Good morning, ladies and gentlemen, and welcome to Automotive Properties REIT's 2026 third quarter results conference call and webcast. 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 November 13th, 2026. I would now like to turn the conference over to Milton Lamb, President and CEO. Please go ahead, Mr. Lamb.
Great. Thank you, Jim. Good morning, everyone. With me today on the call is Andrew Kalra, our Chief Financial Officer. Our strong third quarter performance reflects the positive impact of the property acquisitions we completed over the last year and year-to-date in 2026, plus organic growth from our contractual fixed and CPI-adjusted rent increases in our net lease structure. Compared to Q3 last year, our property rental revenue increased 19.9%, Cash NOI was up 18.6%, AFFO increased by 15.8%, and AFFO per unit diluted increased to $0.26 from $0.252. Our AFFO payout ratio was 80% in the quarter compared to 81% in Q3 of last year. This reduction was achieved after including our two distribution increases since last September and the issuance of REIT units through the completion of our CAD 57 million equity offering last October.
During the quarter, we completed the sale of a 50% interest in our automotive dealership property located on Jane Street in Vaughan, , to a member of the Dilawri Group for a cash purchase price of CAD 16 million, representing a CAD 6.5 million gain. We retained the remaining 50% interest. The property was independently appraised, and the cash purchase price for the 50% reflects a premium to the REIT's IFRS value. The Vaughan property is now tenanted by an affiliate of Dilawri Group as a full-service Kia automotive dealership under a 16-year triple net lease and is subject to a landlord redevelopment option. As a result of the new lease on this property, combined with our recent lease renewal activity, we have no material lease expirations until 2028.
We continue to position APR as an attractive partner for major automotive dealership groups and OEMs in Canada and the U.S. Subsequent to quarter end, on October 1st, we acquired an automotive property located in the greater Greensboro area of North Carolina for a total purchase price of approximately $30 million. The property is tenanted by Tesla under a long-term net lease that includes contractual fixed annual rent increases with renewal options. The property consists of approximately 50,000 sq ft Tesla sales, service, and delivery center situated on approximately six acres of land. We funded the purchase price primarily by drawing on our revolving credit facilities. This acquisition further expands our presence in the U.S. target markets, including the Sun Belt, and represents our eighth Tesla-tenanted property. I would now like to turn it over to Andrew Kalra to review our financial results in more detail. Andrew?
Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $30.5 million from $24.4 million in Q3 a year ago, reflecting growth from the properties we acquired during and subsequent to Q3 last year and contractual rent increases. Total Cash NOI and Same Property Cash NOI for the quarter totaled $24.9 million and $21.3 million respectively, representing increases of 18.6% and 2.3% compared to Q3 last year. Interest expense and other financing charges for the quarter were $8.3 million, an increase of $1.8 million from Q3 last year, reflecting additional debt incurred to fund our acquisitions. Our G&A expense were $1.8 million for the quarter, an increase of about $90,000 from Q3 last year and in line with our expectations. Net income and other comprehensive income was $35 million compared to $10.4 million in Q3 last year.
The increase was primarily attributable to higher NOI, fair value adjustments on investment properties, including the $6.5 million gain on the Vaughan property transaction, and fair value adjustments on interest rate swaps in Q3 2026 compared to Q3 2025, partially offset by higher interest costs. FFO and AFFO increased by 16.8% and 15.8% respectively compared to Q3 last year, reflecting higher rental revenue from the acquisitions and contractual rent increases. On a per-unit basis, FFO increased to $0.266 diluted, up from $0.255 in Q3 last year, and AFFO per unit increased to $0.26 diluted, up from $0.252. We paid unitholder distributions totaling $0.208 per unit in the quarter, representing an AFFO payout ratio of 80%. This compares with total distributions of $0.204 per unit in Q3 last year for a payout ratio of 81%.
The cap rate applicable to our portfolio was 6.72% at quarter end compared to 6.75% at 2025 year-end. The decline was primarily due to the Vaughan property transaction. We continue to be proactive with our debt strategy to enhance our financial flexibility. During the quarter, we entered into floating-to-fixed interest rate swaps within facilities one to two for a total amount of $30 million from terms ranging from six to seven years at an interest rate ranging between 5.17% and 5.19%, and extended the maturity date of facility three from March 2028 to March 2030 with the same credit spread. At quarter end, 76% of our debt was fixed with a weighted average interest rate of 4.49%, a weighted average interest rate term mortgage remaining of 3.9, and a weighted average term to maturity of 2.9.
Subsequent to quarter end, we entered into floating-to-fixed interest rate swaps within facilities two and three for a total amount of CAD 20 million for terms ranging from 5.5 to seven years at interest rates averaging 5.19%. As at November 12th, we had a debt-to-GBV ratio of approximately 47.1%, approximately CAD 43.5 million of undrawn capacity under our revolving facilities, credit facilities, and 12 unencumbered properties with an aggregate value of CAD 197 million. I would like to turn the call back to Milton for closing remarks. Thank you very much.
Great. Thanks, Andrew. We are successfully executing on our key objectives to build unitholder value, including continuing to expand our geographic market presence and diversifying our tenant base through property acquisitions, optimizing our portfolio and capital position with our Vaughan property transaction and recent value-enhancing lease renewals, driving AFFO per unit growth, and increasing our cash distributions to unitholders. We remain focused on opportunities to expand our property portfolio in prime metro markets in Canada and the U.S. to drive growth and unitholder value. We will continue to focus on properties that complement our current portfolio of high-quality tenants providing essential retail and services, locations in prime metropolitan markets in Canada and the U.S. that are experiencing GDP and population growth, attractive net lease structures, and embedded fixed or CPI-adjusted rental growth, which now represents 42% of our base rent. That concludes our remarks.
I would now like to open the line for questions. Jim, please go ahead.
Thank you, [Milton], for your remarks. To our phone audience joining this morning, at this time, if you would like to ask a question, it is simply star and one on your telephone keypad. To allow for as many questions as possible today, we ask that you try and limit yourself to a single question and a single follow-up, and if you are encouraged, you are encouraged to re-signal at that point. Once again, ladies and gentlemen, that is star and one on your telephone keypad if you would like to ask a question. We will hear first from the line of Himanshu Gupta at Scotiabank.
Thank you, and good morning.
Good morning.
On the North Carolina deal announced.
Yeah
Can you expand on the rationale and the upside there? And can you talk about the cap rates, with 10-year treasuries moving up? Any changes you have seen in the cap rate recently?
Sure. We have expressed before that we like the Southeast. The Carolinas, and especially North Carolina, continue to do very well and are seeing very strong growth. This Triad area that includes High Point, the Greensboro area, continues to do very well and certainly is a target market. Tesla still obviously very strong tenant base. We've got, as we're getting kind of the more recent leases we're seeing out of Tesla, have notable increases in annual rent escalations, fixed annual rent escalations. All of that to us is very positive. This certainly ticked a lot of boxes in what we're looking for. As we're optimizing the available capital that we have, this certainly worked for us. As far as what we're seeing on cap rates, I would say over the last four to six weeks, we have seen some movement in cap rates.
Obviously, especially in the States, there's been a big swing on interest rate costs. That's either creating a buy-sell gap or you're able to achieve better rates as we start looking at new deals, sorry, better cap rates as you start looking at new deals. Those could be 25 basis points higher than they would have been three months ago, two months ago. It really depends on how the vendors are reacting to that. Some of them are not doing anything. Other ones are acknowledging where the market is, and we're certainly trying to push a little more on pricing.
Oh, very helpful. Just one follow-up question. In terms of debt financing on U.S. acquisitions, when do we start putting U.S.-denominated debt on these acquisitions? I think that will help the currency exposure too, so any thoughts in that regard?
Right now, we have a sufficient amount of capacity within our Canadian credit facilities, and it's opportune time to still utilize the difference in the interest rate that we have in Canada. As we see FFO and as the portfolio grows, there'll be a definitive move to have U.S. credit facilities, as we grow the property base. At this point in time, we're overall happy with respect to our overall approach.
Got it. Thank you, Andrew, and thank you, Milton. I will turn it back. Thank you.
Great. Thank you.
Next, we will hear from Jonathan Kelcher at TD Cowen.
Thanks. Good morning. Just following up on the U.S. debt there, what would be the difference if you were to go and get a credit facility in the U.S. now, the difference in rate between the U.S. and Canada?
100 basis points at a minimum. The spread, it is hard to say whether it would be similar, but we could have that discussion. It would be 100.
We are mostly seeing in the States, we are not seeing a lot of people using traditional mortgage financing because of the cost. It tends to be bonds, et cetera, that they are getting fixed income market rates that are not that different than Canada. Certainly where the rates are in the U.S., you are certainly seeing on the residential as well, that they are at a point where it is tough to make the cap rates work. So when we are stepping up in the States, we are competing against either 1031s, which are tough to compete against, so that is not a return on equity scenario, so we rarely kind of push into that. Or it is with REITs or institutions that are using kind of fixed income instruments as their financing backdrop, and they tend to be at or slightly above what we look at.
There is a bit of the face rents, sorry, face rates, which are a bit of a false metric that we are seeing in the States because not a lot of people are using them.
Another point, with respect to our Canadian credit facilities, we are still able to place these U.S. properties into the pool and obtain financing.
Okay. That's helpful. Then I guess my follow-up would just be, if I'm looking at your U.S. acquisitions, they seem to be weighted more towards the electric car dealerships. Is that strategic or is that just more opportunistic?
Bit of both. Bit of A, bit of B. Yeah, certainly the covenant of Tesla is something that allows us to sleep very well at night. We are seeing a bit of a buy-sell gap in the States and Canada for that matter, on dealership M&A. So we do like what we're seeing on availability as both Rivian and Tesla create their footprint in the U.S. It's giving us long-term leases that are reflecting kind of good escalations, which is all positive. They also tend to be leaning into the markets that we like. More metropolitan, more higher growth. So there is a lot of overlap there. We do certainly want to kind of round out that portfolio as we go in the States and have greater diversification. But we also look at that diversification within our entire portfolio, both U.S. and Canada.
We do like to have some exposure to the EV world. In the case of Tesla, that probably gives us some exposure to the robo-taxi world again, as they kind of start rolling that out.
Okay. I'll turn it back. Thanks.
Next question will come from Sairam Srinivas at ATB Cormark.
Thank you, operator. Good morning, guys.
Good. Yeah.
Milton, just going back to your comment on your competitive positioning in the U.S. and maybe just taking that forward, how should we think about your capital positioning in the U.S. versus Canada and the advantages you're seeing in that market on a relative basis?
I'm sorry, can you be more specific?
When you are looking at the U.S. market, and we spoke about
Yeah
acquisition spreads being more attractive right over there, obviously, higher covenants and all those things. When you look at similar deals coming into Canada versus your capital cost, how should we be thinking about the relative opportunity, and are you seeing a lot more opportunity deals happening down there versus in Canada?
Yeah. I think your second point hits it a bit more than the available yields. The available yields actually seem to be pretty consistent on both sides of the border. I would say there is certainly more markets and there is more activity in the U.S. We are focused more on that southeast, southwest, where we are seeing some of the growth. So, as opposed to Canada, which has, call it six major markets and another four or five that are strong markets that we kind of lean into, in the States, it is providing us a lot more opportunities. We are seeing opportunities on both sides of the border, and we are probably getting We have always had an outsized proportion of the deals in Canada and the markets that we like that we end up being successful with.
I would lean into more your comment that it is providing us with greater opportunity as opposed to any significant differential on cap rates between each side of the border. Certainly, there are specific markets either in Canada, being Vancouver, or in the U.S. where those cap rates are too tight that we do not play. But there is a lot of markets there that we are seeing opportunity on cap rates that do catch our attention in a positive way.
That is good color, Milton. Maybe a follow-up on that. When you look at these opportunities in the U.S., do you see, looking ahead, more of these onesies, twosies versus some bigger chunkier acquisitions that you have done in the past in Canada?
The short answer is sure. As we put our flag in the ground in the States and as we get more active, remember it is only been since early 2025 that we have been active there, I think there is going to be more and more discussions. At some point, we would like to see some chunkier deals both in Canada and in the States. We have to be ready and able to react to those, and part of that is continuing to do the singles and doubles to be active and known in the marketplace. The short answer is, at some point, sure. We certainly believe so and like that.
That is great color, Milton. Thank you so much. I will turn it back.
A reminder to our phone audience, if you would like to ask a question or have a follow-up today, that is star and one. We will go next to the line of Zemin Liu at Desjardins.
Hi, good morning.
Good morning.
Just on acquisitions. How are you thinking about acquisitions heading into 2027? Specifically, what leverage level would you be comfortable taking on to fund those opportunities?
We are very clean on our income because there is not a lot below the line. We have always said we are comfortable getting in that 50, very low 50s. We certainly, since IPO, have moved our LTVs down, so we do not want to get them too high. But we have remained pretty consistent over the last number of years on our commentary where we are comfortable, and I still think that remains consistent.
Okay, thanks. That is helpful. Just a quick follow-up. On the financing front, would you consider obtaining a credit rating and accessing the unsecured debenture market in the near future? Do you think that is an attractive funding source for APR?
Consideration, I mean, you have got to look at the options that are out there at all times. When it comes to financing, it is about having the opportunity to take advantage of. There are different sources and different costs of capitals at different time. I still believe that getting some of the public companies in our portfolio, the quality of our portfolio, it is certainly something at some point, it would behoove us to actually have a stronger and longer look at it. But that is always a time and a place as we continue to grow.
Okay, thank you. I will turn it back.
We'll move forward to the line of Giuliano Thornhill at National Bank.
Hey, guys. Good morning, everyone. Just a quick one on the uptick in the dealer M&A.
Yeah.
I'm just wondering if you've seen any impact to the U.S. opportunities or even in Canada, or really just had any thoughts on that and how it impacts your business.
We're actually not seeing an uptick as much on the M&A as I would have thought at the beginning of the year, partly because the interest rate movements are changing people's multiples as they're going through, because that certainly will push through on both consumer confidence and floor plan financing. The tenants, essential retail, as you know, it's both service, new cars, used cars, F&I. They continue to be very healthy as an essential tenant base. But we are seeing a bit of a buy-sell gap between what the exiting dealers and the acquisition dealers are looking for. I think as things settle down a bit, the volatility, whether you're looking in our space or just overall, is very high, and that's kind of creating that delta, which I think will contract as things calm down going into 2027.
We expect to see more activity in 2027 than we did in the dealer M&A world in 2026.
Are you noticing any differences between Canada and the U.S., or are they kind of similar?
Slight differences. I mean, whether it is real estate or whether it is dealer M&A, I just find south of the border that people are willing to take profits and take losses and kind of move in and out and be more active. It is very tough to replace assets in Canada if you sell, so it is a stronger, longer decision. Certainly on the back of demographics, there is a significant number of dealers that are at a level that they will and have been considered selling, so it is when they are going to make that decision. I always find I never get younger, so I think they are experiencing the same thing. At some point, we are going to see a lot of that rotation continue and potentially accelerate.
Great. Thank you, guys.
We will hear next from the line of Saloni Seth at Raymond James. Please go ahead. Your line is open.
Hi. Good morning. Could you provide some color on the tenant inducements and free rent months at the Vaughan property?
Sure. I think we disclosed that there was three months free rent from closing.
There is an inducement that we have got on our books for CAD 1.5 million.
To be clear, that was a CAD 3 million inducement that was split between the two 50% landlords. As Andrew mentioned, that is CAD 1.5 million from APR.
That CAD 6.5 million gain incorporates all those numbers.
Okay. Thank you. I got it back.
We will move next to Jimmy Shan with RBC Capital Markets. Please go ahead.
Thanks. Milton, you mentioned seeing better rent escalation on the Tesla leases. I guess what sort of escalation are you seeing, and then what is causing, what is driving that?
Sure. I would not just say Tesla leases. I am just seeing that there is greater rent escalations and newer prints on leases, both sides of the border, quite frankly. So that includes Tesla, but it is not exclusively to Tesla. Short answer is, the same reason why we leaned into CPI. People, while interest, while inflation was 1%-2%, were demanding escalations that reflected inflation. Now that we have been two, three years into higher inflation rates, landlords are demanding and tenants are agreeing to higher annual fixed rates to reflect the current inflation environment.
Okay, so more like 2%, 3%?
Yeah.
What would be an achievable target in terms of acquisition next year, given what you are seeing in your pipeline?
I think we have to be somewhat selective. We have been and continue to be selective. That's a tough call. I mean, we only have CAD 50 million-CAD 75 million in capacity probably right now. So we want to take advantage of that to kind of drive AFFO per unit. I always never like to kind of predict what we'll see next year. I do think we'll see opportunities next year. It's just making sure that those are the opportunities that add the diversification and tenant base in markets that we like.
Yeah. Thank you.
There are no further signals from our phone audience today. Mr. Lamb, I'd be happy to turn it back to you, sir, for additional or closing remarks that you have.
Everyone, thank you very much. Have a good weekend, and we will talk to you shortly.
Ladies and gentlemen, thank you all for joining us this morning. You may now disconnect your lines and have a great weekend.