Automotive Properties Real Estate Investment Trust

Good morning, ladies and gentlemen, and welcome to Automotive Property REITs 2025 Fourth Quarter and Year-End 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 aware 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 CDAR+. 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 MDNA for additional information regarding non-IFRS financial measures. This call is being recorded on March 5th, 2026. I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb.

Milton Lamb Thank you, Morgan, and good morning, everyone. Thank you for joining us. With me today on the call is Andrew Kalra, our Chief Financial Officer. 2025 was an instrumental year for Automotive Properties REIT. We acquired 13 automotive properties, including our first three properties in the United States, for an aggregate purchase price of approximately $200 million. These acquisitions contributed to our significant growth in rental revenue, cash NOI, AFFO per unit in 2025, which supported our distribution increase effective August of 2025. Compared to 2024, our property rental revenue increased by 8.5%, cash NOI was up 8.4%, and AFFO per unit diluted increased to 99.8 cents from 93.2 cents. As the majority of acquisitions were completed in the second half of the year, our Q4 results show even greater growth with property rental revenue up 19.3% compared to Q4 a year ago. Cash NOI grew 18.6% and AFFO per unit diluted increased to 25.1 cents from 23.2 cents. Our $57.1 million equity offering in the quarter, which helped finance our acquisitions, impacted our Q4 AFFO per unit, but we still generated nearly $0.02 increase to AFFO per unit. Supported by our contractual fixed or CPI adjusted annual rent increases, our same property cash NOI increased by 1.9% and 2.1% for Q4 2025 and the full year respectively. During Q4, we deployed approximately $57.3 million for the acquisition of four dealership properties in Greater Montreal, including a portfolio of three properties located in Dorval consisting of a full-service Subaru, Honda, and VW dealership properties tenanted by affiliates of Dilawri, and a full-service Honda dealership in Ile Perrault tenanted by an affiliate of Group Autoforce. which adds to the sixth property portfolio we previously acquired in Q3, which is also tenanted by affiliates of Group Autoports. We expect to benefit from the full impact of our 2025 acquisitions in 2026. Subsequent to year end, on January 1st, we completed the acquisition of a full-service 40,000-foot Hyundai dealership situated on six acres of land in Quebec City for a purchase price of $13.25 million. And yesterday, we announced that we've waived conditions for the purchase of the real estate underlying automotive and service property located at 3280 Corporate View in Vista, California from a third party for a purchase price of $16 million. This is located in northern San Diego County. The VISTA property is tenanted by Rivian under a midterm net lease that includes contractual fixed annual rent increases with renewal options. The VISTA property consists of a 60,000-foot Rivian delivery and service facility that is situated on approximately 3.7 acres of land. The acquisition is expected to close during the first half of 2026, and we expect to fund the purchase price by drawing on our revolving credit facilities. We expect these property acquisitions to drive continued growth in our AFFO per unit, and we are entering 2026 with solid growth momentum. I'd now like to turn it over to Andrew Calra to review our Q4 financial results and position in more detail. Andrew? Thanks, Milton, and good morning, everyone.

Our property rental revenue for the quarter increased to $27.9 million from $23.4 million in Q4 a year ago. reflecting growth from the properties we acquired during and subsequent to Q4 last year and contractual annual rent increases, partially offset by the reduction of rent from the sale of our Kennedy Lands property in October 2024. Total cash NOI, same property cash NOI for the quarter total $23.2 million, $19.6 million, respectively, representing increases of 18.6% and 1.9% compared to Q4 a year ago. Interest expense and other financing charges for the quarter were $7.5 million, a $1.9 million increase from Q4 last year, reflecting additional debt incurred to acquire properties during and subsequent to Q4 2024 and increased interest rates. Our G&A expenses were $1.8 million for the quarter, a decrease of $0.4 million from Q4 last year in line with our expectations. Net income and other comprehensive income was $13.9 million compared to $12 million in Q4 last year. The increase is primarily due to higher NOI and a change in non-cash fair value adjustments for interest rate swaps partially offset by higher interest costs and changes in non-cash fair value adjustments for investment properties and for Class B LP units and unit-based compensation, partially offset by foreign exchange loss of $1 million. FFO and AFFO increased by 20.4% and 18.4%, respectively, compared to Q4 last year, reflecting higher rental revenue from acquisitions, contractual rent increases, partially offset from the reduction of rent from the sale of the Kennedy lands. On a per-unit basis, FFO increased to 25.9 cents diluted in the quarter, up from 23.6 cents in Q4 last year, and AFFO per unit increased to 25.1 cents, up from 23.2 cents. We paid unit holders distributions of $11.32 million, or 20.6 cents per unit, representing an AFFO payout ratio of 82.1% compared with 86.6% in Q4 last year, reflecting the positive impact of the properties acquired during and subsequent to Q4 last year and contractual rent increases partially offset by the reduction of rent from the sale of the Kennedy lands and the increase in our monthly cash distributions effective August 2025. The cap rate applicable to our portfolio was 6.75% at year end, which is essentially flat quarter over quarter. The $6.8 million fair value adjustment for the year was primarily related to write-off of closing costs, including land transfer taxes associated with the new acquisitions. We continue to be proactive with our debt strategy to limit our exposure to interest rate fluctuations, enhance our financial flexibility. During the quarter, we renewed or entered into $25 million of floating to fixed interest rate swaps for a term of five to six years at a rate or under 4.5%. We increased the amount of the non-revolving portion of Facility 3 by $40 million and extended the maturity to March 2028 at the same credit spread. At year end, we had a debt to GBV ratio of 49.9%, providing further acquisition capacity. Subsequent to year end, we entered into floating to fixed interest rate swaps within Facility 3 in the amount of $45 million for terms ranging from five to seven years with interest rates between 4.45 and 4.59%. And we increased the amount of the revolving portion of Facility 1 by $25 million and extended the maturity from June 2027 to June 2029. As at the date of this MD&A, on a trailing 12-month basis, the borrowing capacity under our three credit facilities increased by an aggregate $140 million, and we extended maturities. We have a well-balanced level of annual maturities with less than $40 million of swaps maturing over the next 12 months. We have a weighted average interest rate term and mortgage mortgages remaining of 4.1 years at year end. As at March 4th, 87% of our debt was fixed through interest rate swaps and mortgages, and we had approximately $102.3 million of undrawn capacity under our revolving credit facilities and 10 unencumbered properties with an aggregate value of approximately $130.2 million. I'd like to turn the call back to Milton for closing remarks. Thank you very much.

Great. Thanks, Andrew. 2025 marks our 10th anniversary since the creation of the REIT, and over that period, we've established ourselves as an important partner to major automotive dealership groups and OEMs in Canada and now in the United States. As a result, we've successfully diversified our tenant base, market presence, and brand representation. while more than tripling the value of our investment properties. We further built upon this progress in 2025 and strengthened our position for growth through the acquisitions of 13 properties for an aggregate purchase price of approximately $200 million. Our entry in the US combined with our entry into heavy equipment dealership vertical late last year has broadened both our revenue base and our potential acquisition pipeline. we are successfully executing on our key objectives, including driving AFFO per unit to build value for unit holders. We're pleased to have implemented a 2.2% increase to unit holder distributions this past year, and looking ahead, you can expect us to continue to build on these positive factors to drive unit holder value, supported by a growing property portfolio featuring essential retail and service properties with 100% rent collection since our IPO over 10 years ago, prime metropolitan markets anchored by GDP and population growth, high-quality tenants with resilient business models, attractive single-tenant net lease structures, and embedded fixed or CPI-adjusted rental growth. We look forward to benefiting from a full year of the financial impact of our 2025 acquisitions in 2026. That concludes our remarks. Now I'd like to open it up for questions. Morgan, please go ahead.

Thank you. We will now begin the question and answer session. During this period, we do ask that you limit your questions to one with a follow-up. If you would like to ask a question, please press star then the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from Saran Cervenas with ATB Pharma Capital Markets. Your line is open.

Thank you, operator. Good morning, guys. Congratulations on a very good 2025. You know, obviously 2025 has been very active for the acquisitions pipeline, and it looks like 2026 is pretty active as well. Can you comment on the outlook ahead and what you're seeing developing in your markets?

Yeah, I mean, we experienced during COVID and just after a bit of euphoria where some of the pricing on these properties went to a level that we were not comfortable proceeding at. That's now normalized to what we've traditionally seen where we can buy properties in that you know, call it six and a half to low sevens and put financing in place in the mid fives, sorry, in the mid fours. That allows us to, you know, be at a number of opportunities that are appealing to us. We're still being selective. And as you can tell, looking at Florida and California plus Montreal, you know, these are markets that are very healthy for real estate and the economy overall.

that's, that's definitely the case. And maybe just to follow up there, uh, looking at the U S essentially been focusing on Rivian and Tesla talent relationships. That is that part of your broader strategy as well in terms of the U S market.

As a broad strategy, we certainly believe, you know, we watched Tesla for a while before we did our first. And then, you know, currently we have seven, uh, we're excited about what Rivian's doing with the R2 that'll launch shortly. So, uh, You know, there tends to be some merchant developers in the States that are providing long-term leases with Rivian and Tesla in major markets that, you know, when we underwrite the real estate, both for the existing tenant and for the actual, you know, dirt building and area that we're excited about, it is not our sole strategy. we still believe that we will look for and be able to complete some automotive, you know, traditional dealership properties as well. It's early days, but we still think there will be a diversified portfolio that we end up building out.

That's great, Colin Melton. Thank you so much. I'll turn it back.

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

Thanks, good morning. I guess just continuing on that last line of questioning, pro forma when this deal closes, what percent of your net rents will come from Rivian?

We don't give forward-looking exact, but it's going to be under 5%. I mean, it may be three properties, but these are not very large properties. And again, we certainly underwrite it for the dirt underneath. We like the assets, and we like the tenant.

Okay. Helpful. And then just, I guess, well, second follow-up slash second question. Just on the balance sheet, you talked about pushing $45.9 million post-quarter income. into fixed rate? At Q4, you were 20% floating. What would you be pro forma right now?

In terms of our swaps coming due over the next 24 months, we've got about 40. We're going to push with the acquisitions we use our revolving balance, or our revolver will go up. And then with respect to as at the date of the MD&A, Our overall non-revolving is 87% fixed. So we're in a comfortable zone, and we ended up doing swaps in an opportune time in the beginning of February and got some good rates as well.

Perfect. I'll turn it back. Thanks. Thank you.

Thank you. Once again, to ask a question at this time, please press star, then the number 1, on your telephone keypad. Your next question comes from Jimmy Shan with RBC Capital Markets. Your line is open.

Thanks. So just in terms of the acquisition pace this year, do you expect it to be as active as last year?

I think we're building some momentum both in Canada and the US. We went through some of the math a few moments ago, so that works. I think we have to be selective, and we continue to be selective. So for us, it's a cost of capital balancing with the opportunities that we see. So we expect to see some opportunities, and it'll be an interesting year, but we still believe that our multiple reflects a bit of a hangover of, You know, USMCA affecting auto, and they don't finish that sentence that says auto manufacturing. So I think we're caught in the word scramble of a title of six words versus seven words making a big difference in how we're viewed. So once that dissipates, I think our cost of capital will come back in line, and we're pretty excited on what our pipeline can and should be.

Okay. As you build out the U.S. portfolio, how are you thinking about the markets you want to be in? You want to build a critical mass first, or are you now just looking at the credit and you're kind of market agnostic?

No, we're not. We've never been market agnostic. So I guess I'd answer that in two ways. One is the underlying kind of philosophy that Reid is always being metropolitan with population growth and GDP growth. Certainly, there's more markets in the U.S. than in Canada, just by the sheer size that fit that category. The good news is on a net lease business, we don't have those operating need for capabilities risk management. It tends to be a bit more of an asset manager as opposed to a property manager leasing level. But we still do like call it that Southeast market. And then as you kind of move over into the the Arizona, Texas, and California. We like to see the dirt and the underlying economy and population supporting the real estate that we buy. It helps our tenants and it helps the dirt.

Okay. Sorry, just one last. Do you have any update on the FAS, the Audi space there in Vaughan? What you plan to do there?

It's early days. It's a bit of a balancing act. I mean, it's a great property. I keep on saying dirt, but it's also got a great building on it. So the combination is the demand now for leasing income versus there is higher and better use, good density there. But in today's market, you're not getting paid for the density. So it's a balancing act of how long do we want to commit on that property versus how long until we get access to potentially the underlying value, and that's what we're going through right now and looking at different opportunities and different structures. It's early days, but it's a high-quality property.

Okay, thank you.

Your next question comes from Juliano Thornhill with National Bank. Your line is open.

Hey, guys. Good morning, everyone. Good morning. Just a question, how do the cap rates compare for the Rivian deals compared to just regular kind of dealerships in their areas? Are they on similar areas, like same ballpark, or are they different?

It really depends on the market, but I would think the Rivians, they haven't been around as long as some of the other dealerships or Tesla, so that's reflected a bit. But again, what I find interesting is that they're at market rates or at numbers that we are, I shouldn't say overall, the ones that we've been doing are at market rates that we're very comfortable with. We've seen a number cross our desk at a high number per square foot that makes us extremely uncomfortable. So it is a bit of a balancing act between the actual real estate and the tenant in place. But I would say Rivian with their upcoming R2, we could expect to see some cap rate compression going forward, assuming that that launch goes as well as people anticipate.

And do you think of the EV transition more of a risk or an opportunity for your existing tenant base?

I think it's opening up more demand for the real estate that is zoned for automotive in Canada, whether that's including potential new Chinese entrants or just overall. I think for the existing, call it traditional, dealership base, a lot of them are going to have to have the service capabilities and the delivery capabilities for both, well, for three, for ICE, hybrid, and for EV. So I think that broadens out their needs. But it's really going to be consumer preference and there's going to be some investment that has to occur. But I don't see this being a hard pivot. I think it's going to be gradual over the next 15 to 25 years. And they're going to have to continue to service ICE vehicles and at the same time move up the chain through hybrid and ICE.

Sorry, hybrid and EV.

This concludes the Q&A session. I would like to turn the call back over to management for any further remarks.

We appreciate everyone's time, and we look forward to talking to you shortly. Have a good day, everyone.

This concludes today's call. Thank you so much for attending, and have a wonderful rest of your day.