Automotive Properties REIT Investor Presentation

Transcription

1 Automotive Properties REIT Investor Presentation July 2015 A preliminary prospectus containing important information relating to the securities described in this presentation has been filed with the securities regulatory authorities in each of the provinces of Canada. A copy of the preliminary prospectus, and any amendment, is required to be delivered with this presentation. The preliminary prospectus is still subject to completion. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued. This presentation does not provide full disclosure of all material facts relating to the securities offered. Investors should read the preliminary prospectus, the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision. No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise.

2 DISCLAIMER An investment in the securities described in this presentation is subject to a number of risks that should be considered by a prospective purchaser. Prospective purchasers should carefully consider the risk factors described under Risk Factors and Forward-Looking Statements included in the preliminary prospectus dated June 9, 2015 (the prospectus ) of Automotive Properties Real Estate Investment Trust ( Automotive Properties or the REIT ) before purchasing securities described hereunder. An investor should rely only on the information contained in the prospectus. This presentation is qualified in its entirety by reference to, and must be read in conjunction with, the detailed information appearing in the prospectus. Neither the REIT nor any of the Underwriters has authorized anyone to provide investors with different or additional information. The REIT is not offering, or soliciting offers to acquire, the securities in any jurisdiction in which the offer is not permitted. For purchasers outside Canada, neither the REIT nor the Underwriters have done anything that would permit the offering or distribution of this presentation together with the prospectus in any jurisdiction where action for that purpose is required, other than in Canada. An investor is required to inform itself about and to observe any restrictions relating to the Offering and the distribution of this presentation and of the prospectus. There is currently no market through which the securities may be sold and purchasers may not be able to resell securities purchased under the prospectus. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities, and the extent of issuer regulation. The securities of the REIT discussed in this presentation have not been, and will not be, registered under the U.S. Securities Act, or the securities laws of any state of the United States and, subject to certain exceptions, may not be offered, sold or delivered, directly or indirectly, in the United States except pursuant to an exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. This presentation does not constitute an offer to sell or solicitation of an offer to buy any of the securities of the REIT in the United States. The following is a summary of the principal features of the Offering and should be read together with the more detailed information and financial data and statements contained in the prospectus. All amounts herein are in Canadian dollars unless otherwise noted. Terms undefined herein have the meanings ascribed to them in the prospectus. FORWARD-LOOKING STATEMENTS Certain statements contained in this presentation constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to the REIT s future outlook and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the REIT. Particularly, statements regarding future results, performance, achievements, prospectus or opportunities for the REIT or the real estate or automotive dealership industry are forward-looking statements. The REIT has based these forward-looking statements on factors and assumptions about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs, including that the Canadian economy will remain stable over the next 12 months, that inflation will remain relatively low, that interest rates will remain stable, that tax laws remain unchanged, that conditions within the automotive dealership real estate industry and the automotive dealership industry generally, including competition for acquisitions, will be consistent with the current climate, that the Canadian capital markets will provide the REIT with access to equity and/or debt at reasonable rates when required and that the Dilawri Organization will continue its involvement with the REIT. Although the forward-looking statements contained in this presentation are based upon assumptions that management believes are reasonable based on information currently available to management, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the REIT s control, that may cause the REIT s or the industry s actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. The forward-looking statements made in this presentation relate only to events or information as of the date of this presentation. Except as required by law, the REIT and Dilawri undertake no obligation to update or revise publicly any forwardlooking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. Please refer to Forward-Looking Statements in the prospectus. NON-IFRS MEASURES This presentation makes reference to certain non-ifrs measures. Funds from operations ( FFO ), adjusted funds from operations ( AFFO ), net operating income ( NOI ) and cash net operating income ( Cash NOI ) are key measures of performance used by real estate businesses. However, such measures are not defined by IFRS and do not have standardized meanings prescribed by IFRS. The REIT believes that AFFO is an important measure of economic performance and is indicative of the REIT s ability to pay distributions, while FFO, NOI and Cash NOI are important measures of operating performance and the performance of real estate properties. The IFRS measurement most directly comparable to FFO, AFFO, NOI and Cash NOI is net income. Please refer to Non-IFRS Measures in the prospectus. 2

3 INTRODUCTION Growth-oriented real estate entity well positioned to consolidate automotive dealership properties Sponsored by The Dilawri Group: Canada s largest automobile dealership company with 2014 combined revenues of approximately $1.6 billion Only publicly traded REIT in Canada exclusively focused on auto dealership real estate LEADING PLATFORM FOR STRATEGIC CONSOLIDATION 3

4 PRESENTERS Milton Lamb President and Chief Executive Officer Over 24 years in the commercial real estate industry From 2007 to 2015, SVP, National Investment Services at Colliers International Represented Canada on the Colliers Global Investment Services (GIS) team Worked with funds and financial institutions to assist with both acquisitions and dispositions and joint ventures totaling in excess of $2.5B Andrew Kalra, CA Chief Financial Officer Currently VP, Finance, Dilawri Over 20 years experience in finance, including over 13 years in the automotive industry Previously was Senior Director of Finance and Business Strategy at Mazda Canada Held senior financial positions in public and private companies at Nortel Networks Inc. and Walt Disney Canada James Matthews, CA Chief Financial Officer, Dilawri 8 years as CFO of Dilawri Led all acquisitions by the Dilawri Group since 2007 Previous experience in senior financial and operational positions at W.K. Buckley, KIK Custom Products Inc. and the cablevision arm of Rogers Communications Inc. 4

5 AUTOMOTIVE PROPERTIES REIT Milton Lamb President and Chief Executive Officer Dixie Auto Mall, Volkswagen Langley Acura 5

6 INVESTMENT HIGHLIGHTS Opportunity to gain exposure to a unique real estate asset class Automotive dealership properties benefit from strong underlying fundamentals Portfolio of high-quality and strategically located automotive dealership properties Strong national tenant with significant alignment of interest Excellent leasing profile Compelling valuation and conservative financial metrics Significant growth opportunities Experienced executive management and strong, independent board 6

7 AUTOMOTIVE PROPERTIES REIT PORTFOLIO OVERVIEW Focus on automotive dealership properties 26 initial properties, with 42 rental buildings on 88 acres 958,000 square feet of GLA Forecast Cash NOI of $23.4 million GVA CALGARY 21% of Cash NOI 16% of Cash NOI REGINA GTA 15% of Cash NOI 48% of Cash NOI GROWTH DRIVERS: PORTFOLIO EXPANSION AND RENT INCREASES 7

8 AUTOMOTIVE PROPERTIES REIT PORTFOLIO OVERVIEW Greater Vancouver Area Locations: 6 Calgary Locations: 4 Regina Locations: 8 Greater Toronto Area Locations: 8 4 NORTH VANCOUVER CALGARY CENTRE LAKE CENTRE QUAPPELLE RICHMOND DELTA SURREY 6 LANGLEY WASCANA BRAMPTON YORK CITY OF TORONTO MISSISSAUGA CALGARY SOUTHEAST PALLISER OAKVILLE 1. Porsche Centre Vancouver (Vancouver) 2. Audi Sales Downtown Vancouver (Vancouver) 3. Infiniti Vancouver (Vancouver) 4. North Vancouver Nissan Infiniti (N. Vancouver) 5. Burrard Acura (Vancouver) 6. Langley Acura (Langley) 7. Hyundai Gallery (Calgary) 8. Calgary Honda (Calgary) 9. Distinctive Collection (Calgary) 10. Calgary BMW (Calgary) 11. Regina Honda (Regina) 12. Regina Hyundai (Regina) 13. Honda Used Car and Regina Collision Centre (Regina) 14. Dilawri Acura (Regina) 15. Dilawri BMW (Regina) 16. Triple 7 Chrysler (Regina) 17. Dilawri Nissan Infiniti (Regina) 18. Dilawri Mitsubishi (Regina) 19. Dixie Auto Mall (Mississauga) 20. Oakville Honda (Oakville) 21. Meadowvale Honda (Mississauga) 22. Frost Chevrolet Buick GMC Cadillac (Brampton) 23. Bolton Toyota (Bolton) 24. Markham Honda and Ford (Markham) 25. Agincourt Mazda (Toronto) 26. Markham Acura (Markham) HIGH-QUALITY PROPERTIES IN STRATEGIC MARKETS 8

9 AUTOMOTIVE INDUSTRY OVERVIEW Frost Chevrolet Buick GMC Cadillac Porsche Centre Vancouver Langley Acura Meadowvale Honda 9

10 CANADIAN AUTOMOTIVE INDUSTRY RETAIL SALES $120 Billion 4.8% of Canadian work force C$ Billions THE AUTOMOTIVE INDUSTRY IS CANADA'S LARGEST RETAIL SEGMENT ACCOUNTING FOR 23.8% OF OVERALL RETAIL SALES AND 6.1% OF CANADA'S GDP IN 2014 Source: Statistics Canada. 10

11 STABLE PROFITABILITY MARGINS Average Gross Profit Margins of North American Publicly Listed Automotive Dealership Groups 15.5% 15.6% 15.4% 16.0% 17.1% 16.5% 16.1% 15.6% 15.4% 15.3% STABLE PROFITABILITY THROUGHOUT THE ECONOMIC CYCLE Source: Weighted average of the gross profit margins for AutoCanada Inc., AutoNation Inc., Penske Automotive Group Inc., Group 1 Automotive Inc., Sonic Automotive Inc., Asbury Automotive Group Inc., Lithia Motors, Inc., and CarMax Inc., based on management s review of publicly available information. 11

12 Number of Owners With 5 or More Dealerships OWNERSHIP STRUCTURE OF AUTOMOTIVE DEALERSHIPS IN CANADA Proportion of Dealerships Owned by Size of Ownership Group Automotive Dealership Consolidation 5 or more Dealerships Single Dealership % 15% 50% Dealerships > 3,400 Dealerships in Canada Early Stages of Industry Consolidation CONSOLIDATION OF HIGHLY FRAGMENTED INDUSTRY ALREADY UNDERWAY Source: DesRosiers Automotive Consultants Inc. 12

13 INITIAL PROPERTIES OVERVIEW Geographic Diversification GVA 16% By GLA GVA 21% By Cash NOI Regina 19% GTA 46% GTA 48% Regina 15% Calgary 19% Calgary 16% PROPERTIES ARE LOCATED IN STRATEGIC URBAN MARKETS 13

14 THE DILAWRI GROUP James Matthews Chief Financial Officer, The Dilawri Group Langley Acura Dixie Auto Mall, Infiniti 14

15 STRONG NATIONAL TENANT 57 franchised automotive dealerships, representing 30 brands Presence in QC, ON, SK, AB, BC 2014 combined revenues of approximately $1.6 billion (19% 4-year CAGR) 2014 adjusted EBITDA of approximately $75 million (24% 4-year CAGR) ($millions) Adjusted EBITDA Dilawri 5-Year Historical Revenues ($billions) $1.6 $1.3 $1.0 $0.9 $ $32 $49 $49 $64 $75 ALIGNMENT OF INTERESTS THROUGH DILAWRI S SIGNIFICANT OWNERSHIP INTEREST IN THE REIT 15

16 MANUFACTURER AND BRAND DIVERSIFICATION Manufacturers by Region (% of Cash NOI from Dealership Properties) Brands by Market Segment (% of Cash NOI from Dealership Properties) Europe North America 9% Luxury Ultra- Luxury 9% 26% 27% Mass Asia Market 65% 64% (2) (3) (1) STRONG MIX OF LUXURY AND MASS MARKET BRANDS EXHIBITING STABILITY IN INITIAL PROPERTIES (1) Mass Market segment includes: Chrysler, Ford, General Motors, Kia, Nissan (including Nissan Infiniti), Honda, Hyundai, Mazda, Mitsubishi, Toyota and Volkswagen. (2) Luxury segment includes: Acura, Audi, BMW and Infiniti. (3) Ultra-Luxury segment includes: Aston Martin, Bentley, Lamborghini, Land Rover, Lincoln, Porsche, Maserati, McLaren and Mercedes-Benz. 16

17 TOP MANUFACTURERS AND BRANDS (BY CASH NOI) 22.8% 14.6% 10.3% 9.3% 8.3% 6.6% 5.4% 5.1% 4.7% 4.6% 4.1% 4.1% (1) (2) Other (3) # of REIT Locations (1) Includes Honda Used Car and Regina Collision Centre. (2) Includes MINI. (3) Includes standalone GM, Ford, Chrysler, Dodge, FIAT, Jeep, RAM, Mitsubishi Motors and Kia dealerships representing 3.9%, 2.9%, 2.4%, 1.7% and 1.2% of Cash NOI respectively as well as the Dilawri Distinctive Collection property in Calgary, which currently has franchise agreements with Aston Martin and Bentley and sells a variety of used vehicles, including Audi, BMW, Lamborghini, Land Rover, Maserati, McLaren, Mercedes-Benz and Porsche which in total represents 2.6% of Cash NOI. 17

18 AUTOMOTIVE PROPERTIES REIT Brand and geographic diversification Strong portfolio of 26 high-quality properties in strategic Canadian markets Strong national tenant with significant alignment of interest Leading platform to consolidate fragmented market PORTFOLIO IS EXPECTED TO GENERATE A RELIABLE STREAM OF CASH DISTRIBUTIONS 18

19 FINANCIAL REVIEW Andrew Kalra Chief Financial Officer Porsche Centre Vancouver Markham Acura 19

20 FINANCIAL FORECAST ($ millions, except per unit amounts) 12 months ending June 30, 2016 Revenue $29.9 Cash NOI $25.9 FFO $18.2 FFO / unit $1.04 AFFO $15.5 AFFO / unit $0.89 Annualized Distribution $0.80 AFFO payout ratio 90% Distinctive Collection 20

21 EXCELLENT LEASING PROFILE Triple-net leases Cash NOI weighted average remaining lease term of 15 years Rent indemnified by Dilawri during initial term adjusted rent coverage ratio of approximately 3.4x Fixed 1.5% annual rent escalator % in rent = +2.4% in AFFO PROPERTY IMAGES Audi Sales Downtown Vancouver RELIABLE LONG-TERM CASH FLOW Dixie Auto Mall, Mazda 21

22 Cash NOI ($Million) LEASE EXPIRY BY YEAR $4.0 17% $3.7 $4.0 17% $3.2 $2.2 $1.9 16% 14% % of Cash NOI $1.5 6% 9% 8% $1.3 6% $1.5 6% No Lease Maturities for the Next 11 Years '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 NO LEASE EXPIRATIONS UNTIL

23 DEBT STRATEGY The REIT expects to have initial Indebtedness to GBV of 54% (target range of 55%-60%) The weighted average term to maturity of interest rate SWAPs is approximately 5.6 years Loan Maturity Principal Amount at Closing Effective Fixed Rate of Interest Prepayment Privilege Years from Closing Total Debt Amount ($000s) Total Swapped Fixed Rate Debt (%) Non-Revolving Facility 1 5 years from Closing $119.5 Million 3.1% (1) Fully Open 3 $49, Non-Revolving Facility 2 5 years from Closing 60.2 Million 3.3% (1) Fully Open 5 64, Loan Facility 3 4 years from Closing, with 3-yr extension option 14.1 Million 3.5% None 7 44, , Total/Weighted Average: $193.8 Million 3.2% Total $179, SUBSTANTIAL LEASE TERM REMAINING AT DEBT MATURITY (1) The effective interest rate for Non-Revolving Facility 1 and Non-Revolving Facility 2 is based on interest rate swaps expected to be put in place on or about Closing. 23

24 INDEPENDENT REPORTS Appraisals Fair market value of $ $371.3 million Includes 3% - 5% portfolio premium Property Condition No significant capital expenditures required Environmental Phase I ESAs conducted on all properties 2 properties went to Phase II ESAs Both cleared with no environmental issues THIRD PARTY VALIDATION 24

25 DILAWRI GROUP AGREEMENTS Administration Agreement Management and administrative support services provided by Dilawri 5-year term with renewal options Terminable, in whole or part, by the REIT upon 90 days' notice after Forecast Period No termination fee payable by the REIT Administration cost of $700,000 during the Forecast Period Strategic Alliance Agreement The REIT has a right of first offer on all REIT-suitable properties that are developed or acquired by Dilawri Dilawri currently has 3 properties under development which are expected to be offered to the REIT upon Substantial Completion RELATIONSHIP WITH DILAWRI PROVIDES THE REIT WITH AN ATTRACTIVE ADMINISTRATION STRUCTURE AND ACQUISITION PIPELINE 25

26 STRONG, MAJORITY-INDEPENDENT BOARD Name, Province and Country of Residence Position/Title Independent Committees Principal Occupation Kapil Dilawri Ontario, Canada Chair No N/A Co-founder of the Dilawri Group and Vice President and Secretary of Dilawri James Matthews Ontario, Canada Trustee No N/A Chief Financial Officer of Dilawri Janet Graham Ontario, Canada Trustee Yes Audit Committee (Chair) Governance, Compensation and Nominating Committee Managing Director IQ Alliance Incorporated Stuart Lazier Ontario, Canada Trustee Yes Audit Committee Governance, Compensation and Nominating Committee (Chair) Partner, Co-Founder and Chief Executive Officer Fiera Properties Limited John Morrison Ontario, Canada Lead Independent Trustee Yes Audit Committee Governance, Compensation and Nominating Committee President and Chief Executive Officer Choice Properties Real Estate Investment Trust EXPERTISE IN AUTO, REAL ESTATE AND CAPITAL MARKETS 26

27 GROWTH STRATEGY Dixie Auto Mall, Infiniti Audi Sales Downtown Vancouver 27

28 CONTRACTUAL RENT GROWTH Automatic contractual rent escalations of For Initial Properties over next 1.5% per year 11-19years 1.5% rent increase = 2.4% AFFO increase CONTRACTED, LONG-TERM RENTAL INCOME GROWTH 28

29 PIPELINE OF DILAWRI OPPORTUNITIES Over the last five years, the Dilawri Group has opened or acquired, on average, five new automotive dealerships per year 12 of the 26 Initial Properties were either opened or acquired within the last five years Three development properties currently in pipeline - REIT-suitable within 18 months - Aggregate of 97,000 sq. ft. of GLA (representing a 10% total increase) Audi, Barrie Volkswagen, Barrie STRONG TRACK RECORD OF DEVELOPING AUTOMOTIVE DEALERSHIPS 29

30 TOP 10 DEALERSHIP GROUPS: ONLY 9.1% OF MARKET Company Dealerships % of Total Dealership Locations Dilawri Group (1) % QC, ON, SK, AB, BC AutoCanada (1) % NS, NB, ON, MB, SK, AB, BC Go Auto (1) % AB, BC, NWT, Y Gabriel-Prestige-President Group (1) % QC Pattison Auto Group (1) % NS, NB, ON, MB, SK, AB, BC Humberview (1) % ON O Regan Group (1) % NS Murray Auto Group (1) % NS, MB, SK, AB, BC Zanchin Automotive Group (1) % ON Wheaton (1) % SK, AB, BC Top 10 subtotal % Other 3, % Total 3,469 (2) 100.0% OPPORTUNITY TO CONSOLIDATE HIGHLY FRAGMENTED INDUSTRY (1) Information based on latest publicly available information or as at the date hereof in respect of the Dilawri Group. (2) Source: DesRosiers Automotive Consultants Inc. 30

31 THIRD PARTY ACQUISITIONS Vendor Motivation Drivers Succession planning Monetization Wealth diversification Deploy resources on core business Acquisition Criteria Strategic markets Quality tenants Cash flow stability Brand and geographic diversification OPPORTUNITY FOR DEALERSHIP OWNERS TO MONETIZE ASSETS WHILE REMAI NING IN THEIR CORE AUTOMOTIVE RETAILING BUSINESS 31

32 INVESTMENT HIGHLIGHTS Opportunity to gain exposure to a unique real estate asset class Automotive dealership properties benefit from strong underlying fundamentals Portfolio of high-quality and strategically located automotive dealership properties Strong national tenant with significant alignment of interest Excellent leasing profile Compelling valuation and conservative financial metrics Significant growth opportunities Experienced executive management and strong, independent board 32

33 Automotive Properties REIT 33