Automotive Properties Real Estate Investment Trust T.APR.UN

BMO analyst update

[CanSiamCyp]

Several Positive Growth Catalysts in 2022; Increasing Target Price to $15.50

Bottom Line:

Our positive outlook on APR.UN is unchanged following Q4/21. We continue to view favourably APR.UN's predictable cash flow stability amidst the ongoing recovery and the fact that the automotive retail/service industry has been viewed as essential. Ongoing cap rate compression also speaks to the resiliency of the sector (overall WA-cap rate -10bps q/q to 6.3%). We expect cash flow growth will pick up through 2022 with an increase in acquisition cadence. We maintain our Outperform rating and increase our target price to $15.50, driven by a slightly higher NAV estimate.

Key Points

Another Steady Quarter. Q4/21 FFO/unit was $0.231, mostly flat y/y and a touch below both BMO's estimate and consensus of $0.24 (see flash).

Steady Organic Growth. Q4/21 SP-cash NOI was +2.5% y/y (excluding bad debt expense/recoveries), driven by contractual rental rate growth, CPI adjustments, as well as renewals. We expect organic growth to continue to trend positively through 2022 given the majority of the REIT's leases are subject to annual escalators as well as CPI adjustments (which in our view is particularly beneficial in the current inflationary environment).

Likely Muted Impact From Inflationary Environment. Given the REIT's triple net structure, management expects minimal impact on overall expenses due to the current inflationary environment. With respect to the dealerships, management also expects margins will remain healthy for them as well.

A Busy Start to 2022. 2021 was a relatively muted year on the acquisitions front (no acquisitions were completed in Q4/21) but activity has really picked up thus far in 2022. Year to date in 2022, APR.UN completed several acquisitions of dealerships as well as land parcels (as detailed herein) for a combined purchase price of $65.1M. Management expects overall M&A activity to remain active as the REIT remains in consistent discussions for acquisition opportunities, though likely more so in the back half of 2022. APR.UN continues to look for opportunities in markets that are seeing GDP and population growth and remain open to opportunities in the U.S. APR.UN will also work to add more EVs and Teslas into their portfolio.

Valuation. On the back of a mostly in-line quarter, we made modest changes to our cash flow estimates (lowered modestly as our estimates had previously assumed closing of acquisitions in Q4/21). We have revised our NAV estimate upwards to $13.30 from $12.75, driven mostly by a lower utilized cap rate.