Automotive Properties REIT Reports Financial Results for First Quarter of 2022

TORONTO, May 12, 2022 /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 period ended March 31, 2022 ("Q1 2022").

"Our acquisition program is off to a positive start in 2022, as we deployed $65 million on acquisitions in the first quarter and we continue to evaluate potential transactions. In addition, we have recently extended one of our credit facilities to 2027 and increased the non-revolving portion to $226.3 million which provides enhanced financial flexibility," said Milton Lamb, CEO of Automotive Properties REIT. "We generated solid financial performance in the first quarter, with year-over-year growth in all of our key operating metrics including growth in same property Cash NOI of 2.5%. Looking ahead, we expect continued steady growth as we evaluate opportunities to further expand our property portfolio."

Q1 2022 Highlights

• On January 17, 2022, the REIT acquired two Honda dealership properties in Québec (Sherbrooke Honda and Magog Honda) for a combined purchase price of approximately $23.4 million.
• On January 20, 2022, the REIT acquired approximately 2.15 acres of land underlying the Langley Acura automotive dealership in Langley, British Columbia (the "Langley Acura land lease") from for a purchase price of approximately $15.1 million.
• On February 1, 2022, the REIT acquired a parcel of land adjoining the Bank Street Toyota dealership property in Ottawa, Ontario for a purchase price of approximately $0.7 million.
• On February 25, 2022, the REIT acquired Tesla automotive service centre properties located in Québec City, Québec and Innisfil, Ontario for a combined purchase price of approximately $25.9 million.
• The REIT generated AFFO per Unit[1] of $0.228 (diluted) and paid total cash distributions of $0.201 per Unit (as defined below) in Q1 2022, representing an AFFO payout ratio¹ of approximately 88.2%. For the comparable three-month period ended March 31, 2021 ("Q1 2021"), the REIT generated AFFO per Unit of $0.227 (diluted) and paid cash distributions of $0.201 per Unit, representing an AFFO payout ratio of approximately 88.5%. The AFFO payout ratio was lower in Q1 2022 primarily due to the properties acquired during and subsequent to Q1 2021 and contractual rent increases.
• The REIT had a Debt to Gross Book Value ("Debt to GBV") ratio of 41.6% as at March 31, 2022, and a strong liquidity position with $29.2 million of undrawn credit facilities, $0.4 million of cash on hand, and 14 unencumbered properties with an aggregate value of approximately $171.0 million. As of the date of this news release, the REIT has $80.0 million of undrawn credit facilities and 10 unencumbered properties with an aggregate value of approximately $121.0 million.
• The capitalization rate applicable to the REIT's entire portfolio was 6.25% as at March 31, 2022, a reduction of approximately five basis points from 6.3% as at December 31, 2021. The reduction was primarily attributable to the purchase of the Langley Acura land lease.

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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 Event

• On April 13, 2022, the REIT announced that it extended the maturity of one of its existing credit facilities for a five-year term to June 2027 and increased the amount available under the non-revolving component of the facility by $50 million for a total of $226.3 million. Subsequently, the REIT entered into floating-to-fixed interest rate swaps totaling $40 million for a weighted-average term of 8.5 years at a blended rate of 4.75%. The balance of $10 million remains at floating rates.

Financial Results Summary¹          

	Three months ended March 31,
($000s, except per Unit amounts)	2022	2021	Change
Rental revenue ^(2)	$20,434	$19,413	5.3%
NOI	17,543	16,757	4.7%
Cash NOI	16,941	16,080	5.4%
Same Property Cash NOI (excluding bad debt recovery) ^(2)	15,784	15,405	2.5%
Net Income^(3)	29,706	26,329	12.8%
FFO	11,949	11,661	2.5%
AFFO	11,362	11,064	2.7%
Distributions per Unit	$0.201	$0.201	-
FFO per Unit - basic ^(4)	0.244	0.242	0.002
FFO per Unit - diluted ^(5)	0.240	0.239	0.001
AFFO per Unit - basic ^(4)	0.232	0.230	0.002
AFFO per Unit - diluted ^(5)	0.228	0.227	0.001
Ratios (%)
FFO payout ratio	83.8%	84.1%	-0.3%
AFFO payout ratio	88.2%	88.5%	-0.3%
Debt to GBV	41.6%	41.7%	-0.1%

(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 Q1 2021, 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 Q1 2022 includes changes in fair value adjustments of $3.9 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"), $14.0 million for interest rate swaps and $1.6 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 Q1 2022 was 49,013,807.
(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 for Q1 2022 was 49,748,964.

Rental revenue in Q1 2022 increased by 5.3% to $20.4 million, compared to $19.4 million in Q1 2021. The increase in rental revenue reflects growth from properties acquired during and subsequent to Q1 2021 and contractual annual rent increases.

The REIT generated total Cash NOI of $16.9 million in Q1 2022, representing an increase of 5.4% compared to Q1 2021. The increase was primarily attributable to the properties acquired during and subsequent to Q1 2021 and contractual rent increases. Same Property Cash NOI (excluding bad debt reversal) was $15.8 million in Q1 2022, representing an increase of 2.5% compared to Q1 2021. The increase was primarily attributable to contractual rent increases.

The REIT recorded net income of $29.7 million in Q1 2022, an increase of 12.8% compared to $26.3 million in Q1 2021. The positive variance was primarily due to higher NOI and 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 Q1 2022 of $3.9 million, compared to a decrease of $7.6 million in Q1 2021.

FFO in Q1 2022 was $11.9 million, or $0.240 per Unit (diluted), as compared to $11.7 million, or $0.239 per Unit (diluted), in Q1 2021. The increase was primarily due to the impact of the properties acquired during and subsequent to Q1 2021 and contractual rent increases.

AFFO in Q1 2022 was $11.4 million, or $0.228 per Unit (diluted), as compared to $11.1 million, or $0.227 per Unit (diluted), in Q1 2021. The increase was primarily due to the impact of the properties acquired during and subsequent to Q1 2021 and contractual rent increases.

Adjusted Cash Flow from Operations ("ACFO")[2] for Q1 2022 increased by 13.8% to $12.2 million, compared to $10.7 million in Q1 2021. The increase was primarily due to the impact of the properties acquired during and subsequent to Q1 2021, contractual rent increases, and an absence of rent deferrals.

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 Q1 2022, the REIT declared and paid total distributions of $9.85 million, or $0.201 per Unit, representing an AFFO payout ratio of 88.2%. The AFFO payout ratio was lower in Q1 2022 compared to the 88.5% AFFO payout ratio in Q1 2021 primarily due to the impact of the properties acquired during and subsequent to Q1 2021 and contractual rent increases.

Liquidity and Capital Resources 

As at March 31, 2022, the REIT had a Debt to GBV ratio of 41.6% and a strong liquidity position with $29.2 million of undrawn credit facilities, $0.4 million of cash on hand, and 14 unencumbered properties with an aggregate value of approximately $171.0 million. As of the date of this news release, the REIT has $80.0 million of undrawn credit facilities and 10 unencumbered properties with an aggregate value of approximately $121.0 million.

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² ACFO is a non-IFRS measure. See "Non-IFRS Financial Measures" at the end of this news release.

Units Outstanding

As at March 31, 2022, there were 39,098,154 REIT Units and 9,933,253 Class B LP Units outstanding.

On April 28, 2022, the Dilawri Group exchanged 605,766 Class B LP Units into an equal number of REIT Units (the "Exchange"). As a result of the Exchange, there are 39,703,920 REIT Units and 9,327,487 Class B LP Units outstanding as of the date of this news release.

Outlook 

The current military conflict in Ukraine has resulted in a significant increase in the price of oil, which has led to higher vehicle fuel costs. This may have an adverse effect on consumer demand and the vehicle supply chain. Management will continue to monitor the situation.

The REIT is subject to risk associated with rising inflation, as well as interest rate risk. As a result of rising inflation due to various factors occurring globally, the Bank of Canada ("BoC") has already raised the overnight rate by 75 basis points so far in 2022, with further rate hikes expected over the remainder of the year. As at the date of this MD&A, the longer-term rates have increased, with the BoC 10-Year benchmark bond yield increasing by 1.2% since the beginning of 2022 to approximately 2.8%. The REIT will continue to monitor the impact of the rising rate environment and inflation on its property portfolio and the overall real estate industry.

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 continue to remain fully operational. 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. 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. 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 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 and will continue to prudently manage the REIT's available resources.

Financial Statements

The REIT's unaudited consolidated financial statements and related Management's Discussion & Analysis ("MD&A") for Q1 2022 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, May 13, 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: 556862 #. The replay will be available until May 20, 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 Q1 2022 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.sedar.com. 

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

Three months ended March 31,
($000s, except per Unit amounts)	2022	2021	Variance
Calculation of NOI
Property revenue	$20,434	$19,413	$1,021
Property costs	(2,891)	(2,656)	(235)
NOI (including straight‑line adjustments)	$17,543	$16,757	$786
Adjustments:
Land lease payments	(99)	(159)	60
Straight‑line adjustment	(503)	(518)	15
Cash NOI	16,941	16,080	861
Reconciliation of net income to FFO and AFFO
Net income and comprehensive income	$29,768	$26,329	$3,439
Adjustments:
Change in fair value — Interest rate swaps	(13,985)	(11,093)	(2,892)
Distributions on Class B LP Units	1,997	1,997	—
Change in fair value – Class B LP Units and Unit-based compensation	(3,923)	7,553	(11,476)
Change in fair value — investment properties	(1,704)	(13,050)	11,346
ROU asset net balance of depreciation/interest and lease payments	(204)	(75)	(129)
FFO	$11,949	$11,661	$298
Adjustments:
Straight‑line adjustment	$(503)	$(518)	$15
Capital expenditure reserve	(84)	(79)	(5)
AFFO	$11,362	$11,064	$302
Number of Units outstanding (including Class B LP Units)	49,031,407	48,999,407	14,000
Weighted average Units Outstanding — basic	49,013,807	48,101,885	911,922
Weighted average Units Outstanding — diluted	49,748,964	48,712,838	1,036,126
FFO per Unit — basic	$0.244	$0.242	$0.002
FFO per Unit — diluted	$0.240	$0.239	$0.001
AFFO per Unit — basic	$0.232	$0.230	$0.002
AFFO per Unit — diluted	$0.228	$0.227	$0.001
Distributions per Unit	$0.201	$0.201	—
FFO payout ratio	83.8%	84.1%	(0.3)%
AFFO payout ratio	88.2%	88.5%	(0.3)%

Same Property Cash Net Operating Income

Three months ended March 31,	2022	2021	Variance ($)
Same property base rental revenue	$15,883	$15,504	$379
Bad debt recovery	—	106	(106)
Land lease payments	(99)	(99)	—
Same Property Cash NOI	$15,784	$15,511	$273
Bad debt recovery	—	(106)	106
Same Property Cash NOI (excluding bad debt recovery)	$15,784	$15,405	$379

Reconciliation of Cash Flow from Operating Activities to ACFO

Three months ended March 31,
($000s)	2022	2021	Variance
Cash flow from operating activities	$15,824	$15,439	$385
Change in non-cash working capital	608	(723)	1,331
Interest paid	(3,726)	(3,558)	(168)
Amortization of financing fees	(170)	(115)	(55)
Amortization of other assets	(57)	(45)	(12)
Net interest expense and other financing charges in excess of interest paid	(219)	(215)	4)
Capital expenditure reserve	(84)	(79)	(5)
ACFO	$12,176	$10,704	$1,472
ACFO payout ratio	80.9%	90.3%	(9.4)%

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]