Automotive Properties REIT Reports Financial Results for Second Quarter of 2024

TORONTO, Aug. 14, 2024 /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 2024") and six-month ("YTD 2024") periods ended June 30, 2024.

"We generated continued growth in rental revenue, Cash NOI and AFFO per Unit in the second quarter, supported by the fixed and CPI-linked annual rent increases built into our leases," said Milton Lamb, CEO of Automotive Properties REIT. "Subsequent to quarter end, we entered into an agreement to unlock substantial value through the strategic disposition of one of our dealership properties. We expect that this transaction and the expected use of the proceeds from the sale, along with the recent expansion and extension of one of our credit facilities, will provide us with enhanced financial flexibility moving forward."

Q2 2024 Highlights                               

• The REIT generated AFFO per Unit¹ of $0.233 (diluted) and paid total cash distributions of $0.201 per Unit (as defined below) in Q2 2024, representing an AFFO payout ratio¹ of approximately 86.3%. For the comparable three-month period ended June 30, 2023 ("Q2 2023"), the REIT generated AFFO per Unit of $0.230 (diluted) and paid cash distributions of $0.201 per Unit, representing an AFFO payout ratio of approximately 87.4%.
• The REIT had a Debt to Gross Book Value ("Debt to GBV")² ratio of 43.6% as at June 30, 2024, and $54.4 million of undrawn capacity under its revolving credit facilities, $0.2 million of cash on hand, and four unencumbered properties with an aggregate value of approximately $86.0 million (including the Kennedy Lands (as defined below) which are investment properties held for sale and had an IFRS fair value of $54.0 million as at June 30, 2024).
• The REIT's valuation of its investment properties increased in Q2 2024 compared to the prior quarter, resulting in a fair value gain of $23.9 million. The increase reflected increased NOI³, current market conditions and the Sale Transaction (as defined below). The capitalization rate applicable to the REIT's entire portfolio increased to 6.68% as at June 30, 2024, compared to 6.59% as at December 31, 2023 and 6.52% as at June 30, 2023.

Subsequent Events                              

• On July 26, 2024, the REIT entered into an agreement (the "Sale Agreement") to sell its automotive dealership property located at 8210 and 8220 Kennedy Road and 7 and 13/15 Main Street in Markham, Ontario (collectively, the "Kennedy Lands") to a member of the Dilawri Group for an initial sale price of $54.0 million (the "Sale Transaction").
• On August 1, 2024, the REIT extended the maturity date of the $78.5 million, non-revolving balance of Credit Facility 2 from January 2025 to January 2028. In addition, the capacity under the revolving portion of Credit Facility 2 was increased from $15.0 million to $20.0 million.

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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.

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

Financial Results Summary

($000s, except per Unit amounts)	Three months ended  June 30,			Six months ended June 30,
	2024	2023	Change	2024	2023	Change
Rental revenue ^(1)	$23,515	$22,939	2.5 %	$46,928	$45,815	2.4 %
NOI ^(2)	19,824	19,544	1.4 %	39,667	39,001	1.7 %
Cash NOI ^(2)	19,535	18,933	3.2 %	39,044	37,814	3.3 %
Same Property Cash NOI ^(1) (2)	19,219	18,752	2.5 %	36,594	35,708	2.5 %
Net Income^(3)	37,288	20,891	78.5 %	58,189	37,858	53.7 %
FFO ^(2)	12,015	12,075	-0.5 %	24,084	24,104	-0.1 %
AFFO ^(2)	11,714	11,490	1.9 %	23,437	22,899	2.3 %
Distributions per Unit	$0.201	$0.201	-	$0.402	$0.402	-
FFO per Unit - basic ^(2) (4)	0.245	0.246	-0.001	0.491	0.491	-
FFO per Unit - diluted ^(2)^(5)	0.239	0.241	-0.002	0.480	0.482	-0.002
AFFO per Unit - basic ^(2) (4)	0.239	0.234	0.005	0.478	0.467	0.011
AFFO per Unit - diluted ^(2)^(5)	0.233	0.230	0.003	0.467	0.458	0.009
Ratios (%)
FFO payout ratio ^(2)	84.1 %	83.4 %	0.7 %	83.8 %	83.6 %	0.2 %
AFFO payout ratio ^(2)	86.3 %	87.4 %	-1.1 %	86.1 %	87.8 %	-1.7 %
Debt to GBV ^(6)	43.6 %	45.1 %	-1.5 %	43.6 %	45.1 %	-1.5 %

(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 2023, thus removing the impact of acquisitions.
(3)	Net income for Q2 2024 includes changes in fair value adjustments of $5.3 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"), $2.8 million for interest rate swaps and $23.9 million for investment properties and investment properties held for sale. Please refer to the unaudited, condensed consolidated interim 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 2024 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 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 2024 was 50,268,740.
(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 2024 increased by 2.5% to $23.5 million, compared to $22.9 million in Q2 2023. The increase in rental revenue reflects growth from a property acquired during Q2 2023, and contractual annual rent increases.

The REIT generated total Cash NOI of $19.5 million in Q2 2024, representing an increase of 3.2% compared to Q2 2023. The increase was primarily attributable to the property acquired during Q2 2023 and contractual rent increases. Same Property Cash NOI was $19.2 million in Q2 2024, representing an increase of 2.5% compared to Q2 2023. The increase was primarily attributable to contractual rent increases.

The REIT recorded net income of $37.3 million in Q2 2024, an increase of 78.5% compared to $20.9 million in Q2 2023. The increase was primarily due to favourable changes in non-cash fair value adjustments for investment properties (including a $23.8 million fair value gain as a result of entering into the Sale Agreement), Class B LP Units, 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 of $5.3 million in Q2 2024, compared to an increase of $0.6 million in Q2 2023.

FFO in Q2 2024 decreased by 0.5% to $12.0 million, or $0.239 per unit (diluted), compared to $12.1 million, or $0.241 per unit (diluted), in Q2 2023. The slight decrease in FFO was primarily attributable to higher interest expense and a reduction in straight-line rent adjustment, partially offset by higher rental revenue. Straight-line rent adjustment decreased by $0.3 million due to the addition of leases to the investment property portfolio containing CPI-linked rent adjustments.

AFFO in Q2 2024 increased 1.9% to $11.7 million, or $0.233 per unit (diluted), compared to $11.5 million, or $0.230 per unit (diluted), in Q2 2023. The increase in AFFO reflected the impact of the property acquired during Q2 2023 and contractual rent increases, partially offset by higher interest costs. Straight-line rent adjustment is excluded from the calculation of AFFO.

Adjusted Cash Flow from Operations ("ACFO")⁴ for Q2 2024 was $12.4 million, a decrease of 1.9% compared to $12.7 million in Q2 2023. The decrease was primarily attributable to higher interest paid.

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 2024, the REIT declared and paid total distributions of $9.86 million, or $0.201 per Unit, representing an AFFO payout ratio of 86.3%. The AFFO payout ratio was lower in Q2 2024 compared to the 87.4% AFFO payout ratio in Q2 2023, primarily due to the positive impact of the property acquired in Q2 2023 and contractual rent increases.

Liquidity and Capital Resources 

As at June 30, 2024, the REIT had a Debt to GBV ratio of 43.6%, $54.4 million of undrawn capacity under its revolving credit facilities, $0.2 million of cash on hand, and four unencumbered properties with an aggregate value of approximately $86.0 million (including the Kennedy Lands, which had an IFRS fair value of $54.0 million as at June 30, 2024). As of the date of this news release, the REIT has approximately $62.9 million of undrawn capacity under its revolving credit facilities and two unencumbered properties with an aggregate value of approximately $13.8 million. The reduction in the number of unencumbered properties is due to the exclusion of the Kennedy Lands which are held for sale, and the exclusion of a second investment property that was added as security for Credit Facility 2 in connection with the extension of the maturity date for Credit Facility 2 subsequent to the end of Q2 2024.

As at June 30, 2024, 94% of the REIT's debt was fixed with a weighted average interest rate of 4.31%, a weighted average interest rate swap term and mortgages remaining of 4.4 years, and a weighted average term to maturity of debt of 2.4 years.

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⁴ ACFO is a non-IFRS measure. See "Non-IFRS Financial Measures" at the end of this news release.

Units Outstanding

As at June 30, 2024, there were 49,054,833 REIT Units outstanding. On June 21, 2024, the Dilawri Group converted all 9,327,487 outstanding Class B LP Units into an equal number of REIT Units. As at June 30, 2024, there were nil Class B LP Units outstanding.

Outlook 

The REIT is subject to risks associated with inflation, interest rates and availability of capital. The REIT anticipates that inflation and interest rates will remain elevated in the near term and may have an adverse effect on consumer confidence and the overall economy. The fluctuation in the interest rate environment, inflation and credit environment impacts rental growth and capitalization rates overall in the real estate industry which, in turn, could provide attractive buying opportunities for the REIT.

The Sale Transaction is a strategic disposition by the REIT that demonstrates the REIT's ability to work with its tenants, where desirable, to unlock value where doing so is in line with the REIT's long-term growth strategy and is otherwise in the best interest of the REIT. The REIT expects that, assuming closing of the Sale Transaction occurs on October 1, 2024, the net proceeds of the Sale Transaction will be used primarily to initially repay indebtedness under the REIT's existing revolving credit facilities, resulting in an expected reduction of Debt to GBV ratio to approximately 41.8% (as compared to 44.6% as at March 31, 2024 and 43.6% as at June 30, 2024), which, assuming the repaid funds are not reborrowed and interest rates remain constant, is expected to resultantly increase AFFO..

Assuming successful completion of the Sale Transaction and the repayment of indebtedness under the REIT's revolving credit facilities with the proceeds therefrom, the completion of the Sale Transaction will provide the REIT with additional acquisition capacity and flexibility to make accretive property acquisitions as opportunities arise.

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 2024 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 Thursday, August 15, 2024 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/45Wp29X 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: 32085 #. The replay will be available until August 22, 2024.

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, the completion of the Sale Transaction, its timing and the anticipated financial benefits from the Sale Transaction, and additional acquisition capacity. 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, 2023 and in the REIT's MD&A for the interim period ended June 30, 2024, and under "Risk Factors" in the REIT's annual information form dated March 7, 2024, which are available on SEDAR+ (www.sedarplus.ca) and the REIT's website (www.automotivepropertiesreit.ca). The forward-looking information relating to the financial impact of the Sale Transaction are based principally on the following assumptions (i) the Sale Transaction will close on October 1, 2024, (ii) the net proceeds from the Sale Transaction will be used initially to repay the REIT's revolving credit facilities on the closing date, and (iii) no acquisitions are completed by the REIT during the periods to which the applicable forward-looking information applies and that the repaid debt is not reborrowed. The forward-looking information relating to the Sale Transaction and additional acquisition capacity is subject to the further risk that the customary closing conditions may not be satisfied or waived such that the Sale Transaction does not close on current terms or at all. 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 measures, are measures of financial position defined by agreements to which the REIT is a party. 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 2024 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)	2024	2023	Variance		2024		2023	Variance
Calculation of NOI
Property revenue	$23,515	$22,939	$576		46,928		45,815	$1,113
Property costs	(3,691)	(3,395)	(296)		(7,261)		(6,814)	(447)
NOI (including straight–line adjustments)	$19,824	$19,544	$280		39,667		39,001	$666
Adjustments:
Land lease payments	(86)	(86)	-		(172)		(172)	-
Straight–line adjustment	(203)	(525)	322		(451)		(1,015)	(564)
Cash NOI	$19,535	$18,933	$602		39,044		37,814	$1,230
Reconciliation of net income to FFO and AFFO
Net income and comprehensive income	$37,288	$20,891	$16,397		58,189		37,858	$20,331
Adjustments:
Change in fair value — Interest rate swaps	2,781	(9,660)	12,441		(2,722)		(4,898)	2,176
Distributions on Class B LP Units	1,250	1,875	(625)		3,125		3,750	(625)
Change in fair value – Class B LP Units and Unit-based compensation	(5,333)	(595)	(4,738)		(10,335)		(15,087)	4,752
Change in fair value — investment properties and investment properties held for sale^(1)	(23,893)	(391)	(23,502)		(24,031)		2,566	(26,597)
ROU asset net balance of depreciation/interest and lease payments	(78)	(45)	(33)		(142)		(85)	(57)
FFO	$12,015	$12,075	$(60)		$24,084		$24,104	$(20)
Adjustments:
Straight–line adjustment	(203)	(490)	287		(451)		(1,015)	564
Capital expenditure reserve	(98)	(95)	(3)		(196)		(190)	(6)
AFFO	$11,714	$11,490	$224		$23,437		$22,899	$538
Number of Units outstanding (including Class B LP Units)	49,054,833	49,054,833	-		49,054,833		49,054,833	-
Weighted average Units Outstanding — basic	49,054,833	49,054,833	-		49,054,833		49,054,833	-
Weighted average Units Outstanding — diluted	50,268,740	50,024,870	243,870		50,191,972		49,957,715	234,257
FFO per Unit – basic^(2)	$0.245	$0.246	$(0.001)		$0.491		$0.491	-
FFO per Unit – diluted^(3)	$0.239	$0.241	$(0.002)		$0.480		$0.482	$(0.002)
AFFO per Unit – basic^(2)	$0.239	$0.234	$0.005		$0.478		$0.467	$0.011
AFFO per Unit – diluted^(3)	$0.233	$0.230	$0.003		$0.467		$0.458	$0.009
Distributions per Unit	$0.201	$0.201	­-		$0.402		$0.402	-
FFO payout ratio	84.1 %	83.4 %	0.7 %		83.8 %		83.6 %	0.2 %
AFFO payout ratio	86.3 %	87.4 %	(1.1 %)		86.1 %		87.8 %	(1.7 %)

(1)	The Change in fair value — investment properties in respect of the three and six months ended June 30, 2024 is inclusive of the $23,760 fair value gain as a result of entering into the Sale Agreement, thereby classifying the Kennedy Lands as investment properties held for sale.
(2)	FFO 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 REIT Units and Class B LP Units.
(3)	FFO 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 REIT Units, Class B LP Units and Unit-based compensation granted to independent trustees and management of the REIT.

Same Property Cash Net Operating Income

	Three Months Ended June 30,				Six Months Ended June 30,
	2024	2023	Variance		2024		2023	Variance
Same property base rental revenue	$19,318	$18,838	$480		$36,779		$35,880	$899
Land lease payments	(99)	(86)	(13)		(185)		(173)	(13)
Same Property Cash NOI	$19,219	$18,752	$467		$36,594		$35,708	886

Reconciliation of Cash Flow from Operating Activities to ACFO

	Three Months Ended June 30,			Six Months Ended June 30,
($000s)	2024	2023	Variance	2024	2023	Variance
Cash flow from operating activities	$19,205	$16,404	$2,801	$38,454	$33,501	$4,953
Change in non-cash working capital	(293)	2,416	(2,709)	(956)	3,496	(4,452)
Interest paid	(6,164)	(5,731)	(433)	(12,314)	(11,467)	(847)
Amortization of financing fees	(198)	(245)	47	(401)	(483)	82
Amortization of other assets	(36)	(54)	18	(72)	(100)	28
Net interest expense and other financing charges in excess of interest paid	28	(10)	38	56	(6)	62
Capital expenditure reserve	(98)	(95)	(3)	(196)	(190)	(6)
ACFO	$12,444	$12,685	$(241)	$24,571	$24,751	$(180)
ACFO payout ratio	79.2 %	77.7 %	1.5 %	80.3 %	79.6 %	0.7 %

SOURCE Automotive Properties Real Estate Investment Trust

For more information please contact: 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]