Automotive Properties REIT Reports 2020 Fourth Quarter and Year-End Results

TORONTO, March 23, 2021 /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 2020”) and year ended December 31, 2020 (“2020”).

“We generated solid growth in our key performance measures in the fourth quarter, and throughout 2020, despite the unprecedented disruption caused by the COVID-19 pandemic. Our growth reflects the impact of our property acquisitions and contractual rent increases across our portfolio. We collected 97 percent of our contractual base rent in 2020, with the remaining amount subject to deferral agreements,” said Milton Lamb, CEO of Automotive Properties REIT. “Our results highlight the strength of our business model, the resiliency of our tenants’ businesses and our strategy of partnering with leading, well-capitalized auto dealership groups in major metropolitan markets across Canada.”  

“Our focus on maintaining a strong liquidity position throughout the pandemic has enabled us to effectively manage through the crisis and to selectively capitalize on growth opportunities,” added Mr. Lamb. “As the pandemic is brought under control and economic conditions continue to stabilize, we expect to see greater opportunities to advance our acquisition program.”

Q4 2020 Highlights

  • The REIT collected 100% of its Q4 2020 contractual base rent due under its leases (excluding 2% of contractual base rent that is subject to rent deferral agreements with tenants (the “Deferral Agreements”)), and approximately 97% of its contractual base rent for 2020, with the remaining amount subject to 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 Q4 2020, representing an AFFO payout ratio of approximately 93.9%, compared to total distributions paid of approximately $8.0 million in the three-month period ended December 31, 2019 (“Q4 2019”), representing an AFFO payout ratio of approximately 99.6%. The lower AFFO payout ratio in Q4 2020 reflects organic growth in NOI and acquisitions made during and subsequent to Q4 2019.
  • The REIT continues to have a strong liquidity position with $59.4 million of undrawn credit facilities and a Debt to Gross Book Value (“Debt to GBV”) of 43.2% as at December 31, 2020.
  • The overall capitalization rate applicable to the REIT’s entire portfolio was 6.7% as at December 31, 2020, a reduction of approximately 20 basis points from 6.9% as at September 30, 2020, primarily due to the resilience demonstrated by our tenants’ business.

Subsequent Event

  • On March 1, 2021, the REIT acquired the real estate underlying the Lexus Laval automotive dealership located in Laval, Quebec from the Dilawri Group (“Dilawri”) for a purchase price of approximately $14.8 million. The REIT satisfied the purchase price by issuing 1,369,102 trust units of the REIT to Dilawri, raising Dilawri’s effective interest in the REIT to approximately 28.1%.

Financial Results Summary¹          

Three months ended 
December 31,

Twelve months ended 
December 31,

($000s, except per Unit amounts)

2020

2019

Change

2020

2019

Change

Rental revenue (2)

$19,091

$18,122

5.3%

$75,124

$67,580

11.2%

NOI

16,471

15,144

8.8%

64,019

57,354

11.6%

Cash NOI

15,486

14,301

8.3%

60,400

53,844

12.2%

Same Property Cash NOI (excluding bad
debt expense) (2)

13,913

13,743

1.2%

50,842

50,273

1.1%

Net Income (Loss) (3)

30,180

3,894

26,965

(4,499)  

FFO

11,237

8,983

25.1%

43,789

36,148

21.1%

AFFO

10,333

8,227

25.6%

40,498

32,906

23.1%

Distributions per Unit

$0.201

$0.201

$0.804

$0.804

FFO per Unit – basic (4)

0.236

0.222

0.014

0.919

1.003

-0.084

FFO per Unit – diluted (5)

0.233

0.220

0.013

0.910

0.997

-0.087

AFFO per Unit – basic (4)

0.217

0.203

0.014

0.850

0.913

-0.063

AFFO per Unit – diluted (5)   

0.214

0.202

0.012

0.841

0.908

-0.067

Ratios (%)

FFO payout ratio

86.3%

91.2%

-4.9%

88.4%

80.6%

7.8%

AFFO payout ratio

93.9%

99.6%

-5.7%

95.6%

88.6%

7.0%

Debt to GBV

43.2%

43.6%

-0.4%

43.2%

43.6%

-0.4%

(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 Q4 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 income for Q4 2020 includes changes in fair value adjustments of $7.6 million for Class B limited partnership units of Automotive Properties Limited Partnership (“Class B LP Units”), deferred units (“DUs”) and income deferred units (“IDUs”), $1.4 million for interest rate swaps and $27.1 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 Q4 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 Q4 2020 was 48,203,686.

Rental revenue was $19.1 million in Q4 2020 and $75.1 million in 2020, representing increases of 5.3% and 11.2%, respectively from Q4 2019 and the year ended December 31, 2019 (“2019”). Increased rental revenue in Q4 2020 and 2020 reflects growth from properties acquired during and subsequent to Q4 2019 and 2019, respectively, and contractual annual rent increases.

The REIT generated total Cash NOI of $15.5 million in Q4 2020 and $60.4 million in 2020, representing increases of 8.3% and 12.2%, respectively, from Q4 2019 and 2019. The increases were primarily attributable to the properties acquired during and subsequent to Q4 2019 and 2019, respectively, as well as contractual rent increases. The increase in Cash NOI for 2020 was partially offset by bad debt expense. Same Property Cash NOI (excluding bad debt expense) was $13.9 million in Q4 2020 and $50.8 million in 2020, representing increases of 1.2% and 1.1%, respectively, from Q4 2019 and 2019. The increases were attributable to contractual rent increases.

The REIT recorded net income of $30.2 million in Q4 2020, compared to net income of $3.9 million in Q4 2019. Net income for 2020 was $27.0 million, compared to a net loss of $4.5 million in 2019. The positive variances were primarily due to increases in NOI and fair value adjustments for interest rate swaps, investment properties and Class B LP Units, DUs and IDUs.

FFO was $11.2 million, or $0.233 per Unit (diluted) in Q4 2020 and $43.8 million, or $0.910 per Unit (diluted) in 2020. That compares to FFO of $9.0 million, or $0.220 per Unit (diluted) in Q4 2019 and $36.1 million, or $0.997 per Unit (diluted) in 2019, respectively. The increases in FFO in Q4 2020 and 2020 were primarily due to the impact of the properties acquired during and subsequent to Q4 2019 and 2019, respectively, and contractual rent increases. The decline in FFO per Unit (diluted) in 2020 partially reflects the deleveraging and enhancing of the REIT’s liquidity position as a result of the REIT’s issuance of 7.9 million REIT units for gross proceeds of $92 million in December 2019 (the “December 2019 Equity Offering”).   

AFFO was $10.3 million, or $0.214 per Unit (diluted) in Q4 2020 and $40.5 million, or $0.841 per Unit (diluted) in 2020. That compares to AFFO of $8.2 million, or $0.202 per Unit (diluted) in Q4 2019 and $32.9 million, or $0.908 per Unit (diluted) in 2019. The increases in AFFO in Q4 2020 and 2020 primarily reflect the impact of the properties acquired during and subsequent to Q4 2019 and 2019, respectively, together with contractual rent increases. The decline in AFFO per Unit (diluted) in 2020 was due to the impact of the December 2019 Equity Offering, as noted above.

Adjusted Cash Flow from Operations1 (“ACFO”) for Q4 2020 and 2020 increased to $13.4 million and $40.3 million, respectively, compared to $8.8 million and $34.1 million, respectively, in Q4 2019 and 2019. The increase in Q4 2020 was primarily due to the collections of tenant rent deferrals pursuant to the Deferral Agreements in Q4 2020, the impact of the properties acquired during and subsequent to Q4 2019, and contractual rent increases. The increase in 2020 reflects the impact of the properties acquired during and subsequent to 2019, as well as 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 Q4 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 93.9%. For 2020, the REIT declared and paid total distributions of $38.3 million, or $0.804 per Unit, representing an AFFO payout ratio of 95.6%. The AFFO payout ratio was lower in Q4 2020 compared to Q4 2019 as a result of organic growth in NOI and acquisitions made during and subsequent to Q4 2019. The AFFO payout ratio was higher in 2020 compared to 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.

Liquidity and Capital Resources 

As at December 31, 2020, the REIT was in a strong liquidity position with a Debt to GBV of 43.2%, $59.4 million of undrawn credit facilities, approximately $0.3 million of cash on hand, and nine unencumbered properties with a value of approximately $150.5 million. The REIT added a tenth unencumbered property on March 1, 2021 when it acquired the real estate underlying the Lexus Laval automotive dealership, as described above. The aggregate value of the 10 unencumbered properties currently in the portfolio is approximately $165.3 million.

Units Outstanding

As at December 31, 2020, there were 37,697,052 REIT Units and 9,933,253 Class B LP Units outstanding. On March 1, 2021, the REIT issued an additional 1,369,102 REIT Units to Dilawri to satisfy the purchase price for the real estate underlying the Lexus Laval automotive dealership, as described above.

Outlook 

The REIT has collected 100% of its expected January, February and March 2021 contractual base rent under the leases, plus contractual base rent that is subject to the Deferral Agreements.

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 the end of May 2020. By the end of May 2020, all of the REIT’s tenants were open for business. However, partial closures or heightened restrictions were reinstated for automotive dealerships across Canada in November 2020 and continue to this date. According to Statistics Canada, new automobile sales per unit in Canada for the year ended December 31, 2020 were down approximately 20.8% compared to the corresponding period in 2019. Industry analysts have stated that Canadian automobile retail sales were down by 13.4% in January 2021 when compared to January 2020, as a result of tight lockdowns which restricted activity across the country. Automotive dealerships have been provided with support from original equipment manufacturers, financial institutions, governments and rent deferral programs throughout the pandemic. As provincial COVID-19 related restrictions ease, pent-up consumer demand is expected to result in an increase in Canadian auto sales and in service work performed by the automotive dealerships. However, 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, including as a result of the restrictions implemented in Q4 2020, is unknown at this time.

As a result of COVID-19 and the related economic uncertainty and the REIT’s primary focus on its own liquidity preservation, the REIT expects a slower pace of industry consolidation in the automotive dealership industry during 2021, compared to the pace of consolidation prior to the onset of the pandemic in March 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 is well prepared to adjust its business continuity and other plans should risk levels rise as the pandemic continues to evolve.

Financial Statements

The REIT’s audited consolidated financial statements and related Management’s Discussion & Analysis (“MD&A”) for the year ended December 31, 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 Wednesday, March 24, 2021 at 9:00 a.m. (ET). The dial-in numbers for the conference call are (416) 764-8688 or (888) 390-0546. 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) 764-8677 or (888) 390-0541, passcode: 443640 #. The replay will be available until March 31, 2021.

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 66 income-producing commercial properties, representing approximately 2.5 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, 2020 and in the REIT’s annual information form dated March 23, 2021, 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 MD&A for the year ended December 31, 2020 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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