaudited historical consolidated financial statements of our predecessor 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.


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Selected financial data
 
 
                                                         
    Year ended December 31,     Three months ended March 31,  
Operating Information   2003     2004     2005     2006     2007     2007     2008  
   
    (in thousands)  
 
Revenues
                                                       
Rental income
  $ 2,633     $ 2,651     $ 26,086     $ 42,658     $ 67,713     $ 15,656     $ 17,810  
Tenant recoveries
    387       408       1,909       2,690       4,273       1,020       1,318  
Interest on loans to tenants
                7       330       370       90       96  
                                                         
Total revenues
    3,020       3,059       28,002       45,678       72,356       16,766       19,224  
Operating expenses
                                                       
Rent and other operating expenses
                658       553       450       82       112  
General and administrative
    102       190       3,400       6,261       8,092       1,865       2,891  
Real estate taxes
    387       408       1,869       2,664       4,306       1,041       1,318  
Change in fair value of derivatives
                (2,058 )     (262 )     6,946       877       6,460  
Compensation expense, issuance of Class C Units profit interest
                13,525                          
Depreciation
    264       264       4,817       8,158       12,934       3,025       3,464  
Loss on impairment of assets
                            2,987              
Other
                261       305       272       70       52  
                                                         
Total expenses
    753       862       22,472       17,679       35,987       6,960       14,297  
                                                         
Operating income
    2,267       2,197       5,530       27,999       36,369       9,806       4,927  
Other income and expenses
                                                       
Interest income
    1       4       215       534       1,414       26       731  
Interest expense
    (233 )     (144 )     (8,832 )     (15,767 )     (24,254 )     (5,444 )     (6,573 )
Amortization of deferred financing costs
    (18 )     (25 )     (392 )     (2,353 )     (439 )     (121 )     (152 )
                                                         
Total other income and expenses
    (250 )     (165 )     (9,009 )     (17,586 )     (23,279 )     (5,539 )     (5,994 )
                                                         
Income (loss) before gain on disposition of assets, minority interests, and discontinued operations
    2,017       2,032       (3,479 )     10,413       13,090       4,267       (1,067 )
Gain on disposition of assets
                      500                    
Minority interests
                21       (82 )     50       (27 )     6  
                                                         
Income (loss) from continuing operations
    2,017       2,032       (3,458 )     10,831       13,140       4,240       (1,061 )
Discontinued operations, net of minority interests
                738       (102 )     (16 )     (26 )     195  
                                                         
Net income (loss)
    2,017       2,032       (2,720 )     10,729       13,124       4,214       (866 )
Distributions and accretion on Class E Preferred Units
                      (1,218 )     (6,554 )     (1,222 )     (2,061 )
                                                         
Net income (loss) allocable to common units
  $ 2,017     $ 2,032     $ (2,720 )   $ 9,511     $ 6,570     $ 2,992     $ (2,927 )
                                                         
 


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Selected financial data
 
 
                                                 
    As of December 31,     As of
 
Balance sheet information   2003     2004     2005     2006     2007     March 31, 2008  
   
    (in thousands)  
 
Assets
                                               
Cash and cash equivalents
  $ 850     $ 879     $ 13,878     $ 12,579     $ 16,143     $ 8,856  
Deferred rent receivable
    2,069       2,170       4,128       6,924       14,301       16,069  
Due from related parties
                84       672       668       715  
Tenant receivables
                173       391       621       939  
Rental properties, at cost:
                                               
Land
    900       900       28,099       46,554       53,659       53,659  
Buildings and improvements
    13,367       13,367       238,643       395,733       451,762       452,232  
                                                 
      14,267       14,267       266,742       442,287       505,421       505,891  
Less accumulated depreciation
    (5,531 )     (5,795 )     (10,747 )     (18,926 )     (29,954 )     (33,417 )
                                                 
Net rental properties
    8,736       8,472       255,995       423,361       475,467       472,474  
Deferred finance costs, net
    270       282       2,241       1,894       1,974       1,822  
Loan receivables, primarily from related parties
                648       2,501       34,920       39,756  
Other assets
    1,560       2,013       7,522       17,234       15,613       15,123  
                                                 
Total assets
  $ 13,485     $ 13,816     $ 284,669     $ 465,556     $ 559,707     $ 555,754  
                                                 
                                                 
Liabilities, minority interests and partners’ equity
                       
Accounts payable
  $ 52     $     $ 455     $ 120     $ 484     $ 326  
Accrued expenses
    23       20       73       217       558       530  
Tenant security deposits
    390       390       3,514       7,291       8,461       8,722  
Due to related parties
                1,231       7,060       6,689       6,242  
Other liabilities
    25       67       19,774       32,407       32,337       37,057  
Mortgage and other notes payable
    11,100       10,400       195,805       303,060       386,356       385,246  
Accrued distributions payable to partners
                3,368                    
                                                 
Total liabilities
    11,590       10,877       224,220       350,155       434,885       438,123  
Minority interests
                2,623       1,518       1,422       1,478  
Class E Preferred Units
                      17,174       31,436       32,390  
Partners’ equity
    1,895       2,939       57,826       96,709       91,964       83,763  
                                                 
Total liabilities, minority interests and partners’ equity
  $ 13,485     $ 13,816     $ 284,669     $ 465,556     $ 559,707     $ 555,754  
                                                 
 

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Selected financial data
 
 
                                         
    Year ended December 31,     Three months ended March 31,  
Other Information   2005     2006     2007     2007     2008  
   
    (in thousands)  
 
Funds from operations
  $ 2,226     $ 18,524     $ 26,280     $ 7,239     $ 2,598  
EBITDA
    9,580       33,946       47,041       11,832       8,526  
Cash Flows
                                       
Provided by operating activities
    7,765       20,524       25,167       2,762       5,571  
Used for investing activities
    (11,581 )     (81,026 )     (68,249 )     (42,993 )     (471 )
Provided by (used in) financing activities
    16,815       59,204       46,646       42,085       (12,386 )
 
We consider funds from operations, or FFO, and earnings before interest, tax, depreciation and amortization, or EBITDA, to be key measures of our performance which should be considered along with, but not as an alternative to, net income and cash flow as a measure of operating performance and liquidity. As defined by the National Association of Real Estate Investment Trusts, or NAREIT, FFO represents 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. We define EBITDA as net income plus interest expense, tax, depreciation and amortization less rental income from intangible amortization.
 
We believe that FFO and EBITDA are important supplemental measures of our operating performance. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. The term FFO was designed by the real estate industry, and the term EBITDA is similarly used, to address this issue. Because FFO excludes depreciation and amortization unique to real estate, gains from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year or with other REITs, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. We believe that EBITDA is similarly used to evaluate operating performance between periods and among REITs by excluding the effect of depreciation, amortization, interest expense and rental income from intangible amortization.
 
We offer these measures to assist the users of our financial performance under GAAP, but FFO and EBITDA are not financial measures recognized under GAAP 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 pay dividends or make distributions. In addition, our calculations of FFO and EBITDA are not necessarily comparable to FFO or EBITDA as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. Investors in our securities should not rely on these measures as a substitute for any GAAP measure, including net income.

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Selected financial data
 
 
The following table is a reconciliation of our net (loss) income to FFO:
 
                                         
    Year ended December 31,     Three months ended March 31,  
Funds from operations   2005     2006     2007     2007     2008  
   
    (in thousands)  
 
Net (loss) income
  $ (2,720 )   $ 10,729     $ 13,124     $ 4,214     $ (866 )
Depreciation
    4,946       8,295       13,156       3,025       3,464  
Gain on sale of assets
          (500 )                  
                                         
Funds From Operations
  $ 2,226     $ 18,524     $ 26,280     $ 7,239     $ 2,598  
                                         
 
 
The following table is a reconciliation of our net (loss) income to EBITDA:
 
                                         
    Year ended December 31,     Three months ended March 31,  
EBITDA   2005     2006     2007     2007     2008  
   
    (in thousands)  
 
Net (loss) income
  $ (2,720 )   $ 10,729     $ 13,124     $ 4,214     $ (866 )
Interest expense
    8,832       15,767       24,254       5,444       6,573  
Depreciation and amortization
    5,338       10,648       13,596       3,146       3,616  
Rental income from intangible amortization
    (1,870 )     (3,198 )     (3,933 )     (972 )     (797 )
                                         
Earnings Before Interest Tax Depreciation and Amortization
  $ 9,580     $ 33,946     $ 47,041     $ 11,832     $ 8,526  
                                         


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Unaudited pro forma condensed consolidated financial data
 
You should read the following unaudited pro forma condensed consolidated financial data in connection with “Our Structure,” “Management’s 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 unaudited pro forma condensed consolidated balance sheet as of March 31, 2008 presents our consolidated financial position giving pro forma effect to the consolidation (acquisition) of AAM, the elimination of intercompany activity as a result of the consolidation of AAM, the repayment of certain loans to entities controlled by Messrs. Karkomi and Bernfield, the Recapitalization Transactions, this offering and the application of the net proceeds of this offering as described under “Use of Proceeds,” as if such transactions had occurred on March 31, 2008.
 
The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2007 and the three months ended March 31, 2008 and 2007 present our consolidated results of operations giving pro forma effect to the consolidation of AAM, the elimination of intercompany activity as a result of the consolidation of AAM, the repayment of certain loans to entities controlled by Messrs. Karkomi and Bernfield, the Recapitalization Transactions, this offering and the application of the net proceeds of this offering as described under “Use of Proceeds,” as if such transactions had occurred on the first day of the period presented.
 
The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions and this offering, on the historical financial information of our predecessor partnership.
 
The unaudited pro forma condensed consolidated financial data are included for informational purposes only and does not purport to reflect the results of operations or financial position of Aviv REIT, Inc. that would have occurred had we operated as a public company during the periods presented. The unaudited pro forma condensed consolidated financial data should not be relied upon as being indicative of our results of operations or financial condition had the consolidation of AAM, the Recapitalization Transactions, this offering and the application of the net proceeds from this offering as described under “Use of Proceeds” occurred on the dates assumed. The unaudited pro forma condensed consolidated financial data also do not project the results of operations or financial position for any future period or date.


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Unaudited pro forma financial data
 
 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
 
                                                         
    As of March 31, 2008  
                Eliminations
                      Pro forma
 
    Predecessor
    Consolidation
    and other
    Recapitalization
                as
 
    actual(A)     of AAM(B)     adjustments(C)     Transactions(D)     Pro forma     Offering(E)     adjusted  
   
                (in thousands)                    
 
Assets
                                                       
Cash and cash equivalents
  $ 8,856     $     $ 32,000     $ 1 (1)   $ 40,857                                    
Deferred rent receivable
    16,069                         16,069                  
Due from related parties
    715       5,320       (5,320 )           715                  
Tenant receivables
    939                         939                  
Rental properties, at cost:
                                                       
Land
    53,659                         53,659                  
Buildings and improvements
    452,232                         452,232                  
                                                         
      505,891                         505,891                  
Less accumulated depreciation
    (33,417 )                       (33,417 )                
                                                         
Net rental properties
    472,474                         472,474                  
Deferred finance costs, net
    1,822                         1,822                  
Loan receivables, primarily from related parties
    39,756             (32,000 )           7,756                  
Goodwill
          50,858                   50,858                  
Other assets
    15,123       272                   15,395                  
                                                         
Total assets
  $ 555,754     $ 56,450     $ (5,320 )   $ 1     $ 606,885                  
                                                         
Liabilities, minority interests, and equity
                                                       
Accounts payable
  $ 326     $ 4,720     $     $     $ 5,046                  
Accrued expenses
    530       230                   760                  
Tenant security deposits
    8,722                         8,722                  
Due to related parties
    6,242             (5,320 )           922                  
Other liabilities
    37,057                         37,057                  
Mortgage and other notes payable
    385,246                         385,246                  
                                                         
Total liabilities
    438,123       4,950       (5,320 )           437,753                  
Minority interests
    1,478                         1,478                  
Minority interests—OP
                      116,153 (2)     116,153                  
Class E Preferred Units
    32,390                   (32,390 )(2)                      
Class F Preferred Units
          51,500                   51,500                  
Equity
    83,763                       (83,762 )(2)     1                  
                                                         
Total liabilities, minority interests, and equity
  $ 555,754     $ 56,450     $ (5,320 )   $ 1     $ 606,885                  
                                                         
 
 
(A) Reflects historical consolidated financial position of our predecessor partnership as of March 31, 2008.


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Unaudited pro forma financial data
 
 
 
(B) Consolidation of AAM
 
 
                     
    Aviv Asset
         
    Management, L.L.C.
  Pro forma
     
    historical balances   adjustments     Total
 
    (in thousands)
 
Assets
                   
Due from related parties
  $ 5,320   $     $ 5,320
Goodwill
        50,858 (1)     50,858
Other assets
    272           272
                     
Total assets
  $ 5,592   $ 50,858     $ 56,450
                     
Liabilities, minority interests, and equity
                   
Accounts payable
  $ 4,720   $     $ 4,720
Accrued and other liabilities
    230           230
                     
Total liabilities
    4,950           4,950
Class F Preferred Units
        51,500 (1)     51,500
Equity
    642     (642 )(1)    
                     
Total liabilities, minority interests, and equity
  $ 5,592   $ 50,858     $ 56,450
                     
 
 
(1) Records, for accounting purposes, the consummation of consolidation (acquisition) of AAM via the issuance of F Units in the Partnership valued at estimated fair value. In accordance with EITF Opinion No. 04-1, Pre-existing Relationships Between Parties to a Business Combination, there is no gain or loss to be recognized in settlement of the management contract between the predecessor partnership and AAM.
 
(C) Reflects the elimination adjustments between AAM and our predecessor partnership as a result of the consolidation of AAM and elimination of intercompany activity. Additionally, reflects the receipt of cash from repayments of loans receivable from related parties in June 2008.
 
(D) Immediately prior to the consummation of this offering, our predecessor partnership will affect the Recapitalization Transactions, which will simplify its capital structure. Prior to this offering, the capital structure of our predecessor partnership consisted of six classes of partnership units, each of which has different capital accounts and each of which is entitled to different distributions.
 
Pursuant to the Recapitalization Transactions, certain classes of our predecessor partnership will be converted into units of a new class of limited partnership units of our operating partnership called “OP Units.” In addition, a real estate investment trust holding company, Aviv REIT, Inc., is established.
 
(1) Cash from the initial capitalization of Aviv REIT, Inc.:
 
(2) Conversion of historical class A, C, D, and E Units into minority interest via issuance of OP Units and initial capitalization of Aviv REIT, Inc. (in thousands):
 
         
Historical equity of our predecessor partnership converted into OP Units
  $ 83,763  
E Units converted into OP Units
    32,390  
         
    $ 116,153  
         


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Unaudited pro forma financial data
 
 
 
(E) Offering
 
(3) The following is a summary of adjustments to reflect the net proceeds received from this offering and the use of the proceeds (in thousands):
 
         
Gross offering proceeds from the sale of     common shares at     per share
  $    
Less offering costs and underwriters discount
                
         
Net proceeds from this offering
  $  
         
         
Redemption of F Units in predecessor partnership
  $        
Repayment of existing indebtedness
       
         
Total use of proceeds from this offering
  $  
         
 
(4) Certain selling stockholders will exchange           of the OP Units at book value for           shares of our common stock, which they are selling as part of this offering.


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Unaudited pro forma financial data
 
 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
                                                 
    Three months ended March 31, 2008
    Predecessor
    Consolidation of
  Eliminations and
    Recapitalization
            Pro forma
    actual(A)     AAM(B)   other adjustments(C)     Transactions(D)   Pro forma     Offering(E)   as adjusted
 
    (in thousands except per share data)
 
Revenues
                                               
Rental income
  $ 17,810     $   $     $   $ 17,810                      
Management fee revenue
          2,311     (2,311 )                        
Tenant recoveries
    1,318                     1,318              
Interest on loans to tenants
    96                       96              
                                                 
Total revenues
    19,224       2,311     (2,311 )         19,224              
Expenses
                                               
Rent and other operating expenses
    112       115               227              
General and administrative
    2,891       1,083     (2,311 )         1,663              
Real estate taxes
    1,318                     1,318              
Change in fair value of derivatives
    6,460                     6,460              
Depreciation
    3,464       8               3,472              
Other
    52                     52              
                                                 
Total expenses
    14,297       1,206     (2,311 )         13,192              
                                                 
Operating income
    4,927       1,105               6,032              
Other income and expenses
                                               
Interest income
    731           (657 )         74              
Interest expense
    (6,573 )                   (6,573 )            
Amortization of deferred financing costs
    (152 )                   (152 )            
                                                 
Total other income and expenses
    (5,994 )         (657 )         (6,651 )            
(Loss) income before minority interests
    (1,067 )     1,105     (657 )         (619 )            
Minority interests
    6                     6              
                                                 
(Loss) income from continuing operations
    (1,061 )     1,105     (657 )         (613 )            
Distributions and accretion on Class E Preferred Units
    (2,061 )               2,061                  
                                                 
(Loss) income from continuing operations allocable to common units
  $ (3,122 )   $ 1,105   $ (657 )   $ 2,061   $ (613 )            
                                                 
Weighted average shares outstanding
                                               
Basic
                                               
Diluted
                                               
Income per share— continuing operations
                                               
Basic
                                               
Diluted
                                               


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Unaudited pro forma financial data
 
 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
                                                 
    Three months ended March 31, 2007
    Predecessor
    Consolidation of
  Eliminations and
    Recapitalization
            Pro forma
    actual(A)     AAM(B)   other adjustments(C)     Transactions(D)   Pro forma     Offering(E)   as adjusted
 
    (in thousands except per share data)
 
Revenues
                                               
Rental income
  $ 15,656     $   $     $   $ 15,656                      
Management fee revenue
          1,615     (1,615 )                        
Tenant recoveries
    1,020                     1,020              
Interest on loans to tenants
    90                       90              
                                                 
Total revenues
    16,766       1,615     (1,615 )         16,766              
Expenses
                                               
Rent and other operating expenses
    82       50               132              
General and administrative
    1,865       861     (1,615 )         1,111              
Real estate taxes
    1,041                     1,041              
Change in fair value of derivatives
    877                     877              
Depreciation
    3,025       1               3,026              
Other
    70                     70              
                                                 
Total expenses
    6,960       912     (1,615 )         6,257              
                                                 
Operating income
    9,806       703               10,509              
Other income and expenses
                                               
Interest income
    26                     26              
Interest expense
    (5,444 )                   (5,444 )            
Amortization of deferred financing costs
    (121 )                   (121 )            
                                                 
Total other income and expenses
    (5,539 )                   (5,539 )            
Income before minority interests
    4,267       703               4,970              
Minority interests
    (27 )                   (27 )            
                                                 
Income from continuing operations
    4,240       703               4,943              
Distributions and accretion on Class E Preferred Units
    (1,222 )               1,222                  
                                                 
Income from continuing operations allocable to common units
  $ 3,018     $ 703   $     $ 1,222   $ 4,943              
                                                 
Weighted average shares outstanding
                                               
Basic
                                               
Diluted
                                               
Income per share— continuing operations
                                               
Basic
                                               
Diluted
                                               


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Unaudited pro forma financial data
 
 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
                                                   
    Year ended December 31, 2007
    Predecessor
    Consolidation
  Eliminations and
    Recapitalization
              Pro forma
    actual(A)     of AAM(B)    other adjustments(C)      Transactions(D)     Pro forma     Offering (E)   as adjusted
 
    (in thousands except per share data)
 
Revenues
                                                 
Rental income
  $ 67,713     $   $     $     $ 67,713              
Management fee revenue
          6,543     (6,543 )                        
Tenant recoveries
    4,273                       4,273              
Interest on loans to tenants
    370       43                 413                                
                                                   
Total revenues
    72,356       6,586     (6,543 )           72,399              
Expenses
                                                 
Rent and other operating expenses
    450       208                 658              
General and administrative
    8,092       3,386     (6,543 )           4,935              
Real estate taxes
    4,306                       4,306              
Change in fair value of derivatives
    6,946                       6,946              
Depreciation
    12,934       4                 12,938              
Loss on impairment of assets
    2,987                       2,987              
Other
    272                       272              
                                                   
Total expenses
    35,987       3,598     (6,543 )           33,042              
                                                   
Operating income
    36,369       2,988                 39,357              
Other income and expenses
                                                 
Interest income
    1,414           (515 )           899              
Interest expense
    (24,254 )                     (24,254 )            
Amortization of deferred financing costs
    (439 )                     (439 )            
                                                   
Total other income and expenses
    (23,279 )         (515 )           (23,794 )            
Income (loss) before minority interests
    13,090       2,988     (515 )           15,563              
Minority interests
    50                       50              
                                                   
Income (loss) from continuing operations
    13,140       2,988     (515 )           15,613              
Distributions and accretion on Class E Preferred Units
    (6,554 )               (5,467 )     (12,021 )            
                                                   
Income (loss) from continuing operations allocable to common units
  $ 6,586     $ 2,988   $ (515 )   $ (5,467 )   $ 3,592              
                                                   
Weighted average shares outstanding
                                                 
Basic
                                                 
Diluted
                                                 
Income per share— continuing operations
                                                 
Basic
                                                 
Diluted
                                                 
 


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Unaudited pro forma financial data
 
 
 
(A) Reflects the historical results of operations of our predecessor partnership for the year ended December 31, 2007 and the three months ended March 31, 2008 and 2007.
 
(B) Reflects the historical results of operations of AAM for the year ended December 31, 2007 and the three months ended March 31, 2008 and 2007.
 
(C) Eliminations and Other Adjustments.
 
                         
    Year ended
    Three months ended
    Three months ended
 
    December 31, 2007     March 31, 2007     March 31, 2008  
   
    (in thousands)  
 
Revenues
                       
Management fee revenue(1)
  $ (6,543 )   $ (1,615 )   $ (2,311 )
Total revenues
    (6,543 )     (1,615 )     (2,311 )
                         
Expenses
                       
General and administrative(1)
    (6,543 )     (1,615 )     (2,311 )
Total expenses
    (6,543 )     (1,615 )     (2,311 )
Operating income
                 
                         
Other income and expenses
                       
Interest income(2)
    (515 )           (657 )
Total other income and expenses
    (515 )           (657 )
Loss from continuing operations
  $ (515 )   $     $ (657 )
 
 
  (1)   Reflects the elimination adjustment of management fee revenue previously recorded on AAM’s financial statements and the management fee expense previously recorded on our predecessor partnership’s consolidated financial statements, as a result of the consolidation of AAM and elimination of intercompany activity.
 
  (2)   Reflects the elimination of interest income earned on the $32 million loan receivables to entities controlled by Messrs. Karkomi and Bernfield, as these loan receivables were repaid in June 2008.
 
(D) Reflects the adjustment to record the remaining historical unamortized Class E Preferred Units’ discount to redemption value, based on the following balances on our predecessor partnership’s consolidated financial statements:
 
                     
    Year ended
    Three months ended
  Three months ended
    December 31, 2007     March 31, 2007   March 31, 2008
 
    (in thousands)
 
Gross redemption value of Class E Preferred Units
  $ (44,411 )   $   $
Historical carrying value of Class E Preferred Units at March 31, 2008
    32,390          
                     
      (12,021 )        
Distributions and accretion of Class E Preferred Units(1)
    6,554       1,222     2,061
                     
Net adjustment
  $ (5,467 )   $ 1,222   $ 2,061
                     
 
 
  (1)   Reflects the elimination of previously recorded distributions and accretion on Class E Preferred Units on our predecessor partnership’s consolidated financial statements due to the Recapitalization Transactions and issuance of a single class of OP Units.


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Unaudited pro forma financial data
 
 
(E) Offering
 
                   
    Year ended
  Three months ended
  Three months ended
    December 31, 2007   March 31, 2007   March 31, 2008
 
    (in thousands)
 
Expenses
                 
General and administrative(1)
  $              $              $           
Change in fair value of derivatives(2)
                 
Compensation expense(3)
                 
                   
Total expenses
                 
Other income and expenses
                 
Interest expense(4)
                 
Amortization of deferred financing costs(5)
                 
                   
Total other income and expenses
                 
                   
Income from continuing operations
  $     $     $
                   
 
 
  (1)   Reflects general and administrative expenses expected to be incurred to operate as a public company including professional fees, director fees, salaries, wages and benefits for additional staff, and other corporate level activity. Such amounts are based on estimates of staffing levels and services from third parties or quotes from our vendors. We have included a pro forma adjustment as our best estimate of these additional costs.
 
  (2)   Reflects elimination of the change in fair value of derivatives reflected in the respective historical statement of operations for interest rate swaps terminated on          , 2008 as a result of repayment of          with proceeds from this offering.
 
  (3)   Reflects an adjustment to record stock-based compensation expense based upon grant date fair value estimates for the anticipated vesting of all Class D performance based awards simultaneous with this offering.
 
  (4)   Reflects adjustment to eliminate historical interest expense as a result of repayment of debt of $      with proceeds from this offering. Eliminating interest expense amount based upon weighted average interest rate percentage of     %.
 
  (5)   Reflects adjustment to eliminate proportional share of historical amortization of deferred financing costs as a result of repayment of debt under the credit facilities with offering proceeds.
 
Pro forma earnings (loss) per share
 
Shares used to calculate unaudited pro forma basic and diluted income (loss) allocable to common units per share include the shares issued in this offering:
 
                   
    Year ended
  Three months ended
  Three months ended
    December 31, 2007   March 31, 2007   March 31, 2008
 
    (in thousands except per share data)
 
Weighted average number of shares of common stock outstanding
                                            
                   
Income (loss) from continuing operations
Pro forma earnings (loss) per share—basic and diluted
                 
                   


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Management’s 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 are a self-administered real estate investment trust, or REIT, that focuses on the ownership, acquisition and development of healthcare properties, principally skilled nursing facilities, or SNFs. We generate our revenues by entering into long-term triple-net leases with qualified local, regional and national operators throughout the United States. We believe that we have one of the largest portfolios of triple-net leased SNFs in the United States. As of March 31, 2008, our portfolio consisted of 156 properties with 15,187 licensed beds in 20 states leased to 33 operators.
 
We, through our predecessor entities, have been in the business of financing operators of SNFs for over 25 years. We focus on cultivating close relationships with our tenants and work closely with them to help them achieve their business objectives. As a result of these efforts, we are in a position to make additional investments and expand our business. We make our investments primarily through sale-leaseback and acquisition-lease transactions, although we also offer our tenants a variety of other forms of financing, including ground-up development-lease transactions and tenant loans.
 
We lease our properties to a diversified group of 33 operators with no single operator representing more than 16.3% of our rent under existing leases for the quarter ended March 31, 2008. We have a geographically diversified portfolio of properties located in 20 states, with no state representing more than 18.4% of our rent under existing leases for the quarter ended March 31, 2008. Our properties are leased to third party tenants under long-term triple-net leases. As of March 31, 2008, our leases had an average remaining existing term of 10.2 years and typically have annual escalations of 2%-3%. As of March 31, 2008, 130 of our 156 properties were subject to master leases or were cross-defaulted, which provides additional credit support for the performance of an individual property.
 
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 corporate first mortgage credit facility to provide the majority of our debt as well as project specific first mortgages in certain situations.
 
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


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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 $2.1 trillion in 2007 to nearly $4.3 trillion in 2017. Furthermore, according to CMS, national nursing home expenditures are expected to grow from approximately $125 billion in 2006 to $218 billion in 2017, representing a compound annual growth rate, or CAGR, of 5.2%.
 
Competitive environment for healthcare real estate investing
 
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 believe there has been a trend in our industry over the last few years of companies pursuing large portfolio transactions. In addition, we believe our industry has also experienced a trend over the last few years of companies seeking to diversify into other asset classes and away from SNFs. In contrast, we have focused, and will continue to focus, on smaller and middle-market transactions, primarily involving SNFs. We have experience identifying and underwriting the abilities of local, regional and national operators. We believe that this experience helps us identify new tenant relationships and new opportunities with existing relationships that fall below the radar of other capital sources. We believe that our continued focus on SNFs has enabled us to develop broad expertise in the markets in which we compete.
 
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 goal against 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 25 years.
 
Our indebtedness outstanding upon consummation of this offering will be comprised principally of borrowings under our credit facilities. Following the anticipated application of the net proceeds of this offering, we anticipate that approximately $      of our anticipated balance of indebtedness will mature on or prior to          . As a result, we are not facing the need for liquidity that other companies may be experiencing.
 
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.
 
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’ revenue streams. 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 among payor types, including private pay, Medicare and


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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. In recent years, many of the markets in which we own properties have experienced skilled labor shortages. These trends can require our tenants 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. A key element of our underwriting process is to fully understand a tenant’s ability to manage labor and labor-related expense through all market conditions. A successful tenant must be able to source qualified skilled labor and minimize staff turnover, as high turnover rates can sometimes challenge their ability to operate effectively and profitably.
 
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 revenue stream 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 revenue streams are highlighted below. While not a significant part of our revenue stream, we also earn interest on overnight cash deposits as well as interest from a variety of loans outstanding. Currently these loans are only to tenants, but historically we made loans to certain of our officers and directors, all of which were repaid prior to this offering.
 
Ø  Rental income
 
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 Flow—Cash provided by operations.”
 
Ø  Tenant recoveries
 
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.


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Management’s discussion and analysis of financial condition and results of operations
 
 
Ø  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.
 
Expenses
 
We recognize a variety of cash and non-cash charges in our financial statements. Our 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.
 
Ø  Rent and other operating expenses
 
We currently have two properties that we lease rather than own a fee simple interest in and two ground leases (in each case, we triple-net sublease the property). When we lease a property, we recognize related rent expense.
 
Ø  General and administrative
 
Our general and administrative costs consist primarily of payroll and payroll related expense. In addition to payroll, we incur accounting, legal and other professional fees. Our predecessor partnership’s general and administrative costs are comprised of those fees charged by its former asset manager, Aviv Asset Management, L.L.C., or AAM, in addition to third-party professional fees.
 
Ø  Real estate taxes
 
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.
 
Ø  Change in fair value of derivatives
 
Most of our borrowings are floating rate obligations. As such, we implement a hedging strategy using varying maturity swaps. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (including amendments set forth in SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities), 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, we recognize any changes in these swaps’ fair value in earnings. As long as we hold these instruments, the fluctuations from marking them to market results in a non-cash expense or revenue.
 
Ø  Depreciation
 
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.
 
Ø  Loss on impairment of assets
 
We have implemented a policy that requires management to make annual 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 objective financial modeling and subjective


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Management’s discussion and analysis of financial condition and results of operations
 
 
factors such as market condition and property condition. We consider these results in our assessment of whether potential impairment indicators are present.