Good morning. Welcome to the Automotive Properties REIT 2022 fourth quarter financial results conference call and webcast. My name is Joanna, and I will be your conference operator today. At this time, all lines are in a listen-only mode. Following management's remarks, we will conduct a question-and-answer session. Please be aware that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the REIT's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking information. For more information on the risks, uncertainties, and assumptions relating to forward-looking information, please refer to the REIT's latest MD&A and Annual Information Form, which are available on SEDAR. Management may also refer to certain non-IFRS financial measures.
Although the REIT believes these measures provide useful supplemental information about financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on Friday, March 17th, 2023. I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb.
That's great. Thank you, Joanna. Good morning, everyone, and thank you for joining us. On the call today with me is Andrew Kalra, our Chief Financial Officer. We're pleased with our 2022 performance and the start of 2023, as we've been able to benefit from applying a disciplined approach to both acquisitions and debt. We continue to generate growth in our key performance metrics in 2022, driven by our acquisition program and embedded current contractual rent increases. Compared to 2021, property rental revenue grew 5.9%, cash NOI increased by 6.7%, same property cash NOI increased by 2.3%, and AFFO per unit diluted increased to CAD 0.898 from CAD 0.89.
This growth was primarily attributable to the properties we acquired during and subsequent to 2021 and the contractual rent increases. Our acquisition activity picked up in early 2022. As pandemic-related uncertainties diminished, short-term rates increased, and yields returned closer to recent historical levels, allowing us to acquire attractive properties in our core markets. This discipline has rewarded our unitholder with strong total unit returns and enabled us to outperform peers as of year-end 2022. During January and February of last year, we deployed CAD 65 million on acquisitions, including two Honda dealership properties in Quebec, the land underlying the Langley Acura automotive dealership. We further increased our electric vehicle exposure through the acquisition of Tesla automotive service properties in Barrie, Ontario, and in Quebec City, allowing us to now have six Tesla tenanted properties.
As part of our debt strategy, we have consistently completed longer-term swaps and mortgages to insulate our existing debt from future interest rate increases. This ongoing strategy allowed us to minimize the effect of potential rising interest rate environments. Accordingly, in April, we extended the maturity of Facility One for a five-year term to 2027 with the same credit spread, and increased the amount available under the non-revolving component of the facility by CAD 50 million. Immediately thereafter, we completed CAD 40 million of swaps for an average of 8.5 years at a blended rate of 4.75%.
In November of 2022, we entered a non-revolving balance in Facility One of CAD 26.8 million into a floating to fixed interest rate swap of equivalent amount for a term of 10 years with an interest rate of 5.27%. During November, we completed the sale of Kingston Toyota and Lexus of Kingston automotive dealership properties at a capitalization rate of approximately 6.1%, resulting in a sale price of approximately CAD 18 million with a gain of approximately CAD 1.7 million over Q2 IFRS fair value. In December of 2022, we blended and extended an interest rate swap in Facility One totaling CAD 10 million for a term of seven years at an interest rate of 5.24%.
Our increased and extended credit facilities, combined with capital recycling related to the Kingston property sale, helped to enhance our financial flexibility in order to complete our second largest acquisition to date in January of 2023, with the acquisition of six full-service automotive properties in Quebec for approximately CAD 98.5 million with a continued focus on CPI-linked leases. Four of these properties, including Hamel Honda Ste-Rose, Chomedey Toyota, and Mazda de Laval, are located in Laval and Saint-Eustache in the Greater Montreal area. Two of the properties, Honda Sorel and Kia Sorel, are located in Sorel-Tracy in northeast, just northeast of Montreal. In conjunction with the Quebec property acquisitions, we increased the amount available under our non-revolving credit facilities by CAD 70 million.
Affiliates Groupe Olivier Capital are now the operating tenants of these properties, they have each entered into a long-term triple-net lease with the REIT that included contractual annual rent increases based on Quebec CPI and no less than 1.5% after year one of the lease term, with a weighted average lease term of approximately 16 years. CPI linked leases represent 18% of our base rent in 2022, up from 16% in 2021, this increase contributed to our 2.3% same property NOI growth for 2022. As a result of our acquisitions of the six Quebec properties, our leases containing annual CPI linked adjustments represent approximately 26% for the full year of 2023.
In 2024, leases containing CPI linked adjustments will represent approximately 26% of our base rent, and leases containing CPI linked adjustments with a cap represent another 10% of our base rent. This increased exposure to CPI linked contractual rent increases will help offset the impact of higher interest rates and continue to contribute to NOI growth going forward. I'd now like to turn it over to Andrew Kalra to review our results for the fourth quarter and financial position in more detail. Andrew?
Thanks, Milton. Good morning, everyone. Our property rental revenue for the fourth quarter totaled CAD 20.9 million, a 5.7% increase from Q4 a year ago, reflecting growth from properties acquired subsequent to Q4 last year and contractual rent increases. Total cash NOI, same property cash NOI for the quarters totaled CAD 17.3 million and CAD 16.1 million respectively, representing increases of 7% and 2.2% compared to Q4 a year ago. Cash Growth in cash NOI was primarily attributable to acquisitions and contractual rent increases. Growth in same property cash NOI primarily reflects contractual rent increases across our portfolio. For Q2 2022, interest expense and other financing charges were CAD 4.7 million, representing an increase of CAD 764,000 from Q4 2021.
The increase was primarily due to additional debt incurred to acquire properties subsequent to Q4 2021, together with increase to interest rates. Our G&A expenses in the quarter were CAD 1.8 million from CAD 1.3 million in Q4 2021. The increase was primarily attributable to long-term performance awards, the vesting of unit-based compensation, and the REIT's year-over-year growth and inflation. These performance awards are related to both our most recent acquisition and track record over the past three years with respect to performance metrics regarding financial discipline and acquisitions. Net income was CAD 13.6 million in Q4 2022, compared to CAD 10.4 million in Q4 2021. The increase was primarily due to non-cash fair value adjustments for interest rate expenses, investment properties and Class B LP Units and unit-based compensation.
FFO and AFFO for the quarter decreased by 4.2% and 2.6% respectively, compared to Q4 2021. FFO per unit diluted was CAD 0.221 in the quarter, compared to CAD 0.231 in Q4 2021, and AFFO per unit diluted was CAD 0.213 compared to CAD 0.22 in Q4 2021. The decrease was primarily due to increased interest expense, long-term performance awards, and the vesting of unit-based compensation, partially offset by the impact of the properties acquired subsequent to Q4 2021 and contractual rent increases. The REIT paid total distributions of CAD 9.86 million or CAD 0.201 per unit in the quarter, representing an AFFO payout ratio of CAD 0.944.
The AFFO payout ratio was higher in Q4 compared to the 9.4% AFFO payout ratio in Q4 2021, primarily as a result of increases in interest expense and short and long-term performance awards and the vesting of long-term unit-based compensation, partially offset by the impact of properties acquired subsequent to Q4 2021 and contractual rent increases. The capitalization rate applicable to the REIT's entire portfolio increased to 6.42% at year-end, compared to 6.3% at the end of Q3 2022 and 6.3% at the year-end of 2021. Investment properties increased nominally in Q4 2022 compared to the prior quarter, resulting in a fair value gain of CAD 1.8 million.
We had CAD 434 million of outstanding debt as at year-end 2022, with an effective weighted average interest rate of 3.94%. 99% of our debt was fixed through interest swaps and mortgages. We had a well balanced level of annual maturities, and our weighted average interest rate swap and mortgage term was 5.1 years, with a weighted average term maturity of debt of 3.9 years. As discussed previously, as a result of the acquisition of the Quebec properties, we increased the non-revolving portion of Facility Three by CAD 70 million at the same credit spread. The principal is repayable in quarterly blended payments based on a 25-year amortization. We entered into floating to fixed rate swaps for a weighted average term of 7.6 years at a blended rate of 4.91%.
In February, we entered into a new mortgage in the amount of CAD 9 million for a term of five years at an interest rate of 5.05%. With consideration for the volatility and potential higher interest rate environment, we currently have 95% of our debt fixed with a weighted average interest rate of 4.12%, with a weighted average interest rate swap term and mortgage remaining of 4.9 years and the weighted average term to maturity of debt of 3.6 years. Following the Quebec property purchases, we now have approximately CAD 60 million of undrawn capacity under our credit facilities for unencumbered properties with an aggregate value of approximately CAD 61.5 million and the pro forma debt to GBV ratio of 44.9%.
I'd like to turn the call back for his closing remarks. Thank you very much.
Thanks, Andrew. According to DesRosiers Automotive Consultants, new light vehicle unit sales in Canada were down 9.1% in 2022 compared to 2021, which was primarily due to the supply chain constraints experienced within the retail automotive industry. While there has been some easing of the supply chain constraints recently, we believe supply chain issues will continue for the foreseeable future, but will not have a significant impact on our tenants' ability to pay rent, as new car margins, used car sales, and overall service levels remain strong. Looking ahead, we will continue to monitor the impact of the interest rate environment and inflation on our property portfolio and overall real estate industry. We will strategically move floating and short-term debt into fixed and long-term debt to further minimize any future interest rate impact.
The fluctuation in the interest rate environment, inflation, and credit environment impacts rental growth, capitalization rates overall in the real estate industry, and may also provide us with attractive buying opportunities. Our annual contractual rent increases across our portfolio, including more recent CPI-linked leases, partially insulate us from inflation. We're further insulated from inflation due to our triple-net lease structure as our property level, operating, and energy costs are the direct responsibility of our tenants. With 95% of our debt currently at fixed rates, we're insulated from further interest rate hikes. We're well-positioned to continue to generate solid performance in the current uncertain economic environment and to capitalize on growth opportunities as market conditions improve. That concludes our remarks. Would now like to open the line for questions. Joanna, 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 touchtone phone. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Jaz Cumberbatch at TD Cowen. Please go ahead.
Good morning. Just on for John MacAltra here.
Good morning.
First question, you guys completed, you know, pretty sizable acquisition earlier in the year. I guess firstly, is there any color you can give on, you know, how the environment evolved versus maybe last quarter as it relates to dealer M&A? Secondly, what's your outlook on the quantity and size of potential acquisitions for the remainder of the year?
It's tough to look at quarter-over-quarter, I will look at year-over-year. In 2021, I think I've mentioned before, it just seemed a bit euphoric. Dealers were making very nice profits. Interest rates were incredibly low. Because the dealership auto retail world had done so well and been so resilient, certainly credit facilities were very wide open for them. It's one of the reasons why we were not active in 2021, was because it just didn't like to see the return. We showed some discipline. In 2022, as interest rates started increasing, you know, there was a cost of capital for dealers, they weighed working with APR versus doing it on themselves. Some said yes, some said no.
We're able to get active again. With interest rates environment continuing to go up, even at the current levels, with the inverse yield curve, where short-term money is actually more expensive than long term, that puts APR in a pretty good position. You know, we like what we're seeing. Yeah, having said that, we've traditionally been later in the year for doing acquisitions. There still seems to be, because of the, just the volatility in the marketplace, both on credit and just overall, there's a lot of head scratching from buyers and from sellers on kind of where pricing is actually right now. Until we see, you know, some more benchmarks, I think there is gonna be a bit of a buy-sell gap.
You know, when you see M&A on the dealership side, that probably allows APR to have a seat at the table. Overall, we remain positive because we think it's very constructive. We think there will be a bit of a pause for, I don't know if it's one quarter, two quarters, three quarters. It's tough to tell.
Okay, thanks. Yeah, that's good color. My second question, you know, January ticked up a bit. I know you gave some color on the call, but would the 2022 total comp be a good starting point for 2023?
Yeah. I mean, I think Andrew, do you wanna touch on that?
No, go ahead, and I can add in.
Okay. I mean, it's tough to provide guidance, we don't. For 2023, we expect it to be a similar, you know, run rate with adjustments obviously for growth and inflation. It's also interesting to point out that the Q4 over Q4 in 2021, we did not hit our growth metrics because we didn't see the opportunities that we thought were compelling. In 2022, we certainly saw opportunities that we liked and showed more growth that allowed, you know, our unit holders to enjoy a total shareholder return above a lot of our peers. It meant that we went from kinda, you know, marginally below target on the growth side to hitting targets or above targets.
There, there's a bit of a pendulum swing there because we showed discipline, early, and then we're active when we saw returns and opportunities we liked.
Okay. Yeah, that's helpful. That's it for me. I'll turn it back.
Thank you. Next question comes from Sairam Srinivas at Cormark Securities. Please go ahead.
Thank you, operator. Hey, Milton. Hey, Andrew. Quick question from me on the cap rates. I know there's a bit of an expansion this quarter in terms of the IFRS cap rate. Would you say that reflects what you're seeing in the market as well in terms of the limited number of transactions that have been taking place?
Obviously, we believe it reflects it 'cause we made those assumptions. I think it's important to understand the underlying, which is, you know, back to not being active in 2021. When we saw cap rates in other sectors of the commercial real estate world, whether it being multi-res or industrial, really tighten up and go very, very low, we put our hands in our pocket, and we kept our assumed cap rate at a very tight band. We didn't go down, and then we're not seeing a spike up. We kind of ignored what we thought were some euphoric returns for the vendors, not for ourselves. We did not get into that. We're seeing, you know, we're back to at similar to historical levels, and we think that's fair.
That makes sense. Just on the Andrew, probably is a question for you on the swaps. You know, the 3.9%, obviously you got this this quarter, looks exciting. Is there more room on the swap side extensions and, you know, in terms of, it require for future acquisitions?
In terms of room, you can see from our swap laddering, we do have some swaps coming up in 2023. There's room obviously to extend those as we go forward. The way we've structured the swaps and our debt profile, we've laddered it. There's always going to be opportunities to extend and place those swaps over time. It's revolving.
If you look at 2023, we don't have a lot that is rolling over within the swaps.
Correct.
There's certainly the ability to do some blend and extends if we so elect and see opportunity. Market's just so volatile right now. We think there will be opportunities too, and other opportunities where we should step back.
you know, just to that point.
That makes sense.
We're at, you know, 95 and 99. These are good times to be with fixed rates.
They definitely are. Thanks, guys. Thanks for the call. I'll turn it back.
Thank you. Next question comes from Frank Liu at BMO Capital Markets. Please go ahead.
Good morning, everyone.
Good day.
Just a quick one from my end. As we're going through your results, we noticed there's a quarter-over-quarter decline on the straight-line run adjustment from, like, roughly like CAD 420,000 to CAD 280,000 this quarter. Could you apply some color on what drives this quarter-over-quarter changes?
Well, one, we've put in CPI leases, so they don't have straight line adjustments. Only straight line adjustments come in with leases that have fixed accelerators. As those leases, let's say as time passes, the straight line will decline, that's just the way the mathematics would work. That's the decline related to that.
Yeah, I mean, to Andrew's comment, that's all about IFRS accounting.
Got it. Okay, perfect. That's what I guess. I don't have any further questions, so I'll turn back. Thank you.
Okay.
Next question comes from Manish Garg at Laurentian Bank. Please go ahead.
Hi, everyone. Good morning, congrats on the great results. My first question is just a bit of a follow-up on the cap rates. Apologies if I missed it. Could you please provide some details on the cap rates on the announced Quebec acquisition?
We didn't provide exact cap rates. We never do. But we did make comments that it was, you know, nicely in the world of traditionally what we've seen of that, you know, 6.25%-7.25%. Today's world, I'd say that's probably closer to 6.5%-7.5%. So Montreal, attractive market, newer, higher quality properties. And we. You know, one of the offsets we have is CPI versus picks, and we like CPI, but it's nicely in that, you know, the heart of that range.
Okay. Thank you. Secondly, you know, on the debt to GBV levels, currently at 45%, maybe if you could provide some more color on how do you see those levels for next few quarters?
Andrew, do you wanna touch on that?
Sure. That 45% is just a pro forma factoring in the acquisition as of December 31st plus the acquisition. It's not an exact number to where we would be in Q1, but it does provide color as to where we are reflecting the acquisitions. We've got a guidance between 50%-55% at the higher end. The 45% still allows us some runway rooms for acquisitions. It's well within our line of our metrics. It has historically, over the last 12 months, we've been 40%, but we've seen that rise with the acquisitions and deploying of the funds.
Okay. Thank you. Last one for me, maybe a bit more on the high level. You talked a bit on the supply chains easing, but maybe a bit more color on the strength of consumer, like on the backdrop of current macro environment. Are you hearing anything from the tenants, if the consumer is weakening or if there is any change in the preference for consumers in terms of used versus new cars?
Yeah. I mean, we're certainly talking to our tenants and industry overall. What we're hearing is some manufacturers are starting to come in with more inventory. Other ones still have significant wait lists. Margins are holding up. It's, you know, they've just been so strong. It's tough to say it's always gonna be... I always joke it's tough to be the most improved player every single year. The other side of that is, yeah, used cars, it's not at those hyper levels it was during the depth of COVID, but their margins still, from everything we're hearing, are strong. Service continues to be strong.
If you look at the performance either in Canada or across the border of the dealership public companies, they continue to show strong profits in different areas. I would say overall with higher interest rates, everyone's talking about that may change some consumer behavior. Luxury tax in Canada, that may change some consumer behavior. Does that mean you buy a, you know, a luxury car or a, you know, mid-level car? Certainly lease payments are higher with a higher interest rate. We do expect some change in consumer behavior. You know, overall, does that concern us with our tenants' ability to pay rent? No. That's just a bit more of a rotation on where and how they're making profits, as opposed to are we concerned that they are making profits.
Okay. Thank you so much. I'll turn it back.
Thank you. Next question comes from Lorne Kalmar at Desjardins. Please go ahead.
Thanks. Good morning, gents.
Good.
Good morning.
Just on acquisitions, of course. Do you find that there's any concession on pricing that has to be given to get the vendor to agree to a CPI link lease versus a fixed rate lease?
We only have a couple levers, right? It's assuming we get together on a purchase price, it's then cap rate and it's escalators. There's always gonna be a bit of a trade-off and a swing. It depends, I'm sure from both sides, how much that trade-off is to, you know, where we're comfortable moving ahead at what cap rate and same comment for the vendor. You know, we've been trying to get more CPI linked, and we would be more aggressive on cap rates with CPI linked in this environment than, you know, set rates. Again, it also depends what those set rates are. If we get a higher than, you know, the higher the set rates embedded, the happier we are.
Just the very nature of a discounted cash flow method combined with looking at the initial cap rate and how accretive it is, it all comes into the equation.
Fair enough. Then I know there's still a little bit ways out, but is there any thoughts about changing the structure of the Dilawri leases to be on CPI?
I mean, that certainly is something that involves Dilawri. I don't think you're ever talking about changing existing lease structures.
No, no. I mean, on renewals.
Well, I mean, that's the renewals. You know, we describe what the Dilawri leases are, so we that'll be interesting, and that's fairly far out. No, I mean, we haven't gone anywhere near kinda discussing that as of yet.
Okay. Dilawri, the exposure continues to kind of trend down. Is there sort of a floor where they want it to stay or you guys are free to do as you wish?
One of the reasons why they were, you know, on board with creating this platform is they wanted to use it as a platform for the industry. I mean they may have thoughts on their ownership level, but I certainly believe as a tenant diversification, you know, we want quality tenants, but we also like diversification. Dilawri is certainly a very strong quality tenant. We'd gladly do more with them, but there's other very strong tenants out there as well that we'd certainly like to work with and continue to diversify.
Okay. great. That's all for me.
Thank you. Next question comes from Gaurav Mathur at iA Capital Markets. Please go ahead.
Thank you, and good morning, everyone. Just on the G&A expenses, we noticed the uptick this quarter. Is it fair to say that that would be the run rate for 2023?
We don't provide forward guidance on any specific line item, but for your modeling purposes, a similar run rate is a reasonable assumption, with adjustments for growth and inflation.
Okay, great. Just switching gears quickly on leverage. I think in the past you've mentioned that, you know, your leverage target of 50% is okay. I'm just wondering how you're thinking about, you know, the 45% pro forma going into 2023 amid a higher rate environment?
Well, I mean, you're seeing higher rate environment. That's one of the reasons why we're more comfortable having a fixed rate. Sorry, 95% of our debt already fixed. On the new acquisition side, yeah, I mean, it certainly has to become part of the equation. That equation is fun right now because I seem to have to adjust it every three days. The market is incredibly volatile. I think people are waiting to kind of see how that unfolds. It depends the yield going in and the cost of our capital and our debt. I mean, that's all part of the equation on how aggressive we can get and how much we like the asset.
Just to follow up.
I mean, 40%, 45% leaves us some room to actually, you know, continue to look at deals and continue to be very disciplined with, you know, we've said it before with our acquisitions and our debt.
Right. Just as a follow-up, is there something of a sweet spot that you're aiming for, if you could get to it, say, in the next year?
A sweet spot. A sweet spot is always driving AFFO per unit up.
Okay.
You know, specifically in how we do that, it really depends on the opportunities, and we'll tend to offset that with quality of real estate as well. I guess it's 'cause of being in the real estate business since the early 1990s, I still like high-quality real estate as opposed to just pure yields.
Okay. Thank you for the color. I'll turn it back to the operator.
Thank you. The next question comes from Jimmy Shan at RBC Capital Markets. Please go ahead.
Thanks. Hey, hey, Milton. Just a general question for me. Given the tighter, more costly credit, you know, that you spoke of, it feels like there could be opportunities to do sale leaseback with a lot of operating businesses, not just dealerships. You know, like you mentioned, exercising discipline in the last few years, which was great, and I wonder if this is kind of the environment where you try to swing the other way and sort of cast a wider net and branch out to other sectors. Is that something that you guys would be looking to do or you had some thoughts around?
You know, we've said recently automotive and mobility. I don't think it has to be pure automotive dealership. I mean, if you look at our Teslas, they're not actually dealerships, and it's with the OEM. I wouldn't do a hard no. It's gotta be in the mobility and automotive world, otherwise it's gotta be very compelling. I would agree with your, you know, underlying comment, which is, in today's environment, you could probably see more opportunities as short-term cost of capital is higher than long-term cost of capital. You could argue, especially in the States, that there's some, you know, less liquidity and less debt available than there was, you know, 6 months, 18 months ago.
We're excited about that, but that also means we expect to see more opportunities within our core focus. You know, I don't wanna say a hard no, but it's gotta be compelling, and the environment that gives us those opportunities will also give us better opportunities in our core.
Right. Sorry, you said mobility. What do you mean by mobility related?
Yeah, that just. You know, I think there's gonna continue to be evolution. I mean, whether it's direct to consumer with the Tesla and the Lucids and the Rivians of the world.
Okay.
You know, the VinFast of the world, et cetera, or whether it's kind of. You know, some of that is compound lots that might be associated with it. You know, dirt with a good quality tenant providing us a nice yield. Never opposed to that. It's just. You know, I think automotive is going longer term as much mobility. Part of that's just vernacular.
Okay. Yeah, 'cause I mean, in the U.S., you know, the REITs that are consolidating car washes and collision centers. I don't know how big of a market it is here, but, you know, but like, those wouldn't be beyond the stretch of imagination, I guess, at some point if there's an opportunity for you guys. Is that fair to say?
If it's compelling and has some of the underlying tenancies that we know and like, which is good quality dirt in good quality cities with a good quality tenant, you know, there could be a case for it.
Okay, thanks.
Thank you. Next question comes from Mark Rothschild at Canaccord Genuity. Please go ahead.
Thanks. Good morning, guys.
Good day, Mark.
Milton, one of the things that's impacted values and cap rates for your property types has always been the working with the operator of the asset because they often own the asset or look at, you know, how it fits into their business. With the trends that we're seeing now, whether it's rising interest rates and maybe they have other uses for capital, and to different dynamics in their business, how is that impacting on the values and your expectation on deal flow for the near term?
I mean, I don't know if it impacts values as much as it impacts expectations. The reason why I say that is, you know, I'll flash back to 2021. When the vaults were open and they could get money for, you know, close to nothing with extremely low interest rates and high availability, it was very tough to be competitive, and we weren't willing to stretch to the number which we thought was a bit euphoric. we had a quiet 2021. You know, 2018, 2019, we were active.
I think that pendulum swung back to, you know, returns that make sense for both groups and cost of capital that for the, you know, the dealership world or just overall, that is more in line with historical norms and allows them to actually consider what's their best use of equity and what is their cost of capital, cost of debt. Therefore, we can have a, you know, place at the table where when money was free and plentiful and they're, you know, printing and doing as well as they were and continue to be, it was very tough to be competitive without being undisciplined.
just try to push you on that.
Yeah.
With the higher cost of debt now, does that make it less attractive for the operators to own that capital in the asset?
I would think, I mean, a lot of the time when we were, you know, talking to them before and the very nature of their debt, a lot of it tends to be credit facilities and portfolio facilities, which tends to be more geared towards short-term interest rates as opposed to long duration, mortgages. With that in mind, anytime the yield curve is inverted, where short-term debt is actually more expensive than long-term, then yeah, we're gonna be more attractive.
Okay. Fine. That's it for me. Thanks.
Ladies and gentlemen, as a reminder, should you have any questions, please press star followed by one. Next question comes from Brad Sturges at Raymond James. Please go ahead.
Hi, guys.
Brad.
Just on, you know, the acquisition strategy, you know, historically it's been more of a vector focus and focused on, you know, you know, the value of the dirt in those type of markets that, you know. We've seen, I guess, population growth, you know, improving over the last few years in certain secondary market cities. You know, I guess my question is, does that acquisition reach expand into markets that you might not have traditionally thought about in the past for acquisition? You know, to what extent which cities would look attractive to you today if you're expanding that scope?
Sure. I tend to agree with your underlying comment. We are seeing some good growth, in some, you know, A markets as opposed to the, just the vector markets. That's a good thing. I mean, I've always said dirt that is surrounded by population and GDP growth is a good thing. Other, other markets we'd look at, I've always said we like KW. We've certainly done stuff in Barrie. We're seeing stuff just east of Toronto, and in the Greater Montreal area that's, you know, just outside the Greater Montreal area that are seeing, you know, some of those fundamentals. I've always liked Kelowna, just haven't found a good excuse to get there yet. There's certainly gonna be other markets.
You know, we still like the core markets and, you know, it dovetails nicely because if the market's too small, the cost of the real estate is lower, so they've got less need for us, and we have less desire to be there. If it's very much a secondary market, we're gonna demand a higher yield than if it is a core market, and then we're gonna be less attractive. It kinda, you know, it dovetails nicely. Where we like to be is where we tend to be more in demand.
With the existing dealerships that you have within the portfolio now, are you seeing those groups expand into new secondary markets? If you were to go into a new market, would that be more likely with a new group?
I'd say I'm split decision on that. We're certainly seeing groups, you know, if it is outlying markets of core markets, it may be some of the same groups that we're looking at and have already done work with. There's gonna be other markets that are more regional operators in some of the markets that I've talked about, which we'd gladly do deals with. I'm kind of a split decision on that. I'm not sure if it's gonna be with existing or with new.
Okay. I'll turn it back. Thanks a lot.
Thank you. There are no further questions. I will now turn the call back over for closing comments.
That's great. Thank you, everyone. After a good 2022, enjoy the rest of your March Break, and we look forward to talking to you in Q1. All the best.
Ladies and gentlemen, this concludes today's conference call. We thank you for participating, and we ask that you please disconnect your lines.