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Rating Action:

Moody's assigns B1 to Aviv's notes; stable outlook

24 Jan 2011

Approximately $200 mm of debt affected.

New York, January 24, 2011 -- Moody's Investors Service has assigned a B1 rating to the prospective senior unsecured notes offering of Aviv Healthcare Properties Limited Partnership (Aviv). Moody's has also assigned a Ba3 corporate family rating to Aviv. The notching between the corporate family rating and the senior unsecured rating reflects significant proportion of secured debt in Aviv's capital structure which is expected to remain in the medium term. The rating outlook is stable. This is the first time Moody's has rated Aviv.

The following ratings were assigned with a stable outlook:

Aviv Healthcare Properties Limited Partnership -- corporate family rating at Ba3; prospective senior unsecured debt rating at B1.

RATINGS RATIONALE

Aviv's Ba3 corporate family and B1 senior unsecured ratings reflect the REIT's successful track record and managerial expertise, as well as small size and private company status. Aviv's focus on skilled nursing facilities (SNFs) is a key credit concern due to the relatively low profitability of this sector, in addition to heavy dependence on government reimbursements. Moody's acknowledges, however, that Aviv has been strategically addressing this risk by diversifying its portfolio among 24 states thereby reducing the likelihood of exposure to severe budget cuts in any one state. Positively, Aviv has been strategic in choosing states with more predictable reimbursement regimes and overall more favorable operating environment. Aviv's portfolio is further diversified by operator with over 32 SNF operators net leasing Aviv's properties. While many of Aviv's operators are smaller private firms, this is typical for the highly fragmented SNF industry. Aviv has strategically cultivated long-term relationships with its tenants for many of which it is the only or the largest landlord. The REIT has reaped the benefits of this strategy in terms of de-minimus lease rollovers and successful collections (over 99% of rents due over the past five years). Also positively, Aviv maintains master or cross-default leases with its operators which provide additional structural protection.

Aviv's liquidity is adequate following a substantial equity investment by Lindsay Goldberg LLC in September 2010, and is expected to be strengthened further with the addition of a $25 mm revolver simultaneously with the proposed $200 mm 8-year notes offering. The proceeds from the unsecured debt issuance will be used to repay approximately $30 mm outstanding on Aviv's $100 mm acquisition facility due 2015 and to pay down its $405 mm term loan due 2015. Positively, Aviv has no near-term maturities; its capital commitments are minor, and it anticipates Lindsay Goldberg LLC to make additional equity contributions to its future acquisitions.

Aviv's credit profile is solid for the rating category with effective leverage of approximately 54% and secured leverage expected to decline closer to 31% following the note issuance. Despite increased interest cost of the bond offering, Aviv's fixed charge is expected to be over 2.4x. Positively, Aviv has no joint ventures.

The stable outlook reflects Aviv's predictable cash flow from its long term triple net leases and no debt maturities until 2015. These credit positives counterbalance Aviv's small size and operating focus on a relatively less profitable sector subject to uncertainty associated with government reimbursement, as well as its private company status.

A rating upgrade would be difficult in the short-term, and would depend on the REIT's size increasing to over $1 bn in terms of gross assets, with secured debt under 30% of gross assets and fixed charge consistently above 2.5x. Improvement in the size and quality of Aviv's unencumbered pool, as well as ample liquidity at all times, would also be needed for an upgrade.

Negative rating movement would most likely be precipitated by a deterioration in Aviv's credit profile beyond current levels, any liquidity concerns, or operational challenges resulting in a significant decline in the level of rent collections.

This is the first time Moody's has rated Aviv Healthcare Properties Limited Partnership.

The principal methodology used in this rating was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010.

Aviv is a private, Chicago-based real estate company, organized as a REIT, with a primary focus on owning, acquiring and developing skilled nursing facilities (SNFs). Aviv generates its revenues by entering into long-term triple-net leases with local, regional and national operators throughout the US.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Maria Maslovsky
Asst Vice President - Analyst
Commercial Real Estate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Lori Marks
Asst Vice President - Analyst
Commercial Real Estate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns B1 to Aviv's notes; stable outlook
No Related Data.
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