TORONTO, Nov. 9, 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 (“Q3 2017”) and nine-month (“YTD 2017”) periods ended September 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 Q3 2017 / YTD 2017 are available on the REIT’s website at www.automotivepropertiesreit.ca and on SEDAR at www.sedar.com.
Q3 2017 Highlights
- Property rental revenue was $10.6 million, representing an increase of 24.1% from the third quarter of 2016 (“Q3 2016”);
- Net Operating Income1 (“NOI”) was $9.0 million, representing an increase of 23.5% from Q3 2016;
- Total and same property Cash NOI1 were $8.3 million and $6.7 million, respectively, representing an increase of 24.7% and 1.5%, respectively, from Q3 2016;
- Funds from Operations1 (“FFO”) increased by 28.4% to $6.4 million, up from $5.0 million in Q3 2016. FFO per unit of the REIT (“Unit”), was $0.244 (diluted), compared to $0.269 per Unit (diluted) in Q3 2016. The per Unit decline was attributable to the dilutive effect of the REIT’s equity offering in February 2017 (the “Equity Offering”) which resulted in a lower Debt to Gross Book Value1 of 45.8%, which provides the REIT with enhanced capacity to acquire approximately $100.0 million of additional properties in the future;
- Adjusted Funds from Operations1 (“AFFO”) increased by 32.8% to $5.8 million, up from $4.4 million in Q3 2016. AFFO per Unit was $0.222 per Unit (diluted), compared to $0.236 per Unit (diluted) in Q3 2016, with the Equity Offering noted above also impacting the AFFO per Unit figures;
- 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 90.5%; and
- The REIT’s debt to gross book value (“Debt to GBV”)1 was 45.8% as at September 30, 2017, compared to 51.5% as at December 31, 2016.
“Our third quarter growth in property revenue, NOI, FFO and AFFO reflect the impact of our acquisition program, with five new properties acquired since the end of the third quarter a year ago, as well as contractual rent increases from a majority of our portfolio properties,” said Milton Lamb, CEO of Automotive Properties REIT. “With a strong balance sheet, we are well positioned to continue advancing the REIT’s acquisition program with existing and new tenants in strategic markets to drive FFO and AFFO per Unit growth.”
1 NOI, Cash NOI, Same Property 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.
Q3 2017 Financial Results Summary ($000s, except per Unit amounts)
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Three months ended |
Nine months ended |
|||||||
|
($000s, except per Unit amounts) |
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||
|
Property rental revenue |
$ |
10,599 |
8,538 |
24.1% |
$ |
30,947 |
25,147 |
23.1% |
|
NOI |
9,017 |
7,302 |
23.5% |
26,264 |
21,803 |
20.5% |
||
|
Cash NOI |
8,293 |
6,649 |
24.7% |
24,047 |
19,729 |
21.9% |
||
|
Same property Cash NOI |
6,709 |
6,612 |
1.5% |
19,407 |
19,130 |
1.45% |
||
|
FFO |
6,405 |
4,990 |
28.4% |
18,882 |
14,881 |
26.9% |
||
|
AFFO |
5,811 |
4,375 |
32.8% |
17,015 |
13,031 |
30.6% |
||
|
Distributions per Unit |
$ |
0.201 |
0.201 |
– |
$ |
0.603 |
0.603 |
– |
|
FFO per Unit – basic (2) |
0.245 |
0.269 |
– 0.024 |
0.738 |
0.817 |
– 0.079 |
||
|
FFO per Unit – diluted (3) |
0.244 |
0.269 |
– 0.025 |
0.737 |
0.817 |
– 0.080 |
||
|
AFFO per Unit – basic (2) |
0.222 |
0.236 |
– 0.014 |
0.665 |
0.715 |
– 0.050 |
||
|
AFFO per Unit – diluted (3) |
0.222 |
0.236 |
– 0.014 |
0.664 |
0.715 |
– 0.051 |
||
|
Payout ratios (%) |
||||||||
|
FFO |
82.4% |
74.7% |
7.7% |
81.8% |
73.8% |
8.0% |
||
|
AFFO |
90.5% |
85.2% |
5.3% |
90.8% |
84.3% |
6.5% |
||
|
Debt to GBV |
45.8% |
48.2% |
-2.4% |
45.8% |
48.2% |
-2.4% |
||
|
(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 â 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 Q3 2017 and YTD 2017 was 26,149,053 and 25,572,368, respectively. |
|
(3) |
FFO per Unit and AFFO per Unit â 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 Q3 2017 and YTD 2017, was 26,220,165 and 25,621,401, respectively. |
Property rental revenue increased by 24.1% to $10.6 million in Q3 2017, up from $8.5 million in Q3 2016, reflecting growth from properties acquired subsequent to Q3 2016 and contractual annual rent increases of 1.5% across a significant portion of the portfolio which were offset for the accounting of the straight-line lease adjustments.
Property costs for Q3 2017 were $1.6 million compared to $1.2 million in Q3 2016. The increase in property costs was attributable to the five properties acquired subsequent to Q3 2016. Property costs as a percentage of revenue increased from approximately 14.5% in Q3 2016 to approximately 15% in Q3 2017, primarily due to an increase in realty tax payments in respect of the properties acquired by the REIT subsequent to Q3 2016. These costs are recoverable from the tenants pursuant to the terms of the triple-net leases in respect of such properties.
Total and same property Cash NOI generated during Q3 2017 totaled $8.3 million and $6.7 million, respectively, compared to $6.6 million (total and same property) in Q3 2016, representing increases of 24.7% and 1.5%, respectively. The year-over-year increases were attributable to the contributions from the five properties acquired subsequent to Q3 2016 and the annual contractual rent increases of 1.5% per year across a significant portion of the portfolio.
FFO in Q3 2017 was $6.4 million, an increase of 28.4% from $5.0 million in Q3 2016. On a per Unit basis, Q3 2017 FFO was $0.244 (diluted), compared to $0.269 in Q3 2016. The decline in FFO per Unit in both Q3 2017 and YTD 2017 was primarily attributable to dilutive effect of the REIT’s Equity Offering which resulted in a lower Debt to GBV of 45.8%. With this strengthened balance sheet, the REIT has the financial capacity to acquire properties, thereby creating enhanced accretion on a per Unit basis.
AFFO in Q3 2017 was $5.8 million, representing an increase of 32.8% from $4.4 million in Q3 2016. On a per Unit basis, Q3 2017 AFFO was $0.222 (diluted) compared to $0.236 (diluted) in Q3 2016. The decline in AFFO per Unit in both Q3 2017 and YTD 2017 was primarily attributable to the Equity Offering noted above.
Adjusted Cash Flow from Operations (“ACFO”) in Q3 2017 was $5.7 million, representing an increase of 26% from $4.5 million in Q3 2016. The increase was primarily attributable to the impact of the five properties acquired subsequent to Q3 2016.
Cash Distributions
The REIT is currently paying monthly cash distributions of $0.067 per Unit, representing $0.804 per Unit on an annualized basis. The REIT declared and paid total distributions of $5.3 million to unitholders in Q3 2017, or $0.201 per Unit, representing an AFFO payout ratio of 90.5%. The REIT declared distributions of $15.5 million and paid $15.2 million to unitholders in YTD 2017, or $0.603 per Unit, representing an AFFO payout ratio of 90.8%. The AFFO payout ratios for both Q3 2017 and YTD 2017 were higher than the comparable ratios for Q3 2016 and YTD 2016 (85.2% and 84.3% respectively) due to the Equity Offering 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. These reports indicate a decrease in capitalization rates in the Vancouver and Calgary markets in Q3 2017, offset by a capitalization rate increase for the Regina market. 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 September 30, 2017. The fair value of the REIT’s investment properties was $510.3 million as at September 30, 2017.
Liquidity and Capital Structure
As at September 30, 2017, the REIT had cash and cash equivalents of $0.2 million and access to $30.7 million in undrawn revolving credit facilities. The REIT had $235.6 million outstanding on its credit facilities with an effective weighted average fixed interest rate on its debt of 3.35%. Interest rates on $192.0 million have been effectively fixed for a term of 5.6 years by way of interest rate swaps. The REIT’s Debt to GBV as at September 30, 2017 was 45.8%.
Units Outstanding
As at September 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 eight months ended August 31, 2017, this steady growth continued, with sales of new automobiles up 5.3% to 1,428,825 units, compared to 1,357,468 units for the eight months ended August 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. The REIT’s Debt to GBV of 45.8% provides the REIT with the capacity to acquire approximately $100.0 million of additional properties in the future.
Conference Call
Management of the REIT will host a conference call for analysts and investors on Friday, November 10, 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: 7588958. The replay will be available until November 17, 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 includes the REIT’s future 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 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, 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 is an important measure of economic performance and is indicative of the REIT’s ability to pay distributions to its unitholders, 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 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 Q3 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 ACFO to cash flow from operating activities.
SOURCE Automotive Properties Real Estate Investment Trust
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