Automotive Properties REIT (TSX: APR.UN) offers investors exposure to a unique real estate asset class. The REIT is focused on owning and acquiring automotive dealership properties in long-term growth markets in Canada.
Canada’s automotive retail industry is characterized by strong industry fundamentals. It is the largest component of retail sales and merchandise in Canada, with a record $162 billion of industry sales in 2018¹ (27% of Canada’s overall retail sales of products and merchandise¹). From 2013 to 2018, automotive retail sales increased at a compound annual growth rate of 7.6%¹. In addition to robust sales performance, automotive dealerships have demonstrated stable profitability. Since 2007, the weighted average gross profit margin for publicly listed automotive dealership groups in North America has averaged 15.7% and remained within a band ranging from 14.9% to 17.1%².
The REIT’s property leases are structured as triple-net leases under which the tenant is responsible for all costs relating to repair and maintenance, realty taxes, property insurance, utilities and all non-structural capital improvements. The REIT’s portfolio has a weighted average lease term of approximately 13.5 years (as at September 30, 2019) and leases include contractual fixed rent increases, providing long-term organic growth.
These strong fundamentals and an attractive leasing profile support the stability of Automotive Properties REIT’s Unitholder distributions. The REIT currently pays monthly cash distributions to Unitholders of $0.067 per Unit, representing $0.80 per Unit on an annualized basis.
Strategy and Objectives
The primary strategy of the REIT is to create long-term value for Unitholders by generating sustainable tax-efficient cash flow and capital appreciation. The primary objectives of the REIT are to:
- provide Unitholders with stable, predictable and growing monthly cash distributions on a tax-efficient basis;
- maximize long-term Unitholder value by enhancing the value of the REIT’s assets; and
- expand the REIT’s asset base while also increasing adjusted funds from operations (AFFO) per unit.
Management intends to grow the value of the REIT’s real estate portfolio while also increasing AFFO per Unit through accretive acquisitions and steady growth in rental rates. The REIT is leveraging its strategic arrangement with the its lead tenant, the Dilawri Group, Canada’s largest dealership owner, to acquire properties from the Dilawri Group that meet the REIT’s investment criteria. The REIT is also capitalizing on acquisition opportunities presented by other automotive dealership groups and owners that are interested in the recapitalization or sale of their business. Management is focused on acquiring properties that contribute to the REIT’s ability to generate stable, predictable and growing monthly cash distributions to Unitholders. Since its initial public offering in July 2015, the REIT has completed 36 property acquisitions for a combined purchase price of approximately $470 million.
- Statistics Canada
- 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.