2 0 2 2 A N N U A L R E P O R T
Consolidating
Canada’s Automotive
Dealership Properties
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Fellow unitholders,
Please find enclosed Automotive Properties REIT’s 2022 Management’s Discussion and Analysis and
Financial Statements.
We are pleased with our 2022 performance and strong start in 2023, as we have benefited from a
disciplined approach to both acquisitions and debt structure. In 2021, we saw limited attractive
acquisition opportunities as the automotive industry was able to access capital at low interest rates. Our
acquisition activity picked up in early 2022, as pandemic-related uncertainties diminished, short-term
interest rates increased, and yields returned closer to recent historical levels, allowing us to acquire
attractive properties in our core markets.
During January and February of 2022, we deployed $65 million on acquisitions, including two Honda
dealership properties in Québec, the land underlying the Langley Acura automotive dealership in Langley,
B.C., and Tesla automotive service centre properties in Barrie, Ontario, and Québec City. We now have six
properties tenanted by Tesla in our portfolio.
We continued to generate growth in our key performance metrics in 2022, driven by our acquisition
program and contractual rent increases. Compared to 2021, our property rental revenue grew 5.9%, cash
net operating Income (“NOI”) increased by 6.7%, same property cash NOI increased 2.3%, and adjusted
funds from operations (“AFFO”) per unit increased to $0.90 on a fully diluted basis, compared to $0.89 in
2021. For 2022, we paid total cash distributions of $39.4 million, or $0.804 per Unit, to our unitholders,
representing an AFFO payout ratio of 89.5%, compared to total cash distributions of $39.2 million, or
$0.804 per unit, in 2021, representing an AFFO payout ratio 90.3%.
As part of our debt strategy, we have consistently completed longer term interest rate swaps or increased
our utilization of fixed-rate mortgages to insulate our existing debt from potential future interest rate
increases and enhance our financial flexibility. Throughout 2022, we executed several transactions to
extend the maturity of our debt, increase the amount available, and reduce our exposure to higher
interest rates through rate swaps. At 2022 year-end, our debt carried an effective weighted average
interest rate of 3.94% and a weighted average interest rate swap and mortgage term of 5.1 years, and
99% was fixed through interest rate swaps and mortgages.
During the fourth quarter of 2022, we further enhanced our financial flexibility through the sale of the
Kingston Toyota and Lexus of Kingston automotive dealership properties. We completed the sale at a
capitalization rate of 6.1%, resulting in a sale price of approximately $18 million, and a gain of
approximately $1.7 million over IFRS fair value as at June 30, 2022.
Our debt structure, combined with capital recycling related to the Kingston properties sale, positioned us
to complete our second largest transaction to date. On January 3, 2023, we competed the acquisitions of
six full-service automotive dealership properties in Québec for approximately $98.5 million. Four of these
properties, including Hamel Honda, Honda Ste-Rose, Chomedey Toyota and Mazda de Laval, are located
in Laval and St. Eustache in the Greater Montreal Area, and two of the properties – Hyundai Sorel and Kia
Sorel – are located in Sorel-Tracy, northeast of Montreal. In conjunction with the Québec property
acquisitions, we increased the amount available under our non-revolving credit facilities by $70 million to
help finance the aggregate purchase price.
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Affiliates of Groupe Olivier Capital are now the operating tenants of these properties, and they have each
entered into long-term, triple-net leases with the REIT that include a contractual annual rent increase
based on the Québec Consumer Price Index (“CPI”), and no less than 1.5%, after year one of the lease
term. The leases have a weighted average term of approximately 16 years.
CPI-linked leases represented 18% of our base rent in 2022, up from 16% in 2021. This increase
contributed to our 2.3% same property cash NOI growth for 2022. As a result of our recent acquisitions of
the six Québec dealership properties, our leases containing annual CPI-linked adjustments now represent
approximately 26% of our full year base rent in 2023. Contracted annual rent increases across our
portfolio, including a greater proportion of our leases with CPI-linked adjustments, partially insulate us
from inflation. We are further insulated by our triple-net lease structure, as property level, operating and
energy costs are the responsibility of our tenants.
In 2024, existing leases containing CPI-linked adjustments will represent approximately 36% of our base
rent including leases containing CPI-linked adjustments with a cap. This increased exposure to CPI-linked
contractual rent increases will help drive future AFFO and same property cash NOI growth.
We continue to advance our strategy of strengthening our property portfolio through the diversification
of our tenant base, geographic presence, automotive brand representation and lease structures. Looking
ahead, the focus of our acquisition program will remain on preferred markets, property location,
automotive brands, the financial strength of the tenant group, and transactions that increase AFFO per
unit. We will continue to monitor the impact of the interest rate environment and inflation on our
property portfolio and the overall real estate industry, and strategically adjust our debt structure
to minimize any future interest rate increase impact. Fluctuations in interest rates, inflation and the
credit environment also impact valuations, and may provide attractive buying opportunities. Following
the recent acquisitions of the six properties in Québec, as at March 16, 2023, we had approximately
$60 million of undrawn capacity under our credit facilities and four unencumbered properties with an
aggregate value of approximately $61.5 million. Our Proforma Debt to GBV ratio was 44.9%.
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, continue to build our portfolio and enhance unitholder value.
On behalf of the Board of Trustees, management, and personnel of Automotive Properties REIT, thank
you for your confidence and support.
Sincerely,
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, 2022
Table of Contents
SECTION 1 – GENERAL INFORMATION AND CAUTIONARY STATEMENTS......................................... 3
Basis of Presentation ....................................................................................................................... 3
The REIT .......................................................................................................................................... 3
Forward-Looking Statements ........................................................................................................... 5
Non-IFRS Financial Measures ......................................................................................................... 6
Non-IFRS Ratios: ............................................................................................................................. 8
Supplementary Financial Measures: ............................................................................................... 8
SECTION 2 – OVERVIEW, STRATEGY AND OBJECTIVES ...................................................................... 9
Overview .......................................................................................................................................... 9
Strategy and Objectives ................................................................................................................... 9
SECTION 3 - PROPERTY PORTFOLIO .................................................................................................... 11
Portfolio Overview .......................................................................................................................... 11
Income Producing Property Portfolio Summary ............................................................................ 12
GLA by Major Metropolitan Area Across Canada .......................................................................... 13
Profile of Overall Lease Maturity as at December 31, 2022 .......................................................... 14
Property Use and Brand Diversification ......................................................................................... 14
Description of the REIT’s Key Tenant ........................................................................................... 15
Dilawri Additional and Non-ASPE Measures ................................................................................. 16
SECTION 4 –KEY PERFORMANCE INDICATORS AND SELECTED FINANCIAL INFORMATION ....... 17
SECTION 5 – RESULTS OF OPERATIONS ............................................................................................. 18
Net Income and Comprehensive Income ...................................................................................... 18
Rental Revenue and Property Costs ............................................................................................. 19
General and Administrative Expenses .......................................................................................... 19
Interest Expense and Other Financing Charges ........................................................................... 19
Changes in Fair Values of Investment Properties ......................................................................... 20
Changes in Fair Values of Class B LP Units, Unit-based compensation and Interest Rate Swaps21
SECTION 6 – NON-IFRS FINANCIAL MEASURES .................................................................................. 21
Reconciliation of NOI, Cash NOI, FFO and AFFO to Net Income and Comprehensive Income .. 21
FFO, AFFO and Cash NOI ............................................................................................................ 22
Same Property Cash Net Operating Income ................................................................................. 23
Reconciliation of Cash Flow from Operating Activities to ACFO ................................................... 23
SECTION 7 – LIQUIDITY AND CAPITAL RESOURCES........................................................................... 24
Capital Structure ............................................................................................................................ 24
Debt Financing ............................................................................................................................... 26
Unitholders’ Equity (including Class B LP Units and Unit-based compensation) .......................... 27
Financing Metrics and Debt Covenants ......................................................................................... 29
SECTION 8 – RELATED PARTY TRANSACTIONS .................................................................................. 30
Strategic Alliance Agreement ........................................................................................................ 31
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Automotive Properties REIT 2022 SECTION 9 − OUTLOOK ........................................................................................................................... 31
SECTION 10 – OTHER DISCLOSURES ................................................................................................... 32
Commitments and Contingencies .................................................................................................. 32
Disclosure Controls and Internal Controls over Financial Reporting ............................................. 32
SECTION 11 – QUARTERLY RESULTS OF OPERATIONS .................................................................... 33
SECTION 12 – RISKS & UNCERTAINTIES, CRITICAL JUDGMENTS & ESTIMATES ........................... 34
APPENDIX .................................................................................................................................................. 54
Property List as at December 31, 2022 ......................................................................................... 54
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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, 2022 and December 31, 2021. 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, 2022 (“Q4 2022”) are against results for the three months ended December
31, 2021 (“Q4 2021”), and comparisons of results for the twelve months ended December 31, 2022 (“2022”) are against
results for the twelve months ended December 31, 2021 (“2021”), 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, 2022 and December 31, 2021. Further information about the
REIT can be found in the REIT’s annual information form dated March 16, 2023 (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
16, 2023.
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 76
income-producing commercial properties. The properties are located in metropolitan areas across British Columbia,
Alberta, Saskatchewan, Manitoba, Ontario and Quebec, totaling approximately 2.8 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 31.5% effective interest in the REIT on a fully diluted basis as at December 31, 2022 (December 31, 2021
– 28.4%), through the ownership, direction or control of all of the 9,327,487 outstanding Class B limited partnership units
(“Class B LP Units”) of Automotive Properties Limited Partnership, the REIT’s operating subsidiary (the “Partnership”),
and 6,361,620 trust units of the REIT (“REIT 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 April 28, 2022, the Dilawri Group
exchanged 605,766 Class B LP Units for an equal number of REIT Units in accordance with the terms of the amended
and restated limited partnership agreement of the Partnership dated July 22, 2015 (the “Exchange”). The Exchange was
valued at $8,450.
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On January 3, 2023, the REIT acquired the real estate underlying six full-service automotive dealerships located in
Quebec (“2023 Quebec Properties”), for approximately $98,500, plus acquisition costs of $3,600. Four of the 2023
Quebec Properties are located in Laval and St. Eustache in the Greater Montreal Area (Hamel Honda, Honda Ste-Rose,
Chomedey Toyota and Mazda de Laval), and two of the 2023 Quebec Properties are located in Sorel-Tracy, northeast
of Montreal (Hyundai Sorel and Kia Sorel). The 2023 Quebec Properties cumulatively total 187,421 square feet of GLA.
The REIT funded the acquisitions through draws on its non-revolving and revolving credit facilities and cash on hand.
On January 17, 2022, the REIT acquired the real estate underlying the Sherbrooke Honda and Magog Honda automotive
dealership properties located in Magog and Sherbrooke, Quebec, for a combined purchase price of approximately
$23,422, plus acquisition costs of $1,094. The two full-service automotive dealership properties cumulatively total 83,185
square feet of GLA. The REIT funded the acquisitions by drawing on its revolving credit facilities and cash on hand.
On January 20, 2022, the REIT acquired the freehold interest in the approximately 2.15 acres of land underlying the
Langley Acura automotive dealership property (the “Langley Land Lease”) for approximately $15,050, plus acquisition
costs of $125. The land was previously leased to the REIT and continues to be tenanted by the Langley Acura
automotive dealership in Langley, British Columbia. The REIT will continue to receive land and leasehold rent payments
from the operating tenant of the Langley Acura dealership, an affiliate of the Dilawri Group, but will no longer be required
to pay land lease payments. The Langley Acura property is a 26,448 square-foot full-service automotive dealership
property. The REIT funded the purchase price by drawing on its revolving credit facilities.
On February 1, 2022, the REIT acquired a parcel of land in Ottawa, Ontario, which adjoins the REIT’s Bank Street
Toyota automotive dealership property, for approximately $650, plus acquisition costs of $53. The property consists of
a 550 square-foot building on 4,500 square feet of land and is currently tenanted by a health care provider. . The REIT
funded the purchase price by drawing on its revolving credit facilities.
On February 25, 2022, the REIT acquired the real estate underlying the Tesla automotive service centre properties
located at 2180 and 2200 Cyrille-Duquet Street in Quebec City, Quebec, for a combined purchase price of approximately
$16,000, plus acquisition costs of $511. The two full-service automotive service centre properties are tenanted by Tesla
Canada and total 50,673 square feet of GLA. The REIT funded the acquisitions by drawing on its revolving credit
facilities.
On February 25, 2022, the REIT acquired the real estate underlying the Tesla Barrie automotive service centre property
located in Innisfil, Ontario, for $9,800, plus acquisition costs of $483. The Tesla Barrie property includes a 16,670 square-
foot automotive service centre tenanted by Tesla Canada. The REIT funded the purchase price by drawing on its
revolving credit facilities.
On November 28, 2022 the REIT sold the real estate underlying the Kingston Toyota and Lexus of Kingston automotive
dealerships for $18,000, less disposition costs of $48.
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 $462. The Lexus
Laval property is a 30,015 square foot full-service automotive dealership property. 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.
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.
As at December 31, 2022, the total number of issued and outstanding REIT Units and Class B LP Units was 39,727,346
and 9,327,487, respectively, for a total of 49,054,833 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”.
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Automotive Properties REIT 2022 The REIT announced monthly cash distributions of $0.067 per REIT Unit, resulting in total distributions declared and
paid of $9,860 for Q4 2022 (Q4 2021 - $9,574). For the year ended December 31, 2022, the REIT declared and paid
total distributions of $39,427 (2021 - $39,221).
As at December 31, 2022, the REIT had a Debt to GBV ratio (as defined below) of 40.0% and $79,121 of undrawn
capacity under its Credit Facilities (as defined below), cash on hand of $396 and ten unencumbered properties with an
aggregate value of approximately $120,000. Following the 2023 Quebec Properties acquisitions, the REIT’s Proforma
Debt to GBV ratio (calculated as the total debt as at December 31, 2022 of $433,757 plus the purchase price of $98,500
and related acquisition costs of $3,600 divided by the total assets as at December 31, 2022 of $1,093,818 plus the
purchase price of $98,500), equals 44.9%. The REIT currently has approximately $60,000 of undrawn capacity under
its Credit Facilities and four unencumbered properties with an aggregate value of approximately $61,500. See Section
7 “Liquidity and Capital Resources”.
In April 2022, the REIT increased the non-revolving portion of Facility 1 (as defined below) by $50,000 at the same
credit spread and extended the term to maturity from June 2023 to June 2027. The REIT also entered into floating-to-
fixed interest rate swaps totaling $40,000 for a weighted-average term of 8.5 years at a blended rate of 4.75%. See
Section 7 “Liquidity and Capital Resources”.
In January 2023, in connection with the acquisition of the 2023 Quebec Properties, the REIT increased the non-revolving
portion of Facility 3 by $70,000 at the same credit spread. The principal is repayable in quarterly blended payments
based on a 25-year amortization. The REIT entered into floating-to-fixed interest rate swaps for a weighted-average
term of 7.6 years at a blended rate of 4.91%. See Section 7 “Liquidity and Capital Resources”.
In February 2023, the REIT entered into a new mortgage in the amount of $9,000 for a term of five years at an interest
rate of 5.05%. See Section 7 “Liquidity and Capital Resources”.
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”,
“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:
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the impact of changes in economic conditions, including changes in interest rates and the rate of inflation;
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’s expectations with respect to the proportion of leases containing CPI-related adjustments in 2023 and
2024;
the REIT representing a unique alternative for automotive dealership operators considering a sale or
recapitalization of their business;
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the REIT’s capital expenditure requirements and capital expenditures to be made by the REIT and the REIT’s
tenants;
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 rules in the Tax Act applicable to “SIFT trusts”
and “SIFT partnerships” (the “SIFT Rules”); and
the REIT’s ability to acquire automotive dealership and automotive service centre 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 elevated and interest rates may increase in 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.
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 on which the statements are made in 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.
The information in this MD&A is current to December 31, 2022, unless otherwise noted.
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. This MD&A contains certain financial measures and ratios 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
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Automotive Properties REIT 2022 (“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 and ratios, 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).
“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
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.
“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.
“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.
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Automotive Properties REIT 2022 “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.
Non-IFRS Ratios:
“FFO payout ratio” is calculated as distributions paid per Unit divided by the FFO per Unit diluted.
“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 payout ratio” is calculated as distributions declared divided by ACFO.
Supplementary Financial Measures:
“EBITDA” is defined as earnings before income tax, depreciation, and amortization.
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.
“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
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.
Automotive Properties REIT 2022
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8
Automotive Properties REIT 2022 “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.
“Proforma Debt to GBV” means the REIT’s ratio of Indebtedness to GBV as at December 31, 2022 adjusted to give
effect to the REIT’s acquisition of the 2023 Quebec Properties.
SECTION 2 – OVERVIEW, STRATEGY AND OBJECTIVES
Overview
According to DesRosiers Automotive Consultants Inc., based on original equipment manufacturer submissions,
Canadian new, light vehicle unit sales for 2022 decreased by approximately 9.1% compared to 2021, which was
predominantly a result of the supply chain constraints experienced within the retail automotive industry in 2022.
Historically, Canada’s automotive retail industry has been characterized by strong industry fundamentals. According to
Statistics Canada, automotive retail industry sales totaled approximately $188 billion in 2022 (up 6.8% from
approximately $176 billion in 2021), 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 4.1%. The tables below
contain new automobile sales by units in Canada for the 2022 and 2021 calendar years as provided by Statistics Canada:
Twelve Months Ended December 31 (units)
2022
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)
183,538
182,607
45,024
34,704
24,354
38,198
645,384
6,777
374,111
41,747
1,576,444
(12,387)
(16,269)
(4,371)
(2,925)
(4,148)
(6,501)
(18,792)
(1,402)
(32,475)
(961)
(100,231)
(6.5%)
(8.0%)
(9.0%)
(8.2%)
(15.1%)
(14.5%)
(3.0%)
(13.8%)
(7.5%)
(1.9%)
(5.9%)
2021
196,362
198,581
49,466
37,817
28,673
44,689
665,161
7,861
404,466
42,557
1,675,633
New vehicle sales represent a portion of overall dealer profitability, as significant profit contributions are also generated
from used vehicle sales, service and parts, finance and insurance. The REIT’s portfolio of diverse dealership and service
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”).
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
Automotive Properties REIT 2022
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9
Automotive Properties REIT 2022
• 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 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 and predictable 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 15% 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 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 13 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, increase
the value of its properties over time. These increases are expected to come from the following sources:
• Each of the existing 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
Automotive Properties REIT 2022
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Automotive Properties REIT 2022 • Contractual fixed rent escalators or consumer price index (“CPI”) adjustments are expected, wherever possible,
to be negotiated into new leases entered into by the REIT. CPI-related leases represented 18% of base rent in
2022 (2021 – 16%). As a result of the acquisition of the 2023 Quebec Properties, the leases containing CPI-
related adjustments represent approximately 26% of the REIT’s full year base rent in 2023. The CPI adjustments
related to the 2023 Quebec Properties do not commence until 2024. For 2024, the REIT’s existing leases with
tenants that contain uncapped CPI-related adjustments will represent approximately 26% of the REIT’s base
rent, and an additional 10% of the REIT’s existing leases will be subject to capped CPI-related adjustments.
SECTION 3 - PROPERTY PORTFOLIO
Portfolio Overview
As at December 31, 2022, the REIT’s portfolio consisted of 70 income-producing commercial properties, representing
approximately 2.6 million square feet of gross leasable area, in metropolitan markets across British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario and Quebec. Out of the 70 income-producing commercial properties, 37 are
exclusively occupied by the Dilawri Group for use as automotive dealerships or, in one case, an automotive repair facility,
while one of the other 33 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 32 properties are exclusively occupied by other dealership groups or original equipment manufacturers for
use as automotive dealerships, automotive service centres or for automotive 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 accounted
for approximately 58.8% of the REIT’s 2022 base rent, including rent from properties subleased to third parties (2021 -
61.8%).
As of the date of this MD&A, as a result of the acquisition of the 2023 Quebec Properties, the REIT’s portfolio consists
of 76 income-producing commercial properties, representing approximately 2.8 million square feet of gross leasable
area, in metropolitan markets across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec. Out of
the 76 income-producing commercial properties, 37 are exclusively occupied by the Dilawri Group for use as automotive
dealerships or, in one case, an automotive repair facility, while one of the other 39 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 38 properties are exclusively occupied by other
dealership groups or original equipment manufacturers for use as automotive dealerships, automotive service centres
or for automotive ancillary services, such as a vehicle service compound facility or a repair facility. Consequently, the
Dilawri Group is the REIT’s most significant tenant, for 2023 the Dilawri Group will represent approximately 53.8% of
the REIT’s base rent, including rent from properties subleased to third parties. The overall portfolio continues to be 100%
leased.
The applicable Dilawri Tenant is the lead tenant for the Dixie Auto Mall until July 2030. As of December 31, 2022, two
premises at the Dixie Auto Mall were leased but unoccupied and are being used for automotive ancillary purposes;
however, this does not affect the term of the applicable Dilawri Leases.
Overall, at December 31, 2022, the REIT’s properties had a weighted average rental rate of $26.27 per square foot
($25.92 as at December 31, 2021). The increase from 2021 is due to the contractual rent increases and lease renewals
applied to specific properties throughout the year. As of the date of this MD&A, the REIT’s properties had a weighted
average rental rate of $27.03 per square foot, with a weighted average lease term of 10.7 years.
Automotive Properties REIT 2022
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Automotive Properties REIT 2022
Income Producing Property Portfolio Summary
As at December 31, 2022
British Columbia(2)
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Total Portfolio
As at December 31, 2021
British Columbia(2)
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Total Portfolio
Number of
Properties GLA (sq. ft.)
Average
rental rate
(per sq. ft.)(1)
Weighted
Average Lease
Term (yrs)
8
13
9
2
27
11
199,244
467,508
203,560
96,135
1,058,889
608,967
70
2,634,303
$38.95
$28.70
$23.82
$22.50
$28.31
$18.12
$26.27
11.1
10.1
8.1
15.3
10.3
11.1
10.5
Number of
Properties GLA (sq. ft.)
Average
rental rate
(per sq. ft.)(3)
Weighted
Average Lease
Term (yrs)
8
13
9
2
27
7
199,244
467,508
203,560
96,135
1,083,025
475,019
66
2,524,491
$37.93
$28.05
$23.47
$21.62
$27.45
$17.22
$25.92
12.1
11.1
9.1
16.3
11.9
12.2
11.6
(1) Based on 12-month period contractual rental revenue commencing December 31, 2022.
(2) Excludes land leases, which expenses are passed on to the tenant.
(3) Based on 12-month period contractual rental revenue commencing December 31, 2021.
As of the date of this MD&A (including the 2023 Quebec Properties):
As at March 16, 2023
British Columbia(1)
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Total Portfolio
Number of
Properties GLA (sq. ft.)
Average
rental rate
(per sq. ft.)(2)
Weighted
Average Lease
Term (yrs)
8
13
9
2
27
17
199,244
467,508
203,560
96,135
1,058,889
796,388
76
2,821,724
$39.11
$28.90
$23.91
$22.67
$28.42
$22.51
$27.07
10.9
9.9
7.8
15.0
10.0
12.2
10.7
(1) Excludes land leases, which expenses are passed on to the tenant.
(2) Based on 12-month period contractual rental revenue commencing January 1, 2023.
Automotive Properties REIT 2022
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Automotive Properties REIT 2022
GLA by Major Metropolitan Area Across Canada
A significant majority of the REIT’s properties are located within major metropolitan areas across Canada.
Appendix “A” in this MD&A contains a list and description of the REIT’s properties as at December 31, 2022.
As of the date of this MD&A (including the 2023 Quebec Properties):
Automotive Properties REIT 2022
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Automotive Properties REIT 2022
Profile of Overall Lease Maturity as at December 31, 2022
The REIT’s lease portfolio matures between 2026 and 2040 as set out in the chart below:
Lease Maturity Profile (*)
(cid:1009)(cid:856)(cid:1004)
(cid:3)
(cid:410)
(cid:374)
(cid:1008)(cid:856)(cid:1004)
(cid:286)
(cid:90)
(cid:286)
(cid:400)
(cid:1007)(cid:856)(cid:1004)
(cid:258)
(cid:17)
(cid:3)
(cid:296)
(cid:381)
(cid:1006)(cid:856)(cid:1004)
(cid:1081)
(cid:3)
(cid:1005)(cid:856)(cid:1004)
(cid:882)
(cid:1013)(cid:856)(cid:1009)(cid:1081) (cid:1005)(cid:1004)(cid:856)(cid:1011)(cid:1081) (cid:1011)(cid:856)(cid:1013)(cid:1081) (cid:1012)(cid:856)(cid:1013)(cid:1081) (cid:1012)(cid:856)(cid:1009)(cid:1081)
(cid:1005)(cid:1005)(cid:856)(cid:1009)(cid:1081) (cid:1013)(cid:856)(cid:1005)(cid:1081) (cid:1005)(cid:1004)(cid:856)(cid:1007)(cid:1081)
(cid:1010)(cid:856)(cid:1006)(cid:1081)
(cid:1008)(cid:856)(cid:1010)(cid:1081)
(cid:1008)(cid:856)(cid:1005)(cid:1081)
(cid:1008)(cid:856)(cid:1004)(cid:1081)
(cid:1007)(cid:856)(cid:1009)(cid:1081)
(cid:1006)(cid:1009)(cid:1081)
(cid:1006)(cid:1004)(cid:1081)
(cid:1005)(cid:1009)(cid:1081)
(cid:1005)(cid:1004)(cid:1081)
(cid:1005)(cid:856)(cid:1006)(cid:1081)
(cid:1009)(cid:1081)
(cid:882)
(cid:918)(cid:1006)(cid:1005)
(cid:918)(cid:1006)(cid:1006)
(cid:918)(cid:1006)(cid:1007)
(cid:918)(cid:1006)(cid:1008)
(cid:918)(cid:1006)(cid:1009)
(cid:918)(cid:1006)(cid:1010)
(cid:918)(cid:1006)(cid:1011)
(cid:918)(cid:1006)(cid:1012)
(cid:918)(cid:1006)(cid:1013)
(cid:918)(cid:1007)(cid:1004)
(cid:918)(cid:1007)(cid:1005)
(cid:918)(cid:1007)(cid:1006)
(cid:918)(cid:1007)(cid:1007)
(cid:918)(cid:1007)(cid:1008)
(cid:918)(cid:1007)(cid:1009)
(cid:918)(cid:1007)(cid:1010)
(cid:918)(cid:1007)(cid:1011)
(cid:918)(cid:1007)(cid:1012)
(cid:918)(cid:1007)(cid:1013)
(cid:918)(cid:1008)(cid:1004)
(*) Based on 12-month period contractual rental revenue commencing December 31, 2022.
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, 2022:
Manufacturer / Brand
REIT Auto
Property GLA
(Sq. Feet)
% of REIT Auto
Property GLA
% of REIT Base
Rent(1)
No. of REIT
Locations
Honda (2)(9)
BMW (3)
Volkswagen
Tesla (4)
Audi (5)
Toyota(9)
Acura (2)
General Motors
Other (6)
Porsche (7)
435,626
320,824
252,299
238,879
237,484
185,230
162,081
99,851
97,566
84,569
16.8%
12.5%
9.6%
9.1%
9.1%
7.1%
6.2%
3.8%
3.7%
3.2%
15.8%
10.6%
10.7%
6.3%
10.9%
6.6%
7.1%
3.2%
4.4%
4.7%
11
7
7
6
6
4
6
2
7
2
Automotive Properties REIT 2022
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14
Automotive Properties REIT 2022
Chrysler (8)
Mazda(9)
Hyundai(9)
Nissan
Mercedes Benz
Kia(9)
Lexus
Infiniti
Subaru
Mitsubishi
Total(9)
81,750
81,352
80,950
71,521
60,850
39,543
30,015
19,355
19,033
14,750
3.1%
3.1%
3.1%
2.7%
2.3%
1.5%
1.1%
0.7%
0.7%
0.6%
1.9%
3.7%
3.4%
2.9%
2.2%
1.8%
1.4%
1.2%
0.6%
0.6%
2
4
4
3
1
2
1
3
2
2
2,613,528
100.0%
100.0%
82
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Based on 12-month period contractual base rent commencing January 1, 2022.
Includes Honda Used Car and Regina Collision Centre. Regina Honda/Acura split 75% and 25% of 30,863 sq. ft. Also includes the
former Markham Ford, which is being used for ancillary purposes by Markham Honda.
Includes MINI.
Includes the following Tesla service centre properties: Tesla KW, Tesla Laval, Tesla Edmonton, Tesla Barrie, and Tesla Quebec City
(two adjoining properties).
Includes the Audi service property (formerly Infiniti Vancouver).
The Dilawri Group subleased a property in Calgary to Grand Touring Automobile which operates Aston Martin and Bentley. In addition,
Grand Touring Automobile sells a variety of luxury used vehicles. 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. Also includes: a Harley Davidson dealership and a VinFast dealership located in the Dixie Auto Mall. Also includes a
Hyundai dealership which has vacated their premises located in the Dixie Auto Mall. The applicable Dilawri Tenant will continue to be
the lead tenant for the Dixie Auto Mall until July 2030. Includes 3 vehicle compound facilities.
Includes Porsche JLR Edmonton.
Includes Dodge, FIAT, Jeep and RAM.
As of the date of this MD&A, as a result of the acquisition of the 2023 Quebec Properties, total GLA increased to 2,805,373 resulting
in a total of 88 REIT locations, including: two additional Honda properties, one Toyota property, one Mazda property, one Hyundai
property and one Kia property, which are not included in the table above.
p I ’ K
At the time of the IPO, Dilawri agreed to provide certain financial information to the REIT pursuant to a financial
information and confidentiality agreement for so long as the annual basic rent payable by the applicable members of the
Dilawri Group, collectively, under their respective Dilawri Leases represented, in the aggregate, 60% or more of the
REIT’s Cash NOI during any rolling period of 12 consecutive calendar months, determined quarterly. As of December
31, 2022, such annual basic rent payable represented approximately 59.1% of the REIT’s Cash NOI during the 12-
month period ended December 31, 2022. As a result, the REIT and Dilawri have entered into an agreement pursuant to
which Dilawri will continue to provide its Combined Revenues, EBITDA and Pro Forma Adjusted Rent Coverage Ratio
on a trailing 12-month basis (with a comparative period for the prior 12 month period) until the REIT releases its financial
results for the fiscal year ended December 31, 2023.
The following chart summarizes certain relevant financial information of the Dilawri Group for the 12 months ended
December 31, 2022 with comparative figures for the 12 months ended December 31, 2021 as provided to the REIT by
Dilawri (all figures are approximations, not in thousands):
Automotive Properties REIT 2022
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Automotive Properties REIT 2022
p’ F I on (approximations, not in thousands)
December 31, 2022
LTM(1)
December 31, 2021
LTM(1)
Combined Revenues (not audited or reviewed)
$4.1 billion
$3.8 billion
EBITDA (not audited or reviewed)
$235.4 million
$213.3 million
Pro Forma Adjusted Rent Coverage Ratio (not audited or
reviewed)
5.6(2)
4.8(3)
Notes:
(1)
(2)
(3)
“LTM” means the last twelve months.
As at December 31, 2022.
As at December 31, 2021.
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.
Pursuant to an undertaking provided by Dilawri to the Canadian securities regulatory authorities in connection with the
IPO, Dilawri provides to the REIT carve-out interim financial statements and the related management’s discussion and
analysis in respect of the members of the Dilawri Group subject to leases pertaining to the Initial Properties for the year
ended December 31, 2022 and 2021. These documents, once provided by Dilawri to the REIT, will be available on the
REIT’s SEDAR profile at www.sedar.com.
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 under Canadian accounting standards for private enterprises (“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 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”, which is a key measure of performance used by automotive
dealership businesses, refers to the Pro Forma Adjusted Rent Coverage Ratio of the Dilawri Group on a
non-consolidated combined basis. Pro Forma Adjusted Rent Coverage Ratio is a non-ASPE financial ratio and is not
defined by ASPE or IFRS and does not have a standardized meaning prescribed by ASPE or IFRS.
Non-ASPE financial ratio:
“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.
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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.
Operating Results
Rental Revenue
NOI (1)
Cash NOI (1)
Same Property Cash NOI (1)
Same Property Cash NOI (excluding bad debt
expense) (1)
Net Income
FFO (1)
AFFO (1)
Fair value adjustment to investment properties
Distributions per Unit
Net Income per Unit – basic (2)
Net Income per Unit – diluted (3)
FFO per Unit – basic (1) (4)
FFO per Unit – diluted (1) (5)
AFFO per Unit – basic (1) (4)
AFFO per Unit – diluted (1) (5)
Weighted average Units – basic (6)
Weighted average Units – diluted (7)
Payout ratio (%)
FFO (1)
AFFO (1)
Three Months Ended
December 31,
2021
2022
Twelve Months Ended
December 31,
2021
2022
$20,901
17,629
17,263
16,070
16,070
13,588
11,008
10,641
1,791
$0.201
0.277
0.273
0.224
0.221
0.217
0.213
49,054,833
49,847,669
$19,781
16,776
16,128
15,722
15,722
10,409
11,491
$82,861
70,575
68,533
64,155
64,155
83,365
46,748
10,921
21,069
$0.201
0.212
0.209
0.234
0.231
0.223
0.220
44,707
(2,285)
$0.804
1.700
1.674
0.953
0.939
0.912
0.898
49,013,407 49,035,475
49,733,057 49,802,602
$78,218
67,081
64,225
62,983
62,706
85,418
46,529
43,987
75,157
$0.804
1.751
1.728
0.954
0.941
0.902
0.890
48,786,577
49,446,138
91.0%
94.4%
87.0%
91.4%
85.6%
89.5%
85.4%
90.3%
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
Fixed weighted average effective interest rate on debt (excludes revolving
Credit Facilities) (8)(10)
Proportion of total debt at fixed interest rates through swaps and
Mortgages(10)
Weighted average interest rate swap term and Mortgage remaining
(years) (10)
Weighted average term to maturity of debt(10)
Interest Coverage Ratio (9)
As at
December 31,
2022
$1,093,818
$431,075
49,054,833
$12.97
$636,241
6.42%
As at
December
31, 2021
$1,051,650
$442,777
49,013,407
$14.95
$732,750
6.30%
As at
December
31, 2020
$936,352
$438,718
47,630,305
$10.71
$510,121
6.70%
3.94%
3.72%
3.76%
99%
5.1
3.9
3.5X
92%
91%
5.3
2.9
5.9
2.9
3.8X
3.6X
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Automotive Properties REIT 2022
Debt Service Coverage Ratio (9)
Debt to GBV(11)
1.7X
40.0%
1.9X
40.2%
1.8X
43.2%
(1) NOI, Cash NOI, Same Property Cash NOI, FFO, AFFO, FFO per Unit, AFFO per Unit, FFO payout ratio and AFFO payout ratio are non-IFRS measures or non-IFRS
ratios, as applicable. See Section 1 “General Information and Cautionary Statements – Non-IFRS Financial Measures” and Section 6 “Non-IFRS Financial Measures”
of this MD&A.
(2) Net Income per Unit — basic is calculated in accordance with IFRS by dividing the Net Income by the amount of the weighted average number of outstanding REIT
Units and Class B LP Units.
(3) Net Income per Unit — diluted is calculated in accordance with IFRS by dividing the Net Income by the amount of the weighted average number of outstanding REIT
Units, Class B LP Units, DUs, IDUs, RDUs and PDUs (each as defined below) granted to certain Trustees and management of the REIT.
(4) 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.
(5) 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, IDUs, RDUs and PDUs granted to certain Trustees and management of the REIT.
(6) The weighted average number of outstanding Units — basic includes the Class B LP Units.
(7) The weighted average number of outstanding Units — diluted includes the Class B LP Units, DUs, IDUs, RDUs and PDUs granted to certain Trustees and
management of the REIT.
(8) The fixed weighted average effective interest rate on debt is calculated on an annualized basis.
(9) For 2022 ratios, see Section 7 “Financing Metrics and Debt Covenants”.
(10) As at the date of this MD&A, the REIT had a weighted average term to maturity of debt of 3.6 years, weighted average interest rate swap and mortgage term remaining
of 4.9 years, and 95% of the REIT’s debt fixed with a weighted average effective interest rate on debt of 4.12%.
(11) As at the date of this MD&A, the REIT’s Proforma Debt to GBV ratio is 44.9%.
SECTION 5 – RESULTS OF OPERATIONS
Net Income and Comprehensive Income
Net Property Income
Base rent
Property tax recoveries
Lease Termination Fee
Straight-line rent adjustment
Rental Revenue
Property tax expense
Bad debt recovery
Land lease termination
Property Costs
NOI(1)
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
and Unit-based compensation
Fair value adjustment on investment
properties
Net Income and Comprehensive Income
Three Months Ended
December 31,
2021
2022
Twelve Months Ended
December 31,
Variance
2022
2021 Variance
$17,349
3,272
-
280
20,901
(3,272)
-
-
(3,272)
17,629
(1,860)
(4,721)
(180)
(1,875)
2,804
$16,287
3,005
-
489
19,781
(3,005)
-
-
(3,005)
16,776
(1,252)
(3,957)
3,268
(1,997)
(23,498)
$1,062
267
-
(209)
1,120
(267)
-
-
(267)
853
(608)
(764)
(3,448)
122
26,302
1,791
21,069
(19,278)
$13,588
$10,409
$3,179
$68,710
12,454
-
1,697
82,861
(12,454)
-
168
(12,286)
70,575
(5,561)
(17,957)
25,999
(7,621)
20,215
(2,285)
$83,365
$64,245
11,414
339
2,220
78,218
(11,414)
277
-
(11,137)
67,081
$4,465
1,040
(339)
(523)
4,643
(1,040)
(277)
168
(1,149)
3,494
(4,673)
(888)
(15,580)
(2,377)
15,976
(7,988)
10,023
367
(44,555)
64,770
75,157
(77,442)
$85,418
$(2,053)
(1) NOI is a non-IFRS measure. See Section 1 “General Information and Cautionary Statements – Non-IFRS Financial Measures” and Section 6 “Non-IFRS Financial
Measures” of this MD&A.
For Q4 2022, net income was $13,588 compared to $10,409 in Q4 2021. The increase was primarily due to an increase
in fair value adjustments for Class B LP Units, Unit-based Compensation (which consists of Deferred Units (“DUs”),
Income Deferred Units (“IDUs”), Performance Deferred Units (“PDUs”) and Restricted Deferred Units (“RDUs”)) ,
partially offset by fair value adjustments on investment properties and interest rate swaps and increased general and
administrative and interest expenses. For 2022, net income was $83,365 compared to $85,418 in 2021. The decrease
was primarily due to a decrease in fair value adjustments for investment properties, and increased general and
administrative and interest expenses, partially offset by an increase in fair value adjustments for Class B LP Units and
Unit-based compensation and interest rate swaps. NOI was $17,629 in Q4 2022 as compared to $16,776 in Q4 2021,
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and for 2022 was $70,575 compared to $67,081 in 2021. The increases for were primarily due to the properties acquired
during and subsequent to 2021 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 2022, base rent was $17,349, an increase of $1,062, or 6.5%, compared to Q4 2021 and rental revenue was
$20,901, an increase of $1,120, or 5.7%, compared to Q4 2021. The increase was attributable to the properties acquired
subsequent to Q4 2021 and contractual rent increases.
For 2022, base rent was $68,210, an increase of $4,465, or 6.9%, compared to 2021 and rental revenue was $82,861,
an increase of $4,643, or 5.9%, compared to 2021. The increase was attributable to the properties during and acquired
subsequent to 2021 and contractual rent increases.
Property costs for Q4 2022 and 2022 were $267 and $1,149 higher than Q4 2021 and 2021, respectively. The increases
in Q4 2022 and 2022 are attributable to the properties acquired during and subsequent to 2021.
General and Administrative Expenses
The table below illustrates the breakdown of general and administrative expenses incurred in Q4 2022 and 2022 as
compared to Q4 2021 and 2021:
Human resource costs
Public entity and other costs
Independent Trustee fees
General and administrative expenses
Q4 2022 Q4 2021
$767
373
112
$1,159
554
147
$1,860
$1,252
Variance
$392
181
35
$608
2022
$3,669
1,298
594
$5,561
2021 Variance
$3,052
1,212
409
$4,673
$617
86
185
$888
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, accruals for IDUs
and the vesting of long-term DUs, PDUs and RDUs. The increases in human resource costs in Q4 2022 and 2022 of
approximately $392 and $617, respectively, resulted primarily from the increases in short-term and long-term
performance awards, and the vesting of long-term compensation.
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 ROU assets. Public entity costs will fluctuate from quarter to
quarter depending on when such expenses are incurred. There was an increase in public entity and other costs of $181
and $86 for Q4 2022 and 2022, respectively, as compared to Q4 2021 and 2021. The increase in 2022 was primarily
due to the REIT’s growth and inflation.
As at December 31, 2022, 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
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 2022 and 2022, the REIT paid the Independent Trustees $147 and $594, respectively, related to the
granting of DUs and IDUs, representing an increase of $35 and $185, respectively, compared to the corresponding prior-
year periods.
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 2022 and 2022, the interest expense and other financing
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charges were $4,721 and $17,957, respectively, representing increases of $764 and $2,377 from Q4 2021 and 2021,
respectively. The increases are primarily due to additional debt incurred by the REIT to acquire properties subsequent
to Q4 2021, together with an increase to interest rates.
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 that 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 which indicated an increase in capitalization rates from December 31, 2021. The nominal fair value
adjustments for Q4 2022 reflects the changes in the valuation inputs, resulting in an increase in value for the properties
containing CPI adjustments, partially offset by the changes in valuation inputs decreasing the value of the properties
containing fixed rate escalators.
For Q4 2022 and 2022, the fair value adjustments in investment properties were $1,791 and $(2,285), respectively,
compared to $21,069 for Q4 2021 and $75,157 for 2021. Overall, there was a capitalization rate increase of 5 basis
points applicable to the entire portfolio for Q4 2022, and an increase of 12 basis points for 2022. The increase was a
result of market conditions, where valuation inputs were adjusted across the entire portfolio, which resulted in the
increase in the overall capitalization rate to 6.42% (September 30, 2022 – 6.37%; December 31, 2021 – 6.30%).
Furthermore, the REIT continued to amortize one land lease property. The historical book value of the investment
properties owned by the REIT as at December 31, 2022 was $947,622 (December 31, 2021 – $899,000).
The weighted average discount rate applicable to the whole portfolio as at December 31, 2022 was 7.18% (December
31, 2021 – 7.07%). The weighted average terminal capitalization rate applicable to the whole portfolio as at December
31, 2022 was 6.88% (December 31, 2021 – 6.75%).
The fair value adjustments for 2022 were a result of the following factors:
• The transaction costs related to all acquisitions completed during 2022 resulting in a fair value decrease in 2022.
• As a result of market conditions, the REIT adjusted valuation inputs in 2022 which resulted in fair value
decreases for properties with fixed rate escalators and fair value increases for properties with CPI-related
adjustments.
• The REIT recognized a gain as a result of the sale of the real estate underlying the Kingston Toyota and Lexus
automotive dealership properties in November 2022.
• NOI increases from investment properties resulted in a fair value increase for 2021.
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
investment property which represents greater than 15% of the overall portfolio value will be appraised annually. In 2022,
the REIT had 20 investment properties (2021 – 21) independently appraised, representing approximately $392,000
(2021 – $440,000) of the REIT’s fair value of income producing properties. The REIT’s historical capitalization rate has
ranged from 6.3% to 6.7% since its IPO.
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 $43,300 or $(40,000), 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 $90,200 or $(77,200), respectively.
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Automotive Properties REIT 2022
Changes in Fair Values of Class B LP Units, Unit-based compensation and Interest Rate
Swaps
The Class B LP Units, Unit-based compensation 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 and comprehensive income.
Under IFRS, the Class B LP Units and Unit-based compensation are classified as financial liabilities and measured at
fair value through profit and loss (FVTPL). The fair value of the Class B LP Units and Unit-based compensation will be
measured every period by reference to the traded value of the REIT Units, with changes in measurement recorded in
net income and comprehensive income. 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 and Unit-based compensation in Q4 2022 of $2,804 (Q4 2021 – decrease of $23,498) and an increase
of $20,215 for 2022 (2021 – decrease of $44,555).
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 and comprehensive income.
The fair value adjustments for interest rate swaps for Q4 2022 and 2022 reflected a loss of $(180) (Q4 2021 – gain of
$3,268) and a gain of $25,999 (2021 – gain of $15,976), respectively. The Q4 2022 and 2022 variance reflect an increase
in interest rates in the derivative market as at December 31, 2022.
SECTION 6 – NON-IFRS FINANCIAL MEASURES
Reconciliation of NOI, Cash NOI, FFO and AFFO to Net Income and Comprehensive Income
The REIT uses the following non-IFRS key performance indicators and ratios: 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 and comprehensive
income are set out in the following table:
($000s, except per Unit amounts)
Calculation of NOI
Property revenue
Property costs
NOI (including straight-line adjustments)
Adjustments:
Land lease payments
Straight-line adjustment
Cash NOI
Reconciliation of net income to FFO and AFFO
Net income and comprehensive income
Adjustments:
Change in fair value — Interest rate swaps
Distributions on Class B LP Units
Change in fair value – Class B LP Units and Unit-based
compensation
Change in fair value — investment properties
Three Months Ended
December 31,
2021
2022
$20,901
(3,272)
$17,629
(86)
(280)
$17,263
$19,781
(3,005)
$16,776
(159)
(489)
$16,128
Variance
$1,120
(267)
$853
73
209
$1,135
Twelve Months Ended
December 31,
2021
2022
$82,861
(12,286)
$70,575
(345)
(1,697)
$68,533
$78,218
(11,137)
$67,081
(635)
(2,221)
$64,225
Variance
$4,643
(1,149)
$3,494
290
524
$4,308
$13,588
$10,409
$3,179
$83,365
$85,418
$(2,053)
180
1,875
(3,268)
1,997
3,448
(122)
(25,999)
7,621
(15,976)
7,988
(10,023)
(367)
(2,804)
23,498
(26,302)
(20,215)
44,555
(64,770)
(1,791)
(21,069)
19,278
2,285
(75,157)
77,442
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ROU asset net balance of depreciation/interest and lease
payments(1)
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(2)
FFO per Unit – diluted(3)
AFFO per Unit – basic(2)
AFFO per Unit – diluted(3)
Distributions per Unit
FFO payout ratio
AFFO payout ratio
(40)
(76)
36
(309)
(299)
$11,008
$11,491
$(483)
$46,748
$46,529
(280)
(87)
$10,641
49,054,833
49,054,833
49,847,669
$0.224
$0.221
$0.217
$0.213
$0.201
91.0%
94.4%
(489)
(81)
$10,921
49,013,407
49,013,407
49,733,057
$0.234
$0.231
$0.223
$0.220
$0.201
87.0%
91.4%
209
(6)
$(280)
41,426
41,426
114,612
$(0.01)
$(0.01)
$(0.006)
$(0.007)
—
(4.0)%
(3.0)%
(1,697)
(344)
$44,707
49,054,833
49,035,475
49,802,602
$0.953
$0.939
$0.912
$0.898
$0.804
85.6%
89.5%
(2,221)
(321)
$43,987
49,013,407
48,786,577
49,446,138
$0.954
$0.941
$0.902
$0.890
$0.804
85.4%
90.3%
(10)
$219
524
(23)
$720
41,426
248,898
356,464
$(0.001)
$(0.002)
$0.010
$0.008
—
0.2%
0.8%
Includes the Langley Land Lease termination of $168 for 2022.
(1)
(2) 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.
(3) 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 and Unit-based compensation granted to certain Independent Trustees and management of the
REIT.
FFO, AFFO and Cash NOI
In Q4 2022, FFO decreased 4.2% to $11,008, compared to $11,491 in Q4 2021. FFO per Unit (diluted) for Q4 2022 was
$0.221, compared to $0.231 in Q4 2021. The decrease was primarily due to the increases in short-term and long-term
performance awards, interest expense and the vesting of long-term Unit-based compensation, partially offset by the
properties acquired subsequent to Q4 2021.
FFO for 2022 increased 0.5% to $46,748, compared to $46,529 in 2021. The increase was primarily due to the properties
acquired subsequent to 2021, together with contractual rent increases. FFO per Unit (diluted) was $0.939 in 2022,
compared to $0.941 in 2021. The decrease was primarily due to the increase in short-term and long-term performance
awards, interest expense and the vesting of long-term Unit-based compensation, partially offset by the properties
acquired during and subsequent to 2021.
In Q4 2022, AFFO decreased 2.6% to $10,641, compared to $10,921 in Q4 2021. AFFO per Unit (diluted) was $0.213
in Q4 2022, compared to $0.220 in Q4 2021. The decrease was primarily due to the increase in short-term and long-
term performance awards, interest expense and the vesting of long-term Unit-based compensation, partially offset by
the properties acquired subsequent to Q4 2021.
Cash NOI in Q4 2022 was $17,263 on $20,901 of revenue, compared to Cash NOI of $16,128 on revenue of $19,781
in Q4 2021. The increase was primarily due to the properties acquired subsequent to Q4 2021, together with contractual
rent increases.
AFFO for 2022 increased 1.6% to $44,707, compared to $43,987 in 2021; and Cash NOI in 2022 was $68,533 on
$82,861 of rental revenue, compared to Cash NOI of $64,225 on rental revenue of $78,218 in 2021. The increases were
primarily due to the properties acquired subsequent to 2021, together with contractual rent increases. AFFO per Unit
(diluted) was $0.898 in 2022, compared to $0.890 in 2021. The increase in AFFO per Unit (diluted) in 2022 was primarily
due to the properties acquired during and subsequent to 2021 and contractual rent increases.
For Q4 2022, the REIT declared and paid distributions to Unitholders of $9,860, or $0.201 per Unit (Q4 2021 – declared
and paid $9,852), and for 2022 the REIT declared and paid total distributions of $39,427 (2021 – declared and paid
$39,221). This resulted in an AFFO payout ratio of 94.4% in Q4 2022 (Q4 2021 – 91.4%) and 89.5% in 2022 (2021 –
90.3%). The AFFO payout ratio was higher in Q4 2022 primarily as a result of the increase in interest expense and
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Automotive Properties REIT 2022
short-term and long-term performance awards, and the vesting of long-term Unit-based compensation, partially offset
by the positive impact of acquisitions and contractual rent increases. The AFFO payout ratio was lower in 2022 primarily
due to the properties acquired during and subsequent to Q4 2021 and contractual rent increases.
Same Property Cash Net Operating Income
Same property base rental revenue
Bad debt recovery
Land lease payments
Same Property Cash NOI
Bad debt expense (recovery)
Same Property Cash NOI
(excluding bad debt expense)
Three Months Ended
December 31,
2021
$15,808
—
(86)
2022
$16,156
—
(86)
$16,070
—
$16,070
$15,722
—
$15,722
Twelve Months Ended
December 31,
Variance
$348
—
—
$348
—
$348
2022
$64,500
—
(345)
$64,155
—
$64,155
2021 Variance
$1,449
(277)
—
$63,051
277
(345)
$62,983
$1,172
277
(277)
$62,706
$1,449
Excluding bad debt recovery, Same Property Cash NOI increased 2.2% to $16,070 in Q4 2022 from $15,722 in Q4
2021, and 2.3% to $64,155 in 2022 from $62,706 in 2021. The increases are primarily a result of contractual rent
increases.
Reconciliation of Cash Flow from Operating Activities to ACFO
The REIT uses the following non-IFRS key performance indicator and ratio: ACFO and ACFO payout ratio. 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
Twelve Months Ended December 31,
2022
2022
2021
Variance
$64,544
618
(16,919)
(784)
(697)
$62,212
2,262
(14,674)
(557)
(183)
$2,332
(1,644)
(2,245)
(227)
(514)
(254)
(349)
(170)
$46,338
85.1%
(321)
$48,390
81.1%
95
151
$(2,052)
4.0%
ACFO decreased to $46,338 in 2022, compared to $48,390 in 2021, primarily due to the increase in interest costs due
to additional debt incurred by the REIT to acquire properties subsequent to Q4 2021, and higher interest rates. This
resulted in an ACFO payout ratio of 85.1% in 2022 (2021 – 81.1%).
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The REIT’s 2022 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, 2022,
the REIT had a Debt to GBV ratio of 40.0% and $79,121 of undrawn capacity under its Credit Facilities, cash on hand
of $396 and ten unencumbered properties with an aggregate value of approximately $120,000. As at the date of this
MD&A, the REIT’s Proforma Debt to GBV ratio is 44.9% and the REIT had approximately $60,000 of undrawn capacity
under its Credit Facilities and four unencumbered properties with an aggregate value of approximately $61,500.
SECTION 7 – LIQUIDITY AND CAPITAL RESOURCES
Capital Structure
Hedged
Term
(yrs)
0.5 to
9.8
0.5 to
7.9
3.0 to
9.0
Interest
Rate
BA + 150
bps, Prime
+25 bps
BA + 150
bps, Prime
+25 bps
BA + 150
bps, Prime
+50 bps
Term (yrs)
4.5 (1)
2.1 (2)
3.5 (3)
4.5 to
8.3(4)
(1)
(2)
(3)
n/a
Fixed 2.21%
to 3.72 %
P&I, 20 yrs and 25
yrs
Key Terms
Payments &
Interest/Amortization
Effective
Interest Rate
(fixed)
Outstanding as at
December 31,
2022
Outstanding as at
December 31,
2021
4.20%
$223,926(5)
$190,206(5)
3.52%
85,901
90,707
3.91%
3.25%
100,672(6)
111,100(6)
23,258
24,148
$433,757
$416,161
(2,682)
(2,178)
3.9
5.1
3.94%
$431,075
$413,983
Debt
Facility 1
Facility 2
Facility 3
Mortgages
Financing fees
Weighted Average
/Total
Class B LP Units and Unit-based
compensation
Cash Balance
$130,558
$157,386
$396
$474
Key Financing Metrics and Debt
Covenants (7)(8)
Debt
Covenant
Declaration of Trust
(9)
As at December
31, 2022
As at December
31, 2021
Interest coverage
Debt to GBV
Unitholders’ Equity (including
Class B LP Units and Unit-based
compensation)
Debt Service Coverage
AFFO payout ratio
-
-
<60% (10)
<60% (10)
>$120,000
>1.35(11)
(12) (13)
-
-
-
3.5
40.0%(10)
3.8
40.2%
$651,502
$617,757
1.7
89.5%
1.9
90.3%
(1)
In April 2022, the REIT increased the non-revolving portion of Facility 1 by $50,000 at the same credit spread and extended the term to maturity from June
2023 to June 2027.
In December 2022, the REIT extended the maturity of Facility 2 and the associated revolving facility from June 2024 to January 2025.
(2)
(3) Facility 3 and the associated revolving facility matures in June 2026.
(4)
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%. In April 2021, the REIT
entered into a Mortgage with a life insurance company in the amount of $10,000 for a term of 10 years at an interest rate of 3.39%.
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(5) $nil of the non-revolving balance of Facility 1 remains at floating rates (December 31, 2021 – $18,414).
(6) $nil of the non-revolving balance of Facility 3 remains at floating rates (December 31, 2021 – $5,187).
(7) The calculations of these ratios, which are non-IFRS measures, are set out under “Financing Metrics and Debt Covenants” below. See also Section 1, “General
Information and Cautionary Statements – Non-IFRS Financial Measures”.
(8) 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.
(9) 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.
(10) Including convertible debentures, the maximum ratio is 65%. As a result of the REIT’s acquisition of the 2023 Quebec Properties, the REIT’s Proforma Debt to
GBV ratio is 44.9%.
(11) Facility 1 changed in December 2022, from >1.40 to >1.35, Facility 2 >1.35, Facility 3 changed in December 2022, from >1.40 to >1.35.
(12) 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%.
(13) 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 AFFO payout ratio debt covenant is based on the rolling average of the last four fiscal quarters. For the four quarters
ended December 31, 2022, the AFFO payout ratio was approximately 89.5%.
In April 2022, the REIT increased the non-revolving portion of Facility 1 by $50,000 at the same credit spread and
extended the term to maturity from June 2023 to June 2027. The REIT also entered into floating-to-fixed interest rate
swaps totaling $40,000 for a weighted-average term of 8.5 years at a blended rate of 4.75%. In November 2022, the
non-revolving balance in Facility 1 of $26,800 was entered into floating-to-fixed interest rate swaps of an equivalent
amount, for a term of 10 years at an interest rate of 5.27%. In December 2022, the REIT blended and extended an
interest rate swap in Facility 1 for a term of 7 years at an interest rate of 5.24%.
In December 2022, the REIT extended the term to maturity of Facility 2 from June 2024 to January 2025 and paid down
the non-revolving portion of Facility 3 of $4,800.
In January 2023, as a result of the acquisition of the 2023 Quebec Properties, the REIT increased the non-revolving
portion of Facility 3 by $70,000 at the same credit spread. The principal is repayable in quarterly blended payments
based on a 25-year amortization. The REIT entered into floating-to-fixed interest rate swaps for a weighted-average
term of 7.6 years at a blended rate of 4.91%.
In February 2023, the REIT entered into a new Mortgage in the amount of $9,000 for a term of 5 years at an interest
rate of 5.05%.
As at the date of this MD&A the REIT’s debt (excludes revolving credit facilities) was fixed with a weighted average
interest rate of 4.12%.
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.
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Principal repayments are as follows:
2023 ......................................................................................................................................
$21,650
2024 ......................................................................................................................................
2025 ......................................................................................................................................
2026 ......................................................................................................................................
2027 ......................................................................................................................................
Thereafter ..............................................................................................................................
21,791
89,742
94,981
191,153
14,440
Total ......................................................................................................................................
$433,757
The REIT’s liquidity position as at December 31, 2022 includes approximately $79,121 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 pandemic, inflation and increased interest rates 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.
Capital required for investing activities will be addressed through additional borrowings or issuances of equity as
acquisition and development opportunities arise. As at December 31, 2022, ten 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 has approximately $60,000 of undrawn capacity under its Credit Facilities and four
unencumbered properties with an aggregate value of approximately $61,500.
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%-53% of GBV. As at December 31, 2022, the REIT’s Debt to GBV ratio was 40.0% (2021 – 40.2%). The nominal
change was a result of the repayment of existing debt from the proceeds of the sale of real estate underlying the Kingston
Toyota and Lexus automotive dealership properties. As a result of the REIT’s acquisition of the 2023 Quebec Properties,
the Proforma Debt to GBV ratio is 44.9%. 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 one life insurance company
and are secured by all but four of the REIT’s investment properties as of December 31, 2022 and as of the date of this
MD&A.
As at December 31, 2022, the REIT had total revolving Credit Facilities of $85,000 ($30,000 in Facility 1, $15,000 in
Facility 2, and $40,000 in Facility 3), of which $79,121 was undrawn (approximately $60,000 as of the date of this
MD&A).
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Automotive Properties REIT 2022
Financing Fees
During 2022, the REIT incurred financing fee expenses of $784 (2021 – $871). As at December 31, 2022, the amounts
are accounted for using the effective interest method, $2,682 remains unamortized (December 31, 2021 – $2,178).
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 and
comprehensive income.
The REIT’s weighted average interest rate swap term as of December 31, 2022 was 5.1 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, 2022.
Remaining Term
(yrs)
Amount
($000s)
Less than 1 Year
30,390
1-2 Years
2-5 Years
5-7 Years
22,743
119,430
120,167
Greater than 7 Years
112,438
Total Swapped
Fixed Rate Debt
(%)
7.5
5.6
29.5
29.7
27.7
5.1
405,168
100.0
As at December 31, 2022, the notional principal amount of the interest rate swaps was $405,168 (December 31, 2021
– $357,327) and the fair value adjustments for interest rate swaps for Q4 2022 and 2022 were a loss of $(180) (Q4 2021
– gain of $3,268) and a gain of $25,999 (2021 – gain of $15,976), respectively. This resulted in an asset balance of
$19,127 (December 31, 2021 – liability of $6,872).
In January 2023, as a result of the acquisition of the 2023 Quebec Properties, the REIT increased the non-revolving
portion of Facility 3 by $70,000 at the same credit spread. The principal is repayable in quarterly blended payments
based on a 25-year amortization. The REIT entered into floating-to-fixed interest rate swaps for a weighted-average
term of 7.6 years at a blended rate of 4.91%. As at the date of this MD&A, the notional principal amount of the interest
rate swaps was $469,897 at a weighted average interest rate swap term of 4.9 years and the REIT’s debt (excludes
revolving credit facilities) was fixed with a weighted average interest rate of 4.12%.
Unitholders’ q ( B L U and Unit-based compensation)
Unitholders’ equity consists of the 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
of the REIT (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
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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.
During the first quarter of 2022, 18,000 DUs were exchanged for REIT Units valued at $262, and in August 2022, 23,426
DUs and IDUs were exchanged for REIT Units valued at $302.
During the second quarter of 2022 (“Q2 2022”), the Dilawri Group exchanged 605,766 Class B LP Units for an equal
number of REIT Units.
As at December 31, 2022, the total number of REIT Units outstanding was 39,727,346.
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 and
comprehensive income. 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.
During Q2 2022, the Dilawri Group exchanged 605,766 Class B LP Units for an equal number of REIT Units.
As at December 31, 2022, the total number of Class B LP Units outstanding was 9,327,487.
Unit-based compensation
The REIT offers an Equity Incentive Plan whereby DUs, PDUs and RDUs may be granted to Trustees, officers and
employees of the REIT and other eligible persons (collectively, “Participants”) 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 1,750,000. Each DU, PDU and RDU is economically equivalent to one REIT Unit, however,
under no circumstances shall they 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, PDU and RDU 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, PDUs, RDUs and IDUs, a Participant may elect, prior to their expiry, to exchange such vested DUs, PDUs,
RDUs and IDUs (subject to satisfaction of any applicable withholding taxes) for an equal number of REIT Units. The
holder of such DUs, PDUs, RDUs and IDUs cannot settle these instruments in cash.
Certain DUs and RDUs awarded under the Plan will vest over time. PDUs awarded under the Plan will vest upon the
achievement of applicable 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, 2022, a total of 119,551 DUs, PDUs, RDUs and IDUs were granted (2021 –
139,423), of which 31,251 DUs, PDUs, RDUs and IDUs will be accounted for in accordance with the vesting schedule
(2021 – 49,003). As at December 31, 2022, a total of 808,820 DUs, PDUs, RDUs and IDUs have been granted (2021 –
730,695), of which 738,621 were accounted as outstanding (2021 – 594,244).
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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
Total Net Asset Value
Total Net Asset Value excluding interest rate swaps
REIT Units and Class B LP Units outstanding
Debt to GBV
Indebtedness outstanding:
Credit Facilities & Mortgages (excludes deferred financing costs)
Lease Liability
Gross Book Value
Total assets
Debt to GBV (1)
As at December 31,
2022
As at December 31,
2021
$1,071,308
22,510
(11,241)
(431,075)
$651,502
$632,375
49,054,833
$1,025,207
26,443
(13,038)
(420,855)
$617,757
$624,629
49,013,407
A
A1
B
$433,757
3,820
$416,161
6,602
1,093,818
1,051,650
((A+A1)/B) X 100
40.0%
40.2%
Unitholders’ Equity & Class B LP Units & DUs & IDUs
Unitholders’ Equity
Value of Unit-based compensation
Value of Class B LP Units
Total Unitholders’ Equity & Class B LP Units & Unit-based compensation
$520,944
9,580
120,978
$651,502
$460,371
8,884
148,502
$617,757
Calculations of financial metrics and debt covenants
Interest Coverage Ratio
Cash NOI (2)
Q4 2022
$17,263
Q4 2021
2022
2021
$16,128
$68,533
$64,225
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General and administrative expenses
Income before interest expense and fair value adjustments C
Interest expense and other financing charges
D
(1,860)
15,403
4,721
(1,252)
14,876
3,957
(5,561)
62,972
17,957
(4,673)
59,552
15,580
Interest Coverage Ratio (3)
C/D
3.3X
3.8X
3.5X
3.8X
Debt Service Coverage Ratio
Consolidated net income
Interest expense and other financing charges
Distribution expense on Class B LP Units
Amortization of other assets
Fair value adjustments, net
EBITDA (2)
Principal payments on debt
Interest payments on debt (excludes bank charges)
Debt Service
$13,588
$10,409
4,721
1,875
46
(4,415)
15,815
5,370
4,501
9,871
E
F
3,957
1,997
45
(839)
$83,365
17,957
7,620
197
$85,418
15,580
7,988
181
(43,929)
(46,578)
15,569
65,210
62,589
4,855
3,698
8,553
20,977
16,919
37,896
18,626
14,674
33,300
Debt Service Coverage Ratio (4)
E/F
1.6X
1.8X
1.7X
1.9X
AFFO payout ratio
AFFO (2)
Distributions on REIT Units
Distributions on Class B LP Units
10,641
7,985
1,875
9,860
10,921
7,855
1,997
9,852
44,707
31,804
7,620
39,427
43,987
31,233
7,988
39,221
AFFO payout ratio (2)(5)
94.4%
91.4%
89.5%
90.3%
Notes:
(1)
(2)
(3)
(4)
(5)
As a result of the REIT’s acquisition of the 2023 Quebec Properties, the Proforma Debt to GBV ratio is 44.9%.
Cash NOI, EBITDA, AFFO and AFFO payout ratio are non-IFRS measures or non-IFRS ratios, as applicable. See Section 1, “General Information and Cautionary Statements – Non-IFRS
Financial Measures” and Section 6, “Non-IFRS Financial Measures” of this MD&A.
The Interest Coverage Ratio for Q4 2022 was lower compared to the same period in the previous year, due to an increase in interest expense and other financing charges resulting from
higher debt placed as a result of the property acquisitions completed in 2022.
The Debt Service Coverage Ratio for Q4 2022 was lower compared to the same period in the previous year, primarily due to an increase in interest expense and other financing charges
resulting from higher debt placed as a result of the property acquisitions completed in 2022.
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, 2022 held an approximate
31.5% (2021 –28.4%) 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 6,361,620 REIT 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
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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, of which $579 remains outstanding
as at December 31, 2022 (the “LCs”). 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 outstanding 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.
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 2022 and 2021:
• On March 1, 2021, the REIT acquired the Lexus Laval automotive dealership property in Laval, Quebec from a
member of the Dilawri Group for $14,800 and leased it to a Dilawri Tenant.
SECTION 9 − OUTLOOK
The REIT is subject to risks associated with rising inflation, interest rates and availability of capital. As a result of rising
inflation and various factors occurring globally, as of the date of this MD&A, the Bank of Canada (“BoC”) has raised the
overnight rate by 425 basis points since the beginning of 2022 . As at the date of this MD&A, the BoC 10-year benchmark
bond yield has increased by 1.2% since the beginning of 2022 to approximately 2.8%. The REIT will continue to monitor
the impact of the interest rate environment and inflation on its property portfolio and the overall real estate industry.
Higher interest rates and inflation may also have an adverse effect on consumer demand. The REIT’s annual contractual
rent increases across its portfolio partially insulate it from inflation.
As at December 31, 2022, 99% of the REIT’s debt was fixed with a weighted average interest rate of 3.94% with a
weighted average interest swap term and Mortgages remaining of 5.1 years and weighted average term to maturity of
debt of 3.9 years. The REIT’s overall borrowing policy is to obtain secured credit facilities, principally on a fixed rate or
effectively fixed rate basis. This allows the REIT to achieve and maintain staggered maturities to lessen exposure to re-
financing risk in any particular period and achieve and maintain fixed rates to lessen exposure to interest rate increases.
The REIT also continues to extend loan terms and fixed rate periods as long as possible when borrowing conditions are
favourable.
The financial markets continually fluctuate, and it is therefore difficult for management to quantify the impact that the
pandemic and the other factors described above will have on the cost and availability of debt and equity capital to the
REIT. Management and the Trustees are continuing to closely monitor the impact of the pandemic, inflation and interest
rates on the REIT’s business and will continue to prudently manage the REIT’s available resources, and access to equity
and financing. The REIT has approximately $60,000 of undrawn capacity under its Credit Facilities and four
unencumbered properties with an aggregate value of approximately $61,500. The REIT’s Proforma Debt to GBV ratio
is 44.9%.
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Automotive Properties REIT 2022 The REIT will continue to monitor and strategically move floating and short term debt into fixed rate and/or long term
debt minimize any future interest rate increase impact. The fluctuation in the interest rate environment, inflation and
credit environment, impacts rental growth and capitalization rates overall in the real estate industry, and may also provide
attractive buying opportunities for the REIT.
The COVID-19 pandemic has impacted the vehicle supply chain, resulting in constraints of specific parts, models and
brands. Management believes these supply chain constraints will continue into the foreseeable future but will not have
a significant impact on the REIT’s tenants’ ability to pay rent.
Overall, the REIT believes that the fundamentals of the automotive dealership business remain solid, and that the
industry is resilient and essential.
As the only publicly traded Canadian real estate entity focused on owning automotive 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.
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 .........................................................................................................................................
$184
1,445
2,191
Total ..............................................................................................................................................................
$3,820
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, 2022. There have been no changes to
the REIT’s ICFR during Q4 2022 and the year ended December 31, 2022 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
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Automotive Properties REIT 2022 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
Net Income per Unit — basic(i)
Net Income per Unit — diluted(ii)
FFO per Unit — basic(iii)
FFO per Unit — diluted(iv)
AFFO per Unit — basic(iii)
AFFO per Unit — diluted(iv)
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 ratio
Notes:
Fourth
Quarter
2022
70
Third
Quarter
2022
Second
Quarter
2022
First
Quarter
2022
Fourth
Quarter
2021
Third
Quarter
2021
Second
Quarter
2021
First
Quarter
2021
72
72
72
66
66
66
66
2,638,177
2,679,533
2,679,533
2,679,533
2,524,491
2,524,491
2,524,491
2,524,491
20,901
17,629
13,588
0.277
0.273
0.224
0.221
0.217
0.213
94.4%
0.201
20,691
17,719
8,897
0.181
0.179
0.240
0.237
0.230
0.227
88.5%
0.201
20,835
20,434
19,781
19,462
19,562
19,413
17,684
31,174
0.636
0.626
0.245
0.241
0.233
0.229
87.8%
0.201
17,543
29,706
0.606
0.597
0.244
0.240
0.232
0.228
88.2%
0.201
16,776
10,409
0.212
0.209
0.234
0.231
0.223
0.220
91.4%
0.201
16,688
30,824
0.629
0.620
0.237
0.234
0.225
0.221
91.0%
0.201
16,860
17,858
0.364
0.359
0.240
0.236
0.224
0.221
91.0%
0.201
16,757
26,329
0.547
0.541
0.242
0.239
0.230
0.227
88.5%
0.201
49,054,833
49,847,669
49,041,338
49,031,407 49,031,407 49,013,407
49,013,407
49,005,099
48,101,885
49,834,877
49,799,512 49,748,964 49,733,057
49,717,307
49,685,935
48,712,838
$12.97
$13.25
$13.49
$14.57
$14.95
$12.73
$12.43
$11.44
1,093,818
1,109,437
1,112,169
1,101,997
1,051,650
1,011,008
992,449
965,510
40.0%
1.6X
41.2%
1.7X
41.2%
41.6%
40.2%
40.1%
41.2%
41.7%
1.7X
1.9X
1.9X
1.9X
1.9X
1.9X
(i)
(ii)
(iii)
(iv)
Net Income per Unit – basic is calculated in accordance with IFRS by dividing the Net Income by the amount of the weighted average number of
outstanding REIT Units and Class B LP Units.
Net Income per Unit – diluted is calculated in accordance with IFRS by dividing the Net Income by the amount of the weighted average number of
outstanding REIT Units, Class B LP Units, DUs, PDUs, RDUs and IDUs granted as at December 31, 2022, 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. FFO and AFFO per Unit are non-IFRS ratios. See Section 1 “General
Information and Cautionary Statements – Non-IFRS Financial Measures” of this MD&A.
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, 2022 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. FFO and AFFO per Unit are non-IFRS ratios. See Section 1 “General Information and Cautionary Statements – Non-IFRS
Financial Measures” of this MD&A.
The increase in rental revenue and NOI is primarily attributable to property acquisitions subsequent to 2020. Net income
is also impacted by fluctuations in fair value adjustments of Class B LP Units, investment properties and interest rate
swaps.
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Automotive Properties REIT 2022
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, 2022.
k F I ’ p wri
Significant Ownership by the Dilawri Organization
As at December 31, 2022 and as at the date of this MD&A, Dilawri had an approximate 31.5% effective interest in the
REIT on a fully-diluted basis through ownership, direction or control of 6,361,620 REIT Units and all of the Class B LP
Units. Each Class B LP Unit has attached to it, a Special Voting Unit of the REIT, providing for voting rights in the REIT.
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 at December 31, 2022, the REIT derived approximately 58.8% of its annual base rent from the Dilawri Group. As a
result of the 2023 Quebec Properties acquisition, for 2023 the Dilawri Group will represent approximately 53.8% of the
REIT’s base rent. 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, the Acura North Vancouver Property and the Lexus Laval 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 terms of the leases. 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
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Automotive Properties REIT 2022 approximately 53.7% of the REIT’s GLA as of December 31, 2022 and other dealership groups occupying the remainder.
The rent from the portions of the Dilawri Properties occupied by the Dilawri Group and sublease arrangements with the
Dilawri Group represents approximately 58.8% of the REIT’s base rent as of December 31, 2022, with the portions of
the REIT’s properties occupied by other dealership group tenants accounting for the remainder.
As of the date of this MD&A, the remaining terms of the Dilawri Leases range from approximately 3.3 to 17.0 years, with
a weighted average lease term of approximately 9.2 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.
Dilawri agreed to provide certain financial information to the REIT for inclusion in its public disclosure filings pursuant to
the terms of a financial information and confidentiality agreement entered into in conjunction with the IPO. Pursuant to
the terms of the agreement, Dilawri will provide this financial information to the REIT for so long as the annual basic rent
payable by the applicable members of the Dilawri Group, collectively, under their respective Dilawri Leases represents,
in the aggregate, 60% or more of the REIT’s Cash NOI during any rolling period of 12 consecutive calendar months,
determined quarterly, following which Dilawri will no longer be required to provide the above financial information to the
REIT and investors will no longer have access to this information, which could have an adverse effect on the trading
price of the REIT Units. As of December 31, 2022, the annual basic rent payable by the applicable members of the
Dilawri Group, collectively, under their respective Dilawri Leases represents approximately 59.1% of the REIT’s Cash
NOI during the 12-month period ended December 31, 2022. As a result, the REIT and Dilawri have entered into an
agreement pursuant to which Dilawri will continue to provide its Combined Revenues, EBITDA and Pro Forma Adjusted
Rent Coverage Ratio on a trailing 12-month basis (with a comparative period for the prior 12 month period) until the
REIT releases its financial results for the fiscal year ended December 31, 2023.
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
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.
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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. 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
Interest Rate Risk
The REIT required extensive financial resources to complete the IPO, the acquisition of the Initial Properties in
conjunction with the IPO and the 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 low interest rate environment resumes. Given the historically low interest rates, followed by rate increases
since the beginning of 2022 there is a risk that interest rates will continue to 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 each of the Credit Facilities 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 growth strategy as well as
its ability to sell any of its properties at fair value.
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Automotive Properties REIT 2022
Current Economic Environment
Continued concerns about the uncertainty over whether the economy will be adversely affected by the COVID-19
pandemic, inflation, deflation or stagflation, recessionary concerns, rapidly rising interest rates 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 tenants 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.
The continued military conflict in Ukraine has resulted in higher oil prices, which has led to continued high vehicle fuel
costs. Combined with higher interest rates and inflation, this may have an adverse effect on consumer demand.
Furthermore, future trade tariff policies may have a negative impact on future retail automotive sales through, among
other things, increases to new automobile prices.
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 (including but not limited to the COVID-19 pandemic) and the ability of the owner to provide adequate
maintenance at competitive costs.
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 third parties. 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 third parties under a triple-net lease, which subjects the REIT to
additional risk related to the financial strength of the Dilawri Group and such third parties relative to multi-tenant
properties. Furthermore, as the Dilawri Group will head lease all of the premises currently leased to third party tenants
(with the exception of properties that are leased by the REIT to other dealership groups), the Dilawri Group, not the
REIT, will have control over the re-leasing of such premises. Upon the expiry of any lease, there can be no assurance
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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 COVID-19 pandemic has also resulted in the disruption of the supply chain of the REIT’s automotive dealership
tenants; however, this has not impacted the automotive dealership tenants’ ability to meet their rental payments. 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 result in further disruptions, delays or reductions to the REIT’s automotive
dealership tenants’ supply of motor vehicles or replacement parts.
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 or impacting the
REIT’s tenants could have an adverse effect on the REIT’s cash flows, financial condition or results of operations and
its ability to make cash distributions to REIT Unitholders.
Asset Class and Manufacturer Diversification
The REIT’s investments are not widely diversified by asset class. Substantially all of the REIT’s investments are in
automotive dealership and service centre 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 22.9% of the gross automotive dealership rent paid to the REIT in 2022 and
approximately 23.0% of the REIT’s GLA as at December 31, 2022. Volkswagen and Audi dealerships collectively
represent approximately 21.5% of the gross automotive dealership rent paid to the REIT in 2022 and approximately
18.7% of the REIT’s GLA as at December 31, 2022. 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 and other tenants to meet 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
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Automotive Properties REIT 2022 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.
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
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Automotive Properties REIT 2022 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
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.
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Automotive Properties REIT 2022 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 to the extent permissible under its leases, 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 $433.8 million as of December 31, 2022 (approximately $531 million as of
the date of this MD&A). 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
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. In particular, Facility 1, Facility 2 and Facility 3 limit distributions by the REIT to an amount not to exceed
100% of its consolidated adjusted funds from operations. Such maximum payout ratios 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.
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Automotive Properties REIT 2022
Degree of Leverage
The REIT’s Debt to GBV Ratio was approximately 40.0% as of December 31, 2022. The REIT’s Proforma Debt to GBV
ratio is 44.9%. 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).
Land Leases
One of the REIT’s properties is subject to a land lease. 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 lease 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 lease is 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,
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Automotive Properties REIT 2022
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
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 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 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.
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Automotive Properties REIT 2022
General Insured and Uninsured Risks
The Dilawri Leases require Dilawri (or the applicable member of the Dilawri Group) and leases with other tenants, except
for Tesla, require such other tenants 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) and leases with other tenants , except for Tesla, require such other tenants 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. With respect to the leases with Tesla, the REIT
purchases insurance policies comparable to those obtained by other tenants and charges back the premium of such
policies back to Tesla. 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.
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.
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
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Automotive Properties REIT 2022 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
expanding 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.
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
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Automotive Properties REIT 2022 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
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.
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Automotive Properties REIT 2022 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
sales. Other factors which can affect sales include the manufacturer’s financial condition, marketing and incentive
programs and expenditures; ability, desire and cost to finance the sale of vehicles or provide warranties to consumers
on vehicles sold; vehicle design; production capabilities and management of the manufacturer; supply chain disruptions,
strikes and other labour actions by unions; negative publicity; product recalls; litigation; or future 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
and parts 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. Uncertainty as a result of the current military conflict in Ukraine may also adversely affect
consumer demand. 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 and its real estate needs 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.
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Automotive Properties REIT 2022 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. Uncertainty as a result of the current military conflict in Ukraine may also adversely affect consumer
demand, including as a result of the impact on the price of oil. 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 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 Tax Act at all relevant times
such that it maintains its status as a “unit trust” and a “mutual fund trust” for purposes of the Tax Act. 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 Tax Act, the consequences may be material and
adverse.
Non-Resident Ownership — Under the Tax Act, a trust may lose its status 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
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Automotive Properties REIT 2022 of the Tax Act) (“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.
REIT Exception — Unless the exclusion from the definition of “SIFT trust” in the Tax Act for a trust qualifying as a “real
estate investment trust” under the Tax Act applies to the REIT (the “REIT “Exception”), the SIFT Rules may have an
adverse impact on the taxation of the REIT. 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” (as defined
in the Tax Act), 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 fair market value at the time of acquisition. 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 fair market values
at the time of acquisition. For the purpose of claiming capital cost allowance, the “undepreciated capital cost” (as defined
in the Tax Act) 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 properties 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 equal to their fair market values.
Loss Restriction Event — The Tax Act 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 Tax Act, 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 Tax Act, 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.
EIFEL rules — The 2021 Canadian federal budget included proposals to amend the Tax Act to introduce a new limitation
on the deductibility of interest and other financing-related expenses. Revised draft legislation to implement these
proposals was released on November 3, 2022, with a proposed effective date of January 1, 2024 (the “Draft EIFEL
Rules”). In general, the Draft EIFEL Rules propose to limit the deductibility of interest and other financing-related
expenses by an entity to the extent that such expenses, net of interest and other financing-related income, exceed a
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Automotive Properties REIT 2022 fixed ratio of the entity’s tax EBITDA. The rules provide, in certain circumstances, for unused deduction capacity in a
particular year to be carried back to a preceding taxation year or forward to three subsequent taxation years. The Draft
EIFEL Rules and their application are highly complex, and there can be no assurances that the Draft EIFEL Rules, if
enacted as proposed, will not have adverse consequences to the REIT or REIT Unitholders. In particular, if these rules
were to apply to restrict deductions otherwise available to the REIT, the taxable component of distributions paid by the
REIT to REIT Unitholders may be increased, which may reduce the after tax return associated with an investment in
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
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
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Automotive Properties REIT 2022 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” (as defined in the Tax Act) 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 Tax Act.
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.
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.
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Automotive Properties REIT 2022
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.
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
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Automotive Properties REIT 2022 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.
Income Taxes
The REIT is a mutual fund trust and a real estate investment trust as defined in the Tax Act. 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 Tax Act 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. 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 Tax Act,
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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Automotive Properties REIT 2022
APPENDIX
Property List as at December 31, 2022
Operating Name
Address
Properties (as at December 31, 2022)
1. Dixie Auto Mall
Dilawri-Owned Auto
Volkswagen
Nissan
Mazda
Infiniti
Mitsubishi
Harley-Davidson
Kia
5500 Ambler Drive
5500 Dixie Road
5500 Ambler Drive
5500 Ambler Drive
5525 Ambler Drive
5500 Dixie Road
5500 Dixie Road
Ancillary-other (formerly Hyundai)
5515 Ambler Drive
Third Party Auto
City/
Province
Year Built
/Renov.
GLA
Mississauga, ON
Mississauga, ON
Mississauga, ON
Mississauga, ON
Mississauga, ON
1988/2011
1988/2001
1987/2014
1988/2014
1998
Mississauga, ON
1997/2020
Mississauga, ON
Mississauga, ON
1987
1998
39,209
26,369
16,713
14,592
8,000
22,078
17,735
9,345
VinFast (formerly Nissan Truck)
5500 Dixie Road
Mississauga, ON
1998/2020
13,890
Third Party Retail
Montana’s
Kelsey’s
A&W
Subway/Ice Flame
1495 Aerowood Drive
1485 Aerowood Drive
1465 Aerowood Drive
1475 Aerowood Drive
Mississauga, ON
Mississauga, ON
Mississauga, ON
Mississauga, ON
Enterprise Rent-a-Car
1475 Aerowood Drive
Mississauga, ON
Euro Shawarma
1475 Aerowood Drive
Mississauga, ON
Dixie Auto Mall Total
2. Markham Honda
Dilawri-Owned Auto
Markham Honda
3. Calgary BMW
4. Calgary Honda
8220 Kennedy Road
Markham, ON
34 Heritage Meadows
Road S.E.
11700 Lake Fraser Dr
S.E.
Calgary, AB
Calgary, AB
5. Triple 7 Chrysler
700 Broad Street
Regina, SK
6. Porsche Centre Vancouver
688 Terminal Avenue
Vancouver, BC
150 Bovaird Drive West
Brampton, ON
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
815 Broad Street
Regina, SK
2012/2015
500 Iroquois Shore Road
Oakville, ON
5201 Highway 7 E
789 Broad Street
5500 Finch Avenue E
1775 5th Avenue
Markham, ON
Regina, SK
Toronto, ON
Regina, SK
14. Audi Sales Downtown Vancouver
1788 West 2nd Avenue
Vancouver, BC
15. Meadowvale Honda
2210 Battleford Road
Mississauga, ON
Automotive Properties REIT 2022
54
54
2001/2017
2001/2017
1999/2016
1999/2011/
2012
1999/2011/
2012
1999/2011/
2012
2004
2007
2005
1959/2011
2013
2013/2018
2003/2006
2002
2003/2015
2005
1998/2015
2013
2007
5,150
5,000
4,000
2,200
2,000
1,875
188,156
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 2022
16. Burrard Acura(1)
17. Langley Acura(1,5)
18. Distinctive Collection
19. Bolton Toyota
20. Hyundai Gallery
730 Terminal Avenue
Vancouver, BC
20257 Langley Bypass
150 Glendeer Circle S.E.
12050 Albion Vaughan
Road
11770 Lake Fraser Dr
S.E.
Langley, BC
Calgary, AB
Bolton, ON
Calgary, AB
2015
2015
1988/2008
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
28. Porsche Centre Edmonton and
Jaguar Land Rover
Edmonton(2)…………………
29. Audi Barrie…………………
444 Broad Street
1919 1st Avenue
Regina, SK
Regina, SK
1921 1st Avenue
Regina, SK
1718 West 3rd Avenue
Vancouver, BC
1750 6th Avenue
1000-1009 Woodland
Avenue
17007 111th Avenue
N.W.
Regina, SK
Montreal, QC
Edmonton, AB
2482 Doral Drive
Innisfil, ON
30. Pfaff Audi (2)………………………..
9088 Jane Street
Vaughan, ON
2005
1997
1997
1999
1993/2003
2007/2008
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
33. Go Mazda(2)
34. Volkswagen Barrie
4525 Boulevard Saint-
Jean
9704 & 9710 35 Avenue
N.W.
Montreal, QC
2016
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
37. Southtown Hyundai(2)
38. Tesla Edmonton(2)(3)
39. Mazda des Sources
40. Country Hills VW
41. BMW Laval(2)
42. Sherwood Park VW(2)
43. Brimell Toyota(2)
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
2365 Broadmoor
Boulevard, Sherwood Park
5060 Sheppard Avenue
East, Toronto
Laval, QC
2000/2012
Sherwood Park, AB
2015
Scarborough, ON
2002/2010
2017
2016
1969
2004
2008
2017
2019
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
Automotive Properties REIT 2022
55
55
Automotive Properties REIT 2022
44. Elite BMW(2)
45. Civic Motors(2)
1040 Ogilvie Road
Ottawa, ON
2007/2016
1171 St. Laurent Boulevard
Ottawa, ON
2002/2012
46. Elite BMW Service(2)
595 St. Laurent Boulevard
Ottawa, ON
47. Camco Acura(2)
48. MINI Ottawa(2)
1475 Carling Avenue
Ottawa, ON
1501 Carling Avenue
Ottawa, ON
49. Bank Street Toyota(2)(6)
1811 Bank Street
Ottawa, ON
50. Ogilvie Subaru(2)
1056 Parisien Street
Ottawa, ON
1989
2016
2015
2013
2014
51. Subaru Detailing Centre(2)
1352 Gosset Street
Ottawa, ON
1969/2015
52. Orleans Honda(2)
2055 Mer Bleue Road
Ottawa, ON
53. Tesla KW Service Centre(2)
663 Victoria Street North
Kitchener, ON
54. St. James Volkswagen(2)
670 Century Street
Winnipeg, MB
55. McNaught Cadillac Buick GMC (2)
1000-1717 Waverly Street
Winnipeg, MB
56. Wellington Motors(2)
57. Guelph Hyundai(2)
58. Abbotsford VW(2)
59. Audi Queensway
60. Straightline Kia(2)
61. Regina BMW
935 Woodlawn Road West
Guelph, ON
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
62. Acura North Vancouver
828 Automall Drive
N. Vancouver, BC
63. Tesla Laval(2)
3755 AutoRoute Des
Laurentides
Laval, QC
2015
2021
2004
2015
2003
2014
2018
2018
2018
2019
2010
2022
64. Lexus Laval
65. Magog Honda(2)
2000 Boulevard
Chomeday
Laval, QC
2006/2013
2390,2400 Sherbrooke
Street
Magog, QC
2006/2009/
2011
66. Sherbrooke Honda(2)
2555-2615 King Street
West
Sherbrooke, QC
1960/2014
67. Walkley Road(2) (4)
68. Tesla Barrie(2)
69. Tesla Quebec(2)
70. Tesla Quebec(2)
1223 Walkley Road
Ottawa, ON
2474 Doral Drive
Innisfil, ON
Quebec City, QC
2006
2022
2019
2200 Cyrille-Duquet
Street
2180 Cyrille-Duquet
Street
Quebec City, QC
2019
20,100
Automotive Properties REIT 2022
56
56
48,366
30,000
7,500
45,879
30,000
57,152
13,533
5,500
24,531
18,500
39,494
56,641
40,793
28,007
22,921
65,547
21,808
19,619
22,373
127,396
30,015
56,195
26,990
550
16,670
30,663
Automotive Properties REIT 2022
Portfolio Total as at December 31,
2022
Subsequent Acquisitions
71. Hyundai Sorel(2)(7)
72. Kia Sorel(2)(7)
73. Hamel Honda(2)(7)
74. Honda Ste-Rose(2)(7)
75. Chomeday Toyota(2)(7)
76. Mazda de Laval(2)(7)
1864 Boulevard Fiset,
Sorel-Tracy
1918 Boulevard Fiset,
Sorel-Tracy
332 Rue Dubois, Saint
Eustache
4555 av De. la
Renaissance, Laval
Sorel Tracy, QC
Sorel Tracy, QC
2018
2018
Saint Eustache,
2008/2017
QC
Laval, QC
2022
2385 Boulevard Chomeday,
Laval
2200 Boulevard Chomeday,
Laval
Laval, QC
2002/2010
Laval, QC
2008
2,634,303
16,820
14,276
61,186
24,782
44,265
26,092
Total as at the date of this MD&A
2,821,724
___________
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 2022, the lease was assigned to Tesla Canada.
(4) Walkley Road, a small parcel of land in Ottawa, ON, was acquired by the REIT in February 2022 as part of a strategic acquisition of land adjoining the REIT’s
Bank Street Toyota property and is leased to a third-party health care provider.
(5) The leasehold interest in the Langley Acura dealership property was acquired by the REIT in January 2022.
(6) Includes parcel of land located on 2 Laser Street, Ottawa, ON.
(7) Acquired by the REIT in January 2023.
Automotive Properties REIT 2022
57
57
Automotive Properties REIT 2022
Automotive Properties REIT
TM
Automotive Properties REIT
TM
Automotive Properties Real Estate Investment Trust
Consolidated Financial Statements
For the year ended December 31, 2022 and 2021
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 statements of financial position
as at December 31, 2022 and 2021, and the consolidated statements of income and comprehensive
income, 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, 2022 and 2021, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (“IFRSs”).
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 of the current period. 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, 2022, the fair value of the REIT’s investment properties totaled $1,071 million, which
accounted for approximately 98% of the REIT’s total assets.
The valuation of investment properties is a key audit matter due to the significant subjective judgement
involved with the key inputs used in the valuation techniques and the sensitivity of fair value to changes
in significant assumptions. The key inputs include capitalization rates, discount rates and are dependent
on the nature of each investment property and the current prevailing market conditions.
59
Automotive Properties REIT 2022 How the Audit Matter was Addressed in the Audit
Our audit included the following procedures, among others:
assessed the competence, capabilities and objectivity of a sample of external appraisers engaged by
the REIT and the REIT’s management who were involved in 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,
2022; and
the information, other than the consolidated financial statements and auditors’ report thereon, in
the 2022 Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do
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.
The 2022 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.
60
Automotive Properties REIT 2022 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 IFRSs, 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 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.
61
Automotive Properties REIT 2022 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.
/s/ BDO Canada LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
March 16, 2023
62
Automotive Properties REIT 2022 Automotive Properties REIT
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Note
December 31, 2022
December 31, 2021
As at
As at
ASSETS
Cash and cash equivalents
Accounts receivable and other assets
Interest rate swaps
Investment properties
Total assets
LIABILITIES AND UNITHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities
Credit facilities and mortgages payable
Interest rate swaps
Unit-based compensation
Class B LP Units
Total liabilities
Unitholders’ equity
7
8
6
9
8
8
12
11
$396
2,987
19,127
$474
25,969
-
1,071,308
1,025,207
$1,093,818
$1,051,650
$11,241
431,075
-
9,580
120,978
572,874
520,944
$13,038
413,983
6,872
8,884
148,502
591,279
460,371
Total liabilities and unitholders’ equity
$1,093,818
$1,051,650
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board of Trustees
“Julie Morin”
Julie Morin
Trustee, Audit Committee Chair
“John Morrison”
John Morrison
Trustee, Lead Independent
Automotive Properties REIT 2022
2
63
Automotive Properties REIT 2022 Automotive Properties REIT
Consolidated Statements of Income and Comprehensive Income
(in thousands of Canadian dollars)
For the year ended December 31,
Net Property Income
Note
2022
2021
Rental revenue from investment properties
Property costs
13
13
$82,861
(12,286)
$78,218
(11,137)
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
Fair value adjustment on Class B LP Units and Unit-based
compensation
Fair value adjustment on investment properties
8
10
11, 12
6
$70,575
$67,081
(5,561)
(17,957)
25,999
(7,621)
20,215
(2,285)
(4,673)
(15,580)
15,976
(7,988)
(44,555)
75,157
Net Income and Comprehensive Income
$83,365
$85,418
See accompanying notes to the consolidated financial statements.
Automotive Properties REIT 2022
3
64
Automotive Properties REIT 2022 Automotive Properties REIT
Consolidated Statements of Changes in Unitholders’ Equity
For the year ended December 31, 2022
(in thousands of Canadian dollars)
Note
Trust Units
Cumulative
Net Income
Cumulative
Distributions
to Unitholders
Total
Unitholders’ Equity at December 31, 2021
$395,694
$185,521
$(120,844)
$460,371
Units issued, net of costs for acquisition
Units issued under Unit-based compensation
Net Income
Distributions
11
12
10
9,014
-
-
-
-
-
83,365
-
-
-
9,014
-
83,365
-
(31,806)
(31,806)
Unitholders’ Equity at December 31, 2022
$404,708
$268,886
$(152,650)
520,944
For the year ended December 31, 2021
(in thousands of Canadian dollars)
Note
Trust Units
Cumulative
Net Income
Cumulative
Distributions
to Unitholders
Total
Unitholders’ Equity at December 31, 2020
$380,757
$100,103
$(89,611)
$391,249
Units issued, net of costs for acquisition
Units issued under Unit-based compensation
Net Income
Distributions
11
12
10
14,762
175
-
-
-
-
85,418
-
-
-
14,762
175
85,418
-
(31,233)
(31,233)
Unitholders’ Equity at December 31, 2021
$395,694
$185,521
$(120,844)
$460,371
See accompanying notes to the consolidated financial statements.
Automotive Properties REIT 2022
4
65
Automotive Properties REIT 2022 Automotive Properties REIT
Consolidated Statements of Cash Flow
(in thousands of Canadian dollars)
For the year ended December 31,
OPERATING ACTIVITIES
Net income
Straight-line rent
Bad debt expense (recovery)
Non-cash compensation expense
Fair value adjustment on interest rate swaps
Distribution expense on Class B LP Units
Land lease termination
Fair value adjustment on Class B LP Units and Unit-based compensation
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
Deposits for acquisitions of investment properties
Acquisitions of investment properties
Dispositions of investment properties
Cash Flow used in investing activities
FINANCING ACTIVITIES
Proceeds from Credit Facilities and Mortgages
Principal and Revolver repayment on Credit Facilities
Interest paid
Financing fees paid
Repayments on lease liabilities
Cost of issuances of Units
Distributions to REIT unitholders and Class B LP unitholders
Cash Flow 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.
Note
2022
2021
18
7
$83,365
(1,697)
-
1,838
(25,999)
7,621
(168)
(20,215)
2,285
17,173
784
696
(1,136)
64,547
$85,418
(2,220)
(277)
1,983
(15,976)
7,988
-
44,555
(75,157)
15,024
556
183
135
62,212
-
(24,445)
(42,692)
17,952
(24,740)
50,000
(32,377)
(16,919)
(1,288)
(438)
564
(39,427)
(39,885)
(78)
474
$396
(423)
-
(24,868)
40,688
(22,326)
(14,674)
(871)
(736)
(38)
(39,221)
(37,178)
166
308
$474
Automotive Properties REIT 2022
5
66
Automotive Properties REIT 2022 Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(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 31.5% effective interest in the REIT on a fully diluted basis as at December 31, 2022 (December 31,
2021 – 28.4%), through the ownership, direction or control of all of the 9,327,487 Class B limited partnership units
(“Class B LP Units”) of Automotive Properties Limited Partnership, the REIT’s operating subsidiary (the
“Partnership”), and 6,361,620 Units. 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, 2022, the REIT owned a portfolio of 70 income-producing commercial properties. The properties
are located in metropolitan areas across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec,
totaling approximately 2.6 million square feet of gross leasable area. The Dilawri Tenants are the REIT’s major tenant,
occupying 38 of the REIT’s 70 income-producing commercial properties as at December 31, 2022. 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 16, 2023.
(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”), Income Deferred Units (“IDUs”), Restricted Deferred Units (“RDUs”) and
Performance Deferred Units (“PDUs”, and together with DUs, IDUs and RDUs, “Unit-based compensation”)
which are exchangeable for Units in accordance with their terms as described in Note 2(l) and Note 12.
The consolidated financial statements are presented in Canadian dollars, the REIT’s functional and reporting currency.
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Automotive Properties REIT 2022 (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 and comprehensive income
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 one land lease 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 and comprehensive income.
(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
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Automotive Properties REIT 2022 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 and
comprehensive income 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, 2022,
there were $nil of cash equivalents (December 31, 2021 - $nil).
(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 and
comprehensive income. 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 and comprehensive income 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.
The following summarizes the REIT’s classification and measurement of financial assets and liabilities:
Financial assets
Cash and cash equivalents
Accounts receivable
Interest rate swaps
Financial liabilities
Accounts payable and accrued liabilities
Credit Facilities and Mortgages
Class B LP Units and Unit-based compensation
Interest rate swaps
Classification/Measurement
Amortized cost
Amortized cost
FVTPL
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, employees and other eligible persons of the
REIT (each, a “Participant”). DUs granted to Trustees will generally vest immediately. DUs granted to officers,
employees and other eligible persons of the REIT will generally vest as to one-third on each of the third, fourth and
fifth anniversary of the applicable grant date. RDUs are granted to officers, employees and other eligible persons of
the REIT only and vest over a three-year period following the applicable grant date. PDUs are granted to officers,
employees and other eligible persons of the REIT only and cliff vest at the end of the applicable three-year
performance period based on the relative performance of the REIT over the performance period. Each DU, PDU and
RDU 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, PDUs, RDUs 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 and
comprehensive income. The holder of such DUs, PDUs, RDUs and IDUs cannot settle their DUs, PDUs, RDUs or
IDUs for cash.
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Automotive Properties REIT 2022 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.
4. NEW STANDARDS AND INTERPERTATIONS NOT YET ADOPTED
There are new standards and interpretations that are issued but not effective and these do not have a significant
impact on the consolidated financial statements as at December 31, 2022.
5. ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 2022, the REIT completed the following acquisitions:
Property
Location
Date of Acquisition
Magog & Sherbrooke Honda(i)
Langley Acura Land(ii)
Walkley Road(iii)
Tesla Quebec(iv)
Tesla Barrie(v)
Total Acquisitions
(1)
Includes acquisition costs.
Magog/Sherbrooke, QC
January 17, 2022
Langley, BC
Ottawa, ON
Quebec City, QC
Innisfil, ON
January 20, 2022
February 1, 2022
February 25, 2022
February 25, 2022
Total Investment
Properties(1)
$24,516
$15,175
$703
$16,511
$10,283
$67,188
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Automotive Properties REIT 2022 During the year ended December 31, 2022, the REIT completed the following disposition:
Property
Location
Date of Disposition
Kingston Toyota and Lexus(vi)
Kingston, ON
November 28, 2022
Total Dispositions
(1)
Includes disposition costs.
Total Investment
Properties(1)
$17,952
$17,952
i)
ii)
iii)
iv)
v)
vi)
On January 17, 2022, the REIT acquired the real estate underlying the Sherbrook Honda and Magog Honda
automotive dealership properties located in Magog and Sherbrooke, Quebec, for a combined purchase price
of approximately $23,422, plus acquisition costs of $1,094. The portfolio consists of two full-service
automotive dealership properties, totaling 83,185 square feet of gross leasable area. The REIT funded the
acquisitions by drawing on its revolving Credit Facilities (as defined herein) and cash on hand.
On January 20, 2022, the REIT acquired the freehold interest in the approximately 2.15 acres of land
underlying the Langley Acura automotive dealership property for approximately $15,050, plus acquisition
costs of $125. The land was previously leased to the REIT and continues to be tenanted by the Langley
Acura automotive dealership in Langley, British Columbia. The REIT will continue to receive land and
leasehold rent payments from the operating tenant of the Langley Acura dealership, an affiliate of the Dilawri
Group, but will no longer be required to pay land lease payments. The REIT funded the purchase price by
drawing on its revolving Credit Facilities.
On February 1, 2022, the REIT acquired a parcel of land in Ottawa, Ontario, which adjoins the REIT’s Bank
Street Toyota automotive dealership property, for approximately $650, plus acquisition costs of $53, and is
currently tenanted by a health care provider. The property consists of 4,424 square feet of gross leasable
area. The REIT funded the purchase price by drawing on its revolving Credit Facilities.
On February 25, 2022, the REIT acquired the real estate underlying two Tesla automotive service centre
properties located in Quebec City, Quebec, for a combined purchase price of approximately $16,000, plus
acquisition costs of $511. The portfolio consists of two full-service automotive service centre properties
tenanted by Tesla Canada, totaling 50,763 square feet of gross leasable area. The REIT funded the
acquisitions by drawing on its revolving Credit Facilities.
On February 25, 2022, the REIT acquired the real estate underlying the Tesla Barrie automotive service
centre property located in Innisfil, Ontario, for $9,800, plus acquisition costs of $483. The Tesla Barrie
property is a 16,670 square foot automotive service centre property tenanted by Tesla Canada. The REIT
funded the purchase price by drawing on its revolving Credit Facilities.
On November 28, 2022, the REIT disposed of the real estate underlying the Kingston Toyota and Lexus
automotive dealership properties for proceeds of approximately $18,000, less disposition costs of $48.
During the year ended December 31, 2021, the REIT completed the following acquisition:
Property
Lexus Laval
Total Acquisitions
(1)
Includes acquisition costs.
Location
Laval, QC
Date of Acquisition
Total Investment
Properties(1)
March 1, 2021
$15,262
$15,262
During the year ended December 31, 2021, the REIT did not complete any dispositions.
6.
INVESTMENT PROPERTIES
Balance, beginning of year
Acquisitions(2)
Additions
Dispositions
Fair value adjustment on
investment properties
Land lease termination
Straight-line rent(3)
Balance, end of year
Income producing
properties
$1,019,321
67,188
-
(17,952)
Right-of-use
assets(1)
$5,886
-
-
-
December 31,
2022
$1,025,207
67,188
-
(17,952)
(2,221)
-
1,697
$1,068,033
(64)
(2,547)
-
$3,275
(2,285)
(2,547)
1,697
$1,071,308
December 31,
2021
$932,229
15,262
339
-
75,157
-
2,220
$1,025,207
(1) Refers to two land leases.
Includes acquisition costs.
(2)
Includes a deduction for amortization of tenant allowance of $65 (2021 - $260).
(3)
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Automotive Properties REIT 2022 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 2022, the REIT had 20 investment properties (2021 – 21) independently appraised,
representing approximately $392,000 (2021 – $440,000) of the REIT’s fair value of income producing properties. For
the year ended December 31, 2022, the nominal fair value adjustments were a result of an increase in value of the
properties containing Consumer Price Index escalators and offset by the changes in valuation inputs decreasing the
value of the properties containing fixed rate escalators. The fair value loss adjustments for the year ended December
31, 2022 resulted in the overall capitalization rate applicable to the REIT’s entire portfolio increasing to 6.42% as at
December 31, 2022 (December 31, 2021 – 6.30%). The following table highlights the significant valuation inputs
used in determining the fair value of the REIT’s income producing properties:
Significant Valuation Inputs
Total Income Producing Properties
Range
Weighted
average
Range
Weighted
average
December 31, 2022
December 31, 2021
Discount rate
4.65% - 9.25%
Terminal capitalization rate
4.45% - 9.05%
7.18%
6.88%
4.55% - 9.10%
4.25% - 8.85%
7.07%
6.75%
In 2021, the REIT provided $339 of capital commitments for facility improvements to one of the tenants of the REIT’s
properties located in Edmonton, Alberta.
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 $43,300 or $(40,000), respectively, as of December
31, 2022.
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 $90,200 or $(77,200), respectively, as of December
31, 2022.
Rental Commitments
Minimum rental commitments on non-cancellable tenant operating leases are as follows:
Within 1 year ..................................................................................................................................................$69,540
After 1 year, but not more than 5 years ...........................................................................................................281,625
More than 5 years ..........................................................................................................................................438,682
$789,847
7. ACCOUNTS RECEIVABLE AND OTHER ASSETS
As at
Prepaid indemnity fee
Right-of-use assets, net of depreciation(1)
Prepaid and other receivables(2)
December 31, 2022
December 31, 2021
$450
191
2,346
$2,987
$523
90
25,356
$25,969
(1) This increase relates to the extension of the REIT’s existing office lease.
(2) For the year ended December 31, 2021, prepaids included deposits of $24,445 in respect of the property acquisitions completed in
January 2022.
8. CREDIT FACILITIES AND MORTGAGES PAYABLE
(a) Credit facilities and mortgages consist of:
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Automotive Properties REIT 2022 As at
Facility 1(i)
Facility 2(ii)
Facility 3(iii)
Mortgages(iv)
Total
Financing fees(v)
(i)
Facility 1 includes:
December 31, 2022
December 31, 2021
$223,926
$190,206
85,901
100,672
23,258
433,757
90,707
111,100
24,148
416,161
(2,682)
(2,178)
$431,075
$413,983
A non-revolving loan in the amount of $218,047 (December 31, 2021 - $178,306) 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 2027. The principal is repayable in equal quarterly payments based on a 25 year
amortization. In April 2022, the REIT increased the non-revolving portion of Facility 1 by $50,000 and
extended the term to maturity from June 2023 to June 2027. In November 2022, the REIT fixed $26,828 of
non-revolving debt for a term of 10 years at an interest rate of 5.27%.The REIT entered into floating-to-fixed
interest rate swaps, with remaining terms of 0.5 to 9.8 years as at December 31, 2022, which resulted in a
weighted average effective interest rate of 4.20% (December 31, 2021 - 3.72%), of which $nil (December
31, 2021 - $17,820) 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 2027, of which $5,300 was drawn as at December 31, 2022 (December 31, 2021 -
$11,900) and $579 was secured for the issuance of irrevocable letters of credit (the “LCs”) on October 24,
2017.
(ii)
Facility 2 includes:
A non-revolving loan in the amount of $85,901 (December 31, 2021 - $90,707) bearing interest at the BA
rate plus 150 bps or Prime plus 25 bps, maturing in January 2025. In December 2022, the REIT extended
the term to maturity from June 2024 to January 2025. 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 0.5 to 7.9 years as at December 31, 2022, which resulted in a weighted average effective interest
rate of 3.52% (December 31, 2021 - 3.52%).
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 January 2025, of which $nil was drawn as at December 31, 2022 (2021 - $nil).
(iii)
Facility 3 includes:
A non-revolving loan in the amount of $100,672 (December 31, 2021 - $111,100) bearing interest at the BA
rate plus 150 bps or Prime plus 50 bps, maturing in June 2026. The principal is repayable in quarterly blended
payments based on a 20 year amortization. The REIT entered into floating-to-fixed interest rate swaps with
remaining terms of 3.0 to 9.0 years, which resulted in a weighted average effective interest rate of 3.91%
(December 31, 2021 - 3.59%), of which $nil (December 31, 2021 - $5,187) of the non-revolving balance
remains at floating rates. See Note 19 – Subsequent Events.
A revolving credit facility in the amount of $40,000 bearing interest at Prime plus 25 bps or the BA rate plus
150 bps, maturing in June 2026, of which $nil was drawn as at December 31, 2022 (December 31, 2021 -
$nil).
(iv)
Mortgages:
The REIT has entered into certain mortgages with Canadian Schedule 1 banks and a life insurance company
that have interest rates that range from 2.21% to 3.72% and have maturity dates that range from June 2027
to April 2031 (the “Mortgages”). In January 2021, the REIT renewed a Mortgage in the amount of
approximately $5,791 for a term of 7 years and, in April 2021, the REIT entered into a new Mortgage in the
amount of $10,000 for a term of 10 years. As at December 31, 2022, the weighted average interest rate of
the Mortgages was 3.25% (December 31, 2021 - 3.24%). See Note 19 – Subsequent Events.
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Automotive Properties REIT 2022 (v)
During the twelve-month period ended December 31, 2022, the REIT incurred financing fees of $1,288
(December 31, 2021 - $871). The amounts are accounted for using the effective interest method, and $2,682
remains unamortized at December 31, 2022 (December 31, 2021 - $2,178).
The credit facilities described above (the “Credit Facilities”) and the Mortgages are secured by the REIT’s investment
properties. As of December 31, 2022, the REIT had ten unencumbered properties with an aggregate fair value of
approximately $120,000.
Principal repayments are as follows:
2023 .................................................................................................................................................
$21,650
2024 .................................................................................................................................................
2025 .................................................................................................................................................
2026 .................................................................................................................................................
2027 .................................................................................................................................................
Thereafter .........................................................................................................................................
21,791
89,742
94,981
191,153
14,440
Total .................................................................................................................................................
$433,757
(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 and
comprehensive income (terms described in Note 8 (a)(i), (ii) and (iii) above).
As at December 31, 2022, the notional principal amount of the interest rate swaps was approximately $405,168
(December 31, 2021 – approximately $357,327) and the fair value adjustment of the interest rate swaps was $25,999
(December 31, 2021 – $15,976). This resulted in an asset balance of $19,127 (December 31, 2021 – liability of
$6,872).
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
As at
December 31, 2022
December 31, 2021
Accounts payable and accrued liabilities
Accrued interest
Distributions payable (Note 10)
Lease liabilities (Note 2(g))
$3,757
377
3,287
3,820
$11,241
$2,831
321
3,284
6,602
$13,038
As at December 31, 2022, 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 ..................................................................................................................................................
$184
1,445
2,191
$3,820
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Automotive Properties REIT 2022 10. DISTRIBUTIONS
Paid in Cash
Declared
Payable as at period end
December 31, 2022
December 31, 2021
Units
$31,806
31,806
2,662
Class B
LP Units
$7,621
Total
$39,427
Units
Class B
LP Units
Total
$31,233
$7,988
$39,221
7,621
39,427
625
3,287
31,233
2,618
7,988
39,221
666
3,284
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.
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.
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Automotive Properties REIT 2022 For the year ended December 31, 2022
Units, beginning of period
Units issued, net of costs
Units exchanged from Class B LP Units
Total Units, end of period
Class B LP Units, beginning of period
Class B LP Units exchanged for Units
Fair value adjustment on Class B LP Units
Total Class B LP Units, end of period
Total Units and Class B LP Units, end of period
For the year ended December 31, 2021
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
39,080,154
41,426
605,766
39,727,346
9,933,253
(605,766)
-
9,327,487
49,054,833
Units
37,697,052
1,383,102
39,080,154
9,933,253
-
9,933,253
49,013,407
Amount
$395,694
564
8,450
$404,708
$148,502
(8,450)
(19,074)
$120,978
$525,686
Amount
$380,757
14,937
395,694
$106,385
42,117
$148,502
$544,196
The REIT offers an Equity Incentive Plan (the “Plan”) whereby DUs, PDUs and RDUs 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 1,750,000. Each DU, PDU and RDU is
economically equivalent to one Unit, however, under no circumstances shall they be considered Units nor entitle a
Participant to any rights as a Unitholder, including, without limitation, voting rights or rights on liquidation. Each DU,
PDU and RDU 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, PDUs, RDUs and IDUs, a Participant may elect, prior to their expiry, to
exchange such vested DUs, PDUs, RDUs and IDUs (subject to satisfaction of any applicable withholding taxes) for
an equal number of Units. The holder of such DUs, PDUs, RDUs and IDUs cannot settle them for cash. Under the
Plan, the fair value of the DUs, PDUs, RDUs 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, Unit-based
compensation is 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, 2022, the REIT accrued short-term incentive awards in the amount of $820
which will be settled by the granting of DUs and/or cash (December 31, 2021 – $463).
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
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Automotive Properties REIT 2022 days immediately preceding the grant date. The amount of DUs, PDUs, RDUs and IDUs vested and outstanding
under the Plan is outlined below:
As at December 31, 2022
DUs
PDUs
RDUs
IDUs
Total
As at December 31, 2021
DUs
PDUs
RDUs
IDUs
Total
Units
Granted(1)(2)
Units
Outstanding(2)
Outstanding Unit-based
compensation End of Period(3)
559,315
47,362
47,362
154,781
808,820
542,084
25,818
38,692
132,027
738,621
7,029
335
502
1,714
$9,580
Units
Granted Units Outstanding
Outstanding Unit-based
compensation End of Year(3)
546,703
34,707
34,707
114,578
730,695
468,826
11,789
18,761
94,868
594,244
7,010
176
280
1,418
$8,884
(1)
(2)
(3)
For the twelve-month period ended December 31, 2022, 119,551 DUs, PDUs, RDUs and IDUs were granted, of which 31,251 DUs, PDUs,
RDUs and IDUs were accounted for in accordance with the vesting schedule.
18,000 DUs were exchanged for Units valued at $262 in March 2022, and 23,426 DUs and IDUs were exchanged for Units valued at $302
in August 2022.
Includes a fair value adjustment of $1,140 for the twelve months ended December 31, 2022 (December 30, 2021 - ($2,438)).
13. RENTAL REVENUE AND PROPERTY COSTS
(a) Rental Revenue
For the year ended December 31,
Base rent
Property tax recoveries
Straight line rent adjustment
Lease termination fee (1)
Rental revenue
(1) Relates to a fee charged to a tenant for early termination of a lease agreement.
(b) Property Costs
For the year ended December 31,
Property tax expense
Bad debt expense (recovery)
Land lease termination(1)
Property cost
2022
$68,710
12,454
1,697
-
$82,861
2022
$12,454
-
(168)
$12,286
2021
$64,245
11,414
2,220
339
$78,218
2021
$11,414
(277)
-
$11,137
(1) Relates to the termination of the land lease in January 2022 associated with the Langley Acura Land acquisition
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Automotive Properties REIT 2022 14. SEGMENT INFORMATION
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.
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, 2022, totaled $1,072,997 (December 31, 2021 – $1,022,856). 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, 2022, 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, 2022:
Financial Assets/(Liabilities)
Credit Facilities and Mortgages payable
Interest Rate Swaps
Class B LP Units
Unit-based compensation
Classification/
Measurement
Amortized Cost
FVTPL
FVTPL
FVTPL
Carrying Value
$(431,075)
(19,127)
(120,978)
(9,580)
Fair Value
$(433,757)
(19,127)
(120,978)
(9,580)
$(580,760)
$(583,442)
The following table provides the classification and measurement of financial assets and liabilities as at December
31, 2021:
Financial Assets/(Liabilities)
Credit Facilities and Mortgages payable
Interest Rate Swaps
Class B LP Units
Unit-based compensation
Classification/
Measurement Carrying Value Fair Value
$(416,161)
Amortized Cost
$(413,983)
FVTPL
FVTPL
FVTPL
(6,872)
(148,502)
(8,884)
(6,872)
(148,502)
(8,884)
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Automotive Properties REIT 2022 $(578,241)
$(580,419)
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, 2022 is $1,071,308 (December 31, 2021 – $1,025,207) (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 an asset balance as at December 31,
2022 is $19,127 (December 31, 2021 – liability of $6,872). 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, 2022 is $120,978 (December 31, 2021 –
$148,502). The fair value of the Class B LP Units is based on the traded value of the Units as at
December 31, 2022 (Level 1).
(v)
Unit-based compensation
The fair value of Unit-based compensation as at December 31, 2022 is $9,580 (December 31, 2021
– $8,884). The fair value of Unit-based compensation is based on the traded value of the Units as at
December 31, 2022 (Level 2).
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.
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 when the Unit price rises and positively impact net income 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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Automotive Properties REIT 2022 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.
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 58.8% of the REIT’s rental income for the year ended December 31, 2022 (December 31, 2021 –
61.8%).
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 $753, of which $579 remains outstanding as at December 31, 2022, 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 outstanding 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 2021 and 2022:
On March 1, 2021, the REIT acquired the Lexus Laval dealership property in Laval, Quebec from a member of
the Dilawri Group for $14,800 and leased it to a Dilawri Tenant.
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 and benefits paid to executive officers
Unit-based compensation and short term incentives paid to executive officers
Independent Trustee fees paid in DUs and IDUs
Compensation of key personnel
18. SUPPLEMENTARY INFORMATION
Changes in non-cash operating accounts
2022
$817
2,195
594
$3,606
2021
$817
1,629
409
$2,855
(in thousands of Canadian dollars)
Accounts receivable and other assets
Accounts payable and accrued liabilities
Change in non-cash operating accounts
2022
2021
$(1,596)
$2,383
460
(2,248)
$(1,136)
$135
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Automotive Properties REIT 2022 19. SUBSEQUENT EVENTS
On January 3, 2023, the REIT acquired the real estate underlying six full-service automotive dealership properties
located in Quebec for approximately $98,500, plus acquisition costs of $3,600. The properties totaled 187,421 square
feet of gross leasable area. The REIT funded the acquisitions by drawing on its Credit Facilities, and cash on hand.
In January 2023, as a result of the property acquisitions described above, the REIT increased the non-revolving portion
of Facility 3 by $70,000 at the same credit spread and entered into floating-to-fixed interest rate swaps for a weighted-
average term of 7.6 years at a blended rate of 4.91%.
On February 2, 2023, the REIT entered into a new Mortgage in the amount of $9,000 for a term of 5 years at an interest
rate of 5.05%.
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Automotive Properties REIT 2022