Automotive Properties Real Estate Investment Trust
TSX:APR.UN
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Good morning, and welcome to the Automotive Properties Limited Partnership 2020 Third Quarter Financial Results Conference Call and Webcast. My name is Sylvie, and I will 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 act -- cause actual results to differ materially from those projected in 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. Again, please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures. Note that this call is being recorded on Friday, November 13, 2020. And I would like to turn the conference over to Milton Lamb. Please go ahead, sir.
Great. Thank you, Sylvie. Good morning, everyone, and thank you for joining us. On the call today is Andrew Kalra, our Chief Financial Officer. We're pleased with a very solid quarter. And auto sales service levels have rebounded strongly, demonstrating the resilience of the automotive dealership business. As you know, due to provincial government restrictions across Canada to combat the spread of COVID-19, there was an adverse impact on the automotive dealership business during the period from late March to late May, including a significant reduction in new car sales and servicing. During this period, we worked with certain of our tenant partners to provide support through partial rent deferrals as they managed the economic challenges imposed by the pandemic. By the end of May 2020, our tenants were fully open for business. And pent-up consumer demand resulted in a strong rebound in Canadian auto sales and an increase in service work performed by dealerships in Q3. As dealerships resumed their businesses, we saw the industry's ability to adapt to evolving consumer preferences and more immediate consumer concerns regarding COVID-19. Dealerships enhanced their online presence in e-commerce options to facilitate consumer purchasing decisions, and they provided curbside pickup drop off options combined with essential service -- essential vehicle service. These adaptations have allowed dealers to streamline their business, resulting in greater efficiencies and reduced SG&A. After bottoming out in Q2, new vehicle sales in Canada during the third quarter were just 3.9% below Q3 a year ago and auto sales were down just 2.1% year-over-year according to DesRosiers Automotive Consultants. Our solid financial performance in Q3 is attributable to both working closely with the quality tenant partners through a difficult period and the resiliency of their respective businesses. We collected 99% -- sorry, 100% of contractual base rent under our leases in this quarter, excluding 3% of contractual base rent that is subject to rent deferral agreements. And we've collected approximately 94% of our base rent year-to-date 2020, with the remaining amount subject to deferral agreements. These deferred amounts are now starting to be received. Since the inception of the REIT, we have focused on partnering some of Canada's strongest auto dealership groups. The benefits of this strategy are apparent today, as these groups have demonstrated their ability to withstand a period of economic disruption. Our growth and our key performance measures in the quarter demonstrates our strong rent collection levels, the positive impact of our past portfolio expansion and our ongoing contractual rent increases. In comparison to Q3 last year, our property rental revenue grew by 7.4%, cash NOI increased by 10.6% and AFFO was up 15.2%. AFFO per unit in the quarter was down from Q3 of last year due to the closing of our December 2019 offering. This equity raise deleveraged our balance sheet, providing us with strong liquidity position to manage the onset of COVID and the ability to recommence our acquisition program at the right time. A strong indication of the resiliency and confidence in the auto retail business include: the lease renewal until 2026 on one of our tenants in the GTA that was set to expire next year; a new lease for Tesla Service Center in Laval, Québec, effective November 1, 2020. And we've collected 99% of our expected October and November 2020 contractual base rents under the leases, excluding 2% of contractual base rent that is subject to deferral. We're encouraged by these recent developments and believe the economic outlook for our tenants instills continued confidence. I'd now like to turn it over to Andrew Kalra to review our financial results and position in more detail. Andrew?
Thanks, Milton, and good morning, everyone. Property rental revenue in the quarter was $18.6 million, up 7.4% from Q3 last year, reflecting growth from properties acquired during and subsequent to Q3 last year and contractual annual rent increases. Total cash NOI and same-property cash NOI, excluding bad debt expense for the quarter, increased to $15.2 million and $13.9 million, respectively, reflecting increases of 10.6% and 1.2%, respectively, compared to Q3 a year ago. Growth in cash NOI was primarily attributable to acquisitions, while growth in same-property cash NOI primarily reflects contractual rent increases. G&A expenses for the quarter were approximately 6.6% of our cash NOI compared to 5.3% in Q2 last year -- Q3 last year. The increase primarily reflects the internalization of management and operations of the REIT in line with our initial forecast. Net income for the quarter was $4.4 million compared to net income of $1.1 million in Q3 last year. The positive variance was primarily due to an increase in NOI and fair value adjustments for interest rate swaps, investment properties and Class B LP units, DUs and IDUs. The overall capitalization rate applicable to our entire portfolio was 6.9% as at quarter end, unchanged from the end of Q2, reflecting the stabilization of the auto retail business in the quarter. FFO and AFFO for the quarter increased by 13.2% and 15.2%, respectively, compared to Q3 a year ago. This growth was primarily due to properties acquired during and subsequent to Q3 a year ago and contractual rent increases. FFO per unit diluted was $0.231 in the quarter compared to $0.246 in Q3 last year. AFFO per unit diluted was $0.215 compared to $0.224 in Q3 a year ago. The decline in FFO and AFFO per unit in the quarter were primarily attributable to the December 2019 equity offering of 7.9 million units, as noted previously, which deleveraged our balance sheet from a Debt to GBV of 49.6% in Q3 last year to 44.8% as at March 30 this year. Total distributions declared and paid in the quarter totaled $9.6 million, representing an AFFO payout ratio of 93.5%, compared to $8 million in Q3 a year ago, representing an AFFO payout ratio of 89.7%. At quarter end, we had strong liquidity position with a Debt to GBV of 44.8%, $60.6 million of undrawn credit facilities, approximately $400,000 of cash on hand and 9 unencumbered properties with a value of $141.7 million, providing us with additional financial flexibility. We had $399 million outstanding on our credit facilities and mortgages at quarter end, with an effective weighted average rate on debt of 3.77%. We have a well-balanced level of annual maturities, and our weighted average interest rate swap term is 5.2 years. I'd like to turn the call back to Milton for his closing remarks. Thank you.
Great. Thanks, Andrew. The COVID-19 pandemic has had a major impact on vehicle sales in Canada this year. Industry analysts have forecasted that new automotive sales in Canada will decline by approximately 15% to 20% for the full 2020 year compared to 2019, primarily a result of the pandemic. The good news is that auto sales are now rebounding after a particularly difficult period from late March through to late May, as consumers reengaged in their vehicle purchasing and servicing decisions, and dealers are greeting them with more robust e-commerce solutions and enhanced safety measures. Looking ahead, we expect that the remainder of 2020 and into the start of '21, there will be a slower pace of industry consolidation due to the pandemic and related economic uncertainty. We will continue to carefully monitor the impact of COVID-19 on our business and prioritize a strong liquidity position, while selectively evaluating potential acquisitions or development opportunities, focusing on the preferred markets, property location, brand and the financial strength of our dealership operator. We benefit from strong relationships with some of Canada's largest automotive dealership groups. And we believe our current tenant group will be leaders in the future consolidation of the -- of Canada's automotive dealership business, which should present attractive opportunities for us to further strengthen our tenant partnerships and continue to build our portfolio going into '21 and '22. That concludes our remarks. And now I'd like to open the line for questions. Sylvie, please go ahead.
[Operator Instructions] And your first question, sir, will be from Brad Sturges at Raymond James.
Maybe just starting off with the lease renewal. I'm wondering if you can give a little bit more color to the extent you can on the change in rents or the rent spread that you would have generated, and whether the -- I guess over the next 5 years, you would get still annual contractual steps in the rent.
Sure. Previously, it wasn't annual. It was every 5 years. As you know, through most of our portfolio, our preference, and we actually find our tenant's preference, is for annual rent increases. So we were able to achieve that. Certainly, the tenant has been there for 15 years, and the area has -- it's [ path lawn ] has gone through an enormous change. So that property, that brand, that tenant, they're all great. So we were certainly able to achieve an increase to market rates. I would acknowledge that there is significant basement space in it as well. But we had previous discussions with them, put those briefly on hold during COVID, and then certainly got notice late Q3. And we're able to come to an agreement in November with them on the new rates. So they were good to deal with, but certainly, in the moment of COVID, that was not the time to strike because they would have asked for a lower rate, I'm sure. So we're happy with where it ended up, and I think it reflects the current market rates.
Is there any capital -- or CapEx requirements on year-end for the property? Or is it just mainly a change in the rent?
As per the renewal, no. But we -- it's just purely what's the new rent.
Okay. And in terms of the other planned capital spend that you have, what's the time line on deploying that capital? And what's kind of left to do on that end?
I'll let Andrew talk to the amounts. But one thing we are finding across the board is the OEMs have stopped pushing as hard, at least for the moment, on some of these expansions and upgrades. So we're finding that, that's getting pushed out just a little bit. But Andrew, I mean we had one last quarter. And then go on.
Yes. Brad, we've got -- the amounts are not worthy of note from an overall liquidity point of view. But they're out throughout this year and into next year in the range of, let's say, 5 to 10, but nothing significant. And they are anticipated to happen as planned.
A lot of those will get pushed into later next year.
Into next year though, okay. And maybe just more at a high level, what are the OEMs looking for the operators to spend on a capital point of view in terms of requirements? And how could that shift over the next 12 to 24 months?
I think the second part is the question mark. The OEMs have been very supportive because of Q2, but everyone wants to get back to business. And if you look at whether it's AutoCanada, which announced yesterday, or the Penskes, Group 1s of the world in the States, the general comment has been revenues were flat to slightly down. Profit margins per car were up, and SG&A was down, resulting in -- for the most part, they had record profits per share. So OEMS, while they look at them and say, "We want to support you," they'll also look at them and say, "Well, you're hitting record profits." So I would expect that in '21, '22, the capital spend program comes back online. But as you can imagine, where we are with COVID, there's still some uncertainty. So I don't think anyone's pulling that trigger too quickly until they want to kind of understand better that we are through any sort of downside with the COVID-19.
Next question will be from Kyle Stanley at Desjardins.
So in your outlook, you mentioned you expect a slower level of consolidation kind of into year-end and 2021. Can you just maybe elaborate a bit on what you're seeing in the market? And I think in the past, you've always mentioned that banks are typically your biggest competitor when it comes to deal flow. So just maybe, yes, a broad kind of overview of what's going on there.
Sure. Yes. Those are almost 2 different questions. One is the timing that we expect to see some of the consolidation. And as you can imagine, there's a bit of a buy-sell where existing dealers that are potentially thinking of selling. And I think a lot of them got a bit scared last quarter if they're independent -- sorry, 2 quarters ago now, and may actually look at doing it in the near future. But they're saying, "Profits are back, ignore COVID." And buyers are saying, "Yes, our profits are good, but we're still worried about what the implication of the second wave are." So I think everyone will have a lot more visibility over that over the next 3 to 6 months, and that should allow that buy-sell gap to shrink to a level, but we do anticipate seeing some good M&A activity. Kyle, your second question on banks being our biggest competitor. Certainly, interest rates have gone down, which it both helps us on our financing and helps dealers on their financing. But I would also say that the desire to have a bit more equity in the deals will continue as well. And the banks will support the groups they like to support. So I certainly believe that there will be groups that have access and will move ahead, and there's other groups that we'll probably look at potentially selling. Again, going back to why we anticipate some greater consolidation over the next 2 years. But I just think everyone's -- I mean if you look at the reports on what's going on right now with COVID, everyone is just taking a quick moment to see how this unfolds. The good news is the underlying business is doing well and they've been able to adapt. So we don't expect that to have a significant impact as far as lockdowns. But it's -- you can see why dealers on the one side want the top price, and the other ones are like, "Wait a sec. If I'm going to pay top price, I want to make sure that we understand the COVID impact."
Okay. That makes sense. And then I guess maybe when it comes time to putting that capital to work, just thinking about your financing strategy. So would you be looking to use some of the unencumbered property base? Maybe use it as collateral under your facilities. Or would you be looking at securing mortgage debt to kind of have the financing terms changed enough that, that would make more sense?
Mortgage debt was always an option. It removes flexibility and costs more. So in my world, paying more to get less is not appealing. There are certain properties that it makes sense to. And you never know how things ebb and flow as far as which capital source is better for doing the financing. But to your first comments, what we normally do is as opposed to -- because there's a lot of sprints on the acquisitions, as opposed to trying to finance our acquisitions as we are doing due diligence and closing, we tend to like to have previous transactions ready to go for financing. So we'll probably continue that trend. So yes, using some of the unencumbered properties to finance them up to allow us to do the new acquisitions. And we have -- I think I mentioned this last quarter, we have approximately, call it, $150 million worth of acquisitions that we can do that would take us to around 53%.
Okay. Great. And just one last one for me. So this quarter, you realized a $90,000 recovery on the bad debt. Just wondering what your expectations are with how that trends into year-end and then into 2021.
Andrew, do you want to take that?
Yes. Sure. Kyle, we commented that we'd be collecting until 2021. So that bad debt is a direct correlation with AR. Our AR went down approximately $1 million with respect to the rent deferral agreements this quarter. So it should move along that path over the next 6 to 8 months -- 6 to 9 months.
And to make not too fine a point on that, every -- the tenants have been current on their deferral agreements. So the AR is going to go down simultaneously with the bad debt. We're not viewing the bad debt as a deferral that turns an abatement that suddenly disappears. It's just the schedule on when it gets paid back, and it's only right to put some allocation towards bad debt. But we certainly like what we're seeing from our tenants, like what we're seeing from the underlying business, and do anticipate that, that will shrink alongside of the AR, just as Andrew mentioned.
Next question will be from Jonathan Kelcher at TD Securities.
Just going back to Brad's question. I think when you did the acquisition in Vancouver earlier this year, you were -- there was about $20 million that you were going to invest at Acura North. Have you -- first of all, have you invested any of that? And secondly, is that sort of the money you're talking about that will be kind of later next year now it looks like?
I think the $20 million was closer to the full purchase price. The additional drawdown, I don't have it in front of me. Andrew?
I don't have it in front of me, but it was -- yes, that's right. It was probably less than half of the amount.
It was certainly less.
Of the acquisition, yes.
Yes. So no, it would be significantly less than that. And I certainly anticipate that one being later in the year, later in '21.
Okay. Fair enough. And then you, I guess, danced around the question on how much of a bump you're getting at [ the past ] dealership. But this -- here is a different way on that. Like the exhibit showing your average rents, you did include the Tesla in there that just started. Did you also include the bump for the Audi dealership there?
No, no.
No. Because the rent will not commence. The new rent does not commence until the expiration of their existing term, which is at the end of May or June 1, is when the new rent comes into place because it's -- the notice period, the negotiation was now, but it does not commence until mid-next year. So that will not be reflected in those numbers.
Okay. And then I guess last question is, you bumped your -- the cap rate on your portfolio of 30 basis points earlier this year. But you've kind of left it there, and then we're seeing, obviously, very strong results out of the -- out of your tenants. We're seeing low interest rates. What are your thoughts on that going forward?
There was -- certainly, Andrew and I and the trustees have talked about it. We're happy with what we're seeing in the industry. We're happy with what we're seeing as far as rent payment and deferral repayment. One of the comments I made at a previous call was -- I think it was last quarter, was if you have deferrals, then if you're selling the property, being someone who used to sell properties, that has a negative impact, just consumer confidence. That is recovering very strongly. Our only question mark this quarter was what happens going into Q4 and the second wave. So we certainly like everything we're seeing. We just want to make sure that, that continues. So we're very confident in saying that the cap rate should not go higher. And certainly, as we move through the uncertainty, we're going to have to take a look at that again because the deferrals will be going down and the tenants are doing well.
Okay. Did you get any properties appraised this quarter?
We did.
We did. So we do 1/3 a year approximately, and we always do that in Q3. So we had approximately 1/3 of our portfolio done.
And we take that into our -- into consideration as part of our valuation and as a support for our numbers as well.
And just a little clarity on that, we tend to choose that portfolio to allow all regions. So it is a very strong indicator.
Okay. So you got a third of your portfolio just appraised in Q3, and it supported the 6.9% cap rate?
Overall, yes. That's correct.
Your next question will be from Himanshu Gupta at Scotiabank.
Just staying on the valuation subject. I mean on the IFRS valuation, cap rate was unchanged in Q3, but you have increased by 30 basis points in the year so far. Do you think it was a bit conservative on your part? I mean although not many transactions has happened, but do you think cap rates have expanded that much?
Yes. I mean that kind of goes back to -- part of that was Alberta. Part of it was the concern over COVID. Part of it was providing deferrals, which are getting paid back now. I certainly think at the time, it was the right thing to do. I certainly believe it's those headwinds become tailwinds that has to be relooked at.
Okay. And then you mentioned about something to do with the rent deferrals as well. So now that [ your -- second wave is back ], have you received any new request from the dealers to defer rents?
We have not received any new requests.
Okay. And that $3.1 million which is yet to be received, I mean does everything pertain to Q2? Or is there something which relates to Q3 rents as well?
I think -- Andrew, go ahead.
Yes. No, that all relates to the original deferral agreements which were originated in Q2.
They're originated in Q2, but they all had -- each one of them were slightly different. In total, they tend to be similar. But some of them wanted less for longer and some of them wanted more for shorter. So the -- what we've said before is the deferral portion is all in '20 and payments is in '20 and '21 -- or sorry, repayment is in '20 and '21.
Okay. And I'm assuming another bulk will be received by the end of '21, something like that?
We're anticipating 100% of it's received by the end of '21.
Got you. Okay. And then just turning on the early lease renewal in one property. And my question is also related to the rent bump. So the original lease was around 15 years ago, and land pricing has gone up significantly in one area. I mean do you think the current market rent should have had a material increase over the -- on what was recently done?
Sorry. It should have had a what increase?
I mean the market rents today must have been -- have a significant increase over the rents which were originally paid 15 years ago.
Well, I guess 2 things. A, the rents increased every 5 years. So it hasn't been flat for 15 years. But yes, I mean, certainly, Vaughan itself has done extremely well. And its market rents for auto dealership properties, which have also increased from 15 years ago. So I think we're satisfied on what we're able to achieve in that renewal process.
Got you. So maybe my question was more like -- I mean I know there must have been the rental steps after every 5 years. But the market rents could have outperformed the inflation adjustments that you guys must have done over the last 15 years. That was my question.
Well, certainly, the land out there have performed CPI.
Got you. Okay.
So yes, I mean I can't get into too much details, but certainly, we understand that. We like that land. We like the brand. We like the dealer. And that market has done extremely well. So they understand that. We understand that. We're able to come to an agreement.
Got it. And then the renewal was run for 5 years. I mean do you think -- typically dealerships, they prefer to look for much longer lease term on lease renewals? And as well, was there a reason that it was not done for much longer time then?
They have renewal rights of -- at 5-year increments. So they have 2 times 5, and this was the first of the 2. And that's very typical at the end of a lease, that the renewal rights are for 5-year increments.
And we disclosed that as well. We said the renewal rights in our disclosure. But just pointing that out.
Yes.
And maybe just a last question, on the Tesla Service Center, how long is the lease term there?
We talk about it being long term. We have not announced and with intent. We have to get permission from Tesla to announce or so -- to be able to talk about that it was them once they got up and going. So they are sensitive, and therefore, we are sensitive. All we can say is that it's long term.
Okay. And can you remind me if that was a new build property? Or was it like an existing dealership property there?
Kind of neither. It was -- well, I guess it was a dealership. It was a used car facility. That was a 2-storey used car, a significant size. The Tesla facility is -- they're never called dealerships. If you go into their website, they're always called service, showroom and delivery. This is a very large commitment because they like the property. It was actually brought to us to help facilitate. So it was not a traditional dealership. And this is -- a significant amount of it is logistics and service -- or delivery and services, what they prefer to call it.
Got it. Okay. And maybe just a last one, I'm staying with Tesla. Do you think it could be like a building of a relationship? I mean do you see doing more dealerships, as you said, service centers with Tesla in your core markets in the future?
Very hard to predict. I can say it's easier to do a second deal after you've done a first. And now that we've done 2, it's easier to do a third deal after you've done 2. So we certainly enjoy good communication and a good relationship with them. And they are a company that continues to do well and expand.
Right. And is the business model very different for Tesla compared to your other OEMs like Honda or BMW, for example?
I kind of smile because that's one thing that Tesla loves telling us is, "Don't you dare talk about our business model," so I won't. But they certainly -- there's enough press out there. It is direct-to-consumer. The Tesla model is not a mystery. You can probably ask anyone but me.
Next question will be from Matt Logan at RBC Capital Markets.
Milton, when we think about your organic growth for 2021, how should we think about the impact of some of the portfolio changes, let's call it, relative to where it was in 2020 trending at around 1.2%? Like will that be unchanged or could that be up 20 basis points, 30 basis points or perhaps more?
Well, I mean the 2 things that we've just been talking about on the renewal, that created value. Higher rents, longer term, it's nice to see that was one of our near-term abilities to grow some NAV. And then because of the opportunity that was brought to us with the facility in Laval to buy it vacant and then to secure a long-term lease with Tesla, we believe that creates some NAV as well. So that certainly helps. Some of that has to be Q4. Some of that will be kind of rental increases that can occur, as I mentioned, on the renewal in '21. Outside of that, it will be -- I mean that's the good news about our portfolio is there's a lot of visibility, and we've talked about it being between 1.2% and 1.4%, is our traditional increase on the same-property NOI. Andrew, is that fair?
That's fair. That's fair comments.
That's great. And in terms of your acquisition opportunities, are there any preferred brands or geographies that you'd like to focus on? And have you heard or had any feedback from potential vendors on their views for changes in the capital gains?
Yes. Capital gains is an interesting one. We certainly, as a trust, have the ability to. And as we've grown larger, there's more liquidity and more comfort in the discussions we've had with potential vendors. If you're taking cash and profit, you're worried about the potential capital gains increase -- or decrease, I should say. And the flip side is once that capital gains goes to 75%, 100%, whatever Trudeau chooses, the value of taking the -- some of your profits and/or income recapture in units goes up. So we're kind of looking at it both ways. One is if they're going to sell it for cash, they should do it sooner than later. The other one is if they're going to take back units, it will probably be -- even be better as we go forward, assuming Trudeau actually does change the capital gains rates, which everyone's got their opinion, but everyone seems to be in concert that, that may occur. We tend to more deal with the acquirers as they are doing M&A as opposed to dealers that are just selling. So that discussion, obviously, is a bit different. But that didn't answer your full question, which part did I just miss?
No. I think that was good color, Milton. It was really just on if there was any area of focus specifically, but if it's with the consolidation as a whole, that's fine.
It is. And certainly, we have preference in brands. We always look at things -- the dirt first. So there's certainly regions, and there's certainly properties within those regions we have as a higher priority. And then it is the dealership group, what's our covenant and then it is brand. But we look at all 3 of those areas to decide, is this something that we are interested in and how much are we willing to acquire it for.
And last question for me. Maybe just following up on some of Himanshu's questioning with regards to the electric opportunity. Do you see the potential for more electric dealerships in general, whether it's with Tesla or other new electric brands? Could we see more infrastructure deals for, say, electric charging or auto logistics through delivery?
I'm a strong believer in the second, not as much in the first. Charging stations for the most part are going to be, I think, significant amount of smaller. So that's very tough, and it tends to be a small portion on an existing facility. So -- I mean similar to shopping centers, you'll get a charging station there. So I think that infrastructure will roll out. We've scratched our head on how to play in that. But not -- I don't know if I'm a full believer in us having the ability to do that in any sort of significant way and in the same sort of land holdings that we like. Yet the other side of that equation is, if you're talking about whether it's electric or just the dealership business overall, what you're seeing is a tendency towards smaller showrooms, larger service and greater compounds and logistics. So we like the idea of all 3 of those. Certainly, we think there's going to be some potential off-site because real estate is getting expensive on the major arteries, service, a bit more industrial-like, certainly like that. And same with the logistics. I mean that's part of what you're looking at with Tesla. They have a showroom, but it is a lot of delivery and it's a lot of logistics as far -- sorry, a lot of service. We expect to see more of that in the future. That's both electric and ICE. But with new brands coming in and potentially some direct-to-consumer, then that certainly may allow us some greater opportunity as well. And we're tracking that and certainly would not be opposed to doing more of it.
Next question will be from Joanne Chen at BMO Capital Markets.
Most of my questions have been answered. But maybe just going back, circling back to the cap rate and the acquisition environment. Have you seen -- I know you said -- mentioned that the activity has obviously slowed down. But have you noticed any transactions post Q3? And whether, if any, the cap rate is kind of similar to what you guys have recorded at the end of Q3?
There was -- most of the transactions we've seen are direct dealers acquiring properties. As they buy the dealerships, they would not have cap rates attached to them. There was one trade that I think is public that was in Mississauga. But just in case it's not public, I shouldn't talk about it. That was at a lower cap rate as it was a low price per acre. So there's not that much market evidence. We tend to be the group at the table when it is a yield-type sale leaseback or transaction of that type.
Okay. And maybe one just on the acquisitions front. You did mention you do have about $150 million of capacity, I know that's still depending on how the environment unfolds. But in terms of driving, do you think this is the next kind of the '20 -- later 2021, 2022, kind of where you guys will get there? Or...
It's tough to say because I would say that there's a pent-up that has occurred from '20. So how quickly that kind of opens up is a question mark. And partly on that question mark is a question mark beyond dealerships which is, when do people get comfortable on the transparency surrounding COVID. I've always said and I always joke that I never give targets because I will miss them. I'll either exceed them or it will be a bit later. I'll get a higher cap rate or it will be a bit later, like -- or earlier. So yes, we don't normally give guidance on that, and especially at a time like this. We certainly believe that there's going to be pent-up, it's just when that opens up is the question mark. And at the same time, when we feel the high level of comfort on that.
Okay. Got it. And maybe just I'll switch gears, last one for me is, have you had any commentary from the dealers in terms of how the traffic has been post Q3, kind of in the November -- October, November time frame now that we're in...
Sure. And I think if you look at some of the -- or hear some of the dealership scripts from either the public companies in the states or AutoCanada in Canada and certainly in my conversations directly with other dealer groups, the comment is traffic is -- the groups that come -- or individuals that come now come to buy a car. So there is less kind of foot traffic just to kind of look around and sit in the car because you can't just come around and sit in a car. So their sales percentage is way higher. Their profit margins on the individual cars, both used and new, are higher. And because of the efficiencies that they're putting in with technology and the layoffs that occurred, which they've only hired back 80% to 90% of those employees, SG&A are lower. So higher margins and lower SG&A, even with flat to slightly lower revenue, a lot of the groups in the states and I think AutoCanada just came up with a very good release, are hitting very high to record profits.
Right. Okay. Now that makes sense.
But yes, I mean that's the thing on the COVID side, which is -- it's not like a shopping mall. People don't go to a dealership just to mill around. Especially in today's world, they go there for a specific purpose. It's to go drop off the car curbside, get it serviced and pick it up. They almost don't go into the dealership. Or it's to acquire a car that they've done the research in advance and have set up an appointment, they go in and get it done.
[Operator Instructions] And at this time, Mr. Lamb, we have no other questions registered, sir.
That's great. Thank you, everyone, for joining us today. We look forward to speaking to you again soon. All the best.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have a good weekend.