Good morning, ladies and gentlemen, welcome to the Automotive Properties REIT 2019 third quarter financial results and webcast conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, November 15th, 2019. I would now like to turn the conference over to Milton Lamb. Please go ahead.
Great. Thank you, Jessica. Good morning. Thank you for joining us. With me on today's call is Andrew Kalra, our Chief Financial Officer. Our financial statements and MD&A for the quarter are available on our website and on SEDAR. Please be aware that certain information discussed today may be forward-looking and that actual results could differ materially. We'll also be discussing certain non-IFRS measures, so please refer to our SEDAR filings for additional information on both our risk factors and non-IFRS measures. Our acquisition program continues to drive significant growth in each of our key performance measures. In comparison to Q3 a year ago, our property rental revenue grew at 46.6% in the quarter, cash NOI increased by 48.6%. AFFO was up 52%.
After the issuance of 8 million REIT units through the CAD 84 million equity offering completed in late June 2019, our AFFO per unit was CAD 22.4 in the quarter, with an LTV of 49.6, up from an AFFO per unit of CAD 0.22 in Q3 of last year, with an LTV of 53.1 in Q3 of 2018. Our year-to-date CAD 4.5 increase in AFFO per unit better reflects the accretion of our acquisition program. This growth also reflects the continuing benefit of the long-term contractual annual rent increases across most of our portfolio, which provide certainty of an increased cash flow regardless of our acquisition environment. A portion of the proceeds from our June 2019 equity offering were used to fund the CAD 36.5 million acquisition of the Audi Queensway Automotive dealership property in Toronto, which closed late in the quarter.
In aggregate to date 2019, we have completed over CAD 94 million of acquisitions, adding six dealership properties on 21 acres in metropolitan markets. We've also opened the Tesla service center in Kitchener-Waterloo. Through this growth, we've continued to enhance the diversification of our tenant base and our geographic presence in strategic markets across Canada, particularly in the VECTOM markets. In our Q3 release yesterday, we also announced that we have entered into an agreement to acquire the Straightline Kia Automotive dealership property located in Calgary, Alberta, from an affiliate of JV Driver Group for a purchase price of approximately CAD 8.4 million. The Straightline Kia property consists of 22,000 sq ft full service dealership that underwent a major renovation in 2018, 2019. It is located on 1.96 acres in the Calgary Auto Mall near the intersection of Deerfoot Trail and Glenmore Trail, two of the city's major highways.
This will be our second property in the Calgary Auto Mall. On closing, Straightline Motor Group, an affiliate of JV Driver, will be the operating tenant and will enter into a 15-year triple-net lease that includes two five-year renewal periods at market rates. Contractual annual rent increases after the first year of the lease will track at Alberta's Consumer Price Index. Lease obligations will be indemnified by JV Driver Investments, an affiliate of JV Driver. We expect to complete this acquisition prior to the end of 2019. We will fund the purchase price through draws on our revolving credit facilities. We look forward to adding this new property in Calgary and to welcoming another dealership group to our portfolio. I'd now like to turn it over to Andrew Kalra to review our financial results in more detail. Andrew?
Thanks, Milton. Good morning, everyone. Property rental revenue in the quarter was CAD 17.3 million, an increase of CAD 5.5 million from Q3 last year, reflecting growth from properties acquired subsequent to Q3 last year and contractual annual rent increases across a significant portion of our portfolio. Total and same property Cash NOI for the quarter increased to CAD 13.8 million and CAD 9.4 million respectively, compared to CAD 9.3 million for both in Q3 a year ago. The 48.6% increase in Cash NOI was primarily attributable to the properties acquired subsequent to Q3 a year ago. In addition to our regular annual contractual rent increases, the 1.5% increase in same property Cash NOI reflected rent escalations of 10% on three investment properties, which occurred in Q3 a year ago.
G&A expenses for the quarter were approximately 5.3% of our Cash NOI, down from, excuse me, 7.3% in Q3 last year, reflecting the operating leverage in our management platform as we continue to add assets to our portfolio. Net income was CAD 1.1 million in Q3 2019, compared to CAD 5.7 million in Q3 last year. The negative variance is primarily attributable to the change in the fair value adjustment for the Class B LP units, as well as higher interest rate expense and other finance charges, and partially offset by growth in NOI. FFO for the quarter totaled CAD 9.8 million or CAD 24.6 per unit diluted, compared to CAD 6.7 million or CAD 24.9 per unit in Q3 last year. AFFO increased to CAD 9 million or CAD 22.4 per unit diluted from CAD 5.9 million or CAD 0.22 per unit in Q3 last year.
The increase in FFO and AFFO was attributable to the impact of the properties acquired subsequent to Q3 last year and contractual rent escalations. We were able to marginally increase AFFO per unit while reducing our debt to GBV to 49.6% from 43.1% at the end of Q3 last year. The REIT paid total distributions of CAD 8 million to unitholders in the quarter, or CAD 20.1 per unit, representing an AFFO payout ratio of 89.7%. This compares to an AFFO payout ratio of 91.4% in Q3 last year. The lower payout ratio in Q3 this year was primarily attributable to organic growth in NOI and acquisition subsequent to Q3 2018. The REIT had a fair value gain adjustment of CAD 582,000, primarily attributable to NOI increases, partially offset by over CAD 1.5 million in transaction costs related to the Audi Queensway property acquisition and adjustment of ROU assets.
The REIT valuation inputs are supported by quarterly market reports from an independent appraiser, which indicate no change in overall capitalization rates for the REIT's markets since year-end 2018. The overall capitalization rate applicable to the entire portfolio remained at 6.6%. I'll conclude with a review of our liquidity and capital resources. The REIT had CAD 422.1 million outstanding on its credit facilities at quarter end, with an effective weighted average interest rate on debt of 3.77%. We have well-balanced level of annual maturities with interest rate swaps terms ranging between 3.3 and 9.1 years. Our weighted average interest rate swap term is 6.2 years, up from 5.6 years at the end of Q3 last year. The REIT's debt to GBV was 49.6% at quarter end, providing us with financial flexibility to continue advancing our growth objectives. I'll turn the call back to Milton for closing remarks.
Great. Thanks, Andrew. In closing, we appreciate the market is starting to acknowledge that we are a triple-net REIT with minimal CapEx requirements, supported by tenants with strong, diverse, and resilient income models that include parts and service, new car sales, used car sales, and finance and insurance products. Today, with more than CAD 100 million in acquisition capacity and a well-established profile in the automotive dealership community, we're well-positioned to continue expanding our portfolio with high-quality dealership properties, acquisitions in strategic markets to drive accretive growth and unitholder value. This concludes our remarks, and we'd like to now open the line for questions. Jessica, please go ahead.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pooled in the order they are received. Should you wish to decline from the pooling process, please press the star followed by the two, and if you are using a speakerphone, please lift the handset before pressing any key. Your first question comes from Jonathan Kelcher of TD Securities. Please go ahead.
Thanks. Good morning.
Good morning.
First, just on the Straightline Kia acquisition, when do you expect that to close?
It'll close by year-end.
Sort of back half of December?
Yeah. We're trying not to do it at Christmas or New Year's Day.
I'll model Christmas Day. Okay, back half of December. The cap rate on that, would that be sort of at the higher end of the range of what you guys have been buying recently?
It'd certainly be in the mid to high.
Mid to high. Okay, fair enough. It looks like the Straightline Group has three other dealerships. Is there potential there for any more acquisitions with these guys?
Yeah. If you google JV Driver, the investments side, they have a number of different businesses. They've got into the dealership world a couple of years ago. They recently acquired another one in a market that we're not as interested in. We expect that they are going to be one of the groups that is active and continues to grow.
They've got the three others, so maybe two of the three you'd probably be interested, the other Calgary one and the Fort Saskatchewan one?
I've never been to Fort Saskatchewan. Sorry. Didn't even say it right. That probably gives you an indication.
Okay.
It'd be interesting to see what they acquire in the future as well.
Okay, thanks. I'll turn it back.
Thank you.
Your next question comes from Kyle Stanley with Desjardins Capital. Please go ahead.
Thanks. Good morning, everyone.
Good morning, Kyle.
My first question is probably for Andrew. It just looks like on the interest expense, it was down about CAD 300K sequentially. I'm just wondering if you could just help me reconcile that change.
Sure. We had, from the equity offering, about CAD 32 million in cash, which we deployed in September 19th for the Audi Queensway. We ended up getting some interest income, and that's we put that amount in.
Okay, that makes sense.
Yes.
I guess just moving on to my second question here. Milton, would you be able to speak to if Dilawri's smaller ownership interest now relative to the IPO has made a difference in trying to secure third-party acquisitions?
I'm sure on the soft side it has. I think what's more important is once we've done a number of, and we have, acquisitions with third parties, with other dealership groups, that momentum just really opens things up more. Nothing like telling them that you want to do it versus actually doing it. Last year with over 90% of it being with non-Dilawri, 90% of the acquisitions being with non-Dilawri dealership groups, really kind of removed or at least minimized that concern or perception. Yeah, a lower ownership basis, especially below a controlled side, certainly doesn't hurt. It probably is just another reason why they're comfortable working with APR.
Okay, that makes sense. Just the last one from me. Can you talk to how acquisitive Dilawri's been this year and what that could mean for the REIT going forward?
Part of that is what pricing they're seeing, and part of it is what opportunities they've seen. Part of it, I'm sure, is the fact that they did a very major acquisition at the end of last year for the Mercedes-Benz dealerships in Vancouver. They certainly don't speak to us in advance on what they're thinking of buying or offering. It's more once they've got something under control. It's tough for us to be able to pin that for you. They've been pretty consistent over the last 5-7 years on their acquisition modes.
Okay, that sounds good. That's it for me. I'll turn it back. Thanks.
Thank you.
Thank you.
Your next question comes from Matt Logan with RBC. Go ahead.
Thank you, and good morning.
Good day.
Morning.
Milton, as you grow the number of auto groups in your portfolio, do you see the existing tenant base driving a lot of the growth over the next couple of years, or do you foresee continuing to add just more operators in your portfolio?
I think the answer is yes to all of the above. We like working with groups that are some of the consolidators. We expect that consolidation to continue to get momentum, and some of the groups that we're working with will be those groups that are driving the consolidation. Having said that, we've had conversations with other groups that are not in our tenant roll right now that have said when they do acquire, they want to talk to us. I think the short answer is a bit of bucket A and a bit of bucket B. We're going to want to work with our existing tenants and continue to add new dealership groups.
Presumably, as we head into kind of a more seasonally active acquisition period for the REIT, you shouldn't have any trouble hitting your CAD 100 million target for acquisition capacity. Maybe just some thoughts on the cadence of acquisitions over the next six to 12 months.
Yeah, it's really tough to pin, and I've mentioned this consistently, which is as opposed to an industrial or multi-res sector, that we can just make a decision as management and the board to drop at 20 basis points to be the winning bids on all things out there. We do it based on the back of some of the M&A activity that we can't control timing of. That's the downside. The upside is we can hold consistent on that 6.5%-7.5% cap rate that is nicely accretive, and we feel very comfortable at. That means we can't select our timing. We just got to be ready to react. The other good news is, despite timing, we know it's inevitable. We just can't figure out exactly when it's going to occur.
Presumably, if you do that CAD 100 million of acquisition capacity, that would kind of be the upper limit of volume before maybe thinking about tapping the market for equity?
Yeah, that puts us at 55%, 56%. We don't like getting much above that.
Okay. I think that's all for me. Thank you very much. I'll turn the call back.
Thank you.
There are no further questions at this time. Please proceed.
All right. Thank you everyone. We look forward to speaking to you at the year-end. In the meantime, enjoy the holidays.
Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.