Automotive Properties Real Estate Investment Trust (APR-UN-T) generated strong year-over-year growth in rental revenue, cash net operating income (NOI) and adjusted funds from operations (AFFO) in the three- and six-month fiscal periods ended June 30.

Rental revenue rose by 22.8 per cent to $30.21 million, cash NOI increased by 20 per cent to $24.76 million and AFFO improved by 18.6 per cent to $14.92 million.

The positive financial performance enabled the REIT to increase its regular cash distributions by two per cent, which follows the 2.2-per cent increase announced last August.

Automotive Properties REIT is the only public vehicle in Canada focused on consolidating primarily income-producing automotive and other original equipment manufacturer dealership and service properties in Canada and the United States. 

The trust's portfolio currently consists of 95 income-producing commercial properties, representing approximately 3.5 million square feet of gross leasable area, in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, California, Florida and Ohio.

“The demand for automotive facilities has allowed us to maintain a 100-per-cent leased portfolio,” president and chief executive officer Milton Lamb said during an Aug. 13 conference call to discuss Automotive Properties REIT’s second-quarter financial and operational performance.

Vaughan property transaction

Automotive Properties REIT has just entered into a joint arrangement that will see it sell a 50 per cent interest in its 68,874-square-foot automotive dealership property located on 2.98 acres of land at 9088 Jane St. in Vaughan, Ont. to a member of the Dilawri Group of Companies for a cash purchase price of $16 million. 

The trust originally purchased the property in 2016 for just over $17 million, and rents had increased since then, so it’s a good return.

The property is expected to be tenanted by an affiliate of the Dilawri Group as a full-service automotive dealership under a 16-year triple-net lease subject to a landlord redevelopment option. The deal is expected to close by the end of September, with rent payments starting on Dec. 1. 

“We love the underlying dirt,” said Lamb. “It's an automotive-zoned property that has good demand and the deal was about trying to balance our ability in the future to potentially do mixed-use redevelopment plus get strong income and have a strong tenant.”

The current tenant of the Vaughan property will vacate the premises at the end of its lease term, on or about Sept. 1, to move to a newly built location around the corner.

Lamb said the REIT’s entire portfolio has been completely leased, and rents have always been paid, for the past 11 years. While there were special circumstances with the Vaughan property sale, there are no other dispositions currently being contemplated.

Other lease renewals

Automotive Properties REIT renewed several other leases during the second quarter, with dealership properties in Vancouver and Regina extended by an average of seven-and-a-half years with base rent increases of approximately 4.8 per cent and subsequent annual fixed-rent increases. 

There was also a six-year renewal at a property in Montreal and a five-year renewal at one in Calgary.

Upon closing of the Vaughan transaction, the trust will have no material lease expirations until 2028.

Acquisitions in U.S.

Automotive Properties REIT acquired the Audi South Coast and South Coast Volkswagen dealership properties, which combine for 61,200 square feet on land totalling 5.95 acres in Santa Ana, Calif., for US$30.15 million on April 7. 

The trust also announced the closing of a previously revealed acquisition of a 59,828-square-foot Rivian sales, delivery and service facility situated on approximately 3.75 acres of land in Vista, Calif. for US$16 million that same day.

“Following our entry into the U.S. market last year, we're pleased with the progress we've made in expanding our portfolio,” said Lamb. “This increased geographic and tenant diversity enhances the underlying strength of our portfolio and provides a broader array of acquisition opportunities for us.” 

Balance sheet will permit more growth

Automotive Properties REIT had market capitalization of $657 million when its share price closed trading on the Toronto Stock Exchange on Aug. 18 at $12.13. That’s between its respective 52-week high and low marks of $12.49 and $10.68.

The REIT had a debt-to-gross book value ratio of 47.5 per cent on June 30. It had $58 million of undrawn capacity under its revolving credit facilities, $700,000 in cash on hand and 11 unencumbered properties with an aggregate value of approximately $166.7 million.

Lamb anticipates that more acquisition opportunities could come up later this year.

“We look forward to building on our positive momentum, supported by a growing property portfolio featuring high-quality tenants providing essential retail and services in locations in prime metropolitan markets in Canada and the U.S. with GDP (gross domestic product) and population growth, an attractive net lease structure and embedded fixed or CPI (Consumer Price Index)-adjusted rental growth,” he said.