Automotive Properties REIT Reports Financial Results for Second Quarter of 2020

̶  The REIT also announced the acquisition of a development property in Laval, Quebec  ̶

TORONTO, Aug. 13, 2020 /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 2020") and six-month periods ended June 30, 2020.

"The combination of a tenant base consisting of some of the leading automotive dealership operators in Canada, and our strong liquidity position, enabled us to work with certain of our tenant partners to provide support through partial rent deferrals as they manage the economic challenges imposed by the COVID-19 pandemic. As a result, we have collected approximately 78% of our base rent for Q2 2020, with the remaining amount subject to rent deferral agreements with tenants. This is reflected in our continued solid growth in revenue, NOI and AFFO for the quarter," said Milton Lamb, CEO of Automotive Properties REIT. "Looking ahead our near-term focus will remain on capital preservation. While our acquisition momentum has been muted by the impacts of the pandemic, we expect to see increased opportunities in future quarters as industry fundamentals stabilize and dealer consolidation accelerates. In evaluating potential opportunities, we will maintain our strategic acquisition criteria, focusing on select markets, property location, automotive brand and the financial strength of the dealership business operator."  

Q2 2020 Highlights

• The REIT has collected approximately 78% of its base rent for Q2 2020, with the remaining amount subject to rent deferral agreements (the "Deferral Agreements"). The REIT has collected approximately 99% of its expected July and August 2020 contractual base rent, including required payments under the Deferral Agreements.
• The REIT paid monthly cash distributions of $0.067 per Unit (defined below), resulting in total distributions declared and paid of approximately $9.6 million in Q2 2020, representing an AFFO payout ratio of approximately 98.0%, compared to total distributions paid of approximately $6.4 million in the three-month period ended June 30, 2019 ("Q2 2019"), representing an AFFO payout ratio of approximately 81.4%. The higher AFFO payout ratio in Q2 2020 reflects the REIT's issuance of 7.9 million REIT units for gross proceeds of $92 million in December 2019 (the "December 2019 Equity Offering"), and the partial deployment of proceeds therefrom.
• The December 2019 Equity Offering contributed to deleveraging the REIT's balance sheet and enhancing its liquidity position, resulting in a Debt to Gross Book Value ("Debt to GBV") of 44.4% as at June 30, 2020.
• The REIT made a fair value adjustment to its property portfolio for the three months ended June 30, 2020, resulting in a decrease of $10.9 million, mainly due to adjustments made to valuation inputs, reflecting the impact of COVID-19 on all tenants. The overall capitalization rate applicable to the REIT's entire portfolio increased by 30 basis points to 6.9% as at June 30, 2020, compared to 6.6% as at December 31, 2019. The overall capitalization rate applicable to the REIT's portfolio was 6.8% as at March 31, 2020.

Subsequent Event

• On August 13, 2020, the REIT waived conditions for the purchase of the real estate underlying an automotive dealership in Laval, Quebec. The REIT plans to redevelop the property for a luxury high-end automotive company that has committed to a long-term lease to occupy the premises. The REIT estimates that its total expenditures related to this property, including the purchase price, redevelopment costs and related expenses will be approximately $13.4 million.

Financial Results Summary¹

	Three months ended June 30,			Six months ended June 30,
($000s, except per Unit amounts)	2020	2019	Change	2020	2019	Change
Rental revenue ^(2)	$18,800	$16,425	14.5%	$37,406	$32,109	16.5%
NOI	15,586	13,972	11.6%	31,380	27,543	13.9%
Cash NOI	14,755	13,107	12.6%	29,671	25,761	15.2%
Same Property Cash NOI (excluding bad debt expense) ^(2)	13,232	13,071	1.2%	25,329	25,034	1.2%
Net Income (Loss)^(3)	(23,356)	8,436	N/A	(7,609)	(9,446)	-19.4%
FFO	10,662	8,754	21.8%	21,428	17,335	23.6%
AFFO	9,856	7,948	24.0%	19,827	15,706	26.2%
Distributions per Unit	$0.201	$0.201	-	$0.402	$0.402	-
FFO per Unit - basic ^(4)	0.224	0.274	-0.050	0.450	0.544	-0.094
FFO per Unit - diluted ^(5)	0.222	0.272	-0.050	0.446	0.541	-0.095
AFFO per Unit - basic ^(4)	0.207	0.248	-0.041	0.416	0.493	-0.077
AFFO per Unit - diluted ^(5)	0.205	0.247	-0.042	0.412	0.490	-0.078
Ratios (%)
FFO payout ratio	90.5%	73.9%	16.6%	90.1%	74.3%	15.8%
AFFO payout ratio	98.0%	81.4%	16.6%	97.6%	82.0%	15.6%
Debt to GBV	44.4%	49.7%	-5.3%	44.4%	49.7%	-5.3%

(1)	NOI, Cash NOI, Same Property Cash NOI, FFO, AFFO, Debt to GBV, FFO Payout Ratio, AFFO Payout Ratio and ACFO are non-IFRS financial measures. See "Non-IFRS Financial Measures" in this news release. References to "Same Property" correspond to properties that the REIT owned in Q2 2019, 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 loss for Q2 2020 includes changes in fair value adjustments of $19.3 million for Class B limited partnership units of Automotive Properties Limited Partnership ("Class B LP Units"), deferred units ("DUs") and income deferred units ("IDUs") $1.8 million for interest rate swaps and $10.9 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 2020 was 47,630,305.
(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 and IDUs granted to certain independent trustees and management of the REIT. The total weighted average number of Units outstanding (including Class B LP Units, DUs and IDUs) on a fully diluted basis for Q2 2020 was 48,129,963.

Rental revenue in Q2 2020 increased 14.5% to $18.8 million, compared to $16.4 million in Q2 2019. The increase in rental revenue reflects growth from properties acquired during and subsequent to Q2 2019, and contractual annual rent increases.

The REIT generated total Cash NOI of $14.8 million in Q2 2020, representing an increase of 12.6% compared to Q2 2019. The increase was primarily attributable to the properties acquired during and subsequent to Q2 2019, and contractual rent increases partially offset by bad debt expense. Same Property Cash NOI (excluding bad debt expense) was $13.2 million in Q2 2020, representing an increase of 1.2% compared to Q2 2019. The increase was attributable to contractual rent increases.

The REIT recorded a net loss in Q2 2020 of $23.4 million, compared to net income of $8.4 million in Q2 2019. The negative variance was primarily due to fair value adjustments for Class B LP Units, DUs and IDUs, and investment properties, partially offset by an increase in NOI, fair value adjustments for interest rate swaps and lower interest expense and other financing charges.

FFO in Q2 2020 was $10.7 million, or $0.222 per Unit (diluted), as compared to $8.8 million, or $0.272 per Unit (diluted), in Q2 2019. The increase in FFO was primarily due to the impact of the properties acquired during and subsequent to Q2 2019, and contractual rent increases. The decline in FFO per Unit primarily reflects the deleveraging and enhancing of the REIT's liquidity position as a result of the December 2019 Equity Offering.   

AFFO in Q2 2020 was $9.9 million, or $0.205 per Unit (diluted), as compared to $7.9 million, or $0.247 per Unit (diluted), in Q2 2019. The increase in AFFO reflects the impact of the properties acquired during and subsequent to Q2 2019, together with contractual rent increases. The decline in AFFO per Unit (diluted) was primarily due to the same factors that impacted FFO per Unit (diluted), noted above.

Adjusted Cash Flow from Operations¹ ("ACFO") for Q2 2020 was $7.6 million, compared to $8.2 million in Q2 2019. The decline was primarily due to the $3.7 million in rent deferrals pursuant to the Deferral Agreements and $0.5 million in realty tax receivables in Q2 2020, partially offset by contractual rent increases.

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 2020, the REIT declared and paid total distributions of $9.6 million to unitholders, or $0.201 per Unit, representing an AFFO payout ratio of 98.0%. The AFFO payout ratio was higher in Q2 2020 compared to Q2 2019 due to the deleveraging and enhancing of the REIT's liquidity position as a result of the closing of the December 2019 Equity Offering and the recognition of a bad debt expense provision of $0.4 million due to credit risk related to the accounts receivable with the REIT's tenants.

Liquidity and Capital Resources 

As at June 30, 2020, the REIT is in a strong liquidity position with a Debt to GBV of 44.4%, $75.0 million of undrawn credit facilities, approximately $3.8 million of cash on hand, and eight unencumbered properties with a value of approximately $128.0 million.

Units Outstanding

As at June 30, 2020, there were 37,697,052 REIT Units and 9,933,253 Class B LP Units outstanding.

Outlook 

As a result of the COVID-19 pandemic, provinces across Canada began implementing emergency measures to combat the spread of COVID-19 in the second half of March 2020, resulting in the full or partial closure of automotive dealerships until May 19, 2020. According to Statistics Canada, new automobile sales per unit in Canada for the five months ended May 31, 2020 were down approximately 39.7% compared to the corresponding period in 2019. Accordingly, COVID-19 has had a significant adverse impact on the profitability of the REIT's tenants. Industry analysts have forecasted that new automotive sales in Canada will decline by approximately 30% in 2020 compared to 2019, and that the supply chain of new vehicles and automotive parts could also be disrupted. The REIT expects that there will be a significant negative impact on overall automotive dealership profitability for 2020, even with the support programs provided by original equipment manufacturers, financial institutions, governments and rent deferral programs. The Canadian federal and provincial governments have reacted with significant intervention programs designed to stabilize economic conditions. However, the success of these programs remains uncertain at this time. The length and severity of the pandemic, and the related impact on the financial performance and financial position of the REIT and its tenants in future periods, is unknown at this time. As provincial lockdowns have eased, the pent-up consumer demand resulted in a rebound in Canadian auto sales and an increase in service work performed at the automotive dealership level. As of May 19, 2020, all of the REIT's tenants were fully open for business. According to one industry report, new automobile sales units in Canada for the month of June 2020 declined by approximately 16% as compared to June 2019.

Furthermore, as a result of COVID-19 and the related economic uncertainty and the REIT's own liquidity preservation, the REIT expects that its pace of consolidation in the automotive dealership industry will significantly decrease in 2020. Management and the Trustees are closely monitoring the impact of the COVID-19 pandemic on the REIT's business and the business of the REIT's tenants, and will continue to prudently manage the REIT's available resources during this period of economic uncertainty. Management has also proactively raised its level of preparedness planning to adapt more quickly should risk levels rise and will continue to monitor and adjust its business continuity and other plans as the COVID-19 pandemic continues to evolve.

Financial Statements

The REIT's unaudited consolidated financial statements and related Management's Discussion & Analysis ("MD&A") for Q2 2020 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 Friday, August 14, 2020 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: 893645 #. The replay will be available until August 21, 2020.

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. The REIT's portfolio currently consists of 64 income-producing commercial properties, representing approximately 2.4 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 including with respect to payment of rents and deferrals thereof. 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 Judgements & Estimates" in the REIT's MD&A for the year ended December 31, 2019, the REIT's MD&A for the three and six-month periods ended June 30, 2020, and in the REIT's annual information form dated March 23, 2020, which are available on SEDAR (www.sedar.com) and the REIT's website (www.automotivepropertiesreit.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, FFO payout ratio, AFFO payout ratio, NOI, Cash NOI, and Same Property Cash NOI 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. See the REIT's Q2 2020 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 ACFO to cash flow from operating activities.

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]

Related Links

www.automotivepropertiesreit.ca