Automotive Properties (TSX:APR) released second-quarter financial results and hosted an earnings call on Friday. Read the complete transcript below.
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Summary
Automotive Properties REIT reported a 22.8% increase in property rental revenue and an 18% rise in AFFO, with AFFO per unit reaching a record 26.3 cents, driven by recent property acquisitions and rent increases.
The company announced a 2% increase in annual cash distribution, reflecting confidence in stable cash flow, supported by lease renewals and new agreements, including a 16-year triple net lease in Vaughan.
Future outlook includes continued expansion in the U.S. and Canada, with a focus on geographic and tenant diversity, and leveraging high-demand automotive facilities for sustained growth and portfolio strength.
Full Transcript
Morgan, Operator
Good morning, ladies and gentlemen, and welcome to Automotive Properties REIT's 2026 Second Quarter 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 SEDAR+. 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 MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on August 14, 2026. I would now like to turn the conference over to Milton Lamb, President and CEO. Please go ahead, Mr. Lamb.
Milton Lamb, President and CEO
Thank you, Morgan, and good morning, everyone. With me on our call is Andrew Calra, our Chief Financial Officer. Our strong second quarter performance reflects the positive impact of the property acquisitions we completed during 2025 and Q1 of this year, plus partial contribution of the three properties we acquired in Greater San Diego and Santa Ana, California in early Q2. Compared to Q2 of last year, our property rental revenue has increased by 22.8%, cash NOI is up 20%, AFFO has increased by 18%, and AFFO per unit diluted increased to 26.3 cents from 24.9 cents.
This represents a record quarterly AFFO per unit amount for APR/UN, up from our prior record of Q1 this year, demonstrating the positive impact of our acquisitions and embedded growth from contractual fixed or CPI-adjusted rent increases in our net lease structure. This is further reflected in our reduced AFFO payout ratio of 78.3% in the quarter compared to 80.7% in Q2 of last year, despite our distribution increase last year and issuance of REIT units through the completion of our $57 million equity offering last October.
With our strong financial performance, the REIT's trustees have approved an increase of approximately 2% to our annual cash distribution from 82.2 cents to 83.9 cents per unit. Our new monthly distribution will be 6.99 cents per unit, up from 6.85 cents. This increase will be effective for this month's distribution to be paid on or about September 15, 2026, to unitholders of record on August 31, 2026. This marks the second consecutive year we have implemented a distribution increase, which highlights our confidence in the stability of our cash flow.
Further to the underlying stability of our cash flow, we were active in Q2 renewing several of our leases, including one of our dealership properties in Vancouver and one of our dealership properties in Regina, which were extended by an average of seven and a half years with base rent increases of approximately 4.8%, with subsequent annual fixed rent increases. Our VW Des Sources dealership property in Montreal was extended beyond its current lease maturity of 2027 for a further six years, subject to a CPI adjustment in 2027.
One of our dealership properties in Calgary was also extended by five years at rents to be agreed upon as that renewal commences. We also announced yesterday that, subsequent to quarter end, we entered into a new lease and joint arrangement with a member of the Dilawri Group, pursuant to which we've agreed to lease our 69,000 square foot automotive dealership property located at 9088 Jane Street in Vaughan under a 16-year triple net lease, whereby the landlord has a redevelopment option.
We expect rent payments to commence on December 1, 2026. Concurrently, we've agreed to sell a 50% interest in the property for a cash purchase price of $16 million, reflecting a premium to IFRS value. With the expected closing in September of 2026, we expect to retain the remaining 50% interest of the property, and all parties have waived conditions. It should be noted that the demand for automotive facilities has allowed us to maintain a 100% leased portfolio, even though some of the properties have experienced changes in the OEM franchises.
With the new lease at 9088 Jane Street combined with the recent lease renewal activity, we'll have no material lease expirations until 2028. I'd now like to turn it over to Andrew Calra to review our financial results in more detail.
Andrew Calra, Chief Financial Officer
Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $30.2 million from $24.6 million in Q2 a year ago, reflecting growth from properties we acquired during and subsequent to Q2 last year and contractual annual rent increases. Total cash NOI and same property cash NOI for the quarter totaled $24.8 million and $21.1 million, respectively, representing increases of 20% and 2.2% compared to Q2 last year.
Interest expense and other financing charges for the quarter were $8.1 million, an increase of $1.7 million from Q2 last year, reflecting additional debt incurred to fund the acquisitions. Our G&A expenses were $1.6 million for the quarter, an increase of about $80,000 from Q2 last year and in line with the REIT's expectations. Net income and other comprehensive income was $18.1 million compared to $11.2 million in Q2 last year. The increase was primarily due to higher NOI, changes in non-cash fair value adjustments for investment properties, and foreign exchange gain, partially offset by higher interest cost and a change in non-cash fair value adjustments for interest rate swaps. FFO and AFFO increased by 19.4% and 18.6%, respectively, compared to Q2 last year, reflecting higher rental revenue from the acquisitions and contractual rent increases. On a per unit basis, FFO increased to $0.27 diluted, up from 24.4 cents in Q2 last year. AFFO per unit increased to 26.3 cents diluted, up from 24.9 cents. We paid unitholder distributions totaling 20.6 cents per unit in the quarter, representing an AFFO payout ratio of 78.3%.
This compares with the total distribution of 20.1 cents per unit in Q2 last year for a payout ratio of 80.7%. The cap rate applicable to our portfolio was 6.7% at quarter end, which was flat compared to 2025 year end. We continue to be proactive with our debt strategy to enhance our financial flexibility. During the quarter, we increased the amount of the non-revolving portion of Facility 2 by $35 million and extended the maturity date to June 2030 with the same credit spread.
At quarter end, 74% of our debt was fixed with a weighted average interest rate of 4.49%, a weighted average interest rate swap term and mortgages remaining of 3.9 years, and a weighted average term to maturity of debt of 2.9 years. As we continue to increase and extend our credit facilities, as at August 13th we had a debt-to-GBV ratio of 47.5%, with approximately $64 million of undrawn capacity under our credit facilities and 11 unencumbered properties valued at $166.7 million.
I'd like to turn the call back to Milton for closing remarks. Thank you very much.
Milton Lamb, President and CEO
Thanks, Andrew. Following our entry into the U.S. market last year, we're pleased with the progress we've made in expanding our portfolio, including the U.S. portfolio. We now own properties in Ohio, Florida, and California representing leading automotive brands including Tesla, Rivian, and Penske Automotive Group with their Audi and VW properties. This increased geographic and tenant diversity enhances the underlying strength of our portfolio and provides a broader array of acquisition opportunities for us.
We continue to position APR as an attractive partner to major automotive dealership groups and OEMs in Canada and the United States. We are successfully executing our key objectives, including expanding our geographic market presence and diversifying our tenant base through property acquisitions, optimizing our portfolio and capital position with our Vaughan property transaction and recent value-enhancing lease renewals, driving AFFO per unit growth, and increasing our cash distributions.
Looking ahead, we look forward to building on our positive momentum, supported by a growing property portfolio featuring high-quality tenants providing essential retail and services locations in prime metropolitan markets in Canada and the U.S., with GDP and population growth, an attractive net lease structure, and embedded fixed or CPI-adjusted rental growth. That concludes our remarks. I'd now like to open the line for questions. Morgan, please go ahead.
Morgan, Operator
Thank you, Mr. Lamb. We will now begin the question-and-answer session. 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. To allow adequate time for all participants, we ask that you limit yourself to one question and one follow-up. If you would like to withdraw your question, simply press star then the number one again. Your first question comes from Jonathan Kelcher with TD Cowen.
Your line is open.
Jonathan Kelcher, Analyst at TD Cowen
Thanks. Good morning.
Milton Lamb, President and CEO
Good morning.
Jonathan Kelcher, Analyst at TD Cowen
First, on this deal with Dilawri, can you maybe give a little bit of color on why you're selling 50% interest, and how the landlord redevelopment option would work?
Milton Lamb, President and CEO
Yeah, sure. The thought process is, you know, it follows on what we've been saying for a while: we love the underlying dirt. It's an automotive-zoned property that has good demand, and it was trying to balance our ability in the future to potentially do mixed-use redevelopment, plus the desire, obviously, to get strong income and have a strong tenant. So, you know, it's a bit of a trade-off for flexibility. You know, if you do a flashback almost 10 years, we bought this property for just over $17 million, have certainly had a nice 10 years, including some good rental growth, and now being able to take $16 million for 50%, which almost equals what we bought it for originally, get some good income, and, you know, maintain some of that flexibility in the future. It worked very well to get that balance. Certainly, now is not the right time to be leaning into redevelopment. So this allowed us to straddle both worlds of good income and good underlying value.
Jonathan Kelcher, Analyst at TD Cowen
Okay. And I'm guessing your ability to get that redevelopment—so, like, if in four years or something you want to do it, you'd be just able to do so.
Milton Lamb, President and CEO
Yeah, it's not four years. There's a minimum term, and then at that point, with appropriate notice—which certainly, if you're going through planning, it's easy to give significant notice—we can go ahead and look at doing a redevelopment.
Jonathan Kelcher, Analyst at TD Cowen
Okay. And I guess just in order to get Dilawri to agree to that, that was the quid pro quo of selling the half interest in the property.
Milton Lamb, President and CEO
I don't know if I love that word because of good old Trump, but, yeah, I mean, it was the balance between having flexibility. Obviously, there's investment that has to go into the property as they kind of put the new OEM in place. So it worked very well that, you know, if there is that underlying—or I'd really like to think when there is that underlying—higher and better use, that we can do it together, both win. And then hopefully there'd be a relocation of any new tenant, or potentially have that tenant stay within the new redevelopment complex.
Jonathan Kelcher, Analyst at TD Cowen
Okay, thanks. I'll turn it back.
Morgan, Operator
Your next question comes from Saran Srinivas with ATB Cormark Capital Markets. Your line is open.
Saran Srinivas, Analyst at ATB Cormark Capital Markets
Thank you. Good morning, guys. Following up on this line of questioning on the Vaughan leasing. Milton, just to clarify, the $16 million or odd you paid for the property, that's for the 100%
Milton Lamb, President and CEO
Sorry, it was $17 million. We bought it for just over $17 million in 2016 for 100%. And yes, now we're selling 50% for $16 million, or the equivalent of $32 million for 100%.
Saran Srinivas, Analyst at ATB Cormark Capital Markets
That is amazing math. Thank you. And just kind of looking at an acquisition pipeline—now, obviously, you guys have been active in the U.S. and Canada as well. How would you characterize the pipeline in terms of your geographic dispersion?
Milton Lamb, President and CEO
Sorry, can you repeat that?
Saran Srinivas, Analyst at ATB Cormark Capital Markets
So just looking at your pipeline of acquisitions and the spread between the U.S. and Canada.
Milton Lamb, President and CEO
Yeah, last quarter, $1.42 was not looking that attractive. We love getting the income at $1.42. You know, we think we're watching that dollar resettle back into the high 1.30s, $1.39 and change. Now, there's a bit of a balance there. And, you know, I've always found the summer—I say this with a bit of a smile—most dealers enjoy their summer. So we look forward to the back half of the year when often there's more M&A and more deals that do occur. The balance between the two: you know, we like some of the GDP and population growth markets in the States, especially in that Southeast kind of through the Southwest. It'll be interesting. There's a balance on where we want to see growth. There's certainly more opportunities when we're looking at both sides of the border. So we're looking forward to the back half of the year.
Saran Srinivas, Analyst at ATB Cormark Capital Markets
That's great, Milton. Thank you for the color. I'll turn it back.
Morgan, Operator
Your next question comes from Brad Sturges with Raymond James. Your line is open.
Brad Sturges, Analyst at Raymond James
Hey, good morning. Just circling back to the Vaughan property in terms of the new lease with the Dilawri affiliate. Wondering if you could give a bit of color just on the new rent versus prior rents.
Milton Lamb, President and CEO
There's—you know, we talked about the rent starting on December 1st, so that's already public. You know, there's some money that has to go into it. The rents are nicely above when we acquired this property, and they continue to grow. They grew nicely over the last 10 years. You know, not a significant difference. Again, there's probably a bit more—sorry, a bit of flexibility in there because of the redevelopment clause, but it's not materially different than what we would have looked at previously.
Brad Sturges, Analyst at Raymond James
Okay. And then it would be similar to other Dilawri leases with like a one and a half percent fixed.
Milton Lamb, President and CEO
Yeah, it's very much—you know, outside of the one clause that we talked about—it's very much a standard Dilawri lease.
Brad Sturges, Analyst at Raymond James
Yeah, makes sense. Okay. And then just looking at the other lease extensions, just could you give a bit more color in terms of when those extensions would be effective?
Milton Lamb, President and CEO
The two that we have talked about—the increase that was announced—those were effective. I mean, we announced them before; it was just coming up with the formula. So those are already in place. The other ones are early to mid next year on when they would actually kick in. We've received the renewal notices, but the actual increases and new lease rates would be, call it, mid next year.
Brad Sturges, Analyst at Raymond James
The ones that are already effective, would we see much of an impact in the quarter, or was that at sort of the end of the quarter?
Milton Lamb, President and CEO
These were rollovers from the original IPO, so that was done in July of 2015. So most of the rent increases with regards to the original portfolio are in July or August. So they'd be in Q3.
Brad Sturges, Analyst at Raymond James
Perfect. Okay, I'll turn it back. Thank you.
Milton Lamb, President and CEO
Thank you.
Morgan, Operator
Your next question comes from Zemin Liu with Desjardins. Your line is open.
Zemin Liu, Analyst at Desjardins
Thanks. Good morning. So just a follow-up on the one property. I'm just wondering whether you can disclose the estimated cap rate on the new 15-year lease.
Milton Lamb, President and CEO
Yeah, we don't tend to disclose cap rate, and certainly in this case when we already own the property. I love the back math because that's basically asking us to tell you what the net rent is. So, no, it's not disclosed.
Zemin Liu, Analyst at Desjardins
Okay. Okay, thanks. So after this sale of the 50% interest, are you contemplating any other dispositions in the near term?
Milton Lamb, President and CEO
This was a special circumstance with a high-quality property and the desire to get income and maintain the redevelopment optionality. Short answer is we like our portfolio. We still remain at 11 years, 100% leased, and 100% rent payment. We never say no, you know, to look at anything. But right now we have nothing contemplated.
Zemin Liu, Analyst at Desjardins
Okay, that's helpful. Yeah, I'll turn it back. Thanks.
Morgan, Operator
Once again, if you would like to ask a question at this time, please press star then the number one on your telephone keypad. Your next question comes from Jimmy Shan with RBC Capital Markets. Your line is open.
Jimmy Shan, Analyst at RBC Capital Markets
Thanks. On the various extensions and early renewals, I'm just curious if you could provide a bit of background and context for doing that. Is it more tenant-driven? Is it you being proactive? Just trying to understand that a little bit more.
Milton Lamb, President and CEO
Kind of both. Certainly some of them it was option periods. Other ones had demand; either if they relocated, if we didn't get the renewal, then we had backup demand, so they stepped up and renewed. It's partly that we're now hitting some of the maturity on the original 11 to 19 year deal. Certainly on the Des Sources, the VW, we originally said one of the terms was fairly short, but we had very strong confidence that they would renew, and to no surprise, they renewed.
So it's a bit of what was anticipated, and we've been working with them to kind of hit the numbers and get that in place. So it's partly that. What I kind of like is A, the backup demand, and B, in a number of cases the dealer group have used this for other OEMs as opposed to the original one. So even when you're seeing transition within the property, the dealer community likes to hold on to these assets because they can use them to achieve other franchises.
It kind of goes to supporting our backstory that we've kind of talked about for the last 10, 11 years.
Jimmy Shan, Analyst at RBC Capital Markets
Yeah, that's helpful, Milton. Just a quick follow-up on the Vaughan site. So what is that minimum term before you can contemplate redevelopment?
Milton Lamb, President and CEO
It's not announced, and they've asked us not to announce it. But, you know, in the near future, I don't see that land value being at a level that I anticipate it will be once this market matures and gets back to having, you know, true residential mixed-use value.
Jimmy Shan, Analyst at RBC Capital Markets
But certainly, was it a 16-year lease? Is it a—yeah, 16-year lease?
Milton Lamb, President and CEO
Oh, yeah, yeah, very much so. It'll be shorter than 16 years.
Jimmy Shan, Analyst at RBC Capital Markets
All right, thanks.
Morgan, Operator
Your next question comes from Juliano Thornhill with National Bank. Your line is open.
Juliano Thornhill, Analyst at National Bank
Thanks. Good morning, everyone. I just want to ask about the Vaughan site as well, wondering—can you give us some more description on who the old tenant was, maybe the OEM there, and the rationale for leaving the site?
Milton Lamb, President and CEO
Yeah, it was BAF, which got acquired by Lithia. So Lithia—BAF within Audi. Audi has—they did extremely well there. It was 60-odd thousand feet. They wanted to expand, and so they've moved their location around the corner and done a new build. I gotta say, it's a beautiful building. And that left this opportunity available.
Juliano Thornhill, Analyst at National Bank
And are you aware of, or can you disclose, the new OEM that will be put in place by Dilawri as well?
Milton Lamb, President and CEO
We are aware. They're asking not to disclose it, because it's a bit marketing, a bit promotional when they do announce it. So we don't want to take away that fanfare from them.
Juliano Thornhill, Analyst at National Bank
Yep, yeah, absolutely. And then just on the modeling—I know it closes September—so will you be recognizing straight-line rent for the first bit until then, and then cash rent on December? Is that how the lease will be working?
Andrew Calra, Chief Financial Officer
Yeah, we'll recognize—it's getting small—we'll recognize straight-line September, and then the cash will be coming in December 1st.
Juliano Thornhill, Analyst at National Bank
Right, perfect. All right, I'll turn it over—
Milton Lamb, President and CEO
—when we do close it within September.
Andrew Calra, Chief Financial Officer
Yeah, yep, absolutely. But obviously it's not reflected in the Q2s. That'll be reflected in Q3.
Morgan, Operator
That concludes our Q&A session. I will now turn the conference back over to Milton Lamb for any closing remarks.
Milton Lamb, President and CEO
That's great, everyone. Thank you very much, and enjoy the rest of the summer.
Morgan, Operator
This concludes today's call. Thank you for attending. You may now disconnect and have a wonderful rest of your day.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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