Automotive Properties Real Estate Investment Trust (APRUN) Earnings Call Transcript & Summary

Good morning. Welcome to the Automotive Properties REIT's 2022 Fourth Quarter Financial Results Conference Call and Webcast. My name is Joanna, and I will be your conference operator today. [Operator Instructions] 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&A and Annual Information Form, which are available on SEDAR. Management may also refer to certain non-IFRS financial measures. Although -- though we believe these measures provide useful supplemental information about financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Again, please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on Friday, March 17, 2023. I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb.

That's great. Thank you, Joanna. Good morning, everyone, and thank you for joining us. On the call today with me is Andrew Kalra, our Chief Financial Officer. We're pleased with our 2022 performance and the start of 2023 as we've been able to benefit from applying a disciplined approach to both, acquisitions and debt. We continue to generate growth in our key performance metrics in 2022, driven by our acquisition program and embedded contractual rent increases. Compared to 2021, property rental revenue grew 5.9%, Cash NOI increased by 6.7%. Same-property cash NOI increased by 2.3% and AFFO per unit diluted increased to $0.898 from $0.89. This growth was primarily attributable to the properties we acquired during and subsequent to 2021 and the contractual rent increases. Our acquisition activity picked up in early 2022 as pandemic-related uncertainties diminished. Short-term rates increased and yields returned closer to recent historical levels, allowing us to acquire attractive properties in our core markets. This discipline has rewarded our unitholder with strong total unit returns and enabled us to outperform peers as at year-end 2022. During January and February of last year, we deployed $65 million on acquisitions, including 2 Honda dealership properties in Quebec. The land underlying the Langley Acura automotive dealership. We further increased our electric vehicle exposure through the acquisition of Tesla automotive service properties in Barrie, Ontario and in Quebec City allowing us to now have 6 Tesla tenants and properties. As part of our debt strategy, we have consistently completed longer-term swaps and mortgages to insulate our existing debt from future interest rate increases. This ongoing strategy allowed us to minimize the effect of potential rising interest rate environment. Accordingly, in April, we extended the maturity of Facility One for a 5-year term to 2027, with the cranes -- sorry, with the same credit spread and increased the amount available under the [ non-remodel ] component of the facility by $50 million. Immediately thereafter, we completed $40 million of swaps for an average of 8.5 years at a blended rate of 4.75%. In November '22, we entered a non-revolving balance in Facility One of $26.8 million into a floating to fixed interest rate swap of an equivalent amount for a term of 10 years with an interest rate of 5.27%. Also during November, we completed the sale of Kingston Toyota and Lexus of Kingston automotive dealership properties at a capitalization rate of approximately 6.1%, resulting in a sale price of approximately $18 million with a gain of approximately $1.7 million over Q2 IFRS fair value. In December of 2022, we blended and extended an interest rate swap in Facility One totaling $10 million for a term of 7 years and an interest rate of 5.24%. Our increased and extended credit facilities combined with capital recycling related to the Kingston property sale helped to enhance our financial flexibility in order to complete our second largest acquisition to date in January of '23, with the acquisition of 6 full-service automotive properties in Quebec for approximately $98.5 million with a continued focus on CPI-linked leases. 4 of these properties, including Hamel Honda, Honda Ste-Rose, Chomedey Toyota and Mazda de Laval, are located in Laval and St. Eustache in the Greater Montreal area and 2 of the properties, Hyundai Sorel and Kia Sorel are loaded in Sorel Tracy in Northeast -- just northeast of Montreal. In conjunction with the Quebec property acquisitions, we increased the amount available under our non-revolving credit facilities by $70 million. Affiliates, Group [ Olivier ] Capital are now the operating tenants of these properties, and they have each entered into a long-term triple-net lease with the REIT that included contractual annual rent increases based on Quebec CPI and no less than 1.5% after year 1 of the lease term with a weighted average lease term of approximately 16 years. CPI-linked leases represent 18% of our base rent in '22, up from 16% in '21. And this increase contributed to our 2.3 same-property NOI growth for 2022. As a result of our acquisitions of the 6 Quebec properties, our leases contain -- containing annual CPI-linked adjustments represent approximately 26% for the full year of 2023. In 2024, leases containing CPI-linked adjustments will represent approximately 26% of our base rent, and leases containing CPI-linked adjustments with the cap represents another 10% of our base rent. This increased exposure to CPI-linked contractual rent increases will help offset the impact of higher interest rates and continue to contribute to NOI growth going forward. I'd now like to turn it over to Andrew Kalra to review our results for the fourth quarter and financial position in more detail. Andrew?

Thanks, Milton, and good morning, everyone. Our property rental revenue for the fourth quarter totaled $20.9 million, a 5.7% increase from Q4 a year ago reflecting growth from properties acquired subsequent to Q4 last year and contractual rent increases. Total cash NOI, same-property cash NOI for the quarter totaled $17.3 million and $16.1 million, respectively, representing increases of 7% and 2.2% compared to Q4 a year ago. Cash in cash -- growth in cash NOI was primarily attributable to acquisitions and contractual rent increases. Growth in same-property cash NOI primarily reflects contractual rent increases across our portfolio. For Q2 2022, interest expense and other financing charges were $4.7 million, representing an increase of $764,000 from Q4 2021. The increase was primarily due to additional debt incurred to acquire properties subsequent to Q4 2021 together with increase to interest rates. Our G&A expenses in the quarter were $1.8 million from $1.3 million in Q4 2021. The increase was primarily attributable to long-term performance awards, the vesting of unit-based compensation and the REIT's year-over-year growth and inflation. These performance awards are related to both, our most recent acquisition and track record over the past 3 years with respect to performance metrics regarding financial discipline and acquisitions. Net income was $13.6 million in Q4 2022 compared to $10.4 million in Q4 2021. The increase was primarily due to noncash fair value adjustments for interest rate expenses, investment properties and Class B LP units and unit-based compensation. FFO and AFFO for the quarter decreased by 4.2% and 2.6% respectively, compared to Q4 2021. FFO per unit diluted was $0.221 in the quarter compared to $0.231 in Q4 2021, and AFFO per unit diluted was $0.213 compared to $0.22 in Q4 2021. The decrease was primarily due to increased interest expense, long-term performance awards and the vesting of unit-based compensation, partially offset by the impact of the properties acquired subsequent to Q4 2021 and contractual rent increases. The REIT paid total distributions of $9.86 million or $0.201 per unit in the quarter, representing an AFFO payout ratio of $0.944. The AFFO payout ratio was higher in Q4 compared to the 9.4% AFFO payout ratio in Q4 2021, primarily as a result of increases in interest expense and short- and long-term performance awards and investing in long-term unit-based compensation, partially offset by the impact of properties acquired subsequent to Q4 2021 and contractual rent increases. The capitalization rate applicable to the REIT's entire portfolio increased to 6.42% at year-end compared to 6.3% at the end of Q3 2022 and 6.3% at the year-end of 2021. As a result, investment properties increased nominally in Q4 2022 compared to the prior quarter, resulting in a fair value gain of $1.8 million. We had $434 million of outstanding debt as at year-end 2022 with an effective weighted average interest rate of 3.94%, 99% of our debt was fixed through interest swaps and mortgages. We had a well-balanced level of annual maturities, and our weighted average interest rate swap and mortgage term was 5.1 years with a weighted average term maturity of debt of 3.9 years. As discussed previously, as a result of the acquisition of the Quebec properties, we increased the non-revolving portion of Facility 3 by $70 million at the same credit spread. The principal is repayable and quarterly blended payments based on a 25-year amortization. We entered into floating to fixed rate swaps for a weighted average term of 7.6 years at a blended rate of 4.91%. And in February, we entered into a new mortgage in the amount of $9 million for a term of 5 years at an interest rate of 5.05%. With consideration for the volatility and potential higher interest rate environment, we currently have 95% of our debt fixed with weighted average interest rate of 4.12% with a weighted average interest rate swap term and mortgage remaining of 4.9 years and the weighted average term to maturity of debt of 3.6 years. Following the Quebec property purchases, we now have approximately $60 million of undrawn capacity under our credit facilities, for unencumbered properties with an aggregate value of approximately $61.5 million and the pro forma debt to GBV ratio of 44.9%. I'd like to turn the call back for his closing remarks. Thank you very much.

Thanks, Andrew. According to DesRosiers Automotive Consultants, new light vehicle unit sales in Canada were down 9.1% in '22 compared to 2021, which was primarily due to the supply chain constraints, experience within the retail automotive industry. While there has been some easing of the supply chain constraints recently, we believe supply chain issues will continue for the foreseeable future but will not have a significant impact on our tenant's ability to pay rents. As new car margins, used car sales and overall service levels remain strong. Looking ahead, we will continue to monitor the impact of the interest rate environment and inflation on our property portfolio and overall real estate industry. We will strategically move floating and short-term debt in a fixed and long-term debt to further minimize any future interest rate impact. The fluctuation in the interest rate environment, inflation and credit environment impacts rental growth, capitalization rates overall in the real estate industry and may also provide us with attractive buying opportunities. Our annual contractual rent increases across our portfolio, including more recent CPI-linked leases partially insulate us from inflation. We're further insulated from inflation due to our triple net lease structure as our property level, operating and energy costs are the direct responsibility of our tenants. With 95% of our debt currently at fixed rates, we're insulated from further interest rate hikes. As such, we're well positioned to continue to generate solid performance in the current uncertain economic environment and to capitalize on growth opportunities as market conditions improve. That concludes our remarks. We'd now like to open the line for questions. Joanna, please go ahead.

[Operator Instructions] First question comes from [indiscernible] Cumberbatch at TD Cowen.

Just on for John [indiscernible]. So first question, you guys completed a pretty sizeful acquisition earlier in the year. I guess, firstly, is there any color you can give on how the environment evolves versus maybe last quarter as it relates to dealer M&A? And secondly, what's your outlook on the quantity and size of potential acquisitions for the remainder of the year?

Yes. It's tough to look at quarter-over-quarter, but I will look at year-over-year. In 2020, I think I've mentioned before, it just seemed a bit euphoric. Dealers were making very nice profits. Interest rates were incredibly low. And because the dealership auto retail [ world ] had done so well and been so resilient, certainly, credit facilities were a very wide opening for them. So it's one of the reasons why we were not active in '21 was because we just didn't like to see the returns. So we showed some discipline. In '22, as interest rates started increasing, there was a cost of capital for dealers. So they weighed working with APR versus doing it on themselves. And some said yes, and some said no, so we're able to get active again. With interest rates environment continuing to go up, even at the current levels, with the inverse yield curve, where short-term money is actually more expensive than long term. That puts APR in a pretty good position. So we like what we're seeing. Having said that, we've traditionally been later in the year for doing acquisitions. And there still seems to be because of the -- just the volatility in the marketplace, both on credit and just overall, there's a lot of head scratching from buyers and from sellers on kind of where pricing is actually right now. So until we see some more benchmarks, I think there is going to be a bit of a buy-sell gap, but when you see M&A on the dealership side, that probably allows APR to have a seat at the table. So overall, we remain positive, because we think it's very constructive. But we think there will be a bit of a pause for, I don't know if it's 1 quarter, 2 quarters, 3 quarters, it's tough to tell.

Okay. Yes, that's good color. And my second question, G&A ticked up a bit. I know you gave some color on the call. But would the 2022 total comp be a good starting point for 2023?

Yes, I mean I think -- Andrew, do you want to touch on that?

No, go ahead, and I can add in.

Okay. I mean it's tough to provide guidance, so we don't. But for '23, we expect it to be a similar run rate with adjustments, obviously, for growth in inflation. It's also interesting to point out that the Q4-over-Q4. In 2021, we did not hit our growth metrics because we didn't see the opportunities that we thought were compelling. And then in '22, we certainly saw opportunities that we liked and showed more growth, that allowed our unitholders to enjoy a total shareholder return above a lot of our peers. And it meant that we went from kind of marginally below target on the growth side to hitting targets or above target. So there's a bit of a pendulum swing there, because we showed discipline early, and then we're active when we saw it returns and opportunities we liked.

Next question comes from Sairam Srinivas at Cormark Securities.

So a quick question for me on the cap rates. There's a bit of an expansion this quarter in terms of IFRS cap rate. Would you see that reflects what you're seeing in the market as well in terms of the limited number of transactions that have been taking place?

Obviously, we believe it reflects it, because we made those assumptions. I think it's important to understand the underlying which is back to not being active in '21. When we saw cap rates in other sectors of the commercial real estate world, whether it be multi-res or industrial, really tighten up and go very, very low. We put our hands in our pocket, and we kept our assumed cap rate at a very tight band. So we didn't go down, and then we're not seeing a spike up. We kind of ignored the -- what we thought were some euphoric returns for the vendors, not for ourselves. We did not get into that. And so we're seeing -- we're back to a similar to historical levels, and we think that's fair.

That makes sense. And just on the -- Andrew, probably is a question for you on the swaps. The 3.9% obviously, you got -- this quarter looks exciting. But is there more room on the soft extensions and in terms of required for future acquisitions?

So in terms of room, you can see from our swap laddering, we do have some swaps coming up in 2023. So there's room, obviously, to extend those as we go forward. The way we structured the swaps and our debt profile, we've laddered it. So there's always going to be opportunities to extend and place those swaps over time.

And if you look at '23, we don't have a lot that is rolling over within the swaps. But there's certainly the ability to do some blend and extends, if we so elect and see opportunity. The market is just so volatile right now. We think there will be opportunities to and other opportunities where we should step back.

But just for that point, we're at 95% and 99%. So these are good times to be with fixed rates.

Next question comes from Frank Liu at BMO Capital Markets.

Just a quick 1 from my end. As we go through your results, we noticed there's a quarter-over-quarter decline on the straight-line rent adjustment from like roughly like $420,000 to $280,000 this quarter. Could you provide some color on what drove this quarter-over-quarter changes?

So while 1 we've put in CPI leases, so they don't have straight-line adjustments, only straight-line adjustments come in with leases that have fixed accelerators. And as those leases -- let's say, as time passes, the straight-line will decline. That's just the way the mathematics would work. So that's the decline related to that.

Yes. I mean, to Andrew's comment, that's all about IFRS accounting.

Next question comes from Munish Garg at Laurentian Bank.

Congrats on the great results. My first question is just a bit of a follow-up on the cap rates. And I apologize if I have missed it. Like could you please provide some details on the cap rates on the announced Quebec acquisitions?

We didn't provide exact cap rates. We never do, but we did make comments that it was nicely in the world of traditionally what we've seen of that 6.25% to 7.25%. Today's world, I'd say that's probably closer to 6.5% to 7.5%. So Montreal, attractive market, newer, higher-quality properties and we -- one of the offsets we have is CPI versus [indiscernible], and we like CPI, but it's nicely in that -- the heart of that range.

Okay. And then secondly, on the debt to GBV levels, currently at 45%. Maybe if you could provide some more color on how do you see those levels for the next few quarters.

Andrew, do you want to touch on that?

Sure. So that 45% is just a pro forma factoring in the acquisition as of December 31 plus the acquisition. So it's not an exact number to where we would be in Q1. But it does provide color as to where we are reflecting the acquisitions. We've got a guidance between 50% to 55% at the higher end. The 45% still allows us some runway room for acquisitions, and it's well within our line of our metrics. We've historically -- or not historically, over the last 12 months, we've been 40%, but we've seen that rise would the acquisitions and deploying of the funds.

Okay. And last 1 for me. Maybe a bit more on the high level. You talked a bit on the supply chains easing but maybe a bit more color on the strength of consumer. Like on the backdrop of current macro environment, are you hearing anything from the tenants if the consumer is weakening, or if there is any change in the preference for consumers in terms of used versus new cars?

Yes. I mean we're certainly talking to our tenants and industry overall. So what we're hearing is some manufacturers are starting to come in with more inventory. Other ones still have significant waitlists. So margins are holding up. It's -- they've just been so strong. It's tough to say it's always going to be -- I always joke, it's tough to be the most improved player every single year. But the other side of that is, yes, used cars, it's not at those hyper levels. It was during the depth of COVID, but their margins still, from everything we're hearing, are strong. Service continues to be strong. If you look at the performance, either in Canada or across the border of the dealership -- sorry, the dealership public companies, they continue to show strong profits in different areas. I would say overall with higher interest rates, everyone's talking, but that may change some consumer behavior. Luxury tax in Canada, that may change some consumer behavior. So does that mean you buy a luxury car or a mid-level car? Certainly, lease payments are higher with a higher interest rate. So we do expect some change in consumer behavior -- but overall, does that concern us with our tenant's ability to pay rent? No. That's just a bit more of a rotation on where and how they're making profits as opposed to are we concerned that they are making profits.

Next question comes from Lorne Kalmar at Desjardins.

Just on acquisitions, of course. Do you find that there is any concession on pricing that has to be given to get the vendor to agree to a CPI-linked lease versus a fixed rate lease?

We only have a couple of levers, right? It's -- assuming we get together on our purchase price, it's been cap rate and its escalators. So there's always going to be a bit of a trade-off [ in ] a swing. And it depends -- I'm sure from both sides, how much that trade-off is to where we're comfortable moving ahead at what cap rate, and same comment for the vendor. But we've been trying to get more CPI-linked, and we would be more aggressive on cap rates with CPI linked in this environment than set rates. But then again, it also depends what those set rates are. If we get a higher than -- the higher the set rates embedded, the happier we are, and the varying nature of a discounted cash flow method combined with looking at the initial cap rate and how accretive it is it all comes into the equation.

Fair enough. And then I know there's still a little bit ways out, but is there any thoughts about changing the structure of the Dilawri leases to be on CPI?

I mean, that certainly is something that involves Dilawri. I don't think you're ever talking about changing existing lease structures.

No, no, no, I mean on renewals.

Well, I mean that's -- the renewals, we described what the Dilawri leases are. So that will be interesting, and that's fairly far out. So no, I mean, we haven't gone anywhere near kind of discussing that as of yet.

Okay. And then the Dilawri, the exposure continues to kind of trend down. Is there sort of a floor where they wanted to stay or you guys are free to do as you wish?

One of the reasons why they were on board with creating this platform is they wanted to use it as a platform for the industry. So I mean, they may have thoughts on their ownership level, but I certainly believe as a tenant diversification. They want -- we want quality tenants, but we also like diversification. So Dilawri is certainly a very strong quality tenant. We gladly do more with them, but there's other very strong tenants out there as well that we'd certainly like to work with and continue to do supply.

Your next question comes from Gaurav Mathur at iA Capital Markets.

Just on the G&A expenses, we noticed the uptick this quarter. Is it fair to say that, that would be the run rate for 2023?

So we don't provide forward guidance on any specific line item, but for your modeling purposes, a similar run rate is a reasonable assumption with adjustments for growth and inflation.

Okay. Great. And just switching gears quickly on leverage. I think in the past, you've mentioned that your leverage target of 50% is okay. But I'm just wondering how you're thinking about the 45% pro forma going into 2023 with a higher rate environment.

Well, I mean you're seeing a higher rate environment. That's one of the reasons why we're more comfortable having a fixed rate -- sorry, 95% of our debt already fixed. On the new acquisition side, yes, I mean, it certainly has to become part of the equation. And that equation is fun right now, because I seem to have to adjust it every 3 days. The market is incredibly volatile. I think people are waiting to kind of see how that unfolds. But it depends the yield going in and the cost of our capital and our debt. I mean, that's all part of the equation on how aggressive we can get and how much we like the asset. 45% leaves us some room to actually continue to look at deals, and we continue to be very disciplined with -- we've said it before, with our acquisitions and our debt.

Right. And just as a follow-up, is there something of a sweet spot that you're aiming for if you could get to it, say, in the next year?

A sweet spot? Our sweet spot is always driving AFFO per unit up, specifically in how we do that. It really depends on the opportunities, and we'll tend to offset that with quality of real estate as well. I guess it's because of being in the real estate business since the early '90s, I still like high-quality real estate as opposed to just pure yields.

And the next question comes from Jimmy Shan at RBC Capital Markets.

Milton, just a general question for me. Given the tighter, more costly credit that you spoke of, it feels like there could be opportunities to do sale-leaseback with a lot of operating businesses, not just dealerships like you mentioned exercising discipline in the last few years, which was great. And I wonder if this is kind of the environment where you try to swing the other way and sort of cast the wider net and branch out to other sectors. Is that something that you guys would be looking to do, or you had some thoughts around that...

We've said recently automotive and mobility. I don't think it has to be pure automotive dealership. I mean if you look at our Teslas, they're not actually dealerships, and it's with the OEM. I wouldn't do a hard no. It's got to be in the [indiscernible] building in the automotive world. Otherwise, it's got to be very compelling. I would agree with your underlying comment which is, in today's environment, you could probably see more opportunities short-term cost of capital is higher than long-term cost of capital. And you could argue, especially in the states that there's some less liquidity and less debt available than there was 6 months, 18 months ago. So we're excited about that, but that also means we expect to see more opportunities within our core focus. So I don't want to say a hard no, but it's got to be compelling and the environment that gives us those opportunities will also give us better opportunities in our core.

Right. And sorry, you said mobility and what do you mean by mobility related?

That's just -- I think there's going to continue to be evolution. I mean, whether it's direct to consumer with the Tesla and the Lucid and the Rivian of the world, the [indiscernible] of the world, et cetera, or whether it's kind of -- some of that is compound lots that might be associated with it, dirt with a good quality tenant, providing us a nice yield never opposed to that. So it's just -- I think automotive is going longer term as much mobility. So part of that is just vernacular.

Okay. Yes. Because I mean, in the U.S., the REITs that are consolidating carwashes and collision centers. I don't know how big of a market it is here, but like those wouldn't be beyond the stretch of imagination, I guess at some point, if there's an opportunity for you guys. Is that fair to say?

If it's compelling and has some of the underlying tenancies that we know and like, which is good quality dirt and good quality cities with a good quality tenant, there could be a case for it.

Next question comes from Mark Rothschild at Canaccord Genuity.

So Milton, one of the things that impacted values and cap rates for your property tax has always been working with the operator of the asset, because they often own the asset or look at how it fits into their business. With the trends that we're seeing now whether it's rising interest rates and maybe they buy the uses for capital, and the different dynamics of their business, how is that impacting the values and your expectation on deal flow for the near term?

I mean, I don't know if it impacts values as much as it impacts expectations. And the reason why I say that is, I'll flashback to 2021. When the vaults were open, and they can get money for close to nothing with extremely low interest rates and high availability, it was very tough to be competitive. And we weren't willing to stretch to the number which we thought was a bit euphoric. So we had a quiet '21. '18, '19, we were active. And so I think that pendulum swung back to returns that make sense for both, groups and cost of capital, that for the dealership world or just overall, that is more in line with historical norms and allows them to actually consider what's their best use of equity, and what is their cost of capital -- cost of debt. And therefore, we can have a place at the table where when money was free and plentiful and they're printing and doing as well as they were and continue to be, it was to be competitive without being undisciplined.

So I'll just try to push you on that. With the higher cost of debt now, does that make it less attractive for the operators to own that capital in the asset?

I would think -- I mean, a lot of the time when we were talking to them before and the very nature of their debt, a lot of it tends to be credit facilities and portfolio facilities, which tends to be more geared towards short-term interest rates as opposed to long duration mortgages. So with that in mind, any time the yield curve is inverted, where short-term debt is actually more expensive to long term, then yes, we're going to be more attractive.

[Operator Instructions] Next question comes from Brad Sturges at Raymond James.

Just on the acquisition strategy. Historically, it's been more of a [indiscernible] focus -- and focused on the value of the third in those type of markets. But we've seen, I guess, population growth improving over the last few years in certain secondary market cities. So I guess my question is, is that acquisition reach expand into markets that you might not have traditionally thought about in the past for acquisition? And to what extent which cities would look attractive to you today if you're expanding that scope?

Sure. I tend to agree with your underlying comment. We are seeing some good growth in some A markets as opposed to the -- just the [indiscernible] markets, and that's a good thing. I mean I've always said dirt that is surrounded by population and GDP growth is a good thing. So other markets we look at -- I've always said we like KW. We've certainly done stuff in Berry. We're seeing stuff just east of Toronto and in the Greater Montreal area. That's just outside the Greater Montreal area that are seeing some of those fundamentals. I've always liked Colona, just haven't found a good excuse to get there yet. There's certainly going to be other markets, but we still like the core markets. And it's kind of -- it dovetails nicely, because if the market is too small, the cost of the real estate is lower. So they've got less need for us, and we have less desire to be there. So if it's very much a secondary market, we're going to demand a higher yield than if it is a core market, and then we're going to be less attractive. So kind of -- it dovetails nicely where we like to be is where we tend to be more in demand.

With the existing dealerships that you have within the portfolio now, are you seeing those groups expand into new secondary markets? Or if you were to go into a new market, would that be more likely with a new group?

I'd say I'm a split decision on that. We're certainly seeing groups if it is outlining markets of core markets, it may be some of the same groups that we're looking at and have already done work with. And then there's going to be other markets that are more regional operators in some of the markets that I've talked about, which we gladly do deals with. So I'm kind of a split decision on that. I'm not sure if it's going to be with existing or with new.

There are no further questions. I will now turn the call back over for closing comments.

That's great. Thank you, everyone, after a good 2022, enjoy the rest of your March break. And we look forward to talking to you in Q1. All the best.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating. And we ask that you please disconnect your lines.