Automotive Properties REIT Reports Financial Results for Second Quarter of 2023

TORONTO, Aug. 14, 2023 /CNW/ – Automotive Properties Real Estate Investment Trust (TSX: APR.UN) (“Automotive Properties REIT” or the “REIT”) today announced its financial results for the three-month (“Q2 2023”) and six-month (“YTD 2023”) periods ended June 30, 2023.

“We generated further organic growth in the second quarter, while continuing to execute on our acquisition program,” said Milton Lamb, CEO of Automotive Properties REIT. “In addition to driving growth in revenue and NOI through our prior acquisitions and our contractual rent increases, we partnered with StorageVault Canada to complete a joint purchase in the greater Montreal area. Looking forward, with our growing portion of leases with CPI-linked adjustments and overall essential retail portfolio, we remain well positioned to continue to generate stable financial performance and pursue external growth opportunities.”

Q2 2023 Highlights                               

• The REIT generated AFFO per Unit¹ of $0.230 (diluted) and paid total cash distributions of $0.201 per Unit (as defined below) in Q2 2023, representing an AFFO payout ratio¹ of approximately 87.4%. For the comparable three-month period ended June 30, 2022 (“Q2 2022”), the REIT generated AFFO per Unit of $0.229 (diluted) and paid cash distributions of $0.201 per Unit, representing an AFFO payout ratio of approximately 87.8%.
• The REIT had a Debt to Gross Book Value (“Debt to GBV”)² ratio of 45.1% as at June 30, 2023, and $62.4 million of undrawn capacity under its revolving credit facilities, $0.5 million of cash on hand, and five unencumbered properties with an aggregate value of approximately $69.7 million. As of the date of this news release, the REIT has approximately $67.7 million of undrawn capacity under its revolving credit facilities and five unencumbered properties with an aggregate value of approximately $69.7 million.
• The REIT’s valuation of its investment properties increased nominally in Q2 2023 compared to the prior quarter to reflect current market conditions, resulting in a fair value gain of $0.4 million. The capitalization rate applicable to the REIT’s entire portfolio increased to 6.52% as at June 30, 2023, compared to 6.42% as at December 31, 2022, and 6.30% as at June 30, 2022.
• In May 2023, $25 million of the outstanding revolving portion of Credit Facility 1 was converted to a non-revolving balance, which is currently at floating rates.
• On June 2, 2023, the REIT entered into a 50/50 joint arrangement (the “Joint Arrangement”) with StorageVault Canada Inc. (“StorageVault”) to acquire the real estate underlying the Volvo and Jaguar Land Rover automotive dealership located in Brossard, Quebec (the “Taschereau Volvo and JLR Property”), from a third-party vendor. Under the terms of the Joint Arrangement, the REIT and StorageVault each funded 50% of the $16.1 million purchase price. The Taschereau Volvo and JLR Property is a full-service automotive dealership, totaling 50,415 square feet of GLA situated on approximately 3.4 acres of land and is currently under triple-net leases with Groupe Park Avenue Volvo and Jaguar Land Rover, which are subject to annual adjustments linked to the consumer price index in Quebec. The REIT funded its portion of the acquisition by drawing on its revolving credit facilities and cash on hand.

Financial Results Summary      

Rental revenue in Q2 2023 increased by 10.1% to $22.9 million, compared to $20.8 million in Q2 2022. The increase in rental revenue reflects growth from properties acquired subsequent to Q2 2022 and contractual annual rent increases.

The REIT generated total Cash NOI of $18.9 million in Q2 2023, representing an increase of 10.7% compared to Q2 2022. The increase was primarily attributable to the properties acquired subsequent to Q2 2022 and contractual rent increases. Same Property Cash NOI was $17.0 million in Q2 2023, representing an increase of 2.4% compared to Q2 2022. The increase was primarily attributable to contractual rent increases.

The REIT recorded net income of $20.9 million in Q2 2023, compared to $31.2 million in Q2 2022. The decrease was primarily due to changes in non-cash fair value adjustments for Class B LP Units and DUs, IDUs, PDUs and RDUs (collectively “Unit-based compensation”), partially offset by higher NOI. The impact of the movement in the traded value of the REIT Units resulted in an increase in fair value adjustment for Class B LP Units and Unit-based compensation in Q2 2023 of $0.6 million, compared to an increase of $11.2 million in Q2 2022.

FFO in Q2 2023 increased 0.6% to $12.1 million, or $0.241 per unit (diluted), compared to $12.0 million, or $0.241 per unit (diluted) in Q2 2022. The increase in FFO was primarily attributable to the properties acquired subsequent to Q2 2022, and contractual rent increases.

AFFO in Q2 2023 increased 0.7% to $11.5 million, or $0.230 per unit (diluted), compared to $11.4 million, or $0.229 per unit (diluted), in Q2 2022. The increase in AFFO reflects the impact of the properties acquired subsequent to Q2 2022, and contractual rent increases.

Adjusted Cash Flow from Operations (“ACFO”)³ for Q2 2023 increased 1.1% to $12.7 million, compared to $12.5 million in Q2 2022. The increase was primarily attributable to the properties acquired subsequent to Q2 2022 and contractual rent increases, partially offset by higher interest costs.

Cash Distributions

The REIT is currently paying monthly cash distributions of $0.067 per Unit, representing $0.804 per Unit on an annualized basis. For Q2 2023, the REIT declared and paid total distributions of $9.86 million, or $0.201 per Unit, representing an AFFO payout ratio of 87.4%. The AFFO payout ratio was lower in Q2 2023 compared to the 87.8% AFFO payout ratio in Q2 2022 primarily due to the impact of the properties acquired subsequent to Q2 2022, and contractual rent increases.

Liquidity and Capital Resources 

As at June 30, 2023, the REIT had a Debt to GBV ratio of 45.1%, $62.4 million of undrawn capacity under its revolving credit facilities, $0.5 million of cash on hand, and five unencumbered properties with an aggregate value of approximately $69.7 million. As of the date of this news release, the REIT has approximately $67.7 million of undrawn capacity under its revolving credit facilities and five unencumbered properties with an aggregate value of approximately $69.7 million.

As at June 30, 2023, 91% of the REIT’s debt was fixed with a weighted average interest rate of 4.18%, with a weighted average interest swap term and mortgages remaining of 5.3 years, and a weighted average term to maturity of debt of 3.3 years.

Units Outstanding

As at June 30, 2023, there were 39,727,346 REIT Units and 9,327,487 Class B LP Units outstanding.

Outlook 

The REIT is subject to risks associated with rising inflation, interest rates and availability of capital. The REIT anticipates that inflation and interest rates will remain elevated in the near term, which may have an adverse effect on consumer demand and the overall economy. The REIT will continue to monitor these factors and strategically move its floating and short-term debt into fixed and/or long-term debt in an effort to minimize the impact of any potential future interest rate increases. The fluctuation in the interest rate environment, inflation and credit environment impacts rental growth and capitalization rates overall in the real estate industry and may also provide attractive buying opportunities for the REIT.

Vehicle supply continues to be constrained for specific models and brands. Management believes these supply chain constraints will continue into the foreseeable future but will not have a significant impact on the REIT’s tenants’ ability to pay rent.

Overall, the REIT believes that the fundamentals of the automotive dealership business remain solid, and that the industry is resilient and essential.

The Canadian automotive dealership industry remains highly fragmented, and the REIT expects continued consolidation over the mid to long term due to increased industry sophistication and growing capital requirements for owner operators, which encourages them to pursue increased economies of scale.

Financial Statements

The REIT’s unaudited consolidated financial statements and related Management’s Discussion & Analysis (“MD&A”) for Q2 2023 are available on the REIT’s website at www.automotivepropertiesreit.ca and on SEDAR+ at www.sedarplus.ca.

Conference Call

Management of the REIT will host a conference call for analysts and investors on Tuesday, August 15, 2023 at 9:00 a.m. (ET). To join the conference call without operator assistance, participants can register and enter their phone number at https://emportal.ink/46Np1Fr to receive an instant automated call back. Alternatively, they can dial (416) 764-8688 or (888) 390-0546 to reach a live operator who will join them into the call. A live and archived webcast of the call will be accessible via the REIT’s website www.automotivepropertiesreit.ca.

To access a replay of the conference call, dial (416) 764-8677 or (888) 390-0541, passcode: 369302 #. The replay will be available until August 22, 2023.

About Automotive Properties REIT

Automotive Properties REIT is an internally managed, unincorporated, open-ended real estate investment trust focused on owning and acquiring primarily income-producing automotive dealership properties located in Canada. The REIT’s portfolio currently consists of 77 income-producing commercial properties, representing approximately 2.9 million square feet of gross leasable area, in metropolitan markets across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec. Automotive Properties REIT is the only public vehicle in Canada focused on consolidating automotive dealership real estate properties. For more information, please visit: www.automotivepropertiesreit.ca.

Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects the REIT’s current expectations regarding future events and in some cases can be identified by such terms as “will” and “expected”. Forward-looking information includes the REIT’s expectations with respect to inflation and interest rates, including the impact of each of the foregoing on the REIT and its tenants; and the expected timing of the closing of the Brossard Property acquisition. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT’s control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to, the factors discussed under “Risks & Uncertainties, Critical Judgments & Estimates” in the REIT’s MD&A for the year ended December 31, 2022 and in the REIT’s annual information form dated March 16, 2023, which are available on SEDAR+ (www.sedarplus.ca) and the REIT’s website (www.automotivepropertiesreit.ca). The REIT does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. This forward-looking information speaks only as of the date of this news release.

Non-IFRS Financial Measures

This news release contains certain financial measures and ratios which are not defined under International Financial Reporting Standards (“IFRS”) and may not be comparable to similar measures presented by other real estate investment trusts or enterprises. FFO, AFFO, FFO payout ratio, AFFO payout ratio, NOI, Cash NOI, Same Property Cash NOI and ACFO are key measures of performance used by the REIT’s management and real estate businesses. Debt to GBV, a supplementary financial measure, is a measure of financial position defined by the REIT’s declaration of trust. These measures, as well as any associated “per Unit” amounts, are not defined by IFRS and do not have standardized meanings prescribed by IFRS, and therefore should not be construed as alternatives to net income or cash flow from operating activities calculated in accordance with IFRS. The REIT believes that AFFO is an important measure of economic earnings performance and is indicative of the REIT’s ability to pay distributions from earnings, while FFO, NOI, Cash NOI and Same Property Cash NOI are important measures of operating performance of real estate businesses and properties. The IFRS measurement most directly comparable to FFO, AFFO, NOI, Cash NOI and Same Property Cash NOI is net income. ACFO is a supplementary measure used by management to improve the understanding of the operating cash flow of the REIT. The IFRS measurement most directly comparable to ACFO is cash flow from operating activities. For reconciliations of NOI, FFO, AFFO and Cash NOI to net income and comprehensive income, and ACFO to cash flow from operating activities, please see the tables below. For further information regarding these non-IFRS measures and supplementary financial measures, please refer to Section 1 “General Information and Cautionary Statements – Non-IFRS Financial Measures” and Section 6 “Non-IFRS Financial Measures” in the REIT’s Q2 2023 MD&A which is incorporated by reference herein and is available on the REIT’s website at www.automotivepropertiesreit.ca and on SEDAR+ at www.sedarplus.ca. 

Reconciliation of NOI, Cash NOI, FFO and AFFO to Net Income and Comprehensive Income

Same Property Cash Net Operating Income

Reconciliation of Cash Flow from Operating Activities to ACFO

 

SOURCE Automotive Properties Real Estate Investment Trust