The head of Canada's largest publicly traded automotive real estate investment trust said the United States is an attractive growth opportunity because of its larger market size.
Milton Lamb, president and CEO of Automotives Properties REIT, told analysts during a call this week that its agreement to buy a Rivian-occupied dealership property in Tampa, Florida, could lead to his company doing more deals south of the border at an erratic time of a new presidential administration taking office, and as it invests in heavy equipment. The REIT said last month it would pay about $19 million, or 13.5 million U.S. dollars, for the property in a deal set to close early next year.
Lamb was asked by TD Securities analyst Jonathan Kelcher about what markets the REIT was considering in the United States and how much of the portfolio might be located south of the border in two to three years.
"The short answer is we've always liked metropolitan markets that demonstrate" underlying growth in population and gross domestic product, said Lamb. "Tampa certainly hits that very well."
He also said properties in locations with mid-to high-density potential are preferred. While the Tampa deal marks the REIT's entry into the United States, Lamb said, it also increases Automotive Properties' exposure in the electric vehicle, or EV, sector.
He said Rivian could benefit from potential policies the upcoming administration of President-elect Donald Trump plans to put into place. "Rivian, we think is going to be one of the winners in the EV cycle, especially with Trump or the U.S. overall doing tariffs," said Lamb. Rivian is an Irvine, California-based electric vehicle maker.
Overall, the chief executive noted the United States has a population about 10 times that of Canada with a similar size difference for industry.
"There are far more markets that have depth and growth," said Lamb. "That leaves us a lot more of a runway. We certainly like the southeast, but there are other growth markets within the U.S. we would look at."
Construction equipment properties
The REIT doesn't have a specific target for how much net operating income might come out of the U.S. in the future. It said it is focused on diversification and does not want be overweight in any area.
Lamb cautioned that the REIT would look at interest rates and currency before moving deeper into the United States. Automotive Properties also still likes what it sees in the Canadian market.
The CEO further commented on the REIT's expansion into heavy equipment as well, calling it an entry into an "adjacent industry vertical" that has characteristics similar to retail automotive dealerships, such as sales and service.
Automotive Properties has agreed to pay $25.4 million for two heavy construction equipment dealership properties in the Greater Montreal area at 3855 Boulevard Matte in Brossard and at 72 Chemin du Tremblay in Boucherville. Those deals were also made after the third quarter ended, and are expected to close in December.
He said the REIT likes the heavy machinery business because it is driven by infrastructure spending and by strong brands. "We like trucking, but we will still focus on metropolitan markets" for heavy equipment dealerships.
Pieces of heavy machinery such as excavators and asphalt pavers typically weigh more than 5,000 pounds or more.
Mark Rothschild, an analyst with Canaccord Genuity, said the Montreal area deals and Florida transactions potentially position the REIT for much greater growth.
"We have long believed that the REIT was somewhat limited in Canada due to its focus on well-located dealerships in relatively large markets," said Rothschild, in a note on the company.
Automotive Properties' portfolio contains 76 commercial properties encompassing a total of approximately 2.8 million square feet of leasable area in metropolitan markets across the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec.