Automotive Properties REIT Announces Agreement to Sell One of its Dealership Properties in Markham, Ontario for $54 Million

/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES/

− Initial sale price represents a 79% premium to IFRS value −
− Transaction increases Net Asset Value and drives AFFO per Unit accretion through deleveraging −  

TORONTO, July 29, 2024 /CNW/ - Automotive Properties Real Estate Investment Trust (TSX: APR.UN) ("Automotive Properties REIT" or the "REIT") announced today that it has entered into an agreement (the "Transaction") to sell its automotive dealership property located at 8210 and 8220 Kennedy Road and 7 and 13/15 Main Street, in Markham, Ontario (collectively, the "Kennedy Lands") for $54 million.

Highlights of the Transaction

• Initial sale price of $54 million represents a 79% premium above the IFRS value of the Kennedy Lands as at March 31, 2024.
• The Kennedy Lands are being sold to a member of the Dilawri Group (the "Purchaser"). The Purchaser is an affiliate of Dilawri, the REIT's largest unitholder.
• The Kennedy Lands are leased to an affiliate of Dilawri under a long-term lease, with the initial sale price representing an approximate 3.36% capitalization rate.
• The net proceeds of the Transaction are expected to be used primarily to initially repay the REIT's revolving credit facilities. Assuming the Transaction closes on October 1, 2024, the REIT's Debt to Gross Book Value ("Debt to GBV") ratio is expected to be reduced to approximately 41.8%, with a resulting expected net increase in Adjusted Funds from Operations ("AFFO") of approximately $0.015 per Unit on a diluted basis for the 12-month period following closing at prevailing interest rates.¹
• In addition to the initial sale price, pursuant to the terms of the Transaction, the REIT has the potential to benefit from the successful rezoning of the Kennedy Lands through the payment of additional cash consideration should the Kennedy Lands be successfully rezoned with density in excess of an agreed threshold.
• The Transaction will increase the REIT's Net Asset Value without any redevelopment risk.2
• The reduction in debt from the net proceeds of the Transaction will provide the REIT with additional acquisition capacity.

"Many of our properties are located in urban areas that are experiencing intensification and therefore represent opportunities to work with our tenants to crystalize significant incremental value for our unitholders," said Milton Lamb, President and CEO of the REIT. "The completion of the Transaction will enable us to unlock substantial embedded value from a property subject to a long-term lease, and the repayment of our revolving debt with the proceeds therefrom will immediately increase our AFFO per Unit without incurring any development risk. In turn, the additional availability under our revolving credit facilities will give us additional acquisition capacity."

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1 Debt to GBV and AFFO per Unit are supplementary financial measures and non-IFRS measures, respectively. See "Non-IFRS Financial Measures" at the end of this news release.

2 Net Asset Value is a supplementary financial measure. See "Non-IFRS Financial Measures" at the end of this news release.

The Transaction

The Kennedy Lands, which are currently debt-free, comprise approximately six acres of land at the intersection of Kennedy Road and Unionville Gate in Markham, Ontario. The tenant, an affiliate of Dilawri and the Purchaser, operates an automotive dealership on the Kennedy Lands under a long-term lease with the REIT running to 2065, assuming exercise by the tenant of all of its lease renewal options. As at March 31, 2024, the Kennedy Lands had an IFRS value of approximately $30.2 million.

As the Transaction is with an affiliate of Dilawri, the Transaction constitutes a "related party transaction" for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"). In accordance with the REIT's related party transaction policy and MI 61-101, the Transaction was reviewed and ultimately unanimously approved by the REIT's trustees that are independent of both the REIT and Dilawri (the "Independent Trustees").³ The Independent Trustees met separately on a number of occasions to specifically consider the Transaction and its impact on the REIT and its unitholders other than Dilawri. As part of their process, among other things, the Independent Trustees reviewed appraisals from two leading independent real estate appraisers, and sought the advice of a Canadian investment bank in respect of the potential financial impact of the Transaction on the REIT and its unitholders other than Dilawri. Following extensive negotiations between management of the REIT and Dilawri, the Independent Trustees approved the sale of the Kennedy Lands to the Purchaser for $54 million, or $9 million per acre, which represents a 79% premium to its March 31, 2024 IFRS value, subject to customary adjustments. The initial sale price of $54 million represents an approximate 3.36% capitalization rate based on the contractual base rent payable under the lease of the Kennedy Lands for the period from October 1, 2024 to September 30, 2025.

In addition to the initial sale price, pursuant to the terms of the Transaction, the REIT has the potential to benefit from the successful rezoning of the Kennedy Lands through the payment of additional cash consideration should the Kennedy Lands be successfully rezoned with density in excess of an agreed threshold, without incurring any of the risks related to the redevelopment of the Kennedy Lands.

The REIT expects that, assuming closing of the Transaction on October 1, 2024, the net proceeds will be used primarily to initially repay indebtedness under the REIT's existing revolving credit facilities, resulting in an expected Debt to GBV ratio of approximately 41.8% (as compared to 44.6% as at March 31, 2024), which, assuming the repaid funds are not reborrowed and interest rates remain constant, is expected to increase AFFO per Unit by approximately $0.015 per Unit for the 12-month period following closing of the Transaction (calculated on a diluted basis). The REIT's Net Asset Value is also expected to increase as a result of the repayment of debt from the net proceeds of the Transaction. The reduction in debt from the net proceeds of the Transaction will provide the REIT with additional acquisition capacity.

The Purchaser has waived its due diligence condition in respect of the Transaction. Assuming satisfaction of customary closing conditions, the REIT can select a closing date that meets its needs by providing notice to the Purchaser of the closing date within the next 18 months. The REIT currently expects to provide notice to the Purchaser such that closing of the Transaction could occur during the fourth quarter of 2024.

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3 The Transaction is exempt from the formal valuation and minority unitholder approval requirements of applicable securities laws as neither the fair market value of the Kennedy Lands nor the consideration to be received by the REIT in the Transaction exceeds 25% of the REIT's market capitalization calculated in accordance with applicable securities laws.

Special Distribution

Should the Transaction close in 2024, the REIT expects to declare a special distribution to holders of trust units of the REIT ("REIT Units") in December 2024 as a result of the increase in taxable income generated by the closing of the Transaction. The amount of the special distribution will be determined closer to the end of 2024. The REIT expects that the special distribution to holders of REIT Units will be paid primarily by the issuance of REIT Units. Immediately following the special distribution, the outstanding REIT Units will be consolidated such that each holder of REIT Units will hold, after the consolidation, the same number of REIT Units as held immediately prior to the special distribution.

The amount of the special distribution payable in REIT Units should increase the aggregate adjusted cost base of each holder of REIT Units' consolidated REIT Units by such amount. A further update will be provided when the special distribution is declared, including confirmation of the precise amount and form of the special distribution.

About Automotive Properties REIT

Automotive Properties REIT is an unincorporated, open-ended real estate investment trust focused on owning and acquiring primarily income-producing automotive dealership properties located in Canada. The REIT's portfolio, including the Kennedy Lands, currently consists of 77 income-producing commercial properties, representing approximately 2.9 million square feet of gross leasable area, in metropolitan markets across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec. Automotive Properties REIT is the only public vehicle in Canada focused on consolidating automotive dealership real estate properties. For more information, please visit: www.automotivepropertiesreit.ca.

Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects the REIT's current expectations regarding future events and in some cases can be identified by such terms as "will", "should", "anticipates", "could" and "expects". Forward-looking information includes the completion of the Transaction, its timing and the anticipated financial benefits from the Transaction, additional acquisition capacity and the payment of a special distribution. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT's control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to, the factors discussed under "Risks & Uncertainties, Critical Judgments & Estimates" in the REIT's MD&A for the three months ended March 31, 2024 and in the REIT's annual information form dated March 7, 2024, which are available on SEDAR+ (www.sedarplus.ca) and the REIT's website (www.automotivepropertiesreit.ca). The forward-looking information relating to the financial impact of the Transaction are based principally on the following assumptions (i) the Transaction will close on October 1, 2024, (ii) the net proceeds from the Transaction will be used initially to repay the REIT's revolving credit facilities on the closing date, and (iii) no acquisitions are completed by the REIT during the periods to which the applicable forward-looking information applies and that the repaid debt is not reborrowed. The forward-looking information relating to the Transaction and additional acquisition capacity is subject to the further risk that the customary closing conditions may not be satisfied or waived such that the Transaction does not close on current terms or at all. The REIT does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. This forward-looking information speaks only as of the date of this news release.

Non-IFRS Financial Measures

This news release contains certain financial measures and ratios which are not defined under International Financial Reporting Standards ("IFRS") and may not be comparable to similar measures presented by other real estate investment trusts or enterprises. AFFO per Unit is a key measure of performance used by the REIT's management and real estate businesses. Debt to GBV and Net Asset Value, supplementary financial measures, are measures of financial position defined by agreements to which the REIT is a party. These measures are not defined by IFRS and do not have standardized meanings prescribed by IFRS, and therefore should not be construed as alternatives to net income or cash flow from operating activities calculated in accordance with IFRS. The REIT believes that AFFO is an important measure of economic earnings performance and is indicative of the REIT's ability to pay distributions from earnings. The IFRS measurement most directly comparable to AFFO is net income. For reconciliations of AFFO to net income and comprehensive income, and further information regarding these non-IFRS measures and supplementary financial measures, please refer to Section 1 "General Information and Cautionary Statements – Non-IFRS Financial Measures" and Section 6 "Non-IFRS Financial Measures" in the REIT's MD&A for the three months ended March 31, 2024 which is incorporated by reference herein and is available on the REIT's website at www.automotivepropertiesreit.ca and on SEDAR+ at www.sedarplus.ca. 

SOURCE Automotive Properties Real Estate Investment Trust

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