Automotive Properties Real Estate Investment Trust (TSX:APR.UN) Q4 2025 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to Automotive Properties REIT's twenty twenty five Fourth Quarter and Year End 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.

0:45 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 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 03/05/2026.

1:34 I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb. Thank you, Morgan, and good morning, everyone. Thank you for joining us. With me today on the call is Andrew Callera, our Chief Financial Officer. 2025 was an instrumental year for Automotive Properties REIT. We acquired 13 automotive properties, including our first three properties in The United States for an aggregate purchase price of approximately $200,000,000 These acquisitions contributed to our significant growth in rental revenue, cash NOI, AFFO per unit in 2025, which supported our distribution increase effective August 2025.

2:21 Compared to 2024, our property rental revenue increased by 8.5%, cash NOI was up 8.4% and AFFO per unit diluted increased to $0.09 $98 from $0.09 $32 As the majority of acquisitions were completed in the second half of the year, our Q4 results show even greater growth with property rental revenue up 19.3% compared to Q4 a year ago. Cash NOI grew 18.6% and AFFO per unit diluted increased to $0.02 $51 from $0.02 $32 Our $57,100,000 equity offering in the quarter, which helped finance our acquisitions, impacted our Q4 AFFO per unit, but we still generated nearly $02 increase to AFFO per unit.

3:27 Supported by our contractual fixed or CPI adjusted rents annual rent increases, our same property cash NOI increased by 1.92.1% for Q4 twenty twenty five and the full year respectively. During Q4, we deployed approximately $57,300,000 for the acquisition of four dealership properties in Greater Montreal, including a portfolio of three properties located in Dorval consisting of a full service Subaru, Honda and VW dealership properties tenanted by affiliates of Dilare and a full service Honda dealership in Ile Perot, tenanted by an affiliate of Group Auto Force, which adds to the sixth property portfolio we previously acquired in Q3, which is also tenanted by affiliates of Group Auto Force.

4:23 We expect to benefit from the full impact of our twenty twenty five acquisitions in 2026. Subsequent to year end, on January 1, we completed the acquisition of a full service 40,000 foot Hyundai dealership situated on six acres of land in Quebec City for a purchase price of $13,250,000 And yesterday, we announced that we've waived conditions for the purchase of the real estate underlying automotive and service property located at 3280 Corporate View in Vista, California from a third party for a purchase price of US16 million dollars This is located in Northern San Diego County. The Vista property is tenanted by Rivian under a mid term net lease that includes contractual fixed annual rent increases with renewal options.

5:17 The Vista property consists of a 60,000 foot Rivian delivery and service facility that is situated on approximately 3.7 acres of land. The acquisition is expected to close during the first half of twenty twenty six and we expect to fund the purchase price by drawing on our revolving credit facilities. We expect these property acquisitions to drive continued growth in our AFFO per unit and we are entering 2026 with solid growth momentum. I'd now like to turn it over to Andrew Kalra to review our Q4 financial results and position in more detail. Andrew? Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $27,900,000 from $23,400,000 in Q4 a year ago, reflecting growth from the properties we acquired during subsequent to Q4 last year and contractual annual rent increases, partially offset by the reduction of rent from the sale of our Kennedy Lands property in October 2024.

6:21 Total cash NOI, same property cash NOI for the quarter totaled $23,200,000 $19,600,000 respectively, representing increases of 18.6 percent and 1.9 percent compared to Q4 a year ago. Interest expense and other financing charges for the quarter were $7,500,000 a $1,900,000 increase from Q4 last year, reflecting additional debt incurred to acquire properties during and subsequent to Q4 twenty twenty four and increased interest rates. Our G and A expenses were $1,800,000 for the quarter, a decrease of $400,000 from Q4 last year in line with our expectations. Net income and other comprehensive income was $13,900,000 compared to $12,000,000 in Q4 last year.

7:14 The increase is primarily due to higher NOI and a change in non cash fair value adjustments for interest rate swaps, partially offset by higher interest costs and changes in non cash fair value adjustments for investment properties and for Class B LP units and unit based compensation, partially offset by foreign exchange loss of 1,000,000 FFO and AFFO increased by 20.418.4% respectively compared to Q4 last year, reflecting higher rental revenue from acquisitions, contractual rent increases, partially offset from the reduction of rent from the sale of the Kennedy Lands. On a per unit basis, FFO increased to $0.02 $59 diluted in the quarter, up from $0.02 $36 in Q4 last year and AFFO per unit increased to $0.02 $51 up from $0.02 $32 We paid unitholders distributions of $11,320,000 or $0.02 $06 per unit representing an AFFO payout ratio of 82.1% compared with 86.6% in Q4 last year reflecting the positive impact of the properties acquired during and subsequent to Q4 last year and contractual rent increases partially offset by the reduction of rent from the sale of the Kennedy

8:45 Lands and the increase in our monthly cash distributions effective August 2025. The cap rate applicable to our portfolio was 6.75% at year end, which is essentially flat quarter over quarter. The $6,800,000 fair value adjustment for the year was primarily related to write off of closing costs, including land transfer taxes associated with the new acquisitions. We continue to be proactive with our debt strategy to limit our exposure to interest rate fluctuations, enhance our financial flexibility. During the quarter, we renewed or entered into $25,000,000 of floating to fixed interest rate swaps for a term of five to six years at a rate or under 4.5.

9:36 We increased the amount of the non revolving portion of Facility 3 by $40,000,000 and extended the maturity to March 2028 at the same credit spread. At year end, we had a debt to GBV ratio of 49.9% providing further acquisition capacity. Subsequent to year end, we entered into floating to fixed interest rate swaps within Facility 3 in the amount of $45,000,000 for terms ranging from five to seven years with interest rates between 4.454.59% and we increased the amount of the revolving portion of facility one by $25,000,000 and extended the maturity from June 2027 to June 2029.

10:24 As at the date of this MD and A on a trailing twelve month basis, the borrowing capacity under our three credit facilities increased by an aggregate $140,000,000 and we extended maturities. We have a well balanced level of annual maturities with less than $40,000,000 of swaps maturing over the next twelve months. We have a weighted average interest rate term and mortgages remaining of four point one years at year end. As at March 4, eighty 7% of our debt was fixed through interest rate swaps and mortgages and we had approximately $102,300,000 of undrawn capacity under our revolving credit facilities and 10 unencumbered properties with an aggregate value of approximately $130,200,000 I'd like to turn the call back to Milton for closing remarks. Thank you very much.

11:21 Great. Thanks, Andrew. 2025 marks our tenth anniversary since the creation of the REIT and over that period we've established ourselves as an important partner to major automotive dealership groups and OEMs in Canada and now in The United States. As a result, we've successfully diversified our tenant base, market presence and brand representation while more than tripling the value of our investment properties. We further built upon this progress in 2025 and strengthened our position for growth through the acquisitions of 13 properties for an aggregate purchase price of approximately $200,000,000 Our entry in The U. S. Combined with our entry into heavy equipment dealership vertical late last year has broadened both our revenue base and our potential acquisition pipeline.

12:13 We are successfully executing on our key objectives, including driving AFFO per unit to build value for unitholders. We're pleased to have implemented a 2.2% increase to unitholder distributions this past year and looking ahead, can expect us to continue to build on these positive factors to drive unitholder value supported by a growing property portfolio, featuring essential retail and service properties with 100% rent collection since our IPO over ten years ago, prime metropolitan markets anchored by GDP and population growth, high quality tenants with resilient business models, attractive single tenant net lease structures and embedded fixed or CPI adjusted rental growth.

13:06 We look forward to benefiting from a full year of the financial impact of our twenty twenty five acquisitions in 2026. That concludes our remarks. Now I'd like to open it up for questions. Morgan, please go ahead. Thank you. We will now begin the question and answer session. Your first question comes from Saron Serveenas with ATB Pharma Capital Markets. Your line is open.

13:52 Hi, operator. Good morning, guys. Congratulations on a very good 2025. You Obviously, 2025 has been very active for the acquisitions pipeline and looks like 2026 is pretty active as well. Can you comment on the outlook ahead and what you're seeing developing in your markets? Yeah, mean, we experienced during COVID and just after a bit of euphoria where some of the pricing on these properties went to a level that we were not comfortable proceeding at. That's now normalized to what we've traditionally seen where we can buy properties in that call it 6.5 to low sevens and put financing in place in the mid fives, sorry in the mid fours.

14:38 That allows us to be at a number of opportunities that are appealing to us. We're still being selective and as you can tell looking at Florida and California plus Montreal, these are markets that are very healthy for real estate and the economy overall. That's definitely the case. Maybe just a follow-up there. Looking at The U. S, you essentially been focusing on revision and that's the talent that you should start. Is that part of your broader strategy as well in terms of The U. S. Market? As a broad strategy, we certainly believe, we watched Tesla for a while before we did our first and then currently we have seven.

15:24 We're excited about what Rivian is doing with the R2 that will launch shortly. So there tends to be some merchant developers in The States that are providing long term leases with Rivian and Tesla in major markets that when we underwrite the real estate both for the existing tenant and for the actual dirt building an area that we're excited about. It is not our sole strategy. We still believe that we will look for and be able to complete some automotive traditional dealership properties as well. It's early days, but we still think there will be a diversified portfolio that we end up building out. Great color and Milton. Thank you so much.

16:11 I'll turn it back. Your next question comes from Jonathan Kelcher with TD Cowen. Your line is open. Thanks. Good morning. I guess, just continuing on that last line of questioning. Pro form a, when this deal close this deal closes, what percent of your net rents will come from Rivia? We don't give forward looking exact, but it's going to be under 5%. I mean it may be three properties, but these are not very large properties. And again we certainly underwrite it for the dirt underneath. We like the assets and we like the tenant.

16:57 Okay, helpful and then just I guess well, second follow-upsecond question. Just on balance sheet, you talked about pushing 45,900,000 post quarter into fixed rate? Like, what q four, you were 20% floating. What what would you be pro form a right now? In terms of our our swaps coming due over the next twenty four months, we've got about 40. We're going to push with the acquisitions we use our revolving balance or revolver will go up. And then with respect to add that the date of the MD and A, our overall non revolving is 87% fixed.

17:49 We're comfortable zone and we ended up doing swaps in an opportune time in the beginning of February and got some good rates as well. Perfect. I'll turn it back. Thanks. Thank you. Thank you. Your next question comes from Jimmy Shan with RBC Capital Markets. Your line is open. Thanks. So just in terms of the acquisition pace this year, do you expect it to be as active as last year? I think we're building some momentum both in Canada and The U. S. And the we went through some of the math a few moments ago. So that works. I think we have to be selective and we continue to be selective.

18:47 So for us, it's a cost of capital balancing with the opportunities that we see. So it'll be we expect to see some opportunities and it'll be an interesting year. But we still believe that our multiple reflects a bit of a hangover of you know, USMCA affecting auto and they don't finish that sentence that says auto manufacturing. So I think we're caught in the word scramble of a title of six words versus seven words making a big difference in how we're viewed. So once that dissipates, I think our cost of capital come back in line and we're pretty excited on what our pipeline can and should be. Okay.

19:33 As you build The U. S. Portfolio, so how are you thinking about the markets you want to be in? You want to build a critical mass first or are you now just looking at the credit and you're kind of market agnostic? No, we're not we've never been market agnostic. So I guess I'd answer that two ways. One is the underlying kind of philosophy of the REIT has always been metropolitan with population growth and GDP growth. Certainly, there's more markets in The U. S. Than in Canada just by the sheer size that fit that category. The good news is on a net lease business we don't have those operating need for capabilities risk management. It tends to be a bit more of an asset manager as opposed to a property manager leasing level.

20:22 But we still do like, call it that Southeast market and then as you kind of move over into Arizona, Texas and California. Like to see the dirt and the underlying economy and population supporting the real estate that we buy. It helps our tenants and it helps the dirt. Yep. Okay. Sorry. Just one last. Do you have any update, on the FAST, the Audi the Audi space there in Vaughan? What you plan to do there? It's early days. It's a bit of a balancing act. I mean, it's a it's a great property. I keep on saying dirt, but it's also got a great building on it.

21:07 So the the combination is the demand now for leasing income versus there is higher and better use, good density there. But in today's market, you're not getting paid for the density. So it's a balancing act of how long do we want to commit on that property versus how long until we get access to potentially the underlying value. And that's what we're going through right now and looking at different opportunities and different structures. It's early days, but it's a high quality property. Okay, thank you. Your next question comes from Giuliano Tornhill with National Bank. Your line is open. Hey, guys. Good morning, everyone. Good morning, Jay.

21:55 Good morning. Just question. How does the how do the cap rates compare for the Rivian deals compared to just regular kind of dealerships in their areas? Are they on similar areas, like same ballpark, or are they different? It really depends on the market, but I would think the Rivian's, it it's they haven't been around as long as some of the other dealerships or Tesla. So that's reflected a bit. But again, it's the what I find interesting is that they're at market rates or at numbers that we are I shouldn't say it overall, the ones that we've been doing are at market rates that we're very comfortable with.

22:40 We've seen a number across our desk at a high number per square foot that makes us extremely uncomfortable. So it is a bit of a balancing act between the actual real estate and the tenant in place. But I would say Rivian with their upcoming R2, we could expect to see some cap rate compression going forward assuming that that launch goes as well as people anticipate. And do you think of the EV transition more of a like a risk or an opportunity for your kind of your existing tenant base? I think it's opening up more demand for the real estate that is zoned for automotive in Canada, whether that's including potential new Chinese entrants or just overall.

23:29 I think for the existing, call it traditional dealership base, a lot of them are going to have to have the service capabilities and the delivery capabilities for both. Well for three, for ICE, hybrid and for EV. So I think that broadens out their needs, but it's really going to be consumer preference and there's going to be some investment that has to occur, But I don't see this being a hard pivot. I think it's going to be gradual over the next fifteen to twenty five years. And they're going to have to continue to service ICE vehicles and at the same time move up the chain through hybrid and ICE. Sorry, hybrid and EV. This concludes the Q and A session. I would like to turn the call back over to management for any further remarks.

24:28 We appreciate everyone's time and we look forward to talking to you shortly. Have a good day everyone. This concludes today's call. Thank you so much for attending and have a wonderful rest of your day.