Automotive Properties REIT (TSX: APR.UN) is an open-ended, growth-oriented real estate investment trust, offering exposure to a unique real estate asset class. The REIT is focused on owning and acquiring automotive dealerships properties in long-term growth markets in Canada.
Canada’s automotive retail industry is characterized by strong industry fundamentals. At approximately 6.7% of GDP in 2016¹, the automotive retail industry is the largest component of retail sales and merchandise in Canada. Industry sales totalled a record $134 billion in 2016¹ (25% of Canada’s overall retail sales of products and merchandise¹). From 2011 to 2016, automotive retail sales increased at a compound annual growth rate of 6.1%¹. In addition to robust sales performance, automotive dealerships have demonstrated stable profitability. Since 2007, the weighted average gross profit margin for publicly listed automotive dealership groups in North America has averaged 15.7% and remained within a band ranging from 14.9% to 17.1%².
The REIT’s property leases are structured as triple-net leases under which the tenant is responsible for all costs relating to repair and maintenance, realty taxes, property insurance, utilities and all non-structural capital improvements. The portfolio has a weighted average lease term of more than 13 years and leases include contractual fixed rent increases.
These strong fundamentals and an attractive leasing profile support the stability of Automotive Properties REIT’s Unitholder distributions. The REIT currently pays monthly cash distributions to Unitholders of $0.067 per Unit, representing $0.80 per Unit on an annualized basis.
Strategy and Objectives
The primary strategy of the REIT is to create long-term value for Unitholders by generating sustainable tax-efficient cash flow and capital appreciation. The primary objectives of the REIT are to:
- provide Unitholders with stable, predictable and growing monthly cash distributions on a tax-efficient basis;
- maximize long-term Unitholder value by enhancing the value of the REIT’s assets; and
- expand the REIT’s asset base while also increasing adjusted funds from operations (AFFO) per unit.
Management intends to grow the value of the REIT’s real estate portfolio while also increasing AFFO per Unit through accretive acquisitions and steady growth in rental rates. The REIT is leveraging its strategic arrangement with the Dilawri Group to acquire properties from the Dilawri Group that meet the REIT’s investment criteria. The REIT is also well-positioned to capitalize on significant acquisition opportunities presented by third parties due to the fragmented nature of the market. Management intends to focus on obtaining new properties which have the potential to contribute to the REIT’s ability to generate stable, predictable and growing monthly cash distributions to Unitholders. Since its initial public offering in July 2015, the REIT has completed nine property acquisitions for a combined purchase price of $133.5 million. Three of those transactions, worth $48.2 million, were with third party dealership tenants.
- Statistics Canada
- Weighted average of the gross profit margins for AutoCanada Inc., AutoNation Inc., Penske Automotive Group Inc., Group 1 Automotive Inc., Sonic Automotive Inc., Asbury Automotive Group Inc., Lithia Motors, Inc., and CarMax Inc., based on management’s review of publicly available information.