Automotive Properties REIT reports 5.6% cash NOI growth and raises monthly unitholder distribution by 2.2% amid new acquisitions aimed at enhancing portfolio diversification.

OPERATOR - (00:01:02)

Good morning ladies and gentlemen and welcome to the AUTOMOTIVE PPTYS REAL EST INVT TR 2025 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 advised 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 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&A for additional information regarding non IFRS Financial Measures this call is being recorded on August 15, 2025. I would now like to turn the conference over to Milton Lam. Please go ahead. Mr. Lam. Great.

Milton Lam - (00:02:21)

Thank you Rob and good morning everyone. Thank you for joining us today. With me on the call is Andrew Calro, our Chief Financial Officer. We generated continued growth in our revenue, rental revenue, cash noi, same property, cash NOI and AFFO per unit in the quarter. Compared to Q2 a year ago, rental revenue increased by 4.6%, cash NOI was up 5.6%. Same property cash NOI increased by 2.4% and AFFO per unit diluted increased to 24.9 cents, up from 23.3 cents. Our AFFO payout ratio declined to 80.7% for the quarter and is at 81% to date. Supported by the strong financial performance and the stability of our cash flows, the Trustees have determined that a 2.2% increase to our unit whole distributions is appropriate at this time. Effective for our August 2025 cash distributions, our monthly unitholder distribution will increase to 6.85 cents per unit, up from the previous monthly amount of 6.7 cents. On an annualized basis, our new distribution amount increases to 82.2 cents per unit. In addition to our distribution increase, we also announced that we have entered into two acquisition agreements to acquire a total of seven automotive properties. The first agreement is to acquire a portfolio of five auto dealership properties in one collision center property operating as Group Auto Force for an aggregate purchase price of $70.5 million subject to customary adjustments. Properties are located in Ile Perot, Quebec, part of Greater Montreal. Il Perot is an island off the western tip of Montreal that is off Auto Route 20 and is in close proximity to the Trans Canada Highway. The Il Perot properties consist of an aggregate of approximately 178,000 square feet of GLA sitting on approximately 27 acres of land including dealerships representing GM, Honda, Mazda, Toyota, sorry, correction, Honda, GM, Toyota, Mazda, Hyundai and Ford as well as Body Shop. The respective tenants of each of the properties are under long term net leases indemnified by Group Auto Force and are subject to annual adjustments linked to the Consumer Price Index in Quebec. The acquisition of this portfolio property is expected to close by the end of this quarter, subject to customary closing conditions. As part of the acquisition, the vendors agreed to take back $10 million through the issuance of Class B units at a price of $12 per unit with the balance to be funded by drawing on our credit facilities. Pursuant to the terms of the purchase agreement, we have a potential cash payment to Group to the vendor in the amount equal to the difference between $12 and the Volume Weighted Average Price (VWAP) at the second anniversary date of closing, subject to a maximum cash price cash payment sorry of $1.25 million. The second transaction we announced yesterday is the purchase of a 35,000 square foot automotive property situated on 6.4 acres of land located in Orlando, Florida for a purchase price of 16.8 million US or approximately 23 million Canadian dollars. The Orlando property is comprised of a sales, delivery and service facility tenant by Rivian LLC under a long term net lease that includes contractual fixed annual rent increases, the property a few miles outside downtown Orlando and close to several highways. We expect to close the Orlando property acquisition by the end of this quarter subject to customary closing adjustments and we expect to fund the acquisition through drawing on our credit facilities. The Orlando acquisition represents our second transaction with the Rivian tenant property in Florida as we successfully closed our $18.6 million acquisition of a sales, delivery and service facility in Tampa tenanted by rivian earlier in Q2. These acquisitions are consistent with our strategic focus on acquiring attractive commercial properties in growing metropolitan markets, enhancing our tenant and geographic diversification, increasing our exposure to public traded electric vehicle tenants and driving growth in an AFFO per unit. I'd now like to turn it over to Andrew Calro to review our second quarter results and financial position in more detail. Andrew thanks Milton and good morning everyone.

Andrew Calro - (00:07:35)

Our property rental revenue for the quarter increased to $24.6 million from 23.5 million in Q2 a year ago, reflecting growth from the properties we acquired in Q4 last year and in the first half of this year, plus contractual rent rent increases partially offset by by a decrease in rent due to the sale of our Kennedy lands property in Q4 last year. Total cash NOI and same property cash NOI for The quarter total $20.6 million and $19.5 million respectively, representing increases of 5.6 and 2.4% compared to Q2 a year ago. Interest expense and other charges for the quarter were $6.4 million, a slight increase from Q2 a year ago due to additional debt incurred to fund acquisitions. Our General and Administrative expenses were $1.6 million for the quarter, an increase of $0.2 million from Q2 last year and in line with our expectations. Net income and other comprehensive income was $11.2 million compared to 37.3 million in Q2 last year. The decrease was primarily due to changes in non cash fair value adjustments for investment properties and investment properties held for sale and for Class B LP units and unit based compensation in Q2 this year compared to Q2 a year ago. The Kennedy Lands were classified investment property held for sale in Q2 last year which resulted in a fair value gain of $23.8 million in the quarter. Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) increased by 6.6 and 7.4% respectively compared to Q2 last, reflecting higher rental revenue from acquisitions and contractual rent increases partially offset by the reduction of rent from the sale of the Kennedy lands. We paid unitholder distribution of $9.87 million or 20.1 cents per unit in the quarter, representing an AFFO payout ratio of 80.7% down from 86.3% down in Q2 last year. The cap rate applicable to our portfolio was 6 6.73% at quarter end, up slightly from 6.69 at 2024 year end. During the quarter we increased the amount of the non revolving portion of Facility 3 by 35 million, completed a floating to fixed rate swap within Facility 1 in the amount of approximately $8.7 million for a term of six years at an interest rate of 4.5 retroactive to March 31, 2025. Subsequent to quarter end, we renewed a floating to fixed interest rate swap in the amount of approximately $9.9 million within Facility 3 for a term of six years at an annual interest of 4.8%, and we renewed a floating to fixed interest rate swap within Facility 2 in the amount of approximately $9.3 million for a term of five years at an 4.58% and we anticipate funding the announced acquisitions through an increase and draw on our credit facilities. We have a well balanced level of annual maturities with a weighted average interest rate, weighted average interest rate, swap, term and mortgages remaining of 44 years. We continue to have minimal exposure to floating or short term interest rates with 91% of our debt fixed through interest rate swaps and mortgages. At quarter end we had $544 million of debt with an effective weighted average interest rate of 4.36%. Our debt to GDV was 4.4% and we had $68.5 million of undrawn capacity under our credit facilities, cash on hand of $0.6 billion and five unencumbered properties with an aggregate value of approximately $85.8 million. Assuming the successful completion of our properties in Greater Montreal and Orlando this quarter, our debt to GDV ratio would increase to approximately 47.6%. I'd like to turn the call back to Milton for closing remarks. Thank you very much. Great.

Milton Lam - (00:12:14)

Thanks Andrew. Our recently completed property acquisitions in the US which included a Tesla Collision center in Columbus, Ohio, a Rivian Service center in Tampa, Florida, combined with our acquisitions of the two heavy construction equipment dealership properties in Greater Montreal in December of last year have contributed to our AFFO per unit growth to date in 2025. With the completion of the property acquisitions announced yesterday expected to close later this quarter, we look forward to a further AFFO and AFFO per unit growth throughout 2025. We believe that our acquisitions, coupled with our announced increase to unitholder distributions will continue to drive significant unitholder value. Before opening up the lines to questions, I'd like to note an important milestone for us. In July we marked our 10th year since the completion of our IPO. Over this period, we have increased the value of our investment properties from 358 million to over $1.2 billion internalized management while significantly diversifying and expanding our automotive and Original Equipment Manufacturer (OEM) brand representation, tenant base and geographic presence in metropolitan markets through our Kennedy Land sales, we've also demonstrated the potential for higher density of many of our properties that are located in urban areas experiencing intensification. Looking ahead, you can expect us to continue to build on these positive factors to drive shareholder value supported by a growing property portfolio featuring essential retail and service properties with an historical 100% rent collection, prime metropolitan markets anchored by GDP and population growth, high quality tenants, attractive single tenant net lease structures and embedded Fixed or CPI adjusted rental growth. That concludes our remarks. We'd now like to open the lines up for questions. Rob, please go ahead.

OPERATOR - (00:14:23)

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one in your telephone keypad to raise your hand and join the queue. We ask that you please limit yourself to one question and one follow up. You may re queue for any additional questions. Your first question today comes from the line of Lauren Kelmar from Desjarde. Your line is open.

Lauren Kelmar - Equity Analyst - (00:14:45)

Thank you. Good morning and congratulations on the couple of exciting announcements accompanying results this quarter. Maybe just sticking with that on the deals. Can you maybe give us a rough idea of the expected yield on the Montreal and Orlando acquisitions? Yeah, we've consistently said that we're seeing opportunities in that 6.5% to 7.5% cap rate and these certainly fall within that. That certainly depends partially on what the annual rent escalators are and which markets. But both of them fall nicely within that bandwidth. Okay, fair enough. And then just maybe you mentioned you guys have been quite busy the past 12 months. What's the outlook for the balance of the year and into 2026? On the acquisition front, we're still seeing and liking some of the opportunities that cross our desk, as you're aware, because a lot of this goes on the back of M&A. It can be moments in time when we have to react. But we're certainly seeing as well with the increased Runway of parts of the US that are showing GDP and population growth and getting into the heavy equipment construction world. We're positive on what we're expecting to see over the next 18 months.

OPERATOR - (00:16:15)

Your next question comes from the line of Jonathan Kelcher from TD Cowan. Your line is open.

Jonathan Kelcher - Equity Analyst - (00:16:21)

Thanks. Good morning. The Montreal acquisition, was that related to any dealer M&A or M&Aybe give a little bit of color on why they sold? Sure, indirectly it was. The vendor was the previous operator of Group Autoforce and then when he spun off the operations, he retained the real estate. And then we acquired or are about to acquire the real estate. And that's also one of the reasons why a unit take back M&Ade a lot of sense because they have held this these assets for a significant amount of time and certainly at $12, I mean that would be with the, you know, discounts and fees and everything else equivalent to a $13 pre raised number. So we found that attractive. It helped us get the deal done with him. And certainly we like the brands that are brands and location within that portfolio. Okay. So this wasn't really with Group autoforce. It was. So the founder sold and then he retained the real estate. And so group. It's not really with Group Auto Force expanding or anything. Correct. And that's why I say it's tenanted by Group Autoforce and that we've acquired from a vendor. So it's a third party vendor. It's not Group autoforce but Group Auto forces indemnified the leases and is the group that is operating the dealership. Dealerships. Okay, that's, that's my one question. I'll turn it back next. Great, thanks.

OPERATOR - (00:17:59)

Your next question comes from the line of Brad Sturges from Raymond James. Your line is open.

Brad Sturges - Equity Analyst - (00:18:06)

Hey, good morning. Good job on the, on the distribution increase. Very good to see. Just can you walk through the factors and consideration that the board took to land on the new distribution rate and how do you think about payout ratio going forward? Yeah, I mean we're, for the first few years we worked on reducing our Loan-to-Value (LTV) while at the same time growing our same property Net Operating Income (NOI) growth. Both of those have come to a place where we're getting distribution levels that are in the very low 80s. Certainly as a triple net lease, you know, net lease company, we're not seeing a lot of expenses below the bottom line. All of that plus, you know, it's kind of nice to have 10 years of 100% leased and 100% rent payment. So it was just, it seemed to be the right time that we as we look forward and you know, we'd like to give a bit more to our investors and keep some for the REIT to continue kind of helping out with our financial growth. But I think it's, it's time that we reward all parties and I guess would there be a plan in place to do this more on an annual basis or how do you think about distribution changes going forward? Sure. Everyone likes forward looking statements. I have been very public over the last number of years that you know, when we start doing distribution some of the companies, REITs that do it on a regular basis I believe get rewarded whereas a one time does not really get rewarded. So it's something we look at something that we like. It's tough to pin it on a forward but we certainly like the idea of having something on a regular basis. Got it. Great, thank you.

OPERATOR - (00:20:01)

Our next question comes from the line of Jimmy Shan from RBC Capital Markets. Your line is open.

Jimmy Shan - Equity Analyst - (00:20:08)

Thanks. Just to follow up on a comment you made on the deal pipeline. I think you mentioned something about Construction equipment in the US is that yes and no. That was combined. We certainly like the heavy equipment construction space that you know, we acquired in Montreal. We think in metropolitan markets infrastructure is going to continue to be a big spend. You know that that in our world is different than Agra. So you know, it may be a John Deere, but there's John Deere that tear up highways in Montreal and John Deere is the plant corn in Nebraska. We love the first. I don't think we're going into the second, but there I could see opportunities in the States on the heavy equipment. But my comment there actually had a comma between them which was that we certainly see pathway to continued acquisitions of the US and pathway to continued acquisitions on the heavy equipment. I think heavy equipment, we like the bracket. It's nice to have some consumer facing and some infrastructure facing. I still think especially with the portfolio we have now, we're going to be a lot more weighted towards the traditional auto sector as opposed to heavy equipment and construction. But that is a bracket that we do find can be appealing in some cases. I mean it's high quality dirt with low density properties on top. We don't mind that at all. Okay, sorry. If I could sneak just one more. The tariff situation in any better sense on the impact on the profitability of your tenants. I mean I saw the Dilawri EBITDA looks still very, very healthy. Maybe. Any comment there? Yeah, I mean it's. We certainly first name an automotive properties REIT is automotive. So I think we got tagged pretty quickly with concerns over auto parts and auto manufacturing going cross cross border with tariffs. I certainly don't believe that we have a direct impact on that or our tenants do. Last time Covid lack of inventory hit dealers did quite well. But it will adjust some, I don't even want to say brands. It will adjust some models that you're going to see some models not making it in North America and then some other models kind of being pushed more in North America. So it does change the complexion of some of the new car sales or potentially can. It's just such a moving bouncing ball. But at the end of the day you're seeing huge strength in used car sales and prices. Service continues to do extremely well. So the headline risk that tariffs present really does not distill down the tenant, the tenant's ability to pay our rent. I mean we're 10 years and going. You know, we've been through some ups and downs as far as the market around us and our tenants continue to pay rent and occupy. So it's something that we certainly track. But when it gets down to the dealer, which is more of a distribution and certainly has different components of profitability, the word profitability we think will still be very much in their vernacular. It's just where they're making the profits. But as long as they're making profits, we're getting our rent paid. And again, I remind everyone that in most cases we have indemnification from a parent group. So that's multi brand, multi locational dealer groups that if one brand's doing poorly on one corner, they still have to pay our rent.

OPERATOR - (00:24:10)

And again, if you'd like to ask a question, press star 1 in your telephone keypad. Your next question comes from the line of Siram Srivinas from Cormark Securities. Your line is open. Thank you, operator.

Siram Srivinas - Equity Analyst - (00:24:22)

Morning guys. Melton, just going back to your comment on, you know, the stability of cash flows and 100% occupancy being one of the factors on the distribution increase. Can you reference that in relation to the leasing pipeline ahead and you know, starting 26, you probably see some of you lease coming up, you know, can you give us some color on what the extensions or renewals over there look like? Thanks.

Milton Lam - (00:24:46)

Sure. I mean we say 100% occupancy because we've had it for 10 years and we very much enjoy that the distribution increases based on our cash flow. And iffo certainly one leads to the next, we do not have significant amount coming up in 2026 and you know, we'll announce when things are done. But we know that the properties that are there, you know, there's certainly one that is a very high quality property, whether the tenant stays or leaves, we're going to be very happy. And the other ones, you know, from everything we're seeing, the industry continues to desire greater locations and it's very tough to move. So we always believe that it's very sticky because the radius clauses within franchises that it's very difficult for tenants to leave. So nothing to announce. But as a general comment within the portfolio, it's very tough to leave in these urban locations.

Siram Srivinas - Equity Analyst - (00:25:50)

And that's fair, that's good. And maybe just as a follow up, do any of these leases have extension clauses in them that could probably, you know, just mean that like, so what I'm trying to get is that obviously the Dilawri leases are different from your inflation index leases. So we could we see that changing or is it more of the same?

Milton Lam - (00:26:10)

Most, most of our leases, especially when we acquire the properties, will have Renewal clauses in place, renewal options in place for the tenant. A lot of them we like in the fact that it says not less than previous, but yes, most, most the tenancies because it's so important to their business. It's almost the same comment and making the opposite viewpoint, which is the tenants really want the renewal options because if they don't renew, it's sometimes very tough to. Or if they don't have a renewal option and they can't find another location, that can mean the end of their franchisor business. So it's very important to them and it's very sticky for us.

Siram Srivinas - Equity Analyst - (00:26:53)

Thanks for the comment. I'll turn it back.

OPERATOR - (00:26:58)

Our next question comes from the line of Giuliano Thornhill from National Bank Financial. Your line is open.

Giuliano Thornhill - Equity Analyst - (00:27:05)

Thanks guys. Good morning. Just turning the attention to the Quebec Acquisitions. What do you like about those markets and is there any competition nearby or like what's helped as a tenant? I'm sorry, what was the last part of the question? What's like the health of the tenant and what kind of rent coverage are you underwriting at? There's probably three questions there. Sure, not a worry. What do we like about Montreal? It's the second largest auto market in Canada. Certainly is seeing population growth, has some good wealth, really good underlying fundamentals it seems as you know. Well, I'll throw my very lack of French out here, but the joie de vivre is very strong in Montreal. So it seems some people retire earlier than other parts of Canada and that can drive a bit more of the M and A world which we tend to find opportunities within. As far as group auto force. Yes, we've looked at their financials. Yes. Obviously we wouldn't have waived if we weren't comfortable. But we've always been especially as they're private companies. We, we've never disclosed rent coverage ratios because it's private companies. Right. And then just on the Orlando property, it looks like it is situated in an industrial park. Is that you know, long term part of the thesis? Just, just you know, being able to capitalize on the, on the coverage there at all. It's in an industrial park. So I would make this similar to the Laval larger Tesla facility that we have. This is distribution as well as sales and service through this location. They distribute to other cities within the Florida area. So it's, it's a hub for them and it's an industrial area because it's a distribution hub. So no, we're automotive properties. We're not just automotive retail properties. And this Makes, you know, it's one of the reasons why we like the facility. Because A, it's low density. Yes. B, it's extremely important to their logistics world and we like the Orlando market. But I do, you know, remember, it's. This is direct with the oem, with, with Rivian. It's not a franchise model. So with franchise laws in the US they cannot sell directly to the client on site. So this is pickup service and distribution. All right, thanks.

OPERATOR - (00:29:53)

Your next question comes from the line of Tal Woolley from CIBC Capital Markets. Your line is open.

Tal Woolley - Equity Analyst - (00:30:00)

Hey, good morning. I just wanted to follow up on some of the Rivian, you know, recent acquisitions you've done with them. Yeah, the price per square foot seems to be, you know, well in excess of sort of where you guys mark your current portfolio. And I'm just wondering if there's something unique about these sites, whether it's servicing or the fit out or something like that that makes these. Each one of them, price per square foot basis. Yeah, both of them are slightly different. The Rivian in Tampa is near midtown, which, you know, in Toronto would be the equivalent of Yorkdale hotel apartments. High quality retail, mixed use, high density. And it has, it enjoys that kind of zoning. So it's one of those which, you know, I love. Option A, Caribbean long term. Option B is something more interesting that goes up in the air. So that, that's why the price is a bit higher. And certainly because it's a smaller facility, the amount of electrical upgrades that go into these locations is significant. Not surprising as an EV company. And then the second one, it's because it's a smaller, call it 35,000ft on six and a half acres of land. So that's a significant amount of land. So that's going to kind of push it because the industrial outdoor storage component of it to a higher level when you look at it just based on the per square foot building. So, you know, we've looked at it because it is slightly higher than our average. Well, it is higher than our average. So we needed to understand that and be comfortable with it before moving forward. And then just on Rivian longer term. I appreciate the company's gotten the investment from Volkswagen, but they are burning cash pretty significantly. How did you guys get comfortable with the credit quality for the long term? It's still a $20 billion company that's sitting on, I can't remember the exact number, 7 billion in cash. They are doing the burn, which we expect to continue until they get the R2 vehicle out. So they're retooling their existing and then launching a bit more of a consumer as opposed to a luxury vehicle in the R2 vehicle, which is a lot lower price point, more for a mass market than just luxury. So it really is talking to a lot of the industry players, even some of their competitors and talking about the quality of the underlying platform. Their infrastructure is strong. So yeah, we certainly believe that they will have a good Runway ahead. We like what they're doing and that like is based on what we're hearing in the market from stock analysts, from people in the industry itself of auto. Okay, that's great. Thanks, Milton.

OPERATOR - (00:33:15)

Your next question is a follow up from the line of Siram Srinivitas from Cormark Securities. Your line is open.

Siram Srinivitas - (00:33:24)

Thank you, brother.

Milton Lam - (00:33:25)

Guys, it's me again. I don't mean to prolong the call. I know historically the cadence of the acquisitions has been more Q1, Q4 weighted as such, and you guys have been a lot more active. Does this mean like, is it more of a reflection of what you're seeing underlying in the market or is it, you know, more of a regular course going ahead? Especially given your expansion to the U.S. The expansion of the U.S. i mean the, the Rivian and Teslas that we've done tend to be fitted out for a new tenant being Rivian and Tesla and then bit more of a merchant seller at the end. Whereas, you know, traditionally in Canada we've done it on the back of M and A, which tends to be more at the end of the year when it is, you know, the retirement world, when the M and A has already happened and they hold the asset after the fact, that tends to be a lot more flexible. So I still believe you're going to see, you know, end of year that may potentially close early in the new year world that's associated with M and A, which tends to be one of the drivers of our activity. But certainly there's been a bit of an expansion on where we're seeing opportunities from which can kind of change that cadence a bit. But I still believe it's going to be a bit more back end loaded.

Siram Srinivitas - (00:34:42)

That's good, thanks.

OPERATOR - (00:34:47)

Your next question is a follow up from the line of Giuliano Thornhill from National Bank Financial. Your line is open.

Giuliano Thornhill - Equity Analyst - (00:34:54)

Hey guys, I just wanted to follow up on the permit financing for the acquisitions. Are you guys going to let it float on the lines just because the rates are, you know, on declining trajectory or are you going to look to swap it out immediately?

Milton Lam - (00:35:10)

Yeah, we'll assess it upon closing. We usually close with revolving and then we term out accordingly. Rates right now are similar to what we did in in June on our on some of the swaps. So for your modeling you could use that on a go forward basis for your modeling.

Andrew Calro - (00:35:37)

Yeah but you're right and right now there's a lot of volatility within those interest rates within a small band but it seems to be going up and down depending who says what across the border. So we watch for timeliness for when we kind of strike on the duration but we do like having duration and. That'S what we've done in the past. We've balanced a relatively good rate with long term duration on our swaps.

Giuliano Thornhill - Equity Analyst - (00:36:13)

Sure. Thank you guys.

OPERATOR - (00:36:17)

And that concludes our question and answer session. I will now turn the call back over to Milton Lam for closing remarks.

Milton Lam - (00:36:24)

That's great everyone. Appreciate it and enjoy the rest of the summer. All the best.

OPERATOR - (00:36:29)

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