Automotive Properties REIT Reports Financial Results for Second Quarter of 2017

TORONTO, Aug. 10, 2017 /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 2017") and six-month ("YTD 2017") periods ended June 30, 2017. References to "same property" correspond to properties that the REIT owned for the equivalent periods in 2016, thus removing the impact of acquisitions. The REIT's unaudited condensed consolidated financial statements and the related Management's Discussion & Analysis ("MD&A") for Q2 2017 / YTD 2017 are available on the REIT's website at www.automotivepropertiesreit.ca and on SEDAR at www.sedar.com.

Q2 2017 Highlights

  • Property rental revenue was $10.5 million, representing an increase of 26.1% from the second quarter of 2016 ("Q2 2016");
  • Net Operating Income1 ("NOI") was $9.0 million, up 23.7% from Q2 2016;
  • Total and same property Cash NOI1 were $8.2 million and $6.6 million, respectively, up 25.1% and 1.45%, respectively, from Q2 2016;   
  • Funds from Operations1 ("FFO") increased by 34.4% to $6.5 million, up from $4.9 million in Q2 2016. FFO per unit of the REIT ("Unit"), was $0.249 (diluted) in Q2 2017, compared to $0.269 per Unit in Q2 2016. The per Unit decline was primarily attributable to the period of time between: (i) the issuance by the REIT of 4,255,000 Units through a $46.2 million equity offering completed in February  2017 (the "Equity Offering"); and (ii) the deployment of the net proceeds from the Equity Offering (the "Timing Difference");
  • Adjusted Funds from Operations1 ("AFFO") increased by 35.0% to $5.8 million, up from $4.3 million in Q2 2016. AFFO per Unit was $0.223 per Unit (diluted), compared to $0.240 per Unit in Q2 2016, with the Timing Difference noted above also impacting the per Unit figures;
  • Adjusted Cash from Operations1 ("ACFO") was equivalent to AFFO in Q2 2017, at $5.8 million, an increase of 35.0% from $4.3 million in Q2 2016;
  • On April 7, 2017, the REIT acquired the Heritage Honda automotive dealership property located in Calgary, Alberta for approximately $23.6 million. The operating tenant, owned by the Dilawri Group, entered into an 18-year, triple-net lease with the REIT;  
  • The REIT's weighted average interest rate swap term increased from 4.4 years to 5.9 years as a result of an additional $13.0 million added to Credit Facility 2 which was fixed through an interest rate swap for a seven-year period, and the extension of two existing interest rate swaps in the amounts of approximately $14.6 and $27.8 million in respect of Credit Facility 2 and Credit Facility 1, respectively.
  • On June 26, 2017, the REIT extended Credit Facility 2 from July 2020 to June 2022 and placed a $10.0 million mortgage with a 10 year term secured by one of the REIT's recently-acquired automotive dealership properties. As a result of all the above, the weighted average term to maturity of debt increased from 3.0 years to 3.9 years;
  • As at June 30, 2017, the fair value of the REIT's investment properties was $505.3 million compared to $461.8 million as at December 31, 2016;
  • As at June 30, 2017, the REIT's debt to gross book value ("Debt to GBV"1) was 46.5%, compared to 51.5% as at December 31, 2016; and
  • The REIT declared monthly cash distributions of $0.067 per Unit, resulting in total distributions declared and paid of approximately $5.3 million, representing an AFFO payout ratio1 of approximately 90.1%. The REIT's AFFO payout ratio for the quarter also reflects the Timing Difference noted above.

1 NOI, Cash NOI, FFO, AFFO, ACFO, AFFO payout ratio, and Debt to GBV are non-IFRS financial measures. See "Non-IFRS Financial Measures" in this news release.

"Our portfolio continued to generate solid revenue, NOI, FFO and AFFO growth in the quarter, driven by the recently acquired Heritage Honda property, the additional five properties acquired since the end of the second quarter a year ago, and our contractual annual rent increases. We also extended our debt and interest profiles during the quarter, further solidifying our overall capital structure," said Milton Lamb, CEO of Automotive Properties REIT. "We continue to enhance and broaden our network of relationships within the automotive dealership owner community across Canada, and remain focused on growing our portfolio through accretive acquisitions of attractive dealership properties in strategic Canadian markets." 

Q2 2017 Financial Results Summary ($000s, except per Unit amounts)


Three months ended
 June 30,


Six months ended
June 30,











($000s, except per Unit amounts)


2017

2016

Change


2017

2016

Change










Property rental revenue¹

$

10,467

8,302

26.1%

$

20,348

16,609

22.5%










NOI


8,988

7,266

23.7%


17,247

14,501

18.9%










Cash NOI


8,195

6,553

25.1%


15,754

13,080

20.4%










Same property Cash NOI


6,648

6,553

1.45%


12,897

12,713

1.45%










FFO


6,531

4,861

34.4%


12,477

9,890

26.2%










AFFO


5,849

4,334

35.0%


11,204

8,655

29.5%










ACFO


5,849

4,334

35.0%


11,204

8,655

29.5%










Distributions per Unit

$

0.201

0.201

-

$

0.402

0.402

-










FFO per Unit - basic (2)


0.250

0.269

- 0.019


0.494

0.548

- 0.054

FFO per Unit - diluted (3)


0.249

0.269

- 0.020


0.493

0.548

- 0.055










AFFO per Unit - basic   (2)


0.224

0.240

- 0.016


0.443

0.479

- 0.036

AFFO per Unit - diluted (3)   


0.223

0.240

- 0.017


0.443

0.479

- 0.036










Payout ratios (%)









FFO


80.7%

74.7%

6.0%


81.5%

73.4%

8.1%

AFFO


90.1%

83.8%

6.3%


90.7%

83.9%

6.8%










Debt to GBV


46.5%

55.6%

-9.1%


46.5%

55.6%

-9.1%


(1)

Property rental revenue is based on rents from leases entered into with tenants on closing of the applicable acquisitions, all of which are triple-net leases and, as such, include recoverable realty taxes. Same property rental revenue is based on property rental revenue for the same asset base having consistent gross leasable area in both periods.

(2)

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 Units and Class B limited partnership units of Automotive Properties Limited Partnership ("Class B LP Units"). The basic total number of Units outstanding (including Class B LP Units) for Q2 2017 and YTD 2017 was 26,149,053 and 25,279,246, respectively.

(3)

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, Class B LP Units, deferred units and income deferred units granted to certain independent trustees and management of the REIT. The total weighted average number of Units outstanding (including Class B LP Units, deferred units and income deferred units) on a fully diluted basis for Q2 2017 and YTD 2017, was 26,215,815 and 25,316,884, respectively.

 

Property rental revenue increased by 26.1% to $10.5 million in Q2 2017, up from $8.3 million in Q2 2016, reflecting growth from properties acquired subsequent to Q2 2016 and contractual annual rent increases of 1.5% across a significant portion of the portfolio.

Property costs for Q2 2017 were $1.5 million compared to $1.0 million in Q2 2016. The increase in property costs was attributable to the six properties acquired subsequent to Q2 2016. Property costs as a percentage of revenue increased from approximately 12.5% in Q2 2016 to approximately 14.1% in Q2 2017, mainly due to an increase in realty tax payments for the properties acquired subsequent to Q2 2016. These costs are recoverable from the tenants pursuant to the term of the triple-net leases.

Total and same property Cash NOI generated during Q2 2017 totaled $8.2 million and $6.6 million, respectively, compared to $6.5 million (total and same property) in Q2 2016 million, representing increases of 25.1% and 1.45%, respectively. The year-over-year increases were attributable to the contributions from the six acquisitions completed subsequent to Q2 2016 and the annual contractual rent increases of 1.5% per year across a significant portion of the portfolio.  

FFO in Q2 2017 was $6.5 million, an increase of 34.4% from $4.9 million in Q2 2016. On a per Unit basis, Q2 2017 FFO was $0.249 (diluted), compared to $0.269 in Q2 2016. The decline in FFO per Unit in both Q2 2017 and YTD 2017 was primarily attributable to the Timing Difference between the February 2017 Equity Offering and the deployment of funds therefrom, as noted above.

AFFO in Q2 2017 was $5.8 million, an increase of 35.0% from $4.3 million in Q2 2016. On a per Unit basis, Q2 2017 AFFO was $0.223 (diluted) compared to $0.240 (diluted) in Q2 2016. The decline in AFFO per Unit in both Q2 2017 and YTD 2017 was primarily attributable to the Timing Difference noted above.  

ACFO of $5.8 million and $11.2 million in Q2 2017 and YTD 2017, respectively, was equivalent to AFFO in both Q2 2107 and YTD 2017, representing increases of 35.0% and 29.5%, respectively, over the comparable periods a year ago.

Cash Distributions

The REIT is currently paying monthly cash distributions of $0.067 per Unit, representing $0.80 per Unit on an annualized basis. The REIT declared and paid total distributions of $5.3 million to unitholders in Q2 2017, or $0.201 per Unit, representing an AFFO payout ratio of 90.1%. The REIT declared distributions of $10.2 million and paid $9.9 million to unitholders in YTD 2017, or $0.402 per Unit, representing an AFFO payout ratio of 90.7%. The AFFO payout ratios for both Q2 2017 and YTD 2017 were also affected by the Timing Difference noted above.

Investment Properties

The REIT valued the investment properties using a discounted cash flow approach whereby a current discount rate was applied to the projected net operating income which a property can reasonably be expected to produce in the future. The REIT's valuation inputs are supported by quarterly market reports from an independent appraiser which indicate no change in capitalization rates from December 31, 2016. The overall implied capitalization rate applicable to the entire portfolio remained at 6.5%, which is equivalent to the REIT's overall assessment as at June 30, 2017. The fair value of the REIT's investment properties was $505.3 million as at June 30, 2017.

Liquidity and Capital Structure

As at June 30, 2017, the REIT had cash and cash equivalents of $0.2 million and access to $32.6 million in undrawn credit facilities. The REIT had $235.9 million outstanding on its credit facilities with an effective weighted average fixed interest rate on its debt of 3.35%. Interest rates on $193.9 million have been effectively fixed for a term of 5.9 years by way of interest rate swaps. The REIT's Debt to GBV as at June 30, 2017 was 46.5%.

Units Outstanding

As at June 30, 2017, there were 16,216,000 REIT Units and 9,933,253 Class B LP Units outstanding.

Outlook

The Canadian automotive retail industry is a large and stable business with a track record of long-term growth. According to Statistics Canada, the automotive retail industry represented the largest component of total retail sales and merchandise in Canada, equating to approximately 6.7% of Canadian Gross Domestic Product in 2016. Over the last 20 years, Canadian automobile retail sales grew at a compound annual rate of 4.5%. Sales of new automobiles in 2016 were up 2.3% from 2015, which was itself a record year. For the five months ended May 31, 2017, this steady growth continued, with sales of new automobiles up 4.5% to 849,751 units, compared to 812,828 units for the five months ended May 31, 2016. Management expects continued steady sales levels for 2017.

Given the large size of the industry, there are opportunities for the REIT to acquire additional properties on an accretive basis in support of stable and growing cash available for unitholder distributions. The Canadian automotive dealership industry is highly fragmented, with the top 10 dealership groups in aggregate comprising less than 10% of the overall market. Industry consolidation is gaining momentum and, to this end, the REIT has been actively expanding its automotive dealer and industry relationships to build its acquisition pipeline. In addition, the REIT has a right of first offer to acquire any REIT-suitable properties that the Dilawri Group acquires or develops.

Conference Call

Management of the REIT will host a conference call for analysts and investors on Friday, August 11, 2017 at 9:00 a.m. (ET). The dial-in numbers for the conference call are (647) 427-7450 or (888) 231-8191. 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) 849-0833 or (855) 859-2056, passcode: 58458694. The replay will be available until August 18, 2017.

About Automotive Properties REIT

Automotive Properties REIT is an unincorporated, open-ended real estate investment trust focused on owning and acquiring primarily income-producing automotive dealership properties located in Canada. Currently, the REIT's portfolio consists of 35 income producing commercial properties representing approximately 1.4 million square feet of gross leasable area in Ontario, Saskatchewan, Alberta, British Columbia 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 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 and Uncertainties" in the REIT's management's discussion and analysis ("MD&A") for the year ended December 31, 2016 and in the REIT's current annual information form, both of which are available on SEDAR (www.sedar.com). 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 which are not defined under IFRS and may not be comparable to similar measures presented by other real estate investment trusts or enterprises. FFO, AFFO, ACFO, FFO payout ratio, AFFO payout ratio, NOI, same property NOI, Cash NOI, and same property Cash NOI are key measures of performance used by 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 and ACFO are important measures of economic performance and are indicative of the REIT's ability to pay distributions to its unitholders, while FFO, NOI and Cash NOI are important measures of operating performance of real estate businesses and properties. The IFRS measurement most directly comparable to FFO, AFFO, NOI and Cash NOI is net income and the IFRS measurement most directly comparable to ACFO is cash flow from operating activities. See the REIT's Q2 2017 MD&A for further discussion of these non-IFRS financial measures and for a reconciliation of NOI, FFO, AFFO and Cash NOI to net income and comprehensive income and of AFFO and ACFO to cash flow from operating activities.

SOURCE Automotive Properties Real Estate Investment Trust

For further information: Bruce Wigle, Investor Relations, Bay Street Communications, Tel: 647-496-7856; Milton Lamb, President & CEO, Automotive Properties REIT, Tel: (647) 789-2445; Andrew Kalra, CFO & Corporate Secretary, Automotive Properties REIT, Tel: (647) 789-2446

RELATED LINKS
www.automotivepropertiesreit.ca

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