2007 annual report aveiro investment corp. - First West Properties

cost. Aveiro may be unable to obtain fi nancing to maintain an
appropriate capital structure. There is no certainty that fi nancing
will be available upon the maturity of any existing mortgage at
interest rates equal to or lower than the interest rate payable
under an expiring mortgage, or on other terms as favourable as
the original term of the existing mortgage, or at all.
If Aveiro is unable to refi nance its indebtedness on acceptable
terms, or at all, Aveiro may need to dispose of one or more of
its properties upon disadvantageous terms. Prevailing interest
rates or other factors at the time of refi nancing could increase
its interest expense, and if Aveiro mortgages property to secure
payment of indebtedness and is unable to make mortgage
payments, the mortgagee could foreclose upon such property or
appoint a receiver to receive an assignment of Aveiro’s rents and
leases. This may adversely affect Aveiro’s ability to make dividend
or other payments to its investors.
Economic Conditions
As it will be dependent on lease income for a substantial portion of
its revenue, Aveiro’s operating results will be sensitive to prevailing
economic conditions, including changes in local, regional and
national economic conditions, particularly as they may affect lease
rates in its properties. In particular, given the concentration of
Aveiro’s properties in Alberta, a material reduction in oil or natural
gas prices or in oil and natural gas industry investment could
materially adversely affect Aveiro. Aveiro’s operating results in
individual markets could be adversely affected by local or regional
economic downturns, which could have a material adverse effect
on the business, fi nancial condition and results of Aveiro.
Credit and Default Risk
Credit risk arises from the possibility that tenants may experience
fi nancial diffi culty and be unable to fulfi ll their lease commitments.
Further risks arise in the event that borrowers default on the
repayment of their mortgages to Aveiro.
24 | Aveiro Investment Corp. | 2007 Annual Report
Lease Renewal Risk
Lease renewal risk arises from the possibility that the Company
may experience diffi culty renewing leases as they expire or in releasing
space vacated by tenants upon early lease termination.
Fixed Costs
Certain expenditures, including mortgage payments, insurance
costs and related property taxes, must be made regardless
of whether or not Aveiro’s properties are producing suffi cient
income to service such expenses. Aveiro’s properties are subject
to mortgages, which require debt service payments. If Aveiro is
unable or unwilling to make required mortgage payments on any
property owned by it, losses could be sustained as a result of the
mortgagee’s exercise of its right of foreclosure or power of sale,
as applicable. In addition, interest rates on variable rate debt
are subject to fl uctuations and may affect the viability of a
particular property.
Illiquidity
Real estate is relatively illiquid relative to publicly traded securities.
Such illiquidity will limit Aveiro’s ability to adjust its portfolio
in response to changing economic or investment conditions.
Financial diffi culties of other property owners that result in distress
sales could depress real estate values in markets in which Aveiro
operates. If Aveiro were required to liquidate its assets, there is a
risk that it would realize sale proceeds of less than the book value
of the properties that have been or may in the future be acquired
by Aveiro.
Demand Risk
The value of real property and any improvements thereon may
depend on the strength of the commercial property market
in Aveiro’s target markets. Aveiro’s projected income would
be adversely affected if there was a marked increase in the
vacancy rates or decrease in the market lease rates for its