Automotive Properties REIT Reports Financial Results for Second Quarter of 2023

TORONTO, Aug. 14, 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 ("Q2 2023") and six-month ("YTD 2023") periods ended June 30, 2023.

"We generated further organic growth in the second quarter, while continuing to execute on our acquisition program," said Milton Lamb, CEO of Automotive Properties REIT. "In addition to driving growth in revenue and NOI through our prior acquisitions and our contractual rent increases, we partnered with StorageVault Canada to complete a joint purchase in the greater Montreal area. Looking forward, with our growing portion of leases with CPI-linked adjustments and overall essential retail portfolio, we remain well positioned to continue to generate stable financial performance and pursue external growth opportunities."

Q2 2023 Highlights                               

• The REIT generated AFFO per Unit¹ of $0.230 (diluted) and paid total cash distributions of $0.201 per Unit (as defined below) in Q2 2023, representing an AFFO payout ratio¹ of approximately 87.4%. For the comparable three-month period ended June 30, 2022 ("Q2 2022"), the REIT generated AFFO per Unit of $0.229 (diluted) and paid cash distributions of $0.201 per Unit, representing an AFFO payout ratio of approximately 87.8%.
• The REIT had a Debt to Gross Book Value ("Debt to GBV")² ratio of 45.1% as at June 30, 2023, and $62.4 million of undrawn capacity under its revolving credit facilities, $0.5 million of cash on hand, and five unencumbered properties with an aggregate value of approximately $69.7 million. As of the date of this news release, the REIT has approximately $67.7 million of undrawn capacity under its revolving credit facilities and five unencumbered properties with an aggregate value of approximately $69.7 million.
• The REIT's valuation of its investment properties increased nominally in Q2 2023 compared to the prior quarter to reflect current market conditions, resulting in a fair value gain of $0.4 million. The capitalization rate applicable to the REIT's entire portfolio increased to 6.52% as at June 30, 2023, compared to 6.42% as at December 31, 2022, and 6.30% as at June 30, 2022.
• 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 June 2, 2023, the REIT entered into a 50/50 joint arrangement (the "Joint Arrangement") with StorageVault Canada Inc. ("StorageVault") to acquire the real estate underlying the Volvo and Jaguar Land Rover automotive dealership located in Brossard, Quebec (the "Taschereau Volvo and JLR Property"), from a third-party vendor. Under the terms of the Joint Arrangement, the REIT and StorageVault each funded 50% of the $16.1 million purchase price. The Taschereau Volvo and JLR Property is a full-service automotive dealership, totaling 50,415 square feet of GLA situated on approximately 3.4 acres of land and is currently under triple-net leases with Groupe Park Avenue Volvo and Jaguar Land Rover, which are subject to annual adjustments linked to the consumer price index in Quebec. The REIT funded its portion of the acquisition by drawing on its revolving credit facilities and cash on hand.

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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.

Financial Results Summary      

	Three months ended  June 30,			Six months ended  June 30,
($000s, except per Unit amounts)	2023	2022	Change	2023	2022	Change
Rental revenue ^(1)	$22,939	$20,835	10.1 %	$45,815	$41,269	11.0 %
NOI ^(2)	19,544	17,684	10.5 %	39,001	35,227	10.7 %
Cash NOI ^(2)	18,933	17,100	10.7 %	37,814	34,040	11.1 %
Same Property Cash NOI ^(1) (2)	17,005	16,607	2.4 %	33,140	32,367	2.4 %
Net Income^(3)	20,891	31,174	-33.0 %	37,858	60,880	-37.8 %
FFO ^(2)	12,075	11,999	0.6 %	24,104	23,947	0.7 %
AFFO ^(2)	11,490	11,415	0.7 %	22,899	22,776	0.5 %
Distributions per Unit	$0.201	$0.201	-	$0.402	$0.402	-
FFO per Unit - basic ^(2) (4)	0.246	0.245	0.001	0.491	0.488	0.003
FFO per Unit - diluted ^(2)^(5)	0.241	0.241	-	0.482	0.481	0.001
AFFO per Unit - basic ^(2) (4)	0.234	0.233	0.001	0.467	0.465	0.002
AFFO per Unit - diluted ^(2)^(5)	0.230	0.229	0.001	0.458	0.458	-
Ratios (%)
FFO payout ratio ^(2)	83.4 %	83.4 %	-	83.6 %	83.6 %	-
AFFO payout ratio ^(2)	87.4 %	87.8 %	-0.4 %	87.8 %	87.8 %	-
Debt to GBV ^(6)	45.1 %	41.2 %	3.9 %	45.1 %	41.2 %	3.9 %

(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, 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 2022, thus removing the impact of acquisitions.
(3)	Net income for Q2 2023 includes changes in fair value adjustments of $0.6 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"), $9.7 million for interest rate swaps and $0.4 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 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 Q2 2023 was 50,024,870.
(6)	Debt to GBV is a supplementary financial measure. See "Non-IFRS Financial Measures" at the end of this news release.

Rental revenue in Q2 2023 increased by 10.1% to $22.9 million, compared to $20.8 million in Q2 2022. The increase in rental revenue reflects growth from properties acquired subsequent to Q2 2022 and contractual annual rent increases.

The REIT generated total Cash NOI of $18.9 million in Q2 2023, representing an increase of 10.7% compared to Q2 2022. The increase was primarily attributable to the properties acquired subsequent to Q2 2022 and contractual rent increases. Same Property Cash NOI was $17.0 million in Q2 2023, representing an increase of 2.4% compared to Q2 2022. The increase was primarily attributable to contractual rent increases.

The REIT recorded net income of $20.9 million in Q2 2023, compared to $31.2 million in Q2 2022. The decrease was primarily due to changes in non-cash fair value adjustments for Class B LP Units and DUs, IDUs, PDUs and RDUs (collectively "Unit-based compensation"), partially offset by higher NOI. 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 2023 of $0.6 million, compared to an increase of $11.2 million in Q2 2022.

FFO in Q2 2023 increased 0.6% to $12.1 million, or $0.241 per unit (diluted), compared to $12.0 million, or $0.241 per unit (diluted) in Q2 2022. The increase in FFO was primarily attributable to the properties acquired subsequent to Q2 2022, and contractual rent increases.

AFFO in Q2 2023 increased 0.7% to $11.5 million, or $0.230 per unit (diluted), compared to $11.4 million, or $0.229 per unit (diluted), in Q2 2022. The increase in AFFO reflects the impact of the properties acquired subsequent to Q2 2022, and contractual rent increases.

Adjusted Cash Flow from Operations ("ACFO")³ for Q2 2023 increased 1.1% to $12.7 million, compared to $12.5 million in Q2 2022. The increase was primarily attributable to the properties acquired subsequent to Q2 2022 and contractual rent increases, partially offset by higher interest costs.

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 2023, the REIT declared and paid total distributions of $9.86 million, or $0.201 per Unit, representing an AFFO payout ratio of 87.4%. The AFFO payout ratio was lower in Q2 2023 compared to the 87.8% AFFO payout ratio in Q2 2022 primarily due to the impact of the properties acquired subsequent to Q2 2022, and contractual rent increases.

Liquidity and Capital Resources 

As at June 30, 2023, the REIT had a Debt to GBV ratio of 45.1%, $62.4 million of undrawn capacity under its revolving credit facilities, $0.5 million of cash on hand, and five unencumbered properties with an aggregate value of approximately $69.7 million. As of the date of this news release, the REIT has approximately $67.7 million of undrawn capacity under its revolving credit facilities and five unencumbered properties with an aggregate value of approximately $69.7 million.

As at June 30, 2023, 91% 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 5.3 years, and a weighted average term to maturity of debt of 3.3 years.

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

Units Outstanding

As at June 30, 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.

Vehicle supply continues to be constrained for specific 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 Q2 2023 are available on the REIT's website at www.automotivepropertiesreit.ca and on SEDAR+ at www.sedarplus.ca.

Conference Call

Management of the REIT will host a conference call for analysts and investors on Tuesday, August 15, 2023 at 9:00 a.m. (ET). To join the conference call without operator assistance, participants can register and enter their phone number at https://emportal.ink/46Np1Fr to receive an instant automated call back. Alternatively, they can dial [phone] or [phone] to reach a live operator who will join them 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: 369302 #. The replay will be available until August 22, 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 77 income-producing commercial properties, representing approximately 2.9 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.sedarplus.ca) 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 Q2 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.sedarplus.ca. 

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)	2023	2022	Variance		2023		2022	Variance
Calculation of NOI
Property revenue	$22,939	$20,835	$2,104		45,815		$41,269	$4,546
Property costs	(3,395)	(3,151)	(244)		(6,814)		(6,042)	(772)
NOI (including straight‑line adjustments)	$19,544	$17,684	$1,860		39,001		$35,227	$3,774
Adjustments:
Land lease payments	(86)	(86)	(0)		(172)		(186)	(14)
Straight‑line adjustment	(525)	(498)	(27)		(1,015)		(1,001)	(14)
Cash NOI	$18,933	$17,100	$1,833		37,814		$34,040	$3,774
Reconciliation of net income to FFO and AFFO
Net income  and comprehensive income	$20,891	$31,174	($10,283)		37,858		$60,880	($23,022)
Adjustments:
Change in fair value — Interest rate swaps	(9,660)	(9,750)	90		(4,898)		(23,735)	18,837
Distributions on Class B LP Units	1,875	1,875	-		3,750		3,871	(121)
Change in fair value – Class B LP Units and Unit-based compensation	(595)	(11,230)	10,635		(15,087)		(15,153)	66
Change in fair value — investment properties	(391)	(44)	(347)		2,566		(1,686)	4,252
ROU asset net balance of depreciation/interest and lease payments^(1)	(45)	(26)	(19)		(85)		(230)	145
FFO	$12,075	$11,999	$76		$24,104		$23,947	$157
Adjustments:
Straight‑line adjustment	(490)	(498)	8		(1,015)		(1,001)	(14)
Capital expenditure reserve	(95)	(86)	(9)		(190)		(170)	(20)
AFFO	$11,490	$11,415	$75		$22,899		$22,776	$123
Number of Units outstanding (including Class B LP Units)	49,054,833	49,031,407	23,426		49,054,833		49,031,407	23,426
Weighted average Units Outstanding — basic	49,054,833	49,031,407	23,426		49,054,833		49,022,656	32,177
Weighted average Units Outstanding — diluted	50,024,870	49,799,512	225,358		49,826,177		49,752,897	73,280
FFO per Unit – basic^(2)	$0.246	$0.245	$0.001		$0.491		$0.488	$0.003
FFO per Unit – diluted^(3)	$0.241	$0.241	-		$0.482		$0.481	$0.001
AFFO per Unit – basic^(2)	$0.234	$0.233	$0.001		$0.467		$0.465	$0.002
AFFO per Unit – diluted^(3)	$0.230	$0.229	$0.001		$0.458		$0.458	-
Distributions per Unit	$0.201	$0.201	­-		$0.402		$0.402	-
FFO payout ratio	83.4 %	83.4 %	0.4 %		83.6 %		83.6 %	0.0 %
AFFO payout ratio	87.4 %	87.8 %	(0.4 %)		87.8 %		87.8 %	0.0 %

Same Property Cash Net Operating Income

	Three Months Ended June 30,				Six Months Ended  June 30,
($000s)	2023	2022	Variance		2023		2022	Variance
Same property base rental revenue	$17,091	$16,693	$398		$33,313		$32,540	$773
Land lease payments	(86)	(86)	—		(173)		(173)	—
Same Property Cash NOI	$17,005	$16,607	$398		$33,140		$32,367	$773

Reconciliation of Cash Flow from Operating Activities to ACFO

	Three Months Ended June 30,			Six Months Ended June 30,
($000s)	2023	2022	Variance	2023	2022	Variance
Cash flow from operating activities	$16,405	$15,854	$551	$33,503	$31,678	$1,825
Change in non-cash working capital	2,416	1,446	970	2,493	2,054	1,439
Interest paid	(5,731)	(4,336)	(1,395)	(11,467)	(8,061)	(3,405)
Amortization of financing fees	(245)	(207)	(37)	(483)	(377)	(106)
Amortization of indemnification fees	(54)	(215)	161	(100)	(272)	172
Net interest expense and other financing charges in excess of interest paid	(10)	86	(96)	(6)	(133)	127
Capital expenditure reserve	(95)	(86)	(9)	(190)	(170)	(20)
ACFO	$12,686	$12,542	$144	$24,750	$24,718	$32
ACFO payout ratio	77.7 %	78.6 %	(0.9) %	79.6 %	79.7 %	(0.01) %

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]