Automotive Properties Real Estate Investment Trust ($APRUN)

Good morning, ladies and gentlemen, and welcome to Automotive Property REIT's 2026 First Quarter Results Conference Call and Webcast. [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 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&A for additional information regarding non-IFRS financial measures. This call is being recorded on May 14, 2026. I would now like to turn the conference over to Milton Lamb, President and CEO. Please go ahead, Mr. Lamb.

That's great. Thank you, Joanne, and good morning, everyone. Thank you for joining us today. With me is Andrew Kalra, our Chief Financial Officer. Our strong first quarter performance reflects the positive impact of the 13 property acquisitions we completed in 2025 for an aggregate purchase price of approximately $200 million and the partial contributions of the 2 additional property acquisitions completed during the quarter. Compared to Q1 of last year, our property rental revenue has increased by 21.7%. Cash NOI was up 19% and AFFO per unit diluted increased to $0.262 from $0.247. This represents a record quarterly AFFO per unit amount for APR, demonstrating the positive impact of our acquisitions and the embedded growth from contractual fixed or CPI-adjusted annual rent increases in our net lease structure. This is further reflected in a reduced AFFO payout ratio of 78.6% in the quarter, even after our 2025 distribution increase. The 2 acquisitions we completed during the quarter, a full-service Hyundai dealership located in Quebec City and a Rivian tenanted sales delivery and service facility in Vista, San Diego County, California. Subsequent to quarter end, on April 7, we completed our second property acquisition in Southern California, consisting of 2 Penske automotive dealership properties in Santa Ana in Orange County. The dealerships are situated on parcels of land totaling approximately 6 acres within the Santa Ana Auto Mall, one of the area's premier dealership corridors. The dealerships include Audi South Coast, a 32,000 square foot full-service heavy dealership; and Southcoast Volkswagen, a 29,000 square foot full-service VW dealership, both operated by Penske Automotive Group. We expect our acquisitions from last year and to date in 2026 to drive continued growth in our AFFO per unit going forward. At this point, I'd now like to turn it over to Andrew Kalra to review our financial results in greater detail. Andrew?

Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $29.1 million from $23.9 million in Q1 a year ago, reflecting growth from the properties acquired during and subsequent to Q1 last year and contractual annual rent increases. Total cash NOI and same-property cash NOI for the quarter totaled $23.8 million and $20.4 million, respectively, representing increases of 19% and 2.1% compared to Q1 last year. Interest expense and other financing charges for the quarter were $7.3 million, an increase of $1.3 million from Q1 last year, reflecting additional debt incurred to fund our acquisitions. Our G&A expenses were $1.6 million for the quarter, an increase of $0.1 million from Q1 last year and in line with our expectations. Net income and other comprehensive income was $25.3 million compared to $7.6 million in Q1 last year. The increase was primarily due to higher NOI, changes in noncash fair value adjustments for investment properties and interest rate swaps, partially offset by higher interest costs and the change in noncash fair value adjustments for Class B units and unit-based compensation. FFO, AFFO increased by 20.4% and 19.1%, respectively, compared to Q1 last year, reflecting higher rental revenue from the acquisitions and contractual rent increases. On a per unit basis, FFO increased to $0.268 diluted, up from $0.251 in Q1 last year and AFFO increased to $0.262, up from $0.247. We paid unitholder distributions totaling $0.206 per unit in the quarter, representing an AFFO payout ratio of 78.6%. This compares with total distributions of $0.201 per unit in Q1 last year for a payout ratio of 81.4%. The decline in our payout ratio despite the increase in our monthly cash distributions effective last year 2025, demonstrates the positive impact of the properties we acquired and subsequent to Q1 last year and contractual rent increases. The cap rate applicable to our portfolio was 6.75% at quarter end, which was flat compared to 2025 year-end, up slightly from 6.7% at the end of Q1 last year. We continue to be proactive with our debt strategy, limit with our exposure to interest rate fluctuation and enhance our financial flexibility. During the quarter, we entered into floating to fixed interest rate swaps within Facility 3 totaling $45 million for terms of 5 to 7 years at rates between 4.45% and 4.59%. We also increased the amount of the revolving portion of Facility 1 by $25 million, extended the maturity to June 2029 with the same credit spread. At quarter end, we had a debt to GBV ratio of 46.3%, providing further acquisition capacity. As at March 31, 2026, 77% of our debt was fixed with a weighted average interest rate of 4.48%, a weighted average interest rate and mortgages remaining of 4.2 years and a weighted average term maturity of debt of 2.8 years as we continue to increase and extend our credit facilities. As at May 13, we had approximately $32.5 million of undrawn capacity under our credit facilities, 13 unencumbered properties valued at approximately $195.4 million. I'd like to turn the call back to Milton for closing remarks. Thank you very much.

Great. Thanks, Andrew. Following our entry into the U.S. market last year, we're pleased with the increased geographic and tenant diversity we've established through our latest acquisition south of the border. We now own properties in Ohio, Florida and California, representing leading automotive brands, including Tesla, Rivian and Penske Automotive with their Audi and VW properties. We continue to position APR as an attractive partner to major automotive dealerships groups and OEMs in Canada and the United States. Following a highly active year of acquisitions in 2025 and a solid start to 2026, we're now approaching just under 100 properties in total of our portfolio with tenant leases with leading automotive groups and OEMs contributing to our cash flows in support of unitholder distributions. We are successfully executing on our key objectives, including driving AFFO per unit and to build value for unitholders. We look forward to building our positive momentum in the year ahead, supported by growing property portfolio featuring high-quality tenants providing essential retail and services, 100% occupancy and rent collection, locations in prime metropolitan markets featuring GDP and population growth with attractive net lease structures and embedded fixed or CPI-adjusted rental growth. That now concludes our remarks. I'd like to open up the line for questions. Joanne, please go ahead.

[Operator Instructions] Our first question comes from Jonathan Kelcher from TD Cowen.

Question is just on the -- on what sort of drives the activity in the U.S. I guess in Canada, a lot of your deals are sort of driven by dealer M&A. Is -- how does that compare to the U.S.?

In the U.S. just has more metropolitan markets that have GDP and population growth. But, whether it's the underlying 1031s tax structure, big beautiful bill, there just tends to be a higher velocity of trading. People are more willing to take profits and losses, where in Canada, people tend to buy assets and hold on to them for significant amounts of time, if not perpetuity. That's a lot of the reason why we end up being more active when it is a transaction related to M&A. where we stand beside dealers as they do the operations acquisition.

Okay. And then do you see that opportunity with some of the groups you're talking to in the U.S.

I think that M&A side will be in common on both sides of the border. But there's just a lot more velocity in the states and there's just larger markets. But the M&A theme that we have been active in growing and built a good portfolio, working with dealers, that I think will occur on both sides of the border.

Our next question comes from Sairam Srinivas from ATB Cormark.

Obviously, going back to the question on the U.S. acquisitions, you kind of put that in line with OEM requirements and capital requirements in the business. Do you find the dealership in the U.S. being a lot more intense in terms of on capital commitments and actually investing a lot of capital into the assets versus in Canada, it's probably not as much. Is that something you're seeing?

No, I'd actually say it's flipped a bit. Canada has a bit of a higher cost component to both the underlying land, depending on the market, but it's certainly in the markets we're looking at on the Toronto, Vancouver, Montreal, Calgary -- and then construction costs are greater in Canada. So the OEM requirements are pretty similar, but the cost to complete those requirements, I would say, often are higher in Canada.

Our next question comes from Brad Sturges from Raymond James.

Just on the Orange County acquisition, I think the rent growth -- the contractual rent growth is based on California CPI, but there's a cap. I'm just curious if you could give a little more color on how the cap would work.

We can't and don't get into specifics, but it's similar to other caps where you've got a maximum. And that is -- that CPI kicks in on the renewal. So it's a roll-up formula at that point, similar to what we have with source, the one we recently did as well. So it's not that uncommon in the market where you get a bit of a floor and a cap.

Got you. Okay. I guess my other question is, is there any update at this point on Vaughan, whether strategically you're looking at re-leasing or a potential asset sale?

Yes. We talked about it not that long ago when we did the end of year call. It's amazing how quickly this Q1 creeps up on us. But the short answer is we're trying to balance the fact that 3 acres of land there has got great high-density potential, but it's also got great retail value. So it's where -- how much do we want to invest for a long-term tenancy? Can we get a termination option to allow us to potentially access that density sooner? Or do we do a shorter-term deal that has immediate access to that when we want it. As you can imagine, it's a bit of a balancing act. The good news is it's a great property. So we're doing some head scratching in a good way.

Our next question comes from Jimmy Shan from RBC Capital Markets.

So we saw last quarter, the W. P. Carey deal with Go Auto. Obviously, they have a little bit lower cost of capital. Do you see them or any new entrants sort of changing the competitive landscape in getting deals? Do you see change in pricing on deals? Any thoughts there?

Yes. It's interesting. I mean that was a very large deal. And certainly, where we're trading right now at a discount to NAV has some implications. Go Auto is an existing tenant of ours. So obviously, we know them. The lower cost of capital on access to bonds for a few groups, they have to be larger transactions or often would be larger transactions. But there is also drainage because of Canada's tax system when you're bringing that money into the states. That's the first deal in a while that we've seen someone come up and play in our sandbox. Is there going to be competition? Sure. Is it something that makes us worry. We've been very active on our pipeline. So in some ways, it's confirmational. In other ways, it just shows that we continue to have discipline and continue to have access to markets to place money in attractive real estate.

Okay. And sorry, my follow-up would be just a different question, basic question, maybe for Andrew. Sequentially, the interest expense declined from Q4 to Q1. That balance went up. I'm just curious what's the dynamic there?

The dynamic there is there's more floating in Q1 and the floating rates considerably lower. So we did buy the acquisitions, we bought them on revolving. And that's basically the difference there.

Okay. And so we should expect that to -- going to keep it floating?

Yes. The strategy has always been to use the revolver for the acquisitions and then to place swaps. We did that at the beginning of the year, and we're probably averaging, let's say, between 4.5 to 5-year to 6-year money. And since the conflict, we've seen the 5- to 7-year go up about 50 basis points. The anticipation is that we'll hope to taper off by the end of the year, and we'll see the long-term swap rates come down to where we're averaging. The opportunity with our credit facility is that we can react relatively very quickly and place swaps and move that floating to fixed. So it provides us with considerable amount of flexibility.

[Operator Instructions] Our next question comes from Zemin Liu from Desjardins.

So I just want to turn to Canada. Like how does the Dilawri acquisition pipeline looks like?

They continue to be -- we continue to have a strategic alliance with them. As they continue to grow, we anticipate and hope that we'll do more deals with them. But again, they are the largest group. We certainly have good relationship with them. But unlike grocery and other industries within Canada, we have to work with a large number of dealership groups. So the very nature of the largest being 3% market share, and we already own the vast majority of the real estate, we anticipate there's going to be as many or probably a lot more outside of the Dilawri Group that we'll continue to be active with.

Okay. That's very helpful. So another question is that I'm just wondering whether there's any other leases rolling in 2026? And also, can you remind us of the NOI impact of the lease expiry?

I don't think we've been specific on the NOI impact, but a little scratching, and I'm sure everyone around this call can figure it out approximately. That is the only outstanding 2026 lease expiration. And we have very little that has in '27 as well.

And we have no further questions. I'd like to turn the call back over to Milton Lamb for any closing remarks.

That's great. Thank you, everyone. We look forward to getting back on the call for Q2. Enjoy the long weekend.

This concludes today's conference call. Thank you for your participation. You may now disconnect.