Q3 2025 Automotive Properties Real Estate Investment Trust Earnings Call
Speaker #1: Good morning, ladies and gentlemen, and welcome to the Automotive Properties REIT's Q3 2025 results conference call and webcast. At this time, all lines are in a listen-only mode.
Speaker #1: Following question-and-answer session. Please be aware that certain management's remarks, we will conduct a information discussed today may be forward-looking in nature. Such forward-looking information reflects the REIT's current views, with respect to future events.
Speaker #1: Any such information is subject to risks and uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking information.
Speaker #1: For more information on the risks, uncertainties, and assumptions, relating to forward-looking information, please refer to the REIT's latest MDNA and annual information form, which are available on CDAR Plus.
Speaker #1: 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 meaning.
Speaker #1: Meanings under IFRS. Please refer to the REIT's latest MDNA for additional information regarding non-IFRS financial measures. This call is being recorded on November 14th, 2025.
Speaker #1: I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb.
Speaker #2: Krista. And good morning, everyone. Thank you for That's great. Thank you, joining us today. On the call with me is Andrew Callera, our Chief Financial Officer.
Speaker #2: We had an active period in advancing our strategic initiatives for unit holders, including a distribution increase and completing approximately $151 million of acquisitions. During the quarter, we deployed approximately 93.6 million dollars for acquisitions of seven automotive properties including five automotive dealership and collision repair centers in the Greater Montreal area, a Rivian-tenanted property in Orlando, Florida, and subsequent to quarter-end, we completed the acquisition of an additional four automotive properties in the Greater Montreal area at a combined purchase price of $57.3 million.
Speaker #2: We expect these property acquisitions to drive continued growth in our AFFO per unit. In addition, we recently completed a bought-deal equity offering and concurrent private placement for a combined gross proceeds of approximately $57.1 million.
Speaker #2: While our results for the third quarter don't yet reflect a full quarter's impact of our recent acquisitions, we still generated solid growth in our key performance metrics.
Speaker #2: Compared to Q3 a year ago, rental revenue increased by 7.9%, cash NOI is up 6.5%, same property cash NOI increased by 2.3%, and AFFO per unit diluted increased to $0.252, up from $0.233.
Speaker #2: Supported by the strong financial performance, the Board of Trustees approved a $2.2% increase to unit holder distributions in the quarter. Increasing our annualized distribution per unit from 80.4 cents to 82.2 cents.
Speaker #2: advancing our strategic initiatives for We're pleased with our progress in our unit holders, and we look forward to realizing the full impact of our acquisitions in the quarters ahead.
Speaker #2: I'd now like to turn it over to Andrew Callera to review our financial results and position in more detail. Andrew?
Speaker #3: Milton, and good morning, everyone. Our thanks. Property rental revenue for the quarter increased to $25.4 million from $23.5 million in Q3 a year ago, reflecting growth from the properties we acquired subsequent to Q3 last year and contractual and annual rent increases.
Speaker #3: Partially offset by the reduction of rent from the sale of our Kennedy Lands property in October 2024. Total cash NOI and same property cash NOI for the quarter total 21 million and 19.6 million dollars, respectively.
Speaker #3: Representing increases of 6.5 and 2.3 percent compared to Q3 a year ago. Interest expense and other financing charges for the quarter were 6.5 million dollars, a slight decrease from Q3 a year ago due to lower floating rates.
Speaker #3: were 1.7 million dollars for the quarter and increase of 0.3 million dollars from Q3 last year in line with our expectations. Net income and other comprehensive income was 10.4 million dollars compared to 1.8 million in Q3 last year.
Speaker #3: The increases were primarily due to changes in non-cash fair value adjustments, four interest rate swaps, and Class B LP units and unit-based compensation, and a foreign currency gain.
Speaker #3: FFO and AFFO increased by 8.3% and 8.8%, respectively, compared to Q3 last year, reflecting higher rental revenue from acquisitions and contractual rent increases, partially offset by Kennedy Lands.
Speaker #3: We paid unit holder distribution of 10.1 million dollars or from the reduction of rent from the sale of the 20.4 cents per unit in the quarter, representing an AFFO payout ratio of 81 percent, down from 86.3 percent in Q3 last year, reflecting the positive impact of the properties acquired subsequent to Q3 last year and contractual rent increases, partially offset by the reduction of rent from the sale of the Kennedy Lands and the increase to REITs distribution.
Speaker #3: The cap rate applicable to our portfolio was essentially flat quarter over quarter at 6.7%. The $3.6 million related to the write-off of the closing dollar fair value adjustment, primarily costs associated with the new acquisitions.
Speaker #3: We continue to be proactive with our debt to limit our exposure to interest rate fluctuations and enhance our financial flexibility. During the quarter, we renewed and extended just over 29 million dollars of floating to fixed interest rate swaps, for the term of five to six years at rates just under 4.6 percent.
Speaker #3: We increased the amount of the non-revolving portion of facility two by 40 million dollars and the maturity date was extended from January 2028 to March 2029 at the same credit spread.
Speaker #3: This extension of maturity term is consistent with our strategy and that we've executed on a regular basis for all our credit facilities. Subsequent to quarter-end, we renewed a floating to fixed interest rate swap within facility two in the amount of 15 million dollars for a term of six years and an interest rate of 4.4 percent.
Speaker #3: We increased the amount of the non-revolving portion of facility three by 40 million dollars. We have a well-balanced level of annual maturities with only 63 million dollars of swaps maturing over the next 24 months; we have a weighted average interest rate swap term and mortgages remaining at 4 years.
Speaker #3: As at November 13th, 84 percent of our debt was fixed through interest rate swaps and mortgages, we have a through swaps and mortgages of 4.4, which is comparable to recently completed swap rates.
Speaker #3: We also completed fixed average effective interest rate 57.3 million equity the overallotment by the underwriters. As a result of the offering, including the exercise of the issuance of 10 million dollars of Class B LP acquisitions of four properties successful completion of the offering, units, and the completion of our subsequent to quarter-end, as at November 13th, our debt to GBV ratio was approximately 40.5 percent.
Speaker #3: We had approximately 7.5 million dollars cash on hand, approximately 9 million dollars of undrawn capacity under our credit facilities, and eight unencumbered properties with an 117 million dollars.
Speaker #3: I'd like to turn the call back to aggregate value of approximately Milton for closing comments. Thank you very much.
Speaker #2: Andrew. This year marks the 10th anniversary since the completion of our initial public offering, and over that period, we've made significant process progress in Thanks, raising our industry profile and diversifying our tenant base market presence and brand representation.
Speaker #2: While more than tripling the value of our investment properties. We've accelerated this progress over the last 12 months and further strengthened our position for growth through the acquisition of a total of 15 properties for an aggregate purchase price of just over 215 million dollars.
Speaker #2: Including our and the heavy equipment dealership entry into both the U.S. vertical. Both of which market broaden our potential acquisition pipeline. Looking ahead, you can expect us to continue to build on these positive factors to drive unit holder value, supported by growing property portfolio featuring essential retail and service properties with 100 percent retail collection, sorry, 100 percent rent collection since our IPO over 10 years ago.
Speaker #2: Prime Metropolitan Markets anchored by GDP and population growth. High-quality tenants with resilient business models attractive single-tenant net lease structure and embedded fixed or CPI-adjusted rental growth.
Speaker #2: That concludes our remarks. I'd now like to open the line for questions. Christy, please go ahead.
Speaker #2: ahead.
Speaker #3: Thank you. We will now
Speaker #3: session. If you would like to ask a question, please begin the question and answer press star one on your telephone keypad to raise your hand and join the queue.
Speaker #3: And if you'd like to withdraw that question, again, press star one. We also ask that you limit yourself to one question and one follow-up.
Speaker #3: For any additional questions, please re-queue. And your first question comes from the line of Jonathan Kelcher with TD Cowan. Please go ahead.
Speaker #4: Thanks. Good morning.
Speaker #2: Good Good morning.
Speaker #4: I guess over the last 12 months, it has been one of the most active times since you guys went public. And you just reloaded the balance sheet.
Speaker #4: What are you seeing now? Traditionally, Q4 is kind of the most active time for dealer M&A. Are you seeing any pickup in activity there?
Speaker #2: You know, when I talked about this about 12 months ago, I was saying I expected the next 18 months to be pretty busy. A lot of the deals that we've completed recently have been previous dealers who have sold their residential, sorry, sold their real estate after the fact.
Speaker #2: So, it wasn't on the back of M&A. We're still seeing some slight hesitation gap on pricing in some of the M&A because of the environment we're in.
Speaker #2: But the entry into the States just the activity we've had overall, the fact in inverse way that interest rates have got to a level where there is a cost of capital for dealers have allowed us a nice place back at the table to be active again.
Speaker #2: And, you know, the pipeline we're seeing, the opportunities, especially in the States, is very positive. I mean, in the States, there are more opportunities. There's certainly more competition.
Speaker #2: We have to pick our spots. But the traditional waiting more towards the back quarter or slightly into the first quarter, I mean, we've got some of that done already.
Speaker #2: We've always had the mantra mindset we never wanted to extend the balance sheet where we were not comfortable. So we didn't extend too much before knowing that we're in a place that we're comfortable and able to do the raise that we did.
Speaker #2: So we're certainly reiterate what I said 12 months ago. And just extend it a bit further. We're looking forward to the next 18 months.
Speaker #4: Okay. That's helpful. I'll turn it back.
Speaker #4: Thanks. Your next question comes
Speaker #3: from the line of Jimmy Shan with RBC Capital Markets. Please go ahead.
Speaker #5: Thanks. I noticed that there's a footnote indicating that Audi is looking to leave the bond side, and I'm just kind of curious as to what your plan is to do.
Speaker #5: there. We just received that notice.
Speaker #2: It was not a surprise. We have and we've talked about it before, looked at this as a high-density residential site, and at the same time, it is a very high-quality either automotive or retail property being right beside Von Mills.
Speaker #2: So we are now exploring what we're going to do with that, whether it's a short- to mid-term lease or other. Certainly, the quality of the property, especially compared to the price we bought it at.
Speaker #2: We feel very good about it. But we're moving on to the next steps as far as what do we do with this. As we go forward, approximately a year from now.
Speaker #5: Okay. Sorry to follow up. So what's looking more likely though?
Speaker #2: Sorry?
Speaker #5: Which of the two options is looking more
Speaker #5: likely in terms of? Too early to
Speaker #5: Too early to say. Okay. All say. right. Thank you.
Speaker #3: Your next question comes from the line of Zeeman Lu with Desjardins. Please go ahead.
Speaker #6: Hi. Good morning. Just a quick question on transactions. So, after selling the Canadian land in 2024, are there other assets on your list for recycling as we head into next year?
Speaker #2: Jimmy just kind of touched on it a bit. The one that we would have seen as potential would have been 9088. Jane Street. I don't think we're in a rush for that in the current market.
Speaker #2: You know, we have said before that we are not going to create a development arm and be a developer. That doesn't mean we won't do entitlement and look into taking nice profits as we've done with Kennedy Road and recycling them.
Speaker #2: But I think it's doing it at the right time and place. I've always said in real estate, you do very well unless you have to do something.
Speaker #2: So we are not in a position where we have to do something, but we certainly want to be able to continue to drive AFFO per unit and capital recycling and/or releasing at a good rate can both do both of
Speaker #2: that. Okay.
Speaker #6: Thanks. I'll turn
Speaker #6: it back. Thank you. Thank
Speaker #2: you. If you
Speaker #3: I would like to ask a question, please press star one on your telephone keypad. We have no further questions in our queue at this time.
Speaker #3: Mr. Oh, I'm sorry. Your next question comes from the line of Guillermo Thornhill with National Bank. Please go
Speaker #3: ahead. Hey.
Speaker #4: Good morning, guys. I'm just running on the distribution policy I'm just running on the distribution policy if you could kind of outline how you're thinking about that.
Speaker #4: Was it like AFFO per unit? Was it the transaction? Just to see on that,
Speaker #4: please. I mean, it all comes
Speaker #2: Down to AFFO per unit. And we've said before that we don't believe a one-time distribution increase does a lot for either our investors or for the pricing of our units.
Speaker #2: So we the trustees and management feel very comfortable as we're looking to move forward. Certainly, the recent acquisitions, the levels being able to do them, the levels we've been able to put debt in place, driving AFFO, that allows us to have the continued confidence.
Speaker #2: So I mean, as a policy, you've got to do one before you can do a regular series, but we certainly like the idea with our lease structures that there's the ability to continue to see same property NOI and therefore AFFO growth per unit.
Speaker #2: To leave us in a comfortable
Speaker #2: position. And so you're
Speaker #4: comfortable kind of setting like a target, like one to two or so going forward quite yet?
Speaker #2: You're asking for forward-looking information. We certainly can't do that. You've certainly got the ends on what we like. We can't project what there will be in a year.
Speaker #2: But all I can say is that we have consistently said we don't like the idea of doing a one-and-done distribution increase.
Speaker #3: Your next question comes from the line of Suram Srinivas with RMARC Securities. Please go ahead.
Speaker #7: Good morning, guys, and congratulations on the good quarter. Milton, looking at your comments for the next 18 months, as you look to be active and consider the asset stack you have with these longer-term leases, right there.
Speaker #7: And then you look at the debt side of things; the cost of capital, I guess, from the debt side is still more short-term in terms of lines of credit and credit facilities.
Speaker #7: And that's I know that's essentially how you guys have operated. But is there a thought process to essentially change that debt stack a bit and probably look to more permanent stacks of capital there?
Speaker #2: Sorry. To convert it
Speaker #2: to? Probably
Speaker #7: maybe the other forms of debt essentially and put more secure debt or convert
Speaker #7: to the line there. I
Speaker #2: I mean, at a certain size, you would think we have the ability to do unsecured debt. Deventures take advantage of the financing market that's out there on the sorry, on the public side.
Speaker #2: Mortgages are very restrictive; they remove a lot of flexibility. Our tenants are operating businesses, so we do get a knock on the door to help them with expansions, etc.
Speaker #2: I've been in the business since '90, '91. Those mortgages sometimes really do handcuff you. We've had on a regular cadence the ability to, and continue to enjoy, as you've just seen, the ability to extend those credit facilities.
Speaker #2: Expand them, contract them, bring properties in, bring properties out, do expansions. There is a lot of for our own flexibility and therefore as a follow-through, our tenants operating flexibility.
Speaker #2: A lot of reasons why a certain port of our part of our balance sheet might be mortgages, but it's not going to be a significant part.
Speaker #2: We need, like, and I think the unit holders benefit from that flexibility that we're able to achieve by initially starting out with an unsecured portfolio to be able to put this, the credit facilities in.
Speaker #2: place. That makes sense,
Speaker #7: Milton. And probably my last question is for the Montreal acquisition that you guys just closed. And I know we told these assets when you did the property tour, I think a couple of years back.
Speaker #7: And at that point in time, we spoke about a lot of the potential and the developments around that area. And the broader I guess infrastructure development around there.
Speaker #7: When you chose in this acquisition, was there a future vision in terms of what you could do here, or were you basically just looking at the properties as they are and it makes sense to kind of hold them?
Speaker #2: Yeah. The short-term future vision was that they are opening up that day source REM station. I think it was supposed to be October, so kind of as we speak.
Speaker #2: That is going to continue to drive density and traffic in that area, which is good for our tenant and certainly good for the land underneath.
Speaker #2: If you look at that site including the Mazda that we already had, that becomes an incredibly attractive site. Now, the tenant does have renewal options.
Speaker #2: We certainly think they're going to stay there for a while. And we're not in a rush. We do love the fact that it has underlying ability to either support very successful dealerships or to do mixed-use higher density.
Speaker #2: It certainly allows us to sleep well at night, but today's market, it's not the time to kind of reach and kind of push just for density.
Speaker #7: That makes sense. Thanks for the call, Milton. I'll turn it back.
Speaker #3: And And that concludes our question and answer session. I will now turn the conference back over to Mr. Lamb for closing
Speaker #3: comments. That's
Speaker #2: great, everyone. After a busy quarter, thank you very much. And we look forward to catching up with you soon.