Automotive Properties Real Estate Investment Trust (TSX:APR.UN) Q2 2026 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to Automotive Properties REIT's twenty twenty six Second Quarter Results Conference Call and Webcast. At this time, all lines are in a listen only mode. Following management's remarks, we will conduct a question and answer session. Please be aware that certain information discussed today may be forward looking in nature. Such forward looking information reflects the REIT's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward looking information. For more information on the risks, uncertainties and assumptions relating to forward looking information, please refer to the REIT's latest MD and A and annual information form, which are available on SEDAR plus Management may also refer to certain non IFRS

1:05 financial measures. Although the REIT believes these measures provide useful supplemental information about financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please refer to the REIT's latest MD and A for additional information regarding non IFRS financial measures. This call is being recorded on 08/14/2026. I would now like to turn the conference over to Milton Lamb, President and CEO. Please go ahead, Mr. Lamb. Thank you, Morgan and good morning everyone. With me on our call is Andrew Kalra, our Chief Financial Officer. Our strong second quarter performance reflects the positive impact of the property acquisitions we completed during 2025 and Q1 of this year plus partial contribution of the three properties we acquired in Greater San Diego and Santa Ana, California in early Q2.

2:10 Compared to Q2 of last year, our property rental revenues increased by 22.8%, cash NOI is up 20%, AFFO has increased by 18% and AFFO per unit diluted increased to $0.02 $63 from $0.02 $49 This represents a record quarterly AFFO per unit amount for APR, up from our prior record of Q1 this year demonstrating the positive impact of our acquisitions and embedded growth for contractual fixed or CPI adjusted rent increases in our net lease structure. This is further reflected in our reduced AFFO payout ratio of 78.3% in the quarter compared to 80.7% in Q2 of last year, despite our distribution increase last year in issuance of REIT units through the completion of our $57,000,000 equity offering last October.

3:17 With our strong financial performance, the REIT's trustees have approved an increase of approximately 2% to our annual cash distribution from $82.02 to $0.08 $39 per unit. Our new monthly distribution will be $0.06 $99 per unit, up from $0.06 $85 This increase will be effective for this month's distribution to be paid on or about 09/15/2026 to unitholders of record on 08/31/2026. This marks the second consecutive year we have implemented a distribution increase, which highlights our confidence in the stability of our cash flow.

4:06 Further, the underlying stability of our cash flow, we were active in Q2 renewing several of our leases, including one of our dealership properties in Vancouver, one of our dealership properties in Regina, which were extended by an average of seven point five years with base rent increases of approximately 4.8% with subsequent annual fixed rent increases.

4:32 Our VW DaySource dealership property in Montreal was extended beyond its current lease maturity of 2027 for a further six years subject to a CPI adjustment in 2027. One of our dealership properties in Calgary was also extended by five years at rents to be agreed upon as that renewal commences. We also announced yesterday that subsequent to quarter end we entered into a new lease and joint arrangement with a member of the Dilawri Group pursuant to which we have agreed to lease our 69,000 square foot automotive dealership property located at 9088 Jane Street in Vaughan under a sixteen year triple net lease whereby the landlord has a redevelopment option after redevelopment option.

5:25 We expect rent payments to commence on 12/01/2026. Concurrently, we've agreed to sell 50% interest in the property for a cash purchase price of $16,000,000 reflecting a premium to IFRS value with the expected closing in September 2026. We expect to retain the remaining 50% interest of the property and all parties have waived conditions. It should be noted that the demand for automotive facilities has allowed us to maintain a 100% leased portfolio even though some of the properties have experienced changes in the OEM franchises. With the new lease at 9088 Jane Street combined with the recent lease renewal activity, we'll have no material lease expirations until 2028.

6:16 I'd now like to turn it over to Andrew Kalra to review our financial results in more detail. Andrew? Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $30,200,000 from 24,600,000 in Q2 a year ago, reflecting growth from properties we acquired during and subsequent to Q2 last year and contractual annual rent increases.

6:40 Total cash NOI, same property cash NOI for the quarter totaled $24,800,000 and $21,100,000 respectively, representing increases of 202.2% compared to Q2 last year. Interest expense and other financing charges for the quarter were $8,100,000 an increase of $1,700,000 from Q2 last year, reflecting additional debt incurred to fund the acquisitions. Our G and A expenses were $1,600,000 for the quarter, an increase of about $80,000 from Q2 last year and in line with the REIT's expectations. Net income and other comprehensive income was $18,100,000 compared to $11,200,000 in Q2 last year. The increase was primarily due to higher NOI, changes in noncash fair value adjustments for investment properties and foreign exchange gain, partially offset by higher interest cost and a change in non cash fair value adjustments for interest rate swaps.

7:47 FFO and AFFO increased by 19.4180.6% respectively compared to Q2 last year, reflecting higher rental revenue from the acquisitions and contractual rent increases. On a per unit basis, FFO increased to $0.27 diluted, up from $0.02 $44 in Q2 last year, and AFFO per unit increased to $0.02 $63 diluted, up from $0.02 $49 We paid unitholder distribution totaling 20.6¢ per unit in the quarter representing an AFFO payout ratio of 78.3%. This compares with the total distribution of $0.02

8:33 $01 per unit in Q2 last year for a payout ratio of 80.7%. The cap rate applicable to our portfolio was 6.7% at quarter end, which is flat compared to 2025 end. We continue to be proactive with our debt strategy to enhance our financial flexibility. During the quarter, we increased the amount of the non revolving portion of Facility two by $35,000,000 and extended the maturity date to June

9:04 2030 with the same credit spread. At quarter end, 74% of our debt was fixed with a weighted average interest rate of 4.49, a weighted average interest rate swap term and mortgages remaining of three point nine years, and a weighted average term of maturity of debt of two point nine years as we continue to increase and extend our credit facilities. As at August 13, we had a debt to GBV ratio of 47.5% with approximately $64,000,000 of undrawn capacity under our credit facility and 11 unencumbered properties valued at $166,700,000 I'd like to turn the call back to Milton for closing remarks. Thank you very much.

9:51 Thanks, Andrew. Following our entry into The U. S. Market last year, we're pleased with the progress we've made in expanding our portfolio including The U. S. Portfolio properties. We now own properties in Ohio, Florida and California representing leading automotive brands including Tesla, Rivian and Penske Automotive Group with their Audi and VW properties.

10:15 This increased geographic and tenant diversity enhances the underlying strength of our portfolio and provides a broader array of acquisition opportunities for us. We continue to position APR as an attractive partner to major automotive dealership groups and OEMs in Canada and The United States. We are successfully executing our key objectives, including expanding our geographic market presence and diversifying our tenant base through property acquisitions, optimizing our portfolio and capital position with our bond property transaction and recent value enhancing lease renewals, driving AFFO per unit growth and increasing our cash distributions. Looking ahead, we look forward to building on our positive momentum supported by a growing property portfolio featuring high quality tenants providing essential retail and services, locations in prime metropolitan markets in Canada and The U. S. With GDP and population growth,

11:18 an attractive net lease structure and embedded fixed or CPI adjusted rental growth. That concludes our remarks. I would now like to open the line for questions. Morgan, please go ahead. Thank you, Mr.

11:53 Queue. Your first question comes from Jonathan Kelcher with TD Cowen. Your line is open. Thanks. Good morning. Good morning. First on this deal with Dilawri, can you maybe give a little bit of color on like why you're selling 50% interest, what the landlord redevelopment option, how like how that would work?

12:22 Yes, sure. The thought process is it follows on what we've been saying for a while. We love the underlying dirt. It's an automotive zone property that has good demand. And it was trying to balance our ability in the future to potentially do mixed use redevelopments plus the desire obviously to get strong income and have a strong tenant.

12:48 So it's a bit of a trade off for flexibility. If you do a flashback almost ten years, we bought this property for just over $17,000,000 have certainly had a nice ten years with it, including some good rental growth. And now being able to take $16,000,000 which for 50%, which is almost equals what we bought it for originally, get some good income and maintain some of that flexibility in the future. It worked very well to get that balance. Certainly, now is not the right time to be leaning into redevelopment. So this allows us to straddle both worlds of good income and good underlying value. Okay. And I and I'm guessing your your ability to get that redevelopment.

13:39 So like, if in four years or something you wanna do it, you'd be just able to do so?

13:45 Yeah. It's not four years. There's a minimum term. And then at that point, with appropriate notice, which certainly if you're going through planning, it's easy to give significant notice. We can go ahead and look at doing a redevelopment.

14:02 Okay. And then I guess just in order to get Dilare to agree to that, that was a quick pro quo is selling the half interest in the property?

14:11 I don't know if I love that word because of good old Trump. But, yeah, I mean, it it was the balance between having flexibility. Obviously, there's investment that has to go into the property as they kind of put the new OEM in place. So it worked very well that, you know, if there is that underlying or I'd really like to think when there is that underlying higher and better use that we can do it together both win and then hopefully there'd be a relocation of any new tenant or potentially have that tenant stay within the new redevelopment complex. Okay, thanks. I'll turn it back.

14:49 Your next question comes from Saron Srinivas with ATB Core Mark Capital Markets. Line is open. Thank you, operator. Good morning, guys. Good morning. Following up on another line of questioning on the bond leasing.

15:05 Milton, just to clarify, the 16,000,000 you paid for the property, that's for the 100%?

15:11 Sorry. With $17,000,000 we bought it for just over $17,000,000 in 2016 for 100%. And yes, now we're selling 50% for 16,000,000 or the equivalent of 32 for a 100%. That is amazing math. Thank you. And just kind of looking at the acquisition pipeline now, Obviously, you guys have been active in The U. S. And Canada as well. How would you characterize the pipeline in terms of your geographic dispersion?

15:45 Sorry, can you repeat that?

15:48 Pipeline shot. So just looking at your pipeline of acquisitions and the spread between The US and Canada. Yeah. Last quarter, a dollar 42 was not looking that attractive. We love getting the income at a dollar 42. You know, we think we're watching that dollar resettle back into the high one thirties, $1.39 and change now. There's a bit of a balance there. And, you know, I've always found the summer

16:17 I say this with a bit of a smile. Most dealers enjoy their summer. So we look forward to, you know, the back half of the year when, you know, often there's more m and a and more deals that do occur. The balance between the two, you know, we we like some of the GDP and population growth markets in The States, in that Southeast kinda through the Southwest.

16:41 It'll be interesting. There's a balance on where we want to see growth. There's certainly more opportunities when we're looking at both sides of the border. So we're looking forward to the back half of the year. That's great, Nelson. Thank you for the color. I'll turn it back. Your next question comes from Brad Sturges with Raymond James. Your line is open. Hey, good morning. Good day. Just circling back to the Vaughan property in terms of the new lease with the Dilawri affiliate. Wondering if you could give a bit bit of color just on the new rent versus prior rents.

17:28 There's a you know, we talked about the rent starting in December 1, so that's already public. You know, there's there's some money that has to go into it. The rents are nicely above when we acquired this property, and they continue to grow. They grew nicely over the last ten years. You know, not a significant difference. Again, there's there's probably a bit more,

17:53 sorry, a bit of flexibility in there because of the redevelopment clause, but it's it's not materially different than what we would have looked at previously. Okay. And then it would be similar to other Delari leases with, like, a 1.5% fixed It's it's very much the you know, outside of the one clause that we talked about, it's very much a standard Delari lease. Yes, makes sense. Okay. And then just looking at the other lease extensions, just could you give a bit of more color in terms of when those extensions would be effective?

18:30 The two that we have talked about the increase that was announced, those were effective. I mean, we announced them before. It was just coming up with the formula. So those are already in place. The other ones are early to mid next year on when they would actually kick in. Then we've received the renewal notices, but the actual increases and new new lease rates would be, call it, mid next year.

19:01 The ones that are already affected, would we see much of an impact in the quarter, or was that at sort of the end of the quarter? These these were rollovers from the original IPO. So that was done in July 2015. So most of the rent increases with regards to the original portfolio are in July or August, so they'd be in q three. Perfect. Okay. I'll turn it back. Thank you. Thank you.

19:28 Your next question comes from Ximing Liu with Desjardins. Your line is open. Thanks. Good morning. Just a follow-up on the one property. So I'm just wondering whether you can disclose like the estimated cap rate on the new fifteen year lease?

19:49 Yeah. We don't tend to disclose cap rate, and certainly, in this case, when we already own the property. That's I love the back math because that's basically asking us to tell you what the net rent is. So, no. It's not disclosed. Okay. Okay. Thanks. So so after this sale of the 50% interest, are you contemplating any other dispositions in the near term?

20:18 This was a special circumstance with a high quality property and the desire to get income and maintain the redevelopment optionality. Short answer is we like our portfolio. We still remain at eleven years, a 100% leased and a 100% rent payment. We never say no, but, you know, to look at anything. But right now, we have nothing contemplated.

20:46 Okay, that's helpful. Will turn it back. Thanks. Thank you. Your next question comes from Jimmy Shan with RBC Capital Markets. Your line is open. Thanks. On the various extensions and early renewals, I'm just curious if you could provide a bit of background and context for doing that. Is it more tenant driven? Is it you being proactive?

21:20 Just trying to understand that a little bit more. Kind of both. Certainly, of them, it was option periods. Other ones had demand either if they relocated. If we didn't get the renewal, then we had backup demand. So they stepped up and renewed. It's it's it's partly that we're now hitting some of the maturity on the original eleven to nineteen year deal. Certainly, on the day source, the VW, we originally said one of the the terms was fairly short, but we had very strong confidence that they would renew. And to no surprise, they renewed.

22:06 So it's it's a bit of what was anticipated, and we've been working with them to kinda hit the numbers and get that in place. So it's it's it's partly that you know, what I kinda like is, a, the backup demand and, b, in a number of cases, the dealer group have used this for other OEMs as opposed to the original one. So even when you're seeing transition within the property, the dealer community likes to hold on to these assets because they can use them to achieve other franchises. It kinda goes to supporting our backstory that we've kinda talked about for the last ten, eleven years. Yeah. That's helpful. And just a quick follow-up on the bond side. So what is that minimum term before you can contemplate redevelopment?

22:55 It's it's not announced, and they've asked us not to announce it. But, you know, in the in the near future, I don't see that land value being at a level that I anticipate it will be once this market matures and gets back to having true residential mixed use value. Certainly, with a sixteen year lease, is it a sixteen year lease? Yes. It will be shorter than sixteen years? Yes. Very much so. All right. Thanks. Your next question comes from Giuliano Thornhill with National Bank. Your line is open. Thanks. Good morning, everyone.

23:41 I just want to ask about the bond side as well. I'm Wondering kinda can you give us some more description on who the old tenant was, maybe the OEM there, and and the rationale for leaving the site? Yeah. It was FAP which got acquired by Lithia. So Lithia FAP within Audi. Audi has they did extremely well there. It was 60 odd thousand feet. They wanted to expand, and so they've they've moved their location around the corner and done a new build. I gotta say it's a beautiful building, and that that left this opportunity available. And the are you aware of the or can't disclose the new OEM that we'd be putting in place by Dilawri as well? We are aware. They're asking not to disclose it. Similar to Tesla, they often you know, dealers like to be able to announce it because it's a bit marketing, bit promotional when they do announce it. So we don't wanna take away that fanfare from them.

24:46 Yep. Yeah. Absolutely. And then just on the on the the modeling, I know it closes September. So will you be, recognizing straight line rent for the first bit until the and then cash rent on December? Is that the so the lease will be working? Yeah. We'll recognize, it's getting small. We'll recognize straight line September, and then the cash will be coming in December 1. Right. Cash. Perfect. Alright. I'll turn it When we do close it within September. Yep. Yep. Absolutely. But, obviously, it's not reflected in the q twos. That'll be reflected in q three. Concludes our Q and A session. I will now turn the conference back over to Milton Lamb for any closing remarks.

25:33 That's great, everyone. Thank you very much, and enjoy the rest of the summer. This concludes today's call. Thank you for attending. You may now disconnect, and have a wonderful rest of your day.