Automotive Properties Real Estate Investment Trust

TSX:APR.UN

Earnings Call Transcript 2021-Q2

[Operator]

Good morning. Welcome to the Automotive Properties REIT 2021 Second Quarter Financial Results Conference Call and Webcast. My name is Michelle, and I'll be your conference operator today. [Operator Instructions] 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. And again, please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on Thursday, August 12, 2021. I would now like to turn the conference over to Mr. Milton Lamb. Please go ahead, Mr. Lamb.

[Milton Donald Lamb, President, CEO & Director]

Great. Thank you, Michelle. Good morning, everyone, and thank you for joining us. With me today on the call is Andrew Kalra, our Chief Financial Officer. While the automotive dealership industry, including our tenant group, continues to operate -- continue to operate under COVID '19 related business restrictions during Q2. Automotive retail sales continued to rebound with significant year-over-year growth to date in 2021, reflecting the resiliency of the industry. According to DesRosiers Automotive Consultants, new automotive sales in Canada were up 33% for 6 months ending June 30 compared to the same period last year. This rebound demonstrates the success of the dealership operators in responding to COVID-related business restrictions, with enhanced e-commerce solutions, customer service offerings and streamlined operations, combined with the impact of pent-up consumer demand for both new and used vehicles. Our portfolio remains fully leased, and we've had 100% contractual base rent collection under our leases plus contractual base rent that was due under the deferral agreements. We generated growth across all of our key performance measures in the quarter in comparison to Q2 of last year. Our property rental revenue grew by 4.1%. Cash NOI increased by 8.6%, same property cash NOI was up 1.1% and AFFO per unit diluted, increased to 22.1% -- sorry, $0.221 and from $0.205. At quarter end, our debt to GV ratio was 41.3%, down from 43.2% at 2020 year-end and 44.4% at the end of Q2 last year. We remain well positioned to deploy capital on growth opportunities. The capitalization rate applicable to our entire portfolio was 6.5% at quarter end, a reduction of approximately 10 basis points from Q1. The reduction of the capitalization rate in the quarter reflects a decrease in discount rates for our properties in the Greater Toronto and Montreal areas by approximately 20 basis points during the quarter, primarily due to industry-wide single tenant retail and industrial capitalization reductions. This represents an increase of approximately 2% in IFRS value for our investment properties. As provincial COVID-19-related restrictions continue to ease, we anticipate the pent-up consumer demand will continue to support the Canadian new and used auto sales plus service work performed by our dealerships, providing greater certainty for dealership operators to shift from a defensive strategies towards growth. While the pandemic has also impacted the vehicle supply chain, resulting in constraints on specific parts, models and brands, we believe these supply constraints are temporary and will not have a material impact on our tax. Further, these supply constraints are offset by the strength of dealer margins. The strong performance of the industry and the strength of our portfolio has resulted in continued favorable support from our lending partners. In Q2, we expanded and extended 1 of our credit facilities to a total of 5 years to 2026. I'd now like to turn it over to Andrew Kalra to review our financial results and position in more detail. Andrew?

[Andrew Atul Kalra, CFO & Corporate Secretary]

Thanks, Milton. Good morning, everyone. Our property rental revenue for the quarter totaled $19.6 million, 4.1% increase from Q2 2020 reflects growth from properties acquired subsequent to Q2 last year and contractual annual rent increases. Total cash NOI and same property cash NOI for the quarter totaled $16 million and $15.3 million, respectively, reflecting increases of 8.6% and 1.1% compared to Q2 a year ago. Growth in cash NOI was primarily attributable to acquisitions, contractual rent increases, growth in same property cash NOI primarily reflects contractual rent increases. G&A expenses for the quarter were approximately 7.4% of cash NOI compared to 7% in Q2 last year. The higher G&A expense in Q2 this year was attributable to the REIT's growth to the vesting of the previously issued deferred units. Net income for the quarter was $17.9 million compared to a net loss of $23.4 million in Q2 last year. Positive variance was primarily due to higher NOI, fair value adjustments for the investment properties, which Milton just discussed, fair value adjustments to Class B LP units and unit-based compensation. FFO, AFFO for the quarter increased by 10.2% and 11.5%, respectively, compared to Q2 last year -- excuse me, FFO per unit diluted was $0.236 in the quarter compared to $0.222 in Q2 a year ago and AFFO per unit diluted increased 7.2% to $0.221 or $0.25 in Q2 a year ago. This growth was primarily due to properties acquired subsequent to Q2 a year ago, bad debt reversal related to the tenant receivables and contractual rent increases. REIT paid total distributions of $9.85 million or $0.201 per quarter -- per unit in the quarter, representing an AFFO payout ratio of 91%. This compares to total distribution paid of $9.6 million or $0.201 per unit in Q2 last year, representing an AFFO payout ratio of 98%. The AFFO payout ratio was lower this quarter primarily due to bad debt reversal related to the tenant receivables and contractual rent increases. The higher AFFO payout ratio in Q2 2020 last year also reflected the temporary dilutive effect of the December 2019 equity offering. As at quarter end, we had a strong financial and liquidity position with 8.2 -- approximately $8.2 million of cash on hand, $75 million of undrawn credit facilities. Seven unencumbered properties with an aggregate value of $101.4 million, providing us with additional financial flexibility and a debt to GDP ratio of 41.3%. We had $401 million outstanding debt at quarter end with an effective weighted average interest rate of 3.73%. We have a well-balanced level of annual maturities, and our weighted average interest rate swap and mortgage term is 5.5 years. The weighted average turn to maturity of debt increased to 3.3 years from 2.7 years in Q1 this year, which was a result of the extension and increase of one of our credit facilities. I'd like to turn the call back to Milton for his closing remarks. Thank you very much.

[Milton Donald Lamb, President, CEO & Director]

Great. Thanks, Andrew. We've continued to collect 100% of our rent in July and August of 2021, plus rent due under the deferral agreements. We've not received any additional deferral requests. With business restrictions easing on our tenants in line with significant increased wooden back extensions for Canadians, the strength of our auto industry and economic conditions stabilizing, we feel confident that industry consolidation has started to accelerate, and we should be presented with attractive opportunities for us to continue expanding our portfolio and drive growth in AFFO per unit. Given our strong balance sheet position, we can pursue acquisitions on a strategic basis through debt financing and available liquidity. We believe we are also better positioned to access capital through the equity markets at this time. This concludes our remarks, and we'd now like to open the lines for questions. Michelle, please go ahead.

[Operator]

[Operator Instructions] Your first question comes from Scott Fromson from CIBC.

[Scott Douglas Fromson]

Given that it's a pretty uneventful quarter, I would -- which is good. I would turn attention to acquisitions. Obviously, you're doing what you can within the context. But just wondering, given the cap rate compression in the major urban markets you're looking at? I'm thinking Toronto, Vancouver and Montreal. Are you having a hard time making deal economics work? And are dealership bonus hanging on to properties until retirement when they can sell the whole package, including potential rezoning for the real estate.

[Milton Donald Lamb, President, CEO & Director]

A couple levels on that question. The first one is, yes, interest rates, cap rates are very low right now. That doesn't tend to be what's getting in our way. We are starting to see and expecting to hear some deals within the dealership community announced. So the activity we thought which start unfolding in the back half of 2021 and into 2022. We're still confident that, that is going to start to unfold -- more when we get the opportunities as to buying as opposed to buying kind of existing marketing assets. A lot of the stuff we buy is off market associated with M&A. So certainly, the Toronto, Montreal, Vancouver, the cap rates across all industries seem to have gone down. And that's part of the reason why we reflected a bit of that in this quarter. And the second part with regards to retirement development. We've always said that if it's imminent development, dealers face a conundrum on do they sell their operations and real estate -- or do they just collapse the dealership and then sell the asset for immediate redevelopment. We don't tend to play in the world where someone is going to collapse the dealership and develop it right away. That's going to go at a cap rate that is low, low, low single digits, kind of 1% or 2% holding income and then developed. And that's really not our business. We certainly like lands that have a higher and better use underlying, but they tend to be on mid- to long-term leases if we do a sale leaseback. So dealers are always based with the conundrum, do I sell the package and get value for operations and value for real estate or in certain locations is the value of the real estate is just too great. And therefore, they sell it specifically for higher density use.

[Scott Douglas Fromson]

That's helpful. Just kind of a follow-up on the sale of ongoing businesses where they're not looking for resilient opportunities. Do you see dealers having a tough time making their own economics work just due to the higher rent payments that would be needed to support lower cap rates?

[Milton Donald Lamb, President, CEO & Director]

Well, I mean the lower cap rates probably actually helps their rental income -- sorry, the rent overhead for obvious reasons. But yes, I mean, the price for acreage in Toronto, Vancouver, Montreal is not minimal. It's gone up and will continue to go up. So you're starting to see some locations that have kind of the spoken model where you have retail that is a bit of a smaller footprint with the back, which is service, which obviously is where a lot of the dealers make their money. And an additional service location that is in a secondary location, not on a major artery through bar retail presence that allows them to kind of reduce their real estate costs. And certainly, the use of off-site compounds is very prevalent in those 3 markets, and I would even say in the Calgary and Edmonton. Real estate is just too valuable just to park cars on. It's better to have it at a secondary location and just valet it in when the order comes in.

[Operator]

Your next question comes from Mark Rothschild from Canaccord.

[Mark Rothschild, MD & Real Estate Analyst]

Maybe just following up a little bit on what you were talking about with the acquisition market. Are you getting outbid on any properties? And to what extent does the IFRS value you're using now, and you made a small adjustment, but nothing too significant reflect what's actually going on in the private market?

[Milton Donald Lamb, President, CEO & Director]

The short answer is no, we're not getting outbid. We've always had it that the lenders tend to be our biggest competition. And in some ways, we are looking at providing long-term money because we're doing 10-, 15-, 20-year terms versus dealers looking at short-term money with banks that are at low rates. So it's not that we're getting outbid. And certainly, we expect a bit more activity as we go forward. But it's always been we tend to get a last-minute call saying, come on in, let's do a deal quickly, as opposed to a long runway or a traditional industrial or retail-marketed, grabbing a CBRE Colliers and sing, will do a bid date in 6 weeks. That's not how dealers work, and that allows us to be there on the last minute, but that also means there's not as much visibility of when the deals are going to occur.

[Mark Rothschild, MD & Real Estate Analyst]

Okay. Great. And maybe just one more. So you're not getting outbid and clearly, you have capacity to acquire a number of assets. You've been pretty disciplined in the markets that you're focused on. Is there any discussion or interest in maybe expanding that, whether it's to smaller markets in Canada that you've kind of avoided or into maybe other large markets in the U.S. where you haven't really felt the need to go yet?

[Milton Donald Lamb, President, CEO & Director]

We like metropolitan markets. And certainly, there's some very strong metropolitan markets in the U.S. and there's other -- I don't even want to call them secondary markets, but the kitchener-waterloo, the [indiscernible], the Halifax's, the Share Brooks, the Winnipeg's, all of that, we'd certainly look at for the right opportunity, right location, right operator. So we're not opposed to that as much as we like Toronto, Montreal and Vancouver, that is a limited universe. We still think we can play, but that's slightly lower cap rates and high-quality real estate. We also think there's good quality real estate in other markets.

[Operator]

Your next question comes from Lee Chen, IA Capital Markets.

[Unknown Analyst]

I had a couple of questions regarding acquisitions for your answers. So I guess just a quick one for me. So just regarding the global chip shortage. I was wondering if you could provide more color on dealership car sales. So as you mentioned, obviously, supply of new vehicles are obviously being scarce, but that's clearly being offset by increased demand for used cars at a higher premium. So how do you think that's affected the profitability for the car dealerships over the last few months?

[Milton Donald Lamb, President, CEO & Director]

Yes. If you look at the press releases from some of the auto retail groups out of the U.S. and even Canada, they seem to all start with record profits. So I'd certainly encourage you to take a quick look at some of their press releases, and that will give you a very good indication. But you already touched on it, which is the margins are up because in a weird way, you can buy a 1-year-old used car and pay more than a new car because of lack of availability. So dealers are facing some supply chain issues, but that's allowing them to push pricing or maintain high levels of margins. So it's not all about, I guess it's more important -- what's more important, revenue lines or higher profit lines. And they certainly don't seem to be upset at higher profit lines.

[Operator]

Your next question comes from Jonathan Kelcher, TD Securities.

[Jonathan Kelcher, Analyst]

Just for final, I'll stick with acquisitions here. It sounds like M&A chatter is picking up in the industry. How would you compare that to pre-COVID levels, say, about the same time in 2019?

[Milton Donald Lamb, President, CEO & Director]

I would think in back half and in '22, that will accelerate. The need for spend on technology, the need for spend on commerce, lower SG&A combined with availability of capital and retained profits, existing small dealer groups or dealers, single rooftop dealers are certainly looking at, am I going to reinvest? Or am I going to take my profits. And that's a pretty compelling argument. So I think we're going to see some pretty good activities -- sorry, activity in the M&A world. And I think it's going to be at a greater pace than it was in 2018, 2019.

[Kyle Stanley, Associate]

Okay. And are you -- this chatter, is it more single asset? Or are there some decent-sized portfolios that could become available?

[Milton Donald Lamb, President, CEO & Director]

I think it's going to be both. I think there's going to be singles and I certainly believe that there's going to be small, mid- and large-size dealer groups that may look at M&A activity. I think it's going to be both.

[Jonathan Kelcher, Analyst]

Okay. And then just secondly, on your distribution. Like you guys obviously sailed through COVID fairly well in terms of 0, it's going to end up being 0 bad debt fundamentals are good. You've got a good balance sheet. What's keeping the Board from increasing the distribution?

[Milton Donald Lamb, President, CEO & Director]

I think we'd like to do some more acquisitions and push AFFO up per unit before we do that. One of the things we've always said is that once we start doing a distribution increase, we would like to be able to do that on a regular basis. So it just starts becoming -- I don't want to say automatic, but a very regular increase. Our leases primarily have embedded annual rent increases. So once we start doing that, we kind of want to continue to do it consistently. We have a philosophy that a one-off distribution increase, it's nice, but it's not as good as being a regular distribution increase. So short answer, we want to do some more acquisitions and drive AFFO per unit higher. And then we'll certainly -- it's something that we think investors like and we like overall as well is looking at increasing our distribution.

[Jonathan Kelcher, Analyst]

Okay. You guys have a set full payout ratio that you're trying to target?

[Milton Donald Lamb, President, CEO & Director]

We -- in our strategy meetings and regular meetings, we look at an internal range on when we think that would be a good time to do it. Yes. We just haven't announced and we're not going to announce until we announced that we're going to do the distribution increase.

[Jonathan Kelcher, Analyst]

Okay. So no announcement until the announcement.

[Milton Donald Lamb, President, CEO & Director]

Exactly.

[Operator]

Your next question comes from Matt Logan from RBC.

[Matt Logan, Analyst]

Andrew, in terms of the fair value gains this quarter, can you talk a little bit about how much weight you place on single tenant versus industrial transactions in your market? And what drove the decline in cap rates this quarter?

[Andrew Atul Kalra, CFO & Corporate Secretary]

The drive was basically based on the market evidence. And obviously, we can't compare ourselves totally to industrial. We have to look at the overall market and also trade it in the market and balance that out. And the approach that we took is we've seen the GTA and GMA we looked at our portfolio, and we also looked at previous acquisitions that we had completed in those areas as well and made adjustments in those specific areas, given the fact that there was a difference overall.

[Milton Donald Lamb, President, CEO & Director]

See the point, Matt, we kind of triangulate it because there's not a lot of specific market evidence in Canada because we tend to be the dominant buyer of income-producing automotive real estate. But if you look at single tenant retail, if you look at industrial, if you look south of the border, if you triangulate that, we felt very, very comfortable that certainly our Montreal and Toronto area locations deserve a lower cap rate.

[Matt Logan, Analyst]

Agreed. And based on what you've seen maybe in the market that hasn't closed yet. Do you think there is potential for further cap rate compression over the next few quarters?

[Andrew Atul Kalra, CFO & Corporate Secretary]

It's going to be continued reviewed every quarter. And -- It's part of the process. I can't predict where we're going to be in Q3. But 65 is a very, very supportable number at this point in time, and we'll assess it as we go forward in Q3 and Q4.

[Milton Donald Lamb, President, CEO & Director]

We're starting to see pockets of strength in other areas as well. I mean, Alberta is coming back. We certainly still like the Ottawa market. I mean there's -- we like what we're seeing out there. We'd just like to see more transactions.

[Matt Logan, Analyst]

I appreciate the additional color. Maybe changing gears, Bill. With the U.S. targeting 50% electric vehicle sales by 2030, what type of challenges and opportunities do you think that would present for the REIT, if Canada followed suit?

[Milton Donald Lamb, President, CEO & Director]

Whether it's a 50% target or otherwise, the short answer is the EV world is going to start unfolding. So that opportunity just as we think there's going to be -- certainly, we like and have done transactions with Tesla. There's going to be more EVs coming to the market, both in brands and a push, whether it's Volkswagen, Audi, BMW, a lot of the brands are going to start looking at more and more EV, which means some CapEx upfront anytime, whether it's branding or CapEx for EV. Any time a deal, it looks at the opportunity to expand and spend money. They're also going to look at, is that a good opportunity to exit, have someone else spend the money and take profits. So we think that's going to drive one of the factors that's going to drive further consolidation. We -- as that rolls over, that's Certainly, new car sales, but there's also a lot of internal combustion engine vehicle segment to be on the road for a long time afterwards and continue to be very much on the sales side and service side.

[Operator]

Your next question comes from Himanshu Gupta from Scotiabank.

[Himanshu Gupta, Analyst]

So just on the cap discussion. How is the cap rates moving for U.S. auto dealership properties? I mean I'm assuming there's more activity there, there's more data operable there as well.

[Milton Donald Lamb, President, CEO & Director]

Yes. In the U.S., there's more of everything there. We're seeing from what we've looked at as far as talking to some of our consultants, et cetera, down in the states, they are seeing some cap rate compression. The industry overall is now viewed as more resilient than it would have been viewed pre-COVID. Essential service, we've talked about we're collecting 100% rent. People are talking about dealership groups having very strong profits. All of that has just reduced any kind of risk factor that people are looking at and a combination of reduced risk factor in a market that is showing lower yields means you're going to see lower yields on the -- and have seen lower yields on the asset sales in the States.

[Himanshu Gupta, Analyst]

Okay. That's helpful. And then just taking to your way of finding the cap rates or looking at the trends, it looks like you're looking at single-tenant retail and industrial properties in your calculation. Have you been looking at the single-tenant industrial properties all -- I mean historically as well? Or it's only very recent that you are looking at the investment property evaluation?

[Milton Donald Lamb, President, CEO & Director]

No, we have to, because of the lack of visibility on pure automotive properties. We certainly have to cast a bit broader net to see where the trend line is going across other industries, and how that has an implication on our cap rates. So we've always looked at industrial and single-tenant retail on the trend line as well.

[Himanshu Gupta, Analyst]

Okay, okay. And then maybe you were talking about -- previously about the portfolio M&A activity picking up. I mean we had the news that a large U.S. dealer I think Lithia Motors is trying to buy fast dealerships in Canada. So any read across or implications for your business?

[Milton Donald Lamb, President, CEO & Director]

I can't speak specifically on that one. But overall, when you're seeing a large U.S. group that has a very strong e-commerce platform, and availability of capital. One thing we've talked about, and this is probably going back a couple of years ago, 1 of the limitations for Canada was you had some OEMs that wouldn't allow public ownership. Trades like the one you're talking about that potentially can occur. That's just demonstrating that those constraints are no longer there. And the success they're having in the states, they are looking to export it and bring it to Canada, that will probably mean groups in Canada are potentially looking at taking profits or looking at doubling down on their e-commerce and their platforms for omnichannel sales. So I think it's a good thing. Anytime we stir it up just a little bit, that keeps everyone on their toes. Good operators here and good operators from the states is not a bad thing at all.

[Himanshu Gupta, Analyst]

Yes. And maybe for my understanding, is Lithia buying the -- just the operating business or they are buying the rooftops as well from FAS?

[Andrew Atul Kalra, CFO & Corporate Secretary]

We don't have any specifics on that, yes.

[Milton Donald Lamb, President, CEO & Director]

We got to wait to see what happens when it closes. Rumors are rumors, and I can't really comment until everything is done.

[Himanshu Gupta, Analyst]

Got it. Okay. And maybe just last question from me. I mean a lot of discussion, obviously, on the acquisition pipeline. Anything specific with [indiscernible], I mean, do you know how much you can close with them by the end of the year? Any indications from them where they have been active on?

[Milton Donald Lamb, President, CEO & Director]

No. I mean it's not just to [indiscernible]. It's all the dealership groups will call us in late in the process, not early in the process. It's 1 of the reasons why we want to have, and we do have the flexibility and the capability to react quickly is because we're often asked to act quickly. So visibility discussion tend to be in general and then get very specific with a short fuse to it.

[Operator]

[Operator Instructions] Your next question comes from Brad Sturges from Raymond James.

[Milton Donald Lamb, President, CEO & Director]

Brad, do we have you?

[Bradley Sturges, MD & Equity Research Analyst]

You got me? I put myself on mute there.

[Milton Donald Lamb, President, CEO & Director]

There you go.

[Bradley Sturges, MD & Equity Research Analyst]

Just wanted to maybe follow up. You've talked a lot about valuation and more of cap rates and maybe a little bit of a replacement cost. So maybe if you could provide a little bit more granularity in terms of what you think replacement costs could be in some of your major markets, Toronto Montreal, and Vancouver, specifically?

[Milton Donald Lamb, President, CEO & Director]

Short answer is higher than it was a year ago. Yes. I mean, no surprise. Land values have gone up and construction costs have gone up. I haven't put an exact number on that, but you're certain to see both timelines and getting the zoning is longer than it was previously. Cost development fees, higher materials, higher services, contractors, higher and the underlying land value has gone up, especially in the markets that you're talking about. So we haven't put a specific number on it, but yes, it's up.

[Bradley Sturges, MD & Equity Research Analyst]

Right. And in terms of the development approval process, is it becoming really difficult just to get approval, as you talked about in terms of it's not really the highest and best use just put cars on land?

[Milton Donald Lamb, President, CEO & Director]

Yes. Planning offices don't have a love affair with automotive retail. We still look at it and we're proponents because if you look at it, it is high income, high number of jobs per square foot, it's not minimum wage, retail type stuff. It's -- they're making real money. So we view it very much as employment and some planners are absolutely agreeing with that. But just whether it's automotive or any other type of development, in the major markets, that's a long timeline, complicated, and it doesn't seem to be getting shorter. But one of the things we've always said is we like the fact that we have zoning on the existing locations because it's tough to get that zoning. Michelle?

[Operator]

We do have one more caller, Tal Woolley from National Bank.

[Tal Woolley, Research Analyst]

Just maybe in terms of talking with your tenants, are you seeing any like variance among the brands or anything right now. Just as we recover, I know you talked earlier about supply availability, like are there maybe certain brands that are maybe having a more difficult time of it, others are doing better?

[Milton Donald Lamb, President, CEO & Director]

Yes. I mean anecdotally, we've heard about it in some of the pickup truck world. A lot of our brands tend to be more commuter, the Honda, BMW, [indiscernible] of the world. Some of its brands, some of its specific models. So it does tend to ebb and flow out. I will say that a lot of them have looked at refreshing their product line and that's creating some good excitement. And some of those are -- did it last year, some are doing it this year, some are doing it next year. So as they bring on new models, that tends to drive a bit more excitement. But that's -- in our world, we're not really seeing it affect one in a negative way and the other one in a positive way. It tends to just be a bit of a rolling. And it's certainly why we like dealing with dealership groups and as you know, a lot of our leases have indemnification from a group that has multiple brands and multiple locations. And that allows us to sleep at night.

[Tal Woolley, Research Analyst]

Got it. We talked a lot about M&A. I'm wondering like as you look around the landscape, are there like other parts of sort of the automotive world that could provide other triple-net opportunities to you? Like I think about here in this country, we've got service garage consolidators, parts distributors. If that's -- Is there opportunities maybe outside of the pure dealership type of real estate?

[Milton Donald Lamb, President, CEO & Director]

I think there could be. I mean if you ask me if there's a beautiful Caterpillar location in Vaughan, would we like to own that? Absolutely. I think a lot of people would. So I mean I think there's -- there are some different ones that have a lot of the same characteristics in our automotive that we potentially could look at and the right opportunities. So I would say, we view ourselves as automotive as opposed to just automotive dealership retail. It's one of the reasons why we like dealing with Tesla because it's the direct OEM and they have a slightly different model. So as that whole industry continues to evolve, we think we're going to see other opportunities as well that may be not the specific dealership but are backed up with a good covenance and strong real estate locations.

[Tal Woolley, Research Analyst]

And in the past, you've done some dealers -- or some development work. If we're thinking about how automotive retail might shift over the next 10, 20 years with the changes in the industry, does that seem like something you're probably going to be doing more of in the future? Because you were talking earlier in the call about shifting inventory holding to land off site, that kind of stuff. Do you think there's going to be more opportunities that come up because of that kind of structure emerging more?

[Milton Donald Lamb, President, CEO & Director]

I think it's inevitable, and it's not pioneering. You go down to New York, you go over to Europe, you look in Asia. These OEMs are absolutely used to in high-density locations being in a smaller retail footprint with an ancillary outside. And that smaller dealership footprint may be and often is in a mixed-use complex. There's a lot of moving parts to get there. And as long as you do it upfront as opposed to try to squeeze it in after the fact, it is doable, and I think it's inevitable.

[Tal Woolley, Research Analyst]

Okay. And then just lastly, like when you guys went public, you sort of came out with a more novel debt structure with multiple credit facilities and then layering the rate hedges and on top. As you guys have matured in the market, in your conversations with the banks, is there any opportunities to sort of consolidate, simplify, look at maybe more cost more -- potentially more cost-effective solutions on the debt side?

[Milton Donald Lamb, President, CEO & Director]

I actually think, in many ways, what we have is pretty simple. And in many cases, you're seeing some other REITs do it as well. If you've got an unencumbered portfolio that you can put together and get we're BAs plus 150. That's a pretty -- we think it's a cost-effective use. A and B, we think it adds flexibility. So we certainly will look at specific properties and doing long-term mortgages. We announced one last quarter. But short answer is, we really like the fact that we can take advantage of the credit facilities that have the flexibility and the cost of capital that it has. The next level would be unsecured and that's -- you've got to be a certain size to get there. And you don't want to do that too early because if it unwinds, that hurts a lot of things.

[Tal Woolley, Research Analyst]

Yes. Sorry, Andrew, were you going to say something there? It sounded like...

[Andrew Atul Kalra, CFO & Corporate Secretary]

In terms of flexibility, I think over the last 5 to 6 years, we've renewed and extended maturities on the credit facilities and had a healthy weighted average to maturity on the interest rate swaps. So I think it's -- the overall structure is working very well. And we've added a -- no, no, no. We've added a couple of mortgages in between as well. So I think we've got a very, very good balanced approach to it.

[Tal Woolley, Research Analyst]

Okay. Yes. That's perfect. I just was -- I was just curious, if like over the time in the publican bankers maybe come to you with different kinds of ideas around that, but that's great.

[Milton Donald Lamb, President, CEO & Director]

Yes. Their ideas are always can you roll everything together and let us be lead? I understand that strategy. We like to have different groups at the table because you don't want just pure herd mentality. And you don't want to just be controlled by one.

[Operator]

As there are no further questions at this time. I will now turn it back to Mr. Lamb.

[Milton Donald Lamb, President, CEO & Director]

That's great, everyone. Enjoy the rest of the summer, and we look forward to talking to you in Q3.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.