Automotive Properties REIT October 2018

Transcription

1 Automotive Properties REIT October 2018

2 DISCLAIMER FORWARD-LOOKING STATEMENTS Certain statements contained in this presentation constitute forward-looking information within the meaning of applicable securities legislation. Forwardlooking 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, prospects 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 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 forward-looking 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 REIT s regulatory filings. 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 ), cash net operating income ( Cash NOI ) and Same Property cash operating income ( Same Property Cash NOI ) are key measures of performance used by management and 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 a key measure of economic earnings performance and is indicative of the REIT s ability to pay distributions from earnings, 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 REIT s regulatory filings. 2

3 REIT OVERVIEW Canada s only public-vehicle focused on consolidating automotive dealership real estate properties High-quality portfolio of strategically-located dealership properties across Canada, representing 29 global manufacturers / brands Long-term, triple-net leases with fixed rent escalators provide stable, predictable cash flows Strong, independent board and REIT-friendly management agreement (cost-recovery, no termination fee, no acquisition fees) Significant acquisition capacity with sound balance sheet and current Debt to GBV of 49.1%¹ PORTFOLIO WELL POSITIONED TO GENERATE A RELIABLE STREAM OF CASH DISTRIBUTIONS (1) As at June 30,

4 CAPITAL MARKET PROFILE IPO: July 2015 / TSX: APR.UN Market capitalization: ~ $324.0 million 1,2 REIT Units outstanding: million Class B LP Units: 9.93 million Monthly distribution per unit: $0.067 ($0.80 annualized) Recent Unit Price: $ Distribution yield: ~ 7.9% 2 52-week high / low 2 : $11.47 / $9.87 Public ownership: IPO: ~50% institutional / ~50% retail Q AFFO payout ratio: 87.8% H AFFO payout ratio: 87.2% Analyst coverage from 10 investment dealers, including all the big six banks (1) Includes Class B Units (2) As at October 16,

5 CANADIAN AUTOMOTIVE DEALERSHIP INDUSTRY 1 Retail Sales ($billions) % Auto industry s proportion of Canada s overall retail sales of products and merchandise in Canadian New Motor Vehicle Sales (# of units sold, H and H1 2017) 2 500, , , , ,000 0 Atl. Provinces QC ON MB SK AB BC & Territories Million Record new motor vehicle unit sales in Canada in % New unit sales growth in 2017 compared to 2016 (continued growth in H vs. H1 2017) THE AUTOMOTIVE RETAIL SALES INDUSTRY IS CANADA S LARGEST RETAIL SEGMENT (1) Source: Statistics Canada (2) As at June 30,

6 AUTOMOTIVE INDUSTRY EVOLUTION Consumer buying habits high online consumer knowledge Electric vehicles low penetration, expected to increase o Implication on dealer infrastructure Automated vs. autonomous o Automated safety / technology expected to be regulated o Autonomous cultural shift Other influencers o Ride Sharing Platforms Uber, Lyft DEALER DEMOGRAPHICS AND INDUSTRY EVOLUTION WILL ACCELERATE CONSOLIDATION TREND 6

7 OPPORTUNITY TO CONSOLIDATE HIGHLY FRAGMENTED INDUSTRY Proportion of Canada s ~ 3,500 Auto Dealerships Owned by Size of Ownership Group 1 10 Dealership Groups: Approximately 10% of the Market 35% 5 or more Dealerships 15% 2-4 Dealerships 50% Single Dealership (1) Source: DesRosiers Automotive Consultants Inc. (2) Information based on publicly available information as at May 20, 2016 (3) Denotes current tenants of the REIT (4) Excludes collision centres and RV/Marine dealerships Company Dealerships % of Total Dilawri Group (3) % AutoCanada (2) (3) % Go Auto (2)(3)(4) % Performance Group % Albi Group % Zanchin Automotive Group (2) % Steele Automotive Group % Gabriel-Prestige- President Group (2) % O Regan Group (2) % Murray Auto Group (2) % Top 10 subtotal % Other 3,154 90% Total 3,509 (1) 100.0% 7

8 PARTNERING WITH AUTOMOTIVE PROPERTIES REIT Consolidation of Canada s fragmented dealership industry provides ample partnership opportunities Established Dealers Industry Consolidators Succession planning Monetization of embedded capital Wealth diversification / Tax efficient Class B LP Units Invest in core business Redeploy capital from underlying real estate in existing portfolio Fund acquisition program / expand presence in emerging institutional asset class Realize higher investment returns from core business Strengthen competitive position / expedite economies of scale PROVIDING FINANCIAL LIQUIDITY TO AUTOMOTIVE DEALERSHIP OWNERS TO SUPPORT THE ADVANCEMENT OF THEIR STRATEGIC OBJECTIVES 8

9 SIGNIFICANT GROWTH SINCE IPO At IPO (July 2015) Current Change Properties , 2 +65% Number of Brands % GLA ~1.0 million sq. ft. ~1.7 million sq. ft % Yield 8.00% 7.9% 2 (0.1%) Number of Units Outstanding⁴ 18,053,253 31,729, % Market Capitalization ($millions) $180.3 $ % Debt ($millions) $193.8 $285.4³ +47% Investment Properties FMV ($millions) $357.6 $575.7³ +61% Loan-to-Value 54.2% 49.1%³ (5.1%) Implied Cap Rate 6.5% 6.5%³ --- (1) Includes one property under development (2) As at October 16, 2018 (3) As at June 30, 2018 (4) Includes Class B units 9

10 PORTFOLIO OVERVIEW Modern, best-in-class dealerships 43 properties, 55 dealership/service locations on > 140 acres ~ 1.7 million square feet of Gross Leasable Area ( GLA ) 1 $247.8 million in acquisitions since IPO (17 properties) 2 Acquisitions enhance tenant, brand and geographic diversification Greater Vancouver Edmonton Calgary Regina Greater Montreal Greater Toronto GROWTH DRIVERS: PORTFOLIO EXPANSION AND RENT INCREASES (1) As at October 16, 2018 (2) Includes anticipated spending on the Kitchener-Waterloo property acquired in February

11 PORTFOLIO DIVERSIFICATION Calgary 15.4% By Cash NOI 1 Edmonton GMA 6.4% 9.1% Regina 11.2% GVA 15.5% GTA 42.4% Edmonton 7.1% GMA 13.0% GVA 10.5% Calgary 18.5% By GLA 2 Regina 12.5% GTA 38.4% 17.0% Manufacturer / Brand (By % of Dealership Rent) % 8.4% 8.2% 7.4% 6.5% 6.0% 5.4% 5.3% 4.4% 3.8% 3.0% 2.7% 11.7% Other # of REIT Locations PROPERTIES BENEFIT FROM PRIME LOCATIONS IN STRATEGIC URBAN MARKE TS, AND BROAD DIVERSIFICATION OF INDUSTRY-LEADING BRANDS (1) For the year ended December 31, 2017 (2) As at June 30,

12 MANUFACTURER AND BRAND DIVERSIFICATION 1 Manufacturers by Region (% of Cash NOI from Dealership Properties) 1 Brands by Market Segment (% of Cash NOI from Dealership Properties) 1 Europe 40% North America 8% Asia 52% Luxury 34% Ultra-Luxury4 (4) 12% 3 Mass (2) Market 54% 2 STRONG MIX OF LUXURY AND MASS MARKET BRANDS (1) As at December 31, 2017 (2) Mass Market segment includes: Chrysler, Ford, General Motors, Kia, Nissan (including Nissan Infiniti), Honda, Hyundai, Mazda, Mitsubishi, Toyota and Volkswagen (3) Luxury segment includes: Acura, Audi, BMW and Infiniti (4) Ultra-Luxury segment includes: Aston Martin, Bentley, Lamborghini, Land Rover, Lincoln, Porsche, Maserati, McLaren and Mercedes-Benz 12

13 STRONG LEAD TENANT 68 franchised automotive dealerships, representing ~30 brands Presence in QC, ON, SK, AB, BC REIT has the first right to acquire from Dilawri development and acquisition pipeline - Over the last six years, Dilawri has, on average opened or acquired five new automotive dealerships per year, including two to three automotive dealership properties Pro forma adjusted rent coverage ratio of 3.1x as at June 30, 2018 (LTM) Pro forma adjusted rent coverage ratio of 3.4x as at June 30, 2017 (LTM) Dilawri 5-Year Historical Revenues ($millions) $2,810 $2,400 $2,000 $1,641 $1, EBITDA $63.8 $75.2 $76.6 $72.8 $94.8 CAGR of ~10% ALIGNMENT OF INTERESTS THROUGH DILAWRI S 32.8% EFFECTIVE OWNERSHIP INTEREST IN THE REIT 13

14 % of Cash NOI LEASING PROFILE 1 Triple-net leases All leases are indemnified by parent company of (AutoCanada, Dilawri Group, Go Auto and Pfaff Automotive Partners) Weighted average term of ~12.6 years Fixed 1.5% annual rent escalator for the 34 Dilawri properties over the next years Lease Maturity Schedule % 12.5% 13.7% 25% % 4.1% 6.0% 9.7% 8.5% 8.2% 10.0% 6.5% 4.8% 20% 15% 10% 5% - '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36 - RELIABLE LONG-TERM CASH FLOW, WITH CONTRACTED, LONG-TERM RENTAL INCOME GROWTH AND ONLY ONE LEASE EXPIRATION BEFORE 2026 (1) As at June 30, 2018 (2) Based on 12-month rolling average as at June 30,

15 SUMMARY OF ACQUISITIONS 17 properties and one expansion $247.8 million combined purchase price 1 Added > 687,000 square feet of GLA to portfolio Acquisitions indirectly funded by three fully-subscribed equity offerings totaling ~$141.5 million Enhanced brand, geographic and tenant diversification Accretive to AFFO per Unit (1) Includes anticipated investment in Kitchener-Waterloo property acquired in February

16 ACQUISITIONS WITH DILAWRI AS OPERATING TENANT Mazda des Sources Dorval, QC Acquired: December 2017 Purchase Price: $8.0 million Heritage Honda Calgary, AB Acquired: April 2017 Purchase Price: $23.6 million Barrie Volkswagen Barrie, ON Acquired: March 2017 Purchase Price: $8.9 million Audi Barrie Barrie, ON Acquired: January 2016 Purchase Price: $11.1 million Mercedes-Benz West Island Dollard-des-Ormeaux, QC Acquired: December 2016 Purchase Price: $20.3 million St. Bruno Audi & Volkswagen St. Bruno, QC Acquired: December 2016 Purchase Price: $14.3 million Toyota Woodland Montreal, QC Acquired: December 2015 Purchase Price: $7.2 million Country Hills Volkswagen Calgary, AB Acquired: June 2018 Purchase Price: $18.0 million 16

17 ACQUISITIONS WITH OTHER LEADING DEALERSHIP TENANTS 1 Go Mazda Edmonton, AB Acquired: March 2017 Purchase Price: $8.0 million Pfaff Audi Vaughan, ON Acquired: September 2016 Purchase Price: $17.2 million Porsche Centre / Jaguar Land Rover Edmonton, AB Acquired: December 2015 Purchase Price: $23.0 million Ericksen Infiniti Edmonton, AB Acquired: December 2017 Purchase Price: $23.2 million for three-property portfolio Southtown Hyundai Edmonton, AB Acquired: December 2017 Purchase Price: $23.2 million for three-property portfolio Kentwood Ford (service compound) Edmonton, AB Acquired: December 2017 Purchase Price: $23.2 million for three-property portfolio (1) Excludes the Kitchener-Waterloo property acquired in February 2018 BMW Laval Montreal, QC Acquired: September 2018 Purchase Price: $55.5 million for two-property portfolio Sherwood Park VW Edmonton, AB Acquired: September 2018 Purchase Price: $55.5 million for two-property portfolio 17

18 FIRST-SIX MONTH 2018 FINANCIAL REVIEW ($thousands, except per unit amounts and as otherwise noted) Six months ended June 30, 2018 Six months ended June 30, 2017 Revenue from investment properties $ 22,679 $ 20,348 Cash NOI 17,752 15,754 Same property Cash NOI 15,438 15,226 FFO 13,307 12,477 AFFO 12,115 11,204 Per Unit Amounts 1 Distributions $ $ FFO (diluted) AFFO (diluted) FFO payout ratio 79.4% 81.5% AFFO payout ratio 87.2% 90.7% (1) Year-over-year declines in FFO payout ratio and AFFO payout ratio are primarily due to properties acquired subsequent to Q

19 ($000s) ($000s) ($000s) Q FINANCIAL REVIEW Property Revenue Cash NOI 12,000 10,000 8,000 6,000 4,000 2, ,373 10,467 Property Revenue 7,827 7,934 Same Property Revenue 1 $8,000 $6,000 $4,000 $2,000 $0 8,906 8,195 Cash NOI 7,683 7,790 Same Property Cash NOI $8,000 $6,000 $4,000 $2,000 $0 6,531 FFO and AFFO FFO 6, ,849 AFFO 6,048 Per Unit Amounts 2 Q Q Distributions $0.201 $0.201 FFO (diluted) $0.252 $0.249 AFFO (diluted) $0.229 $0.223 FFO payout ratio 79.8% 80.7% AFFO payout ratio 87.8% 90.1% (1) Same Property Revenue excludes straight line rent adjustments (2) Year-over-year declines in FFO payout ratio and AFFO payout ratio are primarily due to properties acquired subsequent to Q

20 BALANCE SHEET METRICS ($thousands, unless otherwise noted) At June 30, 2018 At December 31, 2017 At June 30, 2017 Total assets $580,865 $547,606 $507,814 Units outstanding (includes Class B LP Units) 26,629,805 26,149,253 26,149,253 Weighted average effective interest rate on debt 3.48% 3.35% 3.35% Proportion of debt at fixed rates 91% 83% 82% Weighted average interest term remaining through swaps (years) Interest coverage ratio 3.5x 3.8x 4.0x Debt to GBV 49.1% 48.5% 46.5% 20

21 DEBT STRATEGY REIT s Indebtedness to GBV as at June 30, 2018: 49.1% (target range of 55%-60%) With interest rate SWAPs, the weighted average term to maturity is approximately 5.8 years At June 30, 2018 ($thousands) Maturity Principal Amount Effective Fixed Rate of Interest Amount withdrawn against Revolving Credit Facility Repayment Facility 1 1 June 2023 $151, % Nil of $20,000 Open Facility 2 2 June 2022 $85, % $10,150 of $15,000 Open Facility 3 3 Multiple $19, % Nil of $14,000 Open Mortgages Multiple $28, % n/a Closed Total/Weighted Average: $285, % $10,150 of $49,000 The REIT has entered into interest rate swaps on the non-revolving portions of Facilities 1, 2 & 3 Remaining Term (years) Amount ($thousands) Total Swapped Fixed Rate Debt (%) 2.1 $38, , , , , , , $231, (1) Facility 1 consists of a non-revolving loan worth $151.2 million and a $20 million revolving credit facility (of which nil was drawn as at June 30, 2018, except for $0.8 million which is secured for irrevocable letters of credit). Both mature in June 2023 (2) Facility 2 consists of a non-revolving loan worth $75.6 million, and a $15 million revolving credit facility (of which $10.2 million was drawn as at June 30, 2018). Both mature in June 2022 (3) Facility 3 consists of a non-revolving loan worth $19.5 million maturing in December 2022, and a $14 million revolving credit facility (of which nil was drawn as at June 30, 2018) maturing in June

22 FACTORS MITIGATING EXPOSURE IN RISING INTEREST RATE ENVIRONMENT 1.4% Same Property Cash NOI growth as a result of contractual annual rent increases 91% (1) Portion of total debt at fixed interest rates 5.8years (1) Weighted average term of fixed interest rates (swaps) (1) 100% effective occupancy (1) 3.48% weighted average fixed interest rate on debt Attractive ~7.9% (2) current yield on cash distributions (1) As at June 30, 2018 (2) As at October 16,

23 LEADERSHIP / GOVERNANCE Management Structure Strong Majority Independent Board External asset management by Dilawri on a cost-recovery basis No additional fees (asset management, acquisition, financing or leasing) 5-year term with renewal options Terminable, in whole or part, by the REIT upon 90 days' notice No fee payable by the REIT Name, Province and Country of Residence Kapil Dilawri Chair Ontario, Canada James Matthews Ontario, Canada Louis Forbes Ontario, Canada Stuart Lazier Ontario, Canada Principal Occupation Co-founder of the Dilawri Group and Vice President and Secretary of Dilawri Chief Financial Officer of the Dilawri Group Senior Vice President and Chief Financial Officer CT Real Estate Investment Trust Chairman, Northbridge Investment Management Inc. John Morrison Lead Trustee Ontario, Canada Vice Chairman Choice Properties Real Estate Investment Trust MANAGEMENT FOCUSED ON GROWING AFFO PER UNIT 23

24 INVESTMENT HIGHLIGHTS Automotive dealership properties benefit from strong industry fundamentals High-quality, strategically located properties, with brand and geographic diversification Tenancies currently include the three largest Canadian dealership groups Long-term, triple-net leases with contractual fixed rent increases provide stable, predictable cash flows Large, highly fragmented market presents compelling consolidation opportunity Right of first offer on Dilawri development and acquisition pipeline Seventeen property acquisitions since July 2015 for a combined purchase price of ~$247.8 million 1 Low Debt to GBV / sound balance sheet provides significant acquisition capacity (1) Includes anticipated spending on the Kitchener-Waterloo property acquired in February