Automotive Properties REIT - 2022 Earnings, Price Target Update

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Automotive Properties REIT (APR.UN) is the only public REIT in Canada focused on consolidating automotive dealership real estate properties. Dilawri Group of Companies is Canada's largest automotive group with 70 franchised dealerships representing 30 automotive brands throughout Quebec, Ontario, Saskatchewan, Alberta, and British Columbia. They have been privately owned and operated by the Dilawri family since 1985. Each of the leases with the Dilawri Group contains annual contractual basic rent escalators in the amount of 1.5% per annum. The Dilawri leases are structured as triple-net leases under which the tenant is responsible for all costs relating to repair and maintenance, realty taxes, property insurance, utilities, and non-structural capital improvements.

Rental revenue is based on triple-net leases with tenants. As such, rental revenue also includes recoverable realty taxes and straight-line adjustments.

At the time of the IPO, Dilawri agreed to provide certain financial information to the REIT for so long as the annual basic rent under the respective Dilawri Leases totaled 60% or more of the REIT's net annual operating income. As of Dec-31-2022, this amounted to 59.9%. As a result, the REIT and Dilawri have agreed in principle to amend the agreement so that Dilawri will continue to provide its Combined Revenues, EBITDA, and Pro Forma Adjusted Rent Coverage Ratio until the REIT releases its financial results for the fiscal year ended Dec-31-2023 on a trailing 12-month basis. Although the REIT has no reason to believe that the above financial information of the Dilawri Group contains a misrepresentation, Dilawri is a private company that is independent of and operates entirely independently from, the REIT and, consequently, neither the REIT, its management nor its Trustees in their capacities as such have been involved in the preparation of this financial information. Pursuant to an undertaking provided by Dilawri to the Canadian securities regulatory authorities in connection with the IPO, Dilawri provided to the REIT carve-out interim financial statements and the related management's discussion and analysis in respect of the members of the Dilawri Group subject to leases pertaining to the Initial Properties for Q3-2022. These documents are filed on SEDAR.

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