Automotive Properties REIT
TM
Consolidating
Automotive Dealership
and OEM Properties
2 0 2 4 A N N U A L R E P O R T
Fellow unitholders,
We advanced several strategic developments in 2024 and early 2025 that have showcased our ability to
seize new opportunities to drive unitholder value.
In July, we entered into an agreement to sell one of our properties located in Markham, Ontario (the
“Kennedy Lands”) to a member of the Dilawri Group for gross proceeds of approximately $54 million,
which represented a 79% premium above the IFRS value at the date of the agreement. This transaction
unlocked significant value embedded in our property portfolio, which in turn opened up additional finan
cial flexibility for us to further add to our portfolio and continue the value generation cycle. The sale also
validated our belief that our portfolio contains significant potential to create unitholder value by realizing
on the highest and best use of certain properties.
We closed on our sale of the Kennedy Lands in early October and moved quickly to redeploy the sale
proceeds to position the REIT for growth in AFFO per unit in 2025.
In mid-October, we completed a $7.1 million dealership facility expansion at our McNaught Cadillac Buick
GMC dealership property in Winnipeg. We added a new stand-alone Cadillac building with more than
13,000 square feet of gross leasable area, resulting in an annual rent increase and extended lease term.
We then entered into separate agreements to acquire: two heavy construction equipment dealership
properties located in Greater Montreal for a combined purchase price of approximately $25.4 million;
and a Rivian-tenanted automotive property in Tampa, Florida for a purchase price of approximately
US$13.5 million.
We funded the McNaught dealership expansion and the heavy construction equipment dealership
property acquisitions by recycling a portion of the net proceeds generated by the Kennedy Lands sale.
We expect to close the Tampa property acquisition during the second quarter this year, financing the
purchase price through our revolving credit facilities, which we had paid previously down in full, also by
using a portion of the net proceeds from the Kennedy Lands.
Subsequent to year-end, in March 2025, we closed our first property acquisition in the United States:
a Tesla-tenanted collision centre in Dublin, Ohio (a suburb of Columbus) for a purchase price of approxi
mately US$17.8 million.
Our acquisitions in Columbus and Tampa are consistent with our strategy of acquiring attractive commer
cial properties in growing metropolitan markets and will also further increase our exposure to the electric
vehicle and service market in North America. Columbus and Tampa are both fast-growing urban centres
with increasing intensification that will support long-term property value appreciation.
Our acquisition of the heavy construction equipment dealerships in Montreal marks our entry into an
adjacent industry vertical that has similar characteristics to retail automotive dealerships, including the
essential nature of their business. These acquisitions also added two strong new tenants (Brandt Tractor
Ltd. and Strongco), and leading OEM brands, including John Deere and Volvo, to our portfolio.
We are pleased with the progress we have made in untapping significant value from our Kennedy Lands
and then recycling capital into new opportunities to further enhance the geographic, brand and tenant
diversification of our portfolio, and drive future AFFO per unit growth.
In addition, we paid a special distribution of $0.55 per unit to unitholders related to the taxable income
generated by the sale of the Kennedy Lands. The special distribution was comprised of $0.081 per unit in
cash and $0.469 per unit payable by the issuance of REIT units, which were immediately consolidated on
December 31, 2024.
Automotive Properties REIT
TM
Our property portfolio continues to perform well in the current environment of elevated interest rates,
due to our predominantly triple-net lease structure, where property level operating and energy costs
are the responsibility of our tenants, and our leases include either fixed, or CPI-linked, annual rent esca
lators. Leases with CPI-related adjustments currently represent 37% of our base rent, with the remaining
portion subject to fixed rent increases. Our portfolio generated solid organic growth in 2024, including same
property cash net operating income growth of 2.3%, supported by the fixed and CPI-linked contractual
rent increases embedded in our leases. Our lease structure positions us for continued organic growth
going forward, supporting reliable distributions to our unitholders. Our growth will be further enhanced in
2025 by our recent acquisition activity.
Excluding the special distribution noted above, we paid cash distributions of $39.5 million, or $0.804 per
Unit, to our unitholders in 2024, representing an AFFO payout ratio of 86.3%, compared to cash distribu
tions of $39.4 million, or $0.804 per Unit, in 2023, representing an AFFO payout ratio of 87.6%. Our lower
AFFO payout ratio in 2024 reflects the positive impact of our contractual rent increases and to a lesser
extent, the acquisitions we closed in the first quarter of 2023 and the fourth quarter of 2024, which will
have a greater accretive impact with a full year contribution in 2025.
We continued to carefully manage our debt throughout 2024 and into 2025, executing transactions that
increased overall availability, extended maturity, and reduced exposure to fluctuations in interest rates.
Our Debt to GBV ratio at year end was 42.4%.
Looking ahead, we will continue to monitor the impact of inflation, interest rates and availability of capital
on our property portfolio and the overall real estate industry. We are also monitoring trade tariffs and
other restrictions, which could impact supply chains, material costs, and overall economic conditions. It is
important to note that our tenants’ businesses have proven to be highly resilient, as they responded very
effectively to industry disruptions during the pandemic. They provide essential retail and services, and are
supported by constant underlying consumer demand.
We are well positioned to generate continued organic growth through our portfolio of: essential
commercial properties located in prime urban markets, high-quality tenants, attractive lease structure,
and embedded fixed or CPI-adjusted rental growth.
We are also well positioned to pursue accretive property acquisitions. As at March 5, 2025, we had $89.4
million of undrawn capacity under our revolving credit facilities, and three unencumbered properties
with an aggregate value of approximately $43.8 million, which provides us financial flexibility. We remain
focused on preferred urban markets in North America, property location, leading automotive and OEM
brands, the financial strength of the tenant group, and transactions that increase our AFFO per Unit.
On behalf of the Board of Trustees, management and personnel of Automotive Properties REIT, thank you
for your confidence and continued support.
Sincerely,
Kap Dilawri
Chair of the Board
Milton D. Lamb
President and Chief Executive Officer
Automotive Properties REIT
TM
Automotive Properties Real Estate Investment Trust
Management’s Discussion and Analysis
December 31, 2024
Automotive Properties REIT
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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 ......................................................................................................... 7
SECTION 2 – STRATEGY AND OBJECTIVES ........................................................................................... 9
Strategy and Objectives ................................................................................................................... 9
Overview of Automobile Retail Industry ......................................................................................... 11
SECTION 3 – PROPERTY PORTFOLIO ................................................................................................... 12
Portfolio Overview .......................................................................................................................... 12
Income Producing Property Portfolio Summary ............................................................................ 12
GLA by Major Metropolitan Area Across Canada .......................................................................... 13
Profile of Overall Lease Maturity as at December 31, 2024 .......................................................... 13
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 ...... 16
SECTION 5 – RESULTS OF OPERATIONS ............................................................................................. 18
Net Income and Comprehensive Income ...................................................................................... 18
Rental Revenue and Property Costs ............................................................................................. 18
General and Administrative Expenses .......................................................................................... 19
Interest Expense and Other Financing Charges ........................................................................... 19
Changes in Fair Values of Investment Properties ......................................................................... 19
Other Changes in Fair Values ....................................................................................................... 20
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 ................................................................................. 22
Reconciliation of Cash Flow from Operating Activities to ACFO ................................................... 23
SECTION 7 – LIQUIDITY AND CAPITAL RESOURCES........................................................................... 23
Capital Structure ............................................................................................................................ 23
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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SECTION 9 − OUTLOOK ........................................................................................................................... 31
SECTION 10 – OTHER DISCLOSURES ................................................................................................... 32
Environmental and Corporate Social Responsibility...................................................................... 32
Commitments and Contingencies .................................................................................................. 33
Disclosure Controls and Internal Controls over Financial Reporting ............................................. 33
SECTION 11 – QUARTERLY RESULTS OF OPERATIONS .................................................................... 33
SECTION 12 – RISKS & UNCERTAINTIES, CRITICAL JUDGMENTS & ESTIMATES ........................... 34
APPENDIX .................................................................................................................................................. 55
Property List as at December 31, 2024 ......................................................................................... 55
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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, 2024 and 2023. 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, 2024 (“Q4 2024”) are against results for the three months ended December 31, 2023 (“Q4
2023”) and all comparisons of results for the twelve months ended December 31, 2024 (“2024”) are against results for
the twelve months ended December 31, 2023 (“2023”), 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, 2024 and 2023. Further information about the REIT can be
found in the REIT’s annual information form dated March 5, 2025 (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.sedarplus.ca and on the REIT’s website at www.automotivepropertiesreit.ca. This MD&A is dated March 5, 2025.
All information regarding Dilawri (as defined below) 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 properties, including retail dealership and original equipment manufacturer properties, in Canada
and the United States. As at the date of this MD&A, the REIT owns a portfolio of 78 income-producing commercial
properties. The properties are located in metropolitan areas across British Columbia, Alberta, Saskatchewan, Manitoba,
Ontario and Quebec, totaling approximately 2.9 million square feet of gross leasable area (“GLA”) on approximately 254
acres of land. 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, held an
approximate 31.3% effective interest in the REIT on a fully diluted basis as at December 31, 2024 (December 31, 2023
– 31.4%), through the ownership, direction or control of 15,748,507 trust units of the REIT (“REIT Units”). On June 21,
2024, Dilawri converted all 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”), into an equal number of REIT Units.
As at the date of this MD&A, Dilawri holds an approximate 31.3% effective interest in the REIT on a fully diluted basis
through the ownership, direction and control of 15,748,507 REIT Units and nil Class B LP Units. Dilawri and its affiliates,
other than its shareholders and controlling persons, are referred to herein as the “Dilawri Group”. See Section 7 “Liquidity
and Capital Resources”.
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In March 2024, the REIT and StorageVault Canada Inc. (“StorageVault”) entered into a new mortgage in the amount of
approximately $8,000 for a term of three years at an interest rate of 5.73%. Pursuant to the 50/50 joint arrangement with
StorageVault (the “Joint Arrangement”), the REIT will account for $4,000 of the Mortgage.
In June 2024, the REIT entered into a floating-to-fixed interest rate swap in the amount of $9,452 under Facility 2, for a
term of four years at an interest rate of 5.40%. See Section 7 “Liquidity and Capital Resources”.
On August 1, 2024, the maturity date of Facility 2 was amended and extended from January 2025 to January 2028 with
no changes to the credit spread. The principal balance is repayable in equal monthly blended payments, changed from
a 20-year amortization schedule to a 25-year amortization schedule. In addition, the capacity under the revolving portion
of Facility 2 was increased from $15,000 to $20,000. See Section 7 “Liquidity and Capital Resources”.
On October 1, 2024, the REIT completed the sale of the automotive dealership property located at 8210 and 8220
Kennedy Road and 7 and 13/15 Main Street, in Markham, Ontario (collectively, the “Kennedy Lands”) to a member of
the Dilawri Group for gross proceeds of $54,000 (the “Sale Transaction”), less disposition costs of $200. The fair value
adjustment on investment properties for the year ended December 31, 2024 includes a gain of $23,760 as a result of
the Sale Transaction. The REIT used the net proceeds from the Sale Transaction primarily to repay indebtedness under
its existing revolving credit facilities in full, which provided the REIT with additional acquisition capacity. In addition to
the $54,000 initial sale price, the REIT has the potential to benefit from the successful rezoning of the Kennedy Lands
through the payment of additional cash consideration should the Kennedy Lands be successfully rezoned with density
in excess of an agreed threshold, without incurring any of the risks related to the redevelopment of the Kennedy Lands.
On October 15, 2024, the REIT funded the dealership facility expansion at its McNaught Cadillac Buick GMC dealership
property located in Winnipeg, Manitoba (the “McNaught Expansion”). The McNaught Expansion added a new Cadillac
building of approximately 13,681 square feet of GLA at an investment of approximately $7,100, resulting in an annual
rent increase. The tenant has exercised an early lease renewal and extended the duration of the existing lease term to
2043. The REIT funded the McNaught Expansion with cash on hand.
On October 31, 2024, the REIT announced that it had entered into an agreement to acquire the real estate underlying
a 25,000 square-foot automotive dealership property situated on 2.75 acres of land located at 701 North Dale Mabry
Highway in Tampa, Florida (the “Tampa Property”) for approximately US$13,500 (approximately C$18,800). The Tampa
Property is comprised of a sales, delivery and service facility tenanted by Rivian LLC, which recently completed a major
renovation to the facility, under a long-term, triple-net lease that includes contractual fixed annual rent increases with
renewal options. The REIT expects to close the Tampa Property acquisition in the first quarter of 2025, subject to
customary closing conditions. The REIT expects to fund the acquisition of the Tampa Property with draws on its revolving
credit facilities.
On November 25, 2024, the REIT acquired two heavy construction equipment dealership properties located in the
Greater Montreal Area (the “Greater Montreal Properties”) for a purchase price of $25,400 plus acquisition costs of
$1,059. The Greater Montreal Properties consist of a 31,000 square-foot Brandt Tractor Ltd. facility with a John Deere
heavy construction equipment dealership that is situated on 6.6 acres of land located at 3855 Boulevard Matte in
Brossard, Québec, and a 28,611 square-foot Strongco (Nors) heavy construction equipment dealership (featuring Volvo
and other equipment brands) that is situated on 5.1 acres of land located at 72 Chemin du Tremblay in Boucherville,
Québec. The triple-net lease on the Brandt Tractor Ltd. heavy construction equipment dealership property is a mid-term
lease and includes contractual bi-annual fixed rent increases. The Strongco (Nors) heavy construction equipment
dealership property is tenanted pursuant to a mid-term lease and includes contractual annual fixed rent increases. The
REIT funded the purchase price of the Greater Montreal Properties with cash on hand and draws on its revolving credit
facilities.
To mitigate the REIT’s exposure to fluctuations in the Canadian to U.S. dollar exchange rate, in anticipation of the closing
of the acquisition of the Tampa Property, on November 19, 2024, the REIT entered into a foreign exchange forward
contract to purchase US$12,000 at a fixed rate of 1.394 to be executed by the end of March 2025.
In December 2024, the REIT renewed an $11,400 swap for a term of six years at an interest rate of 4.60% within Facility
1 and increased the amount of the non-revolving loan portion of Facility 1 by $15,000.
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On February 6, 2025, the REIT entered into a floating-to-fixed interest rate swap within Facility 1 in the amount of $7,000
for a term of six years at an interest rate of 4.46%, and also entered into a floating-to-fixed interest rate swap in the
amount of $8,000 for a term of eight years at an interest rate of 4.56%.
On March 3, 2025, the REIT entered into a floating-to-fixed interest rate swap within Facility 1 in the amount of $10,000
for a term of nine years at an interest rate of 4.53%.
To mitigate the REIT’s exposure to fluctuations in the Canadian to U.S. dollar exchange rate, in anticipation of the closing
of the acquisition of the Columbus Tesla Property (as defined below), on February 7, 2025, the REIT entered into a
foreign exchange forward contract to purchase US$17,000 at a fixed rate of 1.430 to be executed by the end of March
2025.
On February 10, 2025, the REIT announced that it had entered into an agreement with a third party to acquire the real
estate underlying a Tesla collision center property (the “Columbus Tesla Property”) located in Dublin, Ohio, a suburb of
Columbus, for US$17,800 (approximately C$25,500). The Columbus Tesla Property consists of an approximately
94,000 square-foot Tesla collision service center facility that is situated on 6.32 acres of land located along a commercial
corridor at 5600 Britton Parkway in Dublin, Ohio, adjacent to a large retail shopping center. The Columbus Tesla Property
is tenanted by Tesla under a mid-term net lease. The REIT expects to close the acquisition of the Columbus Tesla
Property by the end of March 2025, subject to satisfaction of customary closing conditions. The REIT intends to fund
the purchase price of the acquisition primarily by drawing on its revolving credit facilities.
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, 2024, the total number of issued and outstanding REIT Units and Class B LP Units was 49,090,142
and nil, respectively. The REIT Units are listed and posted for trading on the Toronto Stock Exchange under the symbol
“APR.UN”. REIT Units and Class B LP Units are collectively referred to in this MD&A as “Units”.
The REIT announced monthly cash distributions of $0.067 per REIT Unit, resulting in total distributions declared and
paid of $9,867 for Q4 2024 (Q4 2023 – $9,860). For the year ended December 31, 2024, the REIT declared total
distributions of $39,452 (2023 – $39,440) and paid total distributions of $39,450 (2023 – $39,440). These amounts
exclude the Special Distribution (as defined below).
On December 16, 2024, the REIT declared a special distribution payable to Unitholders (as defined below) of record as
of December 31, 2024 in the amount of $0.55 per REIT unit, comprised of $0.081 per Unit payable in cash and $0.469
per Unit payable by the issuance of Units (the “Special Distribution”).
The Special Distribution was principally made to distribute to Unitholders a portion of the taxable income generated by
the sale of the Kennedy Lands. The Unit portion of the Special Distribution was paid at the close of business on
December 31, 2024 through the issuance of Units from treasury that had a fair market value equal to the dollar amount
of the Special Distribution payable in Units based on the volume-weighted average trading price of the Units on the
Toronto Stock Exchange for the five trading days ending on December 30, 2024. Immediately following the Special
Distribution, the outstanding Units of the REIT were consolidated such that each Unitholder held, after the consolidation,
the same number of Units as held immediately prior to the Special Distribution. The cash portion of the Special
Distribution was paid on January 6, 2025 to Unitholders of record as of December 31, 2024.
As at December 31, 2024, the REIT had a Debt to GBV (as defined below) of 42.4%, $88,821 of undrawn capacity under
its Credit Facilities (as defined below), cash on hand of $336 and three unencumbered properties with an aggregate
value of approximately $43,840 (see section 7 “Liquidity and Capital Resources” for additional details).
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,
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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:
•
the impact of changes in economic conditions, including changes in interest rates, currency fluctuation and the
rate of inflation, or the imposition of tariffs or other trade restrictions;
•
completion of the acquisition of the Tampa Property and the Columbus Tesla Property (collectively, the “Property
Acquisitions”), including the timing thereof and the benefits anticipated to be derived therefrom;
•
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 2025 and
the impact of rent escalators on the REIT’s Same Property Cash NOI;
•
the REIT representing a unique alternative for automotive dealership operators considering a sale or
recapitalization of their business;
•
the REIT’s capital expenditure requirements and capital expenditures to be made by the REIT and the REIT’s
tenants;
•
the REIT’s distribution policy and the distributions to be paid to Unitholders (as defined herein);
•
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 other automotive 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 stable in the near term, that interest rates will remain elevated in the near term, that
tax laws remain unchanged, that the geopolitical environment (including with respect to tariffs and other trade
restrictions) will remain stable in the near term, 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.
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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. The forward-looking statements
relating to the Property Acquisitions are subject to the further risk that the customary closing conditions may not be
satisfied or waived such that closing of either or both of the Property Acquisitions does not occur on current terms or at
all.
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, 2024, unless otherwise noted.
Non-IFRS Financial Measures
The REIT prepares its consolidated financial statements according to IFRS Accounting 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
(“Cash NOI”), same property cash net operating income (“Same Property Cash NOI”), and earnings before interest
expense, 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”), debt to EBITDA ratio (“Debt to EBITDA 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
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& 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.
“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 (excluding the Special Distribution) 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 (excluding the Special Distribution) divided
by AFFO per Unit diluted.
“ACFO payout ratio” is calculated as distributions declared (excluding the Special Distribution) divided by ACFO.
Supplementary Financial Measures:
“EBITDA” is defined as earnings before income tax, interest expense, 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
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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 REIT’s
declaration of trust (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 EBITDA Ratio” means the ratio of total debt divided by EBITDA. Debt may increase as a result of acquisitions,
however EBITDA will not include the full trailing 12 months of rental revenue associated with the recent acquisitions.
“Debt to GBV” means the ratio of Indebtedness to GBV at a particular time.
“Debt Service” means the total payments of principal and interest on debt.
“Debt Service Coverage Ratio” means the ratio of EBITDA divided by Debt Service at a particular time.
“Interest Coverage Ratio” means the ratio of Cash NOI less general and administrative expenses divided by the total of
the interest expense and other financing charges.
SECTION 2 – STRATEGY AND OBJECTIVES
Strategy and Objectives
The primary strategy of the REIT is to create Unitholder value over the long-term by generating sustainable tax-efficient
cash flow and capital appreciation through the REIT’s ability to execute on external and internal growth strategies.
The primary 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
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•
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 continually reviews its investment property portfolio and may consider, from time to time, potential strategic
dispositions of investment properties in order to unlock value which is in line with the best interests of the REIT’s long-
term growth strategy. The REIT plans to continue to grow its portfolio of properties leased to original equipment
manufacturers (“OEMs”), OEM dealers and other automotive related tenants in Canada and the United States.
Overall, 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 other
automotive dealership and OEM properties due to certain features of the automotive dealership industry in Canada and
the United States:
•
Fragmented ownership – Management estimates that the top 10 automotive dealership groups in Canada and
the United Sates own less than 20% of the approximately 3,500 automotive dealerships in Canada and
approximately 18,000 automotive dealerships in the United States that are in operation;
•
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 family’s 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 will represent a unique alternative for automotive dealership operators considering
a sale or recapitalization of their business, as the REIT is currently the only public vehicle in Canada focused on
consolidating automotive and OEM dealership and service real estate properties.
The REIT seeks to acquire properties that meet its investment criteria in order to diversify its tenant base, while
continuing to focus on tenant quality, stability of cash flow and brand and geographical diversification in strategic
markets. The REIT will evaluate potential 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. In addition,
the REIT will continue to assess acquisitions of heavy equipment, trucking and other OEM dealership or service
properties as opportunities arise.
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, Dilawri is required to offer to sell to the REIT any REIT suitable property
that is acquired, developed, redeveloped, refurbished, or repositioned by a member of 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.
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Internal Growth
Management believes the REIT is well-positioned to organically increase 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 during the initial lease term and any renewal
term. In addition, the leases entered into by the REIT with other dealership groups to date generally also contain
contractual basic rent escalation clauses. The Dilawri Leases and nearly all of the leases with other tenants 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. As a result, the
contractual rent escalators will provide the REIT with stable and predictable increases in Same Property Cash
NOI over the terms of the leases; and
•
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. Leases containing CPI-related adjustments
represented approximately 27% of the REIT’s portfolio by full year base rent in 2024, and, in 2024, an additional
10% of the REIT’s existing leases by full year base rent in 2024 were subject to capped CPI-related adjustments.
Overview of Automobile Retail Industry
According to DesRosiers Automotive Consultants Inc., based on OEM submissions, Canadian new, light vehicle unit
sales for 2024 increased by approximately 8.2% compared to 2023, reflecting continued consumer demand for new
vehicles.
Historically, Canada’s automotive retail industry has been characterized by strong industry fundamentals. According to
Statistics Canada, automotive retail industry sales totaled approximately $219 billion in 2024 (up 3.6% from
approximately $211 billion in 2023), representing approximately 27% 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 5.0%. The tables below
contain new automobile sales by units in Canada for the 2024 and 2023 calendar years as provided by Statistics Canada:
(Source: Statistics Canada)
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, service
and OEM 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”).
Twelve Months Ended December 31 (units)
2024
YoY unit
increase/
(decrease)
YoY %
increase/
(decrease)
2023
Alberta
223,441
15,818
7.1%
207,623
British Columbia and the Territories
214,515
10,601
4.9%
203,914
Manitoba
57,777
9,008
15.6%
48,769
New Brunswick
44,077
6,662
15.1%
37,415
Newfoundland and Labrador
33,277
6,492
19.5%
26,785
Nova Scotia
49,268
7,483
15.2%
41,785
Ontario
762,260
48,339
6.3%
713,921
Prince Edward Island
8,495
972
11.4%
7,523
Québec
470,727
63,029
13.4%
407,698
Saskatchewan
50,885
7,048
13.9%
43,837
Total Canada
1,914,722
175,452
9.2%
1,739,270
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SECTION 3 – PROPERTY PORTFOLIO
Portfolio Overview
As at December 31, 2024, the REIT’s portfolio consisted of 78 income-producing commercial properties, representing
approximately 2.9 million square feet of GLA on approximately 254 acres of land, in metropolitan markets across British
Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec. The above figures do not include the Tampa Property
or the Columbus Tesla Property, as the Property Acquisitions have not closed as at the date of this MD&A. See “Forward-
Looking Statements” and Section 12 “Risks & Uncertainties, Critical Judgments & Estimates” in this MD&A.
As of the date of this MD&A, the Dilawri Group occupies 36 of the REIT’s properties for use as automotive dealerships
or, in one case, an automotive repair facility. The Dilawri Group jointly occupies one of the REIT’s properties (for use as
an automotive dealership) with one or more third parties (for use as automotive dealerships or complementary uses,
including restaurants). The remaining 41 properties are exclusively occupied by other dealership groups or OEMs for
use as automotive dealerships, automotive service centres or for automotive ancillary services, such as a vehicle service
compound facility or a repair facility. Taschereau JLR and Volkswagen are jointly owned by the REIT and StorageVault
pursuant to the Joint Arrangement.
The Dilawri Group is the REIT’s most significant tenant and accounted for approximately 52.4% of the REIT’s 2024 base
rent, including rent from properties subleased to third parties (53.5% for 2023). The REIT’s overall portfolio continues to
be 100% leased.
As at December 31, 2024, the REIT’s properties had a weighted average rental rate of $28.05 per square foot ($27.44
as at December 31, 2023). The year-over-year increase is due to contractual rent increases, lease renewals and
properties acquired by the REIT during and subsequent to 2023.
Except where otherwise expressly indicated, the information that follows as at and for the year ended December 31,
2024 does not give effect to the Property Acquisitions, as the acquisitions of these properties have not closed. See
“Forward-Looking Statements” and Section 12 “Risks & Uncertainties, Critical Judgments & Estimates” in this MD&A.
Income Producing Property Portfolio Summary
As at December 31, 2024
Number of
Properties
GLA (sq. ft.)
Average
rental rate
(per sq. ft.)(1)
Weighted
Average Lease
Term (yrs)
British Columbia(2)
8
199,244
$42.24
9.1
Alberta
13
467,508
$29.79
8.1
Saskatchewan
9
203,560
$24.54
6.1
Manitoba
2
109,816
$25.74
16.5
Ontario
26
986,879
$29.70
8.7
Quebec
20
906,410
$23.32
9.6
Total Portfolio
78
2,873,417
$28.05
9.0
(1)
Based on 12-month period contractual rental revenue commencing December 31, 2024.
(2)
Excludes land leases, where expenses are passed on to the tenant.
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As at December 31, 2023
Number of
Properties
GLA (sq. ft.)
Average
rental rate
(per sq. ft.)(3)
Weighted
Average Lease
Term (yrs)
British Columbia(4)
8
199,244
$41.35
10.1
Alberta
13
467,508
$29.38
9.1
Saskatchewan
9
203,560
$24.18
7.1
Manitoba
2
96,135
$23.68
14.3
Ontario
27
1,058,889
$28.89
9.3
Quebec
18
846,803
$22.50
11.0
Total Portfolio
77
2,872,139
$27.44
9.8
(3)
Based on 12-month period contractual rental revenue commencing December 31, 2023.
(4)
Excludes land leases, where expenses are passed on to the tenant.
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” to this MD&A contains a list and description of the REIT’s properties as at December 31, 2024.
Profile of Overall Lease Maturity as at December 31, 2024
The REIT’s lease portfolio matures between 2026 and 2042 as set out in the chart below:
Lease Maturity Profile (*)
(*) Based on 12-month period contractual rental revenue commencing December 31, 2024.
3.8%
0.8%
4.4%
6.2% 8.4% 9.2% 7.0%
8.5% 7.5%
5.5%
10.4% 8.2% 10.5%
1.5%
5.1%
0.5% 0.4%
2.1%
-
1.0
2.0
3.0
4.0
5.0
'25
'26
'27
'28
'29
'30
'31
'32
'33
'34
'35
'36
'37
'38
'39
'40
'41
'42
'43
-
5%
10%
15%
20%
25%
% of Base Rent
Greater
Toronto
Area
22.5%
Remaining
Portfolio
21.4%
Greater Montreal
Area
23.7%
Ottawa
9.2%
Calgary
10.2%
Greater Vancouver
Area 6.9%
Edmonton
6.1%
As at December 31, 2023
Greater
Toronto
Area
22.5%
Remaining
Portfolio
21.4%
Greater Montreal Area
23.7%
Ottawa
9.2%
Calgary
10.2%
Greater Vancouver
Area 6.9%
Edmonton
6.1%
As at December 31, 2024
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Property Use and Brand Diversification
Sales for an individual automotive dealership and OEM property 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, 2024:
Manufacturer / Brand
REIT Auto
Property GLA
(Sq. Feet)
% of REIT Auto
Property GLA
% of REIT Base
Rent(1)
No.
of
REIT
Locations
Honda (2)(8)
449,585
15.8%
15.8%
12
BMW (3)
320,824
11.2%
9.6%
7
Volkswagen (6) (7)
252,299
8.8%
9.6%
7
Tesla (4)
238,879
8.4%
5.7%
6
Toyota
229,495
8.0%
8.5%
5
Audi
196,462
6.9%
8.2%
4
Acura (2)
162,081
5.7%
6.8%
6
General Motors
113,532
4.0%
3.5%
2
Mazda
107,444
3.8%
4.9%
5
Hyundai
85,216
3.0%
3.5%
4
Chrysler (6)
81,750
2.9%
1.6%
2
Nissan
71,521
2.5%
2.6%
3
Mercedes Benz
60,850
2.1%
1.9%
1
Kia
53,819
1.9%
2.0%
3
Porsche
39,790
1.4%
4.1%
1
Lexus
30,015
1.1%
1.2%
1
Infiniti
19,355
0.7%
1.1%
3
Subaru
19,033
0.7%
0.5%
2
Mitsubishi
14,750
0.5%
0.6%
2
Other (5)
305,943
10.6%
8.3%
16
Total
2,852,642
100.0%
100.0%
92
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Automotive Properties REIT 2024
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Notes:
(1)
Based on 12-month period contractual base rent commencing January 1, 2025.
(2)
Includes Honda Used Car and Regina Collision Centre. Regina Honda/Acura split 75% and 25% of 30,863 square feet, respectively.
Also includes the former Markham Ford, which is being used for ancillary purposes by Markham Honda.
(3)
Includes MINI.
(4)
Includes the following Tesla properties: Tesla KW, Tesla Laval, Tesla Edmonton, Tesla Barrie, and Tesla Quebec City (two adjoining
properties).
(5)
The Dilawri Group subleased a property in Calgary to Grand Touring Automobile which operates Aston Martin and Bentley. 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, VinFast dealership
and Ineos Grenadier dealership, located in the Dixie Auto Mall. Includes three vehicle compound facilities. The former Southtown
Hyundai is operating as Go Auto service centre and Porsche/Jaguar Land Rover Centre in Edmonton is operating as Jaguar Land
Rover Edmonton. Also, includes Premium Luxury Pre-owned (formerly Audi Services), Taschereau JLR and Volkswagen (formerly
Taschereau Volvo and JLR) and the Greater Montreal Properties.
(6)
Includes Dodge, FIAT, Jeep and RAM.
(7)
Part of Taschereau JLR and Volkswagen (formerly Taschereau Volvo and JLR).
Description of the REIT’s Key Tenant
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, the Dilawri Group’s basic rent payable was below the 60% threshold. As a result, the REIT and Dilawri entered
into a new agreement in 2023 pursuant to which Dilawri agreed to 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, 2024. As of the date
of this MD&A, Dilawri has agreed to amend that agreement such that it will continue to provide such financial information
to the REIT for inclusion in the REIT’s management’s discussion and analysis for one quarter following the quarter in
which notice of termination is provided to the REIT by Dilawri.
The following chart summarizes certain relevant financial information of the Dilawri Group for the 12 months ended
December 31, 2024 with comparative figures for the 12 months ended December 31, 2023 as provided to the REIT by
Dilawri:
Dilawri Group’s Financial Information
(all figures are approximations, not in thousands)
December 31, 2024
LTM(1)
December 31, 2023
LTM(1)
Combined Revenues (not audited or reviewed)
$5.1 billion
$5.0 billion
EBITDA (not audited or reviewed)
$233.6 million
$259.9 million
Pro Forma Adjusted Rent Coverage Ratio (not audited or
reviewed)
4.9(2)
5.5(2)
Notes:
(1)
“LTM” means the last twelve months.
(2)
As at December 31, 2024.
(3)
As at December 31, 2023.
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.
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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 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, 2024 and 2023. These documents, once provided by Dilawri to the REIT, will be available on the REIT’s
SEDAR+ profile at www.sedarplus.ca.
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.
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
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2024
2023
2024
2023
Rental Revenue
$23,415
$23,291
$93,876
$92,484
NOI (1)
19,765
19,741
79,329
78,413
Cash NOI (1)
19,585
19,317
78,269
76,372
Same Property Cash NOI (1)
19,284
18,897
75,530
73,818
Net Income (loss)
12,046
(15,199)
72,001
50,991
FFO (1)
11,874
11,939
47,879
48,010
AFFO (1)
11,682
11,532
46,810
45,930
Fair value adjustment on investment properties
(1,441)
(768)
27,664
(4,113)
Distributions per Unit (2)
$0.201
$0.201
$0.804
$0.804
Net Income per Unit – basic (3)
0.245
(0.310)
1.467
1.039
Net Income per Unit – diluted (4)
0.239
(0.303)
1.433
1.019
FFO per Unit – basic (1) (5)
0.242
0.243
0.976
0.979
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Balance Sheet and Other Metrics
As at December 31,
2024
As at December 31,
2023
As at December 31,
2022
Total assets
$1,190,733
$1,193,907
$1,093,818
Total Credit Facilities and Mortgages Payables
$499,068
$531,511
$431,075
Number of units outstanding (includes Class B LP Units)
49,090,142
49,054,833
49,054,833
Market price per REIT Unit – close (end of period)
$10.89
$10.78
$12.97
Market capitalization (includes Class B LP Units)
$534,592
$528,811
$636,241
Overall capitalization rate
6.69%
6.59%
6.42%
Fixed weighted average effective interest rate on debt
(excludes revolving Credit Facilities) (9)(10)
4.37%
4.25%
3.94%
Proportion of total debt at fixed interest rates through
swaps and Mortgages(11)
93%
95%
99%
Weighted average interest rate swap term and Mortgage
remaining (years) (10)
4.2
4.8
5.1
Weighted average term to maturity of debt
2.4
2.9
3.9
Interest Coverage Ratio (11)
2.9X
2.9X
3.5X
Debt Service Coverage Ratio (11)
1.49X
1.49X
1.70X
Debt to GBV (1)
42.4%
45.0%
40.0%
Debt to EBITDA (1)
6.89
7.38
6.71
(1)
NOI, Cash NOI, Same Property Cash NOI, FFO, AFFO, FFO per Unit, AFFO per Unit, FFO payout ratio, AFFO payout ratio, Debt to GBV and Debt to EBITDA 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)
Distribution per Unit does not include the Special Distribution.
(3)
Net Income per Unit — basic is calculated in accordance with IFRS by dividing Net Income by the amount of the weighted average number of outstanding REIT Units
and Class B LP Units.
(4)
Net Income per Unit — diluted is calculated in accordance with IFRS by dividing 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.
(5)
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.
(6)
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.
(7)
The weighted average number of outstanding Units — basic includes the Class B LP Units.
(8)
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.
(9)
The fixed weighted average effective interest rate on debt is calculated on an annualized basis.
(10) Includes a floating-to-fixed interest rate swap for $9,452 under Facility 2, for a term of four years at an interest rate of 5.40% entered into by the REIT in June 2024.
Includes the extension of a swap for $20,614 under Facility 1, for a five-year term at an interest rate of 4.88%, effective July 2023. Includes the extension of a swap
for $8,939 under Facility 2, for a four-year term at an interest rate of 4.83%, effective June 2023. In November 2023, the REIT entered into a floating-to-fixed interest
rate swap within Facility 1 for $24,500 for a term of five years at an interest rate of 5.69%. Effective December 2024, includes the swap extension for $11,400 under
Facility 1 for a six year term at an interest rate of 4.60%.
(11) For 2024 ratios, see Section 7 “Liquidity and Capital Resources – Financing Metrics and Debt Covenants”.
FFO per Unit – diluted (1) (6)
0.236
0.238
0.953
0.959
AFFO per Unit – basic (1) (5)
0.238
0.235
0.954
0.936
AFFO per Unit – diluted (1) (6)
0.232
0.230
0.932
0.918
Weighted average Units – basic (7)
49,090,142
49,054,833
49,068,183
49,054,833
Weighted average Units – diluted (8)
50,297,193
50,082,627
50,235,796
50,049,275
Payout ratio (%)
FFO (1)
85.2%
84.5%
84.4%
83.8%
AFFO (1)
86.6%
87.4%
86.3%
87.6%
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SECTION 5 – RESULTS OF OPERATIONS
Net Income and Comprehensive Income
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2024
2023
Variance
2024
2023
Variance
Net Property Income
Base rent
$19,671
$19,432
$239
$78,653
$76,717
$1,936
Property tax recoveries
3,650
3,550
100
14,547
14,071
476
Straight-line rent adjustment
94
309
(215)
676
1,696
(1,020)
Rental Revenue
23,415
23,291
124
93,876
92,484
1,392
Property tax expense
(3,650)
(3,550)
(100)
(14,547)
(14,071)
(476)
Property Costs
(3,650)
(3,550)
(100)
(14,547)
(14,071)
(476)
NOI(1)
19,765
19,741
24
79,329
78,413
916
Other Income (Expenses)
General and administrative expenses
(2,191)
(1,490)
(701)
(6,375)
(5,758)
(617)
Interest expense and other financing
charges
(5,622)
(6,270)
648
(24,778)
(24,476)
(302)
Fair value adjustment on interest rate swaps
and foreign exchange forward contract
(47)
(20,972)
20,925
(9,810)
(7,739)
(2,071)
Distribution expense on Class B LP Units
-
(1,875)
1,875
(3,125)
(7,499)
4,374
Fair value adjustment on Class B LP Units
and Unit-based compensation
1,582
(3,565)
5,147
9,096
22,163
(13,067)
Fair value adjustment on investment
properties(2)
(1,441)
(768)
(673)
27,664
(4,113)
31,777
Net Income (loss) and Comprehensive
Income
$12,046
$(15,199)
$27,245
$72,001
$50,991
$21,010
(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.
(2)
The fair value adjustment on investment properties in respect of the twelve months ended December 31, 2024 is inclusive of the $23,760 fair value gain as a result
of the Sale Transaction, completed on October 1, 2024 (see Section 1 “General Information and Cautionary Statements – The REIT”).
For Q4 2024, net income (loss) was $12,046, as compared to $(15,199) in Q4 2023. The positive variance was primarily
driven by changes in the fair value adjustments of interest rate swaps and Unit-based compensation (which consists of
Deferred Units (“DUs”), Income Deferred Units (“IDUs”), Performance Deferred Units (“PDUs”) and Restricted Deferred
Units (“RDUs”)). For 2024, net income was $72,001, as compared to $50,991 in 2023. The increase was primarily due
to changes in fair value adjustment on investment properties (including the $23,760 fair value gain as a result of the sale
of the Kennedy Lands), partially offset by changes in fair value adjustments on Class B LP Units and Unit-based
compensation and interest rate swaps and foreign exchange forward contracts.
For Q4 2024, NOI was $19,765, as compared to $19,741 in Q4 2023. The modest increase was primarily due to the
properties acquired in Q4 2024 and contractual rent increases, partially offset by the decrease in rent as a result of the
Sale Transaction. For 2024, NOI was $79,329, as compared to $78,413 in 2023. The increase was primarily due to the
properties acquired during and subsequent to 2023 and contractual rent increases, partially offset by the decrease in
rent as a result of the Sale Transaction.
Rental Revenue and Property Costs
Rental revenue is principally based on triple-net leases with tenants. As such, rental revenue also includes recoverable
realty taxes and straight-line adjustments. For Q4 2024, rental revenue totaled $23,415, an increase of $124, or 0.5%,
as compared to Q4 2023. The modest increase was primarily the result of the properties acquired in Q4 2024 and
contractual rent increases, partially offset by the decrease in rent as a result of the Sale Transaction.
For 2024, rental revenue was $93,876, representing an increase of $1,392, or 1.5%, as compared to 2023. The increase
was attributable to contractual rent increases and rent from properties acquired during and subsequent to 2023, partially
offset by the decrease in rent as a result of the Sale Transaction.
Property costs for Q4 2024 and 2024 were $100 and $476 higher than Q4 2023 and 2023, respectively. These increases
are attributable to the properties acquired during 2024. Straight-line adjustments decreased in Q4 2024 and 2024,
primarily due to the addition of leases in the property portfolio that contain CPI-related adjustments.
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General and Administrative Expenses
The table below illustrates the breakdown of general and administrative expenses incurred in Q4 2024 and 2024 as
compared to Q4 2023 and 2023:
Q4 2024
Q4 2023
Variance
2024
2023
Variance
Human resource costs
$1,227
$791
$436
$3,964
$3,521
$443
Public entity and other costs
795
542
253
1,754
1,629
125
Independent Trustee fees
169
157
12
657
608
49
General and administrative expenses
$2,191
$1,490
$701
$6,375
$5,758
$617
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 2024 and 2024 of
$436 and $443, respectively, resulted primarily from a higher short-term incentive compensation accrual due to
performance achievements above target.
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. The increases in public entity costs in Q4 2024 and 2024 of
$253 and $125, respectively, resulted from the write-off of the indemnity fee of $84 related to the Sale Transaction,
growth of the REIT and inflation.
As at December 31, 2024, 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 2024 and 2024, the REIT paid the Independent Trustees $169 and $657, respectively, related to the
granting of DUs and IDUs, representing increases of $12 and $49, 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 2024 and 2024, interest expense and other financing
charges were $5,622 and $24,778, respectively, representing a decrease of ($648) and an increase of $302 as
compared to Q4 2023 and 2023, respectively. In Q4 2024, the decrease in interest expense was primarily due to the
Sale Transaction, the proceeds of which were used to pay down the revolving credit facility. For 2024, the increase in
interest expense was primarily due to the additional debt incurred by the REIT to acquire properties subsequent to 2023,
and increased 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 and residual value 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. For Q4 2024 and 2024, the fair value adjustment to investment properties was
($1,441) and $27,664, respectively, as compared to ($768) for Q4 2023 and ($4,113) for 2023.
The fair value adjustments for Q4 2024 and 2024 were a result of the following factors:
•
The overall capitalization rate applicable to the REIT’s entire portfolio increased to 6.69% as at December 31,
2024 (December 31, 2023 – 6.59%). As a result of market conditions, the REIT adjusted valuation inputs for
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2024, which resulted in fair value decreases for properties with fixed-rate rent escalators and fair value increases
for properties with CPI-related rent adjustments;
•
NOI increases from investment properties resulted in a fair value increase for Q4 2024 and 2024; and
•
For 2024, the Sale Transaction resulted in a fair value gain of $23,760.
The weighted average discount rate applicable to the entire portfolio as at December 31, 2024 was 7.53% (December
31, 2023 – 7.49%). The weighted average terminal capitalization rate applicable to the entire portfolio as at December
31, 2024 was 7.16% (December 31, 2023 – 7.10%).
The overall capitalization rate applicable to the REIT’s entire investment property portfolio increased to 6.69% as at
December 31, 2024 (December 31, 2023 – 6.59%), primarily due to the sale of the Kennedy Lands. The REIT’s valuation
inputs are supported by quarterly market reports from an independent appraiser. The historical book value of the
investment properties owned by the REIT as at December 31, 2024 was $1,122,019 (December 31, 2023 – $1,096,669).
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.
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 $45,300 or $(42,100), respectively, as of December 31, 2024.
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 $94,300 or $(81,200), respectively, as of December 31,
2024.
Other Changes in Fair Values
Other Changes in fair Values - Class B LP Units, Unit-based compensation, Interest Rate Swaps and Foreign Exchange
Forward Contracts
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. On June 21, 2024, Dilawri converted all outstanding
9,327,487 Class B LP Units on a one-for-one basis into an equal number of REIT Units. As at December 31, 2024, there
are nil Class B LP Units outstanding.
As a result of the impact of the movement in the traded value of the REIT Units, the fair value adjustment on Unit-based
compensation resulted in a gain of $1,582 in Q4 2024 (Q4 2023 – fair value adjustment for Class B LP Units and Unit-
based compensation resulted in a loss of $3,565), and in a gain for Class B LP Units and Unit-based compensation of
$9,096 for 2024 (2023 – gain of $22,163).
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. To mitigate
the REIT’s exposure to fluctuations in the Canadian to U.S. dollar exchange rate, in anticipation of the closing of the
acquisition of the Tampa Property and the Columbus Tesla Property, the REIT has entered into foreign exchange
forward contracts.
The fair value adjustment of the interest rate swaps and the foreign exchange forward contract was a loss of ($538) and
gain of $491, respectively, totaling loss of ($47) in Q4 2024 (Q4 2023 – loss of $20,972) and a loss of interest rate swaps
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($10,301) and gain of foreign exchange forward contract gain of $491, totaling a loss of ($9,810) in 2024 (2023 – loss
of $7,739), respectively, reflecting a decrease in interest rates in the derivative market as at December 31, 2024.
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 Section
1 “General Information and Cautionary Statement – 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:
Three Months Ended
December 31,
Twelve Months Ended
December 31,
($000s, except per Unit amounts)
2024
2023
Variance
2024
2023
Variance
Calculation of NOI
Property revenue
$23,415
$23,291
$124
$93,876
$92,484
$1,392
Property costs
(3,650)
(3,550)
(100)
(14,547)
(14,071)
(476)
NOI (including straight-line adjustments)
$19,765
$19,741
$24
$79,329
$78,413
$916
Adjustments:
Land lease payments
(86)
(115)
29
(384)
(345)
(39)
Straight-line adjustment
(94)
(309)
215
(676)
(1,696)
1,020
Cash NOI
$19,585
$19,317
$268
$78,269
$76,372
$1,897
Reconciliation of net income to FFO and AFFO
Net income (loss) and comprehensive income
$12,046
($15,199)
$27,245
$72,001
$50,991
$21,010
Adjustments:
Change in fair value — Interest rate swaps
47
20,972
(20,925)
9,810
7,739
2,071
Distributions on Class B LP Units
-
1,875
(1,875)
3,125
7,499
(4,374)
Change in fair value – Class B LP Units and Unit-based
compensation
(1,582)
3,565
(5,147)
(9,096)
(22,163)
13,067
Change in fair value — investment properties
1,441
768
673
(27,664)
4,113
(31,777)
ROU asset net balance of depreciation/interest and lease
payments(1)
(78)
(42)
(36)
(297)
(169)
(128)
FFO
$11,874
$11,939
($65)
$47,879
$48,010
($131)
Adjustments:
Straight-line adjustment
(94)
(309)
215
(676)
(1,696)
1.020
Capital expenditure reserve
(98)
(98)
-
(393)
(384)
9
AFFO
$11,682
$11,532
$150
$46,810
$45,930
$880
Number of Units outstanding (including Class B LP Units)
49,090,142
49,054,833
35,309
49,090,142
49,054,833
35,309
Weighted average Units Outstanding — basic
49,090,142
49,054,833
35,309
49,068,183
49,054,833
35,309
Weighted average Units Outstanding — diluted
50,297,193
50,082,627
214,566
50,235,796
50,049,275
186,521
FFO per Unit – basic(2)
$0.242
$0.243
($0.001)
$0.976
$0.979
($0.003)
FFO per Unit – diluted(3)
$0.236
$0.238
($0.002)
$0.953
$0.959
($0.006)
AFFO per Unit – basic(2)
$0.238
$0.235
$0.003
$0.954
$0.936
$0.018
AFFO per Unit – diluted(3)
$0.232
$0.230
$0.002
$0.932
$0.918
$0.014
Distributions per Unit(4)
$0.201
$0.201
—
$0.804
$0.804
—
FFO payout ratio(4)
85.2%
84.5%
0.7%
84.4%
83.8%
0.6%
AFFO payout ratio(4)
86.6%
87.4%
(0.8%)
86.3%
87.6%
(1.3%)
(1) The Change in fair value — investment properties in respect of the twelve months ended December 31, 2024 is inclusive of the $23,760 fair
value gain as a result of the Sale Transaction.
(2) FFO and AFFO per Unit — basic is calculated by dividing total FFO and AFFO by the amount of the total weighted-average number of
outstanding REIT Units and Class B LP Units.
(3) FFO and AFFO per Unit — diluted is calculated by dividing 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 Trustees and management of the REIT.
(4) Excludes the Special Distribution.
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FFO, AFFO and Cash NOI
In Q4 2024, FFO decreased nominally by 0.5% to $11,874, or $0.236 per Unit (diluted), as compared to $11,939, or
$0.238 per Unit (diluted), in Q4 2023. The slight decrease was primarily attributable to higher general and administrative
expenses and a reduction in straight-line rent adjustment, partially offset by lower interest expense and higher base
rental revenue. Straight-line adjustment decreased by $215 due to the addition of leases to the investment property
portfolio containing CPI-linked rent adjustments.
In 2024, FFO decreased nominally by 0.3% to $47,879, or $0.953 per Unit (diluted), as compared to $48,010, or $0.959
per Unit (diluted), in 2023. The minor decrease was primarily attributable to higher interest expense, higher general and
administrative expenses, and a reduction in straight-line rent adjustment, partially offset by higher base rental revenue.
Straight-line adjustment decreased by $1,020 due to the addition of leases to the investment property portfolio containing
CPI-linked rent adjustments.
In Q4 2024, AFFO increased by 1.3% to $11,682, or $0.232 per Unit (diluted), as compared to $11,532, or $0.230 per
Unit (diluted), in Q4 2023. Cash NOI in Q4 2024 was $19,585 on $23,415 of revenue, compared to Cash NOI of $19,317
on revenue of $23,291 in Q4 2023. The increases were primarily due to the properties acquired subsequent to Q4 2023
and contractual rent increases. Straight-line rent adjustment is excluded from the calculation of AFFO.
In 2024, AFFO increased by 1.9% to $46,810, or $0.932 per Unit (diluted), as compared to $45,930, or $0.918 per Unit
(diluted), in 2023. Cash NOI in 2024 was $78,269 on $93,876 of rental revenue, compared to Cash NOI of $76,372 on
$92,484 of rental revenue in 2023. The increases were primarily due to the properties acquired during and subsequent
to 2023 and contractual rent increases. The increase to AFFO in 2024 was partially offset by higher interest costs and
general and administrative expenses. Straight-line rent adjustment is excluded from the calculation of AFFO.
For Q4 2024, the REIT declared and paid distributions to Unitholders of $9,867, or $0.201 per Unit (Q4 2023 – $9,860
declared and paid), and for 2024, the REIT declared distribution of $39,452 (2023 – $39,440) and paid total distributions
of $39,450 (2023 – $39,440). These amounts exclude the Special Distribution (as defined below). (2023 – $39,440
declared and paid). These amounts exclude the Special Distribution. This resulted in an AFFO payout ratio of 86.6% in
Q4 2024 (Q4 2023 – 87.4%) and 86.3% in 2024 (2023 – 87.6%). The AFFO payout ratio was lower in Q4 2024 as
compared to Q4 2023 primarily as a result of the positive impact of acquisitions and contractual rent increases, partially
offset by increased interest expense, short and long-term performance awards, and the vesting of long-term Unit-based
compensation. The AFFO payout ratio was lower in 2024 as compared to 2023 primarily due to the properties acquired
during and subsequent to 2023 and contractual rent increases.
Principally to distribute to Unitholders a portion of the taxable income generated by the sale of the Kennedy Lands, the
REIT declared a special distribution payable to Unitholders of record as of December 31, 2024 in the amount of $0.55
per Unit, comprised of $0.081 per Unit, paid in cash on January 6, 2025, totaling $3,976, and $0.469 per Unit paid by
the issuance of Units, having a total value of $23,023.
Same Property Cash Net Operating Income
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2024
2023
Variance
2024
2023
Variance
Same property base rental revenue
$19,383
$18,983
$400
$75,914
$74,163
$1,751
Land lease payments
(99)
(86)
(13)
(384)
(345)
(39)
Same Property Cash NOI
$19,284
$18,897
$387
$75,530
$73,818
$1,712
Same Property Cash NOI increased 2.0% to $19,284 in Q4 2024, compared to $18,897, in Q4 2023, and increased
2.3% to $75,530 in 2024, from $73,818 in 2023. The increases are primarily a result of contractual rent increases.
Automotive Properties REIT 2024
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Automotive Properties REIT 2024
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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 Section 1 “General Information and
Cautionary Statements – 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, the
primarily 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:
Twelve Months Ended December 31
($000s)
2024
2023
Variance
Cash flow from operating activities
$75,914
$74,266
$1,648
Change in non-cash working capital
570
129
441
Interest paid
(24,016)
(23,569)
(447)
Amortization of financing fees
(874)
(932)
58
Amortization of indemnification fees
(144)
(262)
118
Net interest expense and other charges in excess of
interest paid
112
25
97
Capital expenditure reserve
(393)
(384)
(9)
ACFO
$51,169
$49,273
$1,896
ACFO payout ratio
77.10%
80.04%
(2.94%)
ACFO increased 3.9% to $51,169, as compared to $49,273 in 2023. This resulted in an ACFO payout ratio of 77.10%
in 2024 (2023 – 80.04%). The increase in 2024 was primarily attributable to properties acquired during and subsequent
to 2023 and contractual rent increases, partially offset by higher interest paid. The REIT’s 2024 distributions were funded
from cash flows from operating activities as well as cash on hand. The REIT believes that future distributions, except for
any special distributions, will be funded through cash flows from operating activities. As at December 31, 2024, the REIT
had a Debt to GBV ratio of 42.4% and $88,821 of undrawn capacity under its Credit Facilities, cash on hand of $336
and three unencumbered properties with an aggregate value of approximately $43,840.
SECTION 7 – LIQUIDITY AND CAPITAL RESOURCES
Capital Structure
Key Terms
Debt
Term (yrs)
Hedged
Term
(yrs)
Interest
Rate
Payments &
Interest/Amortization
Effective
Interest Rate
(fixed)
Outstanding as at
December 31,
2024
Outstanding as at
December 31,
2023
Facility 1
2.5(1)
0.5 to
9.8
CORRA(13) +
150 bps,
Prime +25
bps
(1)
4.57%
$237,117(4)
$259,896(4)
Facility 2
3.1 (2)
0.5 to
7.9
CORRA(13)
+ 150 bps,
Prime +25
bps
(2)
3.90%
76,820
80,984
Facility 3
1.5 (3)
3.0 to
9.0
CORRA(13) +
150 bps,
Prime +50
bps
(3)
4.33%
153,821
162,246
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Mortgages
2.2 to 6.3
n/a
Fixed 2.21%
to 5.73 %
P&I, 20 yrs and 25
yrs
3.89%
33,874
31,145
$501,632
$534,271
Financing fees
(2,564)
(2,760)
Weighted Average
/Total
2.4
4.2 (7)
4.37% (7)
$499,068
$531,511
Class B LP Units and Unit-based
compensation(11)
$11,942
$110,864
Cash Balance
$336
$336
$298
Key Financing Metrics and Debt
Covenants (12)
Debt
Covenant(5)
Declaration of Trust
(6)
As at December
31, 2024
As at December
31, 2023
Interest Coverage Ratio
-
-
2.9
2.9
Debt to GBV
<60% (8)
<60% (8)
42.4%(10)
45.0%(10)
Unitholders’ Equity (including
Class B LP Units and Unit-based
compensation)(11)
>$120,000
-
$674,853
$650,858
Debt Service Coverage Ratio
>1.35
-
1.49
1.49
AFFO payout ratio
(9) (10)
-
86.6%
87.6%
(1)
Facility 1 and the associated revolving facility matures in June 2027.
(2)
Facility 2 and the associated revolving facility matures in January 2028.
(3)
Facility 3 and the associated revolving facility matures in June 2026. In January 2023, the REIT increased the non-revolving portion of Facility 3 by $70,000 at
the same credit spread.
(4)
In May 2023, $25,000 of the revolving portion of Loan Facility 1 was converted from a revolving balance to a non-revolving balance. In December 2024, the
REIT increased the amount of the non-revolving portion of Facility 1 by $15,000.
(5)
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. The debt service coverage ratio represents rolling four quarters.
(6)
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
SEDAR+ at www.sedarplus.ca and is described in the AIF. Management believes that the REIT is in compliance with these operating covenants.
(7)
Includes the extension of a swap for $20,614 under Facility 1, for a five-year term at an interest rate of 4.88%, effective July 2023. Includes the extension of a
swap for $8,939 under Facility 2, for a four-year term at an interest rate of 4.83%, effective June 2023. In November 2023, within Facility 1 the REIT entered
into a floating-to-fixed interest rate swap for $24,500 for a term of five years at an interest rate of 5.69%. In June 2024, the REIT also amended and extended
an interest rate swap for $9,452 under Facility 2, for a term of four years at an interest rate of 5.40%, effective July 2024. In December 2024, the REIT renewed
a $11,400 swap for a term of six years at an interest rate of 4.60% within Facility 1.
(8)
Including convertible debentures, the maximum ratio is 65%.
(9)
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%.
(10) 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.
(11) On June 21, 2024, Dilawri converted 9,327,487 Class B LP Units on a one-for-one basis for an equivalent number of REIT Units.
(12) 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”.
(13) Effective July 1, 2024, Facility 1, 2 and 3 bearing interest at BA have been converted to Canadian Overnight Repo Rate Average (“CORRA”).
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 trailing four
quarters ended December 31, 2024, the AFFO payout ratio was approximately 86.6%.
In March 2024, the REIT and StorageVault entered into a new mortgage in the amount of approximately $8,000 for a
term of three years at an interest rate of 5.73%. Pursuant to the Joint Arrangement, the REIT has accounted for $4,000
of the Mortgage.
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To mitigate the REIT’s exposure to fluctuations in the Canadian to U.S. dollar exchange rate, in anticipation of the closing
of the acquisition of the Tampa Property, on November 19, 2024, the REIT entered into a foreign exchange forward
contract to purchase US$12,000 at a fixed rate of 1.394 to be executed by the end of March 2025.
In December 2024, the REIT renewed a $11,400 swap for a term of six years at an interest rate of 4.60% within Facility
2 and increased the amount of the non-revolving loan portion of Facility 1 by $15,000.
On February 6, 2025, the REIT entered into a floating-to- fixed interest rate swap within Facility 1 in the amount of $7,000
for a term of six years at an interest rate of 4.46%, and also entered into a floating-to-fixed interest rate swap in the
amount of $8,000 for a term of eight years at an interest rate of 4.56%.
On March 3, 2025, the REIT entered into a floating-to- fixed interest rate swap within Facility 1 in the amount of $10,000
for a term of nine years at an interest rate of 4.53.
To mitigate the REIT’s exposure to fluctuations in the Canadian to U.S. dollar exchange rate, in anticipation of the closing
of the acquisition of the Columbus Tesla Property, on February 7, 2025, the REIT entered into a foreign exchange
forward contract to purchase US$17,000 at a fixed rate of 1.430 to be executed by the end of March 2025.
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.
As at December 31, 2024, principal repayments are as follows:
2025 ......................................................................................................................................
24,636
2026 ......................................................................................................................................
161,655
2027 ......................................................................................................................................
228,665
2028 ......................................................................................................................................
78,880
Thereafter ..............................................................................................................................
7,796
Total ......................................................................................................................................
$501,632
The REIT’s liquidity position as at December 31, 2024 included approximately $88,821 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 of uncertain inflation and elevated 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.
As at the date of this MD&A, the REIT has approximately $89,421 of undrawn capacity under its Credit Facilities, cash
on hand of $336 and three unencumbered properties with an aggregate value of approximately $43,840. Capital required
for investing activities will be addressed through additional borrowings or issuances of equity as acquisition and
development opportunities arise. See “General Information and Cautionary Statements – the REIT”.
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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, 2024, the REIT’s Debt to GBV ratio was 42.4% (December 31, 2023 – 45.0%).
The decrease as compared to December 31, 2023 is primarily attributable to the fair value adjustment on investment
properties of $23,760, as a result of the Sale Transaction.
Management expects that the ratio of Debt to GBV may increase, at least temporarily, following an acquisition by the
REIT of additional properties (including the Tampa Property and the Columbus Tesla Property). 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 three of the REIT’s investment properties as of December 31, 2024 and as of the date of this
MD&A.
As at December 31, 2024, the REIT had total revolving Credit Facilities of $90,000 ($30,000 in Facility 1, $20,000 in
Facility 2, and $40,000 in Facility 3), of which $88,821 was undrawn (approximately, $89,421 as of the date of this
MD&A).
Financing Fees
During 2024, the REIT incurred financing fees of $678 (2023 – $718). As at December 31, 2024, the amounts are
accounted for using the effective interest method. As at December 31, 2024, $2,564 remains unamortized (December
31, 2023 – $2,760).
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, 2024 was 4.2 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, 2024:
Remaining Term
Range (yrs)
Amount
($000s)
Total Swapped
Fixed Rate Debt
(%)
Less than 1 Year
76,440
17.7
1-2 Years
10,238
2.4
2-5 Years
213,027
49.4
5-7 Years
76,208
17.7
Greater than 7 Years
55,745
12.8
4.8
431,658
100.0
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As at December 31, 2024, the notional principal amount of the interest rate swaps was $431,064 (December 31, 2023
–$475,080) and the fair value adjustment of the interest rate swaps and the foreign exchange contract was $10,301 and
($491), respectively, totaling $9,810 (December 31, 2023 – interest rate swaps: $7,739; foreign exchange contract: $nil).
As at December 31, 2024, the net asset balance of interest rate swaps and the foreign exchange contract in the
aggregate amount of $1,579 was comprised of an asset balance of $1,882 in respect of the interest rate swaps and an
asset balance of $491 in respect of the foreign exchange contract, partially offset by a liability of $794 related to interest
rate swaps (December 31, 2023 – asset of $11,388).
The weighted average interest rate swap term and Mortgage term remaining was 4.2 years as at December 31, 2024.
Unitholders’ Equity (including Class B LP Units 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
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 (the “Exchange Agreement”), 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.
On August 20, 2024, 59,979 DUs and 12,858 IDUs were converted into an aggregate of 72,837 REIT Units by members
of management in accordance with the terms of the Plan. On August 27, 2024, 37,528 REIT Units were surrendered
and cancelled by the REIT in order to fulfill certain tax payment obligations in accordance with applicable tax rules.
As at December 31, 2024, the total number of REIT Units outstanding was 49,090,142.
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”), 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.
On June 21, 2024, Dilawri converted all 9,327,487 previously outstanding Class B LP Units into an equal number of
REIT Units. As at December 31, 2024, there are nil Class B LP Units outstanding.
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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 (“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. DUs, PDUs, RDUs and
IDUs issued to management must be converted to REIT Units no later than seven years from the grant date.
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.
On August 20, 2024, 59,979 DUs and 12,858 IDUs were converted into an aggregate of 72,837 REIT Units by members
of management in accordance with the terms of the Plan.
During the year ended December 31, 2024, a total of 180,021 DUs, PDUs, RDUs and IDUs were granted (2023 –
239,329), of which 105,265 DUs, PDUs, RDUs and IDUs were accounted for in accordance with the vesting schedule
(2023 – 83,838). As at December 31, 2024, a total of 1,228,171 DUs, PDUs, RDUs and IDUs have been granted (2023
– 1,048,149), of which 1,096,644 were accounted as outstanding (2023 – 956,738).
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.
Principally to distribute to Unitholders a portion of the taxable income generated by the sale of the Kennedy Lands, the
REIT declared a special distribution to Unitholders of $0.55 per Unit on December 16, 2024, which was comprised of
$0.081 per Unit paid in cash on January 6, 2025 and $0.469 per Unit paid by the issuance of Units, to Unitholders of
record as at December 31, 2024.
On December 16, 2024, the REIT declared the Special Distribution. The Unit portion of the Special Distribution was paid
at the close of business on December 31, 2024 by the issuance of Units from treasury that had a fair market value equal
to the dollar amount of the Special Distribution payable in Units based on the volume-weighted average trading price of
the Units on the Toronto Stock Exchange for the five trading days ending on December 30, 2024. Immediately following
the Special Distribution, the outstanding Units of the REIT were consolidated such that each Unitholder held, after the
consolidation, the same number of Units as held immediately prior to the Special Distribution. The cash portion of the
Special Distribution was paid on January 6, 2025 to Unitholders of record as of December 31, 2024.
The Board regularly reviews the REIT’s rate of distributions to ensure an appropriate level of cash distributions.
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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
As at December 31,
2024
As at December 31,
2023
Net Asset Value
Investment properties, IFRS value
$1,187,364
$1,179,316
Cash, accounts receivable and other assets
3,369
14,591
Accounts payable and accrued liabilities
(16,321)
(11,538)
Credit Facilities, Mortgages and interest rate swaps
(499,068)
(531,511)
Total Net Asset Value
$675,344
$650,858
Total Net Asset Value excluding interest rate swaps and foreign exchange
forward contracts
$673,765
$639,470
REIT Units and Class B LP Units outstanding
49,090,142
49,054,833
Debt to GBV
Indebtedness outstanding:
Credit Facilities & Mortgages (excludes deferred financing costs)
A
$501,632
$534,271
Lease Liability
A1
3,168
3,564
Gross Book Value
Total assets
B
1,190,733
1,193,907
Debt to GBV (1)
((A+A1)/B) X 100
42.4%
45.0%
Unitholders’ Equity & Class B LP Units & DUs & IDUs
Unitholders’ Equity
$663,402
$539,994
Value of Unit-based compensation
11,942
10,314
Value of Class B LP Units
-
100,550
Total Unitholders’ Equity & Class B LP Units & Unit-based compensation
$675,344
$650,858
Calculations of financial metrics and debt covenants
Interest Coverage Ratio
Q4 2024
Q4 2023
2024
2023
Cash NOI (2)
$19,585
$19,317
$78,269
$76,372
General and administrative expenses
(2,191)
(1,490)
(6,375)
(5,758)
Income before interest expense and fair value adjustments
C
17,394
17,827
71,894
70,614
Interest expense and other financing charges
D
5,622
6,270
24,778
24,476
Interest Coverage Ratio (3)
C/D
3.1X
2.8X
2.9X
2.9X
Debt Service Coverage Ratio
Consolidated net income
$12,046
($15,199)
$72,001
$50,991
Interest expense and other financing charges
5,622
6,270
24,778
24,476
Distribution expense on Class B LP Units
-
1,875
3,125
7,499
Amortization of other assets
128
48
268
188
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Fair value adjustments, net
(94)
25,305
(26,950)
(10,311)
EBITDA (2)
E
17,702
18,299
73,222
72,843
Principal payments on debt
6,031
6,432
25,041
25,386
Interest payments on debt (excludes bank charges)
5,573
6,073
24,016
23,569
Debt Service
F
11,604
12,505
49,057
48,955
Debt Service Coverage Ratio (4)
E/F
1.53X
1.46X
1.49X
1.49X
AFFO payout ratio
AFFO (2)
11,682
11,532
46,810
45,930
Distributions on REIT Units
9,867
7,985
36,327
31,941
Distributions on Class B LP Units
-
1,875
3,125
7,499
9,867
9,860
39,452
39,439
AFFO payout ratio (2)(5)
86.6%
87.4%
86.3%
87.6%
Debt to EBITDA Ratio (6)
-
-
6.89
7.38
Notes:
(1)
The Debt to GBV ratio as at December 31, 2024 decreased as compared to December 31, 2023, due to the paydown of debt from the proceeds of the Sale Transaction.
(2)
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.
(3)
The Interest Coverage Ratio for Q4 2024 has remained unchanged from Q4 2023 due to increased Cash NOI, offset by an increase in interest expense and other financing charges resulting
from the property acquisitions completed in Q4 2024 and higher interest rates. The Interest Coverage Ratio for 2024 decreased due to higher interest expense and other financing charges.
(4)
The Debt Service Coverage Ratio for Q4 2024 increased due to a decrease in principal payments. The Debt Service Coverage Ratio for 2024 decreased due to higher interest expense and
principal payments.
(5)
The AFFO payout ratio is calculated as distributions per REIT Unit divided by the AFFO per Unit – diluted.
(6)
The Debt to EBITDA Ratio improved due to the pay down of debt from the proceeds from the Sale Transaction and an increase in EBITDA.
SECTION 8 – RELATED PARTY TRANSACTIONS
The REIT’s largest Unitholder and lead tenant is the Dilawri Group, which as at December 31, 2024 held an approximate
31.3% (2023 – 31.4%) effective interest in the REIT on a fully diluted basis, through its ownership of 15,748,507 REIT
Units (December 31, 2023 – 6,421,020 Units and 9,327,487 Class B LP Units).
In the normal course of its operations, the REIT enters into various transactions with related parties and the REIT’s
policy is to conduct all transactions and settle all balances with related parties on market terms and conditions and in
accordance with the Related Party Transaction Policy adopted by the Board and the Declaration of Trust.
On July 26, 2024, the REIT agreed to sell the Kennedy Lands to a member of the Dilawri Group for an initial sale price
of $54,000, subject to customary adjustments. In accordance with the REIT’s Related Party Transaction Policy and
Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions, the Sale Transaction
was reviewed, and ultimately unanimously approved, by the Independent Trustees. The Independent Trustees met
separately on a number of occasions to specifically consider the Sale Transaction and its impact on the REIT and its
Unitholders other than Dilawri. As part of their process, among other things, the Independent Trustees reviewed
appraisals of the Kennedy Lands prepared by two leading independent real estate appraisers, and sought the advice of
a Canadian investment bank in respect of the potential financial impact of the Sale Transaction on the REIT and its
Unitholders other than Dilawri. Following extensive negotiations between management of the REIT and Dilawri, the
Independent Trustees approved the Sale Transaction. The REIT completed the Sale Transaction on October 1, 2024.
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). The prepaid indemnity fee of $84 relating to Kennedy Lands was written off during the fourth
quarter of 2024.
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, 2024 (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.sedarplus.ca and on the REIT’s website www.automotivepropertiesreit.ca.
Strategic Alliance Agreement
In connection with the IPO, the REIT and Dilawri entered into a strategic alliance agreement (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.
The REIT did not acquire any investment properties pursuant to the Strategic Alliance Agreement in 2024 and 2023.
SECTION 9 − OUTLOOK
The REIT is subject to risks associated with inflation, interest rates, currency fluctuations and availability of capital. The
REIT is actively monitoring risks associated with trade tariffs and other trade restrictions, which could impact cross-
border trade, material costs, and overall economic market conditions in Canada. While the full extent and impact of
these trade tariffs and trade restrictions remains uncertain, the REIT is continuing to assess their potential effect on its
business, property valuations and financing conditions.
The REIT used a portion of the net proceeds from completion of the Sale Transaction that occurred on October 1, 2024,
to pay down in full its indebtedness under its revolving Credit Facilities, which lowered the REIT’s Debt to GBV ratio to
42.4% as at December 31, 2024, providing the REIT with additional acquisition capacity. The REIT has entered into
agreements to acquire the Tampa Property for approximately US$13,500 and the Columbus Tesla Property for
approximately US$17,800. The REIT expects to fund Property Acquisitions with draws on its revolving credit facilities.
The addition of these properties is expected to increase the REIT’s AFFO per Unit.
As at December 31, 2024, 92.7% of the REIT’s debt was fixed with a weighted average interest rate of 4.34%, a weighted
average interest swap term and mortgages remaining of 4.2 years and weighted average term to maturity of debt of 2.4
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 when borrowing conditions are favourable.
As at the date of this MD&A, the REIT has approximately $89,421 of undrawn capacity under its Credit Facilities, cash
on hand of $336 and three unencumbered properties valued at approximately $43,840.
The financial markets continually fluctuate, and it is therefore difficult for management to quantify the impact that the
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 inflation and interest rates on the REIT’s business and will
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continue to prudently manage the REIT’s available financial resources and strategically move its floating and short-term
debt into fixed rate and/or long-term debt in an effort to minimize the impact of any potential future interest rate increases.
Management will continue to prudently manage growth of the REIT while also focusing on liquidity and overall capital
market and debt financing conditions.
Overall, the REIT believes that the fundamentals of the automotive and other OEM dealership and service businesses
remain solid, and that the industry is resilient and essential. While the implementation or escalation of trade tariffs or
other trade restrictions may lead to elevated interest rates and inflation and may have an adverse effect on consumer
demand and the overall economy, the fluctuation in the interest rate environment, inflation and credit environment may
impact rental growth and capitalization rates overall in the real estate industry, which, consequently, could provide
attractive buying opportunities for the REIT.
As the only publicly traded Canadian real estate entity focused exclusively on owning automotive and other OEM
dealership and service properties, the REIT provides a unique opportunity for owners of these operating businesses to
monetize their real estate while retaining ownership and control of their core businesses. This provides dealership owner
operators with liquidity to advance their individual strategic objectives, whether it be succession planning, directly
investing in upgrading their facilities, or pursuing acquisitions. The Canadian and United States automotive and OEM
dealership and service 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. The REIT plans to continue to grow its portfolio of properties leased to
OEMs, OEM dealers and other automotive related uses.
SECTION 10 – OTHER DISCLOSURES
Environmental and Corporate Social Responsibility
The REIT primarily leases its properties using a triple-net lease structure and the REIT has adopted a written
Environmental and Corporate Social Responsibility Policy (the “ESG Policy”) to formally recognize the REIT’s approach
to addressing its environmental and social responsibilities as a good corporate citizen. The ESG Policy acknowledges
the nature of the REIT’s business as an owner of automotive properties located principally in Canada and its efforts to
promote a culture of improvement with regards to sustainability and social responsibility for the benefit of all its
stakeholders, including employees, tenants, suppliers, Unitholders and local communities.
The ESG Policy articulates the REIT’s commitment to: (i) protecting its investors by managing sustainability-related
risks; (ii) sourcing with integrity; (iii) collaborating on sustainability with industry bodies; (iv) compliance with applicable
Canadian federal, provincial, territorial and municipal laws relating to environmental matters; (v) making, or requiring its
tenants to make, the necessary capital and operating expenditures to comply with environmental laws and address any
material environmental issues; (vi) requiring its officers and other staff to adhere to the REIT’s policies and procedures
regarding the environment, sustainability and compliance with environmental legislation, and report any non-compliance
with such policies and procedures; and (vii) offering a safe place to work.
Oversight of the ESG Policy is within the mandate of the Governance, Compensation and Nominating Committee (the
“GCN Committee”). As part of that oversight, management reports to the GCN Committee at each quarterly meeting of
the GCN Committee in respect of, among other things, compliance with the ESG Policy and any environmental and
corporate social responsibility (“ESG”) initiatives undertaken by management. Furthermore, commencing in 2022, the
GCN Committee and the Board made ESG a stand-alone metric in the REIT’s short-term incentive plan for named
executive officers in recognition of the importance of ESG to the REIT. In 2022, the REIT also retained an outside
consultant to assist management with the creation of an ESG and sustainability plan and related updates to the ESG
Policy, among other things. The REIT’s ESG and sustainability plan was approved by the Board in early 2023 and is
available on the REIT’s website at www.automotivepropertiesreit.ca. The REIT has also established an ESG committee
comprised of REIT management and employees that makes recommendations to management in respect of ESG
initiatives and engagement.
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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 .................................................................................................................................................
$307
After 1 year, but not more than 5 years ........................................................................................................
1,472
More than 5 years .........................................................................................................................................
1.389
Total ..............................................................................................................................................................
$3,168
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, 2024. There have been no changes to
the REIT’s ICFR during Q4 2024 and the year ended December 31, 2024 that have materially affected, or are reasonably
likely to materially affect, the REIT’s ICFR.
Management recognizes that any controls and procedures, no matter how well designed and operated, can only provide
reasonable assurance and not absolute assurance of achieving the desired control objectives. In the unforeseen event
that lapses in the disclosure or internal controls and procedures occur and/or mistakes happen, the REIT intends to take
whatever steps are necessary to minimize the consequences thereof.
Consistent with National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings, the REIT
has filed certificates on Form 52-109F1.
SECTION 11 – QUARTERLY RESULTS OF OPERATIONS
The following is a summary of selected consolidated financial information for each of the eight most recently completed
quarters:
($ thousands except where otherwise
indicated)
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
2024
2024
2024
2024
2023
2023
2023
2023
Number of Properties
78
77(i)
77(i)
77(i)
77(i)
77(i)
77(i)
76
GLA (sq. ft.)
2,873,417
2,872,139(i)
2,872,139(i)
2,872,139(i)
2,872,139(i)
2,872,139
(i)
2,872,139
(i)
2,821,724
Rental revenue
23,415
23,533
23,515
23,413
23,291
23,378
22,939
22,876
Net Operating Income
19,765
19,897
19,824
19,843
19,741
19,671
19,544
19,457
Net Income (loss)
12,046
1,766
37,288
20,901
(15,199)
28,332
20,866
16,967
Net Income per Unit — basic(ii)
0.245
0.036
0.760
0.426
(0.310)
0.578
0.425
0.346
Net Income per Unit — diluted(iii)
0.239
0.035
0.742
0.417
(0.303)
0.566
0.417
0.340
FFO per Unit — basic(iv)
0.242
0.243
0.245
0.246
0.243
0.244
0.246
0.245
FFO per Unit — diluted(v)
0.236
0.237
0.239
0.241
0.238
0.239
0.241
0.241
AFFO per Unit — basic(iv)
0.238
0.238
0.239
0.239
0.235
0.234
0.234
0.233
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AFFO per Unit — diluted(v)
0.232
0.233
0.233
0.234
0.230
0.230
0.230
0.229
AFFO payout ratio
86.6%
86.3%
86.3%
85.9%
87.4%
87.4%
87.4%
87.8%
Distribution declared per Unit
0.201
0.201
0.201
0.201
0.201
0.201
0.201
0.201
Weighted average Units — basic
49,090,142
49,072,488
49,054,833
49,054,833
49,054,833
49,054,833
49,054,833
49,054,833
Weighted average Units — diluted
50,297,193
50,286,264
50,268,740
50,113,221
50,082,627
50,052,016
50,024,870
49,889,062
Market price per REIT Unit — close
(end of period)
$10.89
$12.28
$9.76
$10.30
$10.78
$10.45
$11.49
$11.54
Total assets
1,190,733
1,212,514
1,220,323
1,199,959
1,193,907
1,215,242
1,209,897
1,189,459
Debt to GBV
42.4%
43.7%
43.6%
44.6%
45.0%
44.5%
45.1%
45.2%
Debt service coverage ratio
1.53X
1.50X
1.47X
1.48X
1.46X
1.47X
1.50X
1.53X
Notes:
(i)
Includes 100% of the GLA of Taschereau JLR and Volkswagen and the Kennedy Lands.
(ii)
Net Income per Unit – basic is calculated in accordance with IFRS by dividing Net Income by the amount of the weighted average number of outstanding
REIT Units and Class B LP Units.
(iii)
Net Income per Unit – diluted is calculated in accordance with IFRS by dividing 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, 2024, to certain Trustees and management of the REIT.
(iv)
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.
(v)
The FFO and AFFO per Unit – diluted is calculated by using the weighted average number of outstanding REIT Units, Class B LP Units, DUs, PDUs,
RDUs and IDUs granted as at December 31, 2024 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 is primarily attributable to property acquisitions during and subsequent to 2023. Net
income is also impacted by fluctuations in fair value adjustments of Class B LP Units, investment properties and interest
rate swaps.
SECTION 12 – RISKS & UNCERTAINTIES, CRITICAL JUDGMENTS &
ESTIMATES
The following risks are a subset of the key risks that affect the REIT’s business and operations. They should be read in
conjunction with the full set of risks inherent in the REIT’s business, as included in the REIT’s Annual Information Form
for the year ended December 31, 2024.
Risk Factors Related to the REIT’s Relationship with Dilawri
Significant Ownership by the Dilawri Organization
As at December 31, 2024 and as at the date of this MD&A, Dilawri had an approximate 31.3% ownership interest in the
REIT, on a fully-diluted basis, through the ownership, direction or control of 15,748,507 REIT Units.
In addition, the Declaration of Trust grants Dilawri the right to nominate certain Trustees of the REIT based on the Dilawri
Organization’s direct and indirect interest in the REIT. For so long as the Dilawri Organization maintains a significant
effective interest in the REIT, the Dilawri Organization will have the ability to exercise certain influence with respect to
the affairs of the REIT and significantly affect the outcome of the votes of Unitholders, and may have the ability to prevent
certain fundamental transactions.
As a result, the Dilawri Organization has the ability to influence many matters affecting the REIT. Accordingly, the REIT
Units may be less liquid and trade at a relative discount compared to such REIT Units in circumstances where the Dilawri
Organization did not have the ability to influence or determine matters affecting the REIT. Additionally, the Dilawri
Organization’s significant effective interest in the REIT may discourage transactions involving a change of control of the
REIT, including transactions in which an investor, as a holder of the REIT Units (a “REIT Unitholder”), might otherwise
receive a premium for its REIT Units over the then-current market price. Further, the Dilawri Organization’s significant
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effective interest in the REIT may discourage competing bids if Dilawri or another member of the Dilawri Organization
bids for the REIT.
Furthermore, if the Dilawri Organization sells its 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, 2024, the REIT derived approximately 52.4% of its annual base rent from the Dilawri Group.
Consequently, revenues will be dependent on the ability of the Dilawri Group to meet its rent obligations and the REIT’s
ability to collect rent from the Dilawri Group. If the Dilawri Group were to terminate its tenancies, default on or cease to
satisfy its payment obligations, it would have a material adverse effect on the REIT’s financial condition and results of
operations and its ability to make cash distributions to REIT Unitholders.
The REIT has entered into leases with the applicable members of the Dilawri Group in respect of each of the Initial
Properties, including the Third Party Tenant Portfolio, as well as the Toyota Woodland Property, the Audi Barrie Property,
the St. Bruno Audi & VW Property, the MB West Island Property, the VW Barrie Property, the Heritage Honda Property,
the Mazda Des Sources Property, the Country Hills VW Property, the Audi Queensway Property, the BMW Regina
Property, 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
approximately 47.6% of the REIT’s GLA as of December 31, 2024 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 52.4% of the REIT’s annual base rent as of December 31, 2024, 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 1.5 to 15.1 years, with
a weighted average lease term of approximately 7.9 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.
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, the Dilawri Group’s basic rent payable was below the 60% threshold. As a result, the REIT and Dilawri entered
into a new agreement in 2023 pursuant to which Dilawri agreed to 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, 2024. As of the date
of this MD&A, Dilawri has agreed to amend that agreement such that it will continue to provide such financial information
to the REIT for inclusion in the REIT’s management’s discussion and analysis for one quarter following the quarter in
which notice of termination is provided to the REIT by Dilawri.
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
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to expand its asset base by virtue of its relationship with the Dilawri Group or pursuant to the rights of first offer may
have a material adverse effect on the REIT’s business, cash flows, financial condition and results of operations and its
ability to make cash distributions to REIT Unitholders.
Sale Provisions under the Strategic Alliance Agreement
Pursuant to the Strategic Alliance Agreement, the REIT has granted a right of first offer in favour of Dilawri in the event
that the REIT intends to sell or otherwise to dispose of any of its properties in which a member of the Dilawri Group is a
tenant or, where a member of the Dilawri Group is not a tenant, which the REIT acquired from a member of the Dilawri
Group or pursuant to the Strategic Alliance Agreement.
In the event that the REIT desires to sell or otherwise dispose of a property, the existence of this right of first offer in
favour of Dilawri could limit the number of purchasers of such property, make it more difficult to sell such property and/or
decrease the potential purchase price that could be obtained for such property, which, in turn, could have a material
adverse effect on the REIT. This right survives termination of the Strategic Alliance Agreement.
Potential Conflicts of Interest with Dilawri
Other than pursuant to the Strategic Alliance Agreement, Dilawri is not limited or restricted in any way from owning,
acquiring, constructing, developing or redeveloping properties, and may itself compete with the REIT in seeking tenants
and for the purchase, development and operation of desirable properties to be used as automotive dealerships.
Dilawri’s continuing business may lead to conflicts of interest between Dilawri and the REIT. 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 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
Current Economic Environment
Continued concerns about the uncertainty over whether the economy will be adversely affected by continued inflation,
deflation or stagflation, recessionary concerns, an elevated interest rate environment and the systemic impact of
unemployment, volatile energy costs, geopolitical issues (including tariffs and other trade restrictions) and the availability
and cost of capital 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.
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Impacts of Tariffs or other Trade Barriers
The REIT’s financial performance may be impacted by changes in tariffs, trade restrictions, or other regulatory measures
imposed by domestic or foreign governments. The announced imposition of tariffs by the United States (the “U.S.
Tariffs”) and retaliatory measures between governments may cause multifaceted effects on the economy. The U.S.
Tariffs may adversely impact the REIT’s and its tenants’ operations by causing supply chain disruptions, higher oil prices
and vehicle fuel costs, economic downturn, inflationary pressures, and uncertainty in capital markets and could have a
negative impact on future retail automotive sales through, among other things, increases to new automobile prices. The
REIT is currently assessing the direct and indirect impacts to its and its tenants’ operations of these tariffs and potential
retaliatory tariffs and other trade protectionist measures that may arise, and such impacts may be significant, including
inflationary pressures on costs, particularly for raw materials in the auto and construction industries. Failure to mitigate
the negative effects of the U.S. Tariffs on the REIT’s business could have a material adverse impact on its operating
results and financial condition. While the REIT is taking steps to seek to mitigate the potential impact on its business,
given that developments are ongoing with respect to these tariffs and other measures, their impacts are uncertain and
could adversely affect the REIT’s business, financial condition and results of operations.
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. If interest rates were to increase, the amount paid by the REIT to
service debt could increase significantly, 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, if interest rates were
to increase, it would put pressure on the levels of distributable income made by the REIT to REIT Unitholders and
increase 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.
Foreign Exchange Risk
Following closing of the REIT’s acquisition of the Tampa Property and/or the REIT’s acquisition of the Columbus Tesla
Property, the REIT anticipates that transactions related to the Tampa Property and the Columbus Tesla Property will be
transacted in U.S. dollars. As the REIT’s financial results are reported in Canadian dollars, the currency exchange rate
between the U.S. dollar and the Canadian dollar may have an adverse impact on the REIT’s financial results.
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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, results of operations and its ability
to make cash distributions to REIT Unitholders.
Real Property Ownership and Tenant Risks
Real estate ownership is generally subject to numerous factors and risks, including changes in general economic
conditions (such as the availability, terms and cost of mortgage financing and other types of credit), local economic
conditions (such as an oversupply of properties or a reduction in demand for real estate in the area), the attractiveness
of properties to potential tenants or purchasers, competition with other landlords with similar available space, global
health conditions and the ability of the owner to provide adequate maintenance at competitive costs.
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 the implementation of tariffs
resulting in business layoffs, industry slowdowns, changing demographics and other factors); (iii) local real estate
conditions (such as an oversupply of properties or a reduction in demand for real estate in the area); (iv) changes in
occupancy rates; (v) the attractiveness of properties to potential tenants or purchasers; (vi) competition with other
landlords with similar available space; (vii) the ability of the REIT to provide adequate maintenance at competitive costs;
(viii) changes in exchange rates; (ix) the promulgation and enforcement of governmental regulations relating to land-use
and zoning restrictions, environmental protection and occupational safety; (x) the financial condition of borrowers and
of tenants, buyers and sellers of real estate assets; (xi) changes in real estate tax rates and other operating expenses;
(xii) the imposition of rent controls; (xiii) energy and supply shortages; (xiv) various uninsured or uninsurable risks; and
(xv) natural disasters. There can be no assurance of profitable operations because the costs of operating the portfolio,
including Debt Service, may exceed gross rental income therefrom, particularly since certain expenses related to real
estate, such as property taxes, utility costs, maintenance costs and insurance, tend to increase even if there is a
decrease in the REIT’s income from such investments.
The Properties generate income through rent payments made by the Dilawri Group and other tenants. 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 other tenants, primarily under triple-net leases, 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
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.
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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 22.7% of the gross automotive dealership rent paid to the REIT in 2024 and
approximately 21.4% of the REIT’s GLA as at December 31, 2024. Volkswagen and Audi dealerships collectively
represent approximately 17.8% of the gross automotive dealership rent paid to the REIT in 2024 and approximately
15.7% of the REIT’s GLA as at December 31, 2024. 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
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.
Following its acquisition of the Tampa Property and/or the Columbus Tesla Property, the REIT will own properties located
in markets within the United States. Adverse changes in the economic condition or regulatory environment in such
markets could have a material adverse effect on the respective operations of the Tampa Property and the Columbus
Tesla Property, which, in turn, could materially and adversely impact the REIT’s business, cash flows, financial condition
and results of operations and its ability to make cash distributions to REIT Unitholders.
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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
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.
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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. The costs of maintaining adequate protection
against data security threats, based on considerations of their evolution, increasing sophistication, pervasiveness and
frequency and/or government-mandated standards or obligations regarding protective efforts, could have a material
adverse effect on the REIT’s cash flows, financial condition or results of operations and may decrease the amount of
cash available for distribution to Unitholders.
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. As a result of the proposed acquisitions of the Tampa Property and the Columbus Tesla Property,
the REIT will also become 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.
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All of the REIT’s properties have, or have had, tenants that would or currently use, hazardous, toxic or other regulated
substances. For example, automotive repair and/or service operations are currently located at each of the REIT’s
properties.
The REIT’s operating policy is to obtain, or be able to rely on, a phase I environmental site assessment, conducted by
an independent and experienced environmental consultant, prior to acquiring a property and to have phase II
environmental site assessment work completed where recommended in a phase I environmental site assessment.
Although such environmental site assessments would provide the REIT with some level of assurance about the condition
of such properties, the REIT may become subject to liability for undetected contamination or other environmental
conditions at its properties, which could materially adversely affect the REIT’s financial condition and results of
operations and decrease or eliminate the amount of cash available for distribution to REIT Unitholders.
The REIT intends to make, or require its tenants to make, the necessary capital and operating expenditures to comply
with environmental laws and address any material environmental issues 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 $504.8 million as of December 31, 2024 (approximately $503.4 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-
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net” leases, such a limit could impact the REIT’s ability to expand or otherwise make substantial structural improvements
to its properties.
Degree of Leverage
The REIT’s Debt to GBV Ratio was approximately 42.4% as of December 31, 2024. 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 Lease
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,
and the REIT may spend significant time and money on potential acquisitions that the REIT does not consummate; (g)
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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. Furthermore, the price of the Units may decline to the extent that the relevant current market price reflects a
market assumption that the property acquisitions will be completed and certain costs related to the property acquisitions,
such as legal, accounting and consulting fees, must be paid even if the property acquisitions are not completed. The
REIT may be unable to identify other transactions offering financial returns and benefits comparable to those of the
property acquisitions.
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.
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 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.
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 the premium of such policies
back to Tesla. The REIT also carries customary insurance covering its Trustees and officers as well as prospectus
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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 cash distributions to REIT
Unitholders.
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 a tenant’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 a tenant or the REIT is unable to obtain adequate insurance for certain risks,
it could result in an event of default under the applicable lease (including, in the case of Dilawri, 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 a tenant 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
The REIT expects to complete the Property Acquisitions in the first quarter of 2025, subject, in each case, to satisfactory
completion of customary closing conditions. If the opportunity arises, the REIT may explore acquisitions of properties in
new markets, including elsewhere within 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 the United States and other new markets. In addition to these risks, the
REIT may not possess the same level of familiarity with the dynamics and market conditions of any such 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 any such new markets.
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Property Development, Redevelopment and Renovation Risks
Although the REIT may engage in development, redevelopment or major renovation activities with respect to its
properties, it does not expect to do so in any material way in the near term. However, if it does so, it will be subject to
certain risks, including: (a) the availability and pricing of financing on satisfactory terms or at all; (b) the availability and
timely receipt of zoning and other regulatory approvals; (c) the ability to achieve an acceptable level of occupancy upon
completion; (d) the potential that the REIT may fail to recover expenses already incurred if it abandons redevelopment
opportunities after commencing to explore them; (e) the potential that the REIT may expend funds on and devote
management time to projects which it does not complete; (f) construction or redevelopment costs of a project may
exceed original estimates, possibly making the project less profitable than originally estimated, or unprofitable; (g) the
time required to complete the construction or redevelopment of a project or to lease up the completed project may be
greater than originally anticipated, thereby adversely affecting the REIT’s cash flow and liquidity; (h) the cost and timely
completion of construction (including risks beyond the REIT’s control, such as weather, labour conditions or material
shortages); (i) contractor and subcontractor disputes, strikes, labour disputes or supply disruptions; (j) delays with
respect to obtaining, or the inability to obtain, necessary zoning, occupancy, land use and other governmental permits,
and changes in zoning and land use laws; (k) occupancy rates and rents of a completed project may not be sufficient to
make the project profitable; (l) the REIT’s ability to dispose of properties redeveloped with the intent to sell could be
impacted by the ability of prospective buyers to obtain financing given the current state of the credit markets; and (m)
the availability and pricing of financing to fund the REIT’s development activities on favourable terms or at all.
The above risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could
prevent the initiation of redevelopment activities or the completion of redevelopment activities once undertaken. In
addition, redevelopment projects entail risks that investments may not perform in accordance with expectations and can
carry an increased risk of litigation (and its attendant risks) with contractors, subcontractors, suppliers, partners and
others. Any of these risks could have an adverse effect on the REIT’s financial condition, results of operations, cash
flow, the trading price of the Units, distributions to Unitholders and ability to satisfy the REIT’s principal and interest
obligations.
Derivative Risks
The REIT has swap facilities in place as part of Facility 1, Facility 2 and Facility 3. See “Section 7 – Liquidity and Capital
Resources”. The REIT may also use other derivative instruments, including futures, forwards, options and additional
swaps to manage the interest rate risks inherent in its operations and Credit Facilities, as well as exchange or forward
contracts to manage currency exchange risks inherent with its cross-border acquisitions and ongoing operations. There
can be no assurance that any hedging activities of the REIT will be effective. Further, these activities, although intended
to mitigate price volatility, would expose the REIT to other risks.
For example, the REIT would be subject to the credit risk that its counterparty (whether a clearing corporation in the
case of exchange traded instruments or another third party in the case of over-the-counter instruments) may be unable
to meet its obligations. In addition, there would be a risk of loss by the REIT of margin deposits in the event of the
bankruptcy of the dealer with whom the REIT has an open position in an option or futures or forward contract. In the
absence of actively quoted market prices and pricing information from external sources, the valuation of these contracts
involves judgment and use of estimates. As a result, changes in the underlying assumptions or use of alternative
valuation methods could affect the reported fair value of these contracts. The ability of the REIT to close out its positions
may also be affected by exchange-imposed daily trading limits on options and futures contracts.
If the REIT is unable to close out a position, it will be unable to realize its profit or limit its losses until such time as the
option becomes exercisable or expires or the futures or forward contract terminates, as the case may be. The inability
to close out options, futures and forward positions could also have a material adverse effect on the REIT’s ability to use
derivative instruments to effectively hedge the interest rate risks inherent in its operations.
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Joint Venture Arrangements
The REIT is currently party to the Joint Arrangement in respect of Taschereau JLR and Volkswagen and may, directly
or indirectly, invest in other joint venture arrangements in the future, 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 contain and 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, other
dealer group operators of automotive dealerships and OEMs. Further, the REIT’s external growth strategy is intended
to primarily target acquisitions of automotive retail, service and dealership properties. Therefore, the REIT will be affected
and may be harmed by changes in the automotive dealership industry and the automotive production market.
An automotive dealership tenant’s ability to pay rent and perform its other obligations under a lease will be dependent
to a significant extent on its relationship with the automotive manufacturer. The automotive dealership tenants or their
related dealership groups generally operate dealerships that sell the products of more than one manufacturer. The sales
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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 the continuance or escalation
of trade tariff policies or other trade restrictions 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 ongoing geopolitical conflicts 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 industry and its
real estate needs remains uncertain.
Competitive Environment
The automotive dealership industry in Canada and the United States 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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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 ongoing geopolitical conflicts 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.
Furthermore, the risk of trade tariff policies and other trade restrictions may have a negative impact on future retail
automotive sales through, among other things, increases to new automobile prices. As threatened trade tariff policies
remain subject to ongoing assessment and uncertainty, there can be no assurances as to impact, if any, on the retail
automotive industry.
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.
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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
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 was 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 a person or a group of persons acquires
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 Tax 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. Nor can there be any assurance that changes in U.S. tax laws, administrative policies
or practices will not have an adverse effect on the REIT’s U.S. operations or U.S. subsidiaries. Any such changes in tax
laws, administrative policies or practices may have a negative effect on the value of the REIT Units and the net amount
of distributions payable to REIT Unitholders.
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EIFEL Rules — Certain rules which, for Canadian tax purposes, 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 fixed ratio of the entity’s tax EBITDA (the “EIFEL Rules”) received royal assent on June 20, 2024 and generally
apply in respect of taxation years beginning on or after October 1, 2023. 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 EIFEL Rules and their application are highly complex, and there can be no assurances
that the EIFEL Rules 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
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exchange, on any market on which the REIT Units are quoted for trading) on the date on which the REIT Units were
surrendered for redemption (the “Redemption Date”) for more than five trading days during the 10-day trading period
commencing immediately after the Redemption Date; and (iv) the redemption of the REIT Units must not result in the
delisting of the REIT Units from the principal stock exchange on which the REIT Units are then listed.
“Subsidiary Notes” (being promissory notes of the Partnership, a trust all of the units of which, or a corporation all of the
shares of which, are owned directly or indirectly by the REIT or another entity that would be consolidated with the REIT
under IFRS, having a maturity date and interest rate determined by the Trustees at the time of issuance) (“Subsidiary
Notes”) which may be distributed to REIT Unitholders in connection with a redemption will not be listed on any exchange,
no market is expected to develop in Subsidiary Notes and such securities may be subject to an indefinite “hold period”
or other resale restrictions under applicable securities laws.
Subsidiary Notes so distributed do not currently qualify as “qualified investments” (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
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and other obligations of the Partnership. The Partnership generates all of the REIT’s cash available for distribution to
REIT Unitholders and holds substantially all of the REIT’s assets.
Limited Control
REIT Unitholders have limited control over changes in the REIT’s policies and operations, which increases the
uncertainty and risks of an investment in the REIT. The Board will determine major policies, including policies regarding
financing, growth, debt capitalization, REIT qualification and distributions to REIT Unitholders. The Board may amend
or revise these and other policies without a vote of Unitholders. Pursuant to the Declaration of Trust, Unitholders have
a right to vote only on limited matters. The Trustees’ broad discretion in setting policies and REIT Unitholders’ inability
to exert control over those policies increases the uncertainty and risks of an investment in the REIT.
Unitholder Liability
The Declaration of Trust provides that no REIT Unitholder will be subject to any liability whatsoever to any person in
connection with the holding of a REIT Unit. In addition, legislation has been enacted in the Province of Ontario and
certain other provinces that is intended to provide REIT Unitholders in those provinces with limited liability. However,
there remains a risk, which is considered by the REIT to be remote in the circumstances, that a REIT Unitholder could
be held personally liable for the obligations of the REIT to the extent that claims are not satisfied out of the assets of the
REIT. It is intended that the affairs of the REIT will be conducted to seek to minimize such risk wherever possible.
Financial Reporting and Other Public Company Requirements
The REIT is subject to reporting and other obligations under applicable Canadian securities laws and rules of the stock
exchange on which the REIT Units are listed, including National Instrument 52-109 — Certification of Disclosure in
Issuers’ Annual and Interim Filings. These reporting and other obligations place significant demands on the REIT’s
management, administrative, operational and accounting resources. In order to meet such requirements, the REIT has
established systems, implemented financial and management controls, reporting systems and procedures and hired
accounting and finance staff.
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
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financial statement amount and/or note disclosure, following an analysis of relevant information that may include
estimates and assumptions. Estimates and assumptions are used mainly in determining the measurement of balances
recognized or disclosed in the consolidated financial statements and are based on a set of underlying data that may
include management’s historical experience, knowledge of current events and conditions and other factors that are
believed to be reasonable under the circumstances. Management continually evaluates the estimates and judgments it
uses.
The following are the accounting policies subject to judgments and key sources of estimation uncertainty that the REIT
believes could have the most significant impact on the amounts recognized in the consolidated financial statements.
Investment Properties
The REIT assesses whether the properties it acquires are considered to be asset acquisitions or business combinations.
The REIT considers all the properties it has acquired to date to be asset acquisitions.
Investment properties are reviewed by management in conjunction with independent appraisers. Valuations are
completed by undertaking a discounted cash flow approach whereby a current discount rate is applied to the projected
net operating income which a property can reasonably be expected to produce in the future. The external valuators
review of projected cash flows involves a review of assumptions relating to rental rates and residual values. These
assumptions may not ultimately be achieved.
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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APPENDIX
Property List as at December 31, 2024
Operating Name
Address
City/
Province
Year Built
/Renov.
GLA
Properties (as at December 31, 2024)
1. Dixie Auto Mall
Dilawri-Owned Auto
Volkswagen
5500 Ambler Drive
Mississauga, ON
1988/2011
39,209
Nissan
5500 Dixie Road
Mississauga, ON
1988/2001
26,369
Mazda
5500 Ambler Drive
Mississauga, ON
1987/2014
16,713
Infiniti
5500 Ambler Drive
Mississauga, ON
1988/2014
14,592
Mitsubishi
5525 Ambler Drive
Mississauga, ON
1998
8,000
Harley-Davidson
5500 Dixie Road
Mississauga, ON
1997/2020
22,078
Kia
5500 Dixie Road
Mississauga, ON
1987
17,735
Ineos Grenadier
5515 Ambler Drive
Mississauga, ON
1998
9,345
Third Party Auto
VinFast
5500 Dixie Road
Mississauga, ON
1998/2020
13,890
Third Party Retail
Montana’s
1495 Aerowood Drive
Mississauga, ON
2001/2017
5,150
Kelsey’s
1485 Aerowood Drive
Mississauga, ON
2001/2017
5,000
A&W
1465 Aerowood Drive
Mississauga, ON
1999/2016
4,000
Subway/Ice Flame
1475 Aerowood Drive
Mississauga, ON
1999/2011/
2012
2,200
Enterprise Rent-a-Car
1475 Aerowood Drive
Mississauga, ON
1999/2011/
2012
2,000
Euro Shawarma
1475 Aerowood Drive
Mississauga, ON
1999/2011/
2012
1,875
Dixie Auto Mall Total
188,156
2. Calgary BMW
34 Heritage Meadows
Road S.E.
Calgary, AB
2007
87,724
3. Calgary Honda
11700 Lake Fraser Dr
S.E.
Calgary, AB
2005
43,511
4. Triple 7 Chrysler
700 Broad Street
Regina, SK
1959/2011
40,957
5. Porsche Centre Vancouver
688 Terminal Avenue
Vancouver, BC
2013
39,790
6. Frost Chevrolet Buick GMC
Cadillac
150 Bovaird Drive West
Brampton, ON
2013/2018
43,210
7. Honda Used Car and Regina
Collision Centre
815 Broad Street
Regina, SK
2012/2015
32,457
8. Oakville Honda
500 Iroquois Shore Road
Oakville, ON
2003/2006
33,334
9. Markham Acura
5201 Highway 7 E
Markham, ON
2002
32,025
10. Regina Honda/Acura
789 Broad Street
Regina, SK
2003/2015
30,863
11. Agincourt Mazda
5500 Finch Avenue E
Toronto, ON
2005
30,788
12. Dilawri Nissan Infiniti
1775 5th Avenue
Regina, SK
1998/2015
30,864
13. Audi Sales Downtown Vancouver
1788 West 2nd Avenue
Vancouver, BC
2013
29,300
14. Meadowvale Honda
2210 Battleford Road
Mississauga, ON
2007
34,539
15. Burrard Acura(2)
730 Terminal Avenue
Vancouver, BC
2015
27,640
16. Langley Acura(3)
20257 Langley Bypass
Langley, BC
2015
26,448
17. Grand Touring Auto (formerly
Distinctive Collection)
150 Glendeer Circle S.E.
Calgary, AB
1988/2008
24,367
18. Bolton Toyota
12050 Albion Vaughan
Road
Bolton, ON
2004
22,741
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19. Hyundai Gallery
11770 Lake Fraser Dr
S.E.
Calgary, AB
2006
22,185
20. North Vancouver Nissan Infiniti
819 Automall Drive
North Vancouver,
BC
1992/2002
19,050
21. Regina Hyundai
444 Broad Street
Regina, SK
2005
18,204
22. Ancillary-other (formerly Dilawri
BMW)
1919 1st Avenue
Regina, SK
1997
12,456
23. Ancillary-other (1921 1st Avenue,
formerly Dilawri Acura)
1921 1st Avenue
Regina, SK
1997
11,390
24. Premium Luxury Pre-owned (formerly
Audi Service)
1718 West 3rd Avenue
Vancouver, BC
1999
11,722
25. Dilawri Mitsubishi
1750 6th Avenue
Regina, SK
1993/2003
6,750
26. Toyota Woodland
1000-1009 Woodland
Avenue
Montreal, QC
2007/2008
49,737
27. Jaguar Land Rover Edmonton(4)
17007 111th Avenue
N.W.
Edmonton, AB
2014
44,779
28. Audi Barrie
2482 Doral Drive
Innisfil, ON
2015
24,982
29. Pfaff Audi (4)
9088 Jane Street
Vaughan, ON
2006
68,874
30. St. Bruno Audi and Volkswagen
1905&1917 Boulevard Sir
Wilfrid Laurier
St. Bruno, QC
1987/2014
62,705
31. Mercedes Benz West Island
4525 Boulevard Saint-
Jean
Montreal, QC
2016
60,850
32. Go Mazda(4)
9704 & 9710 35th
Avenue N.W.
Edmonton, AB
2006/2017
17,150
33. Volkswagen Barrie
50 and 60 Fairview Road
& 5 Little Avenue
Barrie, ON
2017
20,102
34. Heritage Honda
11609 40 Street S.E.
Calgary, AB
2016
58,913
35. Kentwood Ford Compound(4)
8603,8703,8735,8815
127th Avenue N.W.
Edmonton, AB
1969
4,040
36. Go Auto Service (formerly Southtown
Hyundai)(4)
3603 99th Street N.W.
Edmonton, AB
2004
12,554
37. Tesla Edmonton(4)(9)
17616 111th Avenue N.W.
Edmonton, AB
2008
25,550
38. Mazda des Sources
2345 Place
Transcanadienne
Dorval, QC
2017
16,701
39. Country Hills VW
11380 Stonehill Drive NE
Calgary, AB
2019
34,650
40. BMW Laval(4)
2440-2450 Boulevard
Chomedey
Laval, QC
2000/2012
127,615
41. Sherwood Park VW(4)
2365 Broadmoor Boulevard
Sherwood Park, AB
2015
70,277
42. Brimell Toyota(4)
5060 Sheppard Avenue
East
Scarborough, ON
2002/2010
55,600
43. Elite BMW(4)
1040 Ogilvie Road
Ottawa, ON
2007/2016
48,366
44. Civic Motors(4)
1171 St. Laurent Boulevard
Ottawa, ON
2002/2012
30,000
45. Elite BMW Service(4)
595 St. Laurent Boulevard
Ottawa, ON
1989
7,500
46. Camco Acura(4)
1475 Carling Avenue
Ottawa, ON
2016
45,879
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47. MINI Ottawa(4)
1501 Carling Avenue
Ottawa, ON
2015
30,000
48. Bank Street Toyota(4)(7)
1811 Bank Street
Ottawa, ON
2013
57,152
49. Ogilvie Subaru(4)
1056 Parisien Street
Ottawa, ON
2014
13,533
50. Subaru Detailing Centre(4)
1352 Gosset Street
Ottawa, ON
1969/2015
5,500
51. Orleans Honda(4)
2055 Mer Bleue Road
Ottawa, ON
2015
24,531
52. Tesla KW Service Centre(4)
663 Victoria Street North
Kitchener, ON
2022
18,500
53. St. James Volkswagen(4)
670 Century Street
Winnipeg, MB
2004
39,494
54. McNaught Cadillac Buick GMC (4)
1000-1717 Waverly Street
Winnipeg, MB
2015/2024
70,322
55. Wellington Motors(4)
935 Woodlawn Road West
Guelph, ON
2003
40,793
56. Guelph Hyundai(4)
765 Woodlawn Road West
Guelph, ON
2014
28,007
57. Abbotsford VW(4)
30150 & 30195 Automall
Drive
Abbotsford, BC
2018
22,921
58. Audi Queensway
1635 The Queensway
Etobicoke, ON
2018
65,547
59. Straightline Kia(4)
100 Glendeer Circle SE
Calgary, AB
2018
21,808
60. Regina BMW
1001 Broad Street
Regina, SK
2019
19,619
61. Acura North Vancouver
828 Automall Drive
North Vancouver,
BC
2010
22,373
62. Tesla Laval(4)
3755 Autoroute Des
Laurentides
Laval, QC
2023
127,396
63. Lexus Laval
2000 Boulevard
Chomedey
Laval, QC
2006/2013
30,015
64. Magog Honda(4)
2390,2400 Sherbrooke
Street
Magog, QC
2006/2009/
2011
56,195
65. Sherbrooke Honda(4)
2555-2615 King Street
West
Sherbrooke, QC
1960/2014
26,990
66. Walkley Road(4) (8)
1223 Walkley Road
Ottawa, ON
2006
550
67. Tesla Barrie(4)
2474 Doral Drive
Innisfil, ON
2023
16,670
68. Tesla Quebec(4)
2200 Cyrille-Duquet
Street
Quebec City, QC
2019
30,663
69. Tesla Quebec(4)
2180 Cyrille-Duquet
Street
Quebec City, QC
2019
20,100
70. Hyundai Sorel (4)
1864 Boul. Fiset
Sorel-Tracy, QC
2018
16,820
71. Kia Sorel(4)
1918 Boul. Fiset
Sorel-Tracy, QC
2018
14,276
72. Hamel Honda(4)
332 Rue Dubois
St-Eustache, QC
2008/2017
61,186
73. Honda Ste-Rose(4)
4555 Av. de la
Renaissance
Laval, QC
2022
24,782
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74. Chomedey Toyota(4)
2385 Chomedey Blvd.
Laval, QC
2002/2010
44,265
75. Mazda de Laval(4)
2200 Chomedey Blvd.
Laval, QC
2008
26,092
76. Taschereau JLR and Volkswagen(4)(5)
9425 Taschereau Blvd.
Brossard, QC
2023
50,415
77. Brandt Tractor(4)
3855 Boulevard Matte
Brossard, QC
2009
30,996
78. Strongco (Nors)(4)
72 Chemin du Tremblay
Boucherville, QC
2008
28,611
Portfolio Total as at December 31,
2024(6)(10)
2,873,417
___________
Notes:
(1) The applicable Dilawri Tenant is the lead tenant for the Dixie Auto Mall until July 2030. A Dixie Auto Mall sub-tenant that formerly operated a Hyundai
dealership moved from the premises at the end of the second quarter of 2019. In the third quarter of 2020, the Dilawri Tenant that operates the Harley
Davidson dealership moved into the vacated Toyota dealership location. In addition, the Dilawri Tenant that operated the Nissan Truck dealership moved
from the premises during the fourth quarter of 2020. As of the date of the AIF, the premises were leased but unoccupied and are being used for ancillary
purposes; however, this change does not affect the terms of the applicable Dilawri Leases.
(2) The REIT holds a leasehold interest in this property
(3) The REIT holds both the freehold and leasehold interests in this property (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.
(4) The REIT has leased this property to a tenant unrelated to the Dilawri Group
(5) Jointly owned by the REIT and StorageVault
(6) Does not include 3 vehicle compound facilities/unimproved lands that were acquired as part of the portfolio of properties acquired from Mierins Auto Group
on December 12, 2018. Also does not include the vehicle compound facility that is adjoined to Abbotsford VW
(7) Includes a 3.03 acre parcel of land located at 2 Laser Street, Ottawa, ON.
(8) 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.
(9) In January 2022, this lease was assigned to Tesla Canada.
(10) Does not include the Tampa Property or the Columbus Tesla Property.
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Automotive Properties REIT
TM
Tel: 416-865-0200
BDO Canada LLP
Fax: 416-865-0887
222 Bay Street
www.bdo.ca
Suite 2200, PO Box 131
Toronto, ON M5K 1H1 Canada
2
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 balance sheets as at December
31, 2024, and 2023, 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 material accounting policy information.
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, 2024 and 2023, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board
(IASB).
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, 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, 2024, the fair value of the REIT’s investment properties totaled $1,187 million, which
accounted for approximately 99% of the REIT’s total assets.
The valuation of investment properties is a key audit matter due to the significant estimation involved
with the key inputs used in the valuation techniques and the sensitivity of fair value to changes in
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significant assumptions. The key inputs include net operating income, capitalization rates and discount
rates, and are dependent on the nature of each investment property and the current prevailing market
conditions.
How the Key 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 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 net operating incomes;
•
performed an assessment of significant underlying assumptions such as capitalization and
discount rates including by comparison to market based data; and
•
evaluated the adequacy of the disclosures included in the consolidated financial statements
relating to the fair value of investment properties.
Because of the estimation involved in determining fair value of 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, other than the consolidated financial statements and our auditor’s report thereon,
included in the 2024 Annual Report, and
The information included in Management’s Discussion and Analysis for the year ended December 31,
2024.
Our opinion on the consolidated financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis for the year ended December 31, 2024, 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 2024 Annual Report is expected to be made available to us after the date of the auditor’s report. If,
based on the work we will perform on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact to those charged with
governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
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statements in accordance with IFRS Accounting Standards, 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.
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.
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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 Jameson
Bouffard.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
March 5, 2025
s BDO Canada LLP
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Automotive Properties REIT 2024
66
Automotive Properties REIT 2024
67
Automotive Properties REIT 2024
68
Automotive Properties REIT 2024
69
Automotive Properties REIT 2024
70
Automotive Properties REIT 2024
71
Automotive Properties REIT 2024
72
Automotive Properties REIT 2024
73
Automotive Properties REIT 2024
74
Automotive Properties REIT 2024
75
Automotive Properties REIT 2024
76
Automotive Properties REIT 2024
77
Automotive Properties REIT 2024
78
Automotive Properties REIT 2024
79
Automotive Properties REIT 2024
80
Automotive Properties REIT 2024
81
Automotive Properties REIT 2024
82