RE:More potential for APRSince last Q end, APR rose by 2$/share. TWC own 9.49M shares, that's a 19M$ unrealized gain so far this quarter !!
Automotive Properties REIT Boring until it's not Our view: Automotive Properties REIT (“APR”) reported another predictable in-line quarter. However, the highlight of the quarter was the sale of the Kennedy Lands, a deal that drove our NAV estimate by +6% and that allowed APR to monetize density at one of its properties otherwise handcuffed by a long term lease. APR captures some upside upfront without taking zoning risk & participates on potential excess density. While we can’t extrapolate this to other assets, we think it illustrates well the notion of APR as a carried land play… ‘boring’ income until it’s not. Key points: Consistent SP NOI growth of +2.5%: FFOPU was $0.24, flat y/y, vs. RBC/ Consensus of $0.24/$0.24. SP NOI growth of +2.5% YoY was driven by rent escalation. Portfolio rent was $27.77 PSF (+3.9% y/y, +0.7% q/q). Dilawri, 53% of APR’s base rent, continues to be well covered, although rent coverage is declining at 4.7x (vs. 5.5x in 2023 and 5.6x in 2022). We expect SP NOI to continue to track in the low 2% range. Economics of Kennedy Lands sale: APR sold the property for $54M to related Dilawri Group (Q4/24 closing). The property was leased to Dilawri under a lease running to 2065 (with renewal options). Sale price implies 3.36% cap rate, $9M per acre, 79% above prior IFRS value of $30M. APR also participates on bonus density payment ($35 PSF) in excess of 1.3M SF. Our take on the deal: By not undergoing the rezoning process on its own, APR may have left money on the table. However, its ability to do so is handcuffed by the long-term lease. As such, we think this is a great outcome for APR, allowing it to monetize density otherwise not feasible while capturing some upside upfront without taking zoning risk. Moreover, the bonus density payment could be meaningful. Exhibit 4 shows applications submitted at nearby sites. A submission was made (although a few years ago) at an adjacent site similar in size for 1.6M SF. If this were to be achieved, APR could collect a further ~$10M or $0.20/unit. Potentially next up: a lease maturing in 2026 at its Vaughan property (Pfaff Audi) with tenant having one renewal option. It is well located near Vaughan Mills Shopping Centre, with active residential developments nearby. Leverage to improve following sale: D/GBV was 43.6% and will be 41.8% post sale of Kennedy Lands. After swaps, the average interest rate was 4.31% (+0 bps q/q) with swap term to maturity of 4.4 years. Current 5-year swaps rates are low 5%. Assuming D/GBV of 50%, we estimate acquisition capacity of ~$200M. Maintain Sector Perform: Reflecting the accretion on the Kennedy Lands deal, our NAV/unit estimate increases to $13.25 (+6%) based on a 6.75% cap rate (+0bps), vs. IFRS BV/unit (ex-swaps) of $13.65 (+4%) based on cap rate of 6.68% (+5bps q/q). Our target of $12.50 (+9%) is based on a 10% discount to forward NAV