Automotive Properties REIT Reports Financial Results for the Fourth Quarter ended December 31, 2016

TORONTO, March 20, 2016 /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 2016”) and year-end periods ended December 31, 2016.

The full year comparative information presented in this news release covers the period from July 22, 2015, the date when the REIT completed its initial public offering (“IPO”), to December 31, 2015. As a result, information presented on a full year basis cover different time frames and are not directly comparable.

The REIT’s audited consolidated financial statements and the related Management’s Discussion & Analysis for the three and twelve-month periods ended December 31, 2016 are available on the REIT’s website at www.automotivepropertiesreit.ca and on SEDAR at www.sedar.com.

Q4 2016 Highlights

• Property Revenue increased by 21.7% to $9.1 million, up from $7.5 million in the fourth quarter of 2015 (“Q4 2015”), reflecting the impact of acquisitions and rent increases across the portfolio;
• Net Operating Income¹ (“NOI”) was $7.7 million, an increase of 17.9% from $6.5 million in Q4 2015. Cash NOI¹ increased by 20.1% to $7.0 million, from $5.9 million in Q4 2015;   
• Funds from Operations¹ (“FFO”) increased by 12.7% to $5.0 million, or $0.229 per Unit, from $4.5 million, or $0.247 per Unit, in Q4 2015. The per Unit decline was attributable to a $0.2 million non-cash accrual in respect of the REIT’s Equity Incentive Plan and the period of time between (i) the issuance by the REIT of 3,841,000 Units through a $40 million equity offering completed in the third quarter of 2016 (the “Equity Issuance”) and (ii) the deployment of the funds in late Q4 2016 to complete two accretive automotive dealership acquisitions (the “Timing Difference”);
• Adjusted Funds from Operations¹ (“AFFO”) increased by 21.7% to $4.6 million, or $0.21 per Unit, from $3.8 million, or $0.21 per Unit, in Q4 2015, with the Timing Difference noted above also impacting the per Unit figures;
• On December 8, 2016, the REIT acquired an automotive dealership property that includes both a Volkswagen and an Audi dealership, located at 1905 and 1917 Boulevard Sir Wilfrid Laurier in St. Bruno, Quebec for approximately $14.3 million. The operating tenant, owned by the Dilawri Group, has entered into a 18-year, triple-net lease with the REIT;
• On December 22, 2016, the REIT acquired the Mercedes-Benz West Island automotive dealership property located at 4525 Boulevard Saint-Jean in suburban Montreal, Quebec, for approximately $20.3 million. The operating tenant, owned by the Dilawri Group, has entered into a 17-year, triple-net lease with the REIT; and
• The REIT declared monthly distributions of $0.067 per Unit, resulting in total cash distributions declared of approximately $4.4 million, representing an AFFO payout ratio of 95.7% (87.4% for the full year). The REIT’s payout ratio for the quarter and the year also reflects the Timing Difference noted above. 

Subsequent Events

• On February 7, 2017, the REIT issued 4,255,000 Units at a price of $10.85 per Unit for gross proceeds of approximately $46.2 million; and
• On March 17, 2017, the REIT announced an agreement to purchase the Go Mazda automotive dealership property located at 9704 and 9710 35th Avenue NW in Edmonton, Alberta from Go Auto, one of Canada’s largest owner / operators of automotive dealership properties, for $8.0 million. The acquisition is expected to be immediately accretive to the REIT’s AFFO on a per Unit basis. The acquisition is expected to close by the end of March 2017, subject to customary closing conditions.  

 

“The fourth quarter of 2016 was an active and successful period for the REIT,” said Milton Lamb, CEO of Automotive Properties REIT. “First, our assets performed in line with our expectations, generating year-over-year increases in revenue, NOI and AFFO. Second, we continued to advance our growth strategy, completing the acquisitions of two dealership properties in Montreal. We have maintained our momentum into early 2017, with the completion of another successful equity offering that raised gross proceeds of $46.2 million, and an execution of an agreement to acquire the Go Mazda property and strengthen our business relationship with Go Auto.”

“We continue to raise awareness in the automotive dealership community of our monetization solution, providing owners of dealership businesses with the opportunity to generate liquidity from their real estate for succession planning, directly investing in upgrading their dealerships or facilitating acquisitions,” added Mr. Lamb. “With this compelling proposition, we expect to continue to generate accretive acquisition opportunities going forward.”

Financial Results Summary

 

Property revenue in Q4 2016 totaled $9.1 million, an increase of 21.7% from Q4 2015.  The increase was attributable to the four properties acquired in 2016 (the Audi Barrie Property, the Pfaff Audi Property, the St. Bruno Audi / VW Property and the Mercedes-Benz West Island Property), the two properties acquired at the end of Q4 2015 (the Toyota Woodland Property and the Porsche JLR Edmonton Property), and contractual annual rent increases.

Property costs for Q4 2016 increased to $1.4 million from $1.0 million in Q4 2015. The increase was attributable to the six properties acquired subsequent to the REIT’s IPO. Q4 2016 property costs as a percentage of revenue increased from 13.1% in Q4 2015 to 15.8% in Q4 2016, reflecting the pre-payment of certain realty taxes in 2015.

NOI and Cash NOI generated during Q4 2016 totaled $7.7 million and $7.0 million, respectively, compared to $6.5 million and $5.9 million, respectively, in Q4 2015, representing increases of 17.9% and 20.1%, respectively. The year-over-year increases were attributable to the contributions from acquisitions and contractual annual rent increases.

FFO in Q4 2016 was $5.0 million, an increase of 12.7% from $4.5 million in Q4 2015. On a per Unit basis, Q4 2016 FFO was $0.229 compared to $0.247 in Q4 2015. The per Unit decline was attributable to a $0.2 million non-cash accrual in respect of the REIT’s Equity Incentive Plan and the Timing Difference noted above.

AFFO in Q4 2016 was $4.6 million, an increase of 21.7% from $3.8 million in Q4 2015. On a per Unit basis, Q4 2016 AFFO was $0.21 per Unit, unchanged from Q4 2015, reflecting the timing difference noted above.

For the year ended December 31, 2016, Property Revenue was $34.3 million, with NOI and Cash NOI totaling $29.5 million and $26.8 million, respectively. FFO and AFFO for the year ended December 31, 2016 were $19.9 million and $17.6 million, equal to $1.04 per Unit and $0.92 per Unit, respectively.

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 total distributions of $4.4 million to unitholders in Q4 2016, or $0.201 per Unit, representing an AFFO payout ratio of 95.7%. For the year ended December 31, 2016, the REIT declared total distributions of $15.5 million to unitholders, or $0.804 per Unit, representing an AFFO payout ratio of 87.4%. These ratios 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 a decrease in capitalization rates in the Vancouver and Toronto markets which were offset by a capitalization rate increase in 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 December 31, 2015.

Liquidity and Capital Structure
As at December 31, 2016, the REIT had cash and cash equivalents of $0.3 million and access to $3.1 million in undrawn credit facilities. The REIT had $239.2 million outstanding on its credit facilities with an effective weighted average interest rate on its debt of 3.15%. Interest rates on $184.9 million have been effectively fixed for a term of 5.0 years by a way of interest rate swaps. The REIT’s debt to gross book value² as at December 31, 2016 was 51.5%.

Subsequent to year-end, on February 7, 2017, the REIT issued an aggregate of 4,255,000 Units at a price of $10.85 per Unit for gross proceeds of approximately $46.2 million.

Units Outstanding
As at December 31, 2016, there were 11,961,000 Units and 9,933,253 Class B limited partnership units of Automotive Properties Limited Partnership outstanding. Following the completion of the February 7, 2017 equity offering, the REIT had 16,216,000 Units and 9,933,253 Class B limited partnership units of Automotive Properties Limited Partnership 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 gross domestic product in 2016. Over the last 20 years, Canadian automobile retail sales grew at a compound annual rate of 4.5%. This steady growth continued in 2016, with sales of new automobiles up 2.3% from 2015, which was itself a record year. Management expects continued steady sales levels for 2017.

Given the large size of the industry, there are ample 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. The REIT believes it has an attractive pipeline of opportunities from the Dilawri Group, with 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 Tuesday, March 21, 2017 at 10:00 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.

To access a replay of the conference call dial (416) 849-0833 or (855) 859-2056, passcode: 68828073. The replay will be available until March 28, 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. The REIT’s portfolio of 32 income producing commercial properties represents approximately 1.3 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 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 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. Funds from operations (“FFO”), adjusted funds from operations (“AFFO”), FFO payout ratio, AFFO payout ratio, net operating income (“NOI”) and cash net operating income (“Cash NOI”), are key measures of performance used by real estate businesses.  Debt to gross book value 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, 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. See the REIT’s Q4 2016 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 to cash flow from operating activities.

SOURCE Automotive Properties Real Estate Investment Trust

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