OMEGA HEALTHCARE INVESTORS INC - FORM 8-K - EX-99.2 - EXHIBIT 99.2

Attached files

file	filename
8-K - FORM 8-K - OMEGA HEALTHCARE INVESTORS INC	t1500224_f8k.htm
EX-99.1 - EXHIBIT 99.1 - OMEGA HEALTHCARE INVESTORS INC	t1500224_ex99-1.htm
EX-23.1 - EXHIBIT 23.1 - OMEGA HEALTHCARE INVESTORS INC	t1500224_ex23-1.htm
EX-99.4 - EXHIBIT 99.4 - OMEGA HEALTHCARE INVESTORS INC	t1500224_ex99-4.htm
EX-99.3 - EXHIBIT 99.3 - OMEGA HEALTHCARE INVESTORS INC	t1500224_ex99-3.htm
EX-23.2 - EXHIBIT 23.2 - OMEGA HEALTHCARE INVESTORS INC	t1500224_ex23-2.htm

Exhibit 99.2

AVIV REIT, INC.

AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

[EXCERPTS FROM FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014 ]

(unaudited)

TABLE OF CONTENTS

	Page No.

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 of Aviv REIT, Inc. (unaudited)	4

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 of Aviv REIT, Inc. (unaudited)	5

Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2014 of Aviv REIT, Inc. (unaudited)	6

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 of Aviv REIT, Inc. (unaudited)	7

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 of Aviv Healthcare Properties Limited Partnership (unaudited)	9

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 of Aviv Healthcare Properties Limited Partnership (unaudited)	10

Consolidated Statement of Changes in Partners’ Capital for the Nine Months Ended September 30, 2014 of Aviv Healthcare Properties Limited Partnership (unaudited)	11

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 of Aviv Healthcare Properties Limited Partnership (unaudited)	12

Notes to Consolidated Financial Statements (unaudited)	14

AVIV REIT, INC.

Consolidated Balance Sheets

(unaudited)

(in thousands except share data)

	September 30, 2014			December 31, 2013
Assets
Income producing property
Land	$	171,098		$	138,150
Buildings and improvements		1,498,117			1,138,173
Assets under direct financing leases		11,262			11,175
		1,680,477			1,287,498
Less accumulated depreciation		(175,983	)		(147,302	)
Construction in progress and land held for development		34,421			23,292
Net real estate		1,538,915			1,163,488
Cash and cash equivalents		15,834			50,764
Straight-line rent receivable, net		44,000			40,580
Tenant receivables, net		2,011			1,647
Deferred finance costs, net		17,651			16,643
Loan receivables, net		43,272			41,686
Other assets		15,805			15,625
Total assets	$	1,677,488		$	1,330,433
Liabilities and equity
Secured loan	$	13,478		$	13,654
Unsecured notes payable		652,410			652,752
Line of credit		175,000			20,000
Accrued interest payable		10,903			15,284
Dividends and distributions payable		21,078			17,694
Accounts payable and accrued expenses		11,894			10,555
Tenant security and escrow deposits		24,066			21,586
Other liabilities		10,419			10,463
Total liabilities		919,248			761,988
Equity:
Stockholders’ equity
Common stock (par value $0.01; 47,216,963 and 37,593,910 shares issued and outstanding, as of September 30, 2014 and December 31, 2013, respectively)		472			376
Additional paid-in-capital		722,030			523,658
Accumulated deficit		(112,119	)		(89,742	)
Total stockholders’ equity		610,383			434,292
Noncontrolling interests - operating partnership		147,857			134,153
Total equity		758,240			568,445
Total liabilities and equity	$	1,677,488		$	1,330,433

See accompanying notes.

AVIV REIT, INC.

Consolidated Statements of Operations

(unaudited)

(in thousands except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues
Rental income	$	46,079		$	31,693		$	127,941		$	99,206
Interest on loans and financing lease		1,101			1,131			3,263			3,272
Interest and other income		191			49			1,232			128
Total revenues		47,371			32,873			132,436			102,606
Expenses
Interest expense incurred		12,376			8,577			36,489			29,599
Amortization of deferred financing costs		988			810			2,944			2,516
Depreciation and amortization		11,522			8,302			31,470			24,399
General and administrative		5,297			3,867			16,960			21,150
Transaction costs		1,220			1,210			3,813			1,906
Loss on impairment		1,479			—			2,341			—
Reserve for uncollectible loans and other receivables		9			27			3,509			57
Loss (gain) on sale of assets, net		2,445			13			2,458			(26	)
Loss on extinguishment of debt		—			—			501			10,974
Total expenses		35,336			22,806			100,485			90,575
Net income		12,035			10,067			31,951			12,031
Net income allocable to noncontrolling interests - operating partnership		(2,344	)		(2,446	)		(6,662	)		(3,236	)
Net income allocable to common stockholders	$	9,691		$	7,621		$	25,289		$	8,795

Earnings per common share:
Basic:
Net income allocable to common stockholders	$	0.21		$	0.20		$	0.58		$	0.27
Diluted:
Net income allocable to common stockholders	$	0.20		$	0.20		$	0.56		$	0.26
Weighted average common shares outstanding:
Basic		47,213,612			37,271,714			43,576,705			32,408,843
Diluted		60,967,867			50,838,529			57,127,784			42,101,077

Dividends declared per common share	$	0.36		$	0.36		$	1.08		$	0.744

See accompanying notes.

AVIV REIT, INC.

Consolidated Statement of Changes in Equity

(unaudited)

(in thousands except share data)

	Stockholders’ Equity
	Common Stock
	Shares		Amount		Additional Paid-In- Capital			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interests - Operating Partnership			Total Equity
Balance at January 1, 2014		37,593,910	$	376	$	523,658		$	(89,742	)	$	434,292		$	134,153		$	568,445
Non-cash stock-based compensation		—		—		3,602			—			3,602			—			3,602
Shares issued for settlement of vested stock and exercised stock options, net		223,197		2		3,051			—			3,053			—			3,053
Distributions to partners		—		—		—			—			—			(12,374	)		(12,374	)
Capital contributions		—		—		—			—			—			60			60
Proceeds from issuance of common stock		9,200,000		92		221,628			—			221,720			—			221,720
Cost of raising capital		—		—		(10,551	)		—			(10,551	)		—			(10,551	)
Dividends to stockholders		—		—		—			(47,666	)		(47,666	)		—			(47,666	)
Conversion of OP Units		199,856		2		2,341			—			2,343			(2,343	)		—
Adjustment of noncontrolling interests-operating partnership ownership		—		—		(21,699	)		—			(21,699	)		21,699			—
Net income		—		—		—			25,289			25,289			6,662			31,951

Balance at September 30, 2014		47,216,963	$	472	$	722,030		$	(112,119	)	$	610,383		$	147,857		$	758,240

See accompanying notes.

AVIV REIT, INC.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2014			2013
Operating activities
Net income	$	31,951		$	12,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,470			24,399
Amortization of deferred financing costs		2,944			2,516
Accretion of debt premium		(401	)		(377	)
Straight-line rental income, net		(3,420	)		(2,998	)
Rental income from intangible amortization, net		(539	)		(1,097	)
Non-cash stock-based compensation		3,602			10,930
Loss (gain) on sale of assets, net		2,458			(26	)
Non-cash loss on extinguishment of debt		494			5,161
Loss on impairment		2,341			—
Reserve for uncollectible loan and other receivables		3,509			57
Changes in assets and liabilities:
Tenant receivables		(662	)		(3,785	)
Other assets		(545	)		1,058
Accounts payable and accrued expenses		(6,395	)		(9,468	)
Tenant security deposits and other liabilities		3,281			(2,006	)
Net cash provided by operating activities		70,088			36,395

Investing activities
Purchase of real estate		(368,870	)		(38,076	)
Proceeds from sales of real estate, net		1,337			4,842
Capital improvements		(10,293	)		(9,909	)
Development projects		(30,316	)		(14,380	)
Loan receivables received from others		7,613			3,222
Loan receivables funded to others		(12,410	)		(2,707	)
Net cash used in investing activities		(412,939	)		(57,008	)

See accompanying notes.

AVIV REIT, INC.

Consolidated Statements of Cash Flows (continued)

(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2014			2013
Financing activities
Borrowings of debt	$	283,000		$	160,000
Repayment of debt		(128,117	)		(353,203	)
Payment of financing costs		(4,588	)		(5,290	)
Capital contributions		60			425
Proceeds from issuance of common stock		221,720			303,600
Cost of raising capital		(10,551	)		(25,380	)
Shares issued for settlement of vested stock and exercised stock options, net		3,053			—
Cash distributions to partners		(12,449	)		(16,276	)
Cash dividends to stockholders		(44,207	)		(48,907	)
Net cash provided by financing activities		307,921			14,969
Net decrease in cash and cash equivalents		(34,930	)		(5,644	)
Cash and cash equivalents:
Beginning of period		50,764			17,876
End of period	$	15,834		$	12,232
Supplemental cash flow information
Cash paid for interest	$	41,728		$	39,645

Supplemental disclosure of noncash activity
Accrued dividends payable to stockholders	$	17,009		$	—
Accrued distributions payable to partners	$	4,069		$	—
Write-off of straight-line rent receivable	$	1,380		$	2,887
Write-off of deferred financing costs, net	$	501		$	5,161

See accompanying notes.

AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

Consolidated Balance Sheets

(unaudited)

(in thousands)

	September 30, 2014			December 31, 2013
Assets
Income producing property
Land	$	171,098		$	138,150
Buildings and improvements		1,498,117			1,138,173
Assets under direct financing leases		11,262			11,175
		1,680,477			1,287,498
Less accumulated depreciation		(175,983	)		(147,302	)
Construction in progress and land held for development		34,421			23,292
Net real estate		1,538,915			1,163,488
Cash and cash equivalents		15,834			50,764
Straight-line rent receivable, net		44,000			40,580
Tenant receivables, net		2,011			1,647
Deferred finance costs, net		17,651			16,643
Loan receivables, net		43,272			41,686
Other assets		15,805			15,625
Total assets	$	1,677,488		$	1,330,433
Liabilities and equity
Secured loan	$	13,478		$	13,654
Unsecured notes payable		652,410			652,752
Line of credit		175,000			20,000
Accrued interest payable		10,903			15,284
Dividends and distributions payable		21,078			17,694
Accounts payable and accrued expenses		11,894			10,555
Tenant security and escrow deposits		24,066			21,586
Other liabilities		10,419			10,463
Total liabilities		919,248			761,988
Partners’ capital:
Partners’ capital		758,240			568,445
Total liabilities and partners’ capital	$	1,677,488		$	1,330,433

See accompanying notes.

AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

Consolidated Statements of Operations

(unaudited)

(in thousands except unit and per unit data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Revenues
Rental income	$	46,079	$	31,693	$	127,941	$	99,206
Interest on loans and financing lease		1,101		1,131		3,263		3,272
Interest and other income		191		49		1,232		128
Total revenues		47,371		32,873		132,436		102,606
Expenses
Interest expense incurred		12,376		8,577		36,489		29,599
Amortization of deferred financing costs		988		810		2,944		2,516
Depreciation and amortization		11,522		8,302		31,470		24,399
General and administrative		5,297		3,867		16,960		21,150
Transaction costs		1,220		1,210		3,813		1,906
Loss on impairment		1,479		—		2,341		—
Reserve for uncollectible loans and other receivables		9		27		3,509		57
Loss (gain) on sale of assets, net		2,445		13		2,458		(26	)
Loss on extinguishment of debt		—		—		501		10,974
Total expenses		35,336		22,806		100,485		90,575
Net income	$	12,035	$	10,067	$	31,951	$	12,031
Earnings per unit:
Basic:
Net income allocable to units	$	0.21	$	0.20	$	0.58	$	0.27
Diluted:
Net income allocable to units	$	0.20	$	0.20	$	0.56	$	0.26
Weighted average units outstanding:
Basic		58,633,389		49,210,134		55,055,248		40,630,173
Diluted		60,967,867		50,838,529		57,127,784		42,101,077

Dividends declared per unit	$	0.36	$	0.36	$	1.08	$	0.744

See accompanying notes.

AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

Consolidated Statement of Changes in Partners’ Capital

(unaudited)

(in thousands)

	Partners’ Capital
Balance at January 1, 2014	$	568,445
Non-cash stock (unit)-based compensation		3,602
Units issued for settlement of vested units and exercised unit options, net		3,053
Distributions to partners		(60,040	)
Capital contributions		60
Proceeds from issuance of common stock		221,720
Cost of raising capital		(10,551	)
Net income		31,951
Balance at September 30, 2014	$	758,240

See accompanying notes.

AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2014			2013
Operating activities
Net income	$	31,951		$	12,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,470			24,399
Amortization of deferred financing costs		2,944			2,516
Accretion of debt premium		(401	)		(377	)
Straight-line rental income, net		(3,420	)		(2,998	)
Rental income from intangible amortization, net		(539	)		(1,097	)
Non-cash stock (unit)-based compensation		3,602			10,930
Loss (gain) on sale of assets, net		2,458			(26	)
Non-cash loss on extinguishment of debt		494			5,161
Loss on impairment		2,341			—
Reserve for uncollectible loan and other receivables		3,509			57
Changes in assets and liabilities:
Tenant receivables		(662	)		(3,785	)
Other assets		(545	)		1,058
Accounts payable and accrued expenses		(6,395	)		(9,468	)
Tenant security deposits and other liabilities		3,281			(2,006	)
Net cash provided by operating activities		70,088			36,395

Investing activities
Purchase of real estate		(368,870	)		(38,076	)
Proceeds from sales of real estate, net		1,337			4,842
Capital improvements		(10,293	)		(9,909	)
Development projects		(30,316	)		(14,380	)
Loan receivables received from others		7,613			3,222
Loan receivables funded to others		(12,410	)		(2,707	)
Net cash used in investing activities		(412,939	)		(57,008	)

See accompanying notes.

AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2014			2013
Financing activities
Borrowings of debt	$	283,000		$	160,000
Repayment of debt		(128,117	)		(353,203	)
Payment of financing costs		(4,588	)		(5,290	)
Capital contributions		60			425
Proceeds from issuance of common stock		221,720			303,600
Cost of raising capital		(10,551	)		(25,380	)
Shares issued for settlement of vested stock and exercised unit options, net		3,053			—
Cash distributions to partners		(56,656	)		(65,183	)
Net cash provided by financing activities		307,921			14,969
Net decrease in cash and cash equivalents		(34,930	)		(5,644	)
Cash and cash equivalents:
Beginning of period		50,764			17,876
End of period	$	15,834		$	12,232
Supplemental cash flow information
Cash paid for interest	$	41,728		$	39,645

Supplemental disclosure of noncash activity
Accrued distributions payable to partners	$	21,078		$	—
Write-off of straight-line rent receivable	$	1,380		$	2,887
Write-off of deferred financing costs, net	$	501		$	5,161

See accompanying notes.

AVIV REIT, INC.

AVIV HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

September 30, 2014

(unaudited)

1. Description of Operations and Formation

Aviv REIT, Inc., a Maryland corporation (AVIV or the REIT), is the sole general partner of Aviv Healthcare Properties Limited Partnership, a Delaware limited partnership, and its subsidiaries (the Partnership). The Partnership is a majority owned subsidiary that indirectly owns all of the real estate properties. In these footnotes, the Company refers generically to AVIV, the Partnership, and their subsidiaries. The Partnership was formed in 2010 and directly or indirectly owned or leased 313 properties, principally skilled nursing facilities (SNFs), across the United States at September 30, 2014. The Company is a fully integrated self-administered real estate investment trust that owns, acquires, develops and generates the majority of its revenues by entering into long-term triple-net leases with qualified local, regional, and national operators. In addition to the base rent, leases provide for operators to pay the Company an ongoing escrow for real estate taxes. Furthermore, all operating and maintenance costs of the buildings are the responsibility of the operators. Substantially all depreciation expense reflected in the consolidated statements of operations relates to the ownership of real estate properties.

The Partnership is the general partner of Aviv Healthcare Properties Operating Partnership I, L.P. (the Operating Partnership), a Delaware limited partnership, the sole stockholder of Aviv Healthcare Capital Corporation, a Delaware corporation, and the sole member of Aviv Asset Management, L.L.C. (AAM), a Delaware limited liability company. The Operating Partnership has five wholly owned subsidiaries: Aviv Financing I, L.L.C. (Aviv Financing I), a Delaware limited liability company; Aviv Financing II, L.L.C. (Aviv Financing II), a Delaware limited liability company; Aviv Financing III, L.L.C. (Aviv Financing III), a Delaware limited liability company; Aviv Financing IV, L.L.C. (Aviv Financing IV), a Delaware limited liability company; and Aviv Financing V, L.L.C. (Aviv Financing V), a Delaware limited liability company.

All of the business, assets and operations of the Company are held by the Partnership and its subsidiaries. The REIT’s equity interest in the Partnership is linked to future investments in the REIT, such that future equity issuances by the REIT (pursuant to the Partnership’s partnership agreement) will result in a corresponding increase in the REIT’s equity interest in the Partnership. The REIT is authorized to issue 300 million shares of common stock (par value $0.01) and 25 million shares of preferred stock (par value $0.01). The REIT was funded in September 2010 with 13.2 million shares and approximately $235 million from one of the REIT’s stockholders, and approximately 8.5 million additional shares of common stock were issued by the REIT in connection with $159 million of equity contributions by one of the REIT’s stockholders. The Partnership’s capital consists of partnership units, referred to as OP units, which are owned by AVIV and other investors.

On March 7, 2013, the Board of Directors and stockholders of the REIT approved an increase in the number of authorized shares of common stock to 300,000,000 shares of common stock and a 60.37-for-one split of issued and outstanding common stock. The increase in the authorized shares and the stock split became effective on March 8, 2013 when the REIT’s charter was amended for such increase in the number of authorized REIT shares and the stock split. The common share and per common share amounts in these consolidated financial statements and notes to consolidated financial statements have been retrospectively restated to reflect the 60.37-for-one split.

On March 26, 2013, the REIT completed an initial public offering (IPO) of its common stock pursuant to a registration statement filed with the SEC, which became effective on March 20, 2013. The Company received net proceeds, after underwriting discounts and commissions, of $282.3 million, exclusive of other costs of raising capital in consideration for the issuance and sale of approximately 15.2 million shares of common stock (which included approximately 2.0 million shares sold to the underwriters upon exercise of their option to purchase additional shares to cover over-allotments) at a price to the public of $20.00 per share. In connection with the IPO, the Partnership’s existing Class A, B, C, D and F Units were converted into a single class of OP units.

Immediately prior to the completion of the IPO, there were outstanding approximately 21.7 million shares of common stock of the REIT, limited partnership units of the Partnership which were converted into approximately 11.9 million OP units in connection with the IPO, and 125 shares of preferred stock of the REIT. On April 15, 2013, the 125 shares of preferred stock outstanding were redeemed. At September 30, 2014, there were approximately 47.2 million shares of common stock outstanding and 11.4 million OP units outstanding, which OP units are redeemable for cash or, at the REIT’s option, for shares of common stock of the REIT. The operating results of the Partnership are allocated based upon the REIT’s and the limited partners’ respective economic interests therein. The REIT’s ownership of the Partnership was 80.5% and 76.4% as of September 30, 2014 and December 31, 2013, respectively. The REIT’s weighted average economic ownership of the Partnership for the three and nine months ended September 30, 2014 and 2013 were 80.52%, 79.15%, 75.7%, and 73.1%, respectively.

2. Summary of Significant Accounting Policies

Basis of Presentation

This report combines the Quarterly Reports on Form 10-Q for the quarter ended September 30, 2014 of AVIV and the Partnership. AVIV is a real estate investment trust (REIT) and the sole general partner of the Partnership. The Partnership’s capital consists of OP units. As the sole general partner of the Partnership, AVIV has exclusive control of the Partnership’s day-to-day management.

The Company believes combining the Quarterly Reports on Form 10-Q of AVIV and the Partnership into this single report provides the following benefits:

	•	enhances investors’ understanding of AVIV and the Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•

eliminates duplicative disclosure and provides a more streamlined and readable presentation because a substantial portion of the disclosure in this report applies to both AVIV and the Partnership; and

• creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates AVIV and the Partnership as one business. The management of AVIV consists of the same individuals as the management of the Partnership.

The Company believes it is important for investors to understand the few differences between AVIV and the Partnership in the context of how AVIV and the Partnership operate as a consolidated company. AVIV is a REIT, whose only material asset is its ownership of OP units of the Partnership. As a result, AVIV does not conduct business itself, other than acting as the sole general partner of the Partnership, issuing public equity from time to time and guaranteeing unsecured debt of the Partnership. AVIV has not issued any indebtedness, but has guaranteed all of the unsecured debt of the Partnership. The Partnership indirectly holds all the real estate assets of the Company. Except for net proceeds from public equity issuances by AVIV, which are contributed to the Partnership in exchange for OP units, the Partnership generates all remaining capital required by the Company’s business. The sources of the remaining capital include the operations of the Partnership’s direct and indirect subsidiaries, its direct or indirect incurrence of indebtedness, and the issuance of OP units.

As general partner with control of the Partnership, AVIV consolidates the Partnership for financial reporting purposes. The presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of AVIV and those of the Partnership. AVIV’s stockholders’ equity consists of common stock, additional paid in capital and retained earnings (accumulated deficit). The Partnership’s capital consists of OP units that are owned by AVIV and other investors. The OP units held by the other investors in the Partnership are presented as part of partners’ capital in the Partnership’s consolidated financial statements and as “noncontrolling interests-operating partnership” in AVIV’s consolidated financial statements. There is no difference between the assets and liabilities or net income of AVIV and the Partnership as of and for the three and nine months ended September 30, 2014.

The accompanying unaudited consolidated financial statements have been prepared by management in accordance with US generally accepted accounting principles (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

The Company manages its business as a single business segment as defined in Accounting Standards Codification (ASC) 280, Segment Reporting. The Company has one reportable segment consisting of investments in healthcare properties, consisting primarily of SNFs, assisted living facilities (ALFs), and other healthcare properties located in the United States. All of the Company’s properties generate similar types of revenues and expenses related to tenant rent and reimbursements and operating expenses.

Quarterly Reporting

The accompanying unaudited consolidated financial statements and notes of the Company as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 have been prepared in accordance with US GAAP for interim financial information. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under US GAAP have been condensed or omitted pursuant to US GAAP quarterly reporting rules. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s balance sheets, statements of operations, statement of changes in equity/partners’ capital, and statements of cash flows have been included and are of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the Company for the years ended December 31, 2013, 2012, and 2011. The consolidated statements of operations and cash flows for the periods ended September 30, 2014 and 2013 are not necessarily indicative of full year results.

The balance sheets at December 31, 2013 have been derived from the audited financial statements at that date, but do not include all of the information and footnotes required by US GAAP for complete financial statements. For further information, including definitions of capitalized terms not defined herein, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission.

Estimates

The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less. The Company maintains cash and cash equivalents in United States banking institutions that exceed amounts insured by the Federal Deposit Insurance Corporation. The Company believes the risk of loss from exceeding this insured level is minimal.

Real Estate Investments

The Company periodically assesses the carrying value of real estate investments and related intangible assets in accordance with ASC 360, Property, Plant, and Equipment (ASC 360), to determine if facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. In the event impairment in value occurs and a portion of the carrying amount of the real estate investments will not be recovered in part or in whole, a provision will be recorded to reduce the carrying basis of the real estate investments and related intangibles to their estimated fair value. The estimated fair value of the Company’s rental properties is determined by using customary industry standard methods that include discounted cash flow and/or direct capitalization analysis (Level 3) or estimated cash proceeds received upon the anticipated disposition of the asset from market comparables (Level 2). As part of the impairment evaluation, the buildings in the following locations were impaired to reflect the estimated fair values (Level 2).

	For the Nine Months Ended September 30,
	2014		2013
	(in thousands)
Willmar, MN	$	862	$	—
Jasper, TX		1,479		—
	$	2,341	$	—

Purchase Accounting

The Company allocates the purchase price of facilities between net tangible and identified intangible assets acquired and liabilities assumed as a result of the Company purchasing the business and subsequently leasing the business to unrelated third party operators. The Company makes estimates of the fair value of the tangible and intangible assets and acquired liabilities using information obtained from multiple sources as a result of pre-acquisition due diligence, marketing, leasing activities of the Company’s operator base, industry surveys of critical valuation metrics such as capitalization rates, discount rates and leasing rates and appraisals (Level 3). The Company allocates the purchase price of facilities to net tangible and identified intangible assets and liabilities acquired based on their fair values in accordance with the provisions of ASC 805, Business Combinations (ASC 805). The determination of fair value involves the use of significant judgment and estimation.

The Company determines fair values as follows:

•

Real estate investments are valued using discounted cash flow projections that assume certain future revenue and costs and consider capitalization and discount rates using current market conditions.

•

The Company allocates the purchase price of facilities to net tangible and identified intangible assets acquired and liabilities assumed based on their fair values.

•

Other assets acquired and other liabilities assumed are valued at stated amounts, which approximate fair value.

•

Assumed debt balances are valued at fair value, with the computed discount/premium amortized over the remaining term of the obligation.

The Company determines the value of land based on third party appraisals. The fair value of in-place leases, if any, reflects: (i) above and below-market leases, if any, determined by discounting the difference between the estimated current market rent and the in-place rentals, the resulting intangible asset or liability of which is amortized to rental revenue over the remaining life of the associated lease plus any fixed rate renewal periods if applicable; (ii) the estimated value of the cost to obtain operators, including operator allowances, operator improvements, and leasing commissions, which is amortized over the remaining life of the associated lease; and (iii) an estimated value of the absorption period to reflect the value of the rents and recovery costs foregone during a reasonable lease-up period as if the acquired space was vacant, which is amortized over the remaining life of the associated lease. The Company also estimates the value of operator or other customer relationships acquired by considering the nature and extent of existing business relationships with the operator, growth prospects for developing new business with such operator, such operator’s credit quality, expectations of lease renewals with such operator, and the potential for significant, additional future leasing arrangements with such operator. The Company amortizes such value, if any, over the expected term of the associated arrangements or leases, which would include the remaining lives of the related leases. The amortization is included in the consolidated statements of operations in rental income for above or below market leases or depreciation and amortization expense for in-place lease assets. Generally, the Company’s purchase price allocation of the purchased business and subsequent leasing of the business to unrelated third party operators does not include an allocation to any intangible assets or intangible liabilities, as they are either immaterial or do not exist.

Revenue Recognition

Rental income is recognized on a straight-line basis over the term of the lease when collectability is reasonably assured. Differences between rental income earned and amounts due under the lease are charged or credited, as applicable, to straight-line rent receivable, net. Income recognized from this policy is titled straight-line rental income. Additional rents from expense reimbursements for insurance, real estate taxes, and certain other expenses are recognized in the period in which the related expenses are incurred and the net impact is reflected in rental income on the consolidated statements of operations.

Below is a summary of the components of rental income for the three and nine months ended September 30, 2014 and 2013 (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014		2013
Cash rental income	$	44,220	$	32,555		$	123,982	$	95,111
Straight-line rental income (expense), net		1,727		(1,227	)		3,420		2,998
Rental income from intangible amortization, net		132		365			539		1,097
Total rental income	$	46,079	$	31,693		$	127,941	$	99,206

The Company’s reserve for uncollectible operator receivables is included as a component of reserve for uncollectible loans and other receivables in the consolidated statements of operations.

Lease Accounting

The Company, as lessor, makes a determination with respect to each of its leases whether they should be accounted for as operating leases or direct financing leases. The classification criteria is based on estimates regarding the fair value of the leased facilities, minimum lease payments, effective cost of funds, the economic life of the facilities, the existence of a bargain purchase option, and certain other terms in the lease agreements. Payments received under operating leases are accounted for in the statements of operations as rental income for actual rent collected plus or minus a straight-line adjustment for estimated minimum lease escalators. Assets subject to operating leases are reported as real estate investments in the consolidated balance sheets. For facilities leased as direct financing arrangements, an asset equal to the Company’s net initial investment is established on the balance sheet titled assets under direct financing leases. Payments received under the financing lease are bifurcated between interest income and principal amortization to achieve a consistent yield over the stated lease term using the interest method. Principal amortization (accretion) is reflected as an adjustment to the asset subject to a financing lease.

All of the Company’s leases contain fixed or formula-based rent escalators. To the extent that the escalator increases are tied to a fixed index or rate, lease payments are accounted for on a straight-line basis over the life of the lease.

Deferred Finance Costs

Deferred finance costs are being amortized using the straight-line method, which approximates the interest method, over the term of the respective underlying debt agreement.

Loan Receivables

Loan receivables consist of mortgage loans, capital improvement loans and working capital loans to operators. Mortgage loans represent the financing provided by the Company to operators or owners that are secured by mortgages on real property. Capital improvement loans represent the financing provided by the Company to perform certain capital improvements and/or to acquire furniture, fixtures, and equipment while the operator is operating the facility. Working capital loans to operators represent financing provided by the Company to operators for working capital needs that are secured with non-mortgage collateral or that are unsecured. Loan receivables are carried at their principal amount outstanding. Management periodically evaluates outstanding loans and notes receivable for collectability on a loan-by-loan basis. When management identifies potential loan impairment indicators, such as nonpayment under the loan documents, impairment of the underlying collateral, financial difficulty of the operator, or other circumstances that may impair full execution of the loan documents, and management believes it is probable that all amounts will not be collected under the contractual terms of the loan, the loan is written down to the present value of the expected future cash flows. Loan impairment is monitored via a quantitative and qualitative analysis including credit quality indicators and it is reasonably possible that a change in estimate could occur in the near term. As of September 30, 2014 and December 31, 2013, loan receivable reserves amounted to approximately $3.2 million and $0, respectively. No other circumstances exist that would suggest that additional reserves are necessary at the balance sheet dates other than as disclosed in Footnote 4, Loan Receivables.

Stock-Based Compensation

The Company follows ASC 718, Stock Compensation (ASC 718) in accounting for its stock-based payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee’s requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized when incurred. Additionally, the Company must make estimates regarding employee forfeitures in determining compensation expense. Subsequent changes in actual experience are monitored and estimates are updated as information is available. The non-cash stock-based compensation expense incurred by the Company through September 30, 2014 is summarized in Footnote 12, Equity Compensation Plan.

Fair Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures (ASC 820), establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

•

Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets;

•

Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

•

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Cash and cash equivalents are reflected in the accompanying consolidated balance sheets at amounts considered by management to reasonably approximate fair value. Management estimates the fair value of its long-term debt using a discounted cash flow analysis based upon the Company’s current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding secured loans, unsecured notes payable, and a line of credit with a carrying value of approximately $840.9 million and $686.4 million as of September 30, 2014 and December 31, 2013, respectively. The fair values of debt as of September 30, 2014 and December 31, 2013 were $863.6 million and $705.8 million, respectively, based upon interest rates available to the Company on similar borrowings (Level 3).

Management estimates the fair value of its loan receivables using a discounted cash flow analysis based upon the Company’s current interest rates for loan receivables with similar maturities and collateral securing the indebtedness. The Company had outstanding loan receivables with a carrying value of approximately $43.3 million and $41.7 million as of September 30, 2014 and December 31, 2013, respectively. The fair values of loan receivables as of September 30, 2014 and December 31, 2013 approximate their carrying value based upon interest rates available to the Company on similar borrowings.

Income Taxes

For federal income tax purposes, the Company elected, with the filing of its initial Form 1120 REIT, U.S. Income Tax Return for U.S. Real Estate Investment Trusts, to be taxed as a REIT effective as of the Company’s taxable year ending December 31, 2010. To qualify as a REIT, the Company must meet certain organizational, income, asset and distribution tests. The Company currently is in compliance with these requirements and intends to maintain REIT status. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not elect REIT status for four subsequent years. However, the Company may still be subject to federal excise tax. In addition, the Company may be subject to certain state and local income and franchise taxes. Historically, the Company and its predecessor have generally only incurred certain state and local income and franchise taxes, but these amounts were immaterial in each of the periods presented. Prior to September 2010, the Partnership was taxed as a limited partnership, and the consolidated operating results were included in the income tax returns of the individual partners. No uncertain income tax positions exist as of September 30, 2014 or December 31, 2013.

Noncontrolling Interests—Operating Partnership / Partnership Units

Noncontrolling interests—operating partnership, as presented on AVIV’s consolidated balance sheets, represent OP units held by individuals and entities other than AVIV.

Noncontrolling interests—operating partnership, which can be settled in cash or, at the REIT’s election, by issuance of unregistered shares of AVIV’s common stock, are reported in the equity section of the consolidated balance sheets of AVIV. They are adjusted for income, losses and distributions allocated to OP units not held by AVIV. Adjustments to noncontrolling interests—operating partnership are recorded to reflect increases or decreases in the ownership of the Partnership by holders of OP units as a result of the redemptions of OP units for cash or, at the election of AVIV, in exchange for shares of AVIV’s common stock.

Prior to the IPO, the capital structure of the Company’s operating partnership consisted of six classes of partnership units, each of which had different capital accounts and each of which was entitled to different distributions. In connection with the IPO, each class of units of the Partnership was converted into an aggregate of 11,938,420 OP units held by investors other than AVIV in the Partnership. As of September 30, 2014, there were 11,416,426 OP units outstanding.

Earnings Per Share of the REIT

Basic earnings per share is calculated by dividing the net income allocable to common shares for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the net income allocable to common shares for the period by the weighted average number of common and dilutive securities outstanding during the period.

Earnings Per Unit of the Partnership

Basic earnings per unit is calculated by dividing the net income allocable to units for the period by the weighted average number of OP units outstanding during the period. Diluted earnings per unit is calculated by dividing the net income allocable to OP units for the period by the weighted average number of units and dilutive securities outstanding during the period.

Risks and Uncertainties

The Company is subject to certain risks and uncertainties affecting the healthcare industry as a result of healthcare legislation and continuing regulation by federal, state, and local governments. Additionally, the Company is subject to risks and uncertainties as a result of changes affecting operators of nursing home facilities due to the actions of governmental agencies and insurers to limit the growth in cost of healthcare services.

Recent Accounting Pronouncements

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU No. 2014-08). ASU No. 2014-08 changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. ASU No. 2014-08 is effective prospectively for fiscal years beginning after December 15, 2014 and is available for early adoption as of January 1, 2014. The Company adopted the provisions of ASU No. 2014-08 as of January 1, 2014 and incorporated the provisions of this update to its condensed consolidated financial statements upon adoption. The adoption of ASU No. 2014-08 did not have a material impact on the Company’s financial condition or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which creates a new topic, Accounting Standards Codification Topic 606 (Topic 606). The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This standard is effective for interim or annual periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption. Early adoption of this standard is not allowed. The Company is currently evaluating the impact the adoption of Topic 606 will have on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern.” This update provide guidance about management’s responsibilities to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. An entity’s management, in connection with the preparation of financial statements, to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management’s evaluation should be based on relevant conditions and events that are known or reasonably knowable at the date the financial statements are issued. When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, the entity should disclose information that enables users of the financial statements to understand all of the following: (1) principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans); (2) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; and (3) management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern or management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. ASU No. 2014-15 is effective for interim and annual reporting periods after December 15, 2016 and early application is permitted. The Company is currently assessing this guidance for future implementation.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company’s consolidated financial position or results of operations.

3. Real Estate Assets

2014 Acquisitions

The Company had the following acquisitions during the nine months ended September 30, 2014 as described below:

Month Acquired	Property Type	Location	Purchase Price *(in thousands)*
January	SNF/ALF/ILF	MN	$	40,000
January	SNF	TX		15,920
March	SNF	IA		13,500
March	SNF	KY		35,000
April	SNF	FL		6,000
April	SNF	TX		53,700
May	SNF	TX		3,600
May	SNF	CA		13,350
June	SNF	KY		6,000
July	SNF	MO		16,200
July	ALF	MA		32,000
July	SNF/ALF	MA		50,000
September	SNF/ALF	WA/ID		83,600
				368,870
February	Land Held for Development	TX		2,110
July	Land Held for Development	MA		12,288
			$	383,268

On July 10, 2014, the Company acquired three properties and two land parcels in Massachusetts for a purchase price of $94.3 million. Sidney and Evelyn Insoft, the parents of Steven Insoft, the Company’s President and Chief Operating Officer, jointly hold a 50% equity interest in the sellers of the properties, representing a gross economic interest in the sale of approximately $47.1 million. The Company believes that the terms of the acquisition were fair and reasonable and reflect terms that the Company would expect to obtain in an arm’s length transaction for comparable properties.

The following table illustrates the effect on total revenues and net income as if the Company had consummated the acquisitions as of January 1, 2013 (in thousands, unaudited):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Total revenues	$	48,795	$	41,831	$	145,811	$	129,480
Net income		13,874		16,442		43,838		31,173

For the three and nine months ended September 30, 2014, revenues attributable to the acquired assets in 2014 were approximately $7.5 million and $13.5 million, respectively, and net income attributable to the acquired assets was approximately $4.5 million and $7.2 million, respectively, recognized in the consolidated statements of operations.

Transaction-related costs are not expected to have a continuing significant impact on our financial results and therefore have been excluded from these pro forma results. Related to the above acquisitions, the Company incurred $0.7 million and $2.4 million of transaction costs for the three and nine months ended September 30, 2014, respectively.

In accordance with ASC 805, the Company allocated the approximate net purchase price paid for these properties acquired in 2014 as follows (in thousands):

Land	$	33,390
Buildings and improvements		310,390
Furniture, fixtures and equipment		25,090
Construction in progress and land held for development		14,398
Borrowings and available cash	$	383,268

The Company’s purchase price allocation for the 2014 acquisitions and subsequent leasing of assets does not include an allocation to any intangible assets or intangible liabilities, as these amounts are either immaterial or do not exist.

The Company considers renewals on above- or below-market leases when ascribing value to the in-place lease intangible liabilities at the date of a property acquisition. In those instances where the renewal lease rate pursuant to the terms of the lease does not adjust to a current market rent, the Company evaluates whether the stated renewal rate is above or below current market rates and considers the past and current operations of the property, the current rent coverage ratio of the operator, and the number of years until potential renewal option exercise. If renewal is considered probable based on these factors, an additional lease intangible liability is recorded at acquisition and amortized over the renewal period.

2014 Dispositions

For the three months ended September 30, 2014, the Company disposed of five properties for a total sales price of $0.8 million, and the Company recognized a net loss on sale of approximately $2.4 million. The total sales price and net loss are net of transaction costs incurred in relation to the closings at the time of disposition.

For the nine months ended September 30, 2014, the Company disposed of seven properties for a total sales price of $1.4 million, and the Company recognized a net loss on sale of approximately $2.5 million. The total sales price and net loss are net of transaction costs incurred in relation to the closings at the time of disposition.

Construction in Process

The following summarizes the Company’s construction in progress and land held for development during the nine months ended September 30, 2014 (in thousands):

	September 30, 2014
Beginning balance, January 1	$	23,292
Additions		31,170
Placed in service		(20,041	)
	$	34,421

During 2014 and 2013, the Company capitalized expenditures for improvements related to various construction and reinvestment projects. In 2014, the Company placed into service six completed investment projects at six properties located in California, Pennsylvania, Texas and Indiana. In 2013, the Company placed into service one completed investment project at one property located in California. In accordance with ASC 835, Capitalization of Interest (ASC 835), the Company capitalizes interest based on the average cash balance of construction in progress for the period using the weighted-average interest rate on all outstanding debt, which approximated 6.0% for the three and nine months ended September 30, 2014. The balance of capitalized interest within construction in progress at September 30, 2014 and December 31, 2013 was $0.7 million and $0.8 million, respectively. The amount capitalized during the three and nine months ended September 30, 2014 and 2013, relative to interest incurred, was $0.2 million, $0.5 million, $0.2 million and $0.4 million, respectively.

4. Loan Receivables

The following summarizes the Company’s loan receivables, net activity during the nine months ended September 30, 2014 (in thousands):

	September 30, 2014
	Mortgage Loans			Capital Improvement Loans			Working Capital Loans			Total Loans
Beginning balance, January 1, 2014	$	28,316		$	4,580		$	8,790		$	41,686
New loans issued		4,762			—			7,648			12,410
Reserve for uncollectible loans		—			—			(3,211	)		(3,211	)
Loan amortization and repayments		(5,394	)		(760	)		(1,459	)		(7,613	)
	$	27,684		$	3,820		$	11,768		$	43,272

The following summarizes the Company’s interest income on loans and financing leases for the three and nine months ended September 30, 2014 and 2013 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Mortgage loans	$	456	$	472	$	1,364	$	1,208
Capital improvement loans		66		117		267		417
Working capital loans		211		177		529		556
Direct financing lease		368		365		1,103		1,091
Total interest on loans and financing lease	$	1,101	$	1,131	$	3,263	$	3,272

The Company’s reserve on a loan-by-loan basis for uncollectible loan receivables balances at September 30, 2014 and December 31, 2013 was approximately $3.2 million and $0, respectively, and any movement in the reserve is reflected in reserve for uncollectible loan and other receivables in the consolidated statements of operations. The gross balance of loan receivables for which a reserve on a loan-by-loan basis for uncollectible loan receivables has been applied was approximately $3.2 million and $0, at September 30, 2014 and December 31, 2013, respectively.

During 2014 and 2013, the Company funded loans for mortgage loans, capital improvement purposes, and working capital purposes to various operators. All loans held by the Company accrue interest and are recorded as interest income unless the loan is deemed impaired in accordance with Company policy. The payments received from the operator cover both interest accrued as well as amortization of the principal balance due. Any payments received from the operator made outside of the normal loan amortization schedule are considered principal prepayments and reduce the outstanding loan receivables balance.

5. Deferred Finance Costs

The following summarizes the Company’s deferred finance costs at September 30, 2014 and December 31, 2013 (in thousands):

	September 30, 2014			December 31, 2013
Gross amount	$	25,531		$	21,881
Accumulated amortization		(7,880	)		(5,238	)
Net	$	17,651		$	16,643

For the three and nine months ended September 30, 2014, the Company wrote-off deferred financing costs of $0 and $0.8 million, respectively, with approximately $0 and $0.3 million, respectively, of accumulated amortization associated with the refinancing of the Company’s secured Revolving Credit Facility (as defined below) to a new unsecured revolving credit facility for the net recognition as loss on extinguishment of debt of approximately $0 and $0.5 million, respectively.

6. Intangible Assets and Liabilities

The following summarizes the Company’s intangible assets and liabilities classified as part of other assets or other liabilities at September 30, 2014 and December 31, 2013, respectively (in thousands):

	Assets
	September 30, 2014							December 31, 2013
	Gross Amount		Accumulated Amortization			Net		Gross Amount		Accumulated Amortization			Net
Above market leases	$	5,512	$	(2,830	)	$	2,682	$	6,437	$	(3,452	)	$	2,985
In-place lease assets		652		(179	)		473		652		(130	)		522
Operator relationship		212		(47	)		165		212		(34	)		178
	$	6,376	$	(3,056	)	$	3,320	$	7,301	$	(3,616	)	$	3,685

	Liabilities
	September 30, 2014							December 31, 2013
	Gross Amount		Accumulated Amortization			Net		Gross Amount		Accumulated Amortization			Net
Below market leases	$	12,933	$	(6,212	)	$	6,721	$	17,623	$	(10,059	)	$	7,564

Amortization expense for in-place lease assets and operator relationship was $0.02 million, $0.06 million, $0.02 million and $0.06 million for the three and nine months ended September 30, 2014 and 2013, respectively, and is included as a component of depreciation and amortization in the consolidated statements of operations. Amortization expense for the above market leases intangible asset for the three and nine months ended September 30, 2014 and 2013 was approximately $0.09 million, $0.3 million, $0.1 million and $0.4 million, respectively, and is included as a component of rental income in the consolidated statements of operations. Accretion for the below market leases intangible liability for the three and nine months ended September 30, 2014 and 2013 was approximately $0.2 million, $0.8 million, $0.5 million and $1.5 million, respectively, and is included as a component of rental income in the consolidated statements of operations.

For the three and nine months ended September 30, 2014, the Company wrote-off fully amortized above market leases intangible assets of approximately $0.3 million and $0.9 million, respectively, and fully amortized below market leases intangible liabilities of approximately $0.3 million and $4.7 million, respectively, for a net recognition of $0 and $0, respectively, in rental income from intangible amortization. These write-offs were the result of fully amortized assets and fully accreted liabilities.

7. Leases

As of September 30, 2014, the Company’s portfolio of investments consisted of 313 healthcare facilities, located in 29 states and operated by 38 third party operators. At September 30, 2014, approximately 53.6% (measured as a percentage of total assets) were leased by five private operators: Maplewood (13.1%), Saber Health Group (11.4%), EmpRes (11.1%), Daybreak Healthcare (9.6%), and Fundamental (8.4%). No other operator represents more than 5.3% of the Company’s total assets. The five states in which the Company had its highest concentration of total assets were Texas (16.9%), Ohio (12.1%), California (10.7%), Washington (7.0%), and Connecticut (6.5%), at September 30, 2014.

For the nine months ended September 30, 2014, the Company’s rental income from operations totaled approximately $127.9 million, of which approximately $17.0 million was from Daybreak Healthcare (13.3%), $16.3 million from Saber Health Group (12.7%), and $9.9 million from EmpRes (7.7%). No other operator generated more than 7.5% of the Company’s rental income from operations for the nine months ended September 30, 2014.

8. Debt

The Company’s secured loans, unsecured notes payable and line of credit consisted of the following (in thousands):

	September 30, 2014		December 31, 2013
HUD loan (interest rate of 5.00% on September 30, 2014 and December 31, 2013), inclusive of a $2.4 million and $2.4 million premium balance at September 30, 2014 and December 31, 2013, respectively	$	13,478	$	13,654
2019 Notes (interest rate of 7.75% on September 30, 2014 and December 31, 2013), inclusive of $2.4 million and $2.8 million net premium balance, respectively		402,410		402,752
2021 Notes (interest rate of 6.00% on September 30, 2014 and December 31, 2013)		250,000		250,000
Credit Facility (interest rate of 1.85% on September 30, 2014)		175,000		—
Revolving Credit Facility (interest rate of 2.52% on December 31, 2013)		—		20,000
Total	$	840,888	$	686,406

2019 Notes

On February 4, 2011, April 5, 2011 and March 28, 2012, the Partnership and Aviv Healthcare Capital Corporation (the Issuers) issued $200 million, $100 million and $100 million of 7³⁄₄% Senior Notes due in 2019 (the 2019 Notes), respectively. The REIT is a guarantor of the Issuers’ 2019 Notes. The 2019 Notes are unsecured senior obligations of the Issuers and will mature on February 15, 2019 and bear interest at a rate of 7.75% per annum, payable semiannually to holders of record at the close of business on the February 1 or the August 1 immediately preceding the interest payment date on February 15 and August 15 of each year, commencing August 15, 2011. Premiums of approximately $2.75 million and $1.0 million were associated with the offerings of the $100 million of 2019 Notes on April 5, 2011 and the $100 million of 2019 Notes on March 28, 2012, respectively. The premiums will be amortized as an adjustment to the yield on the 2019 Notes over their term. The Company used the proceeds to, amongst other things, pay down the outstanding balance of previous credit facilities during 2012.

2021 Notes

On October 16, 2013, the Issuers issued $250 million of 6% Senior Notes due in 2021 (2021 Notes). The REIT is a guarantor of the Issuers’ 2021 Notes. The 2021 Notes are unsecured senior obligations of the Issuers and will mature on October 15, 2021 and bear interest at a rate of 6.00% per annum, payable semiannually to holders of record at the close of business on the April 1 or the October 1 immediately preceding the interest payment date on April 15 and October 15 of each year, commencing April 15, 2014. The Company used the net proceeds to, amongst other things, pay down approximately $135.0 million of the outstanding indebtedness under the Revolving Credit Facility during 2013.

Credit Facility

On March 26, 2013, the Company, through Aviv Financing IV, entered into a $300 million secured revolving credit facility and $100 million term loan with Bank of America, N.A. (collectively, the Revolving Credit Facility). On April 16, 2013, the Company converted the entire $100 million term loan into a secured revolving credit facility, thereby terminating the term loan and any availability thereunder and increasing the amount available under the secured revolving credit facility from $300 million to $400 million. On each payment date, the Company paid interest only in arrears on any outstanding principal balance. The interest rate was based on LIBOR plus a margin of 235 basis points to 300 basis points depending on the Company’s leverage ratio. Additionally, an unused fee equal to 50 basis points per annum of the daily unused balance on the Revolving Credit Facility was payable quarterly in arrears.

On May 14, 2014, the Company terminated the Revolving Credit Facility and, through the Partnership, entered into a new $600 million unsecured revolving credit facility (the Credit Facility). The Credit Facility has an interest rate that ranges from 170 to 225 basis points over LIBOR depending on the Company’s consolidated leverage and a maturity date of May 14, 2018. The Credit Facility can be extended for an additional year at the Company’s option, subject to the satisfaction of certain conditions, and contains an accordion feature increasing the borrowing capacity to $800 million. As of September 30, 2014, the Credit Facility had a balance of $175.0 million.

Other Loans

On June 15, 2012, a subsidiary of Aviv Financing III assumed a HUD loan with a balance of approximately $11.5 million. Interest is at a fixed rate of 5.00%. The loan originated in November 2009 with a maturity date of October 1, 2044 and is based on a 35-year amortization schedule. The Company is obligated to pay the remaining principal and interest payments of the loan. A premium of $2.5 million was associated with the assumption of debt and will be amortized as an adjustment to interest expense on the HUD loan over its term.

9. Commitments and Contingencies

The Company has contractual arrangements with three operators in six of its facilities to reimburse any liabilities, obligations or claims of any kind or nature resulting from the actions of the former operators in such facilities. The Company is obligated to reimburse the fees to the operator if and when the operator incurs such expenses associated with certain Indemnified Events, as defined therein. The total possible obligation for these fees is estimated to be $2.6 million, of which approximately $2.1 million has been paid to date. The remaining $0.5 million was accrued as a component of other liabilities in the consolidated balance sheets.

The Company has purchase options with one of its tenants that are not exercisable by the tenant until January 1, 2017 for five properties, January 1, 2019 for two properties, and January 1, 2022 for five properties. If the 2017 option is not exercised, the tenant loses the right to exercise the 2019 option and the 2022 option. If the 2017 option is exercised, but the 2019 option is not exercised, the tenant loses the right to exercise the 2022 option. The purchase options call for the purchase price, as defined, to be determined at a future date. In addition, the Company has purchase options with four tenants on five properties that are exercisable by the applicable tenant at various times during the terms of the respective leases. Two of these options are exercisable at a predetermined purchase price and the remaining three call for a purchase price to be determined at a future date.

The Company is involved in various unresolved legal actions and proceedings, which arise in the normal course of our business. Although the outcome of a particular proceeding can never be predicted, we do not believe that the result of any of these other matters will have a material adverse effect on our business, operating results, liquidity or financial position.

10. Noncontrolling Interests—Operating Partnership / OP Units

Noncontrolling interests—operating partnership, as presented on AVIV’s consolidated balance sheets, represent the OP units held by individuals and entities other than AVIV. Accordingly, the following discussion related to noncontrolling interests—operating partnership of the REIT refers equally to OP units of the Partnership.

Holders of OP units are entitled to receive distributions in a per unit amount equal to the per share dividends made with respect to each share of AVIV’s common stock, if and when AVIV’s Board of Directors declares such a dividend. Holders of OP units have the right to tender their OP units for redemption, in an amount equal to the fair market value of AVIV’s common stock. AVIV may elect to redeem tendered OP units for cash or for shares of AVIV’s common stock. During the three and nine months ended September 30, 2014, OP unitholders redeemed a total of 26,885 and 199,856 OP units in exchange for an equal number of shares of common stock of AVIV.

11. Stockholders’ Equity of the REIT and Partners’ Capital of the Partnership

Distributions accrued are summarized as follows for the three months ended September 30, (in thousands):

	Class A		Class B		Class C		Class D		Class F		OP Units		REIT Shares
2014	$	—	$	—	$	—	$	—	$	—	$	4,110	$	17,009
2013	$	—	$	—	$	—	$	—	$	—	$	4,298	$	13,435

Distributions accrued are summarized as follows for the nine months ended September 30, (in thousands):

	Class A		Class B		Class C		Class D		Class F		OP Units		REIT Shares
2014	$	—	$	—	$	—	$	—	$	—	$	12,374	$	47,666
2013	$	2,797	$	97	$	146	$	—	$	554	$	8,882	$	34,286

In connection with the IPO, the existing classes of limited partnership units of the Partnership were converted into an aggregate of 21,653,813 OP units held by the REIT and 11,938,420 OP units held by other investors of the Partnership. As a result, Class A, B, C, D and F Units are no longer outstanding, and the Partnership has had a single class of OP units since March 26, 2013. As noted above, the OP units held by other investors in the Partnership are redeemable for cash or, at the REIT’s election, unregistered shares of the REIT’s common stock on a one-for-one basis.

The weighted-average units outstanding for each class of units are summarized as follows for the three months ended September 30:

	Class A		Class B		Class C		Class D		Class F		OP Units		REIT Shares
2014		—		—		—		—		—		11,419,777		47,213,612
2013		—		—		—		—		—		11,938,420		37,271,714

The weighted-average units outstanding for each class of units are summarized as follows for the nine months ended September 30:

	Class A		Class B		Class C		Class D		Class F		OP Units		REIT Shares
2014		—		—		—		—		—		11,478,543		43,576,705
2013		4,193,031		1,408,305		—		2,506		835,958		8,221,330		32,408,843

During the nine months ended September 30, 2014 and 2013, the Company had the following equity and capital activity:

•

AVIV issued an aggregate of 16,361 and 0 shares of common stock in connection with the Company’s annual grant of unrestricted stock to management, respectively;

•

AVIV issued an aggregate of 16,618 and 70,000 shares of common stock in connection with the Company’s annual grant of unrestricted and restricted stock to its Board of Directors, respectively;

•

AVIV reserved for issuance an aggregate of 156,397 and 0 shares of common stock in connection with the Company’s annual grant of restricted stock to employees and issuance of restricted stock to a new employee, respectively;

•

AVIV issued 15,180,000 shares in connection with the IPO on March 26, 2013 that resulted in proceeds to the Company, net of underwriting discounts, commissions, advisory fees and other offering costs of $282.3 million;

•

AVIV issued 9,200,000 shares on April 15, 2014 in connection with an underwritten public offering of shares of AVIV’s common stock that resulted in proceeds to the Company, net of underwriting discounts, commissions, advisory fees and other offering costs of $211.3 million (the Equity Offering);

•

OP unit holders redeemed a total of 199,856 and 0 OP units in exchange for an equal number of shares of AVIV’s common stock, respectively; and

•

AVIV issued 174,467 and 0 shares of common stock in connection with an option exercise, respectively.

For the nine months ended September 30, 2014, AVIV declared the following cash dividends on its common stock, and the Partnership declared equivalent distributions on its OP units:

Declaration Date	Record Date	Amount Per Share		Dividend Payment Date
March 18, 2014	March 31, 2014	$	0.36	April 11, 2014
May 27, 2014	June 27, 2014	$	0.36	July 11, 2014
July 29, 2014	September 26, 2014	$	0.36	October 10, 2014
Total		$	1.08

12. Equity Compensation Plan

Prior to September 2010, the Partnership had established an officer incentive program linked to its future value. Class D Units were periodically granted to employees of AAM. Part of the Class D Units are defined as performance-based awards under ASC 718 and require employment of the recipient on the date of sale, disposition, or refinancing. If the employee is no longer employed on such date, the award is forfeited. The remainder of the Class D Units were time-based awards under ASC 718 and such fair value determined on the grant date was recognized over the vesting period. On March 26, 2013, the performance component Class D Units vested and along with time based units were converted to OP units in connection with the IPO, and $0.9 million of expense was recognized.

Restricted Stock Grants

On March 26, 2013 the Company adopted the Aviv REIT, Inc. 2013 Long-Term Incentive Plan (the LTIP). The purpose of the LTIP is to attract and retain qualified persons upon whom, in large measure, the Company’s sustained progress, growth and profitability depend, to motivate the participants to achieve long-term Company goals and to align the participants’ interests with those of other stockholders by providing them with a proprietary interest in the Company’s growth and performance. The Company’s executive officers, employees, consultants and non-employee directors are eligible to participate in the LTIP. Under the plan, 2,000,000 shares of the Company’s common stock are available for issuance. The shares can be issued as restricted stock awards (RSAs) or as restricted stock units (RSUs).

During 2013, the Company issued 23,250 shares and 47,250 RSAs subject to a vesting period. During the nine months ended September 30, 2014, 15,750 of the 47,250 RSAs vested. Additionally, the Company issued 226,585 RSUs, of which 17,470 were subsequently forfeited prior to the year ended December 31, 2013. Of these 226,585 RSUs, 16,361 shares were issued and vested in the nine months ended September 30, 2014 and an additional 7,779 RSUs were forfeited. Some of these RSUs are subject to time vesting, and some are subject to performance vesting. The time-based RSUs generally vest over a period of two to three years, subject to the employee’s continued employment with the Company. The performance-based RSUs are earned on the basis of Total Shareholder Return (TSR) on the Company’s stock compared to the TSR of a defined group of peer companies. The first installment of the performance-based RSUs are based on the companies comprising the NAREIT Equity Index and the companies comprising the Bloomberg Healthcare REIT Index for the performance period beginning on the date of the IPO and ending December 31, 2014. The second installment is based on the companies comprising the NAREIT Equity Index and the companies comprising the Bloomberg Healthcare REIT Index for the performance period beginning on the date of the IPO and ending December 31, 2015. If the service and performance conditions are met, approximately half of the RSUs will vest on December 31, 2014, and the remaining will vest on December 31, 2015. The RSUs carry dividend equivalent rights that are subject to the same vesting terms as the underlying RSUs.

During the nine months ended September 30, 2014, the Company issued 156,397 RSUs of which 18,445 have been forfeited. Some of these RSUs are subject to time vesting, and some are subject to performance vesting. The time-based RSUs cliff vest over a period of three years, subject to the employee’s continued employment with the Company. The performance-based RSUs cliff vest on the basis of TSR on the Company’s stock compared to the TSR of a defined group of peer companies. Approximately half of the performance-based RSUs are based on the companies comprising the NAREIT Equity Index for the performance period beginning on January 1, 2014 and ending December 31, 2016. Approximately half are based on the companies in the Bloomberg Healthcare REIT Index for the performance period beginning on January 1, 2014 and ending December 31, 2016. If the service and performance conditions are met, the RSUs will vest on December 31, 2016.

For the three and nine months ended September 30, 2014 and 2013, the Company recognized total non-cash stock-based compensation expense related to the LTIP of $0.9 million, $3.6 million, $0.5 million and $0.6 million, respectively.

Restricted stock grants vest over specified periods of time as long as the employee remains with the Company. The following table sets forth the number of unvested shares of restricted stock and the weighted average fair value of these shares at the date of grant:

	Nine Months Ended
	September 30, 2014					September 30, 2013
	Shares of Restricted Stock			Weighted Average Fair Value of Date of Grant		Shares of Restricted Stock		Weighted Average Fair Value of Date of Grant
Unvested balance at January 1		256,092		$	29.83		—	$	—
Granted		172,915		$	26.55		182,092	$	33.10
Vested (1)		(40,055	)	$	23.08		—	$	—
Forfeited		(26,724	)	$	30.53		—	$	—
Unvested balance at September 30		362,228		$	28.96		182,092	$	33.10

(1)

Includes 7,944 shares which were used to settle minimum employee withholding tax obligations for one employee of approximately $0.2 million in 2014. A net of 32,111 shares of common stock were delivered in the nine months ended September 30, 2014.

As of September 30, 2014, total unearned compensation on restricted stock was $6.5 million, and the weighted average vesting period was 1.76 years.

Option Awards

On September 17, 2010, the Company adopted the 2010 Management Incentive Plan (the MIP), which provides for the grant of option awards. Two-thirds of the options granted under the MIP were performance-based awards whose criteria for vesting is tied to a future liquidity event (as defined therein) and also contingent upon meeting certain return thresholds (as defined therein). The grant date fair value associated with all performance-based award options of the Company aggregated to approximately $7.4 million at the time of the IPO. One third of the options granted under the MIP were time based awards and the service period for these options is four years with shares vesting at a rate of 25% ratably from the grant date.

In connection with the IPO, all options outstanding under the MIP, representing options to purchase 5,870,138 shares with a weighted average exercise price of $17.47 per share, became fully-vested. In addition, recipients were entitled to receive dividend equivalents on their options awarded under the MIP. Dividend equivalents were paid on time-based options on (i) the date of vesting, with respect to any portion of a time-based option that was unvested on the date the dividend equivalent was accrued, and (ii) the last day of the calendar quarter in which such dividends were paid to stockholders, with respect to any portion of a time-based option vested as of the date the dividend equivalent was accrued. Dividend equivalents accrued and unpaid prior to the consummation of the IPO in the approximate amount of $14.8 million were paid in shares of common stock, net of applicable withholding of approximately $6.8 million, in an amount based on the IPO price of the common stock. No dividend equivalents will be paid for any MIP options with respect to periods after the date of the IPO by the Company.

In connection with the IPO, the holders of option awards under the MIP received a new class of units of LG Aviv L.P., the legal entity through which Goldberg Lindsay & Co., LLC holds its interest in the REIT, equal to the number of options held by such persons immediately prior to the consummation of the IPO. Under the limited partnership agreement of LG Aviv L.P., the units are entitled to receive an aggregate distribution amount equal to 14.9% of the dividend distributions declared and received by LG Aviv L.P. after the consummation of the IPO in respect of its shares of common stock. The distribution amount will be paid by LG Aviv L.P. ratably to each holder of such units on the distribution date in the proportion that the total number of units held by such holder bears to the total outstanding units of the same class. Any unit payments will be paid, if at all, on the earlier of (i) the last day of the calendar quarter in which dividends were paid to the Company stockholders and (ii) three business days following the holder’s termination of employment with the Company. For the nine months ended September 30, 2014, $3.4 million was paid by LG Aviv L.P. to the holders of such units.

The following table represents the time- and performance-based option awards activity for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended
	September 30, 2014			September 30, 2013
Outstanding at January 1		5,870,138			1,956,713
Exercised		(174,467	)		—
Awards vested at IPO		—			3,913,425
Outstanding at September 30		5,695,671			5,870,138
Options exercisable at end of period		5,695,671			—
Weighted average fair value of options granted	$	2.20		$	2.20

The following table represents the time- and performance-based option awards outstanding cumulatively life-to-date for the nine months ended September 30, 2014 and 2013 as well as other MIP data:

	2014		2013
Range of exercise prices		$16.56-$18.87		$16.56 - $18.87
Outstanding		5,695,671		5,870,138
Remaining contractual life (years)		6.52		7.55
Weighted average exercise price		$17.44		$17.47

The Company has used the Black-Scholes option pricing model to estimate the grant date fair value of the options. In connection with the IPO, all options outstanding under the MIP became fully vested, and the plan was retired. There were no options awarded in the nine months ended September 30, 2014 or 2013.

The Company recorded non-cash compensation expenses of approximately $0, $0, $0, and $9.0 million for the three and nine months ended September 30, 2014 and 2013, respectively, related to the time and performance based stock options accounted for as equity awards, as a component of general and administrative expenses in the consolidated statements of operations.

At September 30, 2014, there is no unrecognized compensation cost to be recognized related to the option awards.

Dividend equivalent rights associated with the MIP that became payable upon vesting amounted to $0, $0, $0, and $15.4 million for the three and nine months ended September 30, 2014 and 2013, respectively.

13. Earnings Per Common Share of the REIT

The following table shows the amounts used in computing the basic and diluted earnings per common share (in thousands except for share and per share amounts).

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Numerator for earnings per common share—basic:
Net income	$	12,035		$	10,067		$	31,951		$	12,031
Net income allocable to noncontrolling interests		(2,344	)		(2,446	)		(6,662	)		(3,236	)
Numerator for earnings per common share—basic	$	9,691		$	7,621		$	25,289		$	8,795
Numerator for earnings per common share—diluted:
Numerator for earnings per common share—basic	$	9,691		$	7,621		$	25,289		$	8,795
Net income allocable to noncontrolling interests—OP units		2,344			2,446			6,662			2,228
Numerator for earnings per common share—diluted	$	12,035		$	10,067		$	31,951		$	11,023
Denominator for earnings per common share—basic and diluted:
Denominator for earnings per common share—basic		47,213,612			37,271,714			43,576,705			32,408,843
Effect of dilutive securities:
Noncontrolling interests—OP units		11,419,777			11,938,420			11,478,543			8,221,330
Stock options		2,155,075			1,599,302			1,953,632			1,454,735
Restricted stock units		179,403			29,093			118,904			16,169
Denominator for earnings per common share—diluted		60,967,867			50,838,529			57,127,784			42,101,077
Basic earnings per common share
Net income allocable to common stockholders	$	0.21		$	0.20		$	0.58		$	0.27
Diluted earnings per common share
Net income allocable to common stockholders	$	0.20		$	0.20		$	0.56		$	0.26

14. Earnings Per Unit of the Partnership

The following table shows the amounts used in computing the basic and diluted earnings per unit (in thousands except for unit and per unit amounts).

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Numerator for earnings per unit—basic:
Net income	$	12,035	$	10,067	$	31,951	$	12,031
Net income allocable to limited partners		—		—		—		(1,008	)
Numerator for earnings per unit—basic:	$	12,035	$	10,067	$	31,951	$	11,023
Numerator for earnings per unit— diluted:
Numerator for earnings per unit—diluted	$	12,035	$	10,067	$	31,951	$	11,023
Denominator for earnings per unit— basic and diluted:
Denominator for basic earnings per unit— basic		58,633,389		49,210,134		55,055,248		40,630,173
Effective dilutive securities:
Stock options		2,155,075		1,599,302		1,953,632		1,454,735
Restricted stock units		179,403		29,093		118,904		16,169
Denominator for earnings per unit—diluted		60,967,867		50,838,529		57,127,784		42,101,077
Basic earnings per unit:
Net income allocable to units	$	0.21	$	0.20	$	0.58	$	0.27
Diluted earnings per unit:
Net income allocable to units	$	0.20	$	0.20	$	0.56	$	0.26

15. Subsequent Events

On October 1, 2014, the Company acquired one property in Kentucky for a purchase price of $4.6 million from an unrelated third party.

On October 17, 2014, the Company acquired two properties in Texas for a purchase price of $28.5 million from an unrelated third party.

On October 30, 2014, AVIV and the Partnership entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Omega Healthcare Investors, Inc. (“Omega”), OHI Healthcare Properties Holdco, Inc., a wholly-owned subsidiary of Omega (“Merger Sub”), and OHI Healthcare Properties Limited Partnership, L.P., a wholly-owned subsidiary of Omega. The Merger Agreement provides for the merger of AVIV with and into Merger Sub (the “Merger”), with Merger Sub surviving as a wholly-owned subsidiary of Omega. At the effective time of the Merger, and subject to the terms and conditions set forth in the Merger Agreement, each outstanding share of Aviv common stock will be converted into the right to receive 0.90 shares of Omega common stock.

16. Condensed Consolidating Information

AVIV and certain of the Partnership’s direct and indirect wholly owned subsidiaries (the Subsidiary Guarantors) fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal and interest with respect to the Issuers’ 2019 Notes and 2021 Notes issued in February 2011, April 2011, March 2012 and October 2013. The 2019 Notes and 2021 Notes were issued by the Partnership and Aviv Healthcare Capital Corporation. Separate financial statements of the guarantors are not provided, as the consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of the assets held by and the operations of the respective guarantor and non-guarantor subsidiaries. Other wholly owned subsidiaries (Non-Guarantor Subsidiaries) that were not included among the Subsidiary Guarantors were not obligated with respect to the 2019 Notes and 2021 Notes. The properties held by the Non-Guarantor Subsidiaries are subject to mortgages. The following summarizes the Partnership’s condensed consolidating information as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014, and 2013:

CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2014

(in thousands)

(unaudited)

	Issuers		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Net real estate	$	49	$	1,523,158	$	15,708	$	—		$	1,538,915
Cash and cash equivalents		14,689		637		508		—			15,834
Deferred finance costs, net		17,637		—		14		—			17,651
Other		27,042		75,088		2,958		—			105,088
Investment in and due from related parties, net		1,560,447		—		—		(1,560,447	)		—
Total assets	$	1,619,864	$	1,598,883	$	19,188	$	(1,560,447	)	$	1,677,488
Liabilities and partners’ capital
Secured loan	$	—	$	—	$	13,478	$	—		$	13,478
Unsecured loan		652,410		—		—		—			652,410
Line of credit		175,000		—		—		—			175,000
Accrued interest payable		10,857		—		46		—			10,903
Dividends and distributions payable		21,078		—		—		—			21,078
Accounts payable and accrued expenses		987		10,885		22		—			11,894
Tenant security and escrow deposits		140		23,684		242		—			24,066
Other liabilities		1,152		9,267		—		—			10,419
Total liabilities		861,624		43,836		13,788		—			919,248
Total partners’ capital		758,240		1,555,047		5,400		(1,560,447	)		758,240
Total liabilities and partners’ capital	$	1,619,864	$	1,598,883	$	19,188	$	(1,560,447	)	$	1,677,488

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2013

(in thousands)

(unaudited)

	Issuers		Subsidiary Guarantors			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Net real estate	$	55	$	1,148,057		$	15,376	$	—		$	1,163,488
Cash and cash equivalents		50,709		(714	)		769		—			50,764
Deferred finance costs, net		12,681		3,948			14		—			16,643
Other		25,260		71,372			2,906		—			99,538
Investment in and due from related parties, net		1,168,729		—			—		(1,168,729	)		—
Total assets	$	1,257,434	$	1,222,663		$	19,065	$	(1,168,729	)	$	1,330,433
Liabilities and partners’ capital
Secured loan	$	—	$	—		$	13,654	$	—		$	13,654
Unsecured loan		652,752		—			—		—			652,752
Line of credit		—		20,000			—		—			20,000
Accrued interest payable		14,750		487			47		—			15,284
Dividends and distributions payable		17,694		—			—		—			17,694
Accounts payable and accrued expenses		2,082		8,473			—		—			10,555
Tenant security and escrow deposits		765		20,572			249		—			21,586
Other liabilities		946		9,517			—		—			10,463
Total liabilities		688,989		59,049			13,950		—			761,988
Total partners’ capital		568,445		1,163,614			5,115		(1,168,729	)		568,445
Total liabilities and partners’ capital	$	1,257,434	$	1,222,663		$	19,065	$	(1,168,729	)	$	1,330,433

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2014

(in thousands)

(unaudited)

	Issuers			Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Revenues
Rental income	$	—		$	45,715	$	364	$	—		$	46,079
Interest on loans and financing lease		278			823		—		—			1,101
Interest and other income		8			183		—		—			191
Total revenues		286			46,721		364		—			47,371
Expenses
Interest expense incurred		12,237			—		139		—			12,376
Amortization of deferred financing costs		988			—		—		—			988
Depreciation and amortization		2			11,414		106		—			11,522
General and administrative		1,982			3,301		14		—			5,297
Transaction costs		52			1,168		—		—			1,220
Loss on impairment		—			1,479		—		—			1,479
Reserve for uncollectible loan receivables and other receivables		—			9		—		—			9
Loss on sale of assets, net		—			2,445		—		—			2,445
Loss on extinguishment of debt		—			—		—		—			—
Total expenses		15,261			19,816		259		—			35,336
Net (loss) income		(14,975	)		26,905		105		—			12,035
Equity in income (loss) of subsidiaries		27,010			—		—		(27,010	)		—
Net income (loss) allocable to units	$	12,035		$	26,905	$	105	$	(27,010	)	$	12,035

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2013

(in thousands)

(unaudited)

	Issuers			Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Revenues
Rental income	$	—		$	31,005	$	688	$	—		$	31,693
Interest on loans and financing lease		262			869		—		—			1,131
Interest and other income		—			49		—		—			49
Total revenues		262			31,923		688		—			32,873
Expenses
Interest expense incurred		7,641			795		141		—			8,577
Amortization of deferred financing costs		369			441		—		—			810
Depreciation and amortization		2			8,130		170		—			8,302
General and administrative		1,393			2,458		16		—			3,867
Transaction costs		536			674		—		—			1,210
Reserve for uncollectible loan receivables and other receivables		—			27		—		—			27
Loss on sale of assets, net		—			—		13		—			13
Total expenses		9,941			12,525		340		—			22,806
Net (loss) income		(9,679	)		19,398		348		—			10,067
Equity in income (loss) of subsidiaries		19,746			—		—		(19,746	)		—
Net income (loss) allocable to units	$	10,067		$	19,398	$	348	$	(19,746	)	$	10,067

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2014

(in thousands)

(unaudited)

	Issuers			Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Revenues
Rental income	$	—		$	126,869	$	1,072	$	—		$	127,941
Interest on loans and financing lease		727			2,536		—		—			3,263
Interest and other income		482			750		—		—			1,232
Total revenues		1,209			130,155		1,072		—			132,436
Expenses
Interest expense incurred		34,903			1,167		419		—			36,489
Amortization of deferred financing costs		2,288			656		—		—			2,944
Depreciation and amortization		6			31,155		309		—			31,470
General and administrative		6,855			10,044		61		—			16,960
Transaction costs		134			3,678		1		—			3,813
Loss on impairment		—			2,341		—		—			2,341
Reserve for uncollectible loan receivables and other receivables		3,211			298		—		—			3,509
Loss on sale of assets, net		—			2,458		—		—			2,458
Loss on extinguishment of debt		—			501		—		—			501
Total expenses		47,397			52,298		790		—			100,485
Net (loss) income		(46,188	)		77,857		282		—			31,951
Equity in income (loss) of subsidiaries		78,139			—		—		(78,139	)		—
Net income (loss) allocable to units	$	31,951		$	77,857	$	282	$	(78,139	)	$	31,951

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2013

(in thousands)

(unaudited)

	Issuers			Subsidiary Guarantors		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Rental income	$	—		$	96,666	$	2,540		$	—		$	99,206
Interest on loans and financing lease		836			2,436		—			—			3,272
Interest and other income		5			123		—			—			128
Total revenues		841			99,225		2,540			—			102,606
Expenses
Interest expense incurred		22,932			6,200		467			—			29,599
Amortization of deferred financing costs		1,094			1,422		—			—			2,516
Depreciation and amortization		4			23,881		514			—			24,399
General and administrative		13,714			7,364		72			—			21,150
Transaction costs		718			1,173		15			—			1,906
Reserve for uncollectible loan receivables and other receivables		(10	)		77		(10	)		—			57
Loss (gain) on sale of assets, net		—			374		(400	)		—			(26	)
Loss on extinguishment of debt		—			10,974		—			—			10,974
Total expenses		38,452			51,465		658			—			90,575
Net (loss) income		(37,611	)		47,760		1,882			—			12,031
Equity in income (loss) of subsidiaries		49,642			—		—			(49,642	)		—
Net income (loss) allocable to units	$	12,031		$	47,760	$	1,882		$	(49,642	)	$	12,031

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2014

(in thousands)

(unaudited)

	Issuers			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(358,512	)	$	428,124		$	476		$	—	$	70,088
Investing activities
Purchase of real estate		—			(368,870	)		—			—		(368,870	)
Proceeds from sales of real estate, net		—			1,337			—			—		1,337
Capital improvements		—			(9,673	)		(620	)		—		(10,293	)
Development projects		—			(30,316	)		—			—		(30,316	)
Loan receivables received from others		2,102			5,511			—			—		7,613
Loan receivables funded to others		(7,648	)		(4,762	)		—			—		(12,410	)
Net cash used in investing activities		(5,546	)		(406,773	)		(620	)		—		(412,939	)
Financing activities
Borrowings of debt		185,000			98,000			—			—		283,000
Repayment of debt		(10,000	)		(118,000	)		(117	)		—		(128,117	)
Payment of financing costs		(4,588	)		—			—			—		(4,588	)
Capital contributions		60			—			—			—		60
Public offering proceeds		221,720			—			—			—		221,720
Cost of raising capital		(10,551	)		—			—			—		(10,551	)
Units issued for settlement of vested stock and exercised unit options, net		3,053			—			—			—		3,053
Cash distributions to partners		(56,656	)		—			—			—		(56,646	)
Net cash provided by (used in) financing activities		328,038			(20,000	)		(117	)		—		307,921
Net (decrease) increase in cash and cash equivalents		(36,020	)		1,351			(261	)		—		(34,930	)
Cash and cash equivalents:
Beginning of period		50,709			(714	)		769			—		50,764
End of period	$	14,689		$	637		$	508		$	—	$	15,834

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2013

(in thousands)

(unaudited)

	Issuers			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(220,414	)	$	259,381		$	(2,572	)	$	—	$	36,395
Investing activities
Purchase of real estate		—			(38,076	)		—			—		(38,076	)
Proceeds from sales of real estate, net		—			1,772			3,070			—		4,842
Capital improvements		(6	)		(9,865	)		(38	)		—		(9,909	)
Development projects		—			(14,380	)		—			—		(14,380	)
Loan receivables received from others		2,041			1,181			—			—		3,222
Loan receivables funded to others		(370	)		(2,387	)		—			—		(2,707	)
Net cash provided by (used in) investing activities		1,665			(61,705	)		3,032			—		(57,008	)
Financing activities
Borrowings of debt		—			160,000			—			—		160,000
Repayment of debt		—			(353,091	)		(112	)		—		(353,203	)
Payment of financing costs		—			(5,290	)		—			—		(5,290	)
Capital contributions		425			—			—			—		425
Initial public offering proceeds		303,600			—			—			—		303,600
Cost of raising capital		(25,380	)		—			—			—		(25,380	)
Cash distributions to partners		(65,183	)		—			—			—		(65,183	)
Net cash provided by (used in) financing activities		213,462			(198,381	)		(112	)		—		14,969
Net increase (decrease) in cash and cash equivalents		(5,287	)		(705	)		348			—		(5,644	)
Cash and cash equivalents:
Beginning of period		16,869			(1,861	)		526			—		17,876
End of period	$	11,582		$	(2,566	)	$	874		$	—	$	12,232

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OMEGA HEALTHCARE INVESTORS INC Reports