Automotive Properties REIT Reports Financial Results for Second Quarter of 2022

TORONTO, Aug. 15, 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 ("Q2 2022") and six-month ("YTD 2022") periods ended June 30, 2022.

"Our track record of solid financial performance continued in the second quarter, as we generated growth in all of our key performance measures," said Milton Lamb, CEO of Automotive Properties REIT. "With our low debt to GBV ratio and strong liquidity position, we are well positioned to pursue future acquisition opportunities." 

Q2 2022 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 Q2 2022, representing an AFFO payout ratio¹ of approximately 87.8%. For the comparable three-month period ended June 30, 2021 ("Q2 2021"), the REIT generated AFFO per Unit of $0.221 (diluted) and paid cash distributions of $0.201 per Unit, representing an AFFO payout ratio of approximately 91.0%. The AFFO payout ratio was lower in Q2 2022 primarily due to the properties acquired subsequent to Q2 2021 and contractual rent increases.
• The REIT's valuation of its investment properties remained consistent with the prior quarter resulting in a nominal fair value gain for Q2 2022. The capitalization rate applicable to the REIT's entire portfolio was 6.3% as at June 30, 2022, consistent with the rate as at December 31, 2021 and a nominal adjustment from 6.25% as at March 31, 2022.
• The REIT had a Debt to Gross Book Value ("Debt to GBV") ratio of 41.2% as at June 30, 2022, and a strong liquidity position with $74.2 million of undrawn credit facilities, $0.2 million of cash on hand, and 10 unencumbered properties with an aggregate value of approximately $122.3 million. As of the date of this news release, the REIT has approximately $75.1 million of undrawn credit facilities.
• 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 $223.7 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.

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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.

Financial Results Summary⁽¹⁾         

	Three months ended June 30,			Six months ended June 30,
($000s, except per Unit amounts)	2022	2021	Change	2022	2021	Change
Rental revenue ^(2)	$20,835	$19,562	6.5 %	$41,269	$38,975	5.9 %
NOI	17,684	16,860	4.9 %	35,227	33,617	4.8 %
Cash NOI	17,100	16,025	6.7 %	34,040	32,106	6.0 %
Same Property Cash NOI (excluding bad debt recovery) ^(2)	16,083	15,715	2.3 %	31,880	31,133	2.4 %
Net Income^(3)	31,174	17,858	74.6 %	60,880	44,187	37.8 %
FFO	11,998	11,750	2.1 %	23,947	23,412	2.3 %
AFFO	11,414	10,994	3.8 %	22,776	22,059	3.3 %
Distributions per Unit	$0.201	$0.201	-	$0.402	$0.402	-
FFO per Unit - basic ^(4)	0.245	0.240	0.005	0.488	0.482	0.006
FFO per Unit - diluted ^(5)	0.241	0.236	0.005	0.481	0.477	0.004
AFFO per Unit - basic ^(4)	0.233	0.224	0.009	0.465	0.454	0.011
AFFO per Unit - diluted ^(5)	0.229	0.221	0.008	0.458	0.449	0.009
Ratios (%)
FFO payout ratio	83.4 %	85.2 %	-1.8 %	83.6 %	84.3 %	-0.7 %
AFFO payout ratio	87.8 %	91.0 %	-3.2 %	87.8 %	89.5 %	-1.7 %
Debt to GBV	41.2 %	41.3 %	-0.1 %	41.2 %	41.3 %	-0.1 %

(1)	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 Q2 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 Q2 2022 includes changes in fair value adjustments of $11.2 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"), $9.8 million for interest rate swaps and $0.04 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 Q2 2022 was 49,031,407.
(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 for Q2 2022 was 49,799,512.

Rental revenue in Q2 2022 increased by 6.5% to $20.8 million, compared to $19.6 million in Q2 2021. The increase in rental revenue reflects growth from properties acquired subsequent to Q2 2021 and contractual annual rent increases.

The REIT generated total Cash NOI of $17.1 million in Q2 2022, representing an increase of 6.7% compared to Q2 2021. The increase was primarily attributable to the properties acquired subsequent to Q2 2021 and contractual rent increases. Same Property Cash NOI (excluding bad debt recovery) was $16.1 million in Q2 2022, representing an increase of 2.3% compared to Q2 2021. The increase was primarily attributable to contractual rent increases.

The REIT recorded net income of $31.2 million in Q2 2022, compared to net income of $17.9 million in Q2 2021. The increase was primarily due to higher NOI and non-cash fair value adjustments for interest rate swaps and 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 Q2 2022 of $11.2 million, compared to a decrease of $10.4 million in Q2 2021.

FFO in Q2 2022 was $12.0 million, or $0.241 per Unit (diluted), as compared to $11.8 million, or $0.236 per Unit (diluted), in Q2 2021. The increase was primarily due to the properties acquired subsequent to Q2 2021 and contractual rent increases.

AFFO in Q2 2022 was $11.4 million, or $0.229 per Unit (diluted), as compared to $11.0 million, or $0.221 per Unit (diluted), in Q2 2021. The increase reflects the impact of the properties acquired subsequent to Q2 2021 and contractual rent increases.

Adjusted Cash Flow from Operations ("ACFO")² for Q2 2022 increased by 8.3% to $13.1 million, compared to $12.1 million in Q2 2021. The increase was primarily due to the properties acquired subsequent to Q2 2021, contractual rent increases, and an absence of rent deferrals.

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^2	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 Q2 2022, the REIT declared and paid total distributions of $9.85 million, or $0.201 per Unit, representing an AFFO payout ratio of 87.8%. The AFFO payout ratio was lower in Q2 2022 compared to the 91.0% AFFO payout ratio in Q2 2021 primarily due to the impact of the properties acquired subsequent to Q2 2021 and contractual rent increases.

Liquidity and Capital Resources 

As at June 30, 2022, the REIT had a Debt to GBV ratio of 41.2% and a strong liquidity position with $74.2 million of undrawn credit facilities, $0.2 million of cash on hand, and 10 unencumbered properties with an aggregate value of approximately $122.3 million.

Units Outstanding

As at June 30, 2022, there were 39,703,920 REIT Units and 9,327,487 Class B LP Units outstanding.

Outlook 

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 225 basis points so far in 2022, with further rate hikes expected over the remainder of the year. As at the date of this news release, the longer-term rates have increased, with the BoC 10-Year benchmark bond yield increasing by 0.9% since the beginning of 2022 to approximately 2.7%. Management will continue to monitor the impact of the rising rate environment and inflation on its property portfolio and the overall real estate industry. The REIT's annual contractual rent increases across its portfolio partially insulate the REIT from rising inflation

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 continues to monitor the situation.

Management believes that the overall fundamentals of the automotive dealership business remain strong, and that the industry is resilient and essential and will continue to grow. However, future developments related to the pandemic, including new COVID-19 variants, could result in restrictions being re-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, management intends to pursue acquisitions on a strategic basis.

Financial Statements

The REIT's unaudited consolidated financial statements and related Management's Discussion & Analysis ("MD&A") for Q2 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 Tuesday, August 16, 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: 062503 #. The replay will be available until August 23, 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 Q2 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 June 30,			Six Months Ended June 30,
($000s, except per Unit amounts)	2022	2021	Variance	2022	2021	Variance
Calculation of NOI
Property revenue	$20,835	$19,562	$1,273	$41,269	$38,975	$2,294
Property costs	(3,151)	(2,702)	(449)	(6,042)	(5,358)	(684)
NOI (including straight–line adjustments)	$17,684	$16,860	$824	$35,227	$33,617	$1,610
Adjustments:
Land lease payments	(86)	(159)	73	(186)	(317)	131
Straight–line adjustment	(498)	(676)	178	(1,001)	(1,194)	193
Cash NOI	$17,100	$16,025	$1,075	$34,040	$32,106	$1,934
Reconciliation of net income to FFO and AFFO
Net income (loss) and comprehensive income (loss)	$31,174	$17,858	$13,316	$60,880	$44,187	$16,693
Adjustments:
Change in fair value — Interest rate swaps	(9,750)	392	(10,142)	(23,735)	(10,701)	(13,034)
Distributions on Class B LP Units	1,874	1,997	(123)	3,871	3,994	(123)
Change in fair value – Class B LP Units and Unit-based compensation	(11,230)	10,356	(21,586)	(15,153)	17,909	(33,062)
Change in fair value — investment properties	(44)	(18,778)	18,734	(1,686)	(31,828)	30,142
ROU asset net balance of depreciation/interest and lease payments^(1)	(26)	(75)	49	(230)	(149)	(81)
FFO	$11,998	$11,750	$248	$23,947	$23,412	$535
Adjustments:
Straight–line adjustment	(498)	(676)	178	(1,001)	(1,194)	193
Capital expenditure reserve	(86)	(80)	(6)	(170)	(159)	(11)
AFFO	$11,414	$10,994	$420	$22,776	$22,059	$717
Number of Units outstanding (including Class B LP Units)	49,031,407	49,013,407	18,000	49,031,407	49,013,407	18,000
Weighted average Units Outstanding — basic	49,031,407	49,005,099	26,308	49,022,656	48,555,987	466,669
Weighted average Units Outstanding — diluted	49,799,512	49,685,935	113,577	49,752,897	49,079,104	673,793
FFO per Unit – basic^(2)	$0.245	$0.240	$0.005	$0.488	$0.482	$0.006
FFO per Unit – diluted^(3)	$0.241	$0.236	$0.005	$0.481	$0.477	$0.004
AFFO per Unit – basic^(2)	$0.233	$0.224	$0.009	$0.465	$0.454	$0.011
AFFO per Unit – diluted^(3)	$0.229	$0.221	$0.008	$0.458	$0.449	$0.009
Distributions per Unit	$0.201	$0.201	­-	$0.402	$0.402	-
FFO payout ratio	83.4 %	85.2 %	(1.8) %	83.6 %	84.3 %	(0.7) %
AFFO payout ratio	87.8 %	91.0 %	(3.2) %	87.8 %	89.5 %	(1.7) %

Same Property Cash Net Operating Income

	Three Months Ended June 30,			Six Months Ended June 30,
	2022	2021	Variance	2022	2021	Variance
Same property base rental revenue	$16,169	$15,801	$368	$32,053	$31,305	$748
Bad debt reversal (expense)	-	106	(106)	-	106	(106)
Land lease payments	(86)	(86)	-	(173)	(173)	-
Same Property Cash NOI	$16,083	$15,821	$262	$31,880	$31,238	$642
Bad debt recovery	-	(106)	106	-	(106)	106
Same Property Cash NOI (excluding bad debt recovery)	$16,083	$15,715	$368	$31,880	$31,132	$748

Reconciliation of Cash Flow from Operating Activities to ACFO

	Three Months Ended June 30,			Six Months Ended June 30,
($000s)	2022	2021	Variance	2022	2021	Variance
Cash flow from operating activities	$15,854	$15,406	$448	$31,768	$30,845	$833
Change in non-cash working capital	1,446	691	755	2,593	(960)	3,553
Interest paid	(4,336)	(3,775)	(561)	(8,062)	(7,333)	(729)
Amortization of financing fees	(207)	(119)	(88)	(377)	(234)	(143)
Amortization of indemnification fees	(215)	(45)	(170)	(271)	(90)	(181)
Net interest expense and other financing charges in excess of interest paid	86	37	49	(135)	(178)	43
Capital expenditure reserve	(86)	(79)	(7)	(170)	(159)	(11)
ACFO	$12,542	$12,116	$426	$25,256	$21,891	$3,365
ACFO payout ratio	78.6 %	81.3 %	(2.7) %	78.0 %	89.2 %	(11.2) %

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]