Q4 2019 Earnings Call

March 5, 2020

Operator 3: Good morning, ladies and gentlemen, and welcome to the Granite REIT Conference Call. Speaking to you on the call this morning is Kevan Gorrie, President and Chief Executive Officer, and Teresa Neto, Chief Financial Officer. Before we begin today's call, I would like to remind you that statements and information made in today's discussion may constitute forward-looking statements and forward-looking information, and that actual results could differ materially from any conclusion, forecast, or projection. These statements and information are based on certain material facts or assumptions, reflect management's current expectations, and are subject to known and unknown risks and uncertainties. These risks and uncertainties are discussed in Granite's materials filed with Canadian Securities Administrators and the U.S. Securities and Exchange Commission from time to time, including the Risk Factor section of its Annual Information Form for 2019, filed on 4 March 2020.

Operator: Good morning, ladies and gentlemen, and welcome to the Granite REIT Conference Call. Speaking to you on the call this morning is Kevan Gorrie, President and Chief Executive Officer, and Teresa Neto, Chief Financial Officer. Before we begin today's call, I would like to remind you that statements and information made in today's discussion may constitute forward-looking statements and forward-looking information, and that actual results could differ materially from any conclusion, forecast, or projection. These statements and information are based on certain material facts or assumptions, reflect management's current expectations, and are subject to known and unknown risks and uncertainties. These risks and uncertainties are discussed in Granite's materials filed with Canadian Securities Administrators and the U.S. Securities and Exchange Commission from time to time, including the Risk Factor section of its Annual Information Form for 2019, filed on 4 March 2020.

Before we begin today's call I would like to remind you that statements that information made in today's discussion may constitute forward looking statements on forward looking information and the actual results could differ materially from any conclusion forecast or projection.

These statements that information are based on certain material socs are assumptions reflect management's current expectations and are subject to known and unknown risks and uncertainties.

These risks and uncertainties are discussed in granites retail filed with Canadian Securities administrators, and the U.S. Securities and Exchange Commission from time to time, including the risk factor section of its annual information form for 2019 filed on March 4th 2020.

Operator 3: Readers are cautioned not to place undue reliance on any of these forward-looking statements and forward-looking information. Granite undertakes no intention or obligation to update or revise any of these forward-looking statements or forward-looking information, whether as a result of new information, future events, or otherwise, except as required by law. In addition, the remarks this morning may include financial terms and measures that do not have a standardized meaning under international financial reporting standards. Please refer to the audited combined financial results and management's discussion and analysis for the year ended December 31, 2019 for Granite Real Estate Investment Trust and Granite REIT Inc., and other materials filed with the Canadian Securities Administrators and U.S. Securities and Exchange Commission from time to time for additional relevant information. I will now turn the call over to Kevan Gorrie. Please go ahead.

Operator: Readers are cautioned not to place undue reliance on any of these forward-looking statements and forward-looking information. Granite undertakes no intention or obligation to update or revise any of these forward-looking statements or forward-looking information, whether as a result of new information, future events, or otherwise, except as required by law. In addition, the remarks this morning may include financial terms and measures that do not have a standardized meaning under international financial reporting standards. Please refer to the audited combined financial results and management's discussion and analysis for the year ended December 31, 2019 for Granite Real Estate Investment Trust and Granite REIT Inc., and other materials filed with the Canadian Securities Administrators and U.S. Securities and Exchange Commission from time to time for additional relevant information. I will now turn the call over to Kevan Gorrie. Please go ahead.

Readers are cautioned not to place undue reliance on any of these forward looking statements and forward looking information.

Granite undertakes no intention or obligation to update or revise any of these forward looking statements or forward looking information, whether as a result of new information future events or other rise except as required by law.

In addition, the remarks. This morning May include financial terms and measured as that do not have a standardized meaning under international financial reporting standards. Please refer to the audited combined financial results and management's discussion and analysis for the year ended December 31st 2019 for granite real estate investment Trust and granite REIT.

Inc.

And other materials filed with the Canadian Securities administrators, and U.S. Securities and Exchange Commission from time to time for additional relevant information I will now turn the call over to Kevin Gory. Please go ahead.

Thank you operator, and good morning, everyone. Thank you for taking the time.

Kevan Gorrie: Thank you, operator, and good morning, everyone. Thank you for taking the time to join us for our final earnings call for 2019. As usual, I am pleased to be joined this morning by Teresa Neto, our CFO, Lorne Kumer, our Executive Vice President of Global Real Estate, and Michael Ramparas, our Senior Vice President of Investments in Global Real Estate. Teresa will begin our discussion with a review of the financial highlights, and I will follow with brief comments on acquisitions, operations, development, strategy, and thoughts on the impact of the COVID-19 virus, then open up the call to any questions that you may have.

To join US for final earnings call for 2019.

As usual I'm pleased to be joined this morning by Teresa Nettle or CFO, Lorne Kumer executive Vice President of global real estate, and Michael run terrorists or senior Vice President of investments in global real estate.

Trees will begin or discussion with the review the financial highlights and I will follow with brief comments on acquisitions operations development strategy and thoughts on the impact of the cold with 19 virus then open up the called any questions that you may.

Teresa Neto: Thanks, Kevin, and good morning all. Granite posted a solid Q4, delivering strong same-property NOI and a continuation of investment activity, with Granite closing acquisitions of 5 investment properties totaling approximately CAD 487 million, followed by an additional CAD 130 million of new investments for 2020 announced in December. FFO per unit in Q4 was CAD 0.91, a CAD 0.01 increase relative to prior year, but down CAD 0.02 relative to Q3 2019. Included in this quarter's FFO is the temporary dilutive impact of the CAD 294 million equity offering that closed on 31 October 2019, where proceeds have not yet been fully deployed.

Thanks, Good Kevin and good morning, all.

Granted posted a solid fourth quarter delivering strong strong same property in Hawaii, and a continuation of investment activity with granite clothing acquisitions of five investment properties totaling approximately 487 million followed by an additional 130 million a new investments for 2020 announced in December.

At this over you need in Q4 was 91 cents, a one cents increase relative to prior here, but down two cents relative to Q3 2019.

Included in this quarter does that though is the temporary diluted impact at the 294 million equity offering that closed on October 31st we're proceeds have not yet been fully deployed.

Teresa Neto: The negative impact of a stronger Canadian dollar relative to the euro and a net CAD 2 million expense related to real estate transfer taxes, net of tax recovery, related to the internal reorganization of the REIT's Austrian entities previously communicated on our Q3 conference call. As mentioned on the call, this reorganization will result in future savings relating to withholding tax on Austrian dividends and will facilitate a potential future share sale efficiently. We expect to realize savings of the same 2+ million in 2020 when we anticipate distributing approximately EUR 36 million from Austria to the Netherlands or Canada, and we'll continue to realize withholding tax savings every year thereafter on Austrian distributions of approximately EUR 0.7 million, or about CAD 1 million, based on current distribution forecasts.

The negative impact of a stronger Canadian dollar relative to the euro and a net 2 million dollar expense related to real estate transfer taxes net of tax recovery related to the internal reorganization of the read Austrian into chief previously communicated on our Q3 conference call.

As mentioned on the call. This reorganization will result in future savings relating to withholding tax on Austrian dividends and will facilitate a potential future share sale efficiently.

We expect you realize savings at the same two plus million in 2020, when we anticipate distributing approximately 36 million euros from Austria do that another lender, Canada, and we'll continue to realize withholding tax savings every year thereafter, when Austrian distributions of approximately 27 million euros or about a million Canadian.

Based on current distribution forecast.

Teresa Neto: Positively offsetting these items was the reversal of CAD 2.3 million of current income tax provisions in Canada and Europe for tax positions relating to taxation years that have become statute barred. Granite's AFFO on a per unit basis in Q4 was CAD 0.89, which is 2 cents higher than prior year and 1 cent lower than Q3 2019. AFFO per unit was favorably impacted by higher FFO per unit and lower AFFO-related capital expenditures, leasing costs, and tenant incentives incurred in the quarter of CAD 1.1 million, compared to CAD 1.6 million in the same period last year and CAD 1.4 million in Q3. Looking forward to 2020, we are expecting total maintenance, capital expenditures, leasing costs, and commissions to reach approximately CAD 11 million for the year.

Positively offsetting these items with the reversal of 2.3 million of current income tax provisions in Canada in Europe for taxes issues relating to taxation years that had become statue board.

Granted as AFFO on a per unit basis. In Q4 was 89 cents, which is two cents higher than prior year and once and lower than Q3 2019.

And so per unit was favorably impacted by higher AFFO per unit and lower it so related capital expenditures leasing costs intended incentives incurred in the quarter of 1.1 million compared to 1.6 million in the same period last year and 1.4 million in Q3.

Looking forward to 2020, we're expecting total maintenance capital expenditures leasing costs and commissions to reach approximately 11 million for the year.

Teresa Neto: As a result of a relatively low CapEx quarter and strong AFFO performance, the AFFO payout ratio came in at 82% in Q4. Operating metrics continue to demonstrate positive momentum. NOI on a cash basis for the quarter increased by CAD 10.9 million, or 20.6% from the same quarter in 2018, and by CAD 3.5 million, or 5.8% from Q3 2019. Same property NOI for Q4 2019 was strong relative to Q4 last year, increasing 2.9% on a constant currency basis, increasing by 4.6%, driven mostly by contractual rent increases and re-leasing and renewals of leases in the US, Netherlands, and Canada.

The result of a relatively low cap capex quarter and strong it at that they'll perform in the AFFO payout ratio came in at 82% in Q4.

Operating metrics continue to demonstrate positive momentum I know why on a cash basis for the quarter increased by 10.9 million or 20.6% from the same quarter in 22018, and by 3.5 million or 5.8% from third quarter 2019.

Same property NOI for Q4, 2019 with strong relative to Q4 last year, increasing 2.9% on a constant currency basis, increasing by 4.6% driven mostly by contractual rent increases and releasing a renewal leases in the U.S., Netherlands in Canada.

Teresa Neto: For fiscal year 2019, same property NOI is up CAD 5.6 million, or 3.2%, but on a constant currency basis, 4.5%. G&A for the quarter was CAD 800,000 higher than the same quarter last year and CAD 1.1 million higher than the Q3 of 2019, mostly driven by increased unit-based compensation amortization expense due to an increase in awards outstanding, and a fair value loss associated with the increase in non-cash compensation liabilities due to the increase in Granite's unit price. Looking out to fiscal 2020, G&A is estimated to be approximately CAD 30 million, which includes about CAD 6 million of non-cash compensation expense, but assumes no fair value losses or gains associated with the increase or decrease in non-cash compensation liabilities, which cannot be predicted.

For fiscal year 2019, same property I know why is up 5.6 million were 3.2%, but on a constant currency basis, 4.5%.

Do you need for the quarter was $800000 higher than the same quarter last year, and 1.1 million higher than the third quarter of 2019, mostly driven by increased unit based compensation amortization expense due to an increase in words Outstanding Award outstanding and the fair value loss associated with the increase in non.

Cash compensation liabilities due to the increase in granites unit price.

Looking out to fiscal 2020 Genie is estimated to be approximately 3 million, which includes about 6 million of non cash compensation expense, but assumes no fair value losses or gains associated with the increase or decrease in noncash compensation liabilities, which cannot be predicted.

The trusts balance sheet remains very strong comprising total assets of approximately 4.8 billion at the end of 2019, an increase of 300 million since the end of third quarter driven mostly by the net proceeds received from the 294 million October equity offering and a 47 47 million fair value gains.

Teresa Neto: The trust's balance sheet remains very strong, comprising total assets of approximately CAD 4.8 billion at the end of 2019, an increase of CAD 300 million since the end of Q3, driven mostly by the net proceeds received from the CAD 294 million October equity offering, and a CAD 47 million fair value gain realized on the trust investment property portfolio. This fair value gain is primarily attributable to the trust properties located in the GTA and US. The increase in total assets was partially offset by a decrease of approximately CAD 42 million on the trust's US investment property portfolio due to the strengthening of the Canadian dollar against the US dollar since Q3, but positively impacted by an increase of about CAD 12 million on the trust's European assets due to a weaker Canadian dollar against the euro since 30 September.

Lies on the trust investment property portfolio.

This fair value again is primarily attributable to the trust properties located in the GCA and you would say.

The increase in total assets was partially offset by a decrease of approximately 42 million on the trust U.S. investment property portfolio due to the strengthening of the Canadian dollar against the U.S. dollar since Q3, but positively impacted by an increase of about 12 million on from European assets do would do a weaker dollar Canadian dollar against the Euro since September Thirtyth.

The trust overall weighted average cap rate also decreased 10 basis points to 6.1% IDN relative to Q3.

Teresa Neto: The trust's overall weighted average cap rate also decreased 10 basis points to 6.1% at the end relative to Q3. As disclosed in December, the REIT financed and extended its EUR 300 million euro term loan late in the quarter, which will result in interest expense savings of CAD 0.04 per unit going forward. When combined with the financing of its US dollar term loan disclosed in Q3, total interest cost savings amount to CAD 0.07 per unit commencing this year. Total net leverage as at the end of the year was 21%, essentially flat from Q3. The trust's current liquidity is about CAD 790 million, representing cash of CAD 290 million, and the undrawn operating line of CAD 500 million. I will now turn the call back to Kevan.

As disclosed in December the refinance and extended its 300 million <unk> dollar term loan late in the quarter, which will result in interest expense savings of four cents per unit going forward and when combined with the financing of the U.S. dollar term loan disclose in Q3 total interest cost savings amounted to seven cents per unit commencing this year.

Total net leverage as at the end of year was 21% essentially flat from Q3. The trust current liquidity is about 790 million representing cash of 290 million and the Undrawn operating line of 500 million.

I'll now turn the call back to Kevin.

Kevan Gorrie: Thanks, Theresa. As always, I will keep my comments brief as I trust you've had an opportunity to review our MD&A and press release. I think as Theresa mentioned, I would characterize the Q4 as being slightly ahead of our expectations financially when accounting for the one-time RETT charge in the Q4 and the lag in deploying proceeds from the equity offerings in April and October. I think we're also ahead of schedule slightly in terms of progress against our strategic plan. As Theresa mentioned, during the quarter, we acquired five modern distribution and e-commerce fulfillment centers totaling 8.5 million sq ft, representing importantly, growth in four of our target markets in the US.

Thanks Theresa.

As always I'll keep my comments a brief as I Trust, you've had an opportunity to review or Mdna and press release.

I think is treats dimension I would characterize the fourth quarter is being slightly ahead of or expectations financially when accounting for the onetime reps charge in the fourth quarter.

And the lag in deploying proceeds from the equity offerings in April in October.

And I think we're also ahead of schedule slightly in terms of progress against our strategic plan.

That's recent mentioned during the quarter, we acquired by water distribution and E commerce fulfillment centers totaling 8.5 million square feet.

Representing importantly growth in four of our target markets in the U.S.

Kevan Gorrie: In all, we acquired over CAD 900 million in income-producing properties located in our target markets in Canada, the US, and the Netherlands, at an average cap rate of 5.5%, and CAD 33.4 million on a 191-acre development site in Houston, Texas, which will eventually accommodate roughly 2.5 million square feet of new distribution space upon completion. During the quarter, we also closed on the disposition of six assets in Canada and the US, bringing our total disposition program for the year to CAD 105.8 million. Which was, admittedly, at the low end of our guidance for 2019. As I mentioned on the last call, we expect our dispositions for 2020 to come in at roughly CAD 50 million in total.

And all we acquired over 900 million in income producing properties located in our target markets in Canada, the U.S. and the Netherlands at an average cap rate of 5.5, percents and 33.4 million on a 191 acre development site in Houston, Texas, which will eventually accommodate roughly.

2.5 million square feet doesn't new distribution space upon completion.

During the quarter. We also closed on the disposition of six assets in Canada in the U.S., bringing our total disposition program for the year to 105.8 million, which was a in middle east the low end of our guidance for 2019.

As I mentioned on the last call, we expect or dispositions for 2020 to come in at roughly 50 million in total.

As a result of this acquisition and disposition activity or magnet concentration by revenue and Jia Ngls decreased to 42 and 35% respectively.

Kevan Gorrie: As a result of this acquisition and disposition activity, our Magna concentration by revenue and GLA decreased to 42% and 35% respectively, putting us well ahead of schedule on our previously announced target of reducing our Magna concentration to under 50% on a revenue basis by the end of 2019. Operationally, we completed a total of roughly 2.8 million sq ft of leasing in 2019 at an average increase in rental rate of 7.7%. Further, we have negotiated extensions on roughly 70% of the 2.2 million sq ft of lease expiries in 2020 on an average increase in rental rate of approximately 7%. The remaining 650,000 ft of expiries in 2020 occur in H2.

Putting us well ahead of schedule on our previously announced target of reducing our main a concentration to under 50% on a revenue basis by the end of 2019.

Operationally, we completed the Tony or roughly 2.8 million square feet of leasing in 2019.

At an average increase in rental rate of 7.7%.

Further we have negotiated extensions.

On roughly 70% of the 2.2 million square feet of lease expires in 2020.

On an average increase in rental rate of approximately 7%.

The remaining 650000 feet of expires in 2020 occur in the second half of the year, we anticipate an average increase in rental rate of 7% to 8% on those renewals or new leases.

Kevan Gorrie: We anticipate an average increase in rental rate of 7% to 8% on those renewals or new leases. Our vacancy increased in Q4 by 70 basis points from the previous quarter, due entirely to the addition of 300,000 sq ft of vacant space related to the Southaven Memphis Airport acquisition made late in Q4. As Teresa mentioned earlier, and as disclosed in our MD&A, same-property NOI for 2019 increased by 4.5% on a constant currency basis and exceeded our annual guidance of 2% to 3% for the year. Moreover, same-property NOI growth was positive across all geographic segments on a constant currency basis, ranging from 0.6% in Austria to over 25% in the Netherlands.

Our vacancy increased in Q4 by 70 basis points from the previous quarter due entirely to the addition of 300000 square feet a vacant space related to the South Haven Memphis Airport acquisition made late in Q4.

As Teresa mentioned earlier and as disclosed in or Mdna same property NOI for 2019 increased by 4% on a constant currency basis and exceeded our annual guidance of 2% to 3% for the year.

Moreover.

Same property NOI growth was positive across all geographic segments on a constant currency basis, ranging from <unk>, 0.6% in Austria to over 25% settlements.

Kevan Gorrie: The increase in the Netherlands, as per the last quarter, was due primarily to leasing activity, and occupancy gains in late 2018. We reiterate our same property NOI growth guidance of 3% to 4% for 2020, excluding intensification, and 4% including intensification. As an update on our development program, we completed the permitting stage for a development project in Stuttgart, Germany, in Altbach, and hope to commence construction in early Q2 2020 for completion in early 2021. We are in lease negotiations with respective tenants for the entire building. Our 520,000sq ft development project in AllPoints, Indianapolis, is nearly complete and should be ready for occupancy sometime in early Q2 2020. We are currently responding to 4 separate RFPs for the entire space.

The increase in the Netherlands per the last quarter was due primarily to leasing activity in occupancy gains in late 2018.

We reiterate our same property NOI growth guidance of 3% to 4% for 2020.

Excluding intensification and 4% including intensification.

As an update on or development program, we completed the permitting stage for development project in Stuttgart, Germany, and all back and hope to commence construction in early second quarter 2020 for completion in early 2021.

We are in lease negotiations with prospective tenants the entire family.

Our 520000 square foot development projects at all points Indianapolis is nearly complete and should be ready for occupancy sometime in early Q2 2020.

We are currently responding to four separate or piece for the entire space.

In Houston wet conditions have delayed the site preparation of our development project on highway 90 in the northeast of Houston.

Kevan Gorrie: In Houston, wet conditions have delayed the site preparation of our development project on Highway 90 in the northeast of Houston. We hope to commence construction of the first two buildings comprising 650,000 sq ft in Q2, with completion scheduled for late 2020 or early 2021. As previously discussed, we anticipate that these active development projects will further enhance the quality of our portfolio, generate superior long-term returns, and create significant NAV growth for our unitholders upon stabilization, which is a major component of our corporate strategy and philosophy. As Teresa mentioned, the combination of the Austrian restructuring charge and additional units from the 31 October equity offering negatively impacted FFO and AFFO per unit for the quarter.

We hope to commence construction of the first two buildings comprising 650000 square feet in the second quarter with completion scheduled for late 2020 or early 2021.

And as previously discussed we anticipate that these active development projects will further enhance the quality of our portfolio generate superior long term returns and creates significant enough growth for unit holders upon stabilization, which is a major component of our corporate strategy and philosophy.

As Teresa mentioned the combination of the Austrian restructuring charge, an additional units from the October 30, Onest equity offering negatively impacted AFFO and AFFO per unit for the quarter.

Kevan Gorrie: The restructuring charge will help to improve our cash flow in 2020 and beyond, and the equity raise will enable us to execute on our growth plans in conjunction with planned refinancing and potential financing activities in 2020. ESG will also be an important focus for myself and the team in 2020. Building upon the principles outlined in our sustainability plan released in 2019, we plan to issue a comprehensive update on our ESG activities and objectives for 2020 within the next 60 days, and we look forward to sharing that with you all. Given recent developments regarding the coronavirus, I think it would be appropriate to include a comment at this time.

But the restructuring charge will help to improve our cash flow in 2020 of the Johan and the equity raise will enable us to execute on our growth plans in conjunction with planned refinancing and potential financing activities in 2020.

Yes.

It will be an important focus for myself and the team in 2020.

Building upon the principles outlined in our sustainability plan released in 2019, we plan to issue a comprehensive update on our iasci activities and objectives for 2020 within the next 60 days and we look forward to sharing that with you all.

Given recent developments regarding the Corona virus I think it would be appropriate to include a comment at this time.

Kevan Gorrie: While I'm certainly no expert on this matter, there is no question that the spread of the virus has and will have a significant impact on the global supply chain, which by extension could impact a number of our tenants' businesses as their access to products, particularly from Asia, may be temporarily disrupted. With that said, we are in regular contact with our tenants, and to date have not received any reports or observed any major reduction in activity at our properties. Further, I think that the strength of our covenant of our tenant roster positions us relatively well in periods of disruption such as this. By any measure, we have a defensive tenant roster and lease profile. We will, of course, continue to monitor the situation and provide any updates to you all if necessary.

Well I'm certainly know expert on this matter. There is no question that the spread of the virus has and will have a significant impact on the global supply chain.

With by extension could impact the number of our tenants businesses as their access to product, particularly from Asia, maybe temporarily disrupted.

With that said we are in regular contact with our tenants to date have not received any reports were observed any major reduction in activity at our properties.

Further I think the strength of our covenant of or tenant roster positions as relatively well in periods of disruption such as this.

By any measure we have a defensive tenant roster and lease profile. We will of course continue to monitor the situation and provide any updates to you all if necessary.

In closing, our major financial and strategic objectives for 2020 remain similar from 2019 that is driving FFO and AFFO per unit growth and increasing our scale and diversification in our target markets, while maintaining conservative capital ratios.

Kevan Gorrie: In closing, our major financial and strategic objectives for 2020 remain similar from 2019. That is driving FFO and AFFO per unit growth and increasing our scale and diversification in our target markets while maintaining conservative capital ratios.

Kevan Gorrie: As I have mentioned previously, the addition of John and Witsard Schaper as the heads of our US and European programs respectively, and the opening of our new offices in Amsterdam and Dallas significantly enhances our investment and asset management reach and capabilities locally in those markets and positions us to pursue and execute on a higher proportion of value add opportunities, particularly in the US, where we already have a very strong foundation of newer generation distribution and e-commerce fulfillment centers in key distribution markets. The recent announcement of our acquisition of three state-of-the-art assets being developed in the Netherlands also expands our foundation of core distribution and e-commerce assets in our target markets in Europe, on which we will continue to build. On that note, I will open up the floor for any questions.

As I have mentioned previously the addition of John and Wisser is a heads up our U.S. in European programs, respectively, and the opening of our new offices in Amsterdam and Dallas.

Significantly enhances our investment in asset management reach and capabilities locally in those markets and positions us to pursue and execute on a higher proportion of value add opportunities, particularly in the U.S., where we already have a very strong foundation of newer generation distribution and ecommerce fulfillment centers in key.

Distribution markets.

The recent announcement of our acquisition of three state of the our assets being developed in the Netherlands also expands our foundation of core distribution and ecommerce assets in our target markets in Europe on which we will continue to build.

And on that no I will open up the floor for any questions.

Thank you if you would like to register a question. Please press the one followed by the four on your telephone you will hear or three Tom Tom to acknowledge your request.

Operator 3: Our first question comes from the line of Sam Damiani with TD Securities. Please proceed.

Your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three once again to register for question Press. The one followed by the for.

Operator: Our first question comes from the line of Sam Damiani with TD Securities. Please proceed.

Our first question comes from the line of Sam Damiani with TD Securities. Please proceed.

Sam Damiani: Thank you. Good morning, everyone. I just wanna congratulate you on a very good year. I wanna talk about the strategic plan that you announced about 18 months ago. You're making very significant progress, as you noted. What are your thoughts about those targets that you set late in 2018, and any thoughts of updating them?

Thank you good morning, everyone I just want to congratulate you want to auto.

Very good year.

Good to talk about the strategic plan that you announced about 18 months ago, you're speaking very significant progress as you've noted.

You know.

What are your thoughts Fulfils targets do you say late 2018, and any thoughts of updating them.

Well, it's a great question, Sam I think when we drafted the strategic plan in 2018, you can't you did not make the assumption the equity markets per say, we'd be supportive. So we wrote the strategy in such a way where we can executed execute on it.

Kevan Gorrie: Well, it's a great question, Sam. I think when we drafted the strategic plan in 2018, we did not make the assumption that the equity markets per se would be supportive. We wrote the strategy in such a way where we can execute it, execute on it using our balance sheet. The markets, I think, were very supportive, and I think we took advantage of that. I would say that we, in terms of scale and in terms of diversification, are certainly well ahead of the plan. I think as we move forward, we're in a position where we don't want to assume things from a growth perspective. Every year, we look at it primarily on a conservative basis.

Using our balance sheet.

But the markets I think we're very supportive and I think we took advantage of that so I would say that we in terms of scale and in terms of diversification or certainly well ahead of the plan, but I think as we move forward, we're not we're in a position where we.

We don't want to assume.

Things from a from a growth perspective, so every year, we look at it.

Primarily on a conservative basis, but certainly I think the actions we took in 2019 position us to to exceed those targets for 2020 in 2023.

Kevan Gorrie: Certainly, I think the actions we took in 2019 position us to exceed those targets for 2020 and 2023.

Sam Damiani: Okay. Just to follow up on the special purpose properties, they're, you know, down to just 23% of fair value today, down significantly. Of the 7 assets, 4 have remaining lease terms between 3 and 4 years. Just wondering how you're looking at the potential timing of those lease extensions at those specific properties.

Just a follow up on the special purpose properties there.

Down to just 23% of fair value today down significantly.

Oh, the seven assets for have remaining lease terms between three and four years, just wondering how you're looking at the potential timing of.

Of those lease expenses at those specific properties.

Well I think as we as the remaining lease term goes down I think ironically, we're we have more comfort because I think.

Kevan Gorrie: Well, I think as the remaining lease term goes down, I think ironically we have more comfort because I think, you know, the plant tour we wanted to do in Austria. When you go in these assets, in these facilities, and you see the amount of investment and commitment made by Magna in these facilities, they're impossible to replicate. And they're extremely, I mean, prohibitively expensive to recreate. As we've said, rebalancing the portfolio is a long-term strategy of ours. I think the deeper we go into this, I think the better opportunity we have to create better conditions for that potential rebalancing. I think we're going to remain patient, and I think the conditions for us continue to improve. That's how we're looking at it.

You know the plans for we wanted to do in Austria. When you go in these assets in these facilities and you see the amount of investment and commitment made by Magna and these facilities there are possible to replicate.

And there are extremely I mean prohibitively expensive to recreate so as we've said.

Rebalancing the portfolio is a long term strategy of ours I think the deeper we go into this I think the better opportunity we have to create.

Better conditions for that potential rebalancing, so I think we're going to remain patient.

I think are the conditions rose continue to improve so thats how were looking at I think we're looking at it with even more confident than we did two years ago.

Kevan Gorrie: I think we're looking at it with even more confidence than we did two years ago.

Sam Damiani: That's great. That's helpful. One last question. Appreciate the comments on the COVID-19 on the existing portfolio. Are you seeing any impact on leasing discussions?

That's great that's helpful and one last question.

The comments on the covert 19.

Existing portfolio are you seeing any impact on leasing discussions.

We have not yet and I think Thats a fair question in a fair point we are in.

Kevan Gorrie: We have not yet. I think that that's a fair question and a fair point. You know, we are in active discussions on a number of fronts involving a number of properties. We have not seen any delay, but not to say it can't happen. I think what gives us confidence is we're, you know, 70% through our leasing activity in 2020. We don't have that much roll in 2021. It could, I will admit that it could have an impact, not because of failure of businesses and that. Just as you can imagine, a number of companies will start to hoard cash. A number of companies will delay decisions until they see how this is going to develop or end. We haven't seen anything yet. We haven't seen an interruption in our leasing discussions to date.

Active discussions on a number of fronts involving a number of properties, we have not seen any delay, but not to say it can happen I think what gives us confidence is where 70% through our leasing activity in 2020, we don't have them much role in 2021, so it could I will admit that it could.

I have an impact not because.

Still Europe businesses and not just as you can imagine a number of companies will start to hoard cash a number of companies will delayed decisions until they see how this is going to develop were end.

But we haven't seen anything yet, we haven't seen and interruption and our leasing discussions today.

Sam Damiani: Thank you. That's helpful.

Thank you that's helpful.

Our next question comes from the line of Chris Capri with the RBC. Please proceed.

Operator 3: Our next question comes from the line of Chris Couprie with CIBC. Please proceed.

Operator: Our next question comes from the line of Chris Couprie with CIBC. Please proceed.

Chris Couprie: Morning. Maybe carrying on with the leasing discussion. Just in general, are you approaching leasing and renewals much differently between the various geographies?

Good morning, maybe carrying on with the leasing discussion just in general are you approaching leasing and renewals.

Much differently between the various geographies.

I think 100% and I think but remember a lot of our.

Kevan Gorrie: I think 100%. Remember, a lot of the lease expiries have extension rights in there. Now it may be set to market rent, so there's a discussion on that. In terms of the extension terms, sometimes we're locked in. That's per the lease. Number one, I'll start there. Obviously we're going to push harder in the GTA. We're gonna be more comfortable with shorter lease terms in the GTA than other markets. I think that goes without saying. I will tell you this, it does feel, with very few exceptions, that broadly speaking, our market fundamentals remain strong and are growing, getting stronger. The approach that we would take in the GTA, for example, we may apply more broadly across our portfolio moving forward.

A lot of the lease expires have extension rights in there now may be set to market rents, so theres, a discussion or not but in terms of the extension terms, sometimes we're locked in that's that's per lease so number one I'll start there.

But obviously, we're going to push harder in the GCA, we're going to be more comfortable with shorter lease terms in the GCA than other markets I think that goes without saying, but I will tell you. This it does feel with very few exceptions.

Broadly speaking our market fundamentals remain strong and our growing getting stronger. So is the approach that we were taken GCA. For example, we may apply.

More broadly across our portfolio moving forward.

Okay, and then with respect to the.

Chris Couprie: Okay. With respect to the investment and asset management teams that you're looking to build out in Europe and the US, maybe if you can just give some color in terms of what's kinda left to do there and maybe if there's any sense for the potential G&A impact this could have.

Investment in AG and asset management teams that you're looking to build on and Europe in the us.

Maybe you can just goes in color on in terms of whats kind of left to do there and.

Maybe if there's any sense for the potential gionee impact this could have.

Well I think Teresa mentioned the budget that includes the addition of asset management investment team. So we've already budget that into the number you have has that in there I think we want to remain a small and nimble team.

Kevan Gorrie: Well, I think Theresa mentioned the budget. That includes the addition of asset management and investment team. We've already budgeted that in. The number you have has that in there. I think we wanna remain a small and nimble team. I don't think that there is too much additional overhead being contemplated. We're already in discussions. John and Witz are already in discussions with a few key people to add to the team. We should be able to round out those teams in 2020, and that would be in the budgeted number that's been communicated.

And so I don't think that there is too much additional overhead being contemplated.

And we're already in discussions Jonah, which are already in discussions with with a few key people to add to the team. So we should be able to round out those teams in 2020 and would be in the budgeted number that's been communicated.

Chris Couprie: Okay, great. Maybe just last one for me. With respect to Magna, you've got a year-end target to maybe have it below 40% of revenues. You were at 42% end of the year. So obviously, there could be a, you know, a wide range between 40% and something less than 40%. Can you maybe just walk through, you know, what you could potentially see that number looking like at the end of the year?

Okay, Great and then May just last one from me with respect to Magna.

At year end target to may have it below 40% revenues.

42% ended the year.

So obviously there could be.

A wide range between 40 and something less than 40 can you maybe just walk through.

What you could potentially see that number looking like at the end of year.

Well.

Kevan Gorrie: Well, I think, as we mentioned, we're only looking at a small number of non-core dispositions in 2020. We're not anticipating any large transactions. On that basis, it would all be because of the growth of the denominator. We are expecting a year, you know, we did over CAD 950 million in acquisitions in total in 2019. Maybe we don't repeat that in 2020, but we do expect to be busy. If we add a similar amount of assets to the portfolio in 2020, I mean, if you do the math, we should be close to 30% to 35%.

I think we as we mentioned we're only looking at a small number of noncore dispositions in 2020, we're not anticipating any large transactions. So on that basis. It will all be because of the growth. The denominator, we are expecting a year.

We did 900 over 950 million in acquisitions in total in 2019, maybe we don't repeat out in 2020, but we do expect to be busy. So we add a similar amount of assets to the portfolio in 2020, I mean, if you do the math, we should be close to 30, 35%.

[music].

Chris Couprie: Got it. Thank you very much.

Got it thanks.

Kevan Gorrie: That would be our expectations.

Our expectations, Okay. Thanks, a lot.

Chris Couprie: Okay, thanks a lot.

Our next question comes from the line of Mike markets with Taser today. Please proceed.

Operator 3: Our next question comes from the line of Michael Markidis with Desjardins. Please proceed.

Operator: Our next question comes from the line of Michael Markidis with Desjardins. Please proceed.

Michael Markidis: Hi there. Theresa, thank you for the budget on the G&A. Very helpful. I was just wondering if you could give us a similar expectation for cash taxes next year.

Hi, there Theresa. Thank you for the budget on the DNA very helpful. I was just wondering if you could give us a similar expectation for cash taxes next year.

Yes, so next year I'm expecting around seven to seven and a half million and that would be kind of a normal state and weve, but we do have similar position, where I've got about 2.4 million.

Teresa Neto: Yeah. Next year, I'm expecting around CAD 7 to 7.5 million, and that would be kind of on a normal state. But we do have a similar position where I've got about CAD 2.4 million of provisions that could potentially turn back, which would then take our provision down to around CAD 5 million, similar to this year, CAD 5.5 million. Right now I'm assuming the CAD 7.5 million, but we'll have to see. I won't, you know, it's too early to determine whether or not those provisions will be statute barred, but there is another CAD 2.4 million potentially that could be reversed.

Revisions that could potentially turn back which will then take our provision down to around the five similar to this year five five and a half so right now I'm, assuming the seven seven and a half, but we'll have to see and I won't it's too early to determine whether or not those provisions will be statute bard, but there is another to it.

<unk> point, fourmillion potentially that could be reversed.

Michael Markidis: Gotcha. Okay. Then, also equally as helpful, Kevin, thank you for the same property NOI growth guidance of 3% to 4% next year. Are you able to walk through just sort of the different components, like roughly how much of that would be occupancy driven, how much of that would be contractual bumps versus leasing activity?

Got you, Okay and then.

Also equally as helpful. Kevin. Thank you for the same property NOI growth guidance of 3% to 4% next year are you able to walk through just sort of the different components like roughly how much of that would be occupancy driven how much of that would be.

Structural bumps versus.

Leasing activity.

Kevan Gorrie: Yeah, almost entirely would be rent growth, Mike. Because the 300,000 in vacancy that came on with the Southaven acquisition, that was just when we had our Q3 call. We're maintaining our same property NOI guidance from Q3, which I think is appropriate, but that is entirely rent growth.

Yeah almost entirely.

That would be rent growth, Mike because the.

3000 vacancy that came on with the so David acquisition.

That was after or that was just when we had our Q3 calls. So we're we're maintaining our same property NOI guidance.

From Q3, which I think as appropriate but that is entirely rent growth.

Michael Markidis: Okay. It sounds like you got some pretty nice escalators built in then for 2020.

Okay sounds like you've got some pretty nice escalators built and then for 2020.

Well.

Kevan Gorrie: Well, some lease deals as well. I think we can reach the 3% based on the rent escalations plus leasing that we did in 2019 and leasing that we're doing now for 2020.

And and some lease deals as well.

I think we can reach the 3% based on the rent Escalations plus leasing that we did in 2019 and leasing that we're doing now for 2020.

Okay. That's helpful. Thanks, and congrats on the Goodyear.

Michael Markidis: Okay, that's helpful. Thanks, and congrats on the good year.

Thank you.

Kevan Gorrie: Thank you.

As a reminder to register for question Cross the one followed by the for.

Operator 3: Our next question comes from the line of Neil Downey with RBC Capital Markets. Please proceed.

Our next question comes from the line of Neil Downey with RBC capital markets. Please proceed.

Operator: Our next question comes from the line of Neil Downey with RBC Capital Markets. Please proceed.

Hi, Good morning. Thank you my questions might be a bit more mundane being late in the queue, but.

Neil Downey: Hi, good morning. Thank you. My questions might be a bit more mundane, being late in the queue. Theresa, your interest expense was about CAD 7 million in Q4. With all of the refinancing efforts that occurred through the quarter, what's that look like for Q1 in terms of a run rate?

Teresa your interest expense was about 7 million in the fourth quarter.

With all of the refinancing efforts that occurred through the quarter.

What's that look like for Q1 in terms of a run rate.

And just looking so I think for next year, we're budgeting around 30 million, maybe a little less like 28 million. So if you look at that six 7 million the quarter yeah. Okay.

Teresa Neto: I'm just looking. I think for next year, we were budgeting around CAD 30 million, but maybe a little less, like CAD 28 million. If you wanna look at that, 6 or 7 million a quarter.

Neil Downey: Yeah. Okay. You've been able to earn a nice carry on cash balances.

And.

You've been able to earn a.

Hi, Kerry on on cash balances.

But as we all know rates just got cut.

Neil Downey: Yes.

Neil Downey: As we all know, rates just got cut, not inconsequentially this week. Presumably, that will have some sort of a modest impact on your interest income. And to the extent it does, how quickly will that show up? Like, is there a 30, 60, 90-day lag, or will it be effectively, you know, instantaneous?

Not consequentially. This week, so presumably that we'll have some sort of a modest impact on your interest income and entity extended does how quickly will that show up like is there a 30 60 90 day lag or will it be effectively.

Instantaneous.

I think it'll be relatively incentives, we had a little bit of money tied up for three days, but right now not release, our average rates rents just by way of example in February we obtained above 1.39% on our cash.

Teresa Neto: I think it'll be relatively instantaneous. We had a little bit of money tied up for three days, but right now, not really. Our average rate, just by way of example, in February, we obtained about 1.39% on our cash among all the markets. But I think we'll probably see that obviously drop now, so we'll be going down. I think you're gonna see it probably more immediately. We'll probably see something more in the closer to the 1% range.

Thanks to all the markets.

But I think we'll probably see that obviously drop now so we'll be going down so I think you're going to see it probably more immediately so we'll probably see something more in the closer to 1% range.

Okay. That's it thanks a lot.

Neil Downey: Okay. That's it. Thanks a lot.

Our next question comes from the line of Himanshu Gupta with Scotia Bank. Please proceed.

Operator 3: Our next question comes from the line of Himanshu Gupta with Scotiabank. Please proceed.

Operator: Our next question comes from the line of Himanshu Gupta with Scotiabank. Please proceed.

Thank you and good morning.

Himanshu Gupta: Thank you and good morning. On the Southaven, Memphis property, vacancy of around 300,000 sq ft, what are your thoughts in terms of lease up? Does that include in your 3% to 4% same property NOI growth?

On the on the South Haven, Memphis property vacancy off around 300000 square feet.

What are your thoughts in terms of lease up and does that include in your 2% to 4% same property NOI growth.

Yes, no as I mentioned them onto thanks.

Kevan Gorrie: Yeah. No, as I mentioned, Himanshu, thanks, it does not because we provide guidance without it. I think I'm looking at our team here. I think we are assuming that is leased up by Q4 of this year, roughly, to give you an indication of our expectations.

Does not because we provided guidance.

Without it so I think im looking at our team here I think we are assuming that that is leased up by the fourth quarter of this year.

Roughly to give you an indication of our expectations.

Sure and that and I could certainly the same property NOI for that quarter.

Himanshu Gupta: Sure.

Kevan Gorrie: That could certainly boost same-property NOI for that quarter.

Fair enough.

Himanshu Gupta: Fair enough. On the development, looks like you're making good progress on Plainfield, Indianapolis. What is your expectation in terms of lease up? I mean, when do you plan to announce that? And what rents are you underwriting on that property?

On the development it looks like you're making good progress on Plainfield Indianapolis.

What is your expectation in terms of lease up on when do you want to when do you plan to announced that add what trends you underwrite underwriting on that property.

Kevan Gorrie: Well, again, I think we have budgeted or are expecting to have that leased up in H2 of this year, with rent commencing. Now, I'm not sure if rent commences in Q4 or early in 2021. I would expect to see some rent this year. We did assume 50% leased. So, rent 50% of the building rent commencing in Q4 and 50% rent commencing early in 2021. However, from a leasing strategy perspective, we're holding out for one tenant for all 520,000 sq ft. So, I would say, you know, we would expect by the end of this year at the latest, to have the entire building leased and revenue producing.

Well again, I think we have budgeted or expecting to have that leased up in the second half of this year.

With rent commenced the I'm not sure rent commences.

In the fourth quarter or early in 2021, I would expect we would expect to see some rent. This year, we did assume 50% leased and 50% leased so one rent 50% of building rent commencing in Q4, and 50% rent commencing early in 2021, however from a leasing strategy perspective, we're holding out.

For one tenant for all 520000 feet.

So I would say we would expect by the end of this year at the latest to have the entire building leased and in revenue producing.

Okay. So was that today.

Himanshu Gupta: Okay. Just that.

Kevan Gorrie: Based on what we're seeing today.

That's that's helpful and maybe just switching to the acquisitions on the European acquisitions, so, especially the bolt or distribution facility.

Himanshu Gupta: That's helpful. Maybe just switching to the acquisitions on the European acquisitions. Specifically the Tilburg distribution facility, what is the going in cap rate on that property and what is the near term and long-term upside on this acquisition?

But going in cap rate is on that property and what is a near term and long term upside on this acquisition.

Through what acquisition.

Kevan Gorrie: Sorry, what acquisition?

On the on the Netherlands felt television distribution facility.

Himanshu Gupta: On the Netherlands property, Tilburg distribution facility.

Oh, yes, yes, so thats the three so those are those are brand new assets being built it didn't become on starting in June.

Kevan Gorrie: Oh, yes. Yes. That's the three. Those are brand new assets being built. I think they come on, you know, starting in June, and then there's an expansion piece that comes on in early 2021. These are all core assets. We would consider them core assets in our Netherlands distribution markets. In terms of contractual rent growth, they're all set to CPI, Dutch CPI, which I don't know exactly what it was for 2019. I think it's been averaging around 2.5%. They're all on long-term leases.

And there is an expansion piece that comes on in early 2021.

So these are all core assets, we would consider them core assets and our Netherlands distribution markets and in terms of contractual rent growth.

They are all set to Cpis, Dutch CPR, which I don't know exactly what was for 2019, I think it's been averaging around 2.5%.

And the role in long term lease.

Okay.

Himanshu Gupta: Okay. Maybe, just generally speaking, how different is the European market, versus the US industrial market, I mean, in terms of e-commerce penetration or sophistication of supply chains, and how much product is available on sale in like in the Dutch or German markets?

Maybe just generally speaking how different is the European market.

The U.S. industrial market.

In terms of ecommerce penetration sophistication of supply chains.

How much products is available on ceiling like in the Doctor gentleman markets.

Well I think it's been a very competitive market in Europe I think most we were talking about it internally the other day.

Kevan Gorrie: Well, I think it's been a very competitive market in Europe. I think most, we were talking about it internally the other day. A lot of the assets in Europe are institutionally held, and they're not selling. You look at the US, and you could say the same thing from an ownership perspective profile. However, you have a 1031 exchange rule in the US. You tend to get a lot more investment volume just by nature in the US and maybe a lot more merchant building in the US itself and a lot more supply. It's much more supply constrained in Europe. I think I'm stating the obvious.

A lot of the assets in Europe, our institutionally held and they're not selling.

And you look at the U.S. and you could say the same thing from an ownership perspective profile. However, you have a 10 31 exchange rule in the U.S. you tend to get a lot more investment volume despite by nature in the U.S. and maybe a lot more merchant building in the U.S. itself and a lot more supply it's much.

More supply constrained in Europe, I don't think I'm, saying, I think I'm, stating the obvious.

Kevan Gorrie: There is a lack of supply, and combined with that, one of the reasons we really like the fundamentals in Europe is e-commerce on the continent is quite nascent when you compare it to the US, certainly when you compare it to Asia, and even when you compare it to the UK. We combine what we think is going to be very strong growth in e-commerce penetration in Europe, a lack of supply, we think the fundamentals are very supportive of strong rent growth over the next five to 10 years there.

So there is a lack of supply and combined with one of the reasons, we really like the fundamentals in Europe is E. Commerce on the continent is quite nascent when you compare to.

Europe or sorry, when you compare to the U.S. certainly when you compare to Asia and even when you compare to the UK. So when we combine what we think is going to be very strong growth in ecommerce penetration in Europe, a lack of supply.

We think the fundamentals are are.

Very supportive of strong rent growth over the next five to 10 years there.

Okay and maybe just final question from me how actively are you looking and guide for acquisitions.

Himanshu Gupta: Okay. Maybe just final question from me, how actively are you looking in Canada for acquisitions?

Well in Canada. The short answer is we are.

Kevan Gorrie: Well, in Canada, the short answer is we are. We certainly don't want to. There's been many opportunities where we're just unwilling to stretch to prices that others are going to. So we have admittedly been priced out of a few deals, and we're focused on the GTA. We will look at Montreal. Vancouver, I think, is just too expensive for us. And I think also Alberta, as I'd mentioned before, we had a development deal that fell through last year, and we were unwilling to, you know, move on our pro forma for that. So the deal economically didn't work in the end. But for the right deal in Alberta, we do believe that that's going to be an important distribution market in Canada.

We certainly don't want to there is there's been many opportunities where we are just unwilling to stretch to prices that.

That others are going to so we have admittedly been priced out of a few deals and we're focused on the GCA. We will look at Montreal Vancouver, I think is just too expensive for us.

And I think also Alberta as I've mentioned before we had a development deal that sell through last year, and we were unwilling to move on our pro forma for that so the deal economically didnt didn't work in the end.

But for the right deal in Alberta, we do believe that thats going to be an important distribution market in Canada. There has been some.

Kevan Gorrie: There has been some, you know, positive net absorption in Calgary, so we look there for the right deal. Really our growth in Canada will focus on the GTA and potentially Montreal.

Positive net absorption.

In Calgary, So we've looked there for the right deal, but really our growth in Canada.

We will focus on the GCA and potentially Montreal.

Thank you Thats excellent color I'll turn it back.

Himanshu Gupta: Thank you. That's excellent color. I'll turn it back.

Our next question comes from the line of Troy Mclean with BMO capital markets. Please proceed.

Operator 3: Our next question comes from the line of Troy MacLean with BMO Capital Markets. Please proceed.

Operator: Our next question comes from the line of Troy MacLean with BMO Capital Markets. Please proceed.

Good morning.

Troy MacLean: Good morning. For phase one in Houston, you know, you've mentioned 200 bps development spread. Are you seeing any cost pressure that would bring down that spread for phase two?

For phase one in Houston, you've mentioned 200 beeps development spread are you seeing any cost pressure that would bring their own that spread for phase two.

Yeah.

Kevan Gorrie: I don't think so. I think the cost pressure would be associated with rent pressure as well. So I don't anticipate to be a material reduction in the second phase. That's still to be seen. We'll see what happens over the next couple of years, but that's our viewpoint today on that.

I don't think so I think that cost pressure, we would expect at the cost pressure would be associated with rent pressure as well.

So I don't anticipate to be material reduction.

In the second phase that's still to be seen we'll see what happens over the next couple of years, but that's that's our view point today on that.

And if you look out to 2021 or 2022 are there any new markets you want to develop.

Troy MacLean: If you look out to 2021 or 2022, are there any new markets that you're, you know, you wanna develop properties in either the US or Europe?

Properties in either the U.S. or Europe.

Well I think it's a great question and as a as a attended anyways to illustrate on my comments about John Wizard one of the reasons why China Wizard or are here is I think it enables us to pursue more management intensive value add investments.

Kevan Gorrie: Well, I think it's a great question, and as I intended anyways to illustrate in my comments about John and Witsard, one of the reasons why John and Witsard are here is I think it enables us to pursue more management intensive value add investments. Not that we didn't look at them before, but I think it gives us much more comfort to pursue potentially different types of assets and to look at different markets that we feel are complementary. I'll use the US as an example. Look, we have a great portfolio, 20 million sq ft, core product, key distribution markets.

And not that we didnt look at them before but I think it gives us much more comfort to pursue.

Potentially different types of assets and to look at different markets.

And we feel are complimentary and I'll use the U.S. as an example, we have a great portfolio 20 million square feet core product key distribution markets.

And now I think we're in a position with our office in Dallas and the team to look at potentially.

Kevan Gorrie: Now I think we're in a position with our office in Dallas and the team to look at potentially different value add opportunities, look at more consumption-based markets, you know, such as Florida, potentially Denver, as we move forward. Frankly, there are markets where we're reaching our critical mass. I think we've done a great job of being in centralized locations in our target markets. But as we're growing, if we're successful and we continue to grow, I think we'll look at expanding the footprint in certain markets where we feel could add a little more growth to our story and look at assets that frankly might have a different risk profile to us.

Different value add opportunities look at more consumption based markets.

Such as Florida.

Potentially Denver.

As we move forward and frankly, there are markets, where we're reaching our critical mass I think we've had a great I think we've done a great job of being incentive rice locations in our target markets.

But as we are growing if we're successful and we continue to grow I think we'll look at expanding the footprint in certain markets, where we feel could add a little more growth to our story and look at assets that frankly might have different risk profile to us, but I think we can afford to do that based on our tenant roster the types of assets we already own.

Kevan Gorrie: I think we can afford to do that based on our tenant roster, the types of assets we already own, our lease expiry profile. We could afford to add a little more risk to generate some higher returns over the next few years. I hope that answered your-

Our lease expiry profile, we can afford to add a little more risk to generate some higher returns over the next few years.

I know this is.

Troy MacLean: I know this is probably early, but when you mention higher return, what type of return would you... I mean, I think you're about 5.5% in 2019. Is it a 100 basis point spread you'd wanna do, you'd want to have value add?

So I know, there's probably too early but when you mentioned higher return like what type of return would you I mean, I think you bought five at 5% in 2019 like is it a 100 be spread you want to do you'd want to have value add.

I think that that would be I think that that would be fair I think look at the at the core of our business. We are a logistics real estate company, we don't want to move away from that.

Kevan Gorrie: I think that would be fair. I think, look, at the core of our business, we are a logistics real estate company, and we don't wanna move away from that. But that being said, you know, we've always been open to infill locations to the type of assets that we feel down the road will fulfill that sort of service offering, and generate higher returns. Frankly, it's gonna come with a lot of. You know, it may come with higher turnover, shorter lease terms, et cetera. I always counsel investors that, you know, it is great. Same-Property NOI is great, but it is not the only metric. It's what's really important to us is that we're growing our cash flow.

But that being said, we've always been opened to infill locations to the types of assets that we feel down the road will fulfill that sort of service offering.

And generate higher returns, but frankly, it's going to come with a lot of it may come with higher turnover shorter lease terms as et cetera, and I I always council investors that.

You know it is great same property NOI is great but is not the only metric is what's really important to was is that we're growing our cash flow. So if you're moving rents to market and you're generating higher in Hawaii, but you're paying more to do that and it's not really translating into your bottom line. That's not the type of business that we won so it has to be something.

Kevan Gorrie: If you're moving rents to market and you're generating higher NOI, but you're paying more to do that, and it's not really translating into your bottom line, that's not the type of business that we want. It has to be something that fits strategically for us and really generates growth and cash flow over the long term.

That fits strategically for us and really generates growth in cash flow over the long term.

Would it be fair to say like value add opportunities. There is maybe less competition for those type of properties rather than the fully leased kind of class eight you've bought so far.

Troy MacLean: Would it be fair to say, like, value add opportunities, there's maybe less competition for those type of properties rather than the fully leased, you know, kind of class A you've bought, you know, so far?

Well certainly it's hard to say that these but you look at and Im not it's not totally analogies, but if you look at the.

Kevan Gorrie: Well, certainly it's hard to say that these. Like, you look at, it's not totally analogous, but if you look at the, you know, the older, smaller bay assets in Toronto, it's hard to say they're not competitively bid. Those have been fantastically bid. But if we remain disciplined in our target markets, I think we have the relationships where we will see our fair amount of off-market deals. I think that is fair. They could be smaller single acquisitions or smaller portfolio acquisitions. Now I think we have the right people, and we'll have the right teams on the ground to find those opportunities.

Older smaller bay assets in Toronto, it's hard to say, they're not competitively bid those have been fantastically bid.

But if we remain disciplined in our target markets I think we have the relationships will we will see our fair amount. So far off market deals I think that that is fair they could be smaller single acquisitions are smaller portfolio acquisitions.

Now I think we have the right people will have the right teams on the ground to find those opportunities.

That's really good color. Thank you I'll turn it back.

Troy MacLean: That's really good color. Thank you. I'll turn it back.

As a reminder to register for question passed the one followed by the for our next question comes from the line of Mark West Rothschild with Canaccord Genuity. Please proceed.

Operator 3: As a reminder, to register for a question, press star one. Our next question comes from the line of Mark Rothschild with Canaccord Genuity. Please proceed.

Operator: As a reminder, to register for a question, press star one. Our next question comes from the line of Mark Rothschild with Canaccord Genuity. Please proceed.

Thanks. Good morning, My questions are generally been asked already and I. Appreciate your comments, we the virus, obviously, there's a lot better unknown, but I'm curious how this is impacting your comfort with buying properties right now and do you think that they'll put people on the silence for some time, obviously you guys have plenty capacity with the balance sheet.

Mark Rothschild: Thanks. Good morning. My questions have generally been asked already, and I appreciate your comments with the virus. Obviously, there's a lot that's unknown. I'm curious how this is impacting your comfort with buying properties right now. Do you think this will put people on the sidelines for some time? Obviously, you guys have plenty capacity with the balance sheet.

Well in short Mark we had a long discussion about this internally we had a long discussion about this with the board and I think our thesis that consensus in the room with the team is that we're going to continue to pursue.

Kevan Gorrie: Well, in short, Mark, we had a long discussion about this internally. We had a long discussion about this with the board, and I think our thesis, the consensus, in the room with the team is that we're gonna continue to pursue acquisitions. Frankly, if this creates some opportunities for us, I think we wanna be nimble. We wanna remain nimble, creative, and capitalize on those opportunities. The short answer is, we are not changing our investment focus. We will monitor the situation, but right now, there's nothing that indicates that we'll be backing off that.

We're going to continue to pursue acquisitions and frankly, if this creates from lack of travel alone. This creates some opportunities for us I think we want to be nimble, we want to remain nimble and creative and capitalize on those opportunities. So the short answer is.

We're not changing.

Our.

Vesmen focus.

We will monitor the situation, but right now there's nothing that indicates that.

We'll be backing off that.

Great. Thank you.

Mark Rothschild: Great. Thank you.

Our next question comes from the line of Brad Sturges with Industrial Alliance Securities. Please proceed.

Operator 3: Our next question comes from the line of Brad Sturges with Industrial Alliance Securities. Please proceed.

Operator: Our next question comes from the line of Brad Sturges with Industrial Alliance Securities. Please proceed.

Hi, good morning.

Brad Sturges: Hi, good morning.

Just.

Brad Sturges: Morning.

Brad Sturges: Just, maybe following up on the acquisition environment right now, and you've highlighted a pretty strong year last year. I guess, how does the acquisition pipeline look as it stands today, and where are you seeing the better opportunities within the current pipeline?

Following up on the acquisition Byron right now.

And you've highlighted a pretty strong year last year I guess, how does the acquisition pipeline look.

As it stands today and where are you seeing the better opportunities within the current pipeline.

Well today and Brad It does it really does change quarter to quarter or at least half year to half year. So right now where we sit today I think we're seriously looking at roughly 400 million in acquisitions.

Kevan Gorrie: Well, today, Brad, it really does change quarter to quarter, at least H1 to H2. So right now, where we sit today, I think we are seriously looking at roughly CAD 400 million in acquisitions. It does feel like roughly 50% or above that is in the US. It has been relatively quiet in Germany right now, and that might be something that's a little more structural in that people are not letting go of assets or there hasn't been that much trading that's been going on. There's been more in the Netherlands, but if you go back six or seven months ago, there was a lot more activity in Germany and there was nothing going on in the Netherlands.

It does feel like.

Roughly 50% or above that is in the us.

It has been relatively quiet in Germany, right now and that might be something thats, a little more structural and people are not letting go of assets are hasn't been much trading thats been going on there has been more in the Netherlands, but if you go back six seven months ago. There was a lot more activity in Germany, and there was nothing going on the Netherlands, So really chain.

Kevan Gorrie: It really changes, but where we sit today, there are probably more of our acquisition opportunities emerging in the US versus Canada or Europe.

Ranges, but where we sit today they are probably more of our leasing or sorry more of our acquisition opportunities are emerging in the us versus Canada Europe.

Okay, Great and one other question in terms of.

Brad Sturges: Okay, great. One other question. In terms of leasing discussions, negotiations right now, is there any other opportunities within the existing portfolio for intensification or expansion within the current discussions at the moment?

Leasing discussions negotiations right now is there any other opportunities within the existing portfolio for intensification earnings expansion within the current discussions at the moment.

There is there or.

Kevan Gorrie: There are a couple, and one we're looking at right now in Canada. I don't wanna say too much more 'cause I don't wanna compromise our efforts there. Keep in mind, you know, on top of the development, we have land in Poland, we have a small parcel of land in Columbus, and we have the remaining land after phase one in Houston. We'll continue to look at intensification within our landholdings in our portfolio. Right now we do have one we're working on in Canada.

There are a couple and one were one we're looking at right now in Canada, I don't want to say too much more because I don't want to compromise.

Our efforts there but.

And keep in mind, you know on top of the development, we have land in Poland. We have a small parcel of land in Columbus, and we have the remaining land after phase one in Houston So.

We will continue to look at intensification within our land holdings at our and our portfolio, but right now we do have one we're working on in Canada.

Okay, great. Thank you.

Brad Sturges: Okay, great. Thank you.

Our next question is a follow up question from the line of Sam Damiani with TD Securities. Please proceed.

Operator 3: Our next question is a follow-up question from the line of Sam Damiani with TD Securities. Please proceed.

Operator: Our next question is a follow-up question from the line of Sam Damiani with TD Securities. Please proceed.

Hi, Thanks, just a couple of quick clarification. So first on the same property NOI growth guidance for 2020 was there any sort of meaningful change between sort of first couple of quarters of the here in the last half of the year or is it pretty good expected to be pretty consistent.

Sam Damiani: Thanks. Just a couple of quick clarifications. First on the Same-Property NOI growth guidance for 2020. Was there any sort of meaningful change between the sort of first couple quarters of the year and H2 of the year, or is it pretty expected to be pretty consistent?

You mean in 2020, yes.

Kevan Gorrie: You mean in 2020?

Sam Damiani: Yes.

[noise] I don't know the answer to that Sam I. That's that's a great question I don't know the answer that I. If I were to guess today I would guess probably be a little bit stronger.

Kevan Gorrie: I don't know the answer to that, Sam. That's a great question. I don't know the answer to that. If I were to guess today, I would guess probably be a little bit stronger earlier than later.

Earlier than later.

Okay, and then lastly, just on the acquisition pipeline.

Sam Damiani: Okay. Lastly, just on the acquisition pipeline. In response to an earlier question, it sounded like you said you kind of expected a similar volume as 2019. Was that what you intended to say? I just wanna clarify.

In response to an earlier question. It sounded like you said you kind of expected.

Similar volume as 29 team.

Was that tended to say is going to clarify.

A similar volume the 2019, yes, that's what I did say, but what I did say is.

Kevan Gorrie: A similar volume to 2019? Yes. Yes.

Sam Damiani: Okay.

Kevan Gorrie: What I did say is, we did 950, so we may not do as much in 2020, but I think it will be a similar number. If it's slightly less, I wanna make a point, and thanks for asking for the clarification. To clarify, and I wanna make a point, if we did less than that, we would still be happy.

We did 950, so we may not do as much in 2020, but I think it will be a similar number.

Yes, I'd slightly less thats I want to make a point and thanks for asking for the clarification to clarify that want to make the point if we did less than that we would be we would still be happy.

Perfect. Thank you.

Sam Damiani: That's perfect. Thank you.

There are no further questions at this time.

Operator 3: There are no further questions at this time.

Operator: There are no further questions at this time.

Right. Thanks, operator.

Kevan Gorrie: All right. Thanks, operator. On behalf of the trustees and the management team here at Granite, thank you again for participating on our call today. To our unitholders, thank you for your continued trust and support. Have a great day.

Behalf, the trustees and the management team here at granite. Thank you again for participating on our call today and to our unit holders. Thank you for your continued trust and support have a great that.

That does conclude the conference call for today, we thank you for your participation then ask that you. Please disconnect your line.

Operator 3: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

[music].

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