Good morning. Welcome to the Automotive Properties REIT 2022 Q1 financial results Conference Call and webcast. My name is Anas, and I'll be your conference operator today. At this time, all lines are in 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. Again, please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on Friday, May 30, 2022. I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb. Great. Thank you, Anas. Good morning, everyone, and thank you for joining us today. With me on today's call is Andrew Kalra, our Chief Financial Officer. We continue to generate year-over-year growth in our key performance measures in the quarter. In comparison to Q1 of last year, our property rental revenue grew at 5.3%, cash NOI increased by 5.4%, same-property cash NOI was up 2.5%, and AFFO per unit diluted increased to CAD 0.228, up from CAD 0.227. Our acquisition program is off to a strong start in 2022 as we deployed CAD 65 million on acquisitions in the quarter, including the acquisition of two Honda dealership properties in Quebec, the acquisition of approximately 2.2 acres of land underlying our Langley Acura automotive dealership property in Langley, BC. We also purchased a parcel of land joining the Bank Street Toyota dealership property in Ottawa. Finally, we increased our EV exposure through adding additional Tesla automotive service center properties, one located near Barrie, Ontario, and two adjoining properties in Quebec City, increasing the number of Tesla automotive service center properties in our portfolio to 6, representing 9% of the REIT's portfolio's GLA. The capitalization and discount rates applicable to our portfolio remain consistent in all regions compared to year-end 2021, with a slight overall decrease to 6.25% at quarter- end, down from 6.3%, primarily attributable to our purchase of the Acura of Langley land. In April, we successfully extended one of our credit facilities to 2027 and increased the non-revolving portion to CAD 226.3 million, retaining the same credit spread. Andrew will provide more details on this shortly. Our liquidity position remains strong as we currently have CAD 80 million of undrawn credit facilities and ten unencumbered properties with an aggregate value of approximately CAD 121 million. At quarter- end, our debt-to-GBV ratio remains at 41.6%, and we remain well-positioned to deploy capital on growth opportunities. The fundamentals of the automotive retail industry remain strong. According to Statistics Canada, new automobile sales in Canada for 2021 increased to 6.8% compared to 2020. According to DesRosiers Automotive Consultants, new light vehicle unit sales were down 12.1% in Q1 of this year compared to Q1 of last year, which is primarily due to the supply chain constraints experienced within the retail automotive industry. We believe these supply constraints will continue into the foreseeable future but will not have a significant impact on our tenants' ability to pay rent as new car margins, used car sales, and overall service levels remain strong. Industry margins continue to remain healthy. I'd now like to turn it over to Andrew Kalra to review our financial results and position in more detail. Andrew? Thanks, Mint, and good morning, everyone. Our property rental revenue for the Q1 totaled CAD 20.4 million. The 5.3% increase from Q1 2021 reflects growth from properties acquired during and subsequent to Q1 last year and contractual annual rent increases. Total cash NOI and same-property cash NOI for the quarter totaled CAD 16.9 million and CAD 15.8 million, respectively, reflecting an increase of 5.4% and 2.5% compared to Q1 a year ago. Growth in cash NOI was primarily attributable to acquisitions and contractual rent increases. Growth in same-property cash NOI primarily reflects contractual rent increases across our portfolio. G&A expenses for the quarter were up approximately CAD 140,000 in line with our expectations and growth. Net income for the quarter was CAD 29.7 million. It increased 12.8% compared to CAD 26.3 million in Q1 last year. The positive variance was primarily due to higher NOI and non-cash fair value adjustments for interest rate swaps, investment properties, Class B LP Units, and unit-based compensation. FFO and AFFO for the quarter increased by 2.5% and 2.7% respectively compared to Q1 last year. FFO per unit diluted was CAD 0.24 in the quarter compared to CAD 0.239 in Q1 a year ago, and AFFO per unit diluted was CAD 0.228 compared to CAD 0.227 in Q1 a year ago. This growth was primarily due to properties acquired during and subsequent to Q1 a year ago and contractual rent increases. We paid total distributions of CAD 9.85 million, or CAD 0.201 per unit in the quarter, representing an AFFO payout ratio of 88.2%. This compares to total distributions paid of CAD 9.6 million or CAD 0.211 per unit in Q1 last year, representing an AFFO payout ratio of 88.56%. The AFFO payout ratio was lower this year, primarily due to properties acquired during and subsequent to Q1 a year ago and contractual rent increases. We had CAD 454.4 million of outstanding debt as at March 31, 2022, with an effective weighted average interest rate of 3.71%. We have a well-balanced level of annual maturities and our weighted average interest rate swap and mortgage term is 5.1 years with a weighted average term to maturity of debt of 2.6 years. As Milton mentioned earlier, subsequent to quarter end, we extended the maturity of facility one for a 5-year term to June 2027 with the same credit spread, and increased the amount available under the non-revolving component of the facility by CAD 50 million. Immediately thereafter, we completed CAD 40 million of swaps for an average term of 8.5 years at a blended rate of 4.75%. We continue to have strong support from our lenders. I'd like to turn the call back to Milton for closing remarks. Thank you very much. Thank you, Andrew. As a result of rising inflation due to various factors occurring globally, the Bank of Canada recently raised the overnight rate by 50 basis points, with further rate hikes expected over the remainder of the year. We've consistently completed longer- term swaps or mortgages to insulate our existing debt from future interest increases. We continue to monitor the impact of these rising rate environments and inflation on our property portfolio and the overall real estate industry. We have contractual rent increases consisting of a mix of CPI adjustments and set annual rent increases in our portfolio, as reflected by the 2.5% same property NOI increase in Q1. Given our strong balance sheet position and the strength of our existing portfolio, we will continue to pursue acquisitions on a strategic basis. This now concludes our remarks. Now we'd like to open the line for questions. Dennis, please go ahead. Thank you, sir. Ladies and gentlemen, we will now conduct the question and answer session. If you'd like to ask a question, press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Frank Liu with BMO Capital Markets. Please go ahead. Good morning, everyone. Good morning. Good morning. Just so my first question, just looking at your maturities, you know, it's definitely great to see the expansion on the credit facility and the CAD 15 billion of financing. Looking at mortgage maturities in the, you know, in the near term, let's call it 2022 and 2023, I see about like 57% of that, like, mortgage maturing in the next two years. Just wondering if you can provide some color on the. I'm sorry. Yeah, I was actually hoping for some color. What kind of mortgages are you seeing rolling over in the next two years? Uh, like, like fifty percent. Is that, uh- Um, so- Sorry, I don't recognize that number. Sorry. I mean, that's approximately 50% that we just renewed for five years. That may be true for Q1, but that does not include the subsequent event of April. Oh, okay. Yeah. Sorry about that. We have very little exposure to interest rate fluctuations over the next two years because we're mostly long-dated. I think you're looking at just the Q1 result and not looking at the subsequent event and what we just stated in the call right now with regards to the extension of the credit facility. Oh, okay. Yeah. Sorry, I missed that. Yeah. Which is certainly why we wanted to get it done and why we've always been longer- term in our durations. Because, you know, it's hard to maintain interest rates that we saw in 2020 and 2021. Okay. Yeah. Yeah, I appreciate the color. Sorry, I missed that part at the beginning. No worries. Look. Yeah, like, looking, just going back to the acquisition side of things then, you know, I mean acquisition has, like, picked up like thus far in 2022. I guess like. Yeah How should we think about, you know, the pipeline throughout the year? Does the rising interest rate have any impact on the pricing when you're looking at, like, new deals? I think naturally it has to. I'll answer both parts to that question, which is we tend to do more in the back half of the year or early in the year. OEMs are taking their time right now in approving M&A. As you know, we kind of track a lot of the M&A activity to provide opportunities. But really what we saw, and one of the reasons why we did not do as many deals in 2021 than we would traditionally have done, is because there was a bit of euphoria, and the cost of capital for the dealership community through banks and financial institutions was incredibly low. The good news is, you know, the level of cap rates did not go down as much in this category as it would have potentially in other sectors. We do have a bit of a buffer, but certainly as we're looking at new acquisitions, we underwrite those acquisitions based on the current interest rate environment. As just mentioned, we're insulated on our existing portfolio. I think anytime you see this much movement of interest rates, there tends to be a drag between the buy-sell, and that gap will go on for 6-9 months, until buyers and vendors kind of meet the new reality of the new interest rates. In short, we certainly do believe that, you know, it's part of our equation. It's part of everyone's equation. Last time we saw an interest rate increase is actually when we saw activity increase for us because if dealers in the general community have a zero cost of capital, that's tough to beat. Whereas if there is a real cost of capital with slightly higher interest rates, it allows us to underwrite and allows them more options on the table. You know, that tends to allow us to get more deals done. Okay, that's great to hear, the color. Maybe switching gears to the demand side for autos. I mean, like the sales was down like, you know, 12.7% year-over-year in Q1. Yep. You know, you mentioned the decline was mostly due to like supply constraints. I wonder, you know, looking forward, do you think the demand, like from the, like, the consumer demand would be lower throughout 2022, like due to the, you know, I guess people always have some concern about the gas price, you know, like will some customers just like shy away from like higher gas price? Yeah. I think gas price tends to be more on what type of vehicle you buy. Do you buy a large, you know, Ford F-150 or do you buy a Honda Accord? It can change some behavior. We're not worried about the car sales on the demand side. It's more on the supply side. You know, the opposite to that is just the fact that because there's constraints on supply, the margins and pre-orders are, you know, very healthy. We certainly don't see this being a significant negative effect for the dealership community. Certainly, you know, you're talking about what levels of high- profits as opposed to profits, which gives us, you know, very strong comfort. That's great. It does. The drop in sales is not a demand drop in sales. It's a supply drop in sales. Okay. Yeah. Maybe following up on the supply side, have you heard any, you know, improvement on the supply side from, you know, from dealerships? Or this is gonna be a, like a one-year or two-year problem where- Um- If we're looking forward. Sure. It really depends on the brand. Some of them are talking about getting more availability in the next 2, 3, 6 months, and other ones are talking about it being a bit longer than that. It does depend on the brand 'cause as you can imagine, the supply side equations are more global equations. There's a significant amount of components that go into each car. They're certainly on top of it. We think you'll still be supply side constrained in 2022. The question is when in 2023 and 2024 does that change? You know, global events keep on changing. It's really hard to predict. I see. Yep. Thanks for that. I guess, like with, you know, that kind of outlook on the supply side, I guess the used car sales will continue to be strong. I guess in the near term. They were incredibly strong. It's hard to be record over record after record, but I certainly believe that they will remain strong. Perfect. just one last question from me. you know, also on the rising gas price, you know, where's all the consumer clouding, we don't know where the price gonna turn to. I wonder, you know, interesting to hear your thoughts on that. Like, you know, does the, like rising gas price, would you expect to, you know, get more exposure towards, you know, EV dealership and service center versus traditional, you know, car dealership like Honda, you know, Toyota? are you leaning more towards, like, you know, Tesla or some other new brands that just come into the market? I certainly believe the evolution is going to bring new brands. Tesla is certainly profitable, and we have done a number with them and certainly like them. I think that evolution also goes to the Hondas, Toyotas, GMs, Fords. They're including significant EVs in their portfolios. They're rolling out now and certainly will be rolling out over the next couple of years. I think that will be, you know, certainly part of what happens going forward, and we certainly like that. I mean, we continue to be part of that evolution and look forward to as the industry changes. I think that provides us some good opportunities. Yeah, that's great. I mean, sorry, just follow- up on that one last question. I mean, like, you know, with those traditional car manufacturers introducing more EVs or, you know, PHEV, whatever it's so-called. Does that require some CapEx from the, you know, the landlord perspective in terms of, you know, those new EVs, you know, do they need additional infrastructure for, like, maintenance work? Not to the point where the dealer would be approaching APR at this point. Okay. that normally would be self-funded. Okay. Perfect. Thank you very much. I'll turn it back. Thank you. Your next question comes from Mark Rothschild with Canaccord Genuity. Please go ahead. Thanks and morning, guys. Morning, Mark. Hey, I only have a couple. Maybe just generally on the impact of what's going on, whether it's with inflation or interest rates. Do you expect to see any dealers or maybe automotive dealership owners, you know, face any distress or maybe look at things differently going forward? Or is this maybe just more positive? I'm just curious how you see this evolving in regards to deal flow in general, and even if you haven't seen anything yet, what's your best guess? Yeah. I mean, the interesting part is the model has slightly changed because of the supply side constraints, whether it's COVID, Ukraine, et cetera. It's become more of an order model as opposed to put inventory on the lots. So their interest rate exposure is down because they're not maintaining as much inventory as they traditionally were. We're hearing numbers anywhere between, you know, 15%-30% of traditional floor plan financing out there, and that's where they would feel the interest rates a bit more. The interest rates can potentially affect some of the consumer side, on demand. You know, again, similar to gas prices, that may affect the consumer behavior. Does that change their budget on what they wanna spend on a car? Because a lot of consumers look at monthly payments. All of that may change. I'm not looking at that being flowing through to distress on the dealership retail community. No, we're not seeing that, nor are we expecting it certainly in the short- term. Short- to- midterm. Okay. Great. That's helpful. Maybe just one more. It's great to have the debt taken care of, and maybe you're not looking at this 'cause you're not in the market today, but are you seeing any change in the credit spread on financing your type of properties, separate from moves in interest rates? I don't even know if I'd say our type of property, but I would say overall that, yeah, you're seeing a bit of a push out on spreads. This is not surprising. Saw it in 2008, 2009. Saw it in 2017, 2018. As rates go up and the expectations of further rate increases occur, you'll see spreads push out a bit and then pull back. It is a natural pendulum that does occur. Nothing there is really surprising us. Certainly we're in a good place on our existing debt. When we're looking at new acquisitions, it's, you know, it's formulaic as far as where we're comfortable doing deals, so it becomes part of our equation. Understood. Okay. Thanks so much, guys. Thank you. Your next question comes from Jonathan Kelcher with TD Securities. Please go ahead. Sorry, I'm just gonna jump back on Mark's question for one second. I mean, it's important to note that the spread we've been able to maintain that since IPO, including the last round. We certainly on our credit facilities expect that to remain very consistent. Sorry, Jonathan, I interrupted you. Go ahead. I know. That was my question. No, the actual question is on the floating to fixed. It does go out past the term of the debt. Like, if credit spreads did widen, is there anything that impacts the fixed rate? If credit spreads do impact us. I guess you're talking in detail with the swaps. If you look at the swaps- Yeah. You look at the laddering, we're well- insulated over the next two and a bit years on any kind of maturity. Those would be the ones that would go from a fixed to a float. Over the next two years, we're well- positioned and then we're monitoring as we go, as we always do, and we extend accordingly, blend and extend those swaps. In addition to that, Jonathan, what you're also talking about is our credit facility spread. We just renewed two of them for a significant portion of our portfolio, and that's remained consistent. You know, we certainly believe that we're gonna carry on. Yeah. Okay. The CAD 50 million increase, you said 40 of it, you already 40% of it we put into swaps and 10% at floating at this point in time. You've got a net CAD 10 million more of floating right now, right? Correct. That's correct. Correct. Okay. Secondly, on the CPI increases, I'd assume that they're annually on a look back basis. What's the sort of cadence in terms of quarters for those various leases? You know, it varies because it's based on the timing of the acquisitions. Yeah. On the bulk of the 60% with Dilawri, that cadence would be at the time of the IPO, would be July and August, and the other ones would, the remaining 40% would be across the board. Okay. We just go look that up. Mm-hmm. That's it for me. Thanks. I'll turn it back. Thanks. Thank you. Ladies and gentlemen, as a final reminder, if you have any questions, press star one. Your next question comes from Sairam Srinivas with Cormark Securities. Please go ahead. Morning, Milton and Andrew. Thanks for your comments so far. Most of my questions have already been answered through, I mean, through the prior comments on the call. I just want to pick your brains on the AutoCanada announcement that came out earlier this month, as well as their broader strategic initiatives on acquisitions over the next five years. I was wondering if, you know, if the Porsche dealership that they acquired is something that crossed your line. In terms of partnership opportunities, either with AutoCanada or with others you're seeing out there, like are you seeing any of those come through? You know, when cost of debt was what it was in 2020 and 2021, especially in 2021, that has an effect. Certainly going forward, the capital availability and the cost that you'd seen over the last 18 months will change. We are still seeing and having good conversations. You know, I find that it's not an all or nothing game with most of the dealership groups. There's times when they wanna talk to us and do deals, and other times when they wanna keep it on their own book, and we're okay with that. That's certainly. We don't live in the all or nothing world. That makes sense. Guys, in the case of the Bank Street acquisition you guys completed in February, what's the thought process behind that land parcel there? Is it like, do you guys think, I know it's currently leased to a healthcare provider, but are there any talks of like developing that? Or like how do you see that going? That land piece, I mean, we'd say it's adjoining, but it was kind of partially in the middle of, and it just doesn't make sense to own that much of a block and have a sliver that you don't own. It came available. You never know what happens long- term, but the amount we paid for it, if there is a development in the long- term, you know, that's gonna be. We paid less than the shoring costs, never mind the setbacks and easements. That is, you know, we're earning some income on it, but that is just a pure real estate decision that you really don't want a chunk of land for that amount of money kind of jutting into a significant, you know, land parcel that has a long-term lease. We're not expecting that to be something that crops up immediately. It's one of those things that when you wanna do it and you need to do it, you get held hostage. When it comes available, if it's not a significant number, it's the right thing to do on a real estate basis. That's really clear, Milton. Thank you for the comments and congrats on a good quarter. I'll turn it back. That's great. Thank you. Thank you. Your next question comes from Scott Fromson with CIBC. Please go ahead. Hi, good morning, gents. Just a question on inflation. Most of my questions have been asked already. Where do you see the impact of inflation on the operating cost structure versus the rent escalators? In terms of G&A, we've got obviously our human capital, and then we've got a very light infrastructure. I don't anticipate a significant amount of increase in you know from inflation on those costs. The rent escalators would be covering those if fully. Yeah. We've got our office lease, which, you know, we renewed recently and are not expecting that won't get affected by inflation either. We're on G&A, we're pretty buffered. Okay. Remember, we're a non-operating type group. Those operating costs and flow-throughs are the tenant's responsibility, not ours. Yeah. Thanks very much. I'll turn it over. Thank you. Thank you. Your next question comes from Himanshu Gupta with Scotiabank. Please go ahead. Thank you and good morning. Good morning. The same-property cash NOI up 2.5%. Pretty nice there, higher than recent quarters. Is that the new run rate for this year now? It's difficult to put a run rate. We don't really provide forward-looking information. What I've said before is that 60% of our portfolio is at 1.5, and the remaining is a mix based on inflation. Also we've had some renegotiation of a lease which contributed to that as well. It's difficult to say where the run rate's gonna be. Sorry, we don't provide that information out. With the 40% at a mix, inflation's definitely gonna impact that, and that's gonna result in same property at a higher percentage. Got it. When you said renegotiation, does it mean- Yeah, that was a renewal. That was in May 2021. That was a renewal. That was a renewal. Okay. I almost thought you meant renegotiation. Sorry. Okay. Yeah, that's a renewal. Yeah. Okay. That's fair enough. Thanks for that. You know, back to the acquisition capacity questions. CAD 80 million is undrawn credit facility. Does that include the increase in CAD 50 million, which was done in April? Yes, I guess. It depends how you look at that. We took that CAD 50 million, and we obviously did the swaps on the long- term. What's outstanding right now in our available non-revolver is CAD 80 million. CAD 80 million. Then the unencumbered asset pool, I think you said something like CAD 121 million. How much debt you can actually put on that? We tend to be a bit conservative. You know, often we'll do anywhere between, you know, 45%-60% debt, and then we may leave other properties. We always like to have some properties that are unencumbered, so it's a balance. We don't mind levering up some properties, but not all of them. Okay. Basically the acquisition capacity would be something around CAD 140 million based on the existing credit facilities right now, plus the unencumbered asset pool there. Our math works out to be a bit more than that, but you're not totally wrong. Okay. Have you explored conventional mortgages? Like, most of your debt sources are credit facility. Any other sources of debt have you explored in this environment? Yeah, I mean, we're always talking to different groups, and we did one last year that was a long-term 10-year mortgage. It really depends on the type of asset. We do like having flexibility, to pull properties in, to add to properties. By that I mean expand them. So there is a lot of flexibility and maybe that's 'cause the years I spent actually doing real estate deals. The cost of defeasance and various constraints really can tie your hands in a portfolio. But there's gonna be some assets on our book that are very long-term. They're gonna be what they are. In those assets, we're comfortable putting some mortgages in place. Okay, got it. The final question is on fixed versus floating. It's more of a clarification. You have swaps in place for the next two years, so it's all gonna be fixed. I guess when the facility two comes for renewal, that time you'll have to readdress the swap on it. Is that how should we frame it? You know, Andrew, go ahead. Yeah. Let's just clarify that. Sorry. We've got swaps that ladder all the way up to 4.9% average, and they go from 3 to, I'd say, 2- to 10-year out. Now when facility 2 does come up, those swaps will continue to keep their existing maturities, so they just will flow- through. Yeah. We've always had swaps, a longer duration than a lot of our credit facilities, so they are certainly not matched to the term of the credit facilities. Okay. The swap on facility two is beyond the term, which is I think 2024. Okay. 1, 2, and 3, all of them have swaps beyond the term of the credit facilities. That's right. That's excellent. Thanks for clarifying, and I'll turn it back. Great. Thank you. Thank. Thank you. Your next question comes from Kyle Stanley with Desjardins Capital Markets. Please go ahead. Thanks. Morning, guys. Good day. Morning. You spoke about the impact of rising rates and, you know, the lag effect that sometimes has on the M&A environment. I'm just wondering, you know, in addition to that, are you seeing dealer groups really holding out, you know, waiting for the supply side issues to abate, before maybe considering a sale? It's interesting you're saying the supply side constraints. I'm actually hearing it from the other side, which is they're loving to run it while they're getting the margins that they're getting. It depends if it's more important to you to have revenue or more important to you to have higher- profits. If you like higher- profits, it's a pretty nice time to be a dealer. If you're just focused on revenues, you know, the additional supply will help. We're certainly hearing from the, you know, both more from the buy side, 'cause that's who we talk to more, that there continues to be dealers that may look at selling in the future but are enjoying the profits right now, so we're in no rush. Everyone's looking ahead on, you know. There's no such thing as, I always say, it's tough to be the most improved player three years in a row. Record profits are very good, but I think they're gonna be in a good profit scenario going forward. Okay, great. Just one last one. You know, as you look in the market for external growth opportunities, you know, are you considering something outside of auto or service, you know, whether that just be, you know, RV or you know, some other type of dealership, property? Yeah. I don't think it has to be pure dealership. We like automotive. You know, RVs, we tend to like urban markets, suburban markets, metropolitan markets, and most of the RVs tend to be a bit further afield. That doesn't mean there may not be a couple examples that make sense, but a lot of them tend to be in areas that don't have the same sort of land supply side constraints that we normally like. But that doesn't mean, you know, truck dealerships, equipment dealerships, you know, if opportunities came up in that, will we look at it? Sure. Certainly we've done stuff with Tesla directly with the OEM. You know, I think there will be other opportunities than just pure dealership properties. I think the automotive and the mobility world, you know, continues to evolve, and we'll certainly look at that. Okay, thanks for that. I'll turn it back. Thank you. There are no further questions at this time. Mr. Lamb, back over to you. That's great. Thank you everyone for joining us. We look forward to talking to you after Q2. Enjoy the summer. Bye. Ladies and gentlemen, this concludes your Conference Call for today. We thank you for participating and ask that you please disconnect your line.