Automotive Properties REIT Reports 2021 Fourth Quarter and Year-End Results

TORONTO, March 22, 2022 /CNW/ - Automotive Properties Real Estate Investment Trust (TSX: APR.UN) ("Automotive Properties REIT" or the "REIT") today announced its financial results for the fourth quarter ("Q4 2021") and year ended December 31, 2021 ("2021").

"The resiliency of our tenants' businesses throughout the pandemic underlines the essential nature of the automotive retail industry in Canada. The real estate underlying essential retail in Canada has generally experienced an increase in market valuation over the past year. This has contributed to the enhanced fair market value of our property portfolio, as the capitalization rate applicable to our portfolio improved to 6.3% at 2021 year end," said Milton Lamb, CEO of Automotive Properties REIT. "We continue to generate year-over-year growth in revenue, NOI and AFFO per unit, driven by organic growth from contractual rent increases and property acquisitions."

"We have seen increased acquisition opportunities in the market and have made solid progress with our acquisition program to date in 2022 with the deployment of $65.1 million on acquisitions."

Q4 2021 Highlights

• The REIT collected 100% of its Q4 2021 contractual base rent due under its leases and rent deferral agreements with its tenants (the "Deferral Agreements"). All remaining amounts owed under the Deferral Agreements were collected during the quarter.
• The REIT generated AFFO per Unit[1] of $0.220 (diluted) and paid total cash distributions of $0.201 per Unit (as defined below) in Q4 2021, representing an AFFO payout ratio¹ of approximately 91.4%. For the comparable three-month period ended December 31, 2020 ("Q4 2020"), the REIT generated AFFO per Unit of $0.214 (diluted) and paid cash distributions of $0.201 per Unit, representing an AFFO payout ratio of approximately 93.9%. The AFFO payout ratio was lower in Q4 2021 primarily due to organic growth in NOI and acquisitions made subsequent to Q4 2020.
• The REIT had a Debt to Gross Book Value ("Debt to GBV") ratio of 40.2% as at December 31, 2021, and a strong liquidity position with $72.3 million of undrawn credit facilities, $0.5 million of cash on hand, and seven unencumbered properties with an aggregate value of approximately $105.8 million.
• The capitalization rate applicable to the REIT's entire portfolio was 6.3% as at December 31, 2021, a reduction of approximately 10 basis points from 6.4% as at September 30, 2021, and a reduction of approximately 40 basis points from 6.7% as at December 31, 2020. The reductions were primarily due to overall capitalization rate compression, including, in particular, single tenant retail and industrial capitalization rate reductions. In addition, the REIT continued its amortization of two land lease properties. The improved capitalization rate as at December 31, 2021 resulted in a fair value gain of $21.1 million and $75.2 million for Q4 2021 and 2021, respectively.

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¹ AFFO per Unit and AFFO payout ratio are non-IFRS measures or non-IFRS ratios, as applicable. See "Non-IFRS Financial Measures" at the end of this news release.

Subsequent Events

• On January 17, 2022, the REIT acquired two Honda dealership properties in Québec (Sherbrooke Honda and Magog Honda) from a third party for a combined purchase price of approximately $23.4 million.
• On January 21, 2022, the REIT acquired approximately 2.15 acres of land underlying the Langley Acura automotive dealership in Langley, British Columbia from a third party for a purchase price of approximately $15.1 million.
• On February 25, 2022, the REIT acquired Tesla automotive services properties located in Québec City, Québec and Innisfil, Ontario from a third party for a combined purchase price of approximately $25.9 million.

Financial Results Summary¹          

	Three months ended December 31,			12 months ended December 31,
($000s, except per Unit amounts)	2021	2020	Change	2021	2020	Change
Rental revenue ^(2)	$19,781	$19,091	3.6%	$78,218	$75,124	4.1%
NOI	16,776	16,471	1.9%	67,081	64,019	4.8%
Cash NOI	16,128	15,486	4.1%	64,225	60,400	6.3%
Same Property Cash NOI (excluding bad debt (expense) recovery) ^(2)	15,613	15,225	2.5%	60,375	59,256	1.9%
Net Income^(3)	10,409	30,180	-65.5%	85,418	26,965	216.8%
FFO	11,491	11,237	2.3%	46,529	43,789	6.3%
AFFO	10,921	10,333	5.7%	43,987	40,498	8.6%
Distributions per Unit	$0.201	$0.201	-	$0.804	$0.804	-
FFO per Unit - basic ^(4)	0.234	0.236	-0.002	0.954	0.919	0.035
FFO per Unit - diluted ^(5)	0.231	0.233	-0.002	0.941	0.910	0.031
AFFO per Unit - basic ^(4)	0.223	0.217	0.006	0.902	0.850	0.052
AFFO per Unit - diluted ^(5)	0.220	0.214	0.006	0.890	0.841	0.049
Ratios (%)
FFO payout ratio	87.0%	86.3%	0.7%	85.4%	88.4%	-3.0%
AFFO payout ratio	91.4%	93.9%	-2.5%	90.3%	95.6%	-5.3%
Debt to GBV	40.2%	43.2%	-3.0%	40.2%	43.2%	-3.0%

(1)	NOI, Cash NOI, Same Property Cash NOI (excluding bad debt (expense) recovery), FFO, AFFO,  FFO per Unit, AFFO per Unit, FFO payout ratio and AFFO payout ratio are non-IFRS measures or non-IFRS ratios, as applicable. See "Non-IFRS Financial Measures" at the end of this news release. References to "Same Property" correspond to properties that the REIT owned in Q4 2020, 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 Q4 2021 includes changes in fair value adjustments of $23.5 million for Class B limited partnership units of Automotive Properties Limited Partnership ("Class B LP Units"), deferred units ("DUs"), income deferred units ("IDUs"), performance deferred units ("PDUs") and restricted deferred units ("RDUs"), $3.3 million for interest rate swaps and $21.1 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 Q4 2021 was 49,013,407.
(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, IDUs, PDUs and RDUs granted to certain independent trustees and management of the REIT. The total weighted average number of Units outstanding (including Class B LP Units, DUs, IDUs, PDUs and RDUs) on a fully diluted basis was 49,733,057 for Q4 2021 and 49,446,138 for 2021.

Rental revenue was $19.8 million in Q4 2021 and $78.2 million in 2021, representing increases of 3.6% and 4.1%, respectively, from Q4 2020 and the year ended December 31, 2020 ("2020"). Increased rental revenue in Q4 2021 and 2021 reflects growth from properties acquired subsequent to Q4 2020 and during and subsequent to 2020, respectively, and contractual annual rent increases. 

The REIT generated total Cash NOI of $16.1 million in Q4 2021 and $64.2 million in 2021, representing increases of 4.1% and 6.3%, respectively, from Q4 2020 and 2020. The increases were primarily attributable to the properties acquired subsequent to Q4 2020 and during and subsequent to 2020, respectively, as well as contractual rent increases. Same Property Cash NOI (excluding bad debt (expense) recovery) was $15.6 million in Q4 2021 and $60.4 million in 2021, representing increases of 2.5% and 1.9%, respectively, from Q4 2020 and 2020. The increases were attributable to contractual rent increases.

The REIT recorded net income of $10.4 million in Q4 2021, compared to $30.2 million in Q4 2020. Net income was $85.4 million in 2021, compared to $27.0 million in 2020. The variances were primarily due to non-cash fair value adjustments for interest rate swaps, investment properties, Class B LP Units, and DUs, IDUs, PDUs and RDUs (collectively "Unit-based compensation"). 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 Q4 2021 of $23.5 million (Q4 2020 – increase of $7.6 million) and an increase of $44.6 million for 2021 (2020 – decrease of $14.4 million).    

FFO was $11.5 million, or $0.231 per Unit (diluted), in Q4 2021 and $46.5 million, or $0.941 per Unit (diluted), in 2021. That compares to FFO of $11.2 million, or $0.233 per Unit (diluted), in Q4 2020 and $43.8 million, or $0.910 per Unit (diluted), in 2020. The increases in FFO in Q4 2021 and 2021 were primarily attributable to the impact of the properties acquired subsequent to Q4 2020 and during and subsequent to 2020, respectively, and contractual rent increases. The decrease in FFO per Unit in Q4 2021 was due to a reduction of the straight-line rent adjustment resulting from the termination of a lease in the first quarter of 2021 and the issuance of 1,369,102 REIT Units as consideration for the purchase of Lexus Laval on March 1, 2021. The increase in FFO per Unit in 2021 was primarily attributable to the impact of the properties acquired during and subsequent to 2020, contractual rent increases, and bad debt reversals related to tenant receivables.

AFFO was $10.9 million, or $0.220 per Unit (diluted), in Q4 2021 and $44.0 million, or $0.890 per Unit (diluted), in 2021. That compares to AFFO of $10.3 million, or $0.214 per Unit (diluted), in Q4 2020 and $40.5 million, or $0.841 per Unit (diluted), in 2020. The increases in AFFO and AFFO per Unit in Q4 2021 were primarily attributable to the impact of the properties acquired subsequent to Q4 2020, and contractual rent increases. The increase in AFFO in 2021 was primarily attributable to the impact of the properties acquired during and subsequent to 2020 and contractual rent increases, partially offset by bad debt expense. The increase in AFFO per Unit in 2021 was primarily attributable to the impact of the properties acquired during and subsequent to 2020, contractual rent increases, and bad debt reversals related to accounts receivable associated with the Deferral Agreements.

Adjusted Cash Flow from Operations ("ACFO") [2] for 2021 increased by 20.0% to $48.4 million, compared to $40.3 million in 2020, and cash flow from operating activities increased to $62.1 million in 2021 from $57.2 million in 2020. The increases were primarily due to the impact of the properties acquired during and subsequent to 2020, contractual rent increases and the collection of rent receivables under the Deferral Agreements.

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 Q4 2021, the REIT declared and paid total distributions of $9.85 million, or $0.201 per Unit, representing an AFFO payout ratio of 91.4%. The AFFO payout ratio was lower in Q4 2021 compared to the 93.9% AFFO payout ratio in Q4 2020 primarily due to organic growth in NOI and acquisitions made subsequent to Q4 2020. For the year ended December 31, 2021, the REIT declared and paid distributions of $39.2 million, or $0.804 per Unit, representing an AFFO payout ratio of 90.3%. The AFFO payout ratio was lower in 2021 compared to the 95.6% AFFO payout ratio in 2020 primarily due to organic growth in NOI and properties acquired during and subsequent to 2020.

Liquidity and Capital Resources 

As at December 31, 2021, the REIT had a Debt to GBV ratio of 40.2% and a strong liquidity position with $72.3 million of undrawn credit facilities, cash on hand of $0.5 million, and seven unencumbered properties with an aggregate value of approximately $105.8 million. As of the date of this news release, the REIT had approximately $34.0 million of undrawn credit facilities and 13 unencumbered properties with an aggregate value of approximately $170.6 million.

Units Outstanding

As at December 31, 2021, there were 39,080,154 REIT Units and 9,933,253 Class B LP Units outstanding.

Outlook 

As COVID-19 vaccination rates of Canadians have increased, provincial governments across Canada have eased COVID-19 related emergency measures and business restrictions. The REIT's tenants' businesses are and expect to continue to remain fully operational. The pandemic has also impacted the vehicle supply chain, resulting in constraints of specific parts, 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. The easing of business restrictions and pent-up consumer demand is expected to support the continued strength in the Canadian auto sales and service sector. The REIT believes that the overall fundamentals of the automotive dealership business remain strong and that the industry is resilient, essential and will continue to grow as the pandemic continues to stabilize. However, future developments related to the pandemic, including new COVID-19 variants, could result in additional restrictions being implemented that could impact the financial performance and financial position of the REIT and its tenants in future periods. Furthermore, the current military conflict in Ukraine has resulted in a significant increase in the price of oil which has led to higher vehicle fuel cost. This may have an adverse effect on consumer demand. Management will continue to monitor the situation.

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. Given the REIT's strong balance sheet position, the REIT intends to pursue acquisitions on a strategic basis through debt financing and available liquidity.

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¹ ACFO is a non-IFRS measure. See "Non-IFRS Financial Measures" at the end of this news release.

Financial Statements

The REIT's audited consolidated financial statements and related Management's Discussion & Analysis ("MD&A") for the year ended December 31, 2021 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 Wednesday, March 23, 2022 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: 151056 #. The replay will be available until March 30, 2022.

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 72 income-producing commercial properties, representing approximately 2.7 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. 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, 2021 and in the REIT's annual information form dated March 22, 2022, which are available on SEDAR (www.sedar.com) 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 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-IRFS measures and Debt to GBV, 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 MD&A for the year ended December 31, 2021 which is incorporated by reference herein and is available on the REIT's website at www.automotivepropertiesreit.ca and on SEDAR at www.sedar.com.

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

	Three Months Ended December 31,			12 Months Ended December 31,
($000s, except per Unit amounts)	2021	2020	Variance	2021	2020	Variance
Calculation of NOI
Property revenue	$19,781	$19,091	$690	$78,218	$75,124	$3,094
Property costs	(3,005)	(2,620)	(385)	(11,137)	(11,105)	(32)
NOI (including straight–line adjustments)	$16,776	$16,471	$305	$67,081	$64,019	$3,062
Adjustments:
Land lease payments	(159)	(159)	—	(635)	(635)	—
Straight–line adjustment	(489)	(826)	337	(2,221)	(2,984)	763
Cash NOI	$16,128	$15,486	$642	$64,225	$60,400	$3,825
Reconciliation of net income to FFO and AFFO
Net income and comprehensive income	$10,409	$30,180	$(19,771)	$85,418	$26,965	$58,453
Adjustments:
Change in fair value – interest rate swaps	(3,268)	(1,387)	(1,881)	(15,976)	17,832	(33,808)
Distributions on Class B LP Units	1,997	1,997	—	7,988	7,988	—
Change in fair value – Class B LP Units and Unit-based compensation	23,498	7,613	15,885	44,555	(14,403)	58,958
Change in fair value – investment properties	(21,069)	(27,096)	6,027	(75,157)	5,684	(80,841)
ROU asset net balance of depreciation/interest and lease payments	(76)	(70)	(6)	(299)	(277)	(22)
FFO	$11,491	$11,237	$254	$46,529	$43,789	$2,740
Adjustments:
Straight–line adjustment	(489)	(826)	337	(2,221)	(2,984)	(763)
Capital expenditure reserve	(81)	(78)	(4)	(321)	(307)	(14)
AFFO	$10,921	$10,333	$588	$43,987	$40,498	$3,489
Number of Units outstanding (including Class B LP Units)	49,013,407	47,630,305	1,383,102	49,013,407	47,630,305	1,383,102
Weighted average Units Outstanding – basic	49,013,407	47,630,305	1,383,102	48,786,577	47,630,305	1,156,272
Weighted average Units Outstanding – diluted	49,733,057	48,203,686	1,529,371	49,446,138	48,135,920	1,310,218
FFO per Unit – basic	$0.234	$0.236	$(0.002)	$0.954	$0.919	$0.035
FFO per Unit – diluted	$0.231	$0.233	$(0.002)	$0.941	$0.910	$0.031
AFFO per Unit – basic	$0.223	$0.217	$0.006	$0.902	$0.850	$0.052
AFFO per Unit – diluted	$0.220	$0.214	$0.006	$0.890	$0.841	$0.049
Distributions per Unit	$0.201	$0.201	—	$0.804	$0.804	—
FFO payout ratio	87.0%	86.3%	0.7%	85.4%	88.4%	(3.0)%
AFFO payout ratio	91.4%	93.9%	(2.5)%	90.3%	95.6%	(5.3)%

Same Property Cash Net Operating Income

	Three Months Ended December 31,			12 Months Ended December 31,
	2021	2020	Variance	2021	2020	Variance
Same property base rental revenue	$15,772	$15,384	$388	$61,010	$59,891	$1,119
Bad debt recovery (expense)	—	55	(55)	277	(277)	554
Land lease payments	(159)	(159)	—	(635)	(635)	—
Same Property Cash NOI	$15,613	$15,280	$333	$60,652	$58,979	$1,673
Bad debt expense (recovery)	—	(55)	55	(277)	277	(554)
Same Property Cash NOI (excluding bad debt (expense) recovery)	$15,613	$15,225	$388	$60,375	$59,256	$1,119

Reconciliation of Cash Flow from Operating Activities to ACFO

	Twelve Months Ended December 31,2021
($000s)	2021	2020	Variance
Cash flow from operating activities	$62,212	$57,168	$5,044
Change in non-cash working capital	2,262	(610)	2,872
Interest paid	(14,674)	(14,876)	202
Amortization of financing fees	(557)	(543)	(14)
Amortization of indemnification fees	(183)	(183)	-
Net interest expense and other financing charges in excess of interest paid	(349)	(311)	(38)
Capital expenditure reserve	(321)	(307)	(14)
ACFO	$48,390	$40,338	$8,052
ACFO payout ratio	81.1%	94.9%	(13.8)%

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]