Avenir Diversified Income Trust
TSX : AVF.UN

Avenir Diversified Income Trust

November 14, 2007 13:17 ET

Avenir Diversified Income Trust Announces Third Quarter 2007 Results

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2007) - AVENIR DIVERSIFIED INCOME TRUST ("Avenir Trust") (TSX:AVF.UN) is pleased to announce the financial and operational results for the three and nine months ended September 30, 2007 and to announce they have filed the complete Management Discussion and Analysis and Unaudited Interim Consolidated Financial Statements on SEDAR. An electronic copy of these documents may be obtained on Avenir Trust's SEDAR profile at www.sedar.com.



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TOTAL CONSOLIDATED FINANCIAL SUMMARY
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For the three months ended Sept 30
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%
(in thousands except for per unit amounts) 2007 2006(3) Change
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Total Revenue $188,481 $211,784 (11)%
Funds From Continuing Operations (FFCO)(1) $ 12,389 $ 14,000 (12)%
FFCO(1) Per Unit - Basic $ 0.30 $ 0.34 (12)%
Funds From Operations (FFO)(1) $ 13,212 $ 14,328 (8)%
FFO Per Unit(1) - Basic $ 0.32 $ 0.35 (9)%
Distributions(4) $ 10,422 $ 10,401 0 %
Distributions Per Unit - Basic(4) $ 0.25 $ 0.25 0 %
Distribution Payout Ratio(2) 79% 73% (8)%
Net Income from continuing operations (NICO) $ 4,248 $ 7,555 (44)%
NICO Per Unit - Basic $ 0.10 $ 0.18 (44)%
Net Income $ 4,479 $ 7,594 (41)%
Net Income Per Unit - Basic $ 0.11 $ 0.18 (39)%
Total Assets $533,739 $489,014 9 %
Working Cap. (Net Debt) including
notes payable(1) (not incld. Assets
held for sale) $(38,641) $(38,838) 1 %
Wtd. Avg. Units Outstanding - Basic 41,721,239 41,094,054 2 %
Units Outstanding (including escrowed units) 41,885,916 41,773,367 0 %
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For the nine months ended Sept 30
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%
(in thousands except for per unit amounts) 2007 2006(3) Change
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Total Revenue $650,584 $545,883 19 %
Funds From Continuing Operations (FFCO)(1) $ 41,694 $ 40,635 3 %
FFCO(1) Per Unit - Basic $ 1.00 $ 1.00 0 %
Funds From Operations (FFO)(1) $ 44,055 $ 50,671 (13)%
FFO Per Unit(1) - Basic $ 1.06 $ 1.24 (15)%
Distributions(4) $ 31,230 $ 38,586 (19)%
Distributions Per Unit - Basic(4) $ 0.75 $ 0.95 (21)%
Distribution Payout Ratio(2) 71% 76% 7 %
Net Income from continuing operations (NICO) $ 16,510 $ 24,310 (32)%
NICO Per Unit - Basic $ 0.40 $ 0.60 (33)%
Net Income $ 17,481 $ 28,009 (38)%
Net Income Per Unit - Basic $ 0.42 $ 0.69 (39)%
Total Assets $533,739 $489,014 9 %
Working Cap. (Net Debt) including
notes payable(1) (not incld. Assets
held for sale) $(38,641) $(38,838) 1 %
Wtd. Avg. Units Outstanding - Basic 41,530,800 40,753,161 2 %
Units Outstanding (including escrowed units) 41,885,916 41,773,367 0 %
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(1) Funds from continuing operations, Funds from continuing operations per unit, Funds from operations, Funds from operations per unit and working capital (net debt) including notes payable are not recognized measures under Canadian generally accepted accounting principles (GAAP). Funds from operations is calculated by taking cash provided by operating activities on the statement of cash flows adjusted for the effect of changes in non-cash working capital and asset retirement costs incurred. Working capital (net debt) is calculated by taking current assets less current liabilities less notes payable. Management believes that these measures are useful supplemental measures to analyze operating performance as they demonstrate the Trust's ability to generate the Funds from operations necessary to fund future distributions and capital investments. The Trust's method of calculating these measures may differ from other issuers, and accordingly, they may not be comparable to measures used by other issuers. Investors should be cautioned that "Funds from operations" and "Funds from operations per unit" should not be construed as an alternative to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with GAAP.

(2) Distribution Payout Ratio is not a recognized measure under GAAP. It is calculated by dividing the Distributions by the Funds from Operations.

(3) Comparative periods have been restated to conform to current period presentation - specifically relating to the reclassification of the assets of the Real Estate Division of the Trust as held for sale.

(4) The distributions for 2007 are lower than those in 2006 purely as a result of the spin out of the Energy Services Division in May of 2006 to Essential Energy Services Trust ("Essential"). The unitholders of the Trust who continue to hold the Essential Trust Units distributed on the spin-out receive a distribution from Essential which when combined with the Trust's distribution more that makes up the difference.

The Trust's diversification model continued to perform very well with funds from operations 9.5% ahead of expectations and a third quarter payout ratio of 79% in what is traditionally one of the Trust's weaker quarters. On a year to date basis, the Trust had a 71% payout ratio which is below our target payout ratio of 75% to 80%.

On an operational basis the Trust's strategy of diversification across multiple businesses and a balanced product mix in its Oil and Gas Division, continues to support the sustainability of the Trust's distributions.

Quarterly Results Summary:

- Diversified business mix based on cash flows of 54% Financial Services; 40% Oil and Gas production and 6% Real Estate.

- Year to date payout ratio of 71% versus a target payout ratio of 75% to 80%.

- Balanced Q3 oil and gas product mix of 49% oil and 51% natural gas. High oil prices continue to offset weaker natural gas prices.

- Results of our internal review of the Alberta royalty rate changes are neutral to slightly positive as the Trust is not exposed to the high volume oil and gas wells most affected by the proposed changes.

- Despite dealing with abnormally high power prices in July, Q3 operating costs came in less than forecast in our Q2 outlook and we expect lower fourth quarter operating expenses in our Oil and Gas Division.

- Elbow River, although down from last year's third quarter, is well ahead of last year on a year to date basis. Timing differences in contract settlements and lower ethanol sales impacted the third quarter 2007 slightly, but we are well positioned for the fourth quarter 2007 and first quarter 2008, our strongest quarters.

- EnerVest's performance was very good early in the quarter, but was impacted at the end of the third quarter and into October and November with a sell off in the trust sector and yield products in general as a result of a sub-prime credit crunch fallout.

- Subsequent to the quarter, EnerVest completed a $200 million exchange offering in EnerVest Diversified Income Trust ('the Fund"). They were very selective as to the securities exchanged in recognition of the discount to net asset value at which the Fund is currently trading.

- The Trust has had no exposure to the payday loan business since the first quarter of 2007.

- The decision was made to dispose of the Real Estate Division through a national realty broker. A sale is expected in mid first quarter 2008. Any sale will free up approximately $30 million or more in proceeds and gain which we currently expect to reinvest in accretive opportunities to grow the Trust.

The Trust had net income from continuing operations for the quarter ended September 30, 2007 of $4.2 million down 44% over the $7.6 million for the quarter ended September 30, 2006. Net income for the nine months ended September 30, 2007 was $17.5 million or $0.42 per unit versus $28.0 million or $0.69 per unit for the first nine months of 2006. Net income from continuing operations for the three and nine months of 2007 were down from 2006 as a result of new legislation regarding the taxation of income trusts and higher future crude oil prices causing an unrealized hedging loss versus an unrealized hedging gain in the previous year's quarter. A future income tax expense was recorded for the nine months ended September 30, 2007 versus a future tax recovery as a result of 2006 rate reductions for the same period in 2006. Both the three and nine month 2007 net income figures were also negatively impacted by the recognition of unrealized losses on financial instruments on financial hedges of $0.7 million and $0.8 million, respectively. This compares to an unrealized gain of $2.2 million and $4.2 million in the comparable periods in 2006. The comparatively lower nine month 2007 net income figure was also impacted by the spin-off of the Energy Services Division in the second quarter of 2006.

Funds from continuing operations were $12.4 million for the third quarter ended September 30, 2007 down 12% from $14.0 million in the comparable quarter of 2006. The decrease in funds from continuing operations for the quarter is primarily due to the redeployment of the financial services payday loan portfolio to lower yielding real estate investments. Elbow River's results, although slightly ahead of internal expectations, were down from the third quarter of 2006 due to reduced ethanol sales in 2007 and timing of product sales between the two years. The funds from operations for the third quarter 2007 were $13.2 million or $0.32 per unit versus $14.3 million or $0.35 per unit for the third quarter 2006. Funds from continuing operation for the nine months ended September 30, 2007 were $41.7 million versus $40.6 million in the same period in 2006. Higher year to date results in Elbow contributed to the increase. For the nine months ended September 30, 2007, funds from operations were $44.1 million compared to $50.7 million for the same period in 2006. The decrease in the nine month funds from operations numbers was primarily due to the spin out of the Energy Services Division in the second quarter of 2006 and the reclassification of the Real Estate Division as discontinued operations.

The Trust distributed $10.4 million or $0.25 per unit for the quarter ended September 30, 2007 versus $10.4 or $0.25 per unit distributed for the quarter ended September 30, 2006, distributions were flat reflecting the continued steady distributions of the Trust. For the quarter ended September 30, 2007 the payout ratio of 79% of funds from operations. For the nine months ended September 30, 2007 the payout ratio was 71% versus 76% for the first nine months of 2006 and a target payout ratio of 75% to 80%.

Operationally, the Trust continues to perform well. Our stock price has held up until recently when the impact of the sub prime credit crunch, and market uncertainty seemed to migrate down to Avenir Trust and the smaller trusts. We continue to be very confident in the sustainability of our distributions as evidenced by our continued strong results. Further, we believe that our business model will provide a number of growth opportunities across our business lines for the balance of the year and beyond.

Financial Statements for the three and nine months ended September 30, 2007 are attached below, with detailed Financial Statements and the Management Discussion and Analysis available on the company's profile on SEDAR at www.sedar.com or the Trust's website at www.avenirtrust.com.

Forward Looking Statements

Except for historical financial and operating information contained herein, the matters discussed in this document may be considered forward-looking statements. Such statements include declarations regarding management's intent, belief or current expectations. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties; actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: (i) that the information is of a preliminary nature and may be subject to further adjustment, (ii) the possible unavailability of financing, (iii) risks related to the exploration and development of oil and gas properties, (iv) the impact of price fluctuations and the demand and pricing for oil and natural gas, (v) the seasonal nature of the business, (vi) start-up risks, (vii) general operating risks, (viii) dependence on third parties, (ix) changes in government regulation, (x) the effects of competition, (xi) dependence on senior management, (xii) financial condition of real estate tenants and financial services counterparts, (xiii) impact of the Canadian economic conditions or the demand for real estate leasing opportunities, (xiv) fluctuations in currency exchange rates and interest rates.



CONSOLIDATED BALANCE SHEETS
(unaudited)

September 30, 2007 December 31, 2006
(in thousands of dollars) $ $
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(restated)
ASSETS
Current
Cash 914 441
Marketable securities 1,510 13
Accounts receivable and prepaid expenses 61,463 75,634
Inventory 45,115 39,949
Risk management assets 6,383 46
Assets held for sale 1,593 836
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116,978 116,919
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Property and equipment 151,956 151,681
Investment in financial services contracts - 3,265
Intangibles and other assets 147,191 150,899
Goodwill 56,875 52,541
Assets held for sale 60,739 55,245
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533,739 530,550
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LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness 67,863 69,240
Accounts payable and accrued liabilities 63,341 67,782
Distributions payable 3,477 3,465
Risk management liability 4,911 -
Notes payable 6,415 5,000
Liabilities of assets held for sale 25,663 20,206
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171,670 165,693
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Notes payable 8,019 9,434
Asset retirement obligation 13,139 12,799
Future income taxes 15,728 15,608
Liabilities of assets held for sale 15,160 14,949


Unitholders' equity
Unitholder capital 419,363 413,731
Contributed surplus 6,733 4,344
Accumulated earnings 82,761 65,022
Accumulated other comprehensive income 3,426 -
Accumulated distributions (202,260) (171,030)
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310,023 312,067
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533,739 530,550
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CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED EARNINGS
(unaudited)

For the Three months ended Nine months ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
(in thousands of dollars) $ $ $ $
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(restated) (restated)
REVENUE
Financial services revenue 176,603 198,125 614,634 506,324
Unrealized gain (loss) on
financial instruments (111) - 23 -
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Total financial services revenue 176,492 198,125 614,657 506,324
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Oil and gas revenue 14,712 13,764 43,083 42,118
Oil and gas transportation costs (286) (254) (835) (694)
Royalties, net of ARTC (1,725) (2,004) (5,538) (6,084)
Unrealized gain (loss) on
financial instruments (713) 2,153 (784) 4,151
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Total oil and gas revenue 11,988 13,659 35,926 39,491
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Interest and other income 1 - 1 68
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Total revenue 188,481 211,784 650,584 545,883
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EXPENSES
Financial services operating 166,513 186,265 574,890 474,911
Oil and gas operating 5,247 4,767 15,088 13,280
General and administrative 3,868 4,387 15,267 12,576
Foreign exchange 839 560 2,211 (310)
Interest and bank fees 1,494 1,169 3,898 2,327
Interest on long-term debt 131 - 351 -
Capital taxes 102 198 281 353
Depletion, depreciation and
amortization 7,321 6,644 21,174 19,494
Asset retirement obligation
accretion 262 239 794 692
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185,777 204,229 633,954 523,323
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Income from continuing
operations before income tax 2,704 7,555 16,630 22,560
Future income tax recovery
(expense) 1,544 - (120) 1,750
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Net income from continuing
operations 4,248 7,555 16,510 24,310
Net income from discontinued
operations - Real Estate 231 39 971 182
Net income from discontinued
operations - Energy Services - - - 3,517
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Net income for the period 4,479 7,594 17,481 28,009
Accumulated earnings,
beginning of period 78,282 48,039 65,022 27,624
Change in accounting policy - - 258 -
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Accumulated earnings,
end of period 82,761 55,633 82,761 55,633
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Net income from continuing
operations per unit
Basic 0.10 0.18 0.40 0.60
Diluted 0.10 0.18 0.39 0.59
Net income from discontinued
operations per unit
Basic 0.01 0.00 0.02 0.09
Diluted 0.01 0.00 0.02 0.09
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Net income per unit
Basic 0.11 0.18 0.42 0.69
Diluted 0.11 0.18 0.41 0.68
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

Three months ended Nine months ended
September September September September
(in thousands of dollars) 30, 2007 30, 2006 30, 2007 30, 2006
$ $ $ $
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Net income for the period 4,479 17,481
Change in derivative instruments
designated as cash flow hedges (651) - (2,711) -
Change in fair value of
marketable securities (580) - (250) -
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Other comprehensive income (1,231) - (2,961) -
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Comprehensive income for
the period 3,248 14,520
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended Nine months ended
September September September September
(in thousands of dollars) 30, 2007 30, 2006 30, 2007 30, 2006
$ $ $ $
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(restated) (restated)
OPERATING ACTIVITIES
Net income from continuing
operations 4,248 7,555 16,510 24,310
Add (deduct) non-cash items:
Non-cash general and
administrative 665 1,239 3,113 3,342
Depletion, depreciation and
amortization 7,321 6,644 21,174 19,494
Asset retirement obligation
accretion 262 239 794 692
Unrealized (gain) loss on
foreign exchange 613 476 (778) (1,302)
Unrealized (gain) loss on
financial instruments 824 (2,153) 761 (4,151)
Future income tax expense
(recovery) (1,544) - 120 (1,750)
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Funds from continuing operations 12,389 14,000 41,694 40,635
Funds from discontinued
operations - Real Estate 823 328 2,361 942
Funds from discontinued
operations - Energy Services - - - 9,094
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13,212 14,328 44,055 50,671
Asset retirement costs incurred
during period (295) (64) (761) (200)
Change in non-cash working
capital (8,384) (8,012) 3,731 3,306
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Cash provided by operating
activities 4,533 6,252 47,025 53,777
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FINANCING ACTIVITIES
Issue of trust units,
net of issue costs 300 (24) 586 1,125
Cash settlement of options (5) - (11) -
Distributions to unitholders (10,417) (10,400) (31,218) (40,002)
Increase (decrease) in bank
indebtedness 11,553 (2,099) (1,377) 20,368
Increase (decrease) in notes
payable - 10,000 - 2,500
Decrease in note receivable - - - 1,050
Increase in mortgages 2,844 - 6,484 -
Repayment of mortgages (210) (123) (608) (386)
Repayment of long-term debt - - - (2,994)
Repayments of capital lease
obligations - - - (51)
Change in non-cash working capital - (18) - (59)
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Cash provided by (used in)
financing activities 4,065 (2,664) (26,144) (18,449)
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INVESTING ACTIVITIES
Energy Services Division
acquisitions - - - (30,995)
Disposition of Energy Services
Division - - - (2,383)
Financial services development
expenditures (456) (27) (768) (52)
Redemption of financial services
contracts - 5,605 3,265 6,635
Oil and gas property
acquisitions (151) - (7,363) -
Oil and gas property disposals 31 (139) 54 1,499
Oil and gas development
expenditures (3,625) (3,782) (9,093) (10,130)
Purchase of other assets (12) (38) (130) (79)
Purchase of real estate
properties - - (810) -
Real estate development
expenditures (4,720) (4,290) (6,221) (5,516)
Change in restricted cash - 203 - 366
Change in non-controlling
interest - - - (524)
Changes in non-cash working
capital 408 115 850 318
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Cash used in investing
activities (8,525) (2,353) (20,216) (40,861)
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Increase (decrease) in cash
during the period 73 1,235 665 (5,533)
Cash, beginning of period 776 - 441 6,768
Cash of assets held for sale 65 - (192) -
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Cash, end of period 914 1,235 914 1,235
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Cash interest paid 1,953 1,096 5,407 3,167
Cash taxes paid 213 2 649 340
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Contact Information

  • Avenir Diversified Income Trust
    William M. Gallacher
    President & CEO
    (403) 237-9949
    or
    Avenir Diversified Income Trust
    Gary Dundas
    Vice President Finance & CFO
    (403) 237-9949
    or
    Avenir Diversified Income Trust
    300, 808 - First Street S.W.,
    Calgary, Alberta T2P 1M9
    (403) 237-9949
    (403) 237-0903 (FAX)
    Website: www.avenirtrust.com