New acquisition for Automotive Properties REIT

Renx.ca
Sept. 30, 2106
Steve McLean

Automotive Properties REIT just acquired the Pfaff Audi property in Vaughan, Ont. and completed a $35-million equity offering that had an over-allotment option picked up, bringing the total value to $40 million.

These are the latest steps in the progress of Automotive Properties REIT, and president and chief executive officer Milton Lamb is pleased with how the investment community has embraced it since it went public in July 2015.

“We believe their confidence in us is a direct result of us successfully executing our growth strategy — effectively doing what we said we would do following our IPO, while also delivering financial results in line with our IPO forecast and market expectations.”

The Pfaff Audi property was acquired for $17.2 million from a leading Canadian institutional investor. The 69,000-square-foot, full-service dealership was built in 2006 on three acres of land at 9088 Jane St. along a high-traffic corridor adjacent to the Vaughan Mills shopping centre. It’s been one of the top performing Audi dealerships in the country.

Pfaff Audi has desirable Vaughan location

Pfaff Audi is located within an area subject to the Vaughan Mills Centre Secondary Plan, adopted by the City of Vaughan council in March 2014, which provides for a mix of high-density residential and retail development.

Automotive Properties REIT assumed the current triple net lease on the property, which has a remaining initial term of almost five years. That will be followed by two five-year tenant renewal options, with renewal rents based on the greater of market rates and the then existing lease rate.

Pfaff Automotive Partners is one of Canada’s leading automotive groups and this deal marks its first affiliation with Automotive Properties REIT.

“Having Pfaff as one of our tenants validates our market strategy that encompasses a wide-ranging list of tenant-operators,” said Lamb.

Other Automotive Properties REIT acquisitions

In addition to Pfaff Audi, Automotive Properties REIT’s other acquisitions to date are: Audi Barrie; Go Auto Porsche and Jaguar/Land Rover in Edmonton; and Toyota Woodland in Montreal.

Automotive Properties REIT has a right of first offer to acquire any suitable properties from Dilawri Group of Companies’ property development pipeline, and Audi Barrie was the first to be picked up. The REIT also has a strategic alliance agreement with Dilawri, Canada’s largest auto dealership operator, and acquired the Toyota Woodland property through it.

These acquisitions have enabled Automotive Properties REIT to expand its geographic base, increase its automotive brands and create relationships with Go Auto and Pfaff as well as Dilawri.

Automotive Properties REIT, the only public vehicle in Canada focused on consolidating automotive dealership properties, has a portfolio of 29 properties representing approximately 1.1 million square feet of gross leasable area in Ontario, Saskatchewan, Alberta, British Columbia and Québec.

Automotive Properties REIT’s next steps

“We will continue to identify attractive automotive dealership properties with good dealer operators that meet our investment criteria,” said Lamb of the REIT’s next steps. “We will also benefit from contractual rent increases that are built into our leases and are starting to kick in now.

“As we continue to acquire properties, dealers are hearing more about us and our ability to help them meet their monetization and estate planning objectives.

“The top 10 automotive dealership groups in Canada in aggregate comprise less than 10 per cent of the overall market and there are more than 3,100 automobile dealerships that fall outside this group of larger multi-location operators. Accordingly, we have ample opportunity for growth.”

Automotive Properties REIT closed a bought deal public offering of 3,841,000 units at a price of $10.50 per unit to a syndicate of underwriters co-led by TD Securities Inc. and Canaccord Genuity Corp. for gross proceeds of approximately $40 million on Sept. 19. The offering included 501,000 units issued as a result of the underwriters fully exercising their over-allotment option.

The proceeds will be used to finance the acquisition of the Pfaff Audi property. The balance will go towards repaying approximately $18 million of indebtedness owing under Automotive Properties REIT’s credit facilities and for general business purposes.