Automotive Properties REIT (TSX:APR.UN) is an interesting way to gain exposure to a consolidating industry.
The REIT debuted on the Toronto Stock Exchange in 2015, and has quickly grown to own 33 different auto dealerships in Vancouver, Calgary, Edmonton, Regina, Toronto, and Montreal. It owns more than one million square feet of gross leasable area.
Automotive Properties gets almost its rent from Dilawri Group, which is grown to be Canada’s largest chain of car dealerships with 60 locations from coast-to-coast. Dilawri acquires dealerships in major cities and then sells the real estate to
Automotive Properties. It then signs a long-term lease (which covers any improvements) at a competitive rate. The REIT’s average lease length is 13 years.
It’s a clever move by Dilawri’s management team. By selling its real estate to this REIT, it allows the company to minimize its debt. This ensures it can expand at a faster pace. Since December 30, 2015, the REIT has acquired six properties from Dilawri.
The consolidation potential in the Canadian auto dealership market is huge. Analysts estimate there are approximately 2,000 dealerships which are ripe to be acquired – especially as baby boomer owners hit traditional retirement age.
Not only do investors get a way to play this growth story, but they also get paid a handsome yield to wait. Shares currently pay a dividend of $0.067 per month or $0.80 per year, good enough for a 7.3% yield.
In 2016, the REIT generated $1.04 per share in funds from operations, giving it a payout ratio of 77%. The dividend is sustainable.
