Avenir Diversified Income Trust
TSX : AVF.UN

Avenir Diversified Income Trust

November 14, 2008 09:30 ET

Avenir Diversified Income Trust Announces Record Third Quarter 2008 Results, a Special Cash Distribution Payable to Unitholders and the Exiting From Marketing Its Bio-Diesel Products

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2008) - AVENIR DIVERSIFIED INCOME TRUST ("Avenir Trust") (TSX:AVF.UN) is pleased to announce:

- Record financial and operational results for the three and nine months ended September 30, 2008, and that it has 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 its SEDAR profile at www.sedar.com or on Avenir Trust's website www.avenirtrust.com. A summary of the results are provided in the table below.



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TOTAL CONSOLIDATED FINANCIAL SUMMARY
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For the three months ended For the nine months ended
Sep 30 Sep 30
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(in thousands
except for per % %
unit amounts) 2008(4) 2007 Change 2008(4) 2007(3) Change
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Total Revenue $598,286 $182,530 228% $1,505,541 $633,322 138%
Funds From
Continuing
Operations
(FFCO)(1,2) $ 24,144 $ 7,734 212% $ 49,736 $ 28,122 77%
FFCO(1,2)
Per Unit
- Basic $ 0.57 $ 0.19 200% $ 1.19 $ 0.68 75%
Funds From
Operations
(FFO)(1) $ 25,200 $ 13,212 91% $ 59,185 $ 44,055 34%
FFO Per
Unit(1) - Basic $ 0.60 $ 0.32 88% $ 1.41 $ 1.06 33%
Distributions $ 10,466 $ 10,422 0% $ 31,340 $ 31,230 0%
Distributions
Per Unit -
Basic $ 0.25 $ 0.25 0% $ 0.75 $ 0.75 0%
Distribution
Payout Ratio(3) 42% 79% 47% 53% 71% 25%
Net Income
from continuing
operations
(NICO) $ 40,862 $ 404 10027% $ 50,884 $ 5,344 852%
NICO Per Unit
- Basic $ 0.97 $ 0.01 9600% $ 1.21 $ 0.13 831%
Net Income $ 50,393 $ 4,479 1025% $ 98,581 $ 17,481 464%
Net Income
Per Unit
- Basic $ 1.20 $ 0.11 991% $ 2.35 $ 0.42 460%
Total Assets $799,009 $533,739 50% $ 799,009 $533,739 50%
Working Cap.
(Net Debt)
including notes
payable(1)
(not incld.
Assets held
for sale) $146,606 $(30,770) 576% $ 146,606 $(30,770) 576%
Wtd. Avg.
Units
Outstanding
- Basic 42,026,438 41,721,239 1% 41,909,360 41,530,800 1%
Units
Outstanding
(including
escrowed
units) 42,066,414 41,885,916 0% 42,066,414 41,885,916 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) 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 excluding the balances relating to assets held for sale and
discontinued operations. 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 these measures
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) The operations of the Trust's Real Estate Division and EnerVest Limited
Partnership, as a result of being classified as 'Assets held for sale'
and 'Discontinued operations', have been excluded from the Trust's
Continuing Operations.
(3) Distribution Payout Ratio is calculated by dividing the Distributions by
the Funds from Operations.
(4) Comparative periods have been restated to conform to current period
presentation - specifically relating to the reclassification of the
assets of the Real Estate Division as held for sale and EnerVest Limited
Partnership as discontinued operations.



- A Special Distribution for Unitholders. A cash distribution of $0.60 per Trust Unit will be paid to Unitholders of record December 31, 2008, payable on February 16, 2009.

- Exiting from marketing bio-diesel products. Given a number of external factors affecting sales in the bio-diesel product segment of its Elbow River Marketing business, the Trust will be exiting from marketing this product. The global financial crisis, changing international government regulations and the competitive landscape that exists in the bio-diesel marketing industry, all play a factor in this decision.

Overview

The third quarter of 2008 was a record quarter for the Trust. Our Elbow River Marketing business benefited from both strong bio-diesel and LPG sales and our Oil and Gas Division enjoyed very robust commodity prices. In our Real Estate Division, we closed on the sale of one building during the quarter and anticipate having about two thirds of our portfolio sold by the fourth quarter or early in the first quarter of 2009. In the meantime the portfolio remains 100% leased.

As we move forward, given the global financial crisis, the elimination of government incentives and the competitive landscape that exists in the bio-diesel marketing industry, the Trust has decided to exit from marketing bio-diesel products offered within its Elbow River Marketing business. This will result in the Trust taking a charge of up to $11 million in the fourth quarter of 2008; however, the Trust will work to mitigate this estimate lower. Going forward, Elbow River will be able to better focus on its core LPG business which continues to provide steady returns for Avenir Trust.

Although commodity prices have weakened, our oil and gas operations remain strong. We continue to see growth and will continue to evaluate the growth opportunities and their suitability for the Trust.

At the close of the second quarter, Avenir sold its EnerVest management contract for proceeds of approximately $160 million after costs, debt and adjustments. This put the Trust in a unique and enviable financial position with over $146 million in cash and positive working capital, and additional undrawn debt capacity. As we reported earlier this year, we have struck a Strategic Review Committee ("SRC") comprised of non-management board members. The mandate of the SRC is to consider the direction of the Trust and specifically the deployment of the EnerVest proceeds.

Taking into account a rapidly deteriorating global financial environment and the looming Trust tax deadline of 2011, some of the main ideas that are being considered by the SRC include the:

-- Sale or merger of Trust;

-- Special Distribution of all or a portion of the EnerVest proceeds;

-- Buy back of units through a Normal Course or Substantial Issuer bid;

-- Sale of individual divisions and suitability of current businesses within the Trust;

-- Expansion of the Trust to take advantage of its strong cash and working capital position; and

-- Continuation as a Trust versus converting to a Corporation.

Divisional Update

Real Estate

- Approximately 2/3 of the real estate portfolio is or is expected to be sold by year end or early 2009

- Continuing to market real estate portfolio into first quarter of 2009

- Current portfolio is 100% leased

Elbow River

- Exit bio-diesel product offering as risk/reward does not meet the Trust's business model, especially taking into account the current global financial crisis

- Concentrate business on growth opportunities in its core LPG sales

Oil and Gas

- Move to position Oil and Gas Division so as to add additional growth opportunities ahead of 2011

- Look to junior E&P sector for acquisition opportunities

Corporate

- Current valuation in the market does not reflect the value of the Trust as it currently has in excess of $3.00 per unit in cash and positive working capital, in addition to the value of its operating Divisions

Overall View

The Trust, alongside the SRC, will continue to explore combinations of the above alternatives in order to better position itself ahead of 2011, with the SRC meeting regularly to review the direction of the Trust and reporting back to unitholders on a quarterly basis. Moving forward, the Trust continues to look at opportunities that take advantage of its strong positive working capital position and expects to maintain the current monthly distribution level of $0.083 per unit for the foreseeable future, with an expected payout ratio of approximately 85% before the redeployment of the excess cash, working capital and debt capacity. (This assumes commodity prices remain at recent levels).

As always we wish to thank our Unitholders for their continued support in these turbulent financial times.

Special Distribution

The Trust is pleased to announce that in conjunction with the release of the Trust's Third Quarter Report 2008, that it has declared a Special Distribution to Unitholders of $0.60 per unit, payable on February 16, 2009 to those Unitholders of record December 31, 2008.

Review of Financial Results

The Trust has net income from continuing operations for the quarter ended September 30, 2008 of $40.9 million up 10027% from $0.4 million in the quarter ended September 30, 2007. Net income from continuing operations for the nine months ended September 30, 2008 was $50.9 million up 852% from $5.3 million for the nine months ended September 30, 2007. The net income for the quarter ended September 30, 2008 was $50.4 million which is up 1025% versus the $4.5 million net income for the quarter ended September 30, 2007. Net income for the nine months ended September 30, 2008 was $98.6 million which is up 464% versus the $17.5 million net income for the same period ended September 30, 2007. The nine month net income was higher in 2008 largely due to the recognition of the gain on the sale of the EnerVest assets, the recognition of a gain on the real estate property sale, higher oil and gas commodity prices and stronger results in Elbow River.

Funds from continuing operations were $24.1 million for the quarter ended September 30, 2008, up 212% from $7.7 million in the comparable quarter in 2007. Funds from operations were $25.2 million for the quarter ended September 30, 2008, up 91% as funds from operations for the quarter ended September 30, 2007 were $13.2 million. The increases for the three and nine months, reflected higher commodity pricing for the Oil and Gas Division along with higher bio-diesel sales in Elbow River.

The Trust distributed $10.47 million or $0.25 per unit for the quarter ended September 30, 2008 versus $10.42 or $0.25 per unit distributed for the quarter ended September 30, 2007. Distributions were flat reflecting the continued steady distributions of the Trust. For the quarter ended September 30, 2008 the payout ratio of 42% of funds from operations. For the nine months ended September 30, 2008 the payout ratio was 53% versus 71% for the first nine months of 2007 and a target payout ratio of 75% to 80%.The Financial Statements for the three and nine months ended September 30, 2008 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, December 31,
As at 2008 2007
(in thousands of dollars) $ $
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(restated)

ASSETS
Current
Cash 22,618 -
Marketable securities 600 1,275
Accounts receivable and prepaid expenses 252,314 76,295
Inventory 199,744 83,653
Note receivable 25,123 -
Risk management assets 21,574 4,828
Assets held for sale - Real Estate 1,358 1,793
Assets of discontinued operations - EnerVest - 144,277
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523,331 312,121
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Property and equipment 149,565 150,018
Intangibles and other assets 13,843 15,059
Goodwill 57,708 56,875
Assets held for sale - Real Estate 54,562 64,192
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799,009 598,265
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LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness 64,072 110,331
Accounts payable and accrued liabilities 286,738 73,813
Distributions payable 3,492 3,476
Risk management liability 21,065 18,578
Notes payable - 10,000
Liabilities of assets held for sale - Real Estate 16,147 15,807
Liabilities of discontinued operations - EnerVest - 23,704
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391,514 255,709
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Asset retirement obligation 13,108 12,905
Future income taxes 5,047 5,500
Liabilities of assets held for sale - Real Estate 26,510 29,191

Unitholders' equity
Unitholder capital 422,102 419,533
Contributed surplus 6,583 6,033
Accumulated earnings 191,252 92,671
Accumulated other comprehensive loss (13,078) (10,589)
Accumulated distributions (244,029) (212,688)
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362,830 294,960
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799,009 598,265
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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, 2008 30, 2007 30, 2008 30, 2007
(in thousands of dollars) $ $ $ $
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(restated) (restated)
REVENUE
Financial services revenue 558,165 170,652 1,440,214 597,371
Unrealized gain (loss) on financial
instruments 15,304 (111) 13,045 24
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Total financial services revenue 573,469 170,541 1,453,259 597,395
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Oil and gas revenue 20,956 14,712 58,791 43,083
Oil and gas transportation costs (271) (286) (738) (835)
Royalties (3,516) (1,725) (9,534) (5,538)
Unrealized gain (loss) on financial
instruments 7,331 (713) 3,073 (784)
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Total oil and gas revenue 24,500 11,988 51,592 35,926
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Interest and other income 317 1 690 1
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Total revenue 598,286 182,530 1,505,541 633,322
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EXPENSES
Financial services operating 536,279 165,581 1,399,135 572,091
Oil and gas operating 5,372 5,247 15,159 15,088
General and administrative 9,194 3,635 20,359 14,727
Foreign exchange (4,645) 839 (5,430) 2,211
Interest and bank fees 1,100 1,494 5,747 3,898
Capital taxes 163 102 449 281
Depletion, depreciation and
amortization 6,391 6,510 18,951 18,768
Asset retirement obligation
accretion 212 262 741 794
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554,066 183,670 1,455,111 627,858
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Income from continuing operations
before income tax 44,220 (1,140) 50,430 5,464
Future income tax recovery (expense) (3,358) 1,544 454 (120)
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Net income from continuing
operations 40,862 404 50,884 5,344
Net income (loss) from discontinued
operations - EnerVest (328) 3,844 42,410 11,166
Net income from discontinued
operations - Real Estate 9,859 231 5,287 971
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Net income for the period 50,393 4,479 98,581 17,481
Accumulated earnings, beginning of
period 140,859 78,282 92,671 65,022
Change in accounting policy - - - 258
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Accumulated earnings, end of period 191,252 82,761 191,252 82,761
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Net income from continuing
operations per unit
Basic 0.97 0.01 1.21 0.13
Diluted 0.96 0.01 1.20 0.12
Net income from discontinued
operations per unit
Basic 0.23 0.10 1.14 0.29
Diluted 0.22 0.10 1.12 0.29
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Net income per unit
Basic 1.20 0.11 2.35 0.42
Diluted 1.18 0.11 2.32 0.41
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

For the Three months ended Nine months ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
(in thousands of dollars) $ $ $ $
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Net income for the period 50,393 4,479 98,581 17,481
Change in fair value of derivative
instruments designated as cash flow
hedges 40,169 (651) (1,858) (2,711)
Change in fair value of marketable
securities (725) (580) (675) (250)
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Other comprehensive income (loss) 39,444 (1,231) (2,533) (2,961)
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Comprehensive income for the period 89,837 3,248 96,048 14,520
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

For the Three months ended Nine months ended
September September September September
(in thousands of dollars) 30, 2008 30, 2007 30, 2008 30, 2007
$ $ $ $
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(restated) (restated)
OPERATING ACTIVITIES
Net income from continuing
operations 40,862 404 50,884 5,344
Add (deduct) non-cash items:
Non-cash general and
administrative 316 665 1,342 3,113
Depletion, depreciation and
amortization 6,391 6,510 18,951 18,768
Asset retirement obligation
accretion 212 262 741 794
Unrealized (gain) loss on
foreign exchange (4,360) 613 (5,610) (778)
Unrealized (gain) loss on
financial instruments (22,635) 824 (16,118) 761
Future income tax expense
(recovery) 3,358 (1,544) (454) 120
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Funds from continuing
operations 24,144 7,734 49,736 28,122
Funds from discontinued
operations - EnerVest (3) 4,655 6,919 13,572
Funds from discontinued
operations - Real Estate 1,059 823 2,530 2,361
25,200 13,212 59,185 44,055
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Asset retirement costs incurred
during period (666) (295) (1,154) (761)
Change in non-cash working
capital 1,953 (8,384) (73,200) 3,731
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Cash provided by (used in)
operating activities 26,487 4,533 (15,169) 47,025
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FINANCING ACTIVITIES
Issue of trust units, net of
issue costs 567 300 962 586
Cash settlement of options (13) (5) (18) (11)
Distributions to unitholders (10,466) (10,417) (31,340) (31,218)
Decrease in bank indebtedness 17,554 11,553 (46,193) (1,377)
Decrease in notes payable (10,000) - (10,000) -
Increase in mortgages - 2,844 4,757 6,484
Repayment of mortgages (223) (210) (689) (608)
Increase in notes receivable - - (123) -
Repayment of long-term debt - - (1,675) -
Change in non-cash working
capital 8 - 15 -
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Cash provided by (used in)
financing activities (2,573) 4,065 (84,304) (26,144)
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INVESTING ACTIVITIES
Sale of EnerVest assets (325) - 135,633 -
Financial services development
expenditures (474) (456) (5,044) (768)
Redemption of financial
services contracts - - - 3,265
Oil and gas property
acquisitions (3,952) (151) (3,982) (7,363)
Oil and gas property disposals 422 31 422 54
Oil and gas development
expenditures (6,027) (3,625) (12,579) (9,093)
Purchase of other assets (2) (12) (5) (130)
Purchase of real estate
properties - - - (810)
Real estate development
expenditures (651) (4,720) (2,612) (6,221)
Real estate disposals 8,899 - 8,899 -
Changes in non-cash working
capital 688 408 840 850
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Cash provided by (used in)
investing activities (1,422) (8,525) 121,572 (20,216)
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Increase in cash during the
period 22,492 73 22,099 665
Cash, beginning of period - 776 - 441
Change in cash of assets held
for sale 126 65 519 (192)
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Cash, end of period 22,618 914 22,618 914
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Cash interest paid 1,487 1,953 7,613 5,407
Cash taxes paid 127 213 384 649
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Contact Information

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