APR.UN Automotive Properties Real Estate Investment Trust

TORONTO, March 16, 2023 /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 2022") and year ended December 31, 2022 ("2022").

"We continued to generate growth in our key performance metrics in 2022, driven by our acquisition program and contractual rent increases. We have also advanced our debt strategy by increasing the proportion of our debt at fixed rates to enhance our financial flexibility," said Milton Lamb, CEO of Automotive Properties REIT. "Our recent purchases of six Quebec properties further diversified our tenant base and increased  the proportion of our lease portfolio with contractual rent increases tied to CPI adjustments, which will contribute to NOI growth. Our leases containing CPI-related adjustments now represent approximately 26% of our full-year base rent in 2023, which will help offset the impact of higher interest rates in the future."

Q4 2022 Highlights

• The REIT generated AFFO per Unit¹ of $0.213 (diluted) and paid total cash distributions of $0.201 per Unit (as defined below) in Q4 2022, representing an AFFO payout ratio¹ of approximately 94.4%. For the comparable three-month period ended December 31, 2021 ("Q4 2021"), the REIT generated AFFO per Unit of $0.220 (diluted) and paid cash distributions of $0.201 per Unit, representing an AFFO payout ratio of approximately 91.4%. The AFFO payout ratio was higher in Q4 2022 primarily due to an increase in interest expense and short and long-term performance awards, and the vesting of long-term Unit-based compensation, partially offset by the positive impact of the properties acquired subsequent to Q4 2021 and contractual rent increases.
• The REIT had a Debt to Gross Book Value ("Debt to GBV")² ratio of 40.0% as at December 31, 2022, and $79.1 million of undrawn capacity under its revolving and non-revolving credit facilities, $0.4 million of cash on hand, and 10 unencumbered properties with an aggregate value of approximately $120.0 million. As of the date of this news release, the REIT has approximately $60.0 million of undrawn capacity under its revolving and non-revolving credit facilities, four unencumbered properties with an aggregate value of approximately $61.5 million and a Proforma Debt to GBV² ratio of 44.9%.
• The REIT's valuation of its investment properties increased nominally in Q4 2022 compared to the prior quarter to reflect current market conditions, resulting in a fair value gain of $1.8 million. The capitalization rate applicable to the REIT's entire portfolio increased to 6.42% as at December 31, 2022, compared to 6.37% as at September 30, 2022 and 6.30% as at December 31, 2021.
• On November 28, 2022, the REIT sold the real estate underlying the Kingston Toyota and Lexus automotive dealerships at a capitalization rate of 6.1%, resulting in a sale price of approximately $18.0 million and a gain of approximately $1.7 million over the properties' fair value as at June 30, 2022 determined in accordance with IFRS (as defined below).

Subsequent Event

• 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. The leases have a weighted average term of approximately 16 years.

Financial Results Summary

Rental revenue was $20.9 million in Q4 2022 and $82.9 million in 2022, representing increases of 5.7% and 5.9%, respectively, from Q4 2021 and the year ended December 31, 2021 ("2021"). Increased rental revenue in Q4 2022 and 2022 reflects growth from properties acquired subsequent to Q4 2021 and during and subsequent to 2021, respectively, and contractual annual rent increases.

The REIT generated total Cash NOI of $17.3 million in Q4 2022 and $68.5 million in 2022, representing increases of 7.0% and 6.7%, respectively, from Q4 2021 and 2021. The increases were primarily attributable to the properties acquired subsequent to Q4 2021 and during and subsequent to 2021, respectively, as well as contractual rent increases. Same Property Cash NOI was $16.1 million in Q4 2022 and $64.2 million in 2022, representing increases of 2.2% and 2.3%, respectively, from Q4 2021 and 2021 (excluding a bad debt recovery in 2021). The increases were primarily attributable to contractual rent increases.

The REIT recorded net income of $13.6 million in Q4 2022, compared to $10.4 million in Q4 2021. Net income was $83.4 million in 2022, compared to $85.4 million in 2021. The variances were primarily due to non-cash fair value adjustments for interest rate swaps, investment properties, and Class B LP Units and 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 2022 of $2.8 million (2022 – increase of $20.2 million), compared to a decrease of $23.5 million in Q4 2021 (2021 – decrease of $44.6 million).

FFO was $11.0 million, or $0.221 per unit (diluted), in Q4 2022 and $46.7 million, or $0.939 per unit (diluted), in 2022. That compares to FFO of $11.5 million, or $0.231 per unit (diluted), in Q4 2021 and $46.5 million, or $0.941 per unit (diluted), in 2021. The decreases in FFO and FFO per unit in Q4 2022 were primarily due to increases in short-term and long-term performance awards, interest expense and the vesting of long-term Unit-based compensation, partially offset by the impact of the properties acquired subsequent to Q4 2021 and contractual rent increases. The increase in FFO in 2022 reflects the impact of the properties acquired during and subsequent to 2021, and contractual rent increases. The decrease in FFO per unit in 2022 was primarily due to increases in short-term and long-term performance awards, interest expense and the vesting of long-term Unit-based compensation, partially offset by the impact of the properties acquired during and subsequent to 2021 and contractual rent increases.

AFFO was $10.6 million, or $0.213 per unit (diluted), in Q4 2022 and $44.7 million, or $0.898 per unit (diluted), in 2022. That compares to AFFO of $10.9 million, or $0.220 per unit (diluted), in Q4 2021 and $44.0 million, or $0.890 per unit (diluted), in 2021. The decreases in AFFO and AFFO per unit in Q4 2022 were primarily due to increases in short-term and long-term performance awards, interest expense and the vesting of long-term Unit-based compensation, partially offset by the impact of the properties acquired subsequent to Q4 2021 and contractual rent increases. The increases in AFFO and AFFO per unit in 2022 reflect the impact of the properties acquired during and subsequent to 2021 and contractual rent increases.

Adjusted Cash Flow from Operations ("ACFO")³ for 2022 was $46.3 million, compared to $48.4 million in 2021. The decrease was primarily attributable to higher interest costs due to additional debt incurred by the REIT to acquire properties subsequent to 2021, and higher interest rates.

The REIT is currently paying monthly cash distributions of $0.067 per Unit, representing $0.804 per Unit on an annualized basis. For Q4 2022, the REIT declared and paid total distributions of $9.86 million, or $0.201 per Unit, representing an AFFO payout ratio of 94.4%. The AFFO payout ratio was higher in Q4 2022 compared to the 91.4% AFFO payout ratio in Q4 2021 primarily as a result of the increase in interest expense and short and long-term performance awards, and the vesting of long-term Unit-based compensation, partially offset by the impact of the properties acquired subsequent to Q4 2021 and contractual rent increases. For 2022, the REIT declared and paid total distributions of $39.4 million, or $0.804 per Unit, representing an AFFO payout ratio of 89.5%. The AFFO payout ratio was lower in 2022 compared to the 90.3% AFFO payout ratio in 2021 primarily due to the impact of the properties acquired during and subsequent to 2021 and contractual rent increases.

As at December 31, 2022, the REIT had a Debt to GBV ratio of 40.0% and $79.1 million of undrawn capacity under its revolving and non-revolving credit facilities, $0.4 million of cash on hand, and 10 unencumbered properties with an aggregate value of approximately $120.0 million. As of the date of this news release, the REIT has approximately $60.0 million of undrawn capacity under its revolving and non-revolving credit facilities, four unencumbered properties with an aggregate value of approximately $61.5 million, and a Proforma Debt to GBV ratio of 44.9% (see "Non-IFRS Financial Measures" at the end of this news release).

As at December 31, 2022, there were 39,727,346 REIT Units and 9,327,487 Class B LP Units outstanding.

The REIT is subject to risks associated with rising inflation, interest rates and availability of capital. As a result of rising inflation and various factors occurring globally, as of the date of this news release, the Bank of Canada ("BoC") has raised the overnight rate by 425 basis points since the beginning of 2022. As at the date of this news release, the longer-term rates have increased, with the BoC 10-Year benchmark bond yield increasing by approximately 1.2% since the beginning of 2022 to approximately 2.8%. Management will continue to monitor the impact of interest rates and inflation on its property portfolio and the overall real estate industry. Higher interest rates and inflation may also have an adverse effect on consumer demand. The REIT's annual contractual rent increases across its portfolio partially insulate it from rising inflation.

The REIT will continue to monitor and strategically move floating and short-term debt into fixed rate and/or long-term debt to minimize any future interest rate increase impact. 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 has 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.

The REIT's audited consolidated financial statements and related Management's Discussion & Analysis ("MD&A") for the year ended December 31, 2022 are available on the REIT's website at www.automotivepropertiesreit.ca and on SEDAR at www.sedar.com.

Management of the REIT will host a conference call for analysts and investors on Friday, March 17, 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://bit.ly/40BC75i to receive an instant automated call back. Alternatively, you can dial (416) 764-8688 or (888) 390-0546 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 (416) 764-8677 or (888) 390-0541, passcode: 836929 #. The replay will be available until March 24, 2023.

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.

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, the military conflict in Ukraine and the COVID-19 pandemic, including the impact of each of the foregoing 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, 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.

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. Proforma Debt to GBV, a supplementary financial measure, is the ratio of the REIT's indebtedness to the gross book value of its assets as at December 31, 2022, adjusted to give effect to the REIT's acquisition of the Quebec Properties. 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 MD&A for the year ended December 31, 2022 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

Same Property Cash Net Operating Income

Reconciliation of Cash Flow from Operating Activities to ACFO

SOURCE Automotive Properties Real Estate Investment Trust