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

Good morning. Ladies and gentlemen, and welcome to Automotive Properties Breach's 2026 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 MDNA and Annual Information Form, which are on CDAR+. 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. IFRS. Please refer to the REIT's latest MDNA for additional information regarding non-IFRS financial measures. This call is being recorded on August 14, 2026. I would now like to turn the conference over to Milton Lamb, President,.

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 contributions to three properties we acquired in Greater San Diego and Santa Ana, California in early Q2. Compared to Q2 of last year, our property rental revenue has increased by 22.8%, cash NOI is up 20%, AFFO has increased by 18%, and AFFO per unit diluted increased to 26.3 cents from 24.9 cents. This represents a record quarterly FFO 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 corner compared to 80.7% in Q2 of last year. despite our distribution increase last year in issuance of REIT units to the completion of our $57 million equity offering last October. With our strong financial performance, the REITs trustees have approved an increase of approximately 2% to our annual cash distribution from $0.82.2 to $0.83.9 per unit. Our monthly distribution will be 6.99 cents per unit, up from 6.85 cents. This increase will be effective for this month's distribution to be paid on or about September 15, to unit holders of record on August 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. 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 and a half years, with base rent increases of approximately $1.5 billion. approximately 4.8%, with subsequent annual fixed rent increases. Our VW Day Source 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've agreed to lease our 69,000 square foot automotive dealership property located at 9088 Jane Street in Vaughan under a 16-year triple-dealer. net lease whereby the landlord has a redevelopment option after a redevelopment option. We expect rent payments to commence on December 1, 2026. Concurrently, we've agreed to sell 50% interest in the property for a cash purchase price of $16 million, reflecting a premium to IFRS value with the expected closing in September of 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 2020.

I'd now like to turn it over to Andrew Calra to review our financial results in more detail. Andrew? Andrew Calra, Financial Results and Investment Services, Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $30.2 million from $24.6 million in Q2 a year ago, reflecting growth from properties we acquired during and subsequent to Q2 last year and contractual annual rent increases. Total cash NOI, same property cash NOI for the quarter, total $24.8 million and $21.1 million respectively, representing increases of 20 and 2.2% compared to Q2 last year. Interest expense and other financing charges for the quarter were $8.1 million, an increase of $1.7 million from Q2 last year, reflecting additional debt incurred to fund the acquisitions. Our G&A expenses were $1.6 million for the quarter, an increase of about $80,000 from Q2 last year. and in line with the REITs expectations. Net income and other comprehensive income was $18.1 million compared to $11.2 million in Q2 last year, the increase was primarily due to higher NOI changes in non-cash fair value adjustments for investment properties and foreign exchange gain, partially offset by higher interest costs and a change in non-cash fair value adjustments for interest rate swaps. AFFO and AFFO increased by 19.4 and 18.6% 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 27 cents diluted, up from 24.4 cents in Q2 last year, and AFFO per unit increased to 26.3 diluted cents, up from 24.9 cents. We paid unit order distribution totaling 20.6 cents per unit in the quarter representing an AFFO payout ratio of 78.3%. This compares with the total distribution of 20.1 cents per unit in Q2 last year for our payout ratio of 80.7%. The cap rate applicable to our portfolio was 6.7% at quarter end, which is flat compared to 2025 year 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 2 by $35 million and extended the maturity date to June 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 3.9 years, and a weighted average term of maturity of debt of 2.9 years as we continue to increase and extend our credit facilities. As at August 13th, we had a debt-to-GBV ratio of 47.5% with approximately $64 million of undrawn capacity under our credit facilities and 11 unencumbered properties valued at $166.7 million. I'd like to turn the call back to Milton for questions.

closing remarks. Thank you very much. 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. 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 US with GDP and population growth. an attractive net lease structure, and embedded fixed or CPI adjusted rental growth. That That concludes our remarks. I'd now like to open the line for questions. Margaret, please go ahead.

Thank you, Mr. Lam. We will now begin the question and answer session. If you would like to ask a question, please press star, then the number one, on your telephone keypad to raise your hand and join the queue. To allow adequate time for all participants, we ask that you limit yourself to one question and one follow-up. If you would like to withdraw your question, simply press star then the number 1 again. Your first question comes from Jonathan Kelcher with TD Cowan. Your line is open.

Thanks. Good morning. Good morning. First on this... this deal with Dilawri, can you maybe give a little bit of color on like why you're selling a 50% interest, what the landlord redevelopment option, how like how that would work?.

Yes, sure. The thought process is, you know, 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 redevelopment, plus the desire, obviously, to get strong income and have a strong tenant. So, it's a bit of a trade off for flexibility. If you do a flashback almost 10 years, we bought this property for just over 17 million. Have certainly had a nice 10 years with it, including some good rental growth. Now being able to take 16 million for 50%, which is almost equal to what we got 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. This allows us to straddle both worlds of good income and good underlying value.

Okay. And I'm guessing your ability to get that redevelopment, so like if in four years or something you want to do it, you'd be just able to do so? Yes.

Yes, it's not four years. There's a minimum term, and 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.

Okay, I guess just in order to get Dilawri to agree to that, that was the quick proposal on the half interest in the property?.

I don't know if I love that word because of good old Trump, but yes, I mean, 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 when 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. Your next question comes from Saran Srinivas with ATB Coremark Capital Markets. Your line is open.

Thank you, good morning guys. Following up on the line of questioning on the Vaughan Leasing, Milton, just to clarify, the 16 million or odd you paid for the property, that's for the 100%?.

Sorry, with 17 million, we bought it for just over 17 million in 2016 for 100%. And yes, now we're selling... 50% for 16 million or the equivalent of 32 for 100%.

That is amazing math. Thank you. And just kind of looking at an acquisition pipeline now, obviously you guys have been Canada as well. How would you characterize the pipeline in terms of your geographic dispersion? Sorry, can you repeat that? So just looking at the pipeline of acquisitions and the spread between the US and Canada.

Yes, last quarter $1.42 was not looking that attractive. We love getting the income at $1.42. You know, we think we're watching that dollar resettle back into the high 130s, 139 and change now. there's a bit of a balance there. And I've always found the summer I say this with a bit of a smile, most dealers enjoy their summer. So we look forward to the back half of the year when often there's more M&A and more deals that do occur. the balance between the two. You know, we like some of the GDP and population growth markets in the States, especially in that Southeast, kind of through the Southwest. 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, Milton. Thank you for the call. I'll be back.

Your next question comes from Brad Sturgis 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. if you could give a bit of color just on the new rent versus prior rents.

We talked about the rent starting on December 1st, so that's already public. You know, 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 10 years. not a significant difference. Again, there's probably a bit more, sorry, a bit of flexibility in there because of the redevelopment clause. but it's not materially different than what we would have looked at previously. And then it would be similar to other Dilawri leases with like a one and a half percent fixed. Yes, it's very much that, you know, outside of the one clause that we talked about, it's very much a standard Dilawri lease. Yes.

Thanks, Hans. Okay. And then just looking at the other lease extensions, could you give a bit more color in terms of when those extensions would be effective?.

The two that we have talked about, the increase that was announced, those were effective. 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. We've received the renewal notices, but the actual increases and new lease rates would be...