Automotive Properties REIT Reports Financial Results for Third Quarter of 2020

TORONTO, Nov. 12, 2020 /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 ("Q3 2020") and nine-month ("YTD 2020") periods ended September 30, 2020.

"We generated solid financial performance in the quarter. This performance is attributable both to working closely with our tenant partners through a difficult period and to the resiliency of the automotive dealership retail business, which rebounded strongly in the quarter," said Milton Lamb, CEO of Automotive Properties REIT.  "Since the inception of the REIT, we have focused on partnering with some of Canada's strongest automotive dealership groups. The benefits of this strategy are apparent today, as these groups have demonstrated their ability to withstand a period of economic disruption. As a result, we were able to both renew an upcoming lease in the GTA, and secure a new lease commencement for a Tesla service center for our recently acquired property in Laval, Quebec effective November 1, 2020."

"Our growth in our key performance measures in the quarter continues to demonstrate the positive impact of our property portfolio expansion and our ongoing contractual rent increases," added Mr. Lamb. "Looking ahead, we will continue to carefully monitor the impact of COVID-19 on our business and prioritize a strong liquidity position, while selectively evaluating potential acquisition or development opportunities focusing on preferred markets, property location, automotive brand and the financial strength of the business operator."

Q3 2020 Highlights

• The REIT collected 100% of its Q3 2020 contractual base rent due under its leases (excluding 3% of contractual base rent that is subject to rent deferral agreements with tenants (the "Deferral Agreements"), and approximately 94% of its base rent for YTD 2020, with the remaining amount subject to Deferral Agreements.
• The REIT paid monthly cash distributions of $0.067 per Unit (defined below), resulting in total distributions declared and paid of approximately $9.6 million in Q3 2020, representing an AFFO payout ratio of approximately 93.5%, compared to total distributions declared and paid of approximately $8.0 million in the three-month period ended September 30, 2019 ("Q3 2019"), representing an AFFO payout ratio of approximately 89.7%. The higher AFFO payout ratio in Q3 2020 reflects the REIT's issuance of 7.9 million REIT units for gross proceeds of $92 million in December 2019 (the "December 2019 Equity Offering"), and the partial deployment of proceeds therefrom.
• The REIT continues to have a strong liquidity position with a Debt to Gross Book Value ("Debt to GBV") of 44.8% as at September 30, 2020.
• The overall capitalization rate applicable to the REIT's entire portfolio was 6.9% as at September 30, 2020, unchanged from June 30, 2020.
• On August 25, 2020, the REIT acquired from a third party the real estate underlying an automotive property located in the Laval, Quebec area. The property was improved by the REIT as a service center for Tesla Motors Canada ULC, a luxury, high-end car company. As of the beginning of November 2020, the Tesla Service Center in Laval opened for operation.

Financial Results Summary¹

	Three months ended			Nine months ended
	September 30,			September 30,
($000s, except per Unit amounts)	2020	2019	Change	2020	2019	Change
Rental revenue ^(2)	$18,627	$17,349	7.4%	$56,033	$49,458	13.3%
NOI	16,168	14,667	10.2%	47,548	42,210	12.6%
Cash NOI	15,243	13,783	10.6%	44,914	39,543	13.6%
Same Property Cash NOI (excluding bad debt expense) ^(2)	13,873	13,715	1.2%	38,066	37,641	1.1%
Net Income (Loss)^(3)	4,395	1,054	317.0%	(3,214)	(8,393)	61.7%
FFO	11,124	9,830	13.2%	32,552	27,165	19.8%
AFFO	10,338	8,974	15.2%	30,165	24,680	22.2%
Distributions per Unit	$0.201	$0.201	-	$0.603	$0.603	-
FFO per Unit - basic ^(4)	0.234	0.247	-0.013	0.683	0.787	-0.104
FFO per Unit - diluted ^(5)	0.231	0.246	-0.015	0.677	0.782	-0.105
AFFO per Unit - basic ^(4)	0.217	0.226	-0.009	0.633	0.715	-0.082
AFFO per Unit - diluted ^(5)	0.215	0.224	-0.009	0.627	0.711	-0.084
Ratios (%)
FFO payout ratio	87.0%	81.7%	5.3%	89.1%	77.1%	12.0%
AFFO payout ratio	93.5%	89.7%	3.8%	96.2%	84.8%	11.4%
Debt to GBV	44.8%	49.6%	-4.8%	44.8%	49.6%	-4.8%

(1)	NOI, Cash NOI, Same Property Cash NOI, FFO, AFFO, Debt to GBV, FFO Payout Ratio, AFFO Payout Ratio and ACFO are non-IFRS financial measures. See "Non-IFRS Financial Measures" in this news release. References to "Same Property" correspond to properties that the REIT owned in Q3 2019, thus removing the impact of acquisitions.
(2)	Rental revenue is based on rents from leases entered into with tenants, all of which are triple-net leases and include recoverable realty taxes and straight-line adjustments. Same Property Cash NOI is based on rental revenue for the same asset base having consistent gross leasable area in both periods.
(3)	Net income for Q3 2020 includes changes in fair value adjustments of $7.3 million for Class B limited partnership units of Automotive Properties Limited Partnership ("Class B LP Units"), deferred units ("DUs") and income deferred units ("IDUs"), $1.2 million for interest rate swaps and $1.3 million for investment properties. Please refer to the consolidated financial statements of the REIT and notes thereto.
(4)	FFO per Unit and AFFO per Unit – basic is calculated by dividing the total FFO and AFFO by the amount of the total weighted average number of outstanding trust units of the REIT ("REIT Units" and together with the Class B LP Units, "Units") and Class B LP Units. The total weighted average number of Units outstanding– basic for Q3 2020 was 47,630,305.
(5)	FFO per Unit and AFFO per Unit – diluted is calculated by dividing the total FFO and AFFO by the amount of the total weighted average number of outstanding Units, DUs and IDUs granted to certain independent trustees and management of the REIT. The total weighted average number of Units outstanding (including Class B LP Units, DUs and IDUs) on a fully diluted basis for Q3 2020 was 48,167,267.

Rental revenue in Q3 2020 increased 7.4% to $18.6 million, compared to $17.3 million in Q3 2019. The increase in rental revenue reflects growth from properties acquired during and subsequent to Q3 2019, and contractual annual rent increases.

The REIT generated total Cash NOI of $15.2 million in Q3 2020, representing an increase of 10.6% compared to Q3 2019. The increase was primarily attributable to the properties acquired during and subsequent to Q3 2019, as well as contractual rent increases, partially offset by bad debt expense. Same Property Cash NOI (excluding bad debt expense) was $13.9 million in Q3 2020, representing an increase of 1.2% compared to Q3 2019. The increase was attributable to contractual rent increases.

The REIT recorded net income of $4.4 million in Q3 2020, compared to net income of $1.1 million in Q3 2019. The positive variance was primarily due to an increase in NOI and fair value adjustments for interest rate swaps, investment properties and Class B LP Units, DUs and IDUs.

FFO in Q3 2020 was $11.1 million, or $0.231 per Unit (diluted), as compared to $9.8 million, or $0.246 per Unit (diluted), in Q3 2019. The increase in FFO was primarily due to the impact of the properties acquired during and subsequent to Q3 2019, and contractual rent increases. The decline in FFO per Unit (diluted) primarily reflects the deleveraging and enhancing of the REIT's liquidity position as a result of the December 2019 Equity Offering.   

AFFO in Q3 2020 was $10.3 million, or $0.215 per Unit (diluted), as compared to $9.0 million, or $0.224 per Unit (diluted), in Q3 2019. The increase in AFFO reflects the impact of the properties acquired during and subsequent to Q3 2019, together with contractual rent increases. The decline in AFFO per Unit (diluted) was primarily due to the impact of the December 2019 Equity Offering, as noted above.

Adjusted Cash Flow from Operations¹ ("ACFO") for Q3 2020 increased 18.6% to $10.2 million, compared to $8.6 million in Q3 2019. The increase was primarily due to the collections of tenant rent deferrals pursuant to the Deferral Agreements and realty tax receivables in Q3 2020, as well as contractual rent increases.

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 Q3 2020, the REIT declared and paid total distributions of $9.6 million to unitholders, or $0.201 per Unit, representing an AFFO payout ratio of 93.5%. The AFFO payout ratio was higher in Q3 2020 compared to Q3 2019 due to the deleveraging and enhancing of the REIT's liquidity position as a result of the closing of the December 2019 Equity Offering.

Liquidity and Capital Resources 

As at September 30, 2020, the REIT is in a strong liquidity position with: a Debt to GBV of 44.8%, $60.6 million of undrawn credit facilities, approximately $0.4 million of cash on hand, and nine unencumbered properties with a value of approximately $141.7 million.

Units Outstanding

As at September 30, 2020, there were 37,697,052 REIT Units and 9,933,253 Class B LP Units outstanding.

Outlook 

The REIT has collected approximately 99% of its expected October and November 2020 contractual base rent under the leases (excluding 2% of contractual base rent that is subject to the Deferral Agreements).

As a result of the COVID-19 pandemic, provinces across Canada began implementing emergency measures to combat the spread of COVID-19 in the second half of March 2020, resulting in the full or partial closure of automotive dealerships until the end of May 2020. By the end of May 2020, all of the REIT's tenants were open for business. According to Statistics Canada, new automobile sales per unit in Canada for the eight months ended August 31, 2020 were down approximately 28.4% compared to the corresponding period in 2019. Accordingly, COVID-19 has had a significant adverse impact on the profitability of the REIT's tenants. Industry analysts have forecasted that new automotive sales in Canada will decline by approximately 15% to 20% in 2020 compared to 2019, and that the supply chain of new vehicles and automotive parts could also be disrupted. The REIT expects that there will be a negative impact on overall automotive dealership profitability for 2020, even with the support programs provided by original equipment manufacturers, financial institutions, governments and rent deferral programs. The Canadian federal and provincial governments have reacted with significant intervention programs designed to stabilize economic conditions. However, the success of these programs remains uncertain at this time. The length and severity of the pandemic, and the related impact on the financial performance and financial position of the REIT and its tenants in future periods, is unknown at this time. As provincial COVID-19 related restrictions have eased, the pent-up consumer demand resulted in a rebound in Canadian auto sales and an increase in service work performed at the automotive dealership level.

Furthermore, as a result of COVID-19 and the related economic uncertainty and the REIT's primary focus on its own liquidity preservation, the REIT expects a slower pace of industry consolidation in the automotive dealership industry through the remainder of 2020 and into 2021. Management and the Trustees are closely monitoring the impact of the COVID-19 pandemic on the REIT's business and the business of the REIT's tenants, and will continue to prudently manage the REIT's available resources during this period of economic uncertainty. Management has also proactively raised its level of preparedness planning to adapt more quickly should risk levels rise, and will continue to monitor and adjust its business continuity and other plans as the COVID-19 pandemic continues to evolve.

Financial Statements

The REIT's unaudited consolidated financial statements and related Management's Discussion & Analysis ("MD&A") for Q3 2020 are available on the REIT's website at www.automotivepropertiesreit.ca and on SEDAR at www.sedar.com.

Conference Call

Management of the REIT will host a conference call for analysts and investors on Friday, November 13, 2020 at 9:00 a.m. (ET). The dial-in numbers for the conference call are [phone] or [phone]. 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 [phone] or [phone], passcode: 245677 #. The replay will be available until November 20, 2020.

About Automotive Properties REIT

Automotive Properties REIT is an 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 64 income-producing commercial properties and one development property, representing approximately 2.5 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 impact of the COVID-19 pandemic on the REIT and its tenants including with respect to payment of rents and deferrals thereof. 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 Judgements & Estimates" in the REIT's MD&A for the year ended December 31, 2019, the REIT's MD&A for the three and nine-month periods ended September 30, 2020, and in the REIT's annual information form dated March 23, 2020, which are available on SEDAR (www.sedar.com) and the REIT's website (www.automotivepropertiesreit.com). 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 which are not defined under 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, and Same Property Cash NOI are key measures of performance used by the REIT's management and real estate businesses. Debt to GBV 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. See the REIT's Q3 2020 MD&A for further discussion of these non-IFRS financial measures and for a reconciliation of NOI, FFO, AFFO and Cash NOI to net income and comprehensive income and ACFO to cash flow from operating activities.

SOURCE Automotive Properties Real Estate Investment Trust

Bruce Wigle, Investor Relations, Bay Street Communications, Tel: [phone]; Milton Lamb, President & CEO, Automotive Properties REIT, Tel: [phone]; Andrew Kalra, CFO & Corporate Secretary, Automotive Properties REIT, Tel: [phone]

Related Links

www.automotivepropertiesreit.ca