Automotive Properties REIT Reports 2017 Fourth Quarter and Year-End Financial Results

TORONTO, March 20, 2018 /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 2017") and year ended December 31, 2017 ("2017"). The REIT's audited consolidated financial statements and the related Management's Discussion & Analysis ("MD&A") for the three and twelve-month periods ended December 31, 2017 are available on the REIT's website at www.automotivepropertiesreit.ca and on SEDAR at www.sedar.com.

Q4 2017 Highlights

• Property rental revenue was $10.9 million, an increase of 18.9% from the fourth quarter of 2016 ("Q4 2016");
• Net Operating Income¹ ("NOI") was $9.2 million, up 19.6% from Q4 2016;
• Total and Same Property Cash NOI¹ were $8.5 million and $7.0 million, respectively, representing increases of 20.3% and 1.4%, respectively, from Q4 2016;   
• Net Income increased 16.9% to $6.6 million from $5.6 million in Q4 2016;
• Funds from Operations¹ ("FFO") increased 24.0% to $6.2 million, from $5.0 million in Q4 2016. FFO per unit of the REIT ("Unit"), was $0.237 (diluted), up from $0.229 (diluted) in Q4 2016;
• Adjusted Funds from Operations¹ ("AFFO") increased 22.8% to $5.6 million, from $4.6 million in Q4 2016.  AFFO per Unit was $0.215 (diluted), up from $0.210 (diluted) in Q4 2016;
• On December 1, 2017, the REIT acquired the Ericksen Infiniti automotive dealership property, Southtown Hyundai automotive dealership property and Kentwood Ford vehicle service compound facility in Edmonton, Alberta from a third-party vendor for $23.2 million. The REIT assumed the existing triple-net leases on these properties;
• On December 15, 2017, the REIT acquired the Mazda des Sources automotive dealership property in Dorval, Quebec for $8.0 million. The operating tenant, owned by the Dliawri Group, entered into a 19-year, triple-net lease with the REIT;
• On December 18, 2017, the REIT extended and increased one of its credit facilities, providing enhanced financial flexibility and overall acquisition capacity;
• 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 93.5%; and
• The REIT's debt to gross book value ("Debt to GBV")¹ was 48.5% as at December 31, 2017, compared to 51.5% as at December 31, 2016.

Subsequent Events

• On February 13, 2018, the REIT acquired an automotive dealership property in Kitchener-Waterloo, Ontario that will be redeveloped for a luxury, high-end car company that will occupy the premises. The REIT estimates that the total expenditures in connection with this acquisition, including the purchase price, redevelopment costs and related expenses will be approximately $7.5 million.

"We generated solid year-over-year growth in property revenue, NOI, FFO and AFFO in both our  fourth quarter and 2017 fiscal year, supported by the continued execution of our acquisition program and annual rent increases across the majority of our property portfolio," said Milton Lamb, CEO of Automotive Properties REIT. "During 2017, we completed seven property acquisitions through which we further diversified our portfolio in terms of geography, tenants and automotive brand representation. The pace of our acquisition program has been slowed primarily due to the continued record levels of automotive sales, which has delayed dealer disposition activity. Looking ahead, we remain well positioned to continue advancing our acquisition program with a sound balance sheet, an elevated profile among dealership owners and our continued expectation of consolidation within the dealership industry."

¹ NOI, Cash NOI, Same Property Cash NOI, FFO, AFFO, and Debt to GBV are non-IFRS financial measures. See "Non-IFRS Financial Measures" in this news release. Reference to "Same Property" correspond to properties that the REIT owned for the equivalent periods in 2016, thus removing the impact of acquisitions.

 2017 Financial Results Summary ($000s, except per Unit amounts)

Rental revenue was $10.9 million in Q4 2017 and $41.8 million in 2017, representing increases of 18.9% and 22.0%, respectively, over Q4 2016 and the twelve months ended December 31, 2016 ("2016"). Increased rental revenue reflects growth from properties acquired subsequent to 2016 and contractual annual rent increases of 1.5% across a significant portion of the portfolio, which were partially offset by the accounting of the straight-line lease adjustments.

Property costs were $1.7 million in Q4 2017 and $6.4 million in 2017 compared to $1.4 million and $4.8 million, respectively, in Q4 2016 and 2016. The increase in property costs in both periods was attributable to the properties acquired subsequent to 2016. Property costs as a percentage of revenue decreased from 15.8% in Q4 2016 to 15.4% in Q4 2017, primarily due to higher rental revenue from the properties acquired subsequent to Q4 2016. For 2017, property costs as a percentage of revenue increased to 15.2% from 14.0% in 2016, primarily due to an increase in realty tax payments in respect of the properties acquired subsequent to 2016. These costs are recoverable from the applicable tenants pursuant to the terms of the applicable triple-net leases.

Total and Same Property Cash NOI generated during Q4 2017 totaled $8.5 million and $7.0 million, respectively, representing increases of 20.3% and 1.4%, respectively, from Q4 2016. For 2017, total and Same Property Cash NOI were $32.5 million and $25.9 million, respectively, representing increases of 21.5% and 1.45%, respectively, from 2016. The quarterly and annual increases in total and Same Property Cash NOI were attributable to the properties acquired subsequent to 2016 and the annual contractual rent increases of 1.5% per year across a significant portion of the portfolio.

Net Income was $6.6 million in Q4 2017 and $26.2 million in 2017, up 16.9% and 587%, respectively, from the comparable periods in the prior year. The increases were primarily due to the growth in NOI and the change in the fair value adjustments for Class B LP Units, investment properties, and interest rate swaps.

FFO was $6.2 million in Q4 2017 and $25.1 million in 2017, up 24.0% and 26.2%, respectively, from the comparable periods in the prior year. The increases were primarily due to the impact of the properties acquired subsequent to 2016. On a per Unit basis, Q4 2017 FFO was $0.237 (diluted), compared to $0.229 in Q4 2016, while 2017 FFO was $0.974 (diluted), compared to $1.040 in 2016. The per Unit decline in 2017 was primarily attributable to the dilutive effect of the REIT's equity offering in February 2017, which resulted in a lower Debt to GBV of 48.5%, which provides the REIT with capacity to acquire approximately $65.0 million of additional properties in the future.

AFFO was $5.6 million in Q4 2017 and $22.7 million in 2017, representing increases of 22.8% and 28.5%, respectively, from the comparable prior-year periods. The increases were primarily due to the properties acquired subsequent to Q4 2016. On a per Unit basis, Q4 2017 AFFO was $0.215 (diluted) compared to $0.210 in Q4 2016, while 2017 AFFO was $0.879 (diluted), compared to $0.921 in 2016. The per Unit decline in 2017 was primarily attributable to the impact of the equity offering, as noted above.

Adjusted Cash Flow from Operations ("ACFO") for Q4 2017 and 2017 increased to $5.9 million and $22.6 million, respectively, compared to $4.8 million and $18.0 million, respectively, in Q4 2016 and 2016. The increases in both periods were primarily attributable to the impact of the properties acquired subsequent to 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 Q4 2017, or $0.201 per Unit, representing an AFFO payout ratio of 93.5%. For 2017, the REIT declared distributions of $20.7 million and paid $20.5 million to unitholders, representing an AFFO payout ratio of 91.5%. The AFFO payout ratio for Q4 2017 was lower than Q4 2016 due to the impact of the properties acquired subsequent to 2016. The AFFO payout ratio for 2017 was higher due to financial deleveraging resulting from 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 which indicate a decrease in capitalization rates in the Vancouver and Alberta markets which were partially offset by a capitalization rate increase for the Regina market from December 31, 2016. The overall capitalization rate applicable to the entire portfolio remained at 6.5%, which is equivalent to the REIT's overall assessment as at December 31, 2016. The fair value of the REIT's investment properties was $543.1 million as at December 31, 2017.

Liquidity and Capital Structure

During Q4 2017, the REIT put in place a new non-revolving loan in the amount of $20.0 million and a new revolving credit facility in the amount of $14.0 million maturing in December 2022, which replaced its prior $14.6 million revolving credit facility, maturing in October 2019.

As at December 31, 2017, the REIT had cash and cash equivalents of $0.2 million and access to $27.0 million in undrawn revolving credit facilities. The REIT had $265.3 million outstanding on its credit facilities with an effective weighted average fixed interest rate on its debt of 3.35%. Interest rates on $190.0 million have been effectively fixed for a term of 5.3 years by way of interest rate swaps. The REIT's Debt to GBV as at December 31, 2017 was 48.5%.

Units Outstanding

As at December 31, 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, automotive retail industry sales totaled a record $156 billion in 2017 (up 9% from $143 billion in 2016), representing approximately 27% of Canada's overall retail sales of products and merchandise. Over the last 20 years, Canadian automobile retail industry sales grew at a compound annual rate of 4.6%. Sales of new automobiles in 2017 totaled a record 2,076,970 units, up 4.7% from 2016, which was previously the annual all-time high for automobile sales in Canada. Management expects continued steady industry sales levels for 2018.

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 continuing to gain 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. Although, the REIT has been actively expanding its automotive dealer and industry relationships to build its acquisition pipeline, Management believes the pace of the REIT's acquisition program has been slowed primarily due to the continued record levels of automotive sales, which has delayed dealer disposition activity. The REIT's Debt to GBV of 48.5% provides the REIT with the capacity to acquire approximately $65.0 million of additional properties in the future.

Conference Call

Management of the REIT will host a conference call for analysts and investors on Wednesday, March 21, 2018 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 www.automotivepropertiesreit.ca.

To access a replay of the conference call, dial (416) 849-0833 or (855) 859-2056, passcode: 4699823. The replay will be available until March 28, 2018.

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 39 income-producing commercial properties representing approximately 1.4 million square feet of gross leasable area in metropolitan markets across 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 MD&A for the year ended December 31, 2017 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 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 and 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, 2107 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