Automotive Properties REIT Reports Financial Results for First Quarter of 2023

TORONTO, May 11, 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 period ended March 31, 2023 ("Q1 2023").

"Our positive momentum continued in the first quarter as acquisitions and contractual rent increases drove year-over-year growth in revenue, Cash NOI, and AFFO per unit," said Milton Lamb, CEO of Automotive Properties REIT. "We've made strong progress with our acquisition program to date this year with the purchase of six properties in Quebec during the first quarter, and our agreement announced today to purchase the Groupe Park Avenue Volvo and Jaguar Land Rover dealership property in Greater Montreal. Looking ahead, we are well positioned to generate continued solid performance with our expanded property portfolio and embedded fixed and CPI-adjusted rental growth. We are also well insulated from potential interest rate increases due to the measures we have taken to secure 94% of our debt at fixed rates at quarter end."

Q1 2023 Highlights                               

• The REIT generated AFFO per Unit¹ of $0.229 (diluted) and paid total cash distributions of $0.201 per Unit (as defined below) in Q1 2023, representing an AFFO payout ratio¹ of approximately 87.8%. For the comparable three-month period ended March 31, 2022 ("Q1 2022"), the REIT generated AFFO per Unit of $0.228 (diluted) and paid cash distributions of $0.201 per Unit, representing an AFFO payout ratio of approximately 88.2%. The AFFO payout ratio was lower in Q1 2023 primarily due to the impact of the properties acquired during and subsequent to Q1 2022 and contractual rent increases.
• The REIT had a Debt to Gross Book Value ("Debt to GBV")² ratio of 45.2% as at March 31, 2023, and $52.4 million of undrawn capacity under its revolving credit facilities, $0.1 million of cash on hand, and four unencumbered properties with an aggregate value of approximately $61.5 million. As of the date of this news release, the REIT has approximately $82.0 million of undrawn capacity under its revolving credit facilities and four unencumbered properties with an aggregate value of approximately $61.5 million.
• The REIT's valuation of its investment properties declined nominally in Q1 2023 compared to the prior quarter to reflect current market conditions, resulting in a fair value loss of $3.0 million. The capitalization rate applicable to the REIT's entire portfolio increased to 6.48% as at March 31, 2023, compared to 6.42% as at December 31, 2022, and 6.25% as at March 31, 2022.
• On January 3, 2023, the REIT acquired the real estate underlying six automotive dealership properties in Quebec (the "Quebec Properties") from separate third parties for an aggregate purchase price of approximately $98.5 million. Four of the Quebec Properties are located in Laval and St. Eustache in the Greater Montreal Area (Hamel Honda, Honda Ste-Rose, Chomedey Toyota and Mazda de Laval) and two of the Quebec Properties are located in Sorel-Tracy, northeast of Montreal (Hyundai Sorel and Kia Sorel). On closing of the REIT's acquisition of the Quebec Properties, the operating tenants entered into long-term, triple-net leases with the REIT that include a contractual annual rent increase based on the Quebec Consumer Price Index, subject to a minimum of 1.5%, after year one of the lease term.
• In February 2023, the REIT entered into a new mortgage in the amount of $9.0 million for a term of five years at an interest rate of 5.05%.

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

² Debt to GBV is a supplementary financial measure. See "Non-IFRS Financial Measures" at the end of this news release.

Subsequent Events

• 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 May 3, 2023, the REIT waived conditions for the purchase of the real estate underlying an automotive dealership property located in Brossard, Quebec (the "Brossard Property") from a third-party vendor. The Brossard Property is under lease with Groupe Park Avenue Volvo and Jaguar Land Rover. Such lease is subject to annual adjustments linked to the consumer price index ("CPI") in Quebec. The REIT expects that the total expenditure, including the purchase price, will be approximately $16.1 million. The property comprises 50,415 square feet of gross leasable area on approximately 3.4 acres of land. The REIT expects to fund the acquisition of the Brossard Property through draws on its non-revolving and revolving credit facilities, and cash on hand. The acquisition of the Brossard Property is expected to close by the end of June 2023.

Financial Results Summary

	Three months ended              March 31,
($000s, except per Unit amounts)	2023	2022	Change
Rental revenue ^(1)	$22,876	$20,434	12.0 %
NOI^(2)	19,457	17,543	10.9 %
Cash NOI^(2)	18,846	16,941	11.2 %
Same Property Cash NOI^(2)	16,136	15,761	2.4 %
Net Income^(3)	16,967	29,706	-42.9 %
FFO^(2)	12,029	11,949	0.7 %
AFFO^(2)	11,409	11,362	0.4 %
Distributions per Unit	$0.201	$0.201	-
FFO per Unit - basic ^(4)	0.245	0.244	0.001
FFO per Unit - diluted ^(5)	0.241	0.240	0.001
AFFO per Unit - basic ^(4)	0.233	0.232	0.001
AFFO per Unit - diluted ^(5)	0.229	0.228	0.001
Ratios (%)
FFO payout ratio^(2)	83.4 %	83.8 %	-0.4 %
AFFO payout ratio^(2)	87.8 %	88.2 %	-0.4 %

(1)	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.
(2)	NOI, Cash NOI, Same Property Cash NOI (excluding bad debt (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 2022, thus removing the impact of acquisitions.
(3)	Net income for Q1 2023 includes changes in fair value adjustments of $14.5 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"), $4.8 million for interest rate swaps and $3.0 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 2023 was 49,054,833.
(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 2023 was 49,889,062.
(6)	Debt to GBV is a supplementary financial measure. See "Non-IFRS Financial Measures" at the end of this news release.

Rental revenue in Q1 2023 increased by 12.0% to $22.9 million, compared to $20.4 million in Q1 2022. The increase in rental revenue reflects growth from properties acquired during and subsequent to Q1 2022 and contractual annual rent increases.

The REIT generated total Cash NOI of $18.8 million in Q1 2023, representing an increase of 11.2% compared to Q1 2022. The increase was primarily attributable to the properties acquired during and subsequent to Q1 2022 and contractual rent increases. Same Property Cash NOI was $16.1 million in Q1 2023, representing an increase of 2.4% compared to Q1 2022. The increase was primarily attributable to contractual rent increases.

The REIT recorded net income of $17.0 million in Q1 2023, compared to $29.7 million in Q1 2022. The decrease was primarily due to non-cash fair value adjustments for interest rate swaps and investment properties, partially offset by higher NOI and fair value adjustments for 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 2023 of $14.5 million, compared to an increase of $3.9 million in Q1 2022.

FFO in Q1 2023 increased 0.7% to $12.0 million, or $0.241 per unit (diluted), compared to $11.9 million, or $0.240 per unit (diluted) in Q1 2022. The increase was primarily attributable to the properties acquired during and subsequent to Q1 2022, and contractual rent increases.

AFFO in Q1 2023 increased 0.4% to $11.4 million, or $0.229 per unit (diluted), compared to $11.4 million, or $0.228 per unit (diluted), in Q1 2022. The increase reflects the impact of the properties acquired during and subsequent to Q1 2022, and contractual rent increases.

Adjusted Cash Flow from Operations ("ACFO")³ for Q1 2023 was $12.1 million, compared to $12.2 million in Q1 2022. The nominal decrease was primarily attributable to higher interest costs due to additional debt incurred by the REIT to acquire properties during and subsequent to Q1 2022, and higher interest rates.

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³ ACFO is a non-IFRS measure. See "Non-IFRS Financial Measures" at the end of this news release.

 

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 2023, the REIT declared and paid total distributions of $9.86 million, or $0.201 per Unit, representing an AFFO payout ratio of 87.8%. The AFFO payout ratio was lower in Q1 2023 compared to the 88.2% AFFO payout ratio in Q1 2022 primarily due to the impact of the properties acquired during and subsequent to Q1 2022, and contractual rent increases.

Liquidity and Capital Resources 

As at March 31, 2023, the REIT had a Debt to GBV ratio of 45.2%, $52.4 million of undrawn capacity under its revolving credit facilities, $0.1 million of cash on hand, and four unencumbered properties with an aggregate value of approximately $61.5 million. As of the date of this news release, the REIT has approximately $82.0 million of undrawn capacity under its revolving credit facilities and four unencumbered properties with an aggregate value of approximately $61.5 million.

As at March 31, 2023, 94% 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 5.5 years, and a weighted average term to maturity of debt of 3.6 years.

Units Outstanding

As at March 31, 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.

The COVID-19 pandemic and other factors have 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.

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 Q1 2023 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 12, 2023 at 9:00 a.m. (ET). To join the conference call without operator assistance, you may register and enter your phone number at https://emportal.ink/3UaEoBM to receive an instant automated call back. Alternatively, you can dial [phone] or [phone] to reach a live operator who will join you 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 [phone] or [phone], passcode: 681401 #. The replay will be available until May 19, 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 76 income-producing commercial properties, representing approximately 2.8 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.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, 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 Q1 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.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)	2023	2022	Variance
Calculation of NOI
Property revenue	$22,876	$20,434	$2,442
Property costs	(3,419)	(2,891)	(528)
NOI (including straight–line adjustments)	$19,457	$17,543	$1,914
Adjustments:
Land lease payments	(86)	(99)	13
Straight–line adjustment	(525)	(503)	(22)
Cash NOI	18,846	16,941	1,905
Reconciliation of net income to FFO and AFFO
Net income and comprehensive income	$16,967	$29,706	$(12,739)
Adjustments:
Change in fair value – Interest rate swaps	4,762	(13,985)	18,747
Distributions on Class B LP Units	1,875	1,997	(122)
Change in fair value – Class B LP Units and Unit-based compensation	(14,492)	(3,923)	(10,569)
Change in fair value – investment properties	2,957	(1,642)	4,599
ROU asset net balance of depreciation/interest and lease payments^(1)	(40)	(204)	164
FFO	$12,029	$11,949	$80
Adjustments:
Straight–line adjustment	$(525)	$(503)	$(22)
Capital expenditure reserve	(95)	(84)	(11)
AFFO	$11,409	$11,362	$47
Number of Units outstanding (including Class B LP Units)	49,054,833	49,031,407	23,426
Weighted average Units Outstanding — basic	49,054,833	49,013,807	41,026
Weighted average Units Outstanding — diluted	49,889,062	49,748,964	140,098
FFO per Unit – basic^(2)	$0.245	$0.244	$0.001
FFO per Unit – diluted^(3)	$0.241	$0.240	$0.001
AFFO per Unit – basic^(2)	$0.233	$0.232	$0.001
AFFO per Unit – diluted^(3)	$0.229	$0.228	$0.001
Distributions per Unit	$0.201	$0.201	—
FFO payout ratio	83.4 %	83.8 %	—
AFFO payout ratio	87.8 %	88.2 %	—

Same Property Cash Net Operating Income

Three months ended March 31,	2023	2022	Variance ($)
Same property base rental revenue	$16,222	$15,847	$375
Land lease payments	(86)	(86)	—
Same Property Cash NOI	$16,136	$15,761	$375

Reconciliation of Cash Flow from Operating Activities to ACFO

Three months ended March 31,
($000s)	2023	2022	Variance
Cash flow from operating activities	$17,099	$15,824	$1,275
Change in non-cash working capital	1,080	608	472
Interest paid	(5,736)	(3,726)	(2,010)
Amortization of financing fees	(238)	(170)	(68)
Amortization of other assets	(46)	(57)	11
Net interest expense and other financing charges in excess of interest paid	4	(219)	223
Capital expenditure reserve	(86)	(84)	(2)
ACFO	$12,077	$12,176	$(99)
ACFO payout ratio	81.6 %	80.9 %	0.7 %

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]