2 0 2 0 A N N U A L R E P O R T
Consolidating Canada’s
Automotive Dealership
Properties
Automotive Properties REIT
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Automotive Properties REIT
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Fellow unitholders,
We generated solid growth in the REIT’s key financial performance measures throughout 2020 despite
the unprecedented disruption caused by the COVID-19 pandemic. Our growth in AFFO reflects our
prudent property acquisition program and contractual rent increases across the portfolio. Our
performance further underscores the resiliency of the automotive dealership business.
The onset of the pandemic had a significant adverse impact across many segments of the economy,
including the automotive dealership industry in Canada. Provincial governments throughout Canada
enacted emergency measures, commencing in the second half of March 2020, to combat the spread of
COVID-19. As a result of these measures, a number of our tenants’ automotive dealership businesses
were required to close or operate on a limited basis. Further, heightened public health concerns and
economic uncertainty initially resulted in delayed consumer purchasing or servicing decisions, which
impacted dealership operators that were permitted to remain open, or partially open, in line with their
respective provincial government guidelines.
The combination of a tenant base consisting of some of the leading automotive dealership operators
in Canada, and our strong liquidity position, enabled us to work with certain of our tenant partners to
provide support through partial rent deferrals as they managed the economic challenges imposed by the
pandemic. By the end of May 2020, our tenants were open for business and pent-up consumer demand
resulted in a rebound in Canadian auto sales and an increase in service work performed by the
dealerships.
As dealership operators resumed their businesses, we saw the industry’s ability to rapidly adapt to
consumer demands. Dealerships enhanced their online presence and e-commerce offering to facilitate
consumer purchasing and the essential service of vehicle maintenance. These adaptations enabled
dealership operators to streamline their businesses and drive efficiencies and profitability.
Due to the resiliency of our tenants’ businesses, we had no further requests for temporary support after
the first wave of the pandemic and the deferred rent amounts are being paid back as scheduled. We
collected approximately 97 percent of our contractual base rent for 2020, with the remaining amount
subject to the deferral agreements. All amounts remaining deferred under the deferral agreements are
due to be paid by no later than the end of 2021.
Our focus on maintaining a strong liquidity position enabled us to effectively manage through the onset
of the pandemic and to selectively capitalize on growth opportunities. During 2020, we completed the
acquisitions of: a BMW dealership property in Regina, Saskatchewan for a purchase price of $11.35
million; an Acura dealership property in North Vancouver, B.C. for $17.5 million; and an automotive
property in Laval, Quebec, that we subsequently improved, for an all-in amount of approximately
$13.5 million. The latter property is now tenanted by Tesla Motors Canada. Subsequent to year-end, on
March 1, 2021, we completed the acquisition of a Lexus dealership property in Laval, Quebec. We satisfied
the purchase price by issuing approximately 1.37 million trust units of the REIT, or the equivalent of $14.8
million, to the Dilawri Group, increasing their effective interest in Automotive Properties REIT to
approximately 28.1 percent, which demonstrates Dilawri’s continued commitment to the REIT’s success.
The respective tenants of each of these acquired properties have all entered into long-term, triple-net
leases with contractual rent increases.
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Our portfolio now consists of 66 income-producing automotive dealership properties located in attractive
commercial areas of major urban markets across Canada. Since the inception of the REIT, we have focused
on working with some of Canada’s strongest automotive dealership groups. The benefits of this strategy
are apparent today, as these groups have demonstrated their ability to withstand a period of significant
economic disruption.
The capitalization rate of our portfolio increased in the first half of 2020, reflecting the broad-based
economic impact of COVID-19. In the latter part of the year, our capitalization rate compressed to near
pre-pandemic levels, highlighting the resilience of our assets.
We believe our current tenant group are the leaders in the ongoing consolidation of Canada’s automotive
dealership industry, which should present attractive opportunities for us to further strengthen our tenant
partnerships and continue to build our portfolio and unitholder value, while maintaining attractive
monthly cash distributions. With the internalization of the REIT’s management and operations in late
2019, we have strengthened alignment with unitholders and established the right structure to capitalize
on growth opportunities.
Looking ahead, we will continue to carefully monitor the impact of the pandemic on our business and
prioritize a strong liquidity position, while selectively evaluating acquisition opportunities to drive AFFO
growth per unit. The focus of our acquisition program will remain on: preferred markets, property
location, automotive brand and the financial strength of the dealership operator. We expect to see
industry consolidation gain momentum in the second half of 2021 and into 2022. With a Debt to Gross
Book Value of 43.2 percent at the end of 2020, we are well positioned financially to switch gears as the
pace of industry consolidation resumes.
On behalf of the Board of Trustees, management and personnel of Automotive Properties REIT, thank
you for your confidence and support.
Kap Dilawri
Chair of the Board
Milton D. Lamb
President and Chief Executive Officer
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Automotive Properties Real Estate Investment Trust
Management’s Discussion and Analysis
December 31, 2020
Table of Contents
SECTION 1 – GENERAL INFORMATION AND CAUTIONARY STATEMENTS......................................... 3
Basis of Presentation ....................................................................................................................... 3
The REIT .......................................................................................................................................... 3
Impact of COVID-19 ........................................................................................................................ 4
Forward-Looking Statements ........................................................................................................... 5
Non-IFRS Financial Measures ......................................................................................................... 7
SECTION 2 – OVERVIEW, STRATEGY AND OBJECTIVES ...................................................................... 9
Overview .......................................................................................................................................... 9
Strategy and Objectives ................................................................................................................. 10
SECTION 3 - PROPERTY PORTFOLIO .................................................................................................... 11
Portfolio Overview .......................................................................................................................... 11
Income Producing Property Portfolio Summary ............................................................................ 12
Profile of the Dilawri Leases .......................................................................................................... 12
Profile of Other Leases .................................................................................................................. 13
Profile of Overall Lease Maturity.................................................................................................... 13
Property Use and Brand Diversification ......................................................................................... 13
Description of the REIT’s Key Tenant ........................................................................................... 15
Dilawri Additional and Non-ASPE Measures ................................................................................. 15
SECTION 4 –KEY PERFORMANCE INDICATORS AND SELECTED FINANCIAL INFORMATION ....... 16
SECTION 5 – RESULTS OF OPERATIONS ............................................................................................. 17
Net Income (Loss) and Comprehensive Income (Loss) ................................................................ 17
Rental Revenue and Property Costs ............................................................................................. 18
General and Administrative Expenses .......................................................................................... 18
Interest Expense and Other Financing Charges ........................................................................... 19
Changes in Fair Values of Investment Properties ......................................................................... 19
Changes in Fair Values of Class B LP Units, DUs, IDUs and Interest Rate Swaps ..................... 20
SECTION 6 – NON-IFRS FINANCIAL MEASURES .................................................................................. 20
Reconciliation of NOI, Cash NOI, FFO and AFFO to Net Income (Loss)
and Comprehensive Income (Loss) ............................................................................................... 20
FFO, AFFO and Cash NOI ............................................................................................................ 21
Same Property Cash Net Operating Income ................................................................................. 22
Reconciliation of Cash Flow from Operating Activities to ACFO ................................................... 22
SECTION 7 – LIQUIDITY AND CAPITAL RESOURCES........................................................................... 23
Capital Structure ............................................................................................................................ 23
Debt Financing ............................................................................................................................... 25
Unitholders’ Equity (including Class B LP Units) ........................................................................... 26
Financing Metrics and Debt Covenants ......................................................................................... 27
SECTION 8 – RELATED PARTY TRANSACTIONS .................................................................................. 29
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Administration Agreement ............................................................................................................. 29
Strategic Alliance Agreement ........................................................................................................ 30
SECTION 9 − OUTLOOK ........................................................................................................................... 30
SECTION 10 – OTHER DISCLOSURES ................................................................................................... 31
Commitments and Contingencies .................................................................................................. 31
Disclosure Controls and Internal Controls over Financial Reporting ............................................. 31
SECTION 11 – QUARTERLY RESULTS OF OPERATIONS .................................................................... 32
SECTION 12 – RISKS & UNCERTAINTIES, CRITICAL JUDGMENTS & ESTIMATES ........................... 33
APPENDIX .................................................................................................................................................. 53
Property List as at December 31, 2020 ......................................................................................... 53
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SECTION 1 – GENERAL INFORMATION AND CAUTIONARY STATEMENTS
Basis of Presentation
The following Management’s Discussion and Analysis (“MD&A”) of the financial position and results of operations of
Automotive Properties Real Estate Investment Trust (the “REIT”) is intended to provide readers with an assessment of
the performance of the REIT for the years ended December 31, 2020 and December 31, 2019. This MD&A also outlines
the REIT’s capital structure, operating strategies and business outlook. All dollar amounts in this MD&A are presented
in thousands of Canadian dollars, except unit and per unit amounts, unless otherwise noted. All comparisons of results
for the three months ended December 31, 2020 (“Q4 2020”) are against results for the three months ended December
31, 2019 (“Q4 2019”), and comparisons of results for the twelve months ended December 31, 2020 (“2020”) are against
results for the twelve months ended December 31, 2019 (“2019”), unless otherwise noted.
This MD&A should be read in conjunction with the audited consolidated financial statements of the REIT and
accompanying notes for the years ended December 31, 2020 and December 31, 2019. Further information about the
REIT can be found in the REIT’s annual information form dated March 23, 2021 (the “AIF”). The AIF, along with other
continuous disclosure documents required by the Canadian securities regulators, can be found on the REIT’s SEDAR
profile at www.sedar.com and on the REIT’s website at www.automotivepropertiesreit.ca. This MD&A is dated March
23, 2021.
All information regarding Dilawri contained in this MD&A (the “Dilawri Information”) has been provided by and is solely
the responsibility of Dilawri and not of the REIT, the REIT’s management nor the trustees of the REIT (the “Trustees”).
Although the REIT has no reason to believe that the Dilawri Information contains a misrepresentation, Dilawri is a private
company that is independent of, and operates entirely independently from, the REIT and, consequently, neither the
REIT, its management nor its Trustees (in their capacities as such) have been involved in the preparation of the Dilawri
Information, nor has the REIT approved such information. Readers are cautioned, therefore, not to place undue reliance
on the Dilawri Information.
The REIT
The REIT is an unincorporated, open-ended real estate investment trust that was formed to own primarily income-
producing automotive dealership properties in Canada. As at the date of this MD&A, the REIT owns a portfolio of 66
income-producing commercial properties. The properties are located in metropolitan areas across British Columbia,
Alberta, Saskatchewan, Manitoba, Ontario and Quebec, totaling approximately 2.5 million square feet of gross leasable
area (“GLA”). The REIT has been internally managed since January 1, 2020.
The REIT commenced operations on July 22, 2015 following completion of its initial public offering of trust units (the
“IPO”). In connection with the IPO, the REIT indirectly acquired a portfolio of 26 commercial properties from certain
members of the Dilawri Group (as defined below) (the “Initial Properties”), and leased the Initial Properties to the
applicable member of the Dilawri Group (collectively, and including members of the Dilawri Group that became tenants
of a property owned by the REIT subsequent to the IPO, the “Dilawri Tenants”).
893353 Alberta Inc. (“Dilawri”) is a privately held corporation which, together with certain of its affiliates, holds an
approximate 26.0% effective interest in the REIT as at December 31, 2020, through the ownership, direction or control
of all of the Class B limited partnership units (“Class B LP Units”) of Automotive Properties Limited Partnership, the
REIT’s operating subsidiary (the “Partnership”), and 2,458,452 trust units of the REIT (“REIT Units”). As of the date
hereof, Dilawri’s effective interest in the REIT is approximately 28.1% through ownership of 3,827,554 REIT Units and
all of the Class B LP Units. The Class B LP Units are economically equivalent to REIT Units and are exchangeable
generally on a one-for-one basis for REIT Units. Dilawri and its affiliates, other than its shareholders and controlling
persons, are referred to herein as the “Dilawri Group”.
On August 25, 2020, the REIT acquired the real estate underlying a vacant property located in Laval, Quebec (“Tesla
Laval”) and leased it to Tesla Motors Canada ULC, a luxury, high-end car company that took occupancy of the premises
as a service centre on November 1, 2020. The REIT acquired the property for approximately $12,300 plus acquisition
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costs of $478 and redevelopment costs of $1,200, which were funded through the Credit Facilities (as defined below)
and cash on hand. Tesla Laval totals 127,396 square feet of GLA.
On February 5, 2020, the REIT acquired the real estate underlying the Regina BMW automotive dealership property
(“Regina BMW”), located in Regina, Saskatchewan, and on February 6, 2020, the REIT acquired the real estate
underlying the Acura North Vancouver automotive dealership property (“Acura North Vancouver”), located in North
Vancouver, British Columbia, from the Dilawri Group for a combined purchase price of approximately $28,850 plus
acquisition costs of $718, which was funded with proceeds from the REIT’s public offering of trust units completed on
December 23, 2019 (the “December 2019 Equity Offering”). The acquisitions consist of two full-service automotive
dealership properties totaling 41,992 square feet of GLA.
The REIT provided funding for facility improvements to one of the tenants of the REIT’s automotive dealership properties
located in Winnipeg, Manitoba in accordance with the terms of the purchase agreement in respect of the acquisition.
funding of $1,908 resulted in an annual rent increase effective March 6, 2020. Additional funding of $1,346 resulted in
an annual rent increase effective July 7, 2020.
As at December 31, 2020, the total number of issued and outstanding REIT Units and Class B LP Units was 37,697,052
and 9,933,253, respectively, for a total of 47,630,305 Units (as defined below). The REIT Units are listed and posted for
trading on the Toronto Stock Exchange under the symbol “APR.UN”. REIT Units and Class B LP Units are collectively
referred to in this MD&A as “Units”.
The REIT announced monthly cash distributions of $0.067 per REIT Unit, resulting in total distributions declared and
paid of $9,574 for Q4 2020 (Q4 2019 - declared $8,515 and paid $7,986). For the year ended December 31, 2020, the
REIT declared and paid distributions of $38,296 (2019 - declared $29,794 and paid $28,729).
The REIT and Dilawri were previously parties to an Administration Agreement (the “Administration Agreement”),
pursuant to which Dilawri provided, or caused to be provided, certain services to the REIT. The Administration
Agreement was terminated effective December 31, 2019. As the termination of the Administration Agreement was
completed in accordance with its terms, the REIT was not required to pay Dilawri any termination fees. Following
termination of the Administration Agreement, the REIT’s management, operating and administrative support personnel
became employed directly by the REIT (the “Internalization”).
The Strategic Alliance Agreement with Dilawri continues to allow the REIT to benefit from a preferential relationship with
Dilawri as Dilawri develops and acquires automotive dealerships in the future. These agreements are described under
Section 8 “Related Party Transactions” in this MD&A.
On March 1, 2021, the REIT acquired the real estate underlying the Lexus Laval automotive dealership located in Laval,
Quebec (“Lexus Laval”) from the Dilawri Group for approximately $14,800 plus acquisition costs of $550. The Lexus
Laval property is a 30,015 square foot full-service automotive dealership property. On closing of the transaction, the
applicable Dilawri Tenant entered into a 17-year triple-net lease with the REIT. The REIT funded the transaction through
the issuance of 1,369,102 REIT Units to Dilawri valued at approximately $14,800. The REIT Units were issued at a price
of $10.81 per unit which represents the volume-weighted average price for the first 20 days of 2021 pursuant to the
Strategic Alliance Agreement. At the date of this MD&A, Dilawri holds an approximate 28.1% effective interest in the
REIT.
Impact of COVID-19
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. COVID-19 has
had a significant adverse impact on trade and on local, national and global economies. According to Statistics Canada,
new automobile sales in Canada for the year ended December 31, 2020 were down approximately 20.0% compared to
the corresponding period in 2019 mainly as a result of COVID-19.
Provincial governments across Canada enacted emergency measures, commencing in the second half of March 2020
to combat the spread of COVID-19, including the implementation of travel restrictions, self-imposed quarantine periods,
temporary closures or restrictions of non-essential businesses, limitations on public gatherings, and social distancing
guidelines, many of which continue in effect as of today. As a result of these measures, several of the REIT’s tenants’
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automotive dealership businesses were either temporarily closed or operated on a limited basis. Further, heightened
public concerns regarding COVID-19 resulted in delayed automotive purchasing or servicing decisions by consumers,
which significantly impacted automotive dealership operators (including those that were permitted to remain open, or
partially open, in line with their respective provincial government guidelines). By the end of May 2020, all of the REIT’s
tenants were fully open for business; however, partial closures were reinstated for automotive dealerships in some parts
of Canada in November 2020 and continue to the date of this MD&A. Since the onset of the COVID-19 pandemic, the
REIT has engaged in regular discussions with its tenants regarding the impact that COVID-19 was and is having on
their respective automotive dealership businesses. As provincial lockdowns eased in May 2020, pent-up consumer
demand resulted in a rebound in Canadian auto sales and an increase in service work performed by the automotive
dealerships.
The REIT collected 100% of its Q4 2020 contractual base rent due under its leases (excluding 2% of contractual base
rent that is subject to rent deferral agreements with tenants (the “Deferral Agreements”)). The REIT has collected
approximately 97% of its contractual base rent for 2020, with the remaining amount subject to the Deferral Agreements.
As at December 31, 2020, the remaining tenant deferral rent receivable was $2,301. Pursuant to the Deferral
Agreements, the REIT agreed to defer, predominately interest-free, a portion of the applicable tenants’ base rent
primarily for a three-month period occurring between April and July 2020, but all rent ceased to be deferred as of the
end of 2020. All amounts remaining deferred under the Deferral Agreements are due to be paid by no later than the end
of 2021.
The REIT has collected 100% of its expected January to March 2021 contractual base rent under the leases plus
contractual base rent that is subject to the Deferral Agreements.
The REIT made a fair value adjustment to its property portfolio for 2020 of $(5,684), in accordance with adjustments
made to valuation inputs reflecting the impact of COVID-19 on all tenants and the additional economic impact of
depressed commodity prices on its tenants in Alberta. For the first three quarters of 2020, due to the economic impact
of the COVID-19 pandemic, the REIT increased the discount rates used to value its entire property portfolio by
approximately 30 basis points to 6.9% at September 30, 2020. In the fourth quarter of 2020, the REIT decreased the
discount rates by approximately 20 basis points to 6.7%, primarily due to the stability of the automotive dealership retail
business during the COVID-19 global pandemic (December 31, 2019 – 6.6%).
As at December 31, 2020, the REIT is in a strong liquidity position with a Debt to GBV ratio (as defined below) of 43.2%,
$59,400 of undrawn capacity under its Credit Facilities and nine unencumbered properties with an aggregate value of
approximately $150,490. As at the date of this MD&A, the REIT has ten unencumbered properties with an aggregate
value of $165,290 (see Section 7 “Liquidity and Capital Resources” in this MD&A for more details). In the second quarter
of 2020, the REIT proactively engaged in discussions with its key lenders regarding the easing of certain financial
covenants contained in the Credit Facilities. In particular, two of the REIT’s lenders have amended their respective Credit
Facilities to remove the cap on the REIT’s distributions at 100% AFFO payout ratio (calculated on a rolling four-quarter
basis) so long as the REIT’s Debt to GBV ratio is less than 55% (or, in one case, the REIT has at least $17,000 in the
aggregate of cash on hand and amounts available to be drawn under its revolving Credit Facilities). The third lender has
increased the cap on distributions to 110% of AFFO (calculated on a rolling four-quarter basis) until September 30, 2021.
At the time of engaging in these discussions, the REIT did not expect to exceed the original limits contained in the Credit
Facilities; however, management worked with the REIT’s lenders in order to manage any potential further risk associated
from the impact of COVID-19.
Forward-Looking Statements
Certain statements contained in this MD&A constitute forward-looking information within the meaning of securities laws.
Forward-looking information may relate to the REIT’s future outlook and anticipated events or results and may include
statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures,
financial results, taxes, plans and objectives of or involving the REIT. Particularly, statements regarding future results,
performance, achievements, prospects or opportunities for the REIT or the real estate or automotive dealership industry
are forward-looking statements. In some cases, forward-looking information can be identified by terms such as “may”,
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“might”, “will”, “could”, “should”, “would”, “occur”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”,
“potential”, “continue”, “likely”, “schedule”, “objectives”, or the negative thereof or other similar expressions concerning
matters that are not historical facts. Some of the specific forward-looking statements in this MD&A include, but are not
limited to, statements with respect to the following:
the impact of the COVID-19 pandemic on the REIT, its investment properties, its tenants, including with respect
to payment of rents and deferrals thereof, and the pace of industry consolidation;
the impact of government COVID-19 relief programs, on the REIT and its tenants;
the REIT’s relationship with the Dilawri Group, Dilawri’s shareholders and certain other related persons and
entities (collectively, the “Dilawri Organization”), including in respect of (i) the Dilawri Organization’s retained
interest in the REIT and its current intention with respect thereto, and (ii) expected transactions to be entered
into between Dilawri and the REIT (including pursuant to the Strategic Alliance Agreement);
the REIT’s intention with respect to, and ability to execute, its external and internal growth strategies;
the maintenance by the REIT of a strong balance sheet and prudent financial management and associated
minimization of financial risk;
the REIT representing a unique alternative for automotive dealership operators considering a sale or
recapitalization of their business;
the REIT’s capital expenditure requirements and capital expenditures to be made by the REIT and the Dilawri
Group;
the REIT’s distribution policy and the distributions to be paid to Unitholders (as defined below);
the REIT’s debt strategy;
the REIT’s access to available sources of debt and/or equity financing;
the expected tax treatment of the REIT and its distributions to Unitholders;
the REIT’s ability to meet its stated objectives;
the REIT’s ability to expand its asset base and make accretive acquisitions;
the ability of the REIT to qualify as a “Mutual Fund Trust” as defined in the Income Tax Act (Canada) (the “Tax
Act”), and as a “Real Estate Investment Trust”, as defined in the SIFT Rules (as defined below); and
the REIT’s ability to consolidate automotive dealership properties.
The REIT has based these forward-looking statements on factors and assumptions about future events and financial
trends that it believes may affect its financial condition, results of operations, business strategy and financial needs,
including that inflation will remain relatively low, that interest rates will remain stable or at lower levels for the near term,
that tax laws remain unchanged, that conditions within the automotive dealership real estate industry and the automotive
dealership industry generally, including competition for acquisitions, will be consistent with the current climate, that the
Canadian capital markets will provide the REIT with access to equity and/or debt at reasonable rates when required and
that the Dilawri Organization will continue its involvement with the REIT.
Although the forward-looking statements contained in this MD&A are based upon assumptions that management
believes are reasonable based on information currently available to management, there can be no assurance that actual
results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known
and unknown risks and uncertainties, many of which are beyond the REIT’s control, that may cause the REIT’s or the
industry’s actual results, performance, achievements, prospects and opportunities in future periods to differ materially
from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among
other things, the factors contained in the REIT’s filings with securities regulators, including the factors discussed under
Section 12 “Risks & Uncertainties, Critical Judgments & Estimates” in this MD&A.
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When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance
on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read
as guarantees of future performance or results and will not necessarily be accurate indications of whether or not, and at
which times, such performance or results will be achieved. The forward-looking statements made in this MD&A relate
only to events or information as of the date of this MD&A. Except as required by law, the REIT undertakes no obligation
to update or revise publicly any forward-looking statements, whether as a result of new information, future events or
otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
Non-IFRS Financial Measures
The REIT prepares its financial statements according to International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”). This MD&A contains certain financial measures which are
not defined under IFRS and may not be comparable to similar measures presented by other real estate investment
trusts or enterprises.
Funds from operations (“FFO”), adjusted funds from operations (“AFFO”), adjusted cash flow from operations (“ACFO”),
FFO payout ratio, AFFO payout ratio, ACFO payout ratio, net operating income (“NOI”), cash net operating income
(“Cash NOI”), Same Property cash net operating income (“Same Property Cash NOI”), and earnings before income tax,
depreciation, and amortization (“EBITDA”) are key measures of performance used by the REIT’s management and real
estate businesses.
Gross book value (“GBV”), indebtedness (“Indebtedness”), net asset value (“Net Asset Value”), debt to gross book value
(“Debt to GBV”), debt service coverage ratio (“Debt Service Coverage Ratio”), interest coverage ratio (“Interest Coverage
Ratio”) and tangible net worth are measures of financial position defined by agreements to which the REIT is a party.
These measures, as well as any associated “per Unit” amounts 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, while FFO, NOI, Cash NOI, Same Property Cash NOI and EBITDA are
important measures of operating performance of real estate businesses and properties. The IFRS measurement most
directly comparable to FFO, AFFO, NOI, Cash NOI, Same Property Cash NOI and EBITDA is net income. ACFO is a
supplementary measure used by management to improve the understanding of the operating cash flow of the REIT.
The IFRS measurement most directly comparable to ACFO is cash flow from operating activities.
“FFO” is a non-IFRS measure of operating performance widely used by the real estate industry, particularly by those
publicly traded entities that own and operate income-producing properties. FFO should not be considered as an
alternative to net income or cash flows provided by operating activities determined in accordance with IFRS. The REIT
calculates FFO in accordance with the Real Property Association of Canada’s White Paper on Funds from Operations
& Adjusted Funds from Operations for IFRS issued in February 2019. FFO is calculated as net income in accordance
with IFRS, adjusted by removing the impact of: (i) fair value adjustments on investment properties; (ii) other fair value
adjustments including fair value adjustments on redeemable or exchangeable units; (iii) gains and losses on the sale of
investment properties; (iv) amortization of tenant incentives; (v) distributions on redeemable or exchangeable units
treated as interest expense; and (vi) operational revenue and expenses from the right-of-use assets (referred to as
“ROU” assets).
“FFO payout ratio” is calculated as distributions paid per Unit divided by the FFO per Unit diluted.
“AFFO” is a non-IFRS measure of economic earnings operating performance widely used in the real estate industry to
assess an entity’s distribution capacity from earnings. The REIT calculates AFFO in accordance with the Real Property
Association of Canada’s White Paper on Funds from Operations & Adjusted Funds from Operations for IFRS issued in
February 2019. AFFO is calculated as FFO subject to certain adjustments, to remove the impact of: (i) any adjustments
resulting from recognizing property rental revenues or expenses (including ground lease rental payments) on a straight-
line basis; and (ii) capital expenditures. The REIT includes a capital expenditure reserve of 0.5% of base rent in the
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AFFO calculation. To date, the REIT has not incurred capital expenditure costs. The capital expenditure reserve is based
on management’s best estimate of costs that the REIT may incur, related to the sustaining/maintaining of the existing
leased area.
“AFFO payout ratio” is a non-IFRS measure of the sustainability of the REIT’s distribution payout capacity from earnings.
The REIT uses this metric to provide clarity of the performance of earnings and the overall management of the current
portfolio of assets. Management considers AFFO payout ratio as the key measure of the REIT’s distribution capacity
from earnings. AFFO payout ratio is calculated as distributions paid per Unit divided by AFFO per Unit diluted.
“ACFO” is a non-IFRS financial measure. The REIT calculates ACFO in accordance with the Real Property Association
of Canada’s White Paper on Adjusted Cash Flow from Operations for IFRS issued in February 2019. ACFO is calculated
as cash flow from operating activities subject to certain adjustments, to (a) remove the impact of: (i) changes in non-
cash working capital that are not sustainable in nature; (ii) amortization of financing costs and indemnity payable in
respect of the third party tenant portfolio sublease structure; and (iii) capital expenditures and (b) deduct interest
expense. The REIT includes a capital expenditure reserve of 0.5% of base rent in the ACFO calculation. To date, the
REIT has not incurred capital expenditure costs. The capital expenditure reserve is based on management’s best
estimate of costs that the REIT may incur, related to the sustaining/maintaining of the existing leased area.
“ACFO payout ratio” is calculated as distributions declared divided by ACFO.
“NOI” is a non-IFRS measure that means rental revenue from properties less property operating expenses as presented
in the statement of income prepared in accordance with IFRS. Accordingly, NOI excludes certain expenses included in
the determination of net income such as interest, general and administrative expenses, fair value adjustments and
amortization.
“Cash NOI” is a non-IFRS measure that means NOI prior to the effects of straight-line adjustments and deducts land
lease payments.
“Same Property Cash NOI” is a non-IFRS measure which reports the period-over-period performance of the same asset
base having consistent GLA during both periods of Cash NOI. The REIT uses this measure to assess financial returns
and changes in property value.
FFO, AFFO, FFO payout ratio, AFFO payout ratio, ACFO, ACFO payout ratio, NOI, Cash NOI and Same Property Cash
NOI should not be construed as alternatives to net income or cash flow from operating activities determined in
accordance with IFRS as indicators of the REIT’s performance. The REIT’s method of calculating FFO, AFFO, FFO
payout ratio, AFFO payout ratio, ACFO, ACFO payout ratio, NOI, Cash NOI and Same Property Cash NOI may differ
from other issuers’ methods and, accordingly, may not be comparable to measures used by other issuers. See Section
6 “Non-IFRS Financial Measures” in this MD&A for a reconciliation of these measures to net income or cash flow from
operating activities, as applicable.
“EBITDA” is defined as earnings before income tax, depreciation, and amortization.
“GBV” means, at any time, the greater of: (A) the book value of the assets of the REIT and its consolidated subsidiaries,
as shown on its then most recent consolidated balance sheet, less the amount of any receivable reflecting interest rate
subsidies on any debt assumed by the REIT; and (B) the historical cost of the investment properties, plus (i) the carrying
value of cash and cash equivalents, (ii) the carrying value of mortgages receivable, and (iii) the historical cost of other
assets and investments used in operations.
“Indebtedness” of the REIT means (without duplication): (i) any obligation for borrowed money (including, for greater
certainty, the full principal amount of convertible debt, notwithstanding its presentation under IFRS), (ii) any obligation
incurred in connection with the acquisition of property, assets or businesses, (iii) any obligation issued or assumed as
the deferred purchase price of property, (iv) any capital lease obligation (as defined under IFRS and in the Declaration
of Trust), and (v) any obligations of the type referred to in clauses (i) through (iv) of another entity, the payment of which
the REIT has guaranteed or for which the REIT is responsible or liable; provided that, (A) for the purpose of clauses (i)
through (v) (except in respect of convertible debt, as described above), an obligation will constitute Indebtedness of the
REIT only to the extent that it would appear as a liability on the consolidated balance sheet of the REIT in accordance
Automotive Properties REIT 2020
8
8
Automotive Properties REIT 2020
with IFRS, (B) obligations referred to in clauses (i) through (iii) exclude trade accounts payable, distributions payable to
Unitholders or holders of other securities excluded from the definition of Indebtedness pursuant to clause (C) below,
accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good
faith, deferred revenues, intangible liabilities, deferred income taxes, deferred financing costs, tenant deposits and
indebtedness with respect to the unpaid balance of installment receipts where such indebtedness has a term not in
excess of 12 months, and (C) REIT Units, Class A LP Units, and Class B LP Units, exchangeable securities and other
equity securities that constitute debt under IFRS do not constitute Indebtedness.
“Net Asset Value” means total assets less Indebtedness, accounts payable, accrued liabilities, credit facilities,
mortgages and interest rate swaps.
“Debt to GBV” means the ratio of Indebtedness to GBV at a particular time.
“Debt Service” means the total payments of principal and interest on debt.
“Debt Service Coverage Ratio” means the ratio of EBITDA divided by Debt Service at a particular time.
“Interest Coverage Ratio” means the ratio of Cash NOI less general and administrative expenses divided by the total of
the interest expense and other financing charges.
SECTION 2 – OVERVIEW, STRATEGY AND OBJECTIVES
Overview
According to Statistics Canada, Canadian new automotive sales declined by approximately 20.0% in 2020, compared
to 2019, mainly due to the COVID-19 pandemic. Historically, Canada’s automotive retail industry has been characterized
by strong industry fundamentals. According to Statistics Canada, automotive retail industry sales totaled $151 billion in
2020 (down 9% from $165 billion in 2019), representing approximately 25% of Canada’s overall retail sales of products
and merchandise. Over the last 20 years, retail automotive sales grew at a compound annual rate of 3.6%. The tables
below contain new automobile sales by units in Canada for the 2020 and 2019 calendar years:
Twelve Months Ended December 31 (units)
2020
YoY unit
increase/
(decrease)
YoY %
increase/
(decrease)
Alberta
British Columbia and the Territories
Manitoba
New Brunswick
Newfoundland and Labrador
Nova Scotia
Ontario
Prince Edward Island
Québec
Saskatchewan
Total Canada
(Source: Statistics Canada)
183,540
171,322
46,928
34,601
27,309
39,891
646,275
7,010
371,124
41,817
1,569,817
(38,677)
(37,087)
(10,491)
(6,356)
(3,192)
(11,258)
(197,274)
(1,100)
(79,194)
(6,852)
(391,481)
(17.4%)
(17.8%)
(18.3%)
(15.5%)
(10.5%)
(22.0%)
(23.4%)
(13.6%)
(17.6%)
(14.1%)
(20.0%)
2019
222,217
208,409
57,419
40,957
30,501
51,149
843,549
8,110
450,318
48,669
1,961,298
New vehicle sales represent a portion of overall dealer profitability, with significant contribution of profit generated from
used vehicle sales, service and parts, finance and insurance. The REIT’s portfolio of diverse dealership properties,
strong industry fundamentals and an attractive leasing profile support the stability of distributions to holders of REIT
Units and Class B LP Units (collectively, “Unitholders”).
Automotive Properties REIT 2020
9
9
Automotive Properties REIT 2020
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, while maintaining a strong balance sheet and practicing prudent financial management.
The objectives of the REIT are to:
provide Unitholders with stable, predictable and growing monthly cash distributions on a tax-efficient basis;
enhance the value of the REIT’s assets in order to maximize long-term Unitholder value; and
expand the REIT’s asset base while also increasing the REIT’s AFFO per Unit, including through accretive
acquisitions.
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 expects to be well-positioned to capitalize on
acquisition opportunities presented by third parties due to the fragmented nature of the automotive dealership market.
The REIT also expects to leverage its strategic arrangement with the Dilawri Group to acquire properties from the Dilawri
Group that meet the REIT’s investment criteria. Management intends to focus on obtaining new properties which have
the potential to contribute to the REIT’s ability to generate stable, predictable and growing monthly cash distributions to
Unitholders.
The REIT has a well defined, long term growth strategy which includes both external and internal elements.
External Growth
Accretive Acquisitions
Management believes that the REIT is well-positioned to capitalize on opportunities for accretive acquisitions from third-
party automotive dealership vendors due to certain features of the Canadian automotive dealership industry:
Fragmented ownership – Management estimates that the top 10 automotive dealership groups in Canada own
less than 10% of the approximately 3,500 automotive dealerships in Canada;
Capital redeployment needs – Monetizing the real estate underlying automotive dealership properties allows
dealers to retain control of their dealership while redeploying capital into other areas of their business; and
Succession planning issues – Management believes that for the majority of independent dealers, the dealership
and its underlying real estate together represent the single largest proportion of their wealth. Selling the
underlying real estate to the REIT can help such dealers address succession planning issues, particularly if the
transaction can be effected on a tax efficient basis.
Management believes that the REIT represents a unique alternative for automotive dealership operators considering a
sale or recapitalization of their business, as the REIT is at present the only publicly listed entity in Canada exclusively
focused on owning and acquiring automotive dealership properties.
The REIT evaluates acquisition opportunities based on a number of factors, including: valuation, expected financial
performance, stability of cash flows, physical features, existing leases, functionality of design, geographic market,
location, automotive brand representation and opportunity for future value enhancement.
Right of First Offer to Acquire REIT-Suitable Properties from the Dilawri Group
Management believes that its relationship with the Dilawri Group provides the REIT with additional opportunities to add
quality automotive dealership properties to its portfolio in an accretive manner. Pursuant to the Strategic Alliance
Agreement, the REIT has a right of first offer on properties that are suitable for use as an automotive dealership that are
acquired, developed, redeveloped, refurbished, repositioned or held for sale by the Dilawri Group.
Since completion of the IPO, the REIT has acquired 12 automotive dealership properties from the Dilawri Group under
the Strategic Alliance Agreement as of the date of this MD&A.
Internal Growth
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
10
Strategy and Objectives
The objectives of the REIT are to:
The primary strategy of the REIT is to create long-term value for Unitholders by generating sustainable tax-efficient cash
flow and capital appreciation, while maintaining a strong balance sheet and practicing prudent financial management.
provide Unitholders with stable, predictable and growing monthly cash distributions on a tax-efficient basis;
enhance the value of the REIT’s assets in order to maximize long-term Unitholder value; and
expand the REIT’s asset base while also increasing the REIT’s AFFO per Unit, including through accretive
acquisitions.
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 expects to be well-positioned to capitalize on
acquisition opportunities presented by third parties due to the fragmented nature of the automotive dealership market.
The REIT also expects to leverage its strategic arrangement with the Dilawri Group to acquire properties from the Dilawri
Group that meet the REIT’s investment criteria. Management intends to focus on obtaining new properties which have
the potential to contribute to the REIT’s ability to generate stable, predictable and growing monthly cash distributions to
The REIT has a well defined, long term growth strategy which includes both external and internal elements.
Unitholders.
External Growth
Accretive Acquisitions
Management believes that the REIT is well-positioned to capitalize on opportunities for accretive acquisitions from third-
party automotive dealership vendors due to certain features of the Canadian automotive dealership industry:
Fragmented ownership – Management estimates that the top 10 automotive dealership groups in Canada own
less than 10% of the approximately 3,500 automotive dealerships in Canada;
Capital redeployment needs – Monetizing the real estate underlying automotive dealership properties allows
dealers to retain control of their dealership while redeploying capital into other areas of their business; and
Succession planning issues – Management believes that for the majority of independent dealers, the dealership
and its underlying real estate together represent the single largest proportion of their wealth. Selling the
underlying real estate to the REIT can help such dealers address succession planning issues, particularly if the
transaction can be effected on a tax efficient basis.
Management believes that the REIT represents a unique alternative for automotive dealership operators considering a
sale or recapitalization of their business, as the REIT is at present the only publicly listed entity in Canada exclusively
focused on owning and acquiring automotive dealership properties.
The REIT evaluates acquisition opportunities based on a number of factors, including: valuation, expected financial
performance, stability of cash flows, physical features, existing leases, functionality of design, geographic market,
location, automotive brand representation and opportunity for future value enhancement.
Right of First Offer to Acquire REIT-Suitable Properties from the Dilawri Group
Management believes that its relationship with the Dilawri Group provides the REIT with additional opportunities to add
quality automotive dealership properties to its portfolio in an accretive manner. Pursuant to the Strategic Alliance
Agreement, the REIT has a right of first offer on properties that are suitable for use as an automotive dealership that are
acquired, developed, redeveloped, refurbished, repositioned or held for sale by the Dilawri Group.
Since completion of the IPO, the REIT has acquired 12 automotive dealership properties from the Dilawri Group under
the Strategic Alliance Agreement as of the date of this MD&A.
Internal Growth
Management believes that the REIT is well-positioned to achieve organic increases in cash flow and, as a result,
10
Automotive Properties REIT 2020
increase the value of its properties over time. These increases are expected to come from the following sources:
Each of the leases with a member of the Dilawri Group (each, a “Dilawri Lease”) contains annual contractual
basic rent escalators in the amount of 1.5% per annum. The Dilawri 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 non-structural capital improvements so that rent escalators are expected to flow directly
to NOI; and
Contractual fixed rent escalators or consumer price index adjustments are expected, wherever possible, to be
negotiated into new leases entered into by the REIT.
SECTION 3 - PROPERTY PORTFOLIO
Portfolio Overview
At December 31, 2020, the REIT’s portfolio consisted of 65 income-producing commercial properties. Out of the 65
income-producing commercial properties, 35 are exclusively occupied by the Dilawri Group for use as automotive
dealerships or, in one case, an automotive repair facility, while two of the other 30 properties are jointly occupied by the
Dilawri Group (for use as automotive dealerships) and one or more third parties (for use as automotive dealerships or
complementary uses, including restaurants), and the remaining 28 properties are exclusively occupied by other
dealership groups for use as automotive dealerships or for automotive dealership ancillary services, such as a vehicle
service compound facility or a repair facility. Consequently, the Dilawri Group is the REIT’s most significant tenant and
accounts for approximately 61.9% of the REIT’s base rent in 2020, including rent from properties subleased to third
parties (61.7% in 2019).
The applicable Dilawri Tenant is the lead tenant for Dixie Auto Mall until July 2030. In Q3 2020, the Dilawri Tenant that
operates the Harley Davidson dealership moved into the vacated Toyota dealership location. The Dilawri Tenant that
operated the Nissan Truck dealership moved from the premises during the fourth quarter of 2020. As of December 31,
2020, the premises were leased but unoccupied; however, this change does not affect the term of the applicable Dilawri
Leases.
On October 22, 2020, the REIT renewed the lease with the tenant occupying the premises at 9088 Jane Street in
Vaughan, Ontario, extending the term for an additional five-year period to 2026, with renewed lease payments based
on current market rates for similar automotive properties.
On December 1, 2020, the lease for the premises at 1911, 1917, 1953 and 1969 Bath Road in Kingston, Ontario was
assigned to and indemnified by a new tenant group, LaPointe Auto Group. The previous tenant occupying the premises
paid all deferred rent outstanding. The terms of the lease remained unchanged.
On January 21, 2021, the lease for the premises at 17616 111 Avenue in Edmonton, Alberta was assigned to a new
tenant operating a luxury, high-end car company. The previous tenant occupying the premises paid all deferred rent
outstanding. The terms of the lease remained unchanged.
Overall, at December 31, 2020, the REIT’s properties had a weighted average rental rate of $25.13 per square foot
($25.28 as at December 31, 2019). The decrease from 2019 is due to the addition of the Tesla Laval of 127,398 square
feet.
Automotive Properties REIT 2020
11
11
Automotive Properties REIT 2020
Income Producing Property Portfolio Summary
As at December 31, 2020
Greater Vancouver Area (GVA) (2)
Calgary
Edmonton
Regina
Winnipeg
KW/Guelph
Greater Toronto Area (GTA)
Ottawa/Kingston
Greater Montréal Area (GMA) (3)
Total Portfolio
As at December 31, 2019
Greater Vancouver Area (GVA) (2)
Calgary
Edmonton
Regina
Winnipeg
KW/Guelph
Greater Toronto Area (GTA)
Ottawa/Kingston
Greater Montréal Area (GMA)
Total Portfolio
Number of
Properties GLA (sq. ft.)
Average
rental rate
(per sq. ft.)(1)
Weighted
Average Lease
Term (yrs)
8
7
6
9
2
3
13
11
6
65
199,244
293,158
174,350
203,560
96,135
87,300
691,908
303,817
445,004
2,494,476
$35.93
$26.09
$29.92
$23.13
$19.84
$21.51
$28.68
$24.08
$15.78
$25.13
13.1
11.6
12.6
10.1
17.3
15.5
10.4
16.5
12.9
12.5
Number of
Properties GLA (sq. ft.)
Average
rental rate
(per sq. ft.)(4)
Weighted
Average Lease
Term (yrs)
7
7
6
8
2
3
13
11
5
62
176,871
293,158
174,350
183,941
96,135
87,300
691,908
303,817
317,608
2,325,088
$34.76
$25.71
$29.80
$20.75
$17.49
$21.42
$27.98
$23.84
$18.65
$25.28
13.6
12.6
13.6
9.4
18.3
16.5
10.9
17.5
15.1
13.4
(1) Based on 12-month period contractual rental revenue commencing December 31, 2020.
(2) Excludes land leases, which expenses are passed on to the tenant.
(3)
Includes Tesla Laval (operations commenced November 2020).
(4) Based on 12-month period contractual rental revenue commencing December 31, 2019.
Appendix “A” in this MD&A contains a list and description of the REIT’s properties as at December 31, 2020.
Profile of the Dilawri Leases
As at December 31, 2020, the remaining terms of the Dilawri Leases range from 5.5 years to 19.1 years, with a weighted
average lease term of approximately 11.3 years. As at December 31, 2020, the weighted average annual basic rent
payable under the Dilawri Leases is approximately $27.17 per square foot ($26.32 in 2019). The basic annual rental
rates of each of these leases increase by 1.5% each applicable lease year.
Material terms of the Dilawri Leases include the following:
Requirements to obtain the REIT’s consent for certain changes in use that might affect or impair the value of
the properties;
Options on the part of the applicable Dilawri Group tenant to extend the applicable Dilawri Lease for successive
five-year periods as long as the Dilawri Group tenant meets certain conditions;
The leases are triple-net to the REIT, with the Dilawri Group tenant responsible for costs relating to the
properties, including property taxes, repairs and maintenance;
Automotive Properties REIT 2020
12
12
Automotive Properties REIT 2020
Rights on the part of the applicable Dilawri Group tenant to cease operations under certain circumstances,
provided it continues to comply with the other terms of its Dilawri Lease; and
Other terms with respect to alterations, environmental covenants, assignment and subletting, damage and
destruction and tenant expansion.
A full description of the material terms of the Dilawri Leases is contained in the REIT’s AIF, which is available on SEDAR
at www.sedar.com.
Profile of Other Leases
All of the REIT’s other leases are tenanted by affiliates of other automotive dealership groups and, with the exception of
one property whereby the lease was assumed by the REIT at the time of acquiring the property, are substantially the
same as the Dilawri Leases, except for changes in contractual rental rates. Terms for the changes in contractual rental
rates for the REIT’s other leases are based on either a fixed amount, or on changes to consumer price indices (either
national or provincial, with some caps and floors). The timing of the changes in contractual rental rates vary lease by
lease.
Profile of Overall Lease Maturity
The REIT’s lease portfolio matures between 2026 and 2040 as set out in the chart below:
Lease Maturity Profile (*)
5.0
I
O
4.0
N
h
s
a
3.0
C
f
o
%
2.0
1.0
-
10.2% 8.6% 8.0% 9.3% 9.0%
11.8%
10.7%
6.7%
7.3%
4.9%
4.3%
4.1% 3.8%
25%
20%
15%
10%
1.3%
5%
-
'20
'21
'22
'23
'24
'25
'26
'27
'28
'29
'30
'31
'32
'33
'34
'35
'36
'37
'38
'39
'40
(*) Based on 12-month period contractual rental revenue commencing December 31, 2020.
Property Use and Brand Diversification
Sales for an individual automotive dealership are heavily influenced by the popularity of the automotive brands being
marketed, and these, in turn, are often cyclical for each brand as new models are introduced and existing models are
updated and refreshed. In addition, prospects for both mass market and luxury brands can vary with economic cycles.
Management believes that the portfolio’s broad automotive brand diversification contributes to the quality and stability
of the REIT’s cash flows. The following table sets out the breakdown of automotive brands that are marketed, retailed
and serviced at the REIT’s properties as of December 31, 2020:
Automotive Properties REIT 2020
13
13
Automotive Properties REIT 2020
Manufacturer / Brand
REIT Auto
Property GLA
(Sq. Feet)
% of REIT Auto
Property GLA
% of REIT Auto
Property Rent (1)
No. of REIT
Locations
BMW (2)
Honda (3)
Volkswagen
Audi (4)
Toyota
Acura (3)
Tesla (5)
General Motors
Other (6)
Porsche (7)
Chrysler (8)
Mazda
Hyundai
Nissan (9)
Mercedes Benz
Infiniti
Kia
Ford
Subaru
Lexus
Mitsubishi
320,824
313,155
252,299
237,484
210,360
162,081
145,896
99,851
97,566
84,569
81,750
81,352
80,950
71,521
60,850
44,905
39,543
39,287
19,033
16,226
14,750
13.0%
12.6%
10.2%
9.6%
8.5%
6.5%
5.9%
4.0%
3.9%
3.4%
3.3%
3.3%
3.3%
2.9%
2.5%
1.8%
1.6%
1.6%
0.8%
0.7%
0.6%
11.2%
13.1%
11.1%
11.1%
7.9%
7.2%
1.2%
3.3%
5.1%
5.2%
1.9%
4.1%
3.6%
3.2%
2.4%
3.0%
1.9%
1.5%
0.7%
0.6%
0.7%
7
9
7
6
5
6
2
2
7
2
2
4
4
3
1
4
2
1
2
1
2
Total
2,474,252
100.0%
100.0%
79
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
Based on 12-month period contractual rental revenue commencing January 1, 2020.
Includes MINI.
Includes Honda Used Car and Regina Collision Centre. Regina Honda/Acura split 75% and 25% of 30,863 sq. ft.
Includes the Audi service property (formerly Infiniti Vancouver).
Includes the Tesla KW service centre and Tesla Laval service centre.
Includes the Dilawri Distinctive Collection property in Calgary, which currently has franchise agreements with Aston Martin and Bentley.
In addition, the Dilawri Distinctive Collection sells a variety of used vehicles, including Audi, BMW, Lamborghini, Maserati, McLaren
and Mercedes-Benz. Also includes the former Dilawri Acura and BMW property in Regina at 1921 1st Avenue which is being used for
ancillary dealership purposes by both the Dilawri Pre Owned and the Triple 7 Chrysler dealerships. It continues to be leased by a
Dilawri Tenant under the same lease as Dilawri BMW. Also, includes the former Toyota and Hyundai dealerships which have vacated
Automotive Properties REIT 2020
14
14
Automotive Properties REIT 2020
their premises located in Dixie Auto Mall and a Harley Davidson dealership located in the Dixie Auto Mall; and the applicable Dilawri
Tenant will continue to be the lead tenant for Dixie Auto Mall until July 2030. Includes 3 vehicle compound facilities and undeveloped
land that were acquired as part of the Mierins Auto Group Portfolio. Also includes the former Nissan Truck property in the Dixie Auto
Mall which is being used for ancillary purposes.
Includes Porsche JLR Edmonton.
Includes Dodge, FIAT, Jeep and RAM.
No longer Includes the Nissan Truck at the Dixie Auto Mall.
(7)
(8)
(9)
Description of the REIT’s Key Tenant
The following chart summarizes certain relevant financial information of the Dilawri Group for the twelve months ended
December 31, 2020 with comparative figures for the twelve months ended December 31, 2019 as provided to the REIT
by Dilawri (all figures are approximations, not in thousands):
Dilawri Group’s Financial Information (approximations, not in thousands)
December 31, 2020
LTM(1)
December 31, 2019
LTM(1)
Combined Revenues (not audited or reviewed)
$3.4 billion
$3.8 billion
EBITDA (not audited or reviewed)
$148.7 million
$123.7 million
Pro Forma Adjusted Rent Coverage Ratio (not audited or
reviewed)
3.7(2)
3.5(3)
Term Debt (not audited or reviewed)
$484.0 million(2)
$440.1 million(3)
Term Debt to EBITDA Ratio (not audited or reviewed)
3.3(2)
3.6(3)
Notes:
(1)
(2)
(3)
“LTM” means the last twelve months.
As at December 31, 2020.
As at December 31, 2019.
Although the REIT has no reason to believe that the above financial information of the Dilawri Group contains a
misrepresentation, Dilawri is a private company that is independent of, and operates entirely independently from, the
REIT and, consequently, neither the REIT, its management nor its Trustees in their capacities as such have been
involved in the preparation of this financial information. Readers are cautioned, therefore, not to place undue reliance
on this financial information.
Dilawri Additional and Non-ASPE Measures
Dilawri uses “EBITDA” in its financial statements which is an additional ASPE (as defined below) measure. “EBITDA” is
defined as the earnings of the Dilawri Group before interest, taxes, depreciation and amortization, all as reflected in the
non-consolidated combined financial statements of the Dilawri Group prepared in accordance with the recognition,
measurement and disclosure principles of ASPE. Dilawri believes that EBITDA is an important measure of operating
performance as it shows Dilawri’s earnings before interest, taxes, depreciation and amortization. Dilawri’s method of
calculating EBITDA and the Term Debt to EBITDA Ratio may differ from other issuers’ calculations and, accordingly,
may not be comparable to measures used by other issuers.
References to “Pro Forma Adjusted Rent Coverage Ratio”, “Term Debt” and “Term Debt to EBITDA Ratio”, which are
key measures of performance used by automotive dealership businesses, refer to the Pro Forma Adjusted Rent
Coverage Ratio, Term Debt and Term Debt to EBITDA Ratio of the Dilawri Group on a non-consolidated combined
basis. Pro Forma Adjusted Rent Coverage Ratio, Term Debt and Term Debt to EBITDA Ratio are not defined by
Canadian accounting standards for private enterprises (“ASPE”) or IFRS and do not have standardized meanings
prescribed by ASPE or IFRS.
Automotive Properties REIT 2020
15
15
Automotive Properties REIT 2020
“Pro Forma Adjusted Rent Coverage Ratio” is calculated by Dilawri as EBITDA for the LTM plus rent paid by the Dilawri
Group for the LTM to third parties and the REIT, less rent received from third parties. The resultant figure is divided by
rent paid by the Dilawri Group for the LTM to third parties and the REIT, less rent received from third parties.
“Term Debt” is calculated by Dilawri as the Dilawri Group’s total term debt reflected in its non-consolidated combined
financial statements prepared in accordance with the recognition, measurement and disclosure principles of ASPE.
“Term Debt to EBITDA Ratio” is defined as the ratio of Term Debt to EBITDA.
SECTION 4 –KEY PERFORMANCE INDICATORS AND SELECTED FINANCIAL
INFORMATION
Key Performance Indicators
The REIT’s performance is measured by management’s selection of certain key indicators including those set out in the
table below. For further information on the REIT’s operating measures and non-IFRS measures, please refer to Sections
5 and 6 of this MD&A.
Three Months Ended
December 31,
2019
2020
Twelve Months Ended
December 31,
2019
2020
Operating Results
Rental Revenue
NOI
Cash NOI
Same Property Cash NOI
Same Property Cash NOI (excluding bad debt
expense)
Net Income (Loss)
FFO
AFFO
Fair value adjustment to investment properties
Distributions per Unit
Net Income (Loss) per Unit – basic (1)
Net Income (Loss) per Unit – diluted (2)
FFO per Unit – basic (3)
FFO per Unit – diluted (4)
AFFO per Unit – basic (3)
AFFO per Unit – diluted (4)
Weighted average Units – basic (5)
Weighted average Units – diluted (6)
Payout ratio (%)
FFO
AFFO
$19,091
16,471
15,486
13,964
13,913
30,180
11,237
10,333
27,096
$0.201
0.634
0.626
0.236
0.233
0.217
0.214
47,630,305
48,203,686
86.3%
93.9%
Balance Sheet and Other Metrics
Total assets
Total liabilities (excluding Class B LP Units)
Number of units outstanding (includes Class B LP Units)
Market price per REIT Unit – close (end of period)
Market capitalization (includes Class B LP Units)
Overall capitalization rate
$18,122
15,144
14,301
13,743
13,743
3,894
8,983
8,227
1,266
$0.201
$75,124
64,019
60,400
50,582
50,842
26,965
43,789
40,498
(5,684)
$0.804
0.096
0.096
0.222
0.220
0.203
0.202
40,502,680
40,767,092
0.566
0.560
0.919
0.910
0.850
0.841
47,630,305
48,135,920
$67,580
57,354
53,844
50,273
50,273
(4,499)
36,148
32,906
3,150
$0.804
(0.125)
(0.124)
1.003
0.997
0.913
0.908
36,023,242
36,257,034
91.2%
99.6%
88.4%
95.6%
80.6%
88.6%
As at
December 31,
2020
$936,352
$438,718
47,630,305
$10.71
$510,121
6.7%
As at
December
31, 2019
$935,733
$420,452
47,630,305
$12.15
$578,708
6.6%
As at
December
31, 2018
$766,239
$424,664
31,729,805
$8.97
$284,616
6.6%
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
Fixed weighted average effective interest rate on debt (excludes revolving
credit facilities) (7)
Proportion of total debt at fixed interest rates through swaps and
mortgages
Weighted average interest rate swap term remaining (years)
Weighted average term to maturity of debt
Interest Coverage Ratio (8)
Debt Service Coverage Ratio (8)
Debt to GBV
3.76%
3.77%
3.79%
91%
5.9
2.9
3.6X
1.8X
43.2%
95%
91%
6.0
3.9
2.9X
1.6X
43.6%
6.7
4.3
3.3X
1.9X
54.7%
(1) Net Income (Loss) per Unit — basic is calculated in accordance with IFRS by dividing the Net Income (Loss) by the amount of the weighted average number of
outstanding REIT Units and Class B LP Units.
(2) Net Income (Loss) per Unit — diluted is calculated in accordance with IFRS by dividing the Net Income (Loss) by the amount of the weighted average number of
outstanding REIT Units, Class B LP Units, DUs and IDUs (each as defined below) granted to certain Trustees and management of the REIT.
(3) FFO per Unit and AFFO per Unit — basic is calculated by dividing the total FFO and AFFO by the amount of the total weighted average number of outstanding REIT
Units and Class B LP Units.
(4) FFO per Unit and AFFO per Unit — diluted is calculated by dividing the total FFO and AFFO by the amount of the total weighted average number of outstanding
REIT Units, Class B LP Units, DUs and IDUs granted to certain Trustees and management of the REIT.
(5) The weighted average number of outstanding Units — basic includes the Class B LP Units.
(6) The weighted average number of outstanding Units — diluted includes the Class B LP Units, DUs and IDUs granted to certain Trustees and management of the
REIT.
(7) The fixed weighted average effective interest rate on debt is calculated on an annualized basis.
(8) For 2020 ratios, see Section 7 “Financing Metrics and Debt Covenants”.
SECTION 5 – RESULTS OF OPERATIONS
Net Income (Loss) and Comprehensive Income (Loss)
Net Property Income
Base rent
Property tax recoveries
Straight-line rent adjustment
Rental Revenue
Property tax expense
Bad debt recovery (expense)
Property Costs
NOI
Other Income (Expenses)
General and administrative expenses
Interest expense and other financing
charges
Fair value adjustment on interest rate swaps
Distribution expense on Class B LP Units
Fair value adjustment on Class B LP Units,
DUs and IDUs
Fair value adjustment on investment
properties
Net Income (Loss) and Comprehensive
Income (Loss)
Three Months Ended
December 31,
2019
2020
Twelve Months Ended
December 31,
Variance
2020
2019 Variance
$15,590
2,675
826
19,091
(2,675)
55
(2,620)
16,471
(1,213)
(3,951)
1,387
(1,997)
(7,613)
27,096
$14,460
2,978
684
18,122
(2,978)
-
(2,978)
15,144
(1,887)
(4,207)
6,395
(1,997)
(10,820)
$1,130
(303)
142
969
303
55
358
1,327
674
256
(5,008)
-
3,207
$61,312
10,828
2,984
75,124
(10,828)
(277)
(11,105)
64,019
(4,223)
(15,730)
(17,832)
(7,988)
14,403
$54,384
10,226
2,970
67,580
(10,226)
-
(10,226)
57,354
(4,090)
(16,948)
$6,928
602
14
7,544
(602)
(277)
(879)
6,665
(133)
1,218
(3,902)
(7,988)
(13,930)
-
(32,075)
46,478
1,266
25,830
(5,684)
3,150
(8,834)
$30,180
$3,894
$26,286
$26,965
$(4,499)
$31,464
For Q4 2020, net income was $30,180 compared to $3,894 in Q4 2019. The positive variance was primarily due to an
increase in NOI and fair value adjustments for Class B LP Units, DUs and IDUs, and investment properties, partially
offset by fair value adjustments for interest rate swaps. For 2020, net income was $26,965 compared to a net loss of
$4,499 in 2019. The positive variance was primarily due to an increase in NOI and fair value adjustments for Class B
LP Units and DUs and IDUs, partially offset by fair value adjustments for interest rate swaps and investment properties.
NOI was $16,471 in Q4 2020 as compared to $15,144 in Q4 2019, and for 2020 was $64,019 compared to $57,354 in
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
2019. The increase was primarily due to the properties acquired during and subsequent to Q4 2019 and contractual rent
increases.
Rental Revenue and Property Costs
Rental revenue is based on triple net leases with tenants. As such, rental revenue also includes recoverable realty taxes
and straight-line adjustments.
For Q4 2020, base rent was $15,590, an increase of $1,130, or 7.8%, compared to Q4 2019 and rental revenue was
$19,091, an increase of $969, or 5.3%, compared to Q4 2019. The increase was attributable to the properties acquired
during and subsequent to Q4 2019 and contractual rent increases.
For 2020, based rent was $61,312, an increase of $$6,928, 12.7%, compared to Q4 2019 and rental revenue was
$75,124, an increase of $7,544, or 11.2%, compared to 2019. The increase was attributable to the properties acquired
during and subsequent to 2019 and contractual rent increases.
Property costs for Q4 2020 and 2020 were $358 lower and $879 higher than Q4 2019 and 2019, respectively. The
decrease in Q4 2020 is attributable to recovery of bad debt in the amount of $55 and lower property tax expense due to
the timing of realty tax payments. The increase in 2020 is attributable to the properties acquired during and subsequent
to 2019 and bad debt expense recognized in 2020. As a result of the credit risk related to the accounts receivable
associated with the REIT’s Deferral Agreements, the REIT recognized a bad debt recovery of $55 for Q4 2020 (Q4 2019
– $nil) and an expense of $277 for 2020 (2019 – $nil), which reflects the REIT’s assessment of the credit risk relating to
the collection of the tenant rent and other receivable balance under the Deferral Agreements totalling $2,301.
General and Administrative Expenses
The table below illustrates the breakdown of general and administrative expenses incurred in Q4 2020 and 2020 as
compared to Q4 2019 and 2019:
Human resource costs
Public entity and other costs
Independent Trustee fees
General and administrative expenses
Q4 2020
Q4 2019
Variance
$619
489
105
$1,213
$1,226
563
98
$1,887
$(607)
(74)
7
$(674)
2020
$2,105
1,701
417
$4,223
2019
Variance
$2,440
1,318
332
$4,090
$(335)
383
85
$133
Human resource costs reflect the expenses related to the management, operating and administrative support of the
REIT. Human resource costs also include accruals for short-term incentive awards for management, Income Deferred
Units (“IDUs”) and the vesting of long-term Deferred Units (“DUs”). For Q4 2019, human resource costs of $227 and
public entity and other costs of $39, totalling $266, and for 2019, human resource costs of $928 and public entity and
other costs of $122, totalling $1,050, were paid by the REIT to Dilawri in respect of the cost of the services provided by
Dilawri pursuant to the Administration Agreement.
The decrease in human resource costs in Q4 2020 and 2020 of approximately $607 and $335, respectively, resulted
from $1,480 of DUs that were issued to the REIT’s management in December 2019. Approximately $737 of such DUs
vested and were accounted for in Q4 2019, with the balance vesting over a three to five-year period from the date of
grant and accounted for accordingly. For Q4 2019 and 2019, the REIT incurred expenses of $933 and $1,338,
respectively, related to the granting of DUs and IDUs, and the vesting of long-term DUs.
The public entity and other costs reflect the expenses related to ongoing operations of the REIT, including professional
fees for legal and audit services and depreciation expense for an office lease ROU asset. The increase in 2020 of $383
in public entity and other costs is a result of the REIT’s growth. Public entity costs will fluctuate from quarter to quarter
depending on when such expenses are incurred.
As at December 31, 2020, all independent Trustees of the REIT (“Independent Trustees”) elected to receive board and
committee fees in the form of DUs. The non-cash unit-based compensation expense relates to DUs and IDUs granted
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Automotive Properties REIT 2020
in accordance with the REIT’s Equity Incentive Plan (the “Plan”). The fair value of each DU granted is measured based
on the volume-weighted average trading price of the REIT Units for the five trading days immediately preceding the
grant date. For Q4 2020 and 2020, the REIT paid the Independent Trustees $105 and $417, respectively, related to the
granting of DUs and IDUs, representing increases of $7 and $85, respectively, compared to the corresponding prior
year periods, reflecting the appointment of an additional Independent Trustee in June 2019 and additional board of
trustee meetings held during 2020 as compared to 2019 principally as a result of the COVID-19 pandemic.
Interest Expense and Other Financing Charges
Interest expense includes amounts payable to lenders under the REIT’s Credit Facilities and Mortgages (each as defined
in Section 7 “Liquidity and Capital Resources” below), as well as amortization of upfront costs and costs to hedge the
applicable Credit Facilities and Mortgages at fixed rates. For Q4 2020 and 2020, the interest expense and other financing
charges were $3,951 and $15,730, respectively, representing decreases of $256 and $1,218 from Q4 2019 and 2019,
respectively. The decreases are primarily a result of the proceeds from the December 2019 Equity Offering which
contributed to the repayment of the debt.
Changes in Fair Values of Investment Properties
The REIT valued the investment properties using a discounted cash flow approach whereby a current discount rate was
applied to the projected net operating income which a property can reasonably be expected to produce in the future.
Property under development is measured using both a comparable sales method and a discounted cash flow method,
net of costs to complete. For Q4 2020 and 2020, the fair value adjustments in investment properties were $27,096 and
$(5,684), respectively, compared to $1,266 for Q4 2019 and $3,150 for 2019.
For the first three quarters of 2020, due to the economic impact of the COVID-19 pandemic, the REIT increased the
discount rates used to value its entire property portfolio by approximately 30 basis points to 6.9% at September 30,
2020. In the fourth quarter of 2020, the REIT decreased the discount rates by approximately 20 basis points to 6.7%,
primarily due to the resilience of the automotive dealership retail business during the COVID-19 global pandemic. The
decrease in discount rates and NOI increases generated from the investment properties resulted in a fair value increase
in Q4 2020 of $27,096. The overall capitalization rate applicable to the REIT’s entire portfolio was 6.7% as at December
31, 2020 (September 30, 2020 — 6.9%; December 31, 2019 — 6.6%).
The fair value adjustments for 2020 were a result of the following factors:
The REIT increased the valuation inputs in 2020 for its entire property portfolio by approximately 10 basis points,
primarily due to the economic impact of COVID-19. The increase in valuation inputs resulted in a fair value
decrease in 2020.
NOI increases from investment properties resulted in a fair value increase for 2020.
The REIT adjusted the classification of one property from a vacant property to a fully leased facility, resulting in
a decrease in the capitalization rate, which resulted in a fair value increase for Q4 2020 and 2020.
On October 22, 2020, the REIT renewed the lease with the tenant occupying the premises at 9088 Jane Street
in Vaughan, Ontario, extending the term for an additional five-year period to 2026, with renewed lease payments
based on current market rates for similar automotive properties. The lease renewal resulted in a fair value
increase for Q4 2020 and 2020.
The transaction costs related to the Regina BMW, Acura North Vancouver and Tesla Laval acquisitions
completed during 2020 resulted in a fair value decrease for 2020.
The REIT’s valuation inputs are supported by quarterly market reports from an independent appraiser which has
indicated changes in capitalization rates from December 31, 2020 for the markets in which the REIT operates. The
historical book value of the investment properties owned by the REIT as at December 31, 2020 was $890,963
(December 31, 2019 – $845,828).
In accordance with the REIT’s valuation policy, an independent appraiser is engaged to prepare valuations on a portion
of the portfolio annually, such that the entire portfolio is appraised at least once every three years. In addition, any
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
investment property which represents greater than 15% of the overall portfolio value will be appraised annually. In 2020,
the REIT had 17 investment properties (2019 – 21) independently appraised, representing approximately $313,000
(2019 – $363,000) of the REIT’s fair value of income producing properties.
A 25 basis point decrease or increase in capitalization rates or discount rates would result in an increase or decrease in
the fair value of investment properties of approximately $35,900 or $(33,300), respectively.
A 50 basis point decrease or increase in capitalization rates or discount rates would result in an increase or decrease in
the fair value of the investment properties of approximately $74,600 or $(64,200), respectively.
Changes in Fair Values of Class B LP Units, DUs, IDUs and Interest Rate Swaps
The Class B LP Units, DUs, IDUs and the interest rate hedges (see Section 7 “Liquidity and Capital Resources” in this
MD&A) are required to be presented under relevant accounting standards at fair value on the balance sheet. The
resulting changes in these items are recorded in net income (loss) and comprehensive income (loss).
Under IFRS, the Class B LP Units, DUs and IDUs are classified as financial liabilities and measured at fair value through
profit and loss (FVTPL). The fair value of the Class B LP Units, DUs and IDUs will be measured every period by reference
to the traded value of the REIT Units, with changes in measurement recorded in net income (loss) and comprehensive
income (loss). Distributions on the Class B LP Units will be recorded in interest expense and other financing charges in
the period in which they become payable.
The impact of the movement in the traded value of the REIT Units resulted in an increase in fair value adjustment for
Class B LP Units in Q4 2020 of $7,613 (Q4 2019 – $10,820) and a decrease of $14,403 for 2020 (2019 – increase of
$32,075).
The REIT enters into interest rate swaps to limit its exposure to fluctuations in the interest rates on variable rate
financings for certain of its Credit Facilities. Gains or losses arising from the change in the fair value of the interest rate
derivative contracts are recognized in the consolidated statements of income (loss) and comprehensive income (loss).
The fair value adjustments for interest rate swaps for Q4 2020 and 2020 were a gain of $1,387 (Q4 2019 – $6,395) and
a loss of $17,832 (2019 – $3,902), respectively. The variances reflect a decline in interest rates in the derivative market
as at December 31, 2020.
SECTION 6 – NON-IFRS FINANCIAL MEASURES
Reconciliation of NOI, Cash NOI, FFO and AFFO to Net Income (Loss) and Comprehensive
Income (Loss)
The REIT uses the following non-IFRS key performance indicators: NOI, Cash NOI, FFO, AFFO, FFO payout ratio and
AFFO payout ratio. The REIT believes these non-IFRS measures and ratios provide useful supplemental information to
both management and investors in measuring the financial performance and financial condition of the REIT. These
measures and ratios do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to
similarly titled measures and ratios presented by other publicly traded real estate investment trusts and should not be
construed as an alternative to other financial measures determined in accordance with IFRS (see “Non-IFRS Financial
Measures”). The calculations of these measures and the reconciliation to net income (loss) and comprehensive income
(loss) are set out in the following table:
($000s, except per Unit amounts)
Calculation of NOI
Property revenue
Property costs
Three Months Ended
December 31,
2019
2020
Variance
Twelve Months Ended
December 31,
2019
2020
Variance
$19,091
(2,620)
$18,122
(2,978)
$969
358
$75,124
(11,105)
$67,580
(10,226)
$7,544
(879)
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
NOI (including straight-line adjustments)
Adjustments:
Land lease payments
Straight-line adjustment
Cash NOI
Reconciliation of net income (loss) to FFO and AFFO
Net income (loss) and comprehensive income (loss)
Adjustments:
Change in fair value – interest rate swaps
Distributions on Class B LP Units
Change in fair value – Class B LP Units, DUs and IDUs
Change in fair value – investment properties
ROU asset net balance of depreciation/interest and lease
payments
FFO
Adjustments:
Straight-line adjustment
Capital expenditure reserve
AFFO
Number of Units outstanding (including Class B LP Units)
Weighted average Units Outstanding – basic
Weighted average Units Outstanding – diluted
FFO per Unit – basic (1)
FFO per Unit – diluted (2)
AFFO per Unit – basic (1)
AFFO per Unit – diluted (2)
Distributions per Unit
FFO payout ratio
AFFO payout ratio
$16,471
$15,144
$1,327
$64,019
$57,354
$6,665
(159)
(826)
$15,486
(159)
(684)
$14,301
—
(142)
$1,185
(635)
(2,984)
$60,400
(540)
(2,970)
$53,844
(95)
(14)
$6,556
$30,180
$3,894
$26,286
$26,965
$(4,499)
$31,464
(1,387)
1,997
7,613
(27,096)
(70)
(6,395)
1,997
10,820
(1,266)
(67)
5,008
—
(3,207)
(25,830)
17,832
7,988
(14,403)
5,684
3,902
7,988
32,075
(3,150)
13,930
—
(46,478)
8,834
(3)
(277)
(168)
(109)
$11,237
$8,983
$2,254
$43,789
$36,148
$7,641
(826)
(78)
$10,333
47,630,305
47,630,305
48,203,686
$0.236
$0.233
$0.217
$0.214
$0.201
86.3%
93.9%
(684)
(72)
$8,227
47,630,305
40,502,680
40,767,092
$0.222
$0.220
$0.203
$0.202
$0.201
91.2%
99.6%
(142)
(6)
$2,106
—
7,127,625
7,436,594
$0.014
$0.013
$0.014
$0.012
—
(4.9)%
(5.7)%
(2,984)
(307)
$40,498
47,630,305
47,630,305
48,135,920
$0.919
$0.910
$0.850
$0.841
$0.804
88.4%
95.6%
(2,970)
(272)
$32,906
47,630,305
36,023,242
36,257,034
$1.003
$0.997
$0.913
$0.908
$0.804
80.6%
88.6%
(14)
(35)
$7,592
—
11,607,063
11,878,886
$(0.084)
$(0.087)
$(0.063)
$(0.067)
—
7.8%
7.0%
(1) The FFO and AFFO per Unit – basic is calculated by dividing the total FFO and AFFO by the amount of the total weighted-average number
of outstanding REIT Units and Class B LP Units.
(2) The FFO and AFFO per Unit – diluted is calculated by dividing the total FFO and AFFO by the amount of the total weighted-average number
of outstanding REIT Units, Class B LP Units, DUs and IDUs granted to certain independent Trustees and management of the REIT.
FFO, AFFO and Cash NOI
In Q4 2020, FFO increased 25.1% to $11,237, compared to $8,983 in Q4 2019. FFO per Unit (diluted) for Q4 2020 was
$0.233, compared to $0.220 in Q4 2019. The increase in FFO and FFO per Unit was primarily due to the properties
acquired during and subsequent to Q4 2019, together with contractual rent increases.
FFO for 2020 increased 21.1% to $43,789, compared to $36,148 in 2019. The increase was primarily due to the
properties acquired during and subsequent to 2019, together with contractual rent increases. FFO per Unit (diluted) was
$0.910 in 2020, compared to $0.997 in 2019. The decline in FFO per Unit (diluted) in 2020 was partially attributable to
the deleveraging and enhancing of the REIT’s liquidity position as a result of the December 2019 Equity Offering. A
portion of the proceeds of the December 2019 Equity Offering were used to fund the acquisitions of Regina BMW and
Acura North Vancouver, which closed on February 5 and February 6, 2020, respectively.
In Q4 2020, AFFO increased 25.6% to $10,333, compared to $8,227 in Q4 2019. AFFO per Unit (diluted) was $0.214
in Q4 2020, compared to $0.202 in Q4 2019. Cash NOI in Q4 2020 was $15,486 on $19,091 of revenue, compared to
Cash NOI of $14,301 on revenue of $18,122 in Q4 2019. The increases were primarily due to the properties acquired
during and subsequent to Q4 2019, together with contractual rent increases.
AFFO for 2020 increased 23.1% to $40,498, compared to $32,906 in 2019; and Cash NOI in 2020 was $60,400 on
$75,124 of rental revenue, compared to Cash NOI of $53,844 on rental revenue of $67,580 in 2019. The increases were
primarily due to the properties acquired during and subsequent to 2019, together with contractual rent increases partially
offset by bad debt expense. AFFO per Unit (diluted) was $0.841 in 2020, compared to $0.908 in 2019. The decline in
AFFO per Unit (diluted) in 2020 was partially attributable to the deleveraging and enhancing of the REIT’s liquidity
position as result of the December 2019 Equity Offering.
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Automotive Properties REIT 2020
For Q4 2020, the REIT declared and paid distributions to Unitholders of $9,574, or $0.201 per Unit (Q4 2019 – declared
$8,515 and paid $7,986), and for 2020 the REIT declared and paid distributions of $38,296, or $0.804 per Unit (2019 –
declared $29,794 and $28,729 paid). This resulted in an AFFO payout ratio of 93.9% in Q4 2020 (Q4 2019 – 99.6%)
and 95.6% in 2020 (2019 – 88.6%). The AFFO payout ratio was lower in Q4 2020 as a result of organic growth in NOI
and acquisitions made during and subsequent to Q4 2019. The AFFO payout ratio was higher in 2020 due to the
deleveraging and enhancing of the REIT’s liquidity position as a result of the December 2019 Equity Offering. The higher
payout ratio in 2020 also reflects the bad debt expense of $277 relating to a tenant receivable.
Same Property Cash Net Operating Income
Same property base rental revenue
Bad debt recovery (expense)
Land lease payments
Same Property Cash NOI
Bad debt expense (recovery)
Same Property Cash NOI
(excluding bad debt expense)
Three Months Ended
December 31,
2019
$13,902
—
(159)
2020
$14,072
51
(159)
$13,964
(51)
$13,913
$13,743
—
$13,743
Twelve Months Ended
December 31,
Variance
$170
51
—
$221
(51)
$170
2020
$51,477
(260)
(635)
$50,582
260
$50,842
2019 Variance
$664
(260)
(95)
$50,813
—
(540)
$50,273
—
$50,273
$309
260
$569
Excluding bad debt expense (recovery), Same Property Cash NOI increased 1.2% to $13,913 in Q4 2020 from $13,743
in Q4 2019, and 1.1% to $50,842 in 2020 from $50,273 in 2019. The increases are primarily a result of contractual rent
increases.
Reconciliation of Cash Flow from Operating Activities to ACFO
The REIT calculates its ACFO in accordance with the Real Property Association of Canada’s White Paper on Adjusted
Cash Flow from Operations (ACFO) for IFRS issued in February 2019. The REIT believes that ACFO provides useful
supplemental information to both management and investors in measuring the financial performance and financial
condition of the REIT. ACFO does not have a standardized meaning prescribed by IFRS and therefore may not be
comparable to similarly titled measures utilized by other publicly traded real estate investment trusts and should not be
considered as an alternative to other financial measures determined in accordance with IFRS (see “Non-IFRS Financial
Measures”). To date, the REIT has not incurred capital expenditure costs. The capital expenditure reserve of 0.5% of
base rent is based on the lease terms, assumed renewal retention rates, triple-net lease structure and management’s
best estimate of cost on a per square foot basis related to sustaining/maintaining existing space that the REIT may incur.
The calculation of ACFO and the reconciliation to cash flow from operating activities are set out in the table below:
($000s)
Cash flow from operating activities
Change in non-cash working capital
Interest paid
Amortization of financing fees
Amortization of indemnification fees
Net interest expense and other financing charges
in excess of interest paid
Capital expenditure reserve
ACFO
ACFO payout ratio
Three Months Ended
December 31,
2019
$9,668
3,480
(3,995)
(128)
(41)
2020
$17,180
350
(3,845)
(114)
(60)
Twelve Months Ended
December 31,
2019
$52,186
(762)
(15,969)
(642)
(154)
2020
$57,168
(610)
(14,876)
(543)
(183)
Variance
$7,512
(3,130)
150
14
(19)
8
(84)
92
(311)
(337)
(78)
$13,441
71.2%
(72)
$8,828
96.5%
(6)
$4,613
(25.3)%
(307)
$40,338
94.9%
(272)
$34,050
87.5%
Variance
$4,982
152
1,093
99
(29)
26
(35)
$6,288
7.4%
ACFO increased to $13,441 in Q4 2020, from $8,828 in Q4 2019, primarily due to the collections of tenant rent deferrals
pursuant to the Deferral Agreements in Q4 2020, properties acquired during and subsequent to Q4 2019 and contractual
rent increases. This resulted in an ACFO payout ratio of 71.2% in Q4 2020 (Q4 2019 – 96.5%).
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
ACFO increased to $40,338 in 2020, compared to $34,050 in 2019, primarily due to properties acquired during and
subsequent to 2019 and contractual rent increases. This resulted in an ACFO payout ratio of 94.9% in 2020 (2019 –
87.5%). The increased ACFO payout ratio for 2020 compared to 2019 was primarily due to $2,301 of rent deferrals
pursuant to the Deferral Agreements in Q4 2020.
The REIT’s 2020 distributions were funded from cash flows from operating activities as well as cash on hand. The REIT
believes that future distributions will be funded through cash flows from operating activities. As at December 31, 2020,
the REIT is in a strong liquidity position with a Debt to GBV ratio of 43.2%, $59,400 of undrawn capacity under its Credit
Facilities and nine unencumbered properties with an aggregate value of approximately $150,490. As at the date of this
MD&A, the REIT had 10 unencumbered properties with an aggregate value of approximately $165,290.
SECTION 7 – LIQUIDITY AND CAPITAL RESOURCES
Capital Structure
Hedged
Term
(yrs)
2.0 to
10.0
2.5 to
8.5
5.0 to
7.9
Interest
Rate
BA + 150
bps, Prime
+25 bps
BA + 150
bps, Prime
+25 bps
BA + 150
bps, Prime
+50 bps
Term (yrs)
2.5 (1)
3.5 (2)
2.9 (3)
0.1(4) to
6.5
(1)
(2)
(3)
n/a
Fixed 3.22%
to 3.72 %
P&I, 20 yrs and
25yrs
Key Terms
Payments &
Interest/Amortization
Effective
Interest Rate
(fixed)
Outstanding as at
December 31,
2020
Outstanding as at
December 31,
2019
3.73%
$202,086(5)
$194,665
3.52%
95,403
99,913
4.05%
3.52%
85,500
90,250
14,905
15,471
$397,894
$400,299
(1,864)
(2,371)
2.9
5.9
3.76%
$396,030
$397,929
Debt
Facility 1
Facility 2
Facility 3
Mortgages
Financing fees
Weighted Average
/Total
Class B LP Units, DUs and IDUs
Cash Balance
$110,848
$123,935
$308
$45,266
Key Financing Metrics and Debt
Covenants (6)(7)
Debt
Covenant
Declaration of Trust
(8)
As at December
31, 2020
As at December
31, 2019
Interest coverage
Debt to GBV
Unitholders’ Equity (including
Class B LP Units, DUs and IDUs)
Debt Service Coverage
AFFO payout ratio
-
-
<60% (9)
<60% (9)
>$120,000
>1.35
(10) (11) (12)
-
-
-
(1) Facility 1 and the associated revolving facility matures in June 2023.
(2) Facility 2 and the associated revolving facility matures in June 2024.
(3) Facility 3 and the associated revolving facility matures in December 2023.
3.6
43.2%
2.9
43.6%
$502,097
$518,527
1.8
95.6%
1.6
88.6%
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
In January 2021, the REIT renewed a Mortgage in the amount of approximately $5,791 for a term of 7 years at an interest rate of 2.21%.
(4)
(5) $18,414 of the non-revolving balance of Facility 1 remains at floating rates (2019 – $19,206).
(6) The calculations of these ratios, which are non-IFRS measures, are set out under “Financing Metrics and Debt Covenants” below.
(7) The debt agreements for Facility 1, Facility 2 and Facility 3 have other covenants that do not directly relate to the REIT’s consolidated financial position.
Management believes that the REIT is in compliance with all such covenants and with the debt agreement covenants for Facility 1, Facility 2, Facility 3 and the
Mortgages.
(8) The Declaration of Trust contains other operating covenants that do not relate to leverage or debt service/coverage. The Declaration of Trust is available on
www.sedar.com and is described in the AIF. Management believes that the REIT is in compliance with these operating covenants.
Including convertible debentures, the maximum ratio is 65%.
(9)
(10) The AFFO payout ratio in respect of Facility 1 may exceed 100% so long as (i) the REIT’s Debt to GBV ratio is less than 55% or (ii) the REIT’s 12 month
retrospective rolling AFFO payout ratio is less than 100%.
(11) The AFFO payout ratio in respect of Facility 2 may exceed 100% (four quarter rolling) during the period from April 1, 2020 to September 30, 2021, subject to a
maximum AFFO payout ratio of 110%.
(12) The AFFO payout ratio in respect of Facility 3 may exceed 100% (four quarter rolling) so long as (i) the REIT’s Debt to GBV ratio is less than 55% and (ii) the
REIT’s cash on hand plus the cumulative amount available to be drawn under the revolving Credit Facilities exceeds $17,000.
Facility 1, Facility 2 and Facility 3 described above are collectively referred to as the “Credit Facilities” and the mortgages
described above are referred to as the “Mortgages”.
The Credit Facilities’ AFFO payout ratio covenant was adjusted during 2020 to permit the REIT to exceed 100% to
manage any potential further risk associated from the impact of COVID-19. The REIT would have been in compliance
with the AFFO payout ratio throughout 2020 without the covenant modifications. The AFFO payout ratio debt covenant
is based on the rolling average of the last four fiscal quarters. For the year ended December 31, 2020, the AFFO payout
ratio was approximately 95.6%.
In order to maintain or adjust its capital structure, the REIT may increase or decrease the amount of distributions paid
to Unitholders, issue new REIT Units and debt, or repay debt. Factors affecting such decisions include:
complying with the guidelines set out in the REIT’s Declaration of Trust;
complying with debt covenants;
ensuring sufficient liquidity is available to support the REIT’s financial obligations and to execute its operating
and strategic plans;
maintaining financial capacity and flexibility through access to capital to support future development; and
minimizing the REIT’s cost of capital while taking into consideration current and future industry, market and
economic risks and conditions.
Principal repayments are as follows:
2021 ......................................................................................................................................
2022 ......................................................................................................................................
2023 ......................................................................................................................................
2024 ......................................................................................................................................
2025 ......................................................................................................................................
Thereafter ..............................................................................................................................
$23,750
18,156
275,859
72,205
327
7,597
Total ......................................................................................................................................
$397,894
The REIT’s liquidity position as at December 31, 2020 includes approximately $59,400 of undrawn capacity under its
revolving Credit Facilities, which management believes is sufficient to carry out its obligations, discharge liabilities as
they come due and fund distributions to Unitholders. Capital requirements in the next two years are low and capital
expenditure requirements are expected to be insignificant. Nonetheless, the current economic, operating and capital
market environment resulting from the COVID-19 pandemic has led to an increased emphasis on liquidity. While the
REIT has not changed its objectives in managing its capital structure, the current focus has been on ensuring that the
REIT retains sufficient liquidity.
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
Capital required for investing activities will be addressed through additional borrowings or issuances of equity as
acquisition and development opportunities arise. On January 11, 2021, The REIT renewed a Mortgage in the amount of
approximately $5,791 for a term of seven years at an interest rate of 2.21%. As at December 31, 2020, nine of the
REIT’s properties are unencumbered and can be used as security in respect of future financing requirements, as and
when needed. As at the date of this MD&A, the REIT had 10 unencumbered properties with an aggregate value of
approximately $165,290.
Debt Financing
The REIT’s overall borrowing policy is to obtain secured credit facilities, principally on a fixed rate or effectively fixed
rate basis, which will allow the REIT to: (i) achieve and maintain staggered maturities to lessen exposure to re-financing
risk in any particular period; (ii) achieve and maintain fixed rates to lessen exposure to interest rate fluctuations; and
(iii) extend loan terms and fixed rate periods as long as possible when borrowing conditions are favourable. Subject to
market conditions and the growth of the REIT, management currently intends to target Indebtedness of approximately
50%-55% of GBV. As at December 31, 2020, the REIT’s Debt to GBV ratio was 43.2% (2019 – 43.6%). The reduction
as compared to December 31, 2019 is attributable to the repayment of outstanding debt under the REIT’s revolving
Credit Facilities from the net proceeds of the REIT’s June 2019 equity offering and the December 2019 Equity Offering
(collectively, the “2019 Equity Offerings”) and the increase in the REIT’s assets through acquisitions funded by the 2019
Equity Offerings. Management expects that the ratio of Debt to GBV may increase, at least temporarily, following an
acquisition by the REIT of one or more additional properties. Interest rates and loan maturities will be reviewed on a
regular basis to ensure appropriate debt management strategies are implemented.
Pursuant to the Declaration of Trust, the REIT may not incur or assume any Indebtedness, if after giving effect to the
incurring or assumption of such Indebtedness, the total Indebtedness of the REIT would exceed 60% of GBV (or 65%
of GBV including convertible debentures).
Secured Credit Facilities, Mortgages and Interest Rate Swap Arrangements
All of the REIT’s Credit Facilities and Mortgages are with Canadian Schedule 1 banks and are secured by all but nine
of the REIT’s investment properties (10 as of the date of this MD&A).
As at December 31, 2020, the REIT had total revolving Credit Facilities of $75,000, of which $59,400 was undrawn
($14,400 in Facility 1, $15,000 in Facility 2, and $30,000 in Facility 3).
Financing Fees
During 2020, the REIT incurred financing fees of $36 (2019 – $407). The amounts are accounted for using the effective
interest method, $1,864 remains unamortized at December 31, 2020 (2019 – $2,371).
Interest Rate Swaps
The REIT enters into interest rate derivative contracts to limit its exposure to fluctuations in the interest rates payable
on its variable rate financings under Facility 1, Facility 2 and Facility 3. Gains or losses arising from changes in the fair
value of the interest rate derivative contracts are recognized in the consolidated statements of income (loss) and
comprehensive income (loss). On December 17, 2020, the REIT blended and extended the maturity of two of its interest
rate swaps under Facility 1 in the amount of approximately $26,418 for a term of 10 years and extended the maturity of
one of its interest rate swaps under Facility 2 in the amount of approximately $10,431 for a term of 10 years.
As a result of the above, the REIT’s weighted average interest rate swap term as of December 31, 2020 is 5.9 years.
The following table sets out the combined borrowings under Facility 1, Facility 2 and Facility 3 and the remaining
expected term to maturity of the related interest rate swaps as at December 31, 2020.
Automotive Properties REIT 2020
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25
Automotive Properties REIT 2020
Remaining
Term (yrs)
Amount
($000s)
2.4 45,701
4.2
5.1
8.4
5.9
84,739
72,830
145,704
348,974
Total Swapped
Fixed Rate Debt
(%)
13.1
24.3
20.9
41.7
100.0
As at December 31, 2020, the notional principal amount of the interest rate swaps was $349,000 (December 31, 2019
– $365,600) and the fair value adjustment of the interest rate swaps was $(17,832) (December 31, 2019 – $(3,902)).
This resulted in a liability balance of $22,847 (December 31, 2019 – $5,016).
Unitholders’ Equity (including Class B LP Units)
Unitholders’ equity consists of two classes of Units described below:
REIT Units
The REIT is authorized to issue an unlimited number of REIT Units.
Each REIT Unit is transferable and represents an equal, undivided beneficial interest in the REIT and any distributions
from the REIT. All REIT Units rank equally among themselves without discrimination, preference or priority and entitle
the holder thereof to receive notice of, to attend and to one vote at all meetings of holders of REIT Units and holders of
Special Voting Units (as defined below) or in respect of any written resolution thereof.
Holders of REIT Units are entitled to receive distributions from the REIT if, as and when declared by the Board of
Trustees (the “Board”). Upon the termination or winding up of the REIT, holders of REIT Units will participate equally
with respect to the distribution of the remaining assets of the REIT after payment of all liabilities. Such distribution may
be made in cash, as a distribution in kind, or both, all as the Board in its sole discretion may determine. REIT Units have
no associated conversion or retraction rights. No person is entitled, as a matter of right, to any pre-emptive right to
subscribe for or acquire any REIT Units, except for Dilawri as set out in the Exchange Agreement entered into on closing
of the IPO between the REIT and certain members of the Dilawri Group, pursuant to which such members of the Dilawri
Group have been granted, among other things, certain rights to participate in future offerings of the REIT.
As at December 31, 2020, the total number of REIT Units outstanding was 37,697,052 (39,066,154 as of the date of this
MD&A).
Class B LP Units
In conjunction with the IPO, and as partial consideration for the Initial Properties, the REIT, through the Partnership,
issued Class B LP Units to certain members of the Dilawri Group. The Class B LP Units are economically equivalent to
REIT Units, and are exchangeable at the option of the holder for REIT Units on a one-for-one basis (subject to certain
anti-dilution adjustments), are accompanied by a special voting unit (a “Special Voting Unit”) (which provides the holder
with that number of votes at any meeting of holders of REIT Units to which a holder of the number of REIT Units that
may be obtained upon the exchange of the Class B LP Unit to which such Special Voting Unit is attached would be
entitled), and will receive distributions of cash from the Partnership equal to the distributions to which a holder of the
number of REIT Units that may be obtained upon the exchange of the Class B LP Unit to which such Special Voting
Unit is attached would be entitled. Under IFRS, the Class B LP Units are classified as financial liabilities and measured
at fair value through profit and loss (FVTPL). The fair value of the Class B LP Units will be measured every period by
reference to the traded value of the REIT Units, with changes in measurement recorded in net income (loss) and
comprehensive income (loss). Distributions on the Class B LP Units will be recorded in interest expense and other
financing charges in the period in which they become payable.
Automotive Properties REIT 2020
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26
Automotive Properties REIT 2020
As at December 31, 2020, the total number of Class B LP Units outstanding was 9,933,253.
Deferred Units
The REIT offers an Equity Incentive Plan, pursuant to which DUs may be granted to Trustees, officers and employees
of the REIT on a discretionary basis by the Governance, Compensation and Nominating Committee of the Board. The
maximum number of REIT Units available for issuance under the Plan is 1,000,000. Each DU is economically equivalent
to one REIT Unit, however, under no circumstances shall DUs be considered REIT Units nor entitle a participant to any
rights as a Unitholder, including, without limitation, voting rights or rights on liquidation. Each DU shall receive a
distribution of additional IDUs equal to the amount of distributions paid per REIT Unit by the REIT on its REIT Units. Upon
vesting of the DUs and IDUs, a participant may elect, prior to the expiry of such DU or IDU, to exchange such vested
DUs and IDUs (subject to satisfaction of any applicable withholding taxes) whereby the REIT will issue to the participant
an equal number of REIT Units in exchange for the DUs and IDUs. The holder of such DUs and IDUs cannot settle such
DUs and IDUs for cash.
Following the Internalization, DUs awarded under the Equity Incentive Plan will vest over time and are subject to the
achievement of performance vesting conditions, which may include but are not limited to, financial or operational
performance of the REIT, total unitholder return or individual performance criteria, measured over a performance period.
During the year ended December 31, 2020, a total of 187,552 DUs, and IDUs were granted (2019 – 232,953), of which
53,781 DUs and IDUs will be accounted for in accordance with the vesting schedule (2019 – 100,999). As at December
31, 2020, a total of 586,123 DUs and IDUs have been granted (2019 – 398,571), of which 416,261 were accounted as
outstanding and vested (2019 – 267,187).
Distributions
Holders of REIT Units are entitled to receive distributions from the REIT (whether of net income, net realized capital
gains or other amounts) if, as and when declared by the Board. Upon the termination or winding-up of the REIT, holders
of REIT Units will participate equally with respect to the distribution of the remaining assets of the REIT after payment
of all liabilities. Such distribution may be made in cash, as a distribution in kind, or both, all as the Board in its sole
discretion may determine. REIT Units have no associated conversion or retraction rights.
In determining the amount of the monthly cash distributions paid to holders of REIT Units, the Board applies discretionary
judgment to forward-looking information, which includes forecasts, budgets and many other factors including provisions
in the Declaration of Trust, the macro-economic and industry-specific environment, debt maturities and covenants and
taxable income. The REIT is currently paying monthly cash distributions to Unitholders of $0.067 per Unit, representing
$0.804 per Unit on an annualized basis.
The Board regularly reviews the REIT’s rate of distributions to ensure an appropriate level of cash distributions.
Net income prepared in accordance with IFRS recognizes certain revenues and expenses at time intervals that do not
match the receipt or payment of cash. Therefore, in applying judgment, consideration is given to AFFO (which is the
product of the earnings performance) and other factors when establishing cash distributions to holders of REIT Units.
Financing Metrics and Debt Covenants
The calculations of financial metrics and debt covenants are set out in the table below:
Calculations of financial metrics and debt covenants
Net Asset Value
Investment properties, IFRS value
Cash, accounts receivable and other assets
Accounts payable and accrued liabilities
Credit Facilities, Mortgages and interest rate swaps
As at December 31,
2020
As at December 31,
2019
$932,229
4,123
(15,378)
(418,877)
$888,129
47,604
(14,261)
(402,945)
Automotive Properties REIT 2020
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27
Automotive Properties REIT 2020
Total Net Asset Value
Total Net Asset Value excluding interest rate swaps
REIT Units and Class B LP Units outstanding
$502,097
$524,944
47,630,305
$518,527
$523,543
47,630,305
Debt to GBV
Indebtedness outstanding:
Credit Facilities & Mortgages (excludes deferred financing costs)
Lease Liability
Gross Book Value
Total assets
Debt to GBV (1)
Unitholders’ Equity & Class B LP Units & DUs & IDUs
Unitholders’ Equity
Value of DUs & IDUs
Value of Class B LP Units
Total Unitholders’ Equity & Class B LP Units & DUs & IDUs
Calculations of financial metrics and debt covenants
Interest coverage
Cash NOI
General and administrative expenses
Income before interest expense and fair value adjustments C
Interest expense and other financing charges
D
A
A1
B
$397,894
6,990
$400,300
7,356
936,352
935,733
((A+A1)/B) X 100
43.2%
43.6%
$391,249
4,463
106,385
$502,097
$394,592
3,246
120,689
$518,527
Q4 2020
$15,486
(1,213)
14,273
3,951
Q4 2019
2020
2019
$14,301
$60,400
$53,844
(1,887)
12,414
4,207
(4,223)
56,177
15,730
(4,090)
49,754
16,948
Interest Coverage Ratio (2)
C/D
3.6X
3.0X
3.6X
2.9X
Debt Service Coverage
Consolidated net income (loss)
Interest expense and other financing charges
Distribution expense on Class B LP Units
Amortization of other assets
Fair value adjustments, net
EBITDA
Principal payments on debt
Interest payments on debt (excludes bank charges)
Debt Service
Debt Service Ratio (3)
AFFO payout ratio
AFFO
Distributions on REIT Units
Distributions on Class B LP Units
$30,180
$3,894
3,951
1,997
60
(20,870)
15,318
4,420
3,845
8,265
4,207
1,997
41
3,159
13,298
4,512
3,953
8,465
$26,965
15,730
7,988
183
9,113
59,979
18,005
14,876
32,881
$(4,499)
16,948
7,988
154
32,827
53,418
17,483
15,927
33,410
E
F
E/F
1.9X
1.6X
1.8X
1.6X
10,333
7,577
1,997
9,574
8,227
5,989
1,997
7,986
40,498
30,308
7,988
38,296
32,906
20,741
7,988
28,729
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
AFFO payout ratio (4)
93.9%
99.6%
95.6%
88.6%
Notes:
(1)
(2)
(3)
(4)
The Debt to GBV ratio as at December 31, 2020 decreased as compared to December 31, 2019, primarily attributable to the repayment of outstanding debt under the REIT’s revolving
Credit Facilities from the net proceeds of the 2019 Equity Offerings and the increase in the REIT’s assets through acquisitions funded by the 2019 Equity Offerings.
The Interest Coverage Ratio for Q4 2020 and 2020 increased compared to the same periods in the previous year, mainly due to the increase in Cash NOI resulting from the acquisitions of
properties funded with the 2019 Equity Offerings.
The Debt Service Ratio for Q4 2020 and 2020 increased compared to the same periods in the previous year, mainly due to the decrease in interest payments and an increase in EBITDA.
The AFFO payout ratio is calculated as distributions per REIT Unit divided by the AFFO per Unit - diluted.
SECTION 8 – RELATED PARTY TRANSACTIONS
The REIT’s largest Unitholder and lead tenant is the Dilawri Group, which as at December 31, 2020 held an approximate
26.0% (2019 –25.6%) effective interest in the REIT on a fully diluted basis, through its ownership of all of the issued and
outstanding Class B LP Units and 2,458,452 REIT Units. As of the date of this MD&A, Dilawri’s effective interest in the
REIT is approximately 28.1% through ownership of 3,827,554 Units and all of the Class B LP Units.
In the normal course of its operations, the REIT enters into various transactions with related parties and the REIT’s
policy is to conduct all transactions and settle all balances with related parties on market terms and conditions and in
accordance with the Related Party Transaction Policy adopted by the Board and the Declaration of Trust.
In consideration of the applicable Dilawri Tenants leasing the entirety of two of the Initial Properties with third-party
tenants (and thereby bearing occupancy, rental and other risks associated with the portions of those properties to be
subleased to third party tenants for the initial lease terms of 12 and 15 years for those properties), the REIT paid to such
Dilawri Tenants an indemnity fee in the aggregate amount of $1,000 at the time of closing of the IPO (amortizable over
the term of the leases).
In addition, on October 24, 2017, Dilawri paid the REIT $896 in respect of the recoverable land transfer tax associated
with the acquisition of the Initial Properties. The REIT subsequently issued letters of credit to the land transfer tax
authority in the amount of approximately $753 to defer the land transfer tax, on behalf of specific members of the Dilawri
Group that sold certain of the Initial Properties to the REIT in connection with the IPO. The Dilawri Group held all of the
9,933,253 issued and outstanding Class B LP Units for three years subsequent to the IPO and, accordingly, the LCs
are expected to be released. The REIT is working with the applicable tax authorities and Dilawri to secure the release
of the LCs.
For additional information on related party agreements and arrangements with Dilawri, please refer to the REIT’s AIF,
which can be found on SEDAR at www.sedar.com and on the REIT’s website www.automotivepropertiesreit.ca.
Administration Agreement
On December 3, 2019, the REIT announced that the Independent Trustees had notified Dilawri of the REIT’s intention
to terminate the Administration Agreement, which termination was effective as of December 31, 2019. Following
termination, the REIT’s management, operating and administrative support personnel were employed directly by the
REIT. As the termination of the Administration Agreement was completed in accordance with its terms, the REIT was
not required to pay Dilawri any termination fees.
Subject to certain exceptions, Dilawri provided administration services to the REIT under the Administration Agreement
on a cost-recovery basis, reflecting Dilawri’s actual costs in providing such services. The REIT was responsible for
reimbursing Dilawri for costs incurred in connection with the provision of such services so long as such costs were
identified in the then current annual budget of the REIT or were otherwise approved by the REIT.
Following termination of the Administration Agreement, limited transition services continued to be provided between the
REIT and Dilawri on a reimbursement of cost basis for a limited period of time following termination, and the Strategic
Alliance Agreement continues in effect in accordance with its terms (see “Strategic Alliance Agreement” below).
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
General and administrative expenses for Q4 2019 and 2019 include $266 and $1,050, respectively, paid by the REIT to
Dilawri pursuant to the Administration Agreement (Q4 2020 and 2020 – $nil).
Strategic Alliance Agreement
In connection with the IPO, the REIT and Dilawri entered into the Strategic Alliance Agreement which establishes a
preferential and mutually beneficial business and operating relationship between the REIT and the Dilawri Group. The
Strategic Alliance agreement will be in effect so long as the Dilawri Organization and the applicable transferors of the
Initial Properties own, control or direct, in the aggregate, an effective interest of at least 10% (on a fully-diluted basis) in
the REIT. Among other things, the Strategic Alliance Agreement provides the REIT with the first right to purchase REIT-
Suitable Properties (as defined in the Strategic Alliance Agreement) in Canada or the United States acquired or
developed by the Dilawri Group. The purchase price in respect of a REIT-Suitable Property will be mutually agreed by
the REIT and Dilawri at the applicable time and supported by an independent appraisal report. Pursuant to the Strategic
Alliance Agreement, the REIT acquired the following investment properties in 2019, 2020 and 2021:
On March 1, 2021, the REIT acquired the Lexus Laval automotive dealership property from a member of the Dilawri
Group for $14,800 and leased it to a Dilawri Tenant.
On February 6, 2020, the REIT acquired the Acura North Vancouver automotive dealership property from a member
of the Dilawri Group for $17,500 and leased it to a Dilawri Tenant.
On February 5, 2020, the REIT acquired the Regina BMW automotive dealership property from a member of the
Dilawri Group for $11,350 and leased it to a Dilawri Tenant.
On September 19, 2019, the REIT acquired the Audi Queensway automotive dealership property from a member of
the Dilawri Group for approximately $36,500 and leased it to a Dilawri Tenant.
SECTION 9 − OUTLOOK
As a result of the COVID-19 pandemic, provinces across Canada began implementing emergency measures to combat
the spread of COVID-19 in the second half of March 2020, resulting in the full or partial closure of automotive dealerships
until the end of May 2020. By the end of May 2020, all of the REIT’s tenants were fully open for business. However,
partial closures were reinstated for automotive dealerships in some parts of Canada in November 2020 and continue to
the date of this MD&A. According to Statistics Canada new automobile sales per unit in Canada for the year ended
December 31, 2020 were down approximately 20.0% compared to the corresponding period in 2019. Industry analysts
have stated that Canadian automobile retail sales were down by 13.4% in January and February 2021 when compared
to January and February 2020, as a result of tight lockdowns which restricted activity across the country. The automotive
dealerships have been provided with support from original equipment manufacturers, financial institutions, governments
and rent deferral programs. The Canadian federal and provincial governments have reacted with significant intervention
programs designed to stabilize economic conditions. As provincial COVID-19 related restrictions ease, the pent-up
consumer demand is expected to result in an increase in Canadian auto sales and service work performed by the
automotive dealerships. The length and severity of the pandemic, and the related impact on the financial performance
and financial position of the REIT and its tenants in future periods, including as a result of additional restrictions
implemented in Q4 2020, is unknown at this time.
The Canadian automotive retail industry is a large sector within the overall economy, with an historical track record of
long-term stability. According to Statistics Canada, overall automotive retail industry sales totaled a record $151 billion
in 2020 and represented approximately 25% of Canada’s overall retail sales of products and merchandise. Over the last
20 years, Canadian automobile retail sales grew at a compound annual rate of 3.6%. The REIT believes that the long-
term fundamentals of the automotive dealership business have not changed, and that the industry should continue to
stabilize as the COVID-19 pandemic is brought under control. At the date of this MD&A, the REIT has collected 100%
of its expected January to March 2021 contractual base rent under the leases and contractual base rent that is subject
to the Deferral Agreements. No additional rent deferrals have been requested by the REIT’s tenant.
The REIT intends to pursue acquisitions on a strategic basis and will generally fund any transactions through debt
financing and available liquidity. In considering potential acquisitions, diversification of automobile brand and geographic
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location remain important criteria for the REIT, as some automotive brands continue to gain market share while other
brands are experiencing sales deterioration, and certain markets present a more favourable economic outlook.
As the only publicly traded Canadian real estate entity focused on owning automotive dealership properties, the REIT
provides a unique opportunity for automotive dealership owners to monetize the real estate underlying their dealerships
while retaining ownership and control of their core automotive dealership businesses. This provides dealership owners
with liquidity to advance their individual strategic objectives, whether it be succession planning, directly investing in
upgrading their dealerships, or facilitating acquisitions in this period of industry consolidation. The Canadian automotive
dealership industry is highly fragmented, and the REIT expects continued consolidation over the mid to long term due
to increased industry sophistication and growing capital requirements for owner operators, which encourages them to
pursue increased economies of scale. For 2021, the REIT currently expects that the pace of industry consolidation may
decrease due to the COVID-19 pandemic and the related economic uncertainty. The REIT is focused on preserving its
strong liquidity position in this current environment.
As at December 31, 2020, the REIT is in a strong liquidity position with a Debt to GBV ratio of 43.2%, $59,400 of undrawn
capacity under its Credit Facilities and nine unencumbered properties with an aggregate value of approximately
$150,490. As at the date of this MD&A, the REIT has 10 unencumbered properties with an aggregate value of
approximately $165,290.
The past year has seen unusual volatility in the financial markets and it is premature for management to quantify the
impact that COVID-19 will have on the cost and availability of debt and equity capital to the REIT. Management and the
Trustees are closely monitoring the impact of the COVID-19 pandemic on the REIT’s business and the business of the
REIT’s tenants and will continue to prudently manage the REIT’s available resources during this period of economic
uncertainty. Management has also proactively raised its level of preparedness planning to adapt more quickly should
risk levels rise and will continue to monitor and adjust its business continuity and other plans as the COVID-19 pandemic
continues to evolve.
SECTION 10 – OTHER DISCLOSURES
Commitments and Contingencies
The REIT, as lessee, is committed under long term land and other leases that are classified as a liability to make lease
payments with minimum annual rental commitments as follows:
Within 1 year .................................................................................................................................................
After 1 year, but not more than 5 years ........................................................................................................
More than 5 years .........................................................................................................................................
$388
2,038
4,564
Total ..............................................................................................................................................................
$6,990
Disclosure Controls and Internal Controls over Financial Reporting
The REIT’s certifying officers have designed a system of disclosure controls and procedures (“DC&P”) to provide
reasonable assurance that (i) material information relating to the REIT, including its consolidated subsidiaries, is made
known to them by others; and (ii) information required to be disclosed by the REIT in its annual filings, interim filings and
other reports filed or submitted by the REIT under securities legislation is recorded, processed, summarized and reported
within the time periods specified in securities legislation. Also, the REIT’s certifying officers have designed a system of
internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS.
The REIT has used the Internal Control – Integrated Framework (2013) from The Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in order to assess the effectiveness of the REIT’s ICFR.
Management has evaluated, or caused to be evaluated, the REIT’s ICFR and DC&P and has determined that the design
and operation of the REIT’s ICFR and DC&P were effective as at December 31, 2020. There have been no changes to
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the REIT’s ICFR during Q4 2020 and the year ended December 31, 2020, that have materially affected, or are
reasonably likely to materially affect, the REIT’s ICFR.
Management does recognize that any controls and procedures no matter how well designed and operated, can only
provide reasonable assurance and not absolute assurance of achieving the desired control objectives. In the unforeseen
event that lapses in the disclosure or internal controls and procedures occur and/or mistakes happen, the REIT intends
to take whatever steps are necessary to minimize the consequences thereof.
Consistent with National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings, the REIT
has filed certificates on Form 52-109F1.
SECTION 11 – QUARTERLY RESULTS OF OPERATIONS
The following is a summary of selected consolidated financial information for each of the eight most recently completed
quarters:
($ thousands except where otherwise
indicated)
Number of Properties
GLA (sq. ft.)
Rental revenue
Net Operating Income
Net Income (Loss)
Net Income (Loss) per Unit — basic(ii)
Net Income (Loss) per Unit —
diluted(iii)
FFO per Unit — basic(iv)
FFO per Unit — diluted(v)
AFFO per Unit — basic(iv)
AFFO per Unit — diluted(v)
AFFO payout ratio
Distribution declared per Unit
Weighted average Units — basic
Weighted average Units — diluted
Market price per REIT Unit — close
(end of period)
Total assets
Debt to GBV
Debt service coverage
Notes:
Fourth
Quarter
2020
65
Third
Quarter
2020
65(i)
Second
Quarter
2020
First
Quarter
2020
Fourth
Quarter
2019
Third
Quarter
2019
Second
Quarter
2019
First
Quarter
2019
64
64
62
61
60
57
2,494,476
2,494,476
2,367,080
2,367,080
2,325,088
2,296,780
2,231,233
2,139,512
19,091
16,471
30,180
0.634
0.626
0.236
0.233
0.217
0.214
93.9%
0.201
47,630,305
48,203,686
$10.71
936,352
43.2%
1.8X
18,627
16,168
4,395
0.092
0.091
0.234
0.231
0.217
0.215
93.5%
0.201
18,800
18,606
18,122
17,349
16,425
15,684
15,586
(23,356)
(0.490)
(0.485)
0.224
0.222
0.207
0.205
98.0%
0.201
15,794
15,748
0.331
0.328
0.226
0.224
0.209
0.208
96.6%
0.201
15,144
14,667
13,972
13,571
3,894
0.096
0.096
0.222
0.220
0.203
0.202
99.6%
0.201
1,054
0.027
0.026
0.247
0.246
0.226
0.224
89.7%
0.201
8,436
(17,882)
0.264
(0.564)
0.262
(0.561)
0.274
0.272
0.248
0.247
81.4%
0.201
0.270
0.269
0.245
0.243
82.7%
0.201
47,630,305
47,630,305
47,630,305
40,502,680
39,729,805
31,993,541
31,729,805
48,167,267
48,129,963
48,032,420
40,767,092
39,981,885
32,238,171
31,898,661
$9.97
$9.26
$7.38
$12.15
$11.09
$10.33
$10.78
910,671
897,139
919,352
935,733
871,762
862,580
800,014
44.8%
1.8X
44.4%
44.9%
43.6%
49.6%
49.7%
56.3%
1.8X
1.8X
1.6X
1.6X
1.6X
1.6x
(i)
(ii)
(iii)
(iv)
(v)
Includes one development property.
Net Income (Loss) per Unit – basic is calculated in accordance with IFRS by dividing the Net Income (Loss) by the amount of the weighted average
number of outstanding REIT Units and Class B LP Units.
Net Income (Loss) per Unit – diluted is calculated in accordance with IFRS by dividing the Net Income (Loss) by the amount of the weighted average
number of outstanding REIT Units, Class B LP Units, DUs and IDUs granted as at December 31, 2020, to certain Trustees and management of the REIT.
The FFO and AFFO per Unit – basic is calculated by using the weighted average number of outstanding REIT Units and Class B LP Units. The FFO and
AFFO per Unit basic comparable numbers were adjusted in accordance with the Real Property Association of Canada’s White Paper on Funds from
Operations & Adjusted Funds from Operations for IFRS issued in February 2019.
The FFO and AFFO per Unit – diluted is calculated by using the weighted average number of outstanding REIT Units, Class B LP Units, DUs and IDUs
granted as at December 31, 2020 to certain Trustees and management of the REIT. The FFO and AFFO per Unit — diluted comparable numbers were
adjusted in accordance with the Real Property Association of Canada’s White Paper on Funds from Operations & Adjusted Funds from Operations for
IFRS issued in February 2019.
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The increase in rental revenue and NOI is primarily attributable to the thirty-nine property acquisitions completed since
the REIT’s IPO. The net income (loss) is also impacted by the fluctuations in fair value adjustments of Class B LP Units,
investment properties and interest rate swaps.
SECTION 12 – RISKS & UNCERTAINTIES, CRITICAL JUDGMENTS &
ESTIMATES
The following risks are a subset of the key risks that affect the REIT’s business and operations. They should be read in
conjunction with the full set of risks inherent in the REIT’s business, as included in the REIT’s Annual Information Form
for the year ended December 31, 2020.
COVID-19
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. COVID-19 has
had a significant adverse impact on trade and on local, national and global economies. Provincial governments across
Canada enacted emergency measures, commencing in the second half of March 2020, to combat the spread of COVID-
19, including the implementation of travel restrictions, self-imposed quarantine periods, temporary closures or
restrictions of non-essential businesses, limitations on public gatherings, and social distancing guidelines, many of which
continue in effect as of today. As a result of these measures, a number of the REIT’s tenants’ automotive dealership
businesses either temporarily closed or operated on a limited basis. Further, heightened public concerns regarding
COVID-19 resulted in delayed automotive purchasing or servicing decisions by consumers, which significantly impacted
automotive dealership operators (including those that were permitted to remain open, or partially open, in line with their
respective provincial government guidelines). By the end of May 2020, all of the REIT’s tenants were fully open for
business; however, partial closures were reinstated for automotive dealerships across Canada in November 2020 and
continue to the date of this MD&A.
Given the rapidly evolving circumstances surrounding COVID-19, it is not possible to predict with certainty the nature,
duration and extent of the COVID-19 pandemic and the impact it will have on the business and operations of the REIT
and the REIT’s tenants. The impact of the COVID-19 pandemic is highly dependent on ongoing and future
developments, which include, among other things, the actions required to contain or manage COVID-19’s impact and
the success of COVID-19 vaccination programs. In the long term, aspects of the REIT’s business and operations that
may be impacted by COVID-19 include rental income, occupancy, tenant inducements, future demand for the REIT’s
properties and market rents. The impact of COVID-19 may materially and adversely affect the REIT’s cash flows,
financial condition or results of operations and its ability to make cash distributions to Unitholders.
Furthermore, COVID-19 may affect the REIT’s automotive dealership tenants by disrupting supply chains and
transactional activities. The REIT’s automotive dealership tenants rely on third-party suppliers and manufacturers, many
of which are located outside of Canada. COVID-19 has resulted in, and may result in additional, extended shutdowns
of certain businesses, including automotive manufacturers, which may in turn result in disruptions, delays or reductions
to the REIT’s automotive dealership tenants’ supply of motor vehicles or replacement parts. These may include
disruptions from the temporary closure of third-party supplier and manufacturer facilities, interruptions in supply or
restrictions on the export or shipment of key automobile components, including those sourced from China or Europe.
COVID-19 may also negatively impact consumer demand for automobiles and motor vehicle consumer spending, which
may negatively impact the business of the REIT’s automotive dealership tenants. These factors may impact the REIT’s
automotive dealership tenants’ ability to meet their rental payments and other obligations due to the REIT, which could
have a material adverse effect on the REIT.
Risk Factors Related to the REIT’s Relationship with Dilawri
Significant Ownership by the Dilawri Organization
As at December 31, 2020, Dilawri had an approximate 26.0% effective interest in the REIT on a fully-diluted basis
through ownership, direction or control of all of the Class B LP Units and 2,458,452 REIT Units. Each Class B LP Unit
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has attached to it, a Special Voting Unit of the REIT, providing for voting rights in the REIT. As of the date hereof,
Dilawri’s effective interest in the REIT is approximately 28.1% through ownership of 3,827,554 REIT Units and all of the
Class B LP Units.
In addition, the Declaration of Trust grants Dilawri the right to nominate certain Trustees of the REIT based on the Dilawri
Organization’s direct and indirect interest in the REIT. For so long as the Dilawri Organization maintains a significant
effective interest in the REIT, the Dilawri Organization will have the ability to exercise certain influence with respect to
the affairs of the REIT and significantly affect the outcome of the votes of Unitholders and may have the ability to prevent
certain fundamental transactions.
As a result, the Dilawri Organization has the ability to influence many matters affecting the REIT. Accordingly, the REIT
Units may be less liquid and trade at a relative discount compared to such REIT Units in circumstances where the Dilawri
Organization did not have the ability to influence or determine matters affecting the REIT. Additionally, the Dilawri
Organization’s significant effective interest in the REIT may discourage transactions involving a change of control of the
REIT, including transactions in which an investor, as a holder of the REIT Units (a “REIT Unitholder”), might otherwise
receive a premium for its REIT Units over the then-current market price. Further, the Dilawri Organization’s significant
effective interest in the REIT may discourage competing bids if Dilawri or another member of the Dilawri Organization
bids for the REIT.
Pursuant to the Exchange Agreement, each Class B LP Unit is exchangeable at the option of the holder for one REIT
Unit (subject to customary anti-dilution adjustments). If the Dilawri Organization exchanges some or all of its Class B LP
Units for REIT Units and subsequently sells such REIT Units in the public market, the market price of the REIT Units
may decrease. Moreover, despite the fact that Dilawri has advised the REIT that the Dilawri Organization’s current
intention is to retain a significant interest in the REIT for the foreseeable future, the perception in the public market that
these sales will occur could also produce such an effect.
The Dilawri Group as Key Tenant
As of December 31, 2020, the REIT derives approximately 61.9% of its annual base minimum rent from the Dilawri
Group. Consequently, revenues will be dependent on the ability of the Dilawri Group to meet its rent obligations and the
REIT’s ability to collect rent from the Dilawri Group. If the Dilawri Group were to terminate its tenancies, default on or
cease to satisfy its payment obligations, it would have a material adverse effect on the REIT’s financial condition and
results of operations and its ability to make cash distributions to REIT Unitholders.
The REIT has entered into leases with the applicable members of the Dilawri Group in respect of each of the Initial
Properties, including the Third Party Tenant Portfolio, as well as the Toyota Woodland Property, the Audi Barrie Property,
the St. Bruno Audi & VW Property, the MB West Island Property, the VW Barrie Property, the Heritage Honda Property,
the Mazda Des Sources Property, the Country Hills VW Property, the Audi Queensway Property, the BMW Regina
Property and the Acura North Vancouver Property (collectively, the “Dilawri Properties”). Under such leases, Dilawri
provided an indemnity for the lease obligations of each other member of the Dilawri Group for the initial lease terms.
Consequently, the Dilawri Group will be the REIT’s most significant tenant for the foreseeable future, with members of
the Dilawri Group and sublease arrangements with the Dilawri Group occupying approximately 56.5% of the REIT’s GLA
with the remaining 43.5% the REIT’s GLA occupied by other dealership groups as at December 31, 2020.
The initial terms of the Dilawri Leases range from approximately 11 to 20 years, with a weighted average lease term as
at December 31, 2020 of approximately 11.3 years. Therefore, the REIT’s net income could also be materially adversely
affected in the event of a downturn in the business, or the bankruptcy or insolvency, of Dilawri or the Dilawri Group, as
the REIT’s largest tenant.
Acquisition of Future Properties from the Dilawri Group
The REIT’s ability to expand its asset base and increase AFFO per Unit through acquisitions will be significantly affected
by the REIT’s ability to leverage its relationship with the Dilawri Group to access opportunities to acquire additional
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properties that satisfy the REIT’s investment criteria, including pursuant to the Strategic Alliance Agreement. There can
be no assurance that the right of first offer granted to the REIT by Dilawri to acquire the Dilawri Group’s interests in its
properties will be exercised or that the Dilawri Group will dispose of interests in its properties. The inability of the REIT
to expand its asset base by virtue of its relationship with the Dilawri Group or pursuant to the rights of first offer may
have a material adverse effect on the REIT’s business, cash flows, financial condition and results of operations and its
ability to make cash distributions to REIT Unitholders.
Sale Provisions under the Strategic Alliance Agreement
Pursuant to the Strategic Alliance Agreement, the REIT has granted a right of first offer in favour of Dilawri in the event
that the REIT intends to sell or otherwise to dispose of any of its properties in which a member of the Dilawri Group is a
tenant or, where a member of the Dilawri Group is not a tenant, which the REIT acquired from a member of the Dilawri
Group or pursuant to the Strategic Alliance Agreement.
In the event that the REIT desires to sell or otherwise dispose of a property, the existence of this right of first offer in
favour of Dilawri could limit the number of purchasers of such property, make it more difficult to sell such property and/or
decrease the potential purchase price that could be obtained for such property, which, in turn, could have a material
adverse effect on the REIT. This right survives termination of the Strategic Alliance Agreement.
Potential Conflicts of Interest with Dilawri
Other than pursuant to the Strategic Alliance Agreement, Dilawri is not limited or restricted in any way from owning,
acquiring, constructing, developing or redeveloping properties, and may itself compete with the REIT in seeking tenants
and for the purchase, development and operation of desirable properties to be used as automotive dealerships.
Dilawri’s continuing business may lead to conflicts of interest between Dilawri and the REIT. In addition, the remaining
development and other services to be performed by Mr. Lamb for Dilawri may lead to conflicts of interest between Mr.
Lamb and Dilawri. The REIT may not be able to resolve any such conflicts and, even if it does, the resolution may be
less favourable to the REIT than if it were dealing with a party that was not a holder of a significant interest in the REIT.
The agreements that the REIT has entered into with the Dilawri Group to date may be amended upon agreement
between the parties, subject to applicable law and approval of the Trustees who are “independent” pursuant to National
Instrument 58-101 — Disclosure of Corporate Governance Practices. Because of the Dilawri Organization’s significant
holdings in the REIT, the REIT may not have the leverage to negotiate any required amendments to these agreements
on terms as favourable to the REIT as those the REIT could secure with a party that was not a significant effective REIT
Unitholder. There can be no assurance that actual or potential conflicts of interest will be resolved in favour of the REIT.
Assumption of Liabilities
The REIT will assume liabilities arising out of or related to the business, operations or assets acquired by the REIT and
has agreed to indemnify the vendors of the Initial Properties for, among other matters, such liabilities. The REIT may
assume unknown liabilities that could be significant. The allocation of value for assets and liabilities between the vendors
of the Initial Properties and the REIT may not reflect the allocation that would have been reached between the REIT and
a party that was not in a position to exercise significant influence over it.
Risk Factors Related to the Real Estate Industry and the Business of the REIT
Real Property Ownership and Tenant Risks
Real estate ownership is generally subject to numerous factors and risks, including changes in general economic
conditions (such as the availability, terms and cost of mortgage financing and other types of credit), local economic
conditions (such as an oversupply of properties or a reduction in demand for real estate in the area), the attractiveness
of properties to potential tenants or purchasers, competition with other landlords with similar available space, global
health conditions and the ability of the owner to provide adequate maintenance at competitive costs.
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There is no assurance that the operations of the REIT will be profitable or that cash from operations will be available to
make distributions to REIT Unitholders. Real estate, like many other types of long-term investments, experiences
significant fluctuation in value and, as a result, specific market conditions may result in occasional or permanent
reductions in the value of the REIT’s portfolio. The marketability and value of the REIT’s portfolio will depend on many
factors, including, without limitation: (i) changes in general economic conditions (such as the availability, terms and cost
of mortgage financing and other types of credit); (ii) local economic conditions (such as business layoffs, industry
slowdowns, changing demographics and other factors); (iii) local real estate conditions (such as an oversupply of
properties or a reduction in demand for real estate in the area); (iv) changes in occupancy rates; (v) the attractiveness
of properties to potential tenants or purchasers; (vi) competition with other landlords with similar available space; (vii)
the ability of the REIT to provide adequate maintenance at competitive costs; (viii) changes in exchange rates; (ix) the
promulgation and enforcement of governmental regulations relating to land-use and zoning restrictions, environmental
protection and occupational safety; (x) the financial condition of borrowers and of tenants, buyers and sellers of real
estate assets; (xi) changes in real estate tax rates and other operating expenses; (xii) the imposition of rent controls;
(xiii) energy and supply shortages; (xiv) various uninsured or uninsurable risks; and (xv) natural disasters. There can be
no assurance of profitable operations because the costs of operating the portfolio, including debt service, may exceed
gross rental income therefrom, particularly since certain expenses related to real estate, such as property taxes, utility
costs, maintenance costs and insurance, tend to increase even if there is a decrease in the REIT’s income from such
investments.
The Properties generate income through rent payments made by the Dilawri Group and other dealership groups. The
REIT depends on tenants who lease its properties to pay rent, maintain its properties and meet their other lease
obligations. All of the REIT’s properties rely on the Dilawri Group and dealership groups under a triple-net lease, which
subjects the REIT to additional risk related to the financial strength of the Dilawri Group and such dealership groups
relative to multi-tenant properties. Furthermore, as the Dilawri Group will head lease all of the premises currently
occupied by both the Dilawri Group and third party tenants at two properties, the Dilawri Group, not the REIT, will have
control over the re-leasing of such premises at these two properties. Upon the expiry of any lease, there can be no
assurance that the lease will be renewed or the tenant replaced for a number of reasons. Furthermore, the terms of any
subsequent lease may be less favourable than the existing lease. In addition, historical occupancy rates and rents are
not necessarily an accurate prediction of future occupancy rates for the REIT’s properties. The REIT’s cash flows and
financial position would be materially adversely affected if its tenants (and especially the Dilawri Group) were to become
unable to meet their obligations under their leases or if a significant amount of available space in the REIT’s properties
was not able to be leased on economically favourable lease terms.
The REIT also depends on the tenant to keep the property adequately insured. If the tenant does not have enough
insurance and there is a loss, the REIT could incur all or some of the cost to repair or replace the property. In addition,
if the tenant fails to pay real estate taxes when due, the REIT may be required to pay these taxes. If a tenant fails to pay
rent or perform any other obligation under the lease, the tenant could be in default under the lease. In the event of default
by a tenant, the REIT may experience delays or limitations in enforcing its rights as lessor and incur substantial costs in
protecting its investment. Any such process may be costly, time consuming and could divert the attention of management
from the day-to-day-business of the REIT. Further, the REIT may be unsuccessful in collecting the money that is owed
by a defaulting tenant. In addition, the Dilawri Leases may narrow the field of potential tenants at a property and could
contribute to difficulties in leasing space to new tenants. Furthermore, at any time, a tenant may seek the protection of
bankruptcy, insolvency or similar laws which could result in the rejection and termination of the lease of the tenant and
thereby cause a reduction in the REIT’s cash flows, financial condition or results of operations and its ability to make
cash distributions to REIT Unitholders.
The above list of ways in which the REIT depends on its tenants is not exhaustive. Other actions by the REIT’s tenants
could have an adverse effect on its cash flows, financial condition or results of operations and its ability to make cash
distributions to REIT Unitholders.
Asset Class and Manufacturer Diversification
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The REIT’s investments are not widely diversified by asset class. Substantially all of the REIT’s investments are in
automotive dealership properties.
A lack of asset class diversification increases risk because automotive dealership properties are subject to their own set
of risks, such as the risks associated with automotive manufacturers. Furthermore, Honda and Acura dealerships
collectively represent approximately 20.3% of the gross automotive dealership rent paid to the REIT in 2020 and
approximately 19.1% of the REIT’s GLA as at December 31, 2020. Volkswagen and Audi dealerships collectively
represent approximately 22.2% of the gross automotive dealership rent paid to the REIT in 2020 and approximately
19.8% of the REIT’s GLA as at December 31, 2020. Because Acura is a division of Honda and Audi is a division of
Volkswagen, any material adverse changes to the business of Honda and/or Volkswagen may adversely affect the ability
of the Dilawri Group to meet its rent obligations, which in turn may have a material adverse effect on the REIT.
Geographic Concentration
The REIT’s properties are all located in Canada, in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba,
Ontario and Québec. As a result, the market value of the REIT’s properties, the income generated by the REIT and the
REIT’s performance are particularly sensitive to changes in the economic condition and regulatory environments of
British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec. Adverse changes in the economic condition
or regulatory environment of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario or Québec may have a
material adverse effect on the REIT’s business, cash flows, financial condition and results of operations and its ability
to make cash distributions to REIT Unitholders.
Competition
The REIT competes with other investors, managers and owners of properties in seeking tenants and for the purchase
and development of desirable real estate properties. Some of the properties of the REIT’s competitors may be newer or
better located than the REIT’s properties.
Certain of these competitors may have greater financial and other resources and greater operating flexibility than the
REIT. An increase in the availability of funds for investment or an increase in interest in real estate property investments
may increase the competition for real estate property investments, thereby increasing purchase prices and reducing the
yield on them.
The existence of competing managers and owners could have a material adverse effect on the REIT’s ability to lease
space and on the rents the REIT is able to charge, and could materially adversely affect revenues and the REIT’s ability
to meet its obligations and its ability to make cash distributions to REIT Unitholders.
Capital Expenditures and Fixed Costs
Certain significant expenditures, including property taxes, maintenance costs, debt service payments, insurance costs
and related charges, must be made throughout the period of ownership of real property, regardless of whether the
property is producing sufficient income to pay such expenses. In order to retain desirable rentable space and to generate
adequate revenue over the long-term, the REIT must maintain or, in some cases, improve each property’s condition to
meet market demand. Maintaining a rental property in accordance with market standards can entail significant costs,
which the REIT may not be able to recover from its tenants. In addition, property tax reassessments based on updated
appraised values may occur, which the REIT may not be able to fully recover from its tenants. As a result, the REIT will
bear the economic cost of such structural defects and/or taxes not recoverable from tenants which may adversely impact
the REIT’s financial condition and results from operations and decrease the amount of cash available for distribution to
REIT Unitholders. Numerous factors, including the age of the relevant building, the materials used at the time of
construction or currently unknown building code violations could result in substantial unbudgeted costs for refurbishment
or modernization. In addition, the timing and amount of capital expenditures may indirectly affect the amount of cash
available for distribution to REIT Unitholders. Distributions may be reduced, or even eliminated, at times when the REIT
deems it necessary to make significant capital or other expenditures.
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If the actual costs of maintaining or upgrading a property exceed the REIT’s estimates, or if hidden defects are
discovered during maintenance or upgrading which are not covered by insurance or contractual warranties, or if the
REIT is not permitted to increase rents due to legal or other constraints, the REIT will incur additional and unexpected
costs.
If competing properties of a similar type are built in the area where one of the REIT’s properties is located or similar
properties located in the vicinity of one of the REIT’s properties are substantially refurbished, the net operating income
derived from, and the value of, the REIT’s property could be reduced. Any failure by the REIT to undertake appropriate
maintenance and refurbishment work in response to the factors described above could materially adversely affect the
rental income that the REIT earns from such properties. Any such event could have a material adverse effect on the
REIT’s cash flows, financial condition or results of operations and its ability to make cash distributions to REIT
Unitholders.
Liquidity
An investment in real estate is relatively illiquid. Such illiquidity will tend to limit the REIT’s ability to vary its portfolio
promptly in response to changing economic or investment conditions. In recessionary times it may be difficult to dispose
of certain types of real estate. The costs of holding real estate are considerable and during an economic recession the
REIT may be faced with ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it
may be necessary for the REIT to dispose of properties at lower prices in order to generate sufficient cash for operations
and for making distributions to REIT Unitholders.
Cybersecurity Risk
The REIT is in possession of certain confidential or sensitive information, including tenant and lease details, employee
information, financial records and operational data (“Confidential Information”). Some of this Confidential Information is
held and managed by third party service providers. The REIT has implemented processes, procedures and controls to
prevent unauthorized access to Confidential Information and to build and sustain a reliable information technology
infrastructure. However, these measures, and any similar measures implemented by the REIT’s third party service
providers, may not be sufficient to anticipate, timely identify or appropriately respond to the sophisticated means by
which computer hackers, cyber terrorists and others may attempt to breach the security of the REIT’s information
technology systems or those of its third party service providers. Additionally, employee errors, including with respect to
ineffective password management, may result in a breach of the REIT’s or its third party service providers’ security
measures, which could result in a breach of Confidential Information.
Any system vulnerability or failure of data security measures of the REIT or its third party service providers could result
in, among other things, operational interruption, harm to the reputation or competitive position of the REIT, the loss of
or unauthorized access to Confidential Information or other assets, remediation costs, litigation, regulatory enforcement
proceedings, violation of privacy, security or other laws and regulations and damage to the REIT’s business relationship
with its tenants.
Environmental Matters
Environmental legislation and regulations have become increasingly important in recent years. As an owner of real
property in Canada, the REIT is subject to various Canadian federal, provincial, territorial and municipal laws relating to
environmental matters. In the event that the REIT acquires properties in the United States, it will also be subject to
various U.S. federal, state and other environmental laws. Such laws provide that the REIT could be, or become, liable
for environmental harm, damage or costs, including with respect to the release of hazardous, toxic or other regulated
substances into the environment, and the removal or other remediation of hazardous, toxic or other regulated
substances that may be present at or under its properties. Further, liability may be incurred by the REIT with respect to
the release of such substances from or to the REIT’s properties. These laws often impose liability regardless of whether
the property owner knew of, or was responsible for, the presence of such substances. Additional liability may be incurred
by the REIT with respect to the release of such substances from the REIT’s properties to properties owned by third
parties, including properties adjacent to the REIT’s properties or with respect to the exposure of persons to such
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substances. These laws also govern the maintenance and removal of materials containing asbestos in the event of
damage, demolition or renovation of a property and also govern emissions of, and exposure to, asbestos fibers in the
air. Certain of the REIT’s properties contain or might contain materials containing asbestos. The costs of investigation,
removal and remediation of such substances, materials and/or contamination from the REIT’s properties may be
substantial and could materially adversely affect the REIT’s financial condition and results of operations.
The presence of such substances, materials and/or contamination or the failure to remediate them may also materially
adversely affect the REIT’s ability to sell such property, realize the full value of such property or borrow using such
property as collateral security, and could potentially result in significant claims against the REIT by public or private
parties.
The REIT is also exposed to the risk that recourse against the polluter or the previous owners of the properties might
not be possible. Moreover, the existence or even the mere suspicion of the existence of hazardous materials or
contamination can materially adversely affect the value of a property and the REIT’s ability to lease or sell such property.
All of the REIT’s properties have, or have had, tenants that would or currently use, hazardous, toxic or other regulated
substances. For example, automotive repair and/or service operations are currently located at each of the REIT’s
properties.
The REIT’s operating policy is to obtain, or be able to rely on, a phase I environmental site assessment, conducted by
an independent and experienced environmental consultant, prior to acquiring a property and to have phase II
environmental site assessment work completed where recommended in a phase I environmental site assessment.
Although such environmental site assessments would provide the REIT with some level of assurance about the condition
of such properties, the REIT may become subject to liability for undetected contamination or other environmental
conditions at its properties, which could materially adversely affect the REIT’s financial condition and results of
operations and decrease or eliminate the amount of cash available for distribution to REIT Unitholders.
The REIT intends to make, or require its tenants to make, the necessary capital and operating expenditures to comply
with environmental laws and address any material environmental issues and such costs relating to environmental
matters that may have a material adverse effect on the REIT’s business, financial condition or results of operations and
decrease or eliminate the amount of cash available for distribution to REIT Unitholders.
In addition, environmental laws can change and the REIT may become subject to even more stringent environmental
laws in the future, with increased enforcement of laws by the government. Compliance with more stringent environmental
laws, which may be more rigorously enforced, the identification of currently unknown environmental issues or an
increase in the costs required to address a currently known condition may have a material adverse effect on the REIT’s
financial condition and results of operations and may decrease or eliminate the amount of cash available for distribution
to REIT Unitholders.
Financing Risks
The REIT has outstanding Indebtedness of approximately $397.9 million as of December 31, 2020. Although a portion
of the cash flow generated by the REIT’s properties will be devoted to servicing such debt, there can be no assurance
that the REIT will continue to generate sufficient cash flow from operations to meet required interest payments and
principal repayments upon an applicable maturity date. If the REIT is unable to meet interest or principal payments, it
could be required to seek renegotiation of such payments or obtain additional equity, debt or other financing. The failure
of the REIT to make or renegotiate interest or principal payments or obtain additional equity, debt or other financing
could materially adversely affect the REIT’s financial condition and results of operations and decrease or eliminate the
amount of cash available for distribution to REIT Unitholders.
The REIT is subject to the risks associated with debt financing, including the risk that any outstanding indebtedness will
not be able to be refinanced or that the terms of such refinancing will not be as favourable as the terms of existing
indebtedness, which may reduce AFFO. To the extent that the REIT incurs variable rate indebtedness (such as under
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the revolving credit facilities), this will result in fluctuations in the REIT’s cost of borrowing as interest rates change. To
the extent that interest rates rise, the REIT’s operating results and financial condition could be materially adversely
affected and decrease the amount of cash available for distribution to REIT Unitholders. The Credit Facilities and
Mortgages also contain covenants that require the REIT to maintain certain financial ratios on a consolidated basis. If
the REIT does not maintain such ratios, the REIT’s ability to make distributions to REIT Unitholders may be limited or
suspended. The AFFO payout ratio covenants could limit the amount of distributions payable by the REIT from time to
time. In addition, the Credit Facilities contain restrictions concerning the change of control of the REIT and the
Partnership (and/or requiring the REIT to remain publicly-traded) which may discourage transactions involving a change
of control of the REIT, including transactions in which an investor, as a holder of the REIT Units, might otherwise receive
a premium for its REIT Units over the then-current market price. Facility 1 also contains a limit on the amount the REIT
can spend in any year on capital improvements to its properties. Although the REIT does not anticipate spending
significant sums on capital improvements given that the Dilawri Leases are “triple net” leases, such a limit could impact
the REIT’s ability to expand or otherwise make substantial structural improvements to its properties.
Degree of Leverage
The REIT’s ratio of Indebtedness to GBV was approximately 43.2% as of December 31, 2020. The REIT’s degree of
leverage could have important consequences to REIT Unitholders, including: (i) the REIT’s ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions, development or other general trust
purposes, making the REIT more vulnerable to a downturn in business or the economy in general and (ii) a portion of
the REIT’s cash flow is dedicated to the payment of the principal of and interest on, its Indebtedness, thereby reducing
the amount of funds available for distributions to REIT Unitholders. Under the Declaration of Trust, the maximum amount
of Indebtedness cannot exceed 60% of GBV (or 65% including convertible Indebtedness).
Interest Rate Risk
The REIT required extensive financial resources to complete the IPO, the acquisition of the Initial Properties in
conjunction to the IPO and acquisition of properties completed subsequent to the IPO, and will require extensive financial
resources to implement its future growth strategy.
When concluding financing agreements or extending such agreements, the REIT will depend on its ability to agree on
terms, including in respect of interest payments and, if applicable, amortization that will not impair the REIT’s desired
AFFO and that do not restrict its ability to make distributions to REIT Unitholders.
In addition to the revolving credit facilities, the REIT may enter into future financing agreements with variable interest
rates if the current historical low level of interest rates continue. Given the historically low interest rates, there is a risk
that interest rates will increase. An increase in interest rates could result in a significant increase in the amount paid by
the REIT to service debt, resulting in a decrease in or the elimination of distributions to REIT Unitholders, which could
materially adversely affect the trading price of the REIT Units. In addition, increasing interest rates may put competitive
pressure on the levels of distributable income made by the REIT to REIT Unitholders, increasing the level of competition
for capital faced by the REIT, which could have a material adverse effect on the trading price of the REIT Units.
The REIT has implemented interest rate swap arrangements in respect of Facility 1, Facility 2 and Facility 3 in order to
offset the risk of interest rate fluctuations and to provide more certainty regarding the payment of distributions to REIT
Unitholders. However, to the extent that the REIT fails to adequately manage its variable interest rate risks, its financial
results, and its ability to pay distributions to REIT Unitholders and interest payments under the Credit Facilities and any
other variable rate financings, may be materially adversely affected. Increases in interest rates generally cause a
decrease in demand for real property. Higher interest rates and more stringent borrowing requirements, whether
mandated by law or required by lenders, could have a material adverse effect on the REIT’s ability to sell any of its
properties at fair value.
Land Leases
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Two of the REIT’s properties are subject to land leases. To the extent that the properties in which the REIT has or will
have an interest are located on leased land, including these properties, the land leases may be subject to periodic rate
resets which may fluctuate and may result in significant rental rate adjustments which could adversely impact the REIT’s
financial condition and operating results and decrease the amount of cash available for distribution to Unitholders. The
land leases are also subject to renewal terms and may or may not be renewed by their respective third-party lessors.
Acquisitions and Associated Undisclosed Defects and Obligations
The REIT’s business plan contemplates, among other things, growth through identifying suitable acquisition
opportunities, pursuing such opportunities, consummating acquisitions and leasing the properties. The REIT has made
and intends to continue to make acquisitions and dispositions of properties in accordance with its growth strategy. If the
REIT is unable to manage its growth effectively, it could materially adversely impact the REIT’s financial position and
results of operations and decrease or eliminate the amount of cash available for distribution to REIT Unitholders. There
can be no assurance as to the pace of growth through property acquisitions or that the REIT will be able to acquire
assets on an accretive basis and, as such, there can be no assurance that distributions to REIT Unitholders will be
maintained or increase in the future.
Acquired properties may be subject to unknown, unexpected or undisclosed liabilities which could have a material
adverse impact on the operations and financial results of the REIT. For example, the REIT could acquire a property that
contains undisclosed defects in design or construction. Representations and warranties given by third parties to the
REIT may not adequately protect against these liabilities and any recourse against third parties may be limited by the
financial capacity of such third parties. Furthermore, it is not always possible to obtain from the seller the records and
documents that are required in order to fully verify that the buildings to be acquired are constructed in accordance, and
that their use complies, with planning laws and building code requirements. Accordingly, in the course of acquiring a
property, specific risks might not be or might not have been recognized or correctly evaluated. These circumstances
could lead to additional costs and could have a material adverse effect on rental income of the relevant properties or the
sale prices of such properties upon a disposition of such properties.
The REIT’s ability to acquire properties on satisfactory terms and successfully integrate them is subject to the following
additional risks: (a) the REIT may be unable to acquire desired properties because of competition from other real estate
investors with more capital, including other real estate operating companies, real estate investment trusts and
investment funds; (b) the REIT may acquire properties that are not accretive to results upon acquisition, and the REIT
may not successfully manage and lease those properties to meet its expectations; (c) competition from other potential
acquirers may significantly increase the purchase price of a desired property; (d) the REIT may be unable to generate
sufficient cash from operations, or obtain the necessary debt or equity financing to consummate an acquisition or, if
obtainable, financing may not be on satisfactory terms; (e) the REIT may need to spend more than budgeted amounts
to make necessary improvements or renovations to acquired properties; (f) agreements for the acquisition of properties
are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations,
and the REIT may spend significant time and money on potential acquisitions that the REIT does not consummate; (g)
the process of acquiring or pursuing the acquisition of a new property may divert the attention of the REIT’s management
team from existing business operations; (h) the REIT may be unable to quickly and efficiently integrate new acquisitions,
particularly acquisitions of portfolios of properties, into existing operations; (i) market conditions may result in higher
than expected vacancy rates and lower than expected rental rates; and (j) the REIT may acquire properties without any
recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental
contamination, claims by tenants, vendors or other persons against the former owners of the properties and claims for
indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
In addition, after the acquisition of a property, the market in which the acquired property is located may experience
unexpected changes that materially adversely affect the property’s value. The occupancy of properties that are acquired
may decline during the REIT’s ownership, and rents that are in effect at the time a property is acquired may decline
thereafter.
If the REIT cannot complete property acquisitions on favourable terms to meet the REIT’s goals or expectations, the
REIT’s business, financial condition, results of operations and cash flow, the per Unit trading price and the REIT’s ability
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to satisfy debt service obligations and to make cash distributions to REIT Unitholders could be materially and adversely
affected.
Operational Risk
Operational risk is the risk that a direct or indirect loss may result from an inadequate or failed technology, from a human
process or from external events. The impact of this loss may be financial loss, loss of reputation or legal and regulatory
proceedings. Management will endeavour to minimize losses in this area by ensuring that effective infrastructure and
controls exist. These controls will be regularly reviewed and, if deemed necessary, improvements will be implemented.
Access to Capital
The real estate industry is highly capital intensive. The REIT will require access to capital to maintain its properties and
refinance its indebtedness, as well as to fund its growth strategy and certain capital expenditures from time to time.
Although the REIT has access to the revolving credit facilities, there can be no assurance that the REIT will otherwise
have access to sufficient capital or access to capital on terms favourable to the REIT for future property acquisitions,
refinancing its indebtedness, financing or refinancing of properties, funding operating expenses or other purposes. Also,
raising of capital will be impacted directly by the equity capital markets. Further, in certain circumstances, the REIT may
not be able to borrow funds due to limitations set forth in the REIT’s Declaration of Trust. Failure by the REIT to access
required capital could have a material adverse effect on the REIT’s financial condition or results of operations and its
ability to make cash distributions to REIT Unitholders.
Potential Conflicts of Interest
The trustees of the REIT will, from time to time, in their individual capacities, deal with parties with whom the REIT may
be dealing, or may be seeking investments similar to those desired by the REIT. The interests of these persons could
conflict with those of the REIT. Pursuant to the REIT’s Declaration of Trust, all decisions to be made by the board of
trustees which involve the REIT are required to be made in accordance with the trustees’ duties and obligations to act
honestly and in good faith with a view to the best interests of the REIT and the voting REIT Unitholders. In addition, the
Declaration of Trust contains provisions requiring the Trustees to disclose their interests in certain contracts and
transactions and to refrain from voting on those matters and the REIT’s Related Party Transaction Policy creates a
specific process to be undertaken by the REIT and its independent trustees in connection with transactions involving
related parties, including Dilawri. Conflicts may also exist as certain trustees will be affiliated with the Dilawri organization
and may be nominated by Dilawri in certain circumstances in the future. There can be no assurance that the provisions
of the Declaration of Trust or the Related Party Transaction Policy will adequately address potential conflicts of interest
or that such actual or potential conflicts of interest will be resolved in favour of the REIT.
General Insured and Uninsured Risks
The Dilawri Leases require Dilawri (or the applicable member of the Dilawri Group) to carry general liability, umbrella
liability and/or excess liability insurance with limits that are typically obtained for similar real estate properties and that
are otherwise acceptable to the Board that names the REIT as an additional insured. For property risks, the Dilawri
Leases require Dilawri (or the applicable member of the Dilawri Group) to carry “All Risks” property insurance, including
but not limited to, flood, earthquake and loss of rental income insurance (with at least a 12 month indemnity period) that
names the REIT as an additional insured. The REIT also carries customary insurance covering its Trustees and officers
as well as prospectus liability insurance. There are, however, certain types of risks (generally of a catastrophic nature,
such as risks related to war or nuclear accident) which are uninsurable under any insurance policy. Furthermore, there
are other risks that are not economically viable to insure at this time. The REIT does not carry title insurance on the
REIT’s properties.
If a loss occurs resulting from a title defect with respect to a property where there is no title insurance, the REIT could
lose all or part of its investment in, and anticipated profits and cash flows from, such property. While the REIT, as an
additional insured on Dilawri’s policies, will have insurance to cover a substantial portion of the cost of natural disasters,
such insurance includes customary deductible amounts and certain items may not be covered by insurance.
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Future natural disasters may materially adversely affect the REIT’s operations and properties and, more specifically,
may cause the REIT to experience reduced rental revenue (including from increased vacancy), incur clean-up costs or
otherwise incur costs in connection with such events.
Any of these events may have a material adverse effect on the REIT’s business, cash flows, financial condition and
results of operations and its ability to make distributions to REIT Unitholders.
Risk Related to Insurance Renewals
Certain events could make it more difficult and expensive to obtain property and casualty insurance, including coverage
for catastrophic risks. When Dilawri’s current insurance policies expire, it may encounter difficulty in obtaining or
renewing property or casualty insurance at the same levels of coverage and under similar terms. Such insurance may
be more limited and, for catastrophic risks (e.g., earthquake, hurricane, flood and terrorism), may not be generally
available to fully cover potential losses. If Dilawri or the REIT is unable to obtain adequate insurance for certain risks, it
could result in an event of default under the Dilawri Leases and/or could cause the REIT to be in default under specific
covenants on certain of its indebtedness or other contractual commitments that it has which require the REIT to maintain
adequate insurance on its properties to protect against the risk of loss. If this were to occur, or if Dilawri or the REIT
were unable to obtain adequate insurance, and its properties experienced damages that would otherwise have been
covered by insurance, it could have a material adverse effect on the REIT’s business, cash flows, financial condition
and results of operations and ability to make cash distributions to REIT Unitholders.
Current Economic Environment
Continued concerns about the uncertainty over whether the economy will be adversely affected by inflation, deflation or
stagflation, and the systemic impact of unemployment, volatile energy costs, geopolitical issues and the availability and
cost of credit have contributed to increased market volatility and weakened business and consumer confidence. This
difficult operating environment could materially adversely affect the REIT’s ability to generate revenues, thereby reducing
its operating income and earnings. It could also have a material adverse effect on the ability of the REIT’s operators to
maintain occupancy rates in the REIT’s properties, which could harm the REIT’s financial condition. If these economic
conditions continue, the REIT’s tenants may be unable to meet their rental payments and other obligations due to the
REIT, which could have a material adverse effect on the REIT.
Furthermore, potential trade tariff policies may have a negative impact on future retail automotive sales through, among
other things, increases to new automobile prices.
Reliance on Key Personnel
The management and governance of the REIT depends on the services of certain key personnel, including certain
executive officers and the Trustees. The REIT’s inability to attract and retain qualified and experienced personnel or the
loss of the services of any key personnel could have a material adverse effect on the REIT and materially adversely
affect the REIT’s financial condition and results of operations and decrease or eliminate the amount of cash available
for distribution to REIT Unitholders. The REIT does not have key person insurance on any of its executive officers.
New Markets
If the opportunity arises, the REIT may explore acquisitions of properties in new markets, such as the United States.
Each of the risks applicable to the REIT’s ability to acquire and successfully integrate and operate properties in its current
markets is also applicable to its ability to acquire and successfully integrate and operate properties in new markets. In
addition to these risks, the REIT may not possess the same level of familiarity with the dynamics and market conditions
of any new markets, which could materially adversely affect its ability to expand into or operate in those markets. The
REIT may be unable to achieve a desired return on its investments in new markets. If the REIT is unsuccessful in the
expansion into new markets, it could materially adversely affect its business, financial condition, results of operations
and cash flow, its per REIT Unit trading price and its ability to satisfy debt service obligations and to make distributions
to REIT Unitholders.
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Property Development, Redevelopment and Renovation Risks
Although the REIT may engage in development, redevelopment or major renovation activities with respect to its
properties, it does not expect to do so in any material way in the near term. However, if it does so, it will be subject to
certain risks, including: (a) the availability and pricing of financing on satisfactory terms or at all; (b) the availability and
timely receipt of zoning and other regulatory approvals; (c) the ability to achieve an acceptable level of occupancy upon
completion; (d) the potential that the REIT may fail to recover expenses already incurred if it abandons redevelopment
opportunities after commencing to explore them; (e) the potential that the REIT may expend funds on and devote
management time to projects which it does not complete; (f) construction or redevelopment costs of a project may
exceed original estimates, possibly making the project less profitable than originally estimated, or unprofitable; (g) the
time required to complete the construction or redevelopment of a project or to lease up the completed project may be
greater than originally anticipated, thereby adversely affecting the REIT’s cash flow and liquidity; (h) the cost and timely
completion of construction (including risks beyond the REIT’s control, such as weather, labour conditions or material
shortages); (i) contractor and subcontractor disputes, strikes, labour disputes or supply disruptions; (j) delays with
respect to obtaining, or the inability to obtain, necessary zoning, occupancy, land use and other governmental permits,
and changes in zoning and land use laws; (k) occupancy rates and rents of a completed project may not be sufficient to
make the project profitable; (l) the REIT’s ability to dispose of properties redeveloped with the intent to sell could be
impacted by the ability of prospective buyers to obtain financing given the current state of the credit markets; and (m)
the availability and pricing of financing to fund the REIT’s development activities on favourable terms or at all.
The above risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could
prevent the initiation of redevelopment activities or the completion of redevelopment activities once undertaken. In
addition, redevelopment projects entail risks that investments may not perform in accordance with expectations and can
carry an increased risk of litigation (and its attendant risks) with contractors, subcontractors, suppliers, partners and
others. Any of these risks could have an adverse effect on the REIT’s financial condition, results of operations, cash
flow, the trading price of the Units, distributions to Unitholders and ability to satisfy the REIT’s principal and interest
obligations.
Derivative Risks
The REIT has swap facilities in place as part of Facility 1, Facility 2 and Facility 3. See “Section 7 – Liquidity and Capital
Resources”. The REIT may also use other derivative instruments, including futures, forwards, options and additional
swaps to manage the interest rate risks inherent in its operations and Credit Facilities. There can be no assurance that
any hedging activities of the REIT will be effective. Further, these activities, although intended to mitigate price volatility,
would expose the REIT to other risks.
For example, the REIT would be subject to the credit risk that its counterparty (whether a clearing corporation in the
case of exchange traded instruments or another third party in the case of over-the-counter instruments) may be unable
to meet its obligations. In addition, there would be a risk of loss by the REIT of margin deposits in the event of the
bankruptcy of the dealer with whom the REIT has an open position in an option or futures or forward contract. In the
absence of actively quoted market prices and pricing information from external sources, the valuation of these contracts
involves judgment and use of estimates. As a result, changes in the underlying assumptions or use of alternative
valuation methods could affect the reported fair value of these contracts. The ability of the REIT to close out its positions
may also be affected by exchange-imposed daily trading limits on options and futures contracts.
If the REIT is unable to close out a position, it will be unable to realize its profit or limit its losses until such time as the
option becomes exercisable or expires or the futures or forward contract terminates, as the case may be. The inability
to close out options, futures and forward positions could also have a material adverse effect on the REIT’s ability to use
derivative instruments to effectively hedge the interest rate risks inherent in its operations.
Joint Venture Arrangements
The REIT does not currently but may, directly or indirectly, invest in a joint venture arrangement, thereby acquiring a
non-controlling interest in certain investments. Although the REIT may not have control over these investments and
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therefore may have a limited ability to protect its position therein, such joint venture arrangements are expected to
contain terms and conditions which are commercially reasonable. Nevertheless, such investments may involve risks not
present in investments where a third party is not involved, including the possibility that a co-venturer may have financial
difficulties resulting in a negative impact on such investment, may have economic or business interests or goals which
are inconsistent with those of the REIT (including relating to the sale of properties held in the joint venture or the timing
of the termination and liquidation of such joint venture) or may be in a position to take action contrary to the REIT’s
investment objectives. The REIT also may, in certain circumstances, be liable for the actions of its third party co-
venturers’.
Litigation Risks
In the normal course of the REIT’s operations, whether directly or indirectly, it may become involved in, named as a
party to or the subject of, various legal proceedings, including regulatory proceedings, tax proceedings and legal actions
relating to personal injuries, property damage, property taxes, land rights, the environment and contract disputes. The
outcome with respect to outstanding, pending or future proceedings cannot be predicted with certainty and may be
determined in a manner adverse to the REIT and, as a result, could have a material adverse effect on the REIT’s assets,
liabilities, business, financial condition and results of operations. Even if the REIT prevails in any such legal proceeding,
the proceedings could be costly and time-consuming and may divert the attention of management and key personnel
from the REIT’s business operations, which could have a material adverse effect on the REIT’s cash flows, financial
condition or results of operations and its ability to make cash distributions to REIT Unitholders.
Investments in Debt Instruments
Under the Declaration of Trust, the REIT may hold direct or indirect investments in mortgages and mortgage bonds
(including participating or convertible mortgages). Adverse changes to the financial condition of a mortgagor with respect
to a mortgage held directly or indirectly by the REIT could have an adverse impact on the REIT’s ability to collect principal
and interest payments from such mortgagor and therefore, cause a reduction in the REIT’s ability to make distributions
to REIT Unitholders and in the value of that investment.
Based upon applicable laws governing the REIT’s investments in debt instruments and the loans underlying the REIT’s
debt securities, the REIT’s investments in debt may also be adversely affected by: (i) the operation of applicable laws
regarding the ability to foreclose mortgage loans or to exercise other creditors’ rights provided in the underlying loan
documents; (ii) lender liability with respect to the negotiation, administration, collection or foreclosure of mortgage loans;
(iii) penalties for violations of applicable usury limitations; and (iv) the impact of bankruptcy or insolvency laws.
Further, the REIT will not know whether the values of the properties securing the mortgage loans will remain at the levels
existing on the dates of origination of those mortgage loans. If the values of the underlying properties fall, the risk to the
REIT will increase because of the lower value of the security associated with such loans. Risk Factors Related to the
Automotive Dealership Industry
Automotive Dealership Tenant Risks
All of the REIT’s annual base minimum rent as of the date of this MD&A will be received from the Dilawri Group and
other dealer group operators of automotive dealerships. Further, the REIT’s external growth strategy is intended to
primarily target acquisitions of automotive dealership properties. Therefore, the REIT will be affected and may be harmed
by changes in the automotive dealership industry and the automotive production market.
An automotive dealership tenant’s ability to pay rent and perform its other obligations under a lease will be dependent
to a significant extent on its relationship with the automotive manufacturer. The automotive dealership tenants or their
related dealership groups generally operate dealerships that sell the products of more than one manufacturer. The sales
mix of makes and models of motor vehicles tends to change periodically; therefore, current sales of the makes or models
of one manufacturer may not reflect the level of future sales of that manufacturer’s products. A reduction in supply,
particularly of certain models, could lower motor vehicle sales, which in turn could negatively impact service and parts
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sales. Other factors which can affect sales include the manufacturer’s financial condition, marketing and incentive
programs and expenditures; ability and desire to finance the sale of vehicles or provide warranties to consumers on
vehicles sold; vehicle design; production capabilities and management of the manufacturer; strikes and other labour
actions by unions; negative publicity; product recalls; litigation; or potential trade tariff policies that may impact future
retail automotive sales through, among other things, increases to new automobile prices. The automotive dealership
tenant may be unable to pay rent or meet other lease obligations if a dealership’s motor vehicle supply is reduced.
Further, the REIT depends on its tenants to maintain good relationships with automotive manufacturers and to comply
with their franchise agreements. Manufacturers exercise a certain degree of control over dealerships, and the franchise
agreements between the dealership groups and the manufacturers provide for termination or non-renewal for a variety
of causes. The REIT has no rights under the franchise agreements. If a manufacturer terminates or declines to renew
one or more franchise agreements or negotiates terms for renewal that are better for the manufacturer, the tenant may
be unable to pay rent and perform its other obligations under its lease with the REIT. These factors, as well as other
events involving the automotive dealership tenant/manufacturer relationship, could adversely affect the REIT’s cash
flows, financial condition or results of operations and its ability to make cash distributions to REIT Unitholders.
Furthermore, the business of the REIT’s automotive dealership tenants is heavily dependent on consumer demand and
preferences. Such tenants’ revenues will be materially and adversely affected if there is a severe or sustained downturn
in overall levels of consumer spending. Retail vehicle sales are cyclical and historically have experienced periodic
downturns characterized by oversupply and weak demand. These cycles are often dependent on general economic
conditions, unemployment and consumer confidence, as well as the level of discretionary personal income, credit
availability and interest rates. A sustained downturn in the sale of vehicles could have a material adverse effect on the
REIT’s automotive dealership tenants which, in turn, could materially adversely affect the financial performance of the
REIT and its ability to make cash distributions to REIT Unitholders.
In addition, the automotive industry may experience significant change in the coming years, including as a result of
increases in ride-sharing services, increased focus on electric vehicles and direct-to-consumer sales and financing
channels. As these changes continue to evolve, the overall impact of these changes on the automotive dealership
industry remains uncertain.
Competitive Environment
The automotive dealership industry in Canada is highly competitive. If Dilawri or another automotive dealership tenant
is ineffective in responding to consumer trends or in executing its strategic plans, its financial performance could be
negatively affected. The REIT’s automotive dealership tenants are subject to competitive pressures from new brand
entrants into the marketplace, from the expansion or renovation of existing competitors and from new sales channels
such as the Internet.
The inability of these tenants to effectively predict market activity or compete effectively with their current or future
competitors or new sales channels could result in, among other things, reduced market share and lower pricing in
response to competitors’ pricing activities.
Failure by any automotive dealership tenant, particularly the Dilawri Group, to sustain its competitive position could
negatively affect its financial performance which, consequently, could materially adversely affect the financial
performance of the REIT and its ability to make cash distributions to REIT Unitholders.
Economic Environment
Economic factors that impact motor vehicle consumer spending patterns could deteriorate or remain unpredictable due
to global, national or regional economic volatility. These factors include high levels of unemployment and household
debt, increased interest rates, inflation, foreign exchange rates and commodity prices (including gasoline) and access
to consumer credit. Any of these factors could negatively affect the automotive dealership tenants’ revenue and margins.
Inflationary trends are unpredictable and changes in the rate of inflation or deflation will affect consumer prices, which
in turn could negatively affect the financial performance of the automotive dealership tenants, including the Dilawri
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Group, which, consequently, could materially adversely affect the financial performance of the REIT and its ability to
make cash distributions to REIT Unitholders.
Risk Factors Related to the Structure of the REIT
Reliance on the Partnership
The REIT is dependent on the business of the Partnership for NOI. The cash distributions made to REIT Unitholders
are dependent on the ability of the Partnership to make distributions in respect of the limited partnership units of the
Partnership. The ability of the Partnership to make distributions or make other payments or advances to the REIT will
depend on the Partnership’s results of operations and may be restricted by, among other things, applicable tax and
other laws and regulations and may be subject to contractual restrictions contained in any instruments governing the
indebtedness of the Partnership, and any other agreements governing the Partnership. If the Partnership is unable to
make distributions or other payments or advances to the REIT, such failure could have a material adverse effect on the
REIT’s financial condition or results of operations and its ability to make cash distributions to REIT Unitholders.
Return on Investment and Cash Distributions are Not Guaranteed
There can be no assurance regarding the amount of income to be generated by the REIT’s properties. The ability of the
REIT to make cash distributions, and the actual amount distributed, is entirely dependent on the operations and assets
of the REIT, and is subject to various factors, including financial performance, obligations under the Credit Facilities,
fluctuations in working capital, the sustainability of income derived from the tenants of the REIT’s properties and any
capital expenditure requirements. The REIT Units are equity securities of the REIT and are not traditional fixed income
securities. Unlike fixed-income securities, there is no obligation of the REIT to distribute to REIT Unitholders any fixed
amount and there is no promise to return the initial purchase price of a REIT Unit on a certain date in the future, and
reductions in, or suspensions of, cash distributions may occur at any time that would reduce the yield of a REIT Unit.
The market value of the REIT Units will deteriorate if the REIT is unable to meet its distribution and AFFO targets in the
future, and that deterioration may be significant. In addition, the composition of cash distributions for tax purposes may
change over time and may affect the after-tax return for investors. Therefore, the rate of return over a defined period for
a REIT Unitholder may not be comparable to the rate of return on a fixed income security that provides a “return on
capital” over the same period.
Tax-Related Risk Factors
Mutual Fund Trust Status — The REIT intends to comply with the requirements under the Income Tax Act (Canada)
(the “ITA”) at all relevant times such that it maintains its status as a “unit trust” and a “mutual fund trust” for purposes of
the ITA. There can be no assurance that Canadian federal income tax laws and the administrative policies and assessing
practices of the Canada Revenue Agency respecting mutual fund trusts will not be changed in a manner that adversely
affects REIT Unitholders. Should the REIT cease to qualify as a mutual fund trust under the ITA, the consequences may
be material and adverse.
Non-Resident Ownership — Under current law, a trust may lose its status under the ITA as a mutual fund trust if it can
reasonably be considered that the trust was established or is maintained primarily for the benefit of non-resident persons,
except in limited circumstances. Accordingly, the Declaration of Trust provides that (i) non-residents of Canada, (ii)
partnerships that are not Canadian partnerships, or (iii) a combination of non-residents and such partnerships (all within
the meaning of the ITA) (“Non-Residents”) may not be the beneficial owners of more than 49% of the REIT Units
(determined on a basic or a fully-diluted basis). The Trustees also have various powers that can be used for the purpose
of monitoring and controlling the extent of Non-Resident ownership of the REIT Units.
The restriction on the issuance of REIT Units by the REIT to Non-Residents may adversely affect the REIT’s ability to
raise financing for future acquisitions or operations. In addition, the Non-Resident ownership restriction may adversely
impact the liquidity of the REIT Units and the market price at which REIT Units can be sold.
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REIT Exception — Unless the exclusion from the definition of “SIFT trust” in the ITA for a trust qualifying as a “real estate
investment trust” under the ITA applies to the REIT (the “REIT “Exception”), the rules applicable to SIFT trusts and SIFT
partnerships in the ITA (the “SIFT Rules”) may have an adverse impact on the taxation of the REIT and on the taxation
of distributions to REIT Unitholders. Although, as of the date hereof, management believes that the REIT will be able to
meet the requirements of the REIT Exception throughout the current taxation year and each subsequent taxation year,
there can be no assurance that the REIT will be able to qualify for the REIT Exception such that the REIT and the REIT
Unitholders will not be subject to the SIFT Rules in the current taxation year or in any subsequent taxation year.
In the event that the SIFT Rules apply to the REIT, the tax consequences to REIT Unitholders will depend on the status
of the holder and, in part, on the amount of income distributed which would not be deductible by the REIT in computing
its income in a particular year and what portions of the REIT’s distributions constitute “non-portfolio earnings”, other
income and returns of capital. If the SIFT Rules apply to the REIT, they may adversely affect the marketability of the
REIT Units, the amount of cash available for distribution and the after-tax return to investors.
Tax Basis of the Initial Properties — The Initial Properties were acquired by the Partnership on a tax deferred basis,
such that the tax cost of these properties is less than their then fair market value. If one or more of such properties are
disposed of, the gain realized by the Partnership for tax purposes (including any income inclusions arising from the
recapture of previously claimed capital cost allowance on depreciable property) will be in excess of that which it would
have realized if it had acquired the properties at their respective tax costs equal to their then fair market values. For the
purpose of claiming capital cost allowance, the undepreciated capital cost of such properties acquired by the Partnership
was equal to the amounts jointly elected by the Partnership and the applicable transferor of such Initial Property on the
tax-deferred acquisition of such property. The undepreciated capital cost of such property was less than the fair market
value of such properties. As a result, the capital cost allowance that the Partnership may claim in respect of such
properties is less than it would have been if such properties had been acquired with a tax cost basis equal to their fair
market values.
Loss Restriction Event — The ITA contains “loss restriction event” (“LRE”) rules that may apply to certain trusts, including
the REIT. In general, the REIT will experience an LRE each time any person, together with all other persons with whom
that person is affiliated within the meaning of the ITA, or any group of persons, acquires REIT Units having a fair market
value that is greater than 50% of the fair market value of all the outstanding REIT Units. If an LRE occurs, then among
other things (i) the REIT will be deemed to have a year-end for tax purposes, (ii) any undistributed net income and net
realized capital gains of the REIT at such year-end will be distributed to REIT Unitholders, and (iii) the REIT will be
restricted in its ability to use tax losses (including any unrealized capital losses) that exist at the time of the LRE.
Change in Law — There can be no assurance that federal income tax laws and the administrative policies and assessing
practices of the Canada Revenue Agency applicable to the REIT, including the treatment of real estate investment trusts
and mutual fund trusts under the ITA, will not be changed in a manner which adversely affects the REIT or the REIT
Unitholders. Any such changes may have a negative effect on the value of the REIT Units.
Potential Volatility of REIT Unit Prices
A publicly-traded real estate investment trust will not necessarily trade at values determined solely by reference to the
underlying value of its real estate assets. Accordingly, the REIT Units may trade at a premium or a discount to values
implied by appraisals of the REIT’s properties.
The market price for REIT Units may be volatile and subject to wide fluctuations in response to numerous factors, many
of which are beyond the REIT’s control, including the following: (i) actual or anticipated fluctuations in the REIT’s
quarterly results of operations; (ii) recommendations by securities research analysts; (iii) changes in the economic
performance or market valuations of other issuers that investors deem comparable to the REIT; (iv) addition or departure
of the REIT’s executive officers and other key personnel; (v) release or expiration of lock-up or other transfer restrictions
on outstanding REIT Units; (vi) sales or perceived sales of additional REIT Units; (vii) significant acquisitions or business
combinations, strategic partnerships, joint ventures or capital commitments by or involving the REIT or its competitors;
and (viii) news reports relating to trends, concerns, technological or competitive developments, regulatory changes and
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other related issues in the REIT’s industry or target markets. Another factor that may influence the market price of the
REIT Units is the annual yield on the REIT Units. An increase in market interest rates may lead purchasers of REIT
Units to demand a higher annual yield, which accordingly could materially adversely affect the market price of the REIT
Units.
Financial markets have recently experienced significant price and volume fluctuations that have particularly affected the
market prices of equity securities of public entities and that have, in many cases, been unrelated to the operating
performance, underlying asset values or prospects of such entities. Accordingly, the market price of the REIT Units may
decline even if the REIT’s operating results, underlying asset values or prospects have not changed. Additionally, these
factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than
temporary, which may result in impairment losses. As well, certain institutional investors may base their investment
decisions on consideration of the REIT’s environmental, governance and social practices and performance against such
institutions’ respective investment guidelines and criteria, and failure to meet such criteria may result in limited or no
investment in the REIT Units by those institutions, which could materially adversely affect the trading price of the REIT
Units. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels
of volatility and market turmoil continue for a protracted period of time, the REIT’s operations could be materially
adversely impacted and the trading price of the REIT Units may be materially adversely affected.
Restrictions on Redemptions
It is anticipated that the redemption right attached to the REIT Units will not be the primary mechanism by which REIT
Unitholders liquidate their investment. The entitlement of REIT Unitholders to receive cash upon the redemption of their
REIT Units is subject to the following limitations: (i) the total amount payable by the REIT in respect of such REIT Units
and all other REIT Units tendered for redemption in the same calendar month must not exceed $50,000 (provided that
such limitation may be waived at the discretion of the Trustees); (ii) on the date such REIT Units are tendered for
redemption, the outstanding REIT Units must be listed for trading on a stock exchange or market which the Trustees
believe, in their sole discretion, provides fair market value prices for the REIT Units; (iii) the normal trading of REIT Units
is not suspended or halted on any stock exchange on which the REIT Units are then listed (or, if not listed on a stock
exchange, on any market on which the REIT Units are quoted for trading) on the date on which the REIT Units were
surrendered for redemption (the “Redemption Date”) for more than five trading days during the 10-day trading period
commencing immediately after the Redemption Date; and (iv) the redemption of the REIT Units must not result in the
delisting of the REIT Units from the principal stock exchange on which the REIT Units are then listed.
“Subsidiary Notes” (being promissory notes of the Partnership, a trust all of the units of which, or a corporation all of the
shares of which, are owned directly or indirectly by the REIT or another entity that would be consolidated with the REIT
under IFRS, having a maturity date and interest rate determined by the Trustees at the time of issuance) (“Subsidiary
Notes”) which may be distributed to REIT Unitholders in connection with a redemption will not be listed on any exchange,
no market is expected to develop in Subsidiary Notes and such securities may be subject to an indefinite “hold period”
or other resale restrictions under applicable securities laws.
Subsidiary Notes so distributed do not currently qualify as qualified investments for trusts governed by a registered
retirement savings plan, registered retirement income fund, registered disability savings plan, deferred profit sharing
plan, tax-free savings account and registered education savings plan, each within the meaning of the ITA.
Nature of Investment
The REIT Units represent a fractional interest in the REIT and do not represent a direct investment in the REIT’s assets
and should not be viewed by investors as direct securities of the REIT’s assets. A holder of a REIT Unit does not hold a
share of a body corporate. As holders of REIT Units, the REIT Unitholders will not have statutory rights normally
associated with ownership of shares of a corporation including, for example, the right to bring “oppression” or “derivative”
actions. The rights of REIT Unitholders are based primarily on the Declaration of Trust. There is no statute governing
the affairs of the REIT equivalent to the Canada Business Corporations Act which sets out the rights and entitlements
of shareholders of corporations in various circumstances.
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As well, the REIT may not be a recognized entity under certain existing insolvency legislation such as the Bankruptcy
and Insolvency Act (Canada) and the Companies Creditors’ Arrangement Act (Canada), and thus the treatment of REIT
Unitholders upon an insolvency of the REIT is uncertain.
Availability of Cash Flow
Although the REIT intends to make distributions of its available cash to Unitholders in accordance with its distribution
policy, these cash distributions may be reduced or suspended. The actual amount distributed by the REIT will depend
on various factors including capital market conditions, the financial performance of the Properties, debt covenants and
obligations, working capital requirements, fluctuations in interest rates or any other business needs that the Trustees
deem reasonable. The terms of the certain indebtedness of the REIT from time to time may prohibit payments or
distributions from the REIT in certain circumstances. The REIT’s Trustees retain the right to re-evaluate the distribution
policy from time to time as they consider appropriate.
Dilution
The number of REIT Units that the REIT is authorized to issue is unlimited. The REIT may, in its sole discretion, issue
additional REIT Units from time to time (including pursuant to the Plan or any employee incentive compensation plan
that may be introduced in the future), and the interests of REIT Unitholders may be diluted thereby. The issuance of
additional REIT Units may have a dilutive effect on the interests of REIT Unitholders.
Structural Subordination of REIT Units
In the event of a bankruptcy, liquidation or reorganization of the Partnership, holders of its indebtedness and its trade
creditors will generally be entitled to payment of their claims from the assets of the Partnership before any assets are
made available for distribution to the REIT or REIT Unitholders. The REIT Units are effectively subordinated to the debt
and other obligations of the Partnership. The Partnership generates all of the REIT’s cash available for distribution to
REIT Unitholders and holds substantially all of the REIT’s assets.
Limited Control
REIT Unitholders have limited control over changes in the REIT’s policies and operations, which increases the
uncertainty and risks of an investment in the REIT. The Board will determine major policies, including policies regarding
financing, growth, debt capitalization, REIT qualification and distributions to REIT Unitholders. The Board may amend
or revise these and other policies without a vote of Unitholders. Pursuant to the Declaration of Trust, Unitholders have
a right to vote only on limited matters. The Trustees’ broad discretion in setting policies and REIT Unitholders’ inability
to exert control over those policies increases the uncertainty and risks of an investment in the REIT.
Unitholder Liability
The Declaration of Trust provides that no REIT Unitholder will be subject to any liability whatsoever to any person in
connection with the holding of a REIT Unit. In addition, legislation has been enacted in the Province of Ontario and
certain other provinces that is intended to provide REIT Unitholders in those provinces with limited liability. However,
there remains a risk, which is considered by the REIT to be remote in the circumstances, that a REIT Unitholder could
be held personally liable for the obligations of the REIT to the extent that claims are not satisfied out of the assets of the
REIT. It is intended that the affairs of the REIT will be conducted to seek to minimize such risk wherever possible.
Financial Reporting and Other Public Company Requirements
The REIT is subject to reporting and other obligations under applicable Canadian securities laws and rules of the stock
exchange on which the REIT Units are listed, including National Instrument 52-109 — Certification of Disclosure in
Issuers’ Annual and Interim Filings. These reporting and other obligations place significant demands on the REIT’s
management, administrative, operational and accounting resources. In order to meet such requirements, the REIT has
established systems, implemented financial and management controls, reporting systems and procedures and hired
accounting and finance staff.
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However, any failure to maintain effective internal controls could cause the REIT to fail to meet its reporting obligations
or result in material misstatements in its financial statements. If the REIT cannot provide reliable financial reports or
prevent fraud, its reputation and operating results could be materially harmed which could also cause investors to lose
confidence in the REIT’s reported financial information, which could result in a reduction in the trading price of the REIT
Units.
Management does not expect that the REIT’s disclosure controls and procedures and internal controls over financial
reporting will prevent all error and all fraud. A control system, no matter how well-designed and implemented, can provide
only reasonable, not absolute, assurance that the control system’s objectives will be met.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues within an organization are detected. The inherent
limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because
of simple errors or mistakes. Controls can also be circumvented by individual acts of certain persons, by collusion of two
or more people or by management override of the controls. Due to the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all.
Critical Accounting and Judgments and Estimates
The preparation of the consolidated financial statement requires management to make judgments and estimates in
applying the REIT’s accounting policies that affect the reported amounts and disclosures made in the consolidated
financial statements and accompanying notes. Within the context of these consolidated financial statements, a judgment
is a decision made by management in respect of the application of an accounting policy; a recognized or unrecognized
financial statement amount and/or note disclosure, following an analysis of relevant information that may include
estimates and assumptions. Estimates and assumptions are used mainly in determining the measurement of balances
recognized or disclosed in the consolidated financial statements and are based on a set of underlying data that may
include management’s historical experience, knowledge of current events and conditions and other factors that are
believed to be reasonable under the circumstances. Management continually evaluates the estimates and judgments it
uses.
The following are the accounting policies subject to judgments and key sources of estimation uncertainty that the REIT
believes could have the most significant impact on the amounts recognized in the consolidated financial statements.
Investment Properties
The REIT assesses whether the properties it acquires are considered to be asset acquisitions or business combinations.
The REIT considers all the properties it has acquired to date to be asset acquisitions.
Investment properties are reviewed by management in conjunction with independent appraisers. Valuations are
completed by undertaking a discounted cash flow approach whereby a current discount rate is applied to the projected
net operating income which a property can reasonably be expected to produce in the future. The external valuators
review of projected cash flows involves a review of assumptions relating to rental rates and residual values. These
assumptions may not ultimately be achieved.
Leases
The REIT is required to make judgments in determining whether certain leases are operating or finance leases, in
particular long-term leases. All tenant leases have been determined to be operating leases.
Income Taxes
The REIT is a mutual fund trust and a real estate investment trust as defined in the ITA. The REIT is not liable to pay
Canadian income taxes provided that its taxable income is fully distributed to Unitholders each year. The REIT is a real
estate investment trust if it meets the prescribed conditions under the ITA relating to the nature of its assets and revenue.
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The REIT uses judgment in reviewing these prescribed conditions and assessing its interpretation and application to the
REIT’s assets and revenue. It has determined that it qualifies as a real estate investment trust for the current period.
The REIT expects to continue as a mutual fund trust and real estate investment trust under the ITA, however, should it
no longer qualify, it would not be able to flow through its taxable income to Unitholders and would be subject to tax.
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APPENDIX
Property List as at December 31, 2020
Operating Name
Address
Properties (as at December 31, 2020)
City/
Province
Year Built
/Renov.
GLA
1. Dixie Auto Mall
Dilawri-Owned Auto
Volkswagen
Nissan
Mazda
Infiniti
Mitsubishi
5500 Ambler Drive
Mississauga, ON
5500 Dixie Road
Mississauga, ON
5500 Ambler Drive
Mississauga, ON
5500 Ambler Drive
Mississauga, ON
5525 Ambler Drive
Mississauga, ON
Harley-Davidson (formerly Toyota)
5500 Dixie Road
Ancillary-other (formerly Nissan Truck)
5500 Dixie Road
Mississauga, ON
Mississauga, ON
Ancillary-other (formerly Hyundai)
5515 Ambler Drive
Mississauga, ON
1988/2011
1988/2001
1987/2014
1988/2014
1998
1987
1998
1998
1987
Markville Ford Lincoln
8210 Kennedy Road
Markham, ON
1988/2010
Third Party Auto
Kia
Third Party Retail
Montana’s
Kelsey’s
A&W
Subway/NY Fries
Enterprise Rent-a-Car
3 Asians Express
Dixie Auto Mall Total
2. Markham Honda and Ford
Dilawri-Owned Auto
Markham Honda
Third Party Auto
Markham Honda and Ford Total
3. Calgary BMW
4. Calgary Honda
5. Triple 7 Chrysler
6. Porsche Centre Vancouver
7. Frost Chevrolet Buick GMC
Cadillac
8. Honda Used Car and Regina
Collision Centre
9. Oakville Honda
10. Markham Acura
11. Regina Honda/Acura
12. Agincourt Mazda
13. Dilawri Nissan Infiniti
5500 Dixie Road
Mississauga, ON
1495 Aerowood Drive
Mississauga, ON
1485 Aerowood Drive
Mississauga, ON
1465 Aerowood Drive
Mississauga, ON
1475 Aerowood Drive
Mississauga, ON
1475 Aerowood Drive
Mississauga, ON
1475 Aerowood Drive
Mississauga, ON
2001/2017
2001/2017
1999/2016
1999/2011/2012
1999/2011/2012
1999/2011/2012
8220 Kennedy Road
Markham, ON
2004
34 Heritage Meadows Road
S.E.
Calgary, AB
11700 Lake Fraser Dr S.E.
Calgary, AB
2007
2005
700 Broad Street
Regina, SK
1959/2011
688 Terminal Avenue
Vancouver, BC
150 Bovaird Drive West
Brampton, ON
2013
2013
815 Broad Street
Regina, SK
2012/2015
500 Iroquois Shore Road
Oakville, ON
5201 Highway 7 E
Markham, ON
789 Broad Street
Regina, SK
5500 Finch Avenue E
Toronto, ON
1775 5th Avenue
Regina, SK
2003/2006
2002
2003/2015
2005
1998/2015
2013
2007
14. Audi Sales Downtown Vancouver
1788 West 2nd Avenue
Vancouver, BC
15. Meadowvale Honda
2210 Battleford Road
Mississauga, ON
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39,209
26,369
16,713
14,592
8,000
22,078
13,890
9,345
17,735
5,150
5,000
4,000
2,200
2,000
1,875
188,156
32,723
39,287
72,010
87,724
43,511
40,957
39,790
43,210
32,457
33,334
32,025
30,863
30,788
30,864
29,300
34,539
Automotive Properties REIT 2020
16. Burrard Acura(1)
17. Langley Acura(1)
730 Terminal Avenue
Vancouver, BC
20257 Langley Bypass
Langley, BC
2015
2015
18. Distinctive Collection
150 Glendeer Circle S.E.
Calgary, AB
1988/2008
19. Bolton Toyota
20. Hyundai Gallery
12050 Albion Vaughan Road
Bolton, ON
11770 Lake Fraser Dr S.E.
Calgary, AB
2004
2006
21. North Vancouver Nissan Infiniti
819 Automall Drive
N. Vancouver, BC
1992/2002
22. Regina Hyundai
23. Ancillary-other (formerly Dilawri BMW)
24. Ancillary-other (1921 1st Avenue,
formerly Dilawri Acura)
25. Audi Service (formerly Infiniti
Vancouver)
26. Dilawri Mitsubishi
27. Toyota Woodland
444 Broad Street
1919 1st Avenue
1921 1st Avenue
Regina, SK
Regina, SK
Regina, SK
1718 West 3rd Avenue
Vancouver, BC
2005
1997
1997
1999
1750 6th Avenue
1000-1009 Woodland
Avenue
Regina, SK
Montreal, QC
1993/2003
2007/2008
28. Porsche Centre Edmonton and Jaguar
Land Rover Edmonton(2)…………………
29. Audi Barrie…………………
17007 111th Avenue N.W.
Edmonton, AB
2482 Doral Drive
Innisfil, ON
30. Pfaff Audi (2)………………………..
9088 Jane Street
Vaughan, ON
2014
2015
2006
31. St. Bruno Audi and Volkswagen
1905&1917 Boulevard Sir
Wilfrid Laurier
St. Bruno, QC
1987/2014
32. Mercedes Benz West Island
4525 Boulevard Saint-Jean
Montreal, QC
2016
33. Go Mazda(2)
34. Volkswagen Barrie
9704 & 9710 35 Avenue
N.W.
Edmonton, AB
2006/2017
50 and 60 Fairview Road &
5 Little Avenue
Barrie, ON
35. Heritage Honda
11609 40 Street S.E.
Calgary, AB
36. Kentwood Ford Compound(2)
8603,8703,8735,8815 127th
Avenue N.W.
Edmonton, AB
2017
2016
1969
2004
2008
2017
2018
3603 99th Street N.W.
Edmonton, AB
17616 111th Avenue N.W.
Edmonton, AB
2345 Place Transcanadienne
Dorval, QC
11380 Stonehill Drive NE,
Calgary
Calgary, AB
2440-2450 Boulevard
Chomedey
Laval, QC
2000/2012
2365 Broadmoor Boulevard,
Sherwood Park
5060 Sheppard Avenue East,
Toronto
Sherwood Park, AB
2015
Scarborough, ON
2002/2010
1040 Ogilvie Road
Ottawa, ON
1171 St. Laurent Boulevard
Ottawa, ON
2007/2016
2002/2012
1989
37. Southtown Hyundai(2)
38. Ericksen Infiniti(2)(3)
39. Mazda des Sources
40. Country Hills VW
41. BMW Laval(2)
42. Sherwood Park VW(2)
43. Brimell Toyota(2)
44. Elite BMW(2)
45. Civic Motors(2)
27,640
26,448
24,367
22,741
22,185
19,050
18,204
12,456
11,390
11,722
6,750
49,737
44,779
24,982
68,874
62,705
60,850
17,150
20,102
58,913
4,040
12,554
25,550
16,701
34,650
127,615
70,277
55,600
48,366
30,000
7,500
46. Elite BMW Service(2)
595 St. Laurent Boulevard
Ottawa, ON
Automotive Properties REIT 2020
54
54
Automotive Properties REIT 2020
47. Camco Acura(2)
48. MINI Ottawa(2)
49. Mendes Toyota(2)
50. Ogilvie Subaru(2)
1475 Carling Avenue
Ottawa, ON
1501 Carling Avenue
Ottawa, ON
1811 Bank Street
Ottawa, ON
1056 Parisien Street
Ottawa, ON
2016
2015
2013
2014
51. Subaru Detailing Centre(2)
1352 Gosset Street
Ottawa, ON
1969/2015
52. Orleans Honda(2)
53. Kingston Toyota(2)
2055 Mer Bleue Road
Ottawa, ON
1911 Bath Road
Kingston, ON
54. Lexus of Kingston(2)
1917 Bath Road
Kingston, ON
55. Tesla KW Service Centre(2)
663 Victoria Street North
Kitchener, ON
56. St. James Volkswagen(2)
670 Century Street
Winnipeg, MB
57. McNaught Cadillac Buick GMC (2)
1000-1717 Waverly Street
Winnipeg, MB
58. Wellington Motors(2)
935 Woodlawn Road West
Guelph, ON
59. Guelph Hyundai(2)
60. Abbotsford VW(2)
61. Audi Queensway
62. Straightline Kia(2)
63. Regina BMW
765 Woodlawn Road West
Guelph, ON
30150 & 30195 Automall
Drive
Abbotsford, BC
1635 The Queensway
Etobicoke, ON
100 Glendeer Circle SE
Calgary, AB
1001 Broad Street
Regina, SK
64. Acura North Vancouver
828 Automall Drive
N. Vancouver, BC
65. Tesla Laval(2)
Portfolio Total
Subsequent Acquisitions
3755 AutoRoute Des
Laurentides
Laval, QC
2015
2005
2005
2019
2004
2015
2003
2014
2018
2018
2018
2019
2010
2020
66. Lexus Laval(4)
2000 Boulevard Chomedey
Laval, QC
2006/2013
Total as at date of the MD&A
_____________
Notes:
(1) The REIT has a leasehold interest in this property.
(2) The REIT has leased this property to other dealership group tenants unrelated to the Dilawri Group.
(3) In January 2021, the lease was assigned to a luxury, high-end car company.
(4) Lexus Laval was acquired by the REIT on March 1, 2021.
45,879
30,000
57,152
13,533
5,500
24,531
25,130
16,226
18,500
39,494
56,641
40,793
28,007
22,921
65,547
21,808
19,619
22,373
127,396
2,494,476
30,015
2,524,491
Automotive Properties REIT 2020
55
55
Automotive Properties REIT 2020
Automotive Properties REIT
TM
Automotive Properties REIT
TM
Automotive Properties Real Estate Investment Trust
Consolidated Financial Statements
For the year ended December 31, 2020 and 2019
Tel: 416-865-0200
Fax: 416-865-0887
www.bdo.ca
BDO Canada LLP
222 Bay Street
Suite 2200, PO Box 131
Toronto, ON M5K 1H1 Canada
Independent Auditor’s Report
To the Unitholders of Automotive Properties Real Estate Investment Trust
Opinion
We have audited the consolidated financial statements of Automotive Properties Real Estate
Investment Trust and its subsidiaries (the “REIT”), which comprise the consolidated statement of
financial position as at December 31, 2020 and 2019, and the consolidated statements of income
(loss) and comprehensive income (loss), changes in unitholders’ equity and cash flows for the years
then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the REIT as at December 31, 2020 and 2019, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the
REIT in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key Audit Matter
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the consolidated financial statements for the financial year ended December 31,
2020. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Fair Value of Investment Properties
Refer to Note 6 – Investment Properties
As at December 31, 2020, the carrying value of the REIT’s investment properties of $932 million
accounted for 99.6% of the REIT’s total assets.
The valuation of investment properties was a key audit matter due to the significant judgement
involved with the key inputs used in valuation techniques and the sensitivity of fair value to changes
in significant assumptions. These key inputs include cash flows, capitalization rates and discount
rates and are dependent on the nature of each investment property and the current prevailing
market conditions.
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
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Automotive Properties REIT 2020
How the Audit Matter was Addressed in the Audit:
Our audit procedures included the following:
• assessed the competence, capabilities and objectivity of the external appraisers engaged by
the REIT and the REIT’s management involving the valuation process;
• obtained an understanding of the techniques used by the external appraisers and management
in determining the valuation of investment properties on a sample basis;
• with the assistance of our real estate valuation experts, evaluated the fair value methodology
used by the external appraisers and management;
• performed an assessment of the internal consistency of significant underlying assumptions such
as capitalization rates and net operating incomes and compared the significant underlying
assumptions to the market;
• assessed management’s review and approval process for valuations and budgets; and
• evaluated the adequacy of the disclosures included in the consolidated financial statements
relating to the fair value of investment properties.
Because of the subjectivity involved in determining fair value for individual investment properties
and the existence of alternative assumptions and valuation methods, we determined a range of fair
values that were considered reasonable to evaluate the fair values determined by external
appraisers and management.
Other Information
Management is responsible for the other information. The other information comprises:
•
•
the information included in Management’s Discussion and Analysis for the year ended
December 31, 2020; and
the information, other than the consolidated financial statements and auditor’s report
thereon, in the 2020 Annual Report.
Our opinion on the consolidated financial statements does not cover the other information and we
do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information identified above and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If,
based on the work we have performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to report that fact in this
auditor’s report. We have nothing to report in this regard.
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
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Automotive Properties REIT 2020
The 2020 Annual Report is expected to be made available to us after the date of the auditor’s
report. If, based on the work we will perform on this other information, we conclude that there is
a material misstatement of this other information, we are required to report that fact to those
charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
REIT’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the REIT or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the REIT’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for
our opinion. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the REIT’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the REIT’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
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Automotive Properties REIT 2020
in our auditor’s report to the related disclosures in the consolidated financial statements or,
if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the REIT to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the REIT to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Kerri
Plexman.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
March 23, 2021
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
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Automotive Properties REIT 2020
Automotive Properties REIT
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Note
December 31, 2020
December 31, 2019
As at
As at
ASSETS
Cash and cash equivalents
Accounts receivable and other assets
Investment properties
Total assets
LIABILITIES AND UNITHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities
Credit facilities and mortgages payable
Interest rate swaps
Deferred Units and Income Deferred Units
Class B LP Units
Total liabilities
Unitholders’ equity
7
6
9
8
8
12
11
$308
3,815
932,229
$45,266
2,338
888,129
$936,352
$935,733
$15,378
396,030
22,847
4,463
106,385
$14,261
397,929
5,016
3,246
120,689
545,103
541,141
391,249
394,592
Total liabilities and unitholders’ equity
$936,352
$935,733
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board of Trustees
“Louis Forbes”
Louis Forbes
Trustee, Audit Committee Chair
“John Morrison”
John Morrison
Trustee, Lead Independent
Automotive Properties REIT 2020
2
61
Automotive Properties REIT 2020
Automotive Properties REIT
Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss)
(in thousands of Canadian dollars)
For the year ended December 31,
Net Property Income
Rental revenue from investment properties
Property costs
Net Operating Income
Other Income (Expenses)
General and administrative expenses
Interest expense and other financing charges
Fair value adjustment on interest rate swaps
Distribution expense on Class B LP Units
Note
2020
2019
13
13
8
10
$75,124
(11,105)
$67,580
(10,226)
64,019
57,354
(4,223)
(4,090)
(15,730)
(16,948)
(17,832) (3,902)
(7,988)
14,403
(5,684)
(7,988)
(32,075)
3,150
Fair value adjustment on Class B LP Units and Deferred Units
11, 12
Fair value adjustment on investment properties
6
Net Income (Loss) and Comprehensive Income (Loss)
$26,965
($4,499)
See accompanying notes to the consolidated financial statements.
Automotive Properties REIT 2020
3
62
Automotive Properties REIT 2020
Automotive Properties REIT
Consolidated Statements of Changes in Unitholders’ Equity
For the year ended December 31, 2020
(in thousands of Canadian dollars)
Note
Trust Units
Cumulative
Net Income
Cumulative
Distributions
to Unitholders
Total
Unitholders’ Equity at December 31, 2019
$380,757
$73,138
$(59,303)
$394,592
Issuance of Units
Net Income
Distributions
11
10
-
-
-
-
26,965
-
-
-
26,965
-
(30,308)
(30,308)
Unitholders’ Equity at December 31, 2020
$380,757
$100,103
$(89,611)
$391,249
For the year ended December 31, 2019
(in thousands of Canadian dollars)
Note
Trust Units
Cumulative
Net Income
Cumulative
Distributions
to Unitholders
Total
Unitholders’ Equity at December 31, 2018
$212,334
$77,637
$(37,497)
$252,474
Issuance of Units
Net Loss
Distributions
11
168,423
10
-
-
-
(4,499)
-
-
168,423
(4,499)
-
(21,806)
(21,806)
Unitholders’ Equity at December 31, 2019
$380,757
$73,138
$(59,303)
$394,592
See accompanying notes to the consolidated financial statements.
Automotive Properties REIT 2020
Automotive Properties REIT 2020
4
63
Automotive Properties REIT
Consolidated Statements of Cash Flow
(in thousands of Canadian dollars)
For the year ended December 31,
OPERATING ACTIVITIES
Net income (loss)
Straight-line rent
Bad debt expense
Non-cash compensation expense
Fair value adjustment on interest rate swaps
Distribution expense on Class B LP Units
Fair value adjustment on Class B LP Units and Deferred Units
Fair value adjustment on investment properties
Interest expense and other charges
Financing fees
Amortization of other assets
Change in non-cash operating accounts
Cash Flow from operating activities
INVESTING ACTIVITIES
Acquisitions of investment properties
Additions to investment properties
Cash Flow used in investing activities
FINANCING ACTIVITIES
Proceeds from Credit Facilities and Mortgages
Principal repayment on Credit Facilities and Mortgages
Interest paid
Financing fees paid
Repayments on lease liabilities
Issuance of Units, net of costs
Distributions to REIT unitholders and Class B LP unitholders
Cash Flow from (used in) financing activities
Net increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
Automotive Properties REIT 2020
Note
2020
2019
$26,965
(2,984)
277
1,316
17,832
7,988
(14,403)
5,684
15,187
543
183
(1,420)
57,168
$(4,499)
(2,970)
-
1,687
3,902
7,988
32,075
(3,150)
16,306
642
154
51
52,186
(42,524)
(3,254)
(45,778)
(102,290)
(8,401)
(110,691)
18
25,600
(28,005)
(14,876)
(36)
(735)
-
(38,296)
(56,348)
(44,958)
45,266
308
61,604
(80,821)
(15,969)
(407)
(625)
168,423
(28,729)
103,476
44,971
295
45,266
5
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Automotive Properties REIT 2020
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit and per Unit amounts)
1. NATURE OF OPERATIONS
Automotive Properties Real Estate Investment Trust (the “REIT”) is an internally managed, unincorporated, open-
ended real estate investment trust existing pursuant to a declaration of trust dated June 1, 2015, as amended and
restated on July 22, 2015 (the “Declaration of Trust”) under, and governed by, the laws of the Province of Ontario.
The REIT was formed to own primarily income-producing automotive dealership properties located in Canada. The
principal, registered and head office of the REIT is located at 133 King Street East, Suite 300, Toronto, Ontario M5C
1G6. The REIT’s trust units (“Units”) are listed on the Toronto Stock Exchange and are traded under the symbol
“APR.UN”.
893353 Alberta Inc. (“Dilawri”) is a privately held corporation, which, together with certain of its affiliates, held an
approximate 26.0% (2019 – 25.6%) effective interest in the REIT as at December 31, 2020, through the ownership,
direction or control of all of the 9,933,253 Class B limited partnership units (“Class B LP Units”) of Automotive
Properties Limited Partnership, the REIT’s operating subsidiary (the “Partnership”), and 2,458,452 Units (see Note
19 – Subsequent Events). The Class B LP Units are economically equivalent to, and exchangeable for, Units. Dilawri
and its affiliates, other than its shareholders and controlling persons, are referred to herein as the “Dilawri Group”.
The REIT commenced operations on July 22, 2015 following completion of an initial public offering of Units (the
“IPO”). In connection with the completion of the IPO, the REIT indirectly acquired a portfolio of 26 commercial
properties from certain members of the Dilawri Group (the “Initial Properties”) and leased the Initial Properties to the
applicable member of the Dilawri Group (collectively, and including members of the Dilawri Group that became
tenants at a REIT property after the IPO, the “Dilawri Tenants”).
As at December 31, 2020, the REIT owned a portfolio of 65 income-producing commercial properties. The properties
are located in metropolitan areas across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec,
totaling approximately 2.5 million square feet of gross leasable area. The Dilawri Tenants are the REIT’s major tenant,
occupying 37 of the REIT’s 65 income-producing commercial properties as at December 31, 2020 See Note 19 –
Subsequent Events.
The subsidiaries of the REIT included in the REIT’s consolidated financial statements include the Partnership and
Automotive Properties REIT GP Inc. Effective January 1, 2020, management, operating and administrative support
personnel were employed directly by the REIT.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance
The consolidated financial statements of the REIT have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and using the
accounting policies described herein.
These consolidated financial statements were authorized for issuance by the Board of Trustees of the REIT (the
“Board”) on March 23, 2021.
(b) Basis of Presentation
The consolidated financial statements of the REIT have been prepared using the historical cost basis except for the
following items that were measured at fair value:
investment properties as described in note 6;
interest rate swaps as described in note 8;
•
•
• Class B LP Units which are exchangeable for Units at the option of the holder as described in note 11; and
• Deferred Units (“DUs”) and Income Deferred Units (“IDUs”) which are exchangeable for Units in accordance
with their terms as described in note 12.
The consolidated financial statements are presented in Canadian dollars, the REIT’s functional and reporting currency.
Automotive Properties REIT 2020
6
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Automotive Properties REIT 2020
(c) Basis of Consolidation
The consolidated financial statements include the accounts of the REIT and the other entities that the REIT controls
in accordance with IFRS 10 — Consolidated Financial Statements. Control requires exposure or rights to variable
returns and the ability to affect those returns through power over an investee. All intercompany transactions and
balances have been eliminated on consolidation.
(d) Investment Properties
Investment properties include properties held to earn rental income and/or for capital appreciation, and property
under development. Investment properties are initially measured at cost, including directly attributable acquisition
costs. Directly attributable acquisition costs include professional fees, land transfer taxes and other transaction costs.
Subsequent to initial recognition, investment properties are measured at fair value. Fair value is determined based
on available market evidence at each balance sheet date. The fair value of investment properties reflects, among
other things, rental income from current leases and assumptions about rental income from future leases in light of
current market conditions. Related fair value gains and losses are recorded in net income (loss) and comprehensive
income (loss) in the period in which they arise.
(e) Revenue Recognition
The REIT has retained substantially all of the risks and benefits of ownership of its investment properties and,
therefore, accounts for its leases with tenants as operating leases.
Property revenue includes rents earned from tenants under lease agreements and realty tax recoveries.
The REIT follows the straight-line method of recognizing rental revenue, whereby the total amount of basic rent to
be received from leases is accounted for on a straight-line basis over the term of the lease. Accordingly, an accrued
rent receivable/payable is recorded for the current difference between the straight-line rent recorded as rental
revenue and the rent that is contractually due from the tenant and is included as part of investment properties on the
consolidated balance sheet. Lease incentives provided to tenants are deferred and amortized on a straight-line basis
against revenue over the term of the lease.
(f) Expenses
Property costs and general and administrative expenses are recognized in income in the period in which they are
incurred. The indemnity fee is amortized over the average lease term with the Dilawri Tenants that have third party
sub-tenants.
(g) Leases
The REIT is the lessee for two land leases and one office lease, which are in the scope of IFRS 16 – Leases (“IFRS
16”) and, as at January 1, 2019, the REIT recognized right-of-use assets and lease liabilities of $7,694. For all leases
for which the REIT is a lessee of investment properties, the right-of-use assets have been measured at fair value
with no straight line depreciation and classified as investment property at the date of initial application on January 1,
2019. The office lease right-of-use asset is recognized in accounts receivable and other assets. The depreciation
charge is presented in the general and administrative expense. Amortization is recorded on a straight line basis over
the term of the lease. Lease liabilities were discounted at the REIT’s incremental borrowing rate as at January 1,
2019.
(h) Income Taxes
The REIT qualifies as a “mutual fund trust” under the Income Tax Act (Canada). The Board intends to annually
distribute all taxable income directly earned by the REIT to holders of Units (“Unitholders”) and to deduct such
distributions for income tax purposes.
Legislation relating to the federal income taxation of Specified Investment Flow Through trusts or partnerships
(“SIFT”) provide that certain distributions from a SIFT will not be deductible in computing the SIFT’s taxable income
and that the SIFT will be subject to tax on such distributions at a rate that is substantially equivalent to the general
tax rate applicable to Canadian corporations. However, distributions paid by a SIFT as return of capital should
generally not be subject to tax.
Under the SIFT rules, the taxation regime will not apply to a real estate investment trust that meets prescribed
conditions relating to the nature of its assets and revenue (the “REIT Exception”). The REIT has reviewed the SIFT
rules and has assessed their interpretation and application to the REIT’s assets and revenue. While there are
uncertainties in the interpretation and application of the SIFT rules, the REIT believes that it meets the REIT Exception
and, accordingly, no net current income tax expense or deferred income tax assets or liabilities have been recorded
in the consolidated statements of income (loss) and comprehensive income (loss).
Automotive Properties REIT 2020
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Automotive Properties REIT 2020
(i) Units and Class B LP Units
Units are redeemable at the holder’s option subject to certain limitations and restrictions. As a result, the Units are
liabilities by definition but qualify for presentation as equity under certain limited exceptions within IAS 32 — Financial
Instruments: Presentation (“IAS 32”). The Class B LP Units are economically equivalent to Units, receive distributions
equal to the distributions paid on Units and are exchangeable at the option of the holder into Units. One special voting
unit in the REIT (the “Special Voting Units”) has been issued to the holder of each Class B LP Unit issued (such
Special Voting Unit does not have any entitlement in the REIT with respect to distributions, but does generally entitle
the holder to that number of votes at any meeting of Unitholders to which a holder of the number of Units that are
obtained upon the exchange of the Class B LP Unit to which such Special Voting Unit is attached would be entitled).
The limited IAS 32 exception for presentation as equity does not extend to the Class B LP Units. As a result, the
Class B LP Units have been classified as financial liabilities and are measured at fair value through profit and loss
(“FVTPL”). The fair value of the Class B LP Units is measured every period by reference to the traded value of the
Units, with changes in value recorded through profit and loss.
Distributions on the Class B LP Units are recorded as an expense in the consolidated statements of income (loss)
and comprehensive income (loss) in the period in which they become payable.
(j) Cash and Cash Equivalents
Cash consists of cash on hand and unrestricted cash. Cash equivalents consist of highly liquid marketable
investments with an original maturity date of 90 days or less from the date of acquisition. As at December 31, 2020,
there were $nil of cash equivalents (December 31, 2019 - $44,000).
(k) Financial instruments
Financial instruments are classified as one of the following: (i) measured at amortized cost, (ii) fair value through
other comprehensive income (“FVTOCI”), or (iii) FVTPL. Financial assets and liabilities classified as FVTPL are
measured at fair value with gains and losses recognized in the consolidated statements of income (loss) and
comprehensive income (loss). Financial instruments classified as amortized cost are measured at amortized cost,
using the effective interest method. The REIT recognizes an allowance for expected credit losses (“ECL”) for financial
assets measured at amortized cost at each balance sheet date. The ECL model requires considerable judgment,
including consideration of how changes in economic factors affect ECLs, which are determined on a probability
weighted basis. Impairment losses, if incurred, would be recorded as expenses in the consolidated statements of
income (loss) and comprehensive income (loss) with the carrying amount of the financial asset or group of financial
assets reduced through the use of impairment allowance accounts. FVTOCI financial instruments are measured at
fair value and any unrealized gains and losses will be recognized in other comprehensive income (loss).
The following summarizes the REIT’s classification and measurement of financial assets and liabilities:
Financial assets
Cash and cash equivalents
Accounts receivable
Financial liabilities
Accounts payable and accrued liabilities
Credit facilities and mortgages
Class B LP Units, Deferred Units and Income Deferred Units
Interest rate swaps
Classification/Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
Acquisition costs other than those related to financial instruments classified as FVTPL, which are expensed as
incurred, are capitalized to the carrying amount of the instrument and amortized using the effective interest method.
These costs primarily include interest and finance fees that are incurred in connection with borrowings.
(l) Unit-Based Compensation
DUs may be granted to members of the Board (“Trustees”), officers and employees of the REIT (each, a “Participant”).
Each DU shall receive a distribution of additional IDUs equal to the amount of distributions paid per Unit by the REIT
on its Units. Liability in respect of the DUs and IDUs is adjusted to reflect the change in their fair value at each
reporting period with the changes in fair value recognized in the consolidated statements of income (loss) and
comprehensive income (loss). The holder of such DUs and IDUs cannot settle their DUs or IDUs for cash.
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3. CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
The preparation of the consolidated financial statements requires management to make judgments and estimates in
applying the REIT’s accounting policies that affect the reported amounts and disclosures made in the consolidated
financial statements and accompanying notes. Within the context of these consolidated financial statements, a
judgment is a decision made by management in respect of the application of an accounting policy; a recognized or
unrecognized financial statement amount and/or note disclosure, following an analysis of relevant information that
may include estimates and assumptions. Estimates and assumptions are used mainly in determining the
measurement of balances recognized or disclosed in the consolidated financial statements and are based on a set
of underlying data that may include management’s historical experience, knowledge of current events and conditions
and other factors that are believed to be reasonable under the circumstances. Management continually evaluates
the estimates and judgments it uses. The following are the accounting policies subject to judgments and key sources
of estimation uncertainty that the REIT believes could have the most significant impact on the amounts recognized
in the consolidated financial statements. The REIT’s significant accounting policies are described in note 2.
Investment Properties
The REIT assesses whether the properties it acquires are considered to be asset acquisitions or business
combinations. The REIT considers all the properties it has acquired to date to be asset acquisitions. The REIT applies
judgment when reporting any property under development. The cost of the property under development includes the
acquisition of the property, direct development costs and borrowing costs attributable to the development.
Investment properties are valued by management. Valuations are completed by undertaking a discounted cash flow
approach, whereby a current discount rate is applied to the projected net operating income that a property can
reasonably be expected to produce in the future. These assumptions may not ultimately be achieved.
Income Taxes
The REIT is a mutual fund trust and a real estate investment trust as such terms are defined in the Income Tax Act
(Canada). The REIT is not liable to pay Canadian income taxes provided that its taxable income is fully distributed
to Unitholders each year. The REIT is a real estate investment trust if it meets the prescribed conditions under the
Income Tax Act (Canada) relating to the nature of its assets and revenue. The REIT uses judgment in reviewing
these prescribed conditions and assessing its interpretation and application to the REIT’s assets and revenue. The
REIT has determined that it qualifies as a real estate investment trust in respect of the current period.
The REIT expects to continue to qualify as a mutual fund trust and real estate investment trust under the Income Tax
Act (Canada), however, should it no longer qualify, the REIT would not be able to flow through its taxable income to
Unitholders and would, therefore, be subject to tax.
COVID-19
The REIT has incorporated its assessment of the potential impact of COVID-19 into its estimates and assumptions,
all of which are subject to increased uncertainty due to the market disruptions caused by COVID-19, specifically with
respect to the fair value of the REIT’s investment properties as described in Note 6.
The REIT has collected approximately 97% of its contractual base rent for the year ended December 31, 2020 (2019
– 100%), with the remaining amount subject to rent deferral agreements with tenants (the “Deferral Agreements”).
Pursuant to the Deferral Agreements, the REIT agreed to defer, predominately interest-free, a portion of the
applicable tenants’ base rent for primarily a three-month period occurring between April and July 2020, but all rent
ceased to be deferred as of the end of 2020. All amounts remaining deferred under the Deferral Agreements are due
to be paid by no later than the end of 2021.
The REIT assessed the risk of credit loss on a tenant-by-tenant basis as well as the duration of the applicable Deferral
Agreement. For the year ended December 31, 2020, the REIT provided for an allowance for doubtful accounts and
bad debt expense of $277 (2019 – $nil) which reflects the credit risk relating to the collection of the receivable
balances totaling $2,301 (2019 – $nil).
The REIT will continue to review its discounted cash flow projections, changes in capitalization rates and the impact
on the fair value of its investment properties. Valuation inputs and assumptions relating to rental income, rent
collection, reserves and discount rates may change materially in the near term as additional market data becomes
available. These potential changes could negatively impact the future value of the REIT’s investment properties and
its operating results.
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4. NEW STANDARDS AND INTERPERTATIONS NOT YET ADOPTED
(i) Definition of material
The IASB issued amendments to IAS 1 – Presentation of Financial Statements and IAS 8 – Accounting Policies,
Changes in Accounting Estimates and Errors in October 2018. The amendments clarified the definition of material,
within the context that information is material if omitting, misstating or obscuring it could reasonably be expected to
influence the decisions that the primary users of general purpose financial statements make on the basis of those
financial statements, which provide financial information about a specific reporting entity.
The amendments are effective from January 1, 2020 and are required to be applied prospectively. These
amendments did not have a significant impact on the consolidated financial statements.
(ii) Definition of business
The IASB issued amendments to IFRS 3 – Business Combinations in October 2018, the amendments clarified and
tightened the definition of a business. The amendments will aid companies in determining whether an acquisition is
of a business or a group of assets. An abridged assessment of whether an acquired set of activities and assets is a
group of assets rather than a business is also permitted. It is important to differentiate between a business and a
group of assets due to the recognition of goodwill only upon the acquisition of a business.
The amendments apply to transactions for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after January 1, 2020. These amendments did not have a significant impact on the
consolidated financial statements.
5. ACQUISITIONS
During the year ended December 31, 2020, the REIT completed the following acquisitions:
Property
Location
Date of Acquisition
Regina BMW & Acura North
Vancouver(i)
Tesla Laval(ii)
Total Acquisitions
Regina, SK & North
Vancouver, BC
Laval, QC
February 5 &
February 6
August 25
Total Investment
Properties(1)
$29,568
$13,978
$43,546
(1)
(i)
(ii)
Includes acquisition costs.
On February 5, 2020 and February 6, 2020, the REIT acquired the real estate underlying two automotive
dealership properties, Regina BMW located in Regina, Saskatchewan, and Acura North Vancouver located
in North Vancouver, British Columbia, for approximately $28,850 plus acquisition costs of $718. The
acquisitions consist of two full-service automotive dealership properties totaling 41,992 square feet of gross
leasable area.
On August 25, 2020, the REIT acquired the real estate underlying a vacant property located in Laval, Quebec
(“Tesla Laval”), which was subsequently redeveloped for a luxury, high-end car company that took
occupancy of the premises subsequent to completion of the redevelopment pursuant to a long-term lease
commencing on November 1, 2020. The REIT acquired the property for approximately $12,300 plus
acquisition costs of $478 and redevelopment costs of $1,200, which were funded through the Credit Facilities
(as defined below) and cash on hand. Tesla Laval totals 127,396 square feet of gross leasable area.
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During the year ended December 31, 2019, the REIT completed the following acquisitions:
Property
Location
Date of Acquisition
St. James VW & McNaught Cadillac
Buick GMC
Abbotsford VW, Wellington Motors &
Guelph Hyundai
Audi Queensway
Straightline Kia
Total Acquisitions
(1)
Includes acquisition costs.
6.
INVESTMENT PROPERTIES
Winnipeg, MB
Abbotsford, BC and
Guelph, ON
Etobicoke, ON
Calgary, AB
March 29
June 25
September 19
December 16
Total Investment
Properties(1)
$24,880
$30,918
$38,056
$8,505
$102,359
Balance, beginning of year
Adoption of IFRS 16
Acquisitions(3)
Additions
Fair value adjustment on
investment properties
Straight-line rent(4)
Balance, end of year
Income producing
properties(1)
$881,337
-
43,546
3,254
Right-of-use
assets(2)
$6,792
-
-
-
December 31,
2020
$888,129
-
43,546
3,254
December 31,
2019
$763,998
7,244
102,359
8,408
(5,231)
2,984
$925,890
(453)
-
$6,339
(5,684)
2,984
$932,229
3,150
2,970
$888,129
Includes the Tesla Laval property that became an income producing property in November 2020.
(1)
(2) Refers to two land leases.
Includes acquisition costs.
(3)
Includes a deduction for amortization of tenant allowance of $142 (2019 - $115).
(4)
Valuation of Investment Properties
The REIT valued the investment properties using a discounted cash flow approach whereby a current discount rate
was applied to the projected net operating income which a property can reasonably be expected to produce in the
future. Property under development is measured using both a comparable sales method and a discounted cash flow
method, net of costs to complete. The REIT’s valuation inputs are supported by quarterly market reports from an
independent appraiser. In 2020, the REIT had 17 investment properties (2019 – 21) independently appraised,
representing approximately $313,000 (2019 – $363,000) of the REIT’s fair value of income producing properties. For
the year ended December 31, 2020, the REIT increased the discount rates used to value its entire property portfolio
by approximately 10 basis points to 6.7%, primarily due to the adverse economic impact of COVID-19 on the REIT’s
tenants (December 31, 2019 – 6.6%). This small increase in the discount rate reflects the stability of the automotive
dealership retail business during the COVID-19 pandemic.
In 2020, the REIT provided funding for facility improvements to one of the tenants of the REIT’s automotive dealership
properties located in Winnipeg, Manitoba in accordance with the terms of the purchase agreement in respect of the
acquisition. Capital commitments of $1,908 resulted in an annual rent increase effective March 6, 2020. Additional
capital commitments of $1,346 resulted in an annual rent increase effective July 7, 2020.
In 2019, the REIT provided funding for facility improvements to the tenants of 401 Dixie Auto Mall and Meadowvale
Honda automotive dealership properties located in Mississauga, Ontario. The total capital commitments of $7,000,
plus transaction costs of $7, resulted in an annual rent increase on these properties effective December 16, 2019.
An additional $1,401 of capital commitments for facility improvements was provided to another tenant in 2019.
A 25 basis point decrease or increase in capitalization rates or discount rates would result in an increase or decrease
in the fair value of the investment properties of approximately $35,900 or $(33,300), respectively, as of December
31, 2020.
A 50 basis point decrease or increase in capitalization rates or discount rates would result in an increase or decrease
in the fair value of the investment properties of approximately $74,600 or $(64,200), respectively, as of December
31, 2020.
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Rental Commitments
Minimum rental commitments on non-cancellable tenant operating leases are as follows:
Within 1 year ..............................................................................................................................................
After 1 year, but not more than 5 years .....................................................................................................
More than 5 years ......................................................................................................................................
$63,318
261,847
520,640
$845,805
7. ACCOUNTS RECEIVABLE AND OTHER ASSETS
As at
Prepaid indemnity fee
Right-of-use assets, net of depreciation
Tenant accounts receivable (Note 3)(1)
Prepaid other
December 31, 2020
December 31, 2019
$597
180
2,024
1,014
$3,815
$671
269
-
1,398
$2,338
(1)
Includes $180 of commodity taxes and net of allowance for doubtful accounts of $277 (December 31, 2019 - $nil).
8. CREDIT FACILITIES AND MORTGAGES PAYABLE
(a) Credit facilities and mortgages consist of:
As at
Facility 1(i)
Facility 2(ii)
Facility 3(iii)
Mortgages(iv)
Total
Financing fees(v)
(i)
Facility 1 includes:
December 31, 2020
December 31, 2019
$202,086
$194,665
95,403
99,913
85,500
14,905
397,894
90,250
15,471
400,299
(1,864)
(2,371)
$396,030
$397,929
A non-revolving loan in the amount of $186,486 (December 31, 2019 – $194,665) bearing interest at the
bankers’ acceptance (“BA”) rate plus 150 basis points (“bps”) or the Canadian Prime rate (“Prime”) plus
25 bps, maturing in June 2023. The principal is repayable in equal quarterly payments based on a 25 year
amortization. The REIT entered into floating-to-fixed interest rate swaps, with remaining terms of 2 to
10 years as at December 31, 2020. On December 17, 2020, the REIT blended and extended the maturity of
two of its interest rate swaps in the amount of approximately $26,418 for a term of 10 years. This resulted in
a weighted average effective interest rate of 3.73% (2019 – 3.75%), of which $18,414 (2019 – $19,206) of
the non-revolving balance remains at floating rates.
A revolving credit facility in the amount of $30,000 bearing interest at Prime plus 25 bps or BA rate plus 150
bps, maturing in June 2023, of which $15,600 was drawn as at December 31, 2020 (2019 – $nil) and of
which $838 was secured for the issuance of irrevocable letters of credit (the “LCs”) on October 24, 2017.
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(ii)
Facility 2 includes:
A non-revolving loan in the amount of $95,403 (2019 – $99,913) bearing interest at the BA rate plus 150 bps
or Prime plus 25 bps, maturing in June 2024. The principal is repayable in monthly blended payments based
on a 20 year amortization. The REIT entered into floating-to-fixed interest rate swaps with remaining terms
of 3 to 10 years as at December 31, 2020. On December 17, 2020, the REIT extended the maturity of one
of its interest rate swaps in the amount of approximately $10,431 for a term of 10 years. This resulted in a
weighted average effective interest rate of 3.52% (2019 – 3.54%).
A revolving credit facility in the amount of $15,000 bearing interest at Prime plus 25 bps or BA rate plus 150
bps, maturing in June 2024, of which $nil was drawn as at December 31, 2020 (2019 – $nil).
(iii)
Facility 3 includes:
A non-revolving loan in the amount of $85,500 (2019 – $90,250) bearing interest at the BA rate plus 150 bps
or Prime plus 50 bps, maturing in December 2023. The principal is repayable in monthly blended payments
based on a 20 year amortization. The REIT entered into floating-to-fixed interest rate swaps with remaining
terms of 5 to 8 years, which resulted in a weighted average effective interest rate of 4.05% (2019 – 4.05%).
A revolving credit facility in the amount of $30,000 bearing interest at Prime plus 25 bps or BA rate plus 150
bps, maturing in December 2023, of which $nil was drawn as at December 31, 2020 (2019 – $nil).
(iv)
Mortgages:
The REIT has entered into certain mortgages with Canadian Schedule 1 banks that have interest rates that
range from 3.22% to 3.72% and have maturity dates that range from January 2021 to June 2027 (the
“Mortgages”). As at December 31, 2020, the weighted average interest rate of the Mortgages was 3.52%
(2019 – 3.52%).
(v)
During 2020, the REIT incurred financing fees of $36 (2019 – $407). The amounts are accounted for using
the effective interest method, and $1,864 remains unamortized at December 31, 2020 (2019 – $2,371).
The credit facilities described above (the “Credit Facilities”) and the Mortgages are secured by the REIT’s investment
properties. As of December 31, 2020, the REIT had nine unencumbered properties with an aggregate fair value of
approximately $150,490.
Principal repayments are as follows:
2021 .......................................................................................................................................................
$23,750
2022 .......................................................................................................................................................
18,156
2023 .......................................................................................................................................................
275,859
2024 .......................................................................................................................................................
72,205
2025 .......................................................................................................................................................
Thereafter ..............................................................................................................................................
327
7,597
Total........................................................................................................................................................
$397,894
(b) Interest Rate Swaps
The REIT entered into interest rate derivative contracts to limit its exposure to fluctuations in the interest rates payable
on variable rate financings for Facility 1, Facility 2, and Facility 3. Gains or losses arising from changes in the fair
value of the interest rate derivative contracts are recognized in the consolidated statements of income (loss) and
comprehensive income (loss) (terms described in Note 8 (a)(i), (ii) and (iii) above).
As at December 31, 2020, the notional principal amount of the interest rate swaps was approximately $349,000
(December 31, 2019 – approximately $365,600) and the fair value adjustment of the interest rate swaps was
$(17,832) (December 31, 2019 – $(3,902)). This resulted in a liability balance of $22,847 (December 31, 2019 –
$5,016).
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9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
As at
December 31, 2020
December 31, 2019
Accounts payable and accrued liabilities
Accrued interest
Distributions payable (Note 10)
Lease liabilities (Note 2(g))
$4,873
323
3,192
6,990
$15,378
$3,332
381
3,192
7,356
$14,261
As at December 31, 2020, the REIT, as lessee, is committed under long term land and other leases that are classified
as a liability to make lease payments with minimum annual rental commitments as follows (not including imputed
interest costs):
Within 1 year ...........................................................................................................................................
After 1 year, but not more than 5 years ..................................................................................................
More than 5 years ...................................................................................................................................
Total ........................................................................................................................................................
$388
2,038
4,564
$6,990
10. DISTRIBUTIONS
Paid in Cash
Declared
Payable as at period end
December 31, 2020
December 31, 2019
Units
$30,308
30,308
2,526
Class B
LP Units
$7,988
Total
$38,296
Units
Class B
LP Units
Total
$20,741
$7,988
$28,729
7,988
38,296
666
3,192
21,806
2,526
7,988
29,794
666
3,192
11. UNITHOLDERS’ EQUITY AND CLASS B LP UNITS
Units
The REIT is authorized to issue an unlimited number of Units.
Each Unit is transferable and represents an equal, undivided beneficial interest in the REIT and any distributions
from the REIT, whether of net income, net realized capital gains (other than such gains allocated and distributed to
redeeming Unitholders) or other amounts and, in the event of the termination or winding-up of the REIT, in the net
assets of the REIT remaining after satisfaction of all liabilities. All Units rank equally among themselves without
discrimination, preference or priority and entitle the holder thereof to receive notice of, to attend and to one vote at
all meetings of Unitholders and holders of Special Voting Units or in respect of any written resolution thereof.
Unitholders are entitled to receive distributions from the REIT (whether of net income, net realized capital gains or
other amounts) if, as and when declared by the Board. Upon the termination or winding-up of the REIT, Unitholders
will participate equally with respect to the distribution of the remaining assets of the REIT after payment of all liabilities.
Such distribution may be made in cash, as a distribution in kind, or both, all as the Board in its sole discretion may
determine.
Units have no associated conversion or retraction rights. No person is entitled, as a matter of right, to any pre-emptive
right to subscribe for or acquire any Unit, except for Dilawri as set out in the Exchange Agreement entered into on
closing of the IPO between the REIT and certain members of the Dilawri Group, pursuant to which such members of
the Dilawri Group have been granted, among other things, certain rights to participate in future offerings of the REIT.
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Class B LP Units
In conjunction with the IPO, and as partial consideration for the Initial Properties, the REIT, through the Partnership,
issued Class B LP Units to certain members of the Dilawri Group. Each Class B LP Unit is exchangeable at the option
of the holder for one Unit (subject to certain anti-dilution adjustments), is accompanied by a Special Voting Unit
(which provides the holder with that number of votes at any meeting of Unitholders to which a holder of the number
of Units that may be obtained upon the exchange of the Class B LP Unit to which such Special Voting Unit is attached
would be entitled), and will receive distributions of cash from the Partnership equal to the distributions to which a
holder of the number of Units that may be obtained upon the exchange of the Class B LP Unit to which such Special
Voting Unit is attached would be entitled.
For the year ended December 31, 2020
Units, beginning of year
Units issued, net of costs
Total Units, end of year
Class B LP Units, beginning of year
Fair value adjustment on Class B LP Units
Total Class B LP Units, end of year
Total Units and Class B LP Units, end of year
For the year ended December 31, 2019
Units, beginning of year
Units issued, net of costs
Total Units, end of year
Class B LP Units, beginning of year
Fair value adjustment on Class B LP Units
Total Class B LP Units, end of year
Total Units and Class B LP Units, end of year
12. UNIT BASED-COMPENSATION
Units
37,697,052
-
37,697,052
9,933,253
-
9,933,253
47,630,305
Units
21,796,552
15,900,500
37,697,052
9,933,253
-
9,933,253
47,630,305
Amount
$380,757
-
380,757
$120,689
(14,304)
$106,385
$487,142
Amount
$212,334
168,423
380,757
$89,101
31,588
$120,689
$501,446
The REIT offers an Equity Incentive Plan (the “Plan”) whereby DUs may be granted to eligible Participants on a
discretionary basis by the Governance, Compensation and Nominating Committee of the Board. The maximum
number of Units available for issuance under the Plan is 1,000,000. Each DU is economically equivalent to one Unit,
however, under no circumstances shall DUs be considered Units nor entitle a Participant to any rights as a Unitholder,
including, without limitation, voting rights or rights on liquidation. Each DU shall receive a distribution of additional
IDUs equal to the amount of distributions paid per Unit by the REIT on its Units. Upon vesting of the DUs and IDUs,
a Participant may elect, prior to the expiry of such DU or IDU, to exchange such vested DUs and IDUs (subject to
satisfaction of any applicable withholding taxes) for an equal number of Units. The holder of such DUs and IDUs
Certain DUs awarded under the Plan will vest over time and are subject to
cannot settle the DUs and IDUs for cash.
the achievement of performance vesting conditions.
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Under the Plan, the fair value of the DUs and IDUs is recognized as compensation expense over the vesting
period. Fair value is determined with reference to the market price of the Units.
The Units are redeemable at the option of the holder and are considered puttable instruments in accordance with
IAS 32. As the exemption under IAS 32 does not apply to IFRS 2 — Share Based Payments, the DUs and IDUs are
accounted for as a liability. The deferred unit liability is adjusted to reflect the change in their fair value at each
reporting period with the changes in fair value recognized as compensation expense.
During the year ended December 31, 2020, the REIT accrued short-term incentive awards in the amount of $459
which will be settled by the granting of DUs (December 31, 2019 – $384).
All independent trustees of the REIT elected to receive board and committee fees in the form of DUs. The fair value
of each DU granted is measured based on the volume-weighted average trading price of the Units for the five trading
days immediately preceding the grant date. A summary of DUs and IDUs outstanding under the Plan is outlined
below:
Outstanding DUs and IDUs, beginning of year
DUs
IDUs
Fair value adjustments
Outstanding DUs and IDUs, end of year (1)
As at December 31, 2020
As at December 31, 2019
Units
267,187
119,985
29,089
-
Amount
Units
$3,246 119,417
1,018 133,366
298
(99)
14,404
-
Amount
$1,072
1,505
182
487
416,261
$4,463 267,187
$3,246
(1) During the year ended December 31, 2020, a total of 187,552 DUs and IDUs were granted (2019 – 232,953), of which 53,781 DUs and IDUs
will be accounted for in accordance with the vesting schedule (2019 – 100,999). As at December 31, 2020, a total of 586,123 DUs and IDUs
have been granted since the inception of the plan (2019 – 398,571).
13. RENTAL REVENUE AND PROPERTY COSTS
(a) Rental Revenue
For the year ended December 31,
Base rent
Property tax recoveries
Straight line rent adjustment
Rental revenue
(b) Property Costs
For the year ended December 31,
Property tax expense
Bad debt expense (Note 3)
Property cost
14. SEGMENT INFORMATION
2020
$61,312
10,828
2,984
$75,124
2020
$10,828
277
$11,105
2019
$54,384
10,226
2,970
$67,580
2019
$10,226
-
$10,226
All of the REIT’s assets and liabilities are in, and its revenues are derived from, the Canadian real estate industry
segment. The REIT’s investment properties are, therefore, considered by management to have similar economic
characteristics.
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15. CAPITAL MANAGEMENT
The REIT defines its capital as the aggregate of Unitholders’ equity, Class B LP Units, Credit Facilities and Mortgages
which, as at December 31, 2020, totaled $893,664 (December 31, 2019 – $913,210). The REIT is free to determine
the appropriate level of capital in the context of its cash flow requirements, overall business risks and potential
business opportunities. The REIT will make adjustments to its capital based on its investment strategies and changes
to economic conditions.
In order to maintain or adjust its capital structure, the REIT may increase or decrease the amount of distributions
paid to Unitholders, issue new Units and debt, or repay debt. The REIT manages its capital structure with the objective
of:
•
•
complying with the guidelines set out in its Declaration of Trust;
complying with debt covenants;
• ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and
strategic plans;
• maintaining financial capacity and flexibility through access to capital to support future growth; and
• minimizing its cost of capital while taking into consideration current and future industry, market and economic
risks and conditions.
The REIT has certain key financial covenants in its Credit Facilities and Mortgages, including debt service ratios and
leverage ratios, as defined in the respective agreements. These ratios are measured by the REIT on an ongoing
basis to ensure compliance with the agreements. As at December 31, 2020, the REIT was in compliance with each
of the covenants under these agreements.
16. FAIR VALUES AND FINANCIAL INSTRUMENT RISK MANAGEMENT
The fair value of the REIT’s financial assets and financial liabilities, except as noted below, approximate their carrying
values due to their short-term nature.
The following table provides the classification and measurement of financial assets and liabilities as at December
31, 2020:
Financial Assets/(Liabilities)
Credit Facilities and Mortgages Payable
Interest Rate Swaps
Class B LP Units
DUs and IDUs
Classification/
Measurement Carrying Value Fair Value
$(397,894)
Amortized Cost
$(396,030)
FVTPL
FVTPL
FVTPL
(22,847)
(106,385)
(4,463)
(22,847)
(106,385)
(4,463)
$(529,725)
$(531,589)
The following table provides the classification and measurement of financial assets and liabilities as at December
31, 2019:
Financial Assets/(Liabilities)
Credit Facilities and Mortgages Payable
Interest Rate Swaps
Class B LP Units
DUs and IDUs
Classification/
Measurement Carrying Value Fair Value
Amortized Cost
$(400,299)
$(397,929)
FVTPL
FVTPL
FVTPL
(5,016)
(120,689)
(3,246)
(5,016)
(120,689)
(3,246)
$(526,880)
$(529,250)
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The REIT uses various methods to estimate the fair values of assets and liabilities that are measured at fair value
on a recurring or non-recurring basis in the statement of financial position after initial recognition. The fair value
hierarchy reflects the significance of inputs used in determining the fair values.
- Level 1 – quoted prices in active markets for identical assets and liabilities;
- Level 2 – inputs other than quoted prices in active markets or valuation techniques where significant inputs
are based on observable market data; and
- Level 3 – valuation technique for which significant inputs are not based on observable market data.
The following summarizes the significant methods and assumptions used in estimating the fair value of the REIT’s
assets and liabilities measured at fair value:
(i)
Investment Properties
The REIT assessed the valuation of the investment properties using a discounted cash flow approach
whereby a current discount rate was applied to the projected net operating income which a property can
reasonably be expected to produce in the future. The fair value of investment properties as at December
31, 2020 is $932,229 (December 31, 2019 – $888,129) (Level 3).
(ii)
Credit Facilities and Mortgages
The fair value of the REIT’s Credit Facilities and Mortgages is determined based on the present value of
future payments, discounted at the yield on Government of Canada bonds, plus an estimated credit
spread at the reporting date for a comparable loan (Level 2).
(iii)
Interest Rate Swaps
The fair value of the REIT’s interest rate swaps which represents a liability balance as at December 31,
2020 is $22,847 (December 31, 2019 – $5,016). The fair value of an interest rate swap is determined
using rates observable in the market (Level 2).
(iv)
Class B LP Units
The fair value of the Class B LP Units as at December 31, 2020 is $106,385 (December 31, 2019 –
$120,689). The fair value of the Class B LP Units is based on the traded value of the Units as at
December 31, 2020 (Level 1).
(v)
DUs and IDUs
The fair value of the DUs and IDUs as at December 31, 2020 is $4,463 (December 31, 2019 – $3,246).
The fair value of the DUs and IDUs is based on the traded value of the Units as at December 31, 2020
(Level 1).
Financial Risk Management
The REIT’s activities expose it to a variety of financial risks. The main risks arising from the REIT’s financial
instruments are market, liquidity and credit risks. Below is a description of those risks and how the exposures
are managed. See also Note 3 for a discussion of the risks and uncertainties related to the COVID-19 pandemic.
Market Risk
The REIT is exposed to market risk as a result of changes in factors such as interest rates and the market price
of the Units.
Interest Rate Risk - The majority of the REIT’s debt is financed with floating rates. Interest rate swaps (with
maturities staggered over 10 years) have been entered into to mitigate interest rate fluctuations, thereby
mitigating the exposure to changes in interest rates.
Unit Price Risk - The REIT is exposed to Unit price risk as a result of the issuance of Class B LP Units. Class B
LP Units are recorded at their fair value based on market trading prices. Class B LP Units negatively impact net
income (loss) when the Unit price rises and positively impact net income (loss) when the Unit price declines.
Liquidity Risk
Liquidity risk arises from the possibility of an inability to renew maturing debt or not having sufficient capital
available to the REIT. Mitigation of liquidity risk is discussed above in Note 15 - Capital Management. A significant
portion of the REIT’s assets have been pledged as security under the REIT’s Credit Facilities and Mortgages.
Certain of the Credit Facilities allow for an extension of the term in advance of expiration.
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Credit Risk
The REIT is exposed to credit risk from the possibility that counterparties could default on their financial
obligations to the REIT. Exposure to credit risk arises from the possibility that the REIT’s counterparties may
experience financial difficulty and be unable to meet their obligations. The REIT’s revenues will be dependent on
the ability of the tenants to meet their obligations and the REIT’s ability to collect rent therefrom. See also Note
3 for a discussion of the risks and uncertainties related to the COVID-19 pandemic.
17. RELATED PARTY TRANSACTIONS
The REIT’s independent trustees approve all related party transactions in accordance with the Related Party
Transaction Policy adopted by the Board. The Dilawri Tenants are the REIT’s major tenant and accounted for
approximately 61.9% of the REIT’s rental income for the year ended December 31, 2020 (December 31, 2019 –
61.7%).
Pursuant to the Administration Agreement prior to its termination effective December 31, 2019, Dilawri provided, or
caused to be provided, if and as requested by the REIT, subject to the overriding supervision and direction of the
Board, management consisting of the REIT’s President and Chief Executive Officer and Chief Financial Officer and
Corporate Secretary and operating and administrative support functions. Services were provided under the
Administration Agreement on a cost-recovery basis.
General and administrative expenses include for the year ended December 31, 2020 $nil (December 31, 2019 —
$1,050) paid by the REIT to Dilawri pursuant to the Administration Agreement.
In consideration of the applicable Dilawri Tenants leasing the entirety of the two Initial Properties with third party
tenants (and thereby bearing occupancy, rental and other risks associated with the portions of those properties
subleased to third party tenants for the initial lease terms of 12 and 15 years), the REIT paid to such Dilawri Tenants
an indemnity fee in the aggregate amount of $1,000 at the time of closing of the IPO (amortizable over the term of
the leases).
On October 24, 2017, Dilawri paid the REIT $896 in respect of the recoverable land transfer tax associated with the
acquisition of the Initial Properties. To defer the land transfer tax, the REIT subsequently issued the LCs to the land
transfer tax authority in the amount of approximately $753 on behalf of specific members of the Dilawri Group that
sold certain of the Initial Properties to the REIT in connection with the IPO. The Dilawri Group held all of the 9,933,253
issued and outstanding Class B LP Units for 3 years subsequent to the IPO and, accordingly, the LCs are expected
to be released. The REIT is working with the applicable tax authorities and Dilawri to secure the release of the LCs.
In connection with the IPO, the REIT and Dilawri entered into the Strategic Alliance Agreement which established a
preferential and mutually beneficial business and operating relationship between the REIT and Dilawri. The Strategic
Alliance Agreement will be in effect so long as Dilawri and certain other entities related to Dilawri own, control or
direct, in the aggregate, an effective interest of at least 10% (on a fully diluted basis) in the REIT. The Strategic
Alliance Agreement provides the REIT with the first right to purchase REIT-Suitable Properties (as defined in the
Strategic Alliance Agreement) in Canada or the United States acquired or developed by the Dilawri Group. The
purchase price in respect of a REIT-Suitable Property will be mutually agreed by the REIT and Dilawri at the
applicable time and supported by an independent appraisal report. Pursuant to the Strategic Alliance Agreement, the
REIT acquired the following investment properties in 2020 and 2019:
• On February 6, 2020, the REIT acquired the Acura North Vancouver automotive dealership property from a
member of the Dilawri Group for $17,500 and leased it to a Dilawri Tenant.
• On February 5, 2020, the REIT acquired the Regina BMW automotive dealership property from a member of the
Dilawri Group for $11,350 and leased it to a Dilawri Tenant.
• On September 19, 2019, the REIT acquired the Audi Queensway automotive dealership property from a member
of the Dilawri Group for $36,500 and leased it to a Dilawri Tenant.
See also Note 19 – Subsequent Events.
Key personnel consist of the REIT’s executive officers and Independent Trustees. Compensation of key personnel are
as follows:
For the year ended December 31,
Salaries, benefits and short-term incentives of executive officers
DUs and IDUS paid to executive officers
Independent Trustee fees paid in DUs and IDUs
Compensation of key personnel
2020
$1,303
515
417
$2,235
Automotive Properties REIT 2020
2019
$384
1,006
332
$1,722
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18. SUPPLEMENTARY INFORMATION
Changes in non-cash operating accounts
(in thousands of Canadian dollars)
Accounts receivable and other assets
Additions to right-of-use assets
Accounts payable and accrued liabilities
Additions to lease liabilities
2020
2019
$(1,939)
$(197)
-
(7,603)
519
248
-
7,603
Change in non-cash operating accounts
$(1,420)
$51
19. SUBSEQUENT EVENTS
On January 11, 2021, the REIT renewed a Mortgage in the amount of approximately $5,791 for a term of 7 years at an
interest rate of 2.21%.
On March 1, 2021, the REIT acquired the real estate underlying the Lexus Laval automotive dealership located in Laval,
Quebec, for approximately $14,800 plus acquisition costs of $550, from the Dilawri Group. The REIT funded the purchase
price for the property through the issuance of 1,369,102 Units to the applicable member of the Dilawri Group, valued at
approximately $14,800. The Lexus Laval property is a 30,015 square foot full-service automotive dealership property. As
a result of the Unit issuance, Dilawri’s effective interest in the REIT increased to approximately 28.1% through the
ownership of 3,827,554 Units and all of the Class B LP Units.
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