Avenir Diversified Income Trust
TSX : AVF.UN

Avenir Diversified Income Trust

August 14, 2007 13:50 ET

Avenir Diversified Income Trust Announces Second Quarter 2007 Results and an Update on Its Real Estate Division

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2007) - AVENIR DIVERSIFIED INCOME TRUST ("Avenir Trust") (TSX:AVF.UN) is pleased to announce the financial and operational results for the three and six months ended June 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 June 30
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(in thousands except for per unit %
amounts) 2007 2006(3) Change
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Total Revenue $ 225,338 $ 168,137 34%
Funds From Continuing Operations
(FFCO)(1) $ 12,350 $ 13,307 (7)%
FFCO(1) Per Unit - Basic $ 0.30 $ 0.32 (6)%
Funds From Operations (FFO)(1) $ 13,167 $ 15,747 (16)%
FFO Per Unit(1) - Basic $ 0.32 $ 0.38 (16)%
Distributions(4) $ 10,413 $ 13,449 (23)%
Distributions Per Unit - Basic(4) $ 0.25 $ 0.33 (24)%
Distribution Payout Ratio(2) 79% 85% 7%
Net Income from continuing operations
(NICO) $ 5,274 $ 9,644 (45)%
NICO Per Unit - Basic $ 0.13 $ 0.23 (43)%
Net Income $ 5,671 $ 10,310 (45)%
Net Income Per Unit - Basic $ 0.14 $ 0.25 (44)%
Total Assets $ 526,536 $ 476,205 11%
Working Cap. (Net Debt) including notes
payable(1) (not incld. Assets held for
sale) $ (33,006) $ (28,390) 16%
Wtd. Avg. Units Outstanding - Basic 41,663,371 41,047,398 2%
Units Outstanding (including escrowed
units) 41,826,194 41,763,367 0%
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For the six months ended June 30
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(in thousands except for per unit $
amounts) 2007 2006(3) Change
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Total Revenue $ 462,103 $ 334,099 38%
Funds From Continuing Operations
(FFCO)(1) $ 29,305 $ 26,635 10%
FFCO(1) Per Unit - Basic $ 0.71 $ 0.66 8%
Funds From Operations (FFO)(1) $ 30,843 $ 36,343 (15)%
FFO Per Unit(1) - Basic $ 0.74 $ 0.90 (18)%
Distributions(4) $ 20,808 $ 28,185 (26)%
Distributions Per Unit - Basic(4) $ 0.50 $ 0.69 (28)%
Distribution Payout Ratio(2) 67% 78% 14%
Net Income from continuing operations
(NICO) $ 12,262 $ 16,755 (27)%
NICO Per Unit - Basic $ 0.29 $ 0.41 (29)%
Net Income $ 13,002 $ 20,415 (36)%
Net Income Per Unit - Basic $ 0.31 $ 0.50 (38)%
Total Assets $ 526,536 $ 476,205 11%
Working Cap. (Net Debt) including notes
payable(1) (not incld. Assets held for
sale) $ (33,006) $ (28,390) 16%
Wtd. Avg. Units Outstanding - Basic 41,434,002 40,601,009 2%
Units Outstanding (including escrowed
units) 41,826,194 41,763,367 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 including 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 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 continued to perform very solidly and ahead of forecast, in what is traditionally our weakest quarter. Our payout ratio for the second quarter was 79% of Funds from Operations versus 85% in the same period in 2006. Together with the 59% first quarter payout ratio results in a 67% payout ratio for the first half of 2007 below our target payout of 75%-80%.

Operationally, in the second quarter of 2007, as was the case in the first quarter, we continued to focus on reviewing and assessing the ability of each division to both grow organically and expand through acquisitions in view of the changed landscape after the trust tax announcement. Operational results include:

- Financial Services contributed 61% of Funds from Operations again reflecting the benefits of the Trust's diversification model.

- Elbow River Marketing was well ahead of forecast and about 250% ahead of 2006 in its normally weakest quarter on the strength of strong butane and bio-fuel sales.

- EnerVest's performance was on forecast with assets under management now exceeding $2.1 billion. In addition, on July 7, 2007 the unitholders of EnerVest Diversified Income Fund voted to expand the investment mandate of the Fund to ensure the future viability of the Fund and prepare the Fund for post 2011 when income trusts will be taxed and likely a much smaller investment segment.

- The second quarter 2007 marked the final redemption of our investment in the payday loan/cheque cashing business.

- The Oil and Gas Division began a development drilling program which should serve to offset production declines over the balance of 2007. Results to date are very encouraging with current production in the 3,400 BOED range. The Division's second quarter cash flow was however, behind last years numbers due to a one-time prior period adjustment and weaker realized oil prices as the Bow River differential was wider than in 2006.

- Real Estate, although a small component of funds from operations, was slightly ahead of forecast and work continued on our development project in Red Deer, Alberta.

Corporately, the Trust has formally made the decision to dispose of or spin-off our Real Estate properties. As part of the internal evaluation process described above, it was determined that in view of the significantly lower cost of capital of the REIT and Pension Fund sectors it was increasingly difficult to acquire suitable real estate properties that met the investment criteria of the Trust. This has become especially difficult in view of the advantages that a stand alone REIT received in the trust tax legislation.

Accordingly, in the financial statements attached, the respective balance sheet items and income statement activities for the Real Estate Division have been classified as "Assets Held for Sale" for accounting purposes. We look to announce a transaction by the end of the year and expect to book a gain based on market appreciation of our portfolio over the period we have held the properties. Funds from any real estate disposition will be reinvested into active businesses which will be accretive to the Trust's cash flows and that the Trust feels has greater growth potential.

Financially, the second quarter of the year tends to be the Trust's weakest quarter as Elbow River Marketing revenues decline in the spring shoulder months after the busy winter sales season. For the year the Trust is about 10% ahead of the previous year in funds from continuing operations as overall results for the marketing group more than offset weaker realized oil prices in our Oil and Gas Division.

Income from continuing operations before income tax for the three months ended June 30, 2007 was $7.4 million up 4% compared to $7.1 million for the same period in 2006. The income from continuing operations before income tax for the six months ended June 30, 2007 was $13.9 million down 7% compared to $15.0 million for the same period in 2006. As a result of new legislation regarding the taxation of income trusts, a future income tax expense was recorded for the three and six months ended June 30, 2007 versus a future tax recovery as a result of 2006 rate reductions for the same period in 2006. Accordingly, net income from continuing operations for the quarter ended June 30, 2007 of $5.3 million was down 45% from $9.6 million in the quarter ended June 30, 2006. And for the same reason the net income for the six months ended June 30, 2007 of $13.0 million was down 36% compared to $20.4 million for the same period in 2006. The net income was also impacted by the spin out of the Energy Services Division in the second quarter of 2006 as Essential Energy Services Trust, the reclassification of the Real Estate Division as assets held for sale, lower realized oil prices, and smaller hedging gains in our Oil and Gas Division.

Funds from continuing operations were $12.4 million for the second quarter ended June 30, 2007 down 7% from $13.3 million in the comparable quarter in 2006. Funds from continuing operations now exclude the results for both the Real Estate and Energy Services Divisions. Funds from operations were $13.2 million for the second quarter ended June 30, 2007 down 16% as funds from operations for the second quarter ended June 30, 2006 were $15.7 million. For the six months ended June 30, 2007 the funds from operations were $30.8 million versus $36.3 million for the comparable period in 2006. The decrease in funds from operations was again largely the result of the spin out of the Energy Services Division in second quarter of 2006, lower realized oil prices and the reclassification of the Real Estate Division as discontinued operations partially offset by the improved performance of the Financial Services division.

The Trust declared distributions of $10.4 million ($0.25 per unit) for the second quarter ended June 30, 2007 which is down 23% on a total cash basis over the $13.4 million ($0.33 per unit) distributed for the quarter ended June 30, 2006, again due to the spin-off of the Energy Services division. It should be noted that if Avenir Trust Unitholders retained their units of Essential Energy Services Trust there would in fact be a slight increase in distributions per unit. For the six months ended June 30, 2007 the payout ratio was 67%.

We continue to be comfortable with our current level of distributions given our current payout ratio and would like to thank our unitholders for their continued support. Finally, we would like to take a moment to acknowledge the contribution of Ward Mallabone, Chief Operating Officer of our EnerVest unit, who has advised us that he will be leaving our Trust group in the new year to pursue other entrepreneurial business endeavours. Ward was very instrumental in the growth of EnerVest and ensuring a smooth transition when we acquired the EnerVest contract two years ago. We wish him well.

Financial Statements for the three and six months ended June 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)

June 30, 2007 December 31, 2006
(in thousands of dollars) $ $
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(restated)

ASSETS
Current
Cash 776 441
Marketable securities 2,090 13
Accounts receivable and prepaid expenses 67,917 75,634
Inventory 33,595 39,949
Risk management assets 5,153 46
Assets held for sale 1,384 836
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110,915 116,919
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Property and equipment 153,701 151,681
Investment in financial services contracts - 3,265
Intangibles and other assets 148,480 150,899
Goodwill 56,875 52,541
Assets held for sale 56,565 55,245
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526,536 530,550
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LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness 56,310 69,240
Accounts payable and accrued liabilities 66,116 67,782
Distributions payable 3,472 3,465
Risk management liability 2,206 -
Notes payable 5,943 5,000
Liabilities of assets held for sale 17,896 20,206
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151,943 165,693
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Notes payable 8,490 9,434
Asset retirement obligation 13,098 12,799
Future income taxes 17,272 15,608
Liabilities of assets held for sale 19,495 14,949

Unitholders' equity
Unitholder capital 418,871 413,731
Contributed surplus 6,265 4,344
Accumulated earnings 78,282 65,022
Accumulated other comprehensive income 4,657 -
Accumulated distributions (191,837) (171,030)
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316,238 312,067
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526,536 530,550
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CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED EARNINGS
(unaudited)

Three months ended Six months ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
(in thousands of dollars) $ $ $ $
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(restated) (restated)

REVENUE
Financial services revenue 212,487 154,287 438,031 308,200
Unrealized gain (loss) on financial
instruments 941 - 134 -
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Total financial services revenue 213,428 154,287 438,165 308,200
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Oil and gas revenue 13,706 15,016 28,371 28,354
Oil and gas transportation costs (282) (213) (549) (440)
Royalties, net of ARTC (1,968) (1,694) (3,813) (4,081)
Unrealized gain (loss) on financial
instruments 454 673 (71) 1,998
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Total oil and gas revenue 11,910 13,782 23,938 25,831
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Interest and other income - 68 - 68
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Total revenue 225,338 168,137 462,103 334,099
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EXPENSES
Financial services operating 200,070 145,007 408,377 288,646
Oil and gas operating 4,737 4,600 9,841 8,513
General and administrative 5,002 4,372 11,400 8,190
Foreign exchange (646) (257) 1,373 (870)
Interest and bank fees 1,351 678 2,404 1,157
Interest on long-term debt 110 - 219 -
Capital taxes 88 34 178 155
Depletion, depreciation and
amortization 6,985 6,400 13,853 12,850
Asset retirement obligation
accretion 262 209 532 453
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217,959 161,043 448,177 319,094
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Income from continuing operations
before income tax 7,379 7,094 13,926 15,005
Future income tax recovery (expense) (2,105) 2,550 (1,664) 1,750
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Net income from continuing
operations 5,274 9,644 12,262 16,755

Net income from discontinued
operations - Real Estate
397 139 740 143
Net income from discontinued
operations - Energy Services - 527 - 3,517
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Net income for the period 5,671 10,310 13,002 20,415
Accumulated earnings, beginning of
period 72,611 37,729 65,022 27,624
Change in accounting policy - - 258 -
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Accumulated earnings, end of period 78,282 48,039 78,282 48,039
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Net income from continuing
operations per unit
- Basic and diluted 0.13 0.23 0.29 0.41
Net income from discontinued
operations per unit
- Basic and diluted 0.01 0.02 0.02 0.09
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Net income per unit
- Basic and diluted 0.14 0.25 0.31 0.50
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)

Three months ended
March 31, 2007 March 31, 2006
(in thousands of dollars) $ $
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Net income for the period 7,331 10,105
Change in derivative instruments designated
as cash flow hedges 3,481 -
Change in fair value of marketable securities 150 -
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Other comprehensive income 3,631 -
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Comprehensive income for the period 10,962 10,105
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Three months ended Six months ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
(in thousands of dollars) $ $ $ $
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(restated) (restated)
OPERATING ACTIVITIES
Net income from continuing
operations 5,274 9,644 12,262 16,755
Add (deduct) non-cash items:
Non-cash general and administrative 1,393 1,472 2,448 2,103
Depletion, depreciation and
amortization 6,985 6,400 13,853 12,850
Asset retirement obligation
accretion 262 209 532 453
Unrealized (gain) loss on foreign
exchange (2,274) (1,195) (1,391) (1,778)
Unrealized (gain) loss on financial
instruments (1,395) (673) (63) (1,998)
Future income tax expense (recovery) 2,105 (2,550) 1,664 (1,750)
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Funds from continuing operations 12,350 13,307 29,305 26,635
Funds from discontinued operations -
Real Estate 817 329 1,538 614
Funds from discontinued operations -
Energy Services - 2,111 - 9,094
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13,167 15,747 30,843 36,343
Asset retirement costs incurred
during period (381) (69) (466) (137)
Change in non-cash working capital 15,517 (14,375) 12,111 11,319
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Cash provided by operating
activities 28,303 1,303 42,488 47,525
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FINANCING ACTIVITIES
Issue of trust units, net of issue
costs 271 1,150 286 1,150
Distributions to unitholders (10,406) (14,953) (20,801) (29,602)
Increase (decrease) in bank
indebtedness (17,469) 19,258 (12,930) 22,467
Increase (decrease) in notes payable - - - (7,500)
Decrease in note receivable - 1,050 - 1,050
Increase in mortgages 1,732 - 3,639 -
Repayment of mortgages (191) (133) (398) (264)
Repayments of capital lease
obligations - (22) - (51)
Repayment of long-term debt - (171) - (2,994)
Change in non-cash working capital - (75) - (41)
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Cash provided by (used in) financing
activities (26,063) 6,104 (30,204) (15,785)
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INVESTING ACTIVITIES
Energy Services Division
acquisitions - (4,245) - (30,995)
Disposition of Energy Services
Division - (2,383) - (2,383)
Financial services expenditures (187) (24) (312) (25)
Redemption of financial services
contracts 1,766 1,030 3,265 1,030
Oil and gas property acquisitions - - (7,212) -
Oil and gas property disposals (4) 1,543 23 1,638
Oil and gas development expenditures (3,514) (2,439) (5,468) (6,348)
Purchase of other assets (40) (20) (117) (41)
Purchase of real estate properties - (184) (810) (1,225)
Real estate development expenditures (930) - (1,501) -
Change in restricted cash - - - 163
Change in non-controlling interest - (419) - (524)
Changes in non-cash working capital 1,029 (266) 440 202
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Cash used in investing activities (1,880) (7,407) (11,692) (38,508)
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Increase (decrease) in cash during
the period 360 - 592 (6,768)
Cash, beginning of period - - 441 6,768
Cash of assets held for sale 416 (257)
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Cash, end of period 776 - 776 -
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Cash interest paid 3,727 1,000 1,951 1,845
Cash taxes paid 427 335 437 338
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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