Automotive Properties Real Estate Investment Trust

TSX:APR.UN

Earnings Call Analysis

Strong Growth and Strategic Acquisitions Drive Positive Outlook.

In the latest quarter, property rental revenue reached $23.5 million, up 0.7% year-over-year, while cash NOI rose by 2.4%. The company recently completed the $54 million sale of the Kennedy Lands, achieving a 79% premium over its IFRS value. Post-sale, plans for reinvestment include acquiring heavy construction and automotive properties totaling around $43 million to enhance geographic diversification and strengthen AFFO growth. The anticipated special distribution for unitholders in December reflects increased taxable income. Debt remains manageable at a 4.31% interest rate, and 94% is fixed, providing stability amidst fluctuating economic conditions.

Strong Revenue Growth Amid Challenging Environment

In the latest earnings call for Automotive Properties REIT, the company reported property rental revenue for Q3 totaling $23.5 million, reflecting a modest 0.7% increase year-over-year. This growth is attributed to both contractual rent increases and properties acquired in the previous year, illustrating the REIT's ability to generate consistent revenue in a competitive landscape. Notably, cash net operating income (NOI) was up by 2.4%, showcasing operational efficiency despite increasing interest rates that slightly pressured expenses.

Impacts from Kennedy Land Sale

A significant highlight of the quarter was the successful sale of the Kennedy Lands for $54 million, a remarkable 79% premium over its IFRS value at the time of the agreement. This sale showcases the REIT's capability to unlock hidden value within its assets. The proceeds from the sale are being strategically reinvested to drive anticipated growth in Adjusted Funds From Operations (AFFO) per unit in 2025, positioning the REIT for a prosperous future.

Financial Metrics: Reflecting Stability and Growth Potential

Despite a decrease in net income to $1.8 million from the prior year's $28.3 million due to noncash fair value adjustments, the REIT showcased a stable AFFO increase of 1.7%. The AFFO payout ratio decreased to 86.3%, down from 87.4% a year earlier, indicating a slight improvement in cash retention. The company maintained a cap rate of 6.67% for the portfolio at quarter-end, reflecting a conservative and stable investment strategy in an evolving market.

Debt Management and Financial Flexibility

The REIT has taken steps to strengthen its financial position, amending its credit facility to extend its maturity from January 2025 to January 2028 and increasing its capacity from $15 million to $20 million. As of September 30, the REIT holds $526 million in outstanding debt with a weighted average interest rate of 4.31%, providing a solid structure to navigate the financial environment. Additionally, with 94% of its debt fixed, the REIT minimizes exposure to potential interest rate hikes, ensuring stability.

Strategic Acquisitions to Broaden Portfolio

The company has ventured into securing two heavy construction dealership properties in the Greater Montreal area and a Rivian-tenanted automotive property in Tampa, Florida. The acquisitions, valued at approximately CAD 25.4 million and USD 13.5 million respectively, are integrated into a strategic push for geographical and sectoral diversification. These properties bolster the REIT's exposure to essential services and the burgeoning electric vehicle market while enhancing tenant quality and geographical reach.

Future Outlook: Growth Plans Remain Encouraging

Looking ahead, the REIT is optimistic about ongoing growth fueled by its diversified portfolio and targeted acquisitions. The focus on 36% of leases with CPI-linked escalations positions the REIT well against inflationary pressures. Furthermore, a special distribution linked to the Kennedy Land sale is expected to bolster unitholder returns. The REIT plans to maintain a balanced strategy to enhance tenant and geographic diversification, aiming for sustained AFFO growth.

Navigating Market Challenges with Resilience

As the market presents both challenges and opportunities, the REIT is keen on adapting through strategic planning and effective capitalization on market dynamics. The leadership is focused on assessing opportunities for acquisitions, especially in high-growth U.S. metropolitan markets, while carefully balancing the portfolio to mitigate risks associated with economic fluctuations and interest rates.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Automotive Properties REIT 2024 Third Quarter Results Conference Call and Webcast. [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 related 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 standardize meanings under IFRS. Please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures.

Also note that this call is being recorded on November 14, 2024.

I would now like to turn the conference over to Mr. Milton Lamb. Please go ahead, sir.

[Milton Lamb, executive]

That's great. Thank you, Sylvia. Good morning, everyone, and thank you for joining us today. With me on the call is Andrew Kalra, our Chief Financial Officer.

We generated continued solid financial performance in the quarter, reflecting growth from contractual rent increases and acquisitions we completed last year. Compared to Q3 a year ago, property rental revenue has increased by 0.07%, cash NOI was up 2.4%, same property cash NOI has increased by 2.2% and AFFO per unit on a diluted basis increased by $0.233 from $0.23.

Our portfolio continues to perform well, supported by our net lease structure that includes either fixed or CPI-linked annual rent escalations. Leases with CPI-related adjustments currently represents 36% of our base rent.

Subsequent to quarter end on October 1, we closed on the sale of the Kennedy Lands for $54 million, representing a 79% premium above IFRS value of the property at the time of the agreement and represents approximately 3.36% capitalization rate based on the projected contractual base rent payable for the 12 months ending September 30 of next year.

This demonstrates our ability to unlock value underlying our urban land. We move quickly to redeploy these sale proceeds to position the REIT for accretive growth in AFFO per unit in 2025.

On October 15, we funded a $7.1 million dealership facility expansion at our McNaught dealership property in Winnipeg that added a standalone Cadillac building with more than 13,000 feet of gross leasable area, resulting in annual rent increases, which is based on CPI.

The tenant has exercised an early lease renewal and extended the duration of the existing lease, as mentioned, with CPI increases until 2043. We funded the expansion with cash using part of the proceeds from the Kennedy Land sale.

And on October 31, we entered into a separate agreement to acquire 2 heavy construction equipment dealership properties located in the Greater Montreal area for a purchase price of approximately $25.4 million and a Rivian-tenanted automotive property in Tampa, Florida for a purchase price of approximately USD 13.5 million or approximately CAD 18.8 million.

The Greater Montreal properties consist of a 31,000 square foot Brandt Tractor Ltd. facility on John -- sorry, with John Deere heavy construction equipment dealership that is situated on 6.6 acres of land in Brossard, Quebec and a 28,000 square foot Strongco heavy equipment dealership situated on 5.1 acres of land in Boucherville.

The triple net lease on the Brandt Tractor heavy construction equipment dealership facility is a midterm lease, and it includes contractual biannual rent increases. Brandt Tractor is one of the world's largest John Deere construction and forestry dealers and a division of the Brandt Group of Companies, which serves customers across a broad range of industries in Canada, U.S., Australia and New Zealand.

The Strongco heavy equipment construction dealership is tenanted pursuant to a midterm lease, which includes contractual annual fixed rate increases. Strongco is owned by Nors, which sells, rents and services heavy equipment dealerships in 16 countries around the world. We expect to close the acquisition for the Greater Montreal properties by December, subject to customary closing conditions.

The Tampa property consists of a sales, delivery and service facility tenanted by Rivian LLC, which recently completed a major renovation of facility under a long lease. This net lease includes contractual fixed rent, annual increases and renewal options. Rivian is a leading American developer and manufacturer of electric vehicles and accessories listed on the NASDAQ with a market cap of more than USD 10 billion. We expect to close the Tampa property acquisition in the first quarter of 2025, subject to customary closing conditions. We expect to fund both acquisitions with draws on our revolving credit facilities and cash on hand.

Our acquisition of these 2 heavy equipment dealership properties in Greater Montreal will mark our entry into new adjacent industry vertical that has similar characteristics to retail automotive dealerships, including sales and service for infrastructure and major construction industry, thereby maintaining our focus on essential business.

Our acquisition of the Tampa property will mark our targeted entry into the U.S. market and increase our exposure to the EV sales and service market in North America. Upon closing, these acquisitions will enhance the tenant and geographic diversification within metro markets of our portfolio and expected to drive AFFO growth per unit.

We're pleased with the progress we've made untapping significant value from our Kennedy Land sale and then recycling capital into new opportunities to drive further growth and value creation for our unitholders.

I'd now like to turn it over to Andrew Kalra to review our third quarter results and financial position in more detail. Andrew?

[Andrew Kalra, executive]

Thanks, Milton, and good morning, everyone.

Our property rental revenue for the quarter totaled $23.5 million, a 0.7% increase from Q3 a year ago, reflecting growth from property acquired in Q2 last year and contractual annual rent increases.

Total cash NOI and same-property cash NOI for the quarter totaled $19.9 million and $19.7 million, respectively, representing increases of 2.4% and 2.2% compared to Q3 a year ago.

Interest expense and other financing charges for the quarter were $6.5 million, an increase of approximately $0.2 million from Q3 a year ago, reflecting additional debt incurred to acquire properties last year and a slightly higher weighted average interest rate. Our G&A expenses of approximately $1.4 million were similar to Q3 last year.

Net income was $1.8 million compared to $28.3 million in Q3 a year ago. The decrease was primarily due to changes in noncash fair value adjustments for interest rate swaps, unit-based compensation, partially offset by changes in fair value adjustments for investment properties and properties held for sale, including the $23.8 million fair value gain as a result of entering into the Kennedy Land sale agreement.

FFO decreased by 0.4% compared to Q3 last year due to higher interest expense, a reduction in straight-line rent adjustment, partially offset by higher rental revenue.

AFFO increased by 1.7% compared to Q3 a year ago, reflecting the impact of the property acquired during Q2 last year and contractual rent increases, partially offset by higher interest costs.

We paid total distributions of $9.87 million or $0.201 per unit in the quarter, representing an AFFO payout ratio of 86.3%, down from 87.4% in Q3 last year.

The cap rate applicable to our portfolio was 6.67% at quarter end, up slightly from 6.59% in -- at 2023 year-end. The increase in cap rate was partially due to marginal increase in the overall portfolio cap rates and the classification of the Kennedy Lands property as an investment property held for sale.

During the quarter, we amended and extended our credit facility 2 from January 2025 to January 2028. Our capacity under the revolving portion of facility 2 was increased from $15 million to $20 million.

At quarter end, we had $526 million of outstanding debt with an effective weighted average interest rate of 4.31%. Our debt to GBV ratio as at September 30 was 43.7%.

We continue to have minimal exposure to floating or short-term interest rates with 94% of our debt fixed through interest rate swaps and mortgages as at September 30, 2024.

We have a well-balanced level of annual maturities with a weighted average interest swap term and mortgages remaining of 4.1 years and a weighted average turn to maturity of debt of 2.6 years.

We currently have approximately $90 million of undrawn capacity under our credit facilities, cash on hand of approximately $18 million and 1 unencumbered property valued at $18.3 million, which positions us well to close our recently announced and future acquisitions.

I'd like to turn the call back to Milton for closing remarks. Thank you very much.

[Milton Lamb, executive]

Thanks, Andrew. It's been an active period for us over the last few months. All in all, the transactions that we have advanced over the last few months demonstrate what we strongly believe that our portfolio and strategy provides us with the ability to take advantage of opportunities to unlock embedded value for unitholders, which in turn opens up additional financial flexibility to further add to our portfolio and continue the value generation cycle.

We expect to declare a special distribution to our unitholders in December as a result of the increase in taxable income generated on the closing of the Kennedy Land sale.

We expect that the special distribution to our unitholders will be paid primarily in the issuance of REIT units.

Looking ahead, we are well positioned to continue generating ongoing growth in support of unitholder distributions with a portfolio featuring essential retail and service properties located in prime urban markets, high-quality tenants, attractive single-tenant net lease structure and embedded fixed or CPI adjusted rental growth.

Upon closing, the Greater Montreal and Tampa property acquisitions will further strengthen our portfolio while broadening our market presence and pipeline of opportunities.

That concludes our remarks today. And I'd like to now open the lines for questions. Sylvia, please go ahead.

[Operator]

[Operator Instructions] And first, we will hear from Jonathan Kelcher at TD Cowen.

[Jonathan Kelcher, analyst]

First, the U.S. opportunity, can you maybe expand a little bit on that? What markets are you looking at? And how big do you see it getting as part of your portfolio over the next 2 to 3 years?

[Milton Lamb, executive]

Yes. The short answer is we've always liked metropolitan markets that demonstrate underlying population and GDP growth, and Tampa certainly hits that very well. This specific property is also on a location that some of the underlying mid- to high-density features that we really like.

Certainly, Rivian, we think, is going to be one of the winners in this EV cycle, especially with Trump or the U.S. overall doing the tariffs and circling around some of their preferred U.S. companies.

But as far as markets go, it is in the States 10:1 population, 10:1 industries, far more markets that have depth and growth. So that does leave us a bit more of a runway -- a lot more of a runway.

We certainly like that Southeast, but there's other growth markets within the U.S. that we would look at. But I would say that doesn't mean that we're going to land in just sprint. We've got to look at interest rates, currency opportunities, our portfolio balance. And we're still liking what we're seeing and expecting to see in the Canadian market.

[Jonathan Kelcher, analyst]

Okay. So no real target in terms of the percentage of NOI that -- is there a limit? Or how are you thinking about that?

[Milton Lamb, executive]

I don't think there's a set limit. We do certainly look at diversification, both by tenant and by geography. And so certainly, this adds the ability to look at more diversification.

But we do like the fact we have access to more public companies in the States and, as I mentioned, more metropolitan markets that are experiencing that underlying growth.

So it's more of a viewpoint on diversification and making sure we're not overweighted. Beyond that, we are looking at what are the specific opportunities.

You know that we've always looked at the dirt first and then up to the tenants and then, finally, the financial structure. So we will still be doing the similar underwriting that we would have done in Canada, just with more markets and more high-quality talents.

[Operator]

Next question will be from Lorne Kalmar at Desjardins.

[Lorne Kalmar, analyst]

I was just wondering if you could maybe give a little bit more context on the vendors of both the Rivian and heavy machinery dealerships. And then do you see -- what do you see as the opportunity set for the heavy machinery dealerships in Canada and, I guess, possibly the U.S.?

[Milton Lamb, executive]

Yes. One of them, the Greater Montreal is an institutional owner that recently completed a renewal. And so it was timely to get a call to do something off market.

And then the second one was a developer that acquired the property and put Rivian in place. And we're seeing a lot more in the States where you will see more activity where there is the buy vacant, ramp-up and then sell.

There's just a lot more velocity in the States. A lot more people trade, whether it's 1031s or just the system they have there. So that's giving us some good opportunities.

You can imagine the Teslas and the Rivians of the world that are starting to create footprints in -- or expand their footprints in North America. We've had good success in Tesla in Canada, so we think more of that will occur.

And then on your second question with regards to heavy equipment, that industry is just -- it's a nice bell weather. You've got the retail consumer-based auto that certainly is -- everyone focuses on new car sales. But as we've talked about before, a lot of the bread and butter is on the service side.

On the infrastructure heavy equipment, it's infrastructure, especially in the Montreal market, but markets across North America. There's a lot of infrastructure maintenance and new infrastructure going in place. That is a very strong baseline market in infrastructure that we like, along with the retail side.

There's a smaller number of brands. And certainly, the 2 groups that we have at the table right now are very strong in what they do and own a significant number. I would say in each of the major markets, you've got 1 or 2 of each of the large brands.

What we have said before, and this is demonstrated on this acquisition, is we like heavy equipment, we like trucking, but we still focus on metropolitan markets. So if this was in a rural tertiary market, it probably wouldn't be hitting our radar screen. If this was in a Montreal, Vaughan, et cetera, certainly makes a lot of sense. These properties have 5 to 6 acres of land with a small building on it, a large lot that really goes to the core of our strategy from day 1.

[Operator]

Next question will be from Frank Liu of BMO.

[Frank Liu, analyst]

Just looking at the expansion project at McNaught in Winnipeg, when do you expect the product to be complete? And what kind of the return threshold on this project?

[Milton Lamb, executive]

Sure. It already has been completed. And so it was more, I don't want to say reimbursing, but it's funding after the fact once we've got all the appropriate sign-offs. So that's completed, and it was commencing October 15. So that's done.

And the returns, you can imagine what we bought it for. There's a bit of a spread because it's in existing properties. You're not buying land as well. You're just funding new construction, but it is a new building on the property.

So I would say we've always talked about 6.5% to 7.5% being the range that we tend to be able to do new deals on. So a bit of a premium to that, but nothing -- it's a long-term lease at 2043.

[Frank Liu, analyst]

Right. Got it. Just in terms of acquisition trajectory, definitely, you guys entered to 2 new areas, a new geography and heavy construction dealership world. Do you see opportunities in your core -- I don't want to call it core, but your automotive properties in Canada? Like has the -- has the dynamic changed over time? Or are you guys do underwriting tons of deals?

[Milton Lamb, executive]

No. The dynamic has slightly changed in the fact that we believe there's a bit of momentum that's building on this on the Canadian dealership side that we'll see more M&A or more opportunities for APR to do for their acquisitions.

I think I've mentioned that over the last couple of calls that I'm looking forward to the next 6 to 18 months, 6 to 24 months on our opportunity set. So this was taking advantage of opportunities that we have kind of been watching as opposed to kind of looking for opportunities because we don't like our baseline kind of our bread and butter of the Canadian dealership world.

We like what we're seeing on both sides of the ledger on that. So yes, I would not look at this as redirecting. I would look at this as going adjacent to our core strategy, which we think there's some good opportunity coming up over the next 18 to 24 months.

[Operator]

Next question will be from Sairam Srinivas at Cormark Securities.

[Sairam Srinivas, analyst]

Just following up on Frank's question. When you look at the acquisition market down in the U.S. and maybe even the heavy equipment market, when you see the rest of the players on the table who are competing for these businesses, how does that compare and contrast to your traditional acquisition model?

[Milton Lamb, executive]

It's -- it would more compare than contrast. You're still looking at a lot of either large dealership groups or you're looking at some of the OEMs. In both cases, whether it's brand, whether it's Nors through Strongco or whether it's through Rivian, you've got multiple locations, what we believe are very strong covenants in major urban markets.

So in that case, it's a bit of a, "Wait a sec. We've seen that, done that. We know we're good at it. We like it." So we're just adding some more breadth to it.

Certainly, adding the States, there's a huge number of significant markets in the States compared to the large -- compared to large markets in Canada.

And we think there's a natural kind of addition on that heavy equipment. As mentioned, I love small buildings on very large lots on metro locations, urban locations. So that's a bit of a understand it, like it and the added diversification of adding some infrastructure, I think that's just a good thing.

[Sairam Srinivas, analyst]

That's good color, Milton. And maybe just, obviously, in the traditional APR model of dealership model, OEMs play this crucial role of actually even improving dealership's growth. Is that something very similar that plays out on the heavy equipment or the U.S. as well?

[Milton Lamb, executive]

It's very similar. They've got sales and service; and b, you are seeing consolidation. A number of them do like to own their own real estate, and other ones will have -- be public or have private companies that don't mind leasing. .

So it's -- I don't know the exact numbers between the 2, but you're certainly looking at both levels of: a, opportunity; and b, desire for some tenants to own their own real estate -- sorry, operators to own their own real estate. So it's a bit of a mix of both.

[Sairam Srinivas, analyst]

All right. And maybe my last question on essentially how you see the acquisition market down in the U.S. changing, especially with rates coming down. When you do enter a new market, is there any scale value that you guys need to kind of actually ramp up to before you're actually saying, "Okay. Let's look at a new market?" Or is it more -- are you guys pretty scalable as a platform on that side?

[Milton Lamb, executive]

I think as, in some cases, you're looking at new markets, we have to -- we like to understand the zoning and the kind of economic population dynamics within them, certainly familiar with the Canadian markets.

But it's important to remember where single-tenant net lease low, low touch points. So it's not that we have the property management arms, the operating requirements in those markets. We're extremely scalable. People like doing deals with us, and they're not hearing from us or not calling us until it's time to do a renewal.

So in that regard, it's not that you need the local expertise once you've done the initial underwriting. But doing the initial underwriting, yes, we like to roll our sleeves up and understand what we're getting into.

[Operator]

Next question will be from David Pierse at Raymond James.

[David Pierse, analyst]

David on for Brad here. You mentioned tenant diversification a few times. both the announced deals are outside, call it, legacy IC or OEM space.

You have some tested dealerships in the portfolio already. Do you have a specific tenant mix in mind that you'd like to get to over time in terms of, let's say, legacy auto OEM exposure versus new verticals, EV? Or is it just on a case-by-case basis at the moment?

[Milton Lamb, executive]

I would say 2 things. One is dirt and the market tends to come first. And then the second is the tenancy. And we certainly believe that the EV world, whether it's legacy OEMs or new OEMs like Rivian and Tesla will continue to ramp up, and that's a good thing.

The model for dealers, they tend to like to own their own real estate, and larger groups will have a bit of a mix of leased and owned, whereby a lot of the OEMs that are doing direct-to-consumer sales and service, they like to be tenants.

So I don't know what the split is between the 2, but we're seeing opportunities on both sides of that ledger. And as far as our mix, it's as much going to be a geographic diversification. We like to see diversification amongst our major tenant groups.

On the dealership side, that tends to be -- you know that we like multiple brands and multiple location covenants behind to indemnification. Certainly with OEMs, you've got one brand, but you have huge market cap companies with that.

So we certainly watch the balance. But at the same time, we want real estate we get interested and excited about. And then we layer in kind of the diversification in behind it. And we expect to continue to be able to do that.

[David Pierse, analyst]

And just on the time of property you're acquiring, it looks to be a well-located site close to the airport. Is there a longer-term density opportunity there somewhere down the road?

[Milton Lamb, executive]

Certainly, Rivian has a long-term lease. But if you look very close to it, there is a large-scale development with high-density res, hotels, high-quality retail, high-density office.

This is on a major artery. That artery has strong zoning. So we like it both on the income. And at some point, we'll like it for more than just the income. But we believe, if you look at the announcement a couple of days ago with BW and Rivian, this is a pretty interesting group.

So we certainly -- as you know, when we have underwritten other assets, we kind of look at it through the lenses. One is the dirt is dirt and one as an income stream. This one made us feel pretty good on both levels.

[Operator]

[Operator Instructions] Next question will be from Himanshu Gupta at Scotiabank.

[Himanshu Gupta, analyst]

So just on the U.S. strategy here. Is mortgage level debt available on these U.S. auto dealerships? And what kind of debt financing rates or availability is there?

[Milton Lamb, executive]

Right now, you've got a bit of a gapping.

Andrew, do you want to talk about it?

[Andrew Kalra, executive]

Yes. We've got a bit of a gapping right now with U.S. rates higher than Canadian. For this particular acquisition, we're going to use our existing credit facilities and convert over and look to use those for this one. And then we'll see how we play out to the next ones. That's the overall structure on this one, though.

[Milton Lamb, executive]

You know that we like flexibility. And then certainly, with this one, as Andrew just mentioned, we've got the flexibility upfront.

It will be interesting to see what happens. And I think everyone is scratching their head right now. The difference between Canadian momentum on interest rate cuts versus U.S. momentum on interest rate cuts. So we think there's going to be some very good opportunities in the States, but we got to weigh them on cost of financing and where is the best source of our financing.

[Andrew Kalra, executive]

And with Canadian, just to add a bit more color, you're seeing 30-day core rates pretty much similar or slightly 30 to 40 basis points higher than the 3 and all the way up to 7-year money. So a unique time, we're floating, and short-term rates are pretty close to long-term rates are getting close.

[Himanshu Gupta, analyst]

Okay. Would cap rates be higher in U.S. markets compared to Canada on auto dealerships?

[Milton Lamb, executive]

Across the board, we've seen ones -- in the States, there's more groups that are playing in that acquisition mode than we would see in Canada. We've seen some cap rates that are very thin in the U.S., and we passed on them.

So the good news is there's more opportunity in the States, but that also means more bidders, and there's going to be ones that we will not stretch to hit or ones that we just outright reject. But I would say where we're targeting, it's similar to what we would want to see in Canada.

[Himanshu Gupta, analyst]

Got it. Okay. So kind of similar cap rate, but it will be on product.

[Milton Lamb, executive]

We've seen 4.5 to 5.5 in the U.S. We just haven't played in that world for good reason, what we believe is good reason.

[Himanshu Gupta, analyst]

Got it. Okay. And then -- and on the same discussion, escalators, back home, you had 1% to 2% kind of there. On this property, what is the rent escalator do you have?

[Milton Lamb, executive]

Overall, they're higher than that 1% to 2%. Each one of them is slightly different. But you're looking at -- some of them are 3% or 4%. Other ones are biannual.

It's interesting that the CPI over the last 3 or 4 years was the way to go. Some of these rent escalations, as just mentioned, are probably ahead of what projections are on CPI. So it's good to get a mix.

We still don't love flat rents for obvious reasons and need to get paid for flat rents in many ways upfront. So we still focus on those escalators, but we kind of like some of the ones that have that 2.5% to 4% fixed and, at the same time, like the protection on potential inflation over the next 5, 10, 15 years that CPI provides.

So it's important to get a balance. But at the same time, we don't love straight out flat rents for obvious reasons. We like to see some embedded same-property NOI growth.

[Operator]

Next question will be from Zachary Zervos at CIBC World Markets.

[Zachary Zervos, analyst]

Just had a quick question, pending the sale of Kennedy Lands. So I was just curious if you've seen more interest from other third-party tenants some of your assets you want to go down to rezoning road as well or if this was just a one-off occurrence.

[Milton Lamb, executive]

I don't think it's a one-off occurrence. But I also don't believe that it is, oh, way to sec there's an opportunity here for high density. I think all of our dealers are very attuned to what's happening around them and tend to be very smart business people.

So it tends to be really an alignment of, is there something happening in their business, is there reimaging relocation, is there an opportunity for them to expand, contract something in their business that overlays a knowledge that they can unlock some value along with us.

So it tends to be a mix of opportunity that the surrounding area has seen growth in density. And the business is slightly adjusting, so that they can use that underlying growth and the long-term lease that they have to work with APR to create a win-win situation.

So no, we don't take it as a one-off situation, but we also don't think that they go, "Oh, wow, this is an interesting idea," and pick up the phone and say, "Let's do something next week."

This is a time and a place we expect to be able to work with our tenants to unlock value, and we certainly are proactive in advance to understand what some of that density and value can be on some of these properties, so that when we either make the call or receive the call, we can move things ahead pretty quickly and know what we have.

[Operator]

And at this time, Mr. Lamb, we have no other questions registered. Please proceed, sir.

[Milton Lamb, executive]

That's great. Thank you, everyone. We look forward to talking to you next quarter. All the best.

[Andrew Kalra, executive]

Thank you.

[Operator]

Thank you, gentlemen. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask to please disconnect your lines.