Automotive Properties REIT Acquires 3 Locations, Predicts Further Growth | RENX

0

Magog Honda at 2390-2400 rue Sherbrooke in Magog, Que. The property is acquired by Automotive Properties REIT. (Google Maps)

Automotive Properties REIT (APR) closed 2021 with the announcement of three acquisitions and Chairman and CEO Milton Lamb believes the trust is well positioned for further growth this year.

“We are waiting and we are ready and luckily in a very good position to be active on the acquisitions side,” Lamb told RENX. “We continue to work with the dealer community to be present in M&A (M&A) and I expect to see more succession planning and tax planning.

“This is also where we can have an advantage.

The REIT (APR-UN-T) launched an initial public offering on the Toronto Stock Exchange in 2015 and is the only public vehicle in Canada focused on consolidating real estate properties from car dealerships.

Its portfolio consists of 66 lucrative commercial properties that represent approximately 2.5 million square feet of gross leasable area in the markets of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Canada. Quebec.

Auto Property REIT Acquisitions

Toronto-based APR has agreed to buy two properties in Quebec for a combined price of $ 23.4 million: Sherbrooke Honda at 2555-2615 King St. W. in Sherbrooke; and Magog Honda at 2390-2400 rue Sherbrooke in Magog.

The Sherbrooke Honda property consists of a full-service, 26,990 square foot Honda dealership, renovated in 2014. It is located on 1.7 acres of land along a commercial corridor on Route 112.

At closing, the tenant-operator will enter into a 15-year triple net lease with APR. The agreement includes an annual contractual rent increase based on the Quebec consumer price index, and at least 1.5 percent, after the first year of the lease term.

The Magog Honda property consists of two buildings totaling 56,195 square feet. It includes a full-service Honda dealership built in 2006 and expanded in 2009 and 2011, as well as a used and service car plant built in 2008.

It is located on 6.5 acres of land along a commercial corridor at the intersection of Highway 55 and Highway 112 and close to Sherbrooke.

At closing, the tenant operator will enter into a lease under the same conditions as those agreed for the Sherbrooke Honda property.

Lamb said he enjoys the Honda brand, the Sherbrooke and Quebec markets, and the current operations of the two dealerships. The acquisitions are expected to close this month.

APR also exercised its right of first refusal and entered into an agreement to purchase approximately 2.15 acres of land at 20257 Langley Bypass in Langley, British Columbia, from a third party. It is subject to a ground lease paid by the operator of the Acura dealership of Langley, an affiliate of the Dilawri Group of Companies, which is a current tenant of the REIT.

The land lease expires on June 30, 2032. The purchase price for the land was approximately $ 15.1 million.

More acquisitions expected this year

These three transactions were the only ones announced by APR in 2021, following three in 2020. These two years saw slower growth rates for the REIT than in previous years.

“We intentionally held back in 2020 as we focused on observing industry performance and supporting some of our tenants, Lamb said. “The rebound has been strong and rapid, to the point where some of the M&A activity, which is a big part of what we’re involved in, was delayed as buyers and sellers worked on standardized benefits.

“They had to adjust to government wage subsidies and higher margins.”

Lamb expects an increase in merger and acquisition activity this year. He believes APR can take advantage of this by working with dealers who might want to acquire more operations and concessions without having to buy their real estate.

“We have the ability to complete approximately $ 150 million in acquisitions without having to take advantage of the strong equity markets available to us, said Lamb.

“A lot of people are preparing to be active, whether it’s buying or selling. There are a number of groups that position themselves to take advantage of opportunities that match their strategies. “

APR and auto dealers thrive

APR recorded solid increases in revenue, net operating income and adjusted operating funds per unit in its third quarter ended September 30.

It had a debt to gross book value ratio of 40.1% and a strong liquidity position with $ 74.2 million in unused credit facilities, $ 5 million in cash and seven unencumbered properties valued at total of approximately $ 103.2 million.

“We have long-term leases so there’s a lot of transparency as to where our income should be and most of those leases have annual rent increases,” Lamb said. “We’re not creating something surprising or new, we’re just getting good results. The more we do it, the more confidence the market has. “

This strong performance was supported by the resilience of the auto dealership industry.

Lamb sees auto dealers as an almost essential service as opposed to some other retail sectors which is why dealerships have been so successful in weathering the pandemic even with supply chain issues making some lots of new cars more sterile than in the past.

Publicly traded auto dealer groups reported strong earnings across North America, which sets the benchmark for the entire dealership industry.

“We were fortunate to have a strong tenant base anchored in dealer groups with multiple brands and multiple locations,” Lamb said, noting that APR had collected 100% of the rents last year through end of the third trimester. “There has always been too much focus on new car sales because those are the most obvious statistics.

“But it was interesting to see how quickly dealers were able to adapt as COVID hit and prospered by continuously focusing on used car sales and service margins, which generated profits.”

New market entrants will help

Lamb said the pandemic and the resulting supply chain disruptions have changed consumer behavior from buying a car right away in the field to ordering a car and buying it. awaiting delivery. This means that having smaller stocks on hand may be enough.

“This, combined with a push towards EVs (electric vehicles), provides opportunities for new entrants and new solid products from traditional OEMs (original equipment manufacturers),” Lamb said. “New entrants have demonstrated a need for physical fingerprints, if you look at Genesis and Tesla.

“As they put more cars on the road, it offers more footprint opportunities and therefore more opportunities for APR and the industry as a whole to get involved and work with them.”

Tesla Edmonton, Tesla KW and Tesla Laval dealerships are located on properties owned by APR.

“With the success Tesla has had, there are cars on the road,” Lamb said. “When there are cars on the road, there are going to be maintenance needs.”

Potential for real estate densification

Over 80% of APR’s properties are in major markets and some have the potential for intensification, but Lamb said the priority is working with existing tenants and ensuring their needs are met.

“These locations are critical to their business and they have long-term commitments for the properties. We certainly love real estate and dirt, but we also love working with our tenant base.

Share.

Comments are closed.