Q3 2020 Granite Real Estate Investment Trust Earnings Call
[music] good morning, ladies and gentlemen, and welcome to the conference call of granite treat.
Speaking to you on the call. This morning is Kevin Ghauri, President and Chief Executive Officer, and Terry send that to 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, including but not limited to expectations regarding future earnings and capital expenditures as well as potential impact of COVID-19.
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 granites materials filed with the 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 2020 filed on March four 2020.
Leaders are cautioned not to place undue reliance on any of these forward looking statements and forward looking information.
<unk> undertakes no intention or obligation to update or revise any of these forward looking statements are 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 standardized meaning under international financial reporting standards.
Please refer to the Q3 2020 condensed combined unaudited financial results and management's discussion and analysis of 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 Glory.
Thank you operator, and thank you everyone for taking the time.
To join US for our Q3 earnings call I.
I hope, you're all doing well.
As usual I am pleased to be joined this morning by Teresa Neto, our CFO, Lorne Kumer or executive Vice President of real estate, and Michael run pairs or senior Vice President Global real estate and head of investments.
For our call. This morning, Teresa will begin our discussion with the review of our financial highlights and then I will provide an update on our operations acquisitions development and he is she and then open up the call to any questions that you may have.
Theresa Thanks, Thanks, Kevin and good morning, everyone.
Granted third quarter delivered solid financial results with a continuation of the strong same property NOI and FFO and AFFO per unit growth relative to prior year.
And so per unit in Q3 was 96 cents, a three cents or 3% increase relative to prior year and once that lower than Q2 2020.
Included in this quarter's debit, though is a severance charge of 1.1 million related to the departure of a senior management member.
Excluding this severance items and AFFO per unit would be 98 cents on a more comparable basis further.
Further we continue to realize fair value losses related to the revaluation of trustee deferred stapled unit liabilities due to the increase in grants uniprise, which negatively impacted the third quarter with a happened million dollar spend we're close to one cents of AFFO per unit.
And so this quarter has been positively impacted by strong same property NOI growth, but was partially offset by net negative foreign exchange translation of our foreign based income representing over 85% of our AFFO at the U.S. dollar weakened by 3.9%, while the euro strengthened 2% on average in Q3 relative to Q2.
Two.
Part of this foreign currency translation losses mitigated through brand its hedging program, which utilizes derivatives that protect granted against significant declines of both U.S. dollar and euro but.
The settlement of such foreign exchange derivatives resulted in approximately 23 million of net foreign exchange gains realized in the third quarter, partially offsetting the translation losses.
In addition at the AFFO per unit this quarter continued to be impacted by the temporary dilutive impact of the $289 million equity offering completed in late in the second quarter, where the net proceeds had not yet been fleet deployed and the higher interest rate expense from the $500 million Green Bond also issued in June.
Granted the AFFO on a per unit basis. In Q3 was 91 cents, which is one cents or 1% higher than prior year, but two cents lower than Q2.
Excluding this impact of the severance expense previously mentioned AFFO per unit on a more comparable basis for Q3 is 93 cents essentially flat to Q2.
And football related capital expenditures leasing costs intended incentives incurred in this quarter were light at 8.8 million, which was lower than 1.6 million incurred in the same quarter last year and lower than the 2 million incurring incurred in Q2.
For the fourth quarter, we are estimating total maintenance capital expenditures and leasing commissions and tenant allowances of approximately two to two and a half million where total your estimate of about 5.9 to six and a half million.
This year's maintenance Capex came in lighter.
Than expected due to the delay of certain project of this spring and summer months and is not reflective afford maintenance capex trends.
We are expecting maintenance capex tenant allowance and leasing costs to increase in 2021 to approximately 15 million or about 30 cents per square foot.
Airbus, though also continued to be impacted by the temporary dilutive impact of the June in both June equity and bond offerings mentioned earlier as well.
As a result of a relatively low capex quarter and strong AFFO performance. The AFFO payout ratio came in at eight <unk>, 80% in the third quarter.
And why on a cash basis for the quarter increased 14.2 million or 23.5% from the same quarter last year and by three and a half million or close to 5% from Q2.
Same property NOI for Q3 came in very strong relative to Q3 last year, increasing 6% and on a constant currency basis increased 3% driven by occupancy gains in the DTA, New Jersey in Oregon, contractual rent increases and rent from an expansion completed at one of our West Jefferson, Ohio properties.
Excluding the expansion rent same property anyway for the quarter is 5.4% and on a constant currency basis, 2.4%.
Do you need for the quarter was $2.7 million higher than the same quarter last year, and 26 million higher than Q2.
The variance to last year is primarily due to the 1.1 million severance charge mentioned earlier and $1 million in higher fair value losses recognized related to unit based compensation liabilities due to again granted an increase in grants unit prices for.
For the fourth quarter, we estimate DNA DNA will come in approximately 7.5 to 8 million, which includes approximately 1.6 million of non cash compensation expense, but again assumes no fair value losses or gains associated with the increase or decrease in our compensation liabilities, which we cannot predict.
With respect to current income tax for Q3 20 current income tax was 2.2 million up slightly about point 1 million from Q2 due to four in the foreign exchange impact on Euro based current taxes Kurt.
Current tax for Q4 should be consistent with Q3, excluding any current tax expected to be realized on the sale of the spring asset.
As mentioned on the first quarter earnings call, we have another potential reversal of $1.7 million of tax provisions in the fourth quarter, but cannot assess whether they these tax assets can be related at this time.
But trust balance sheet, comprising total assets of approximately 5.9 billion at the end of the third quarter was positively impacted by approximately 62 million in fair value gains to grant its investment property portfolio offset by approximately $19 million in translation losses on branded foreign based investment properties, where the U.S. dollar.
Weakness exceeded the impact of the strength in Europe.
The fair value gain of grants investment property portfolio is attributable attributable to fair value gains in the trust GCA and U.S. properties as well as the trust modern distribution warehouse assets in Germany due to increases in fair market rent assumptions and declines in capitalization rate.
Partially offset by fair value reductions in a few of the trust Austrian assets.
The trust overall weighted average cap rate of 5.8 decreased 20 basis point from the end of Q2.
Total net leverage at September Thirtyth was 24% only slightly higher by 1% from Q2 and the Trust's current liquidity is approximately 1 billion representing cash on hand of about 540 million and the Undrawn operating line of 499.
No former the announced Atlanta acquisition liquidity will is estimated to be just over 900 million I will now turn the call over to Kevin. Thank you.
Thanks, Teresa as always I'll keep my comments brief.
He says I Trust, you've had an opportunity to review your Mdna and press release.
First echo Theresa's comments on our quarter, our FFO and AFFO were impacted by the dilution from the equity offering in June and partially offset by lower capex, but overall, a very solid quarter operation operationally right.
Complete on our use and development and we continue to evaluate market conditions for potential commencement of construction of the first two buildings in 2021.
We should have more information on this in the in the fourth quarter Cole.
We have now repriced, our development project, an outback, Germany and expect to commence construction of the 300000 square foot building in the first quarter of next year.
We have also submitted for site plan approval on our 600000 square foot village Creek development in Fort Worth, Texas and expect to commence construction in the second quarter of 2021.
Finally, we are finalizing the scope still of the planned expansion of the <unk> facility at 2095 logistics drive in Mississauga and subject to final building permit we now expect to commence construction in the second quarter of 2021.
From a leasing perspective.
Two 4 million square feet of leases were scheduled to expire in 2020 to date, we have negotiated extensions on new leases on roughly 2.1 million square feet at an average increase in rate of approximately 75%.
The remaining 250000 feet of expires in 2020 are not expected to renew and the spaces in Europe and the US are currently being marketed for lease.
After 626000 square feet of current vacancy we're finalizing terms on a new new lease for roughly 300000 square feet in Memphis.
And as a result, we expect our occupancy at year end to be in line with this quarter.
For 2021.
One 9 million square feet of roughly 4% of our leases by GLA are scheduled to expire and to date, we have renewed roughly 1.3 million square feet of those expires at an average rate increase of roughly 3%.
As Theresa mentioned earlier and as disclosed in our MBNA Saint property NOI increased by 3% on a constant currency basis, and two 4% excluding expansions in line with our expectations for the quarter and year to date at this point, we expect same property NOI for the fourth quarter to be in line with this quarter.
At this time I would like to provide an update on the use of funds four or $500 million Green bond, which we completed in June.
To date, we estimate that we have completed or committed roughly $350 million in qualifying green projects comprised mostly of certified green buildings.
And by virtue of our planned development program.
We expect to add approximately 100 million in qualifying project to that total in 2021.
So we are making excellent progress on the application of the Green bond proceeds, which should also enabled granted to issue green bonds and future.
With respect to the distribution increase as.
As I've stated in the past or objective granted is to put ourselves in the right position to be able to increase distributions and maintain a conservative payout ratio not.
Notwithstanding the potential risks associated with Covid and related restrictions, which were considered the board agreed that an increase in the targeted annual distribution for 2021 to $3 was appropriate and that we can continue to maintain a balance of higher distributions and a conservative payout ratio.
On that note I will now open up the floor for any questions.
Thank you Okay I'd like to register a question. Please pass the one followed by the far on your telephone. He will here can you count prom technology turning class. If your question has been answered hanging like to withdraw please pass the one followed by now.
One moment.
Our first question comes from Chris Copay with CIBC.
Go ahead.
Good morning.
Just given the fact that you have very limited lease explorations this year or next any.
Commentary at all on what tell organic growth may look like in 2021.
Yes things, Chris 2021, it's still early for us, but we expect it will be in the two 5% to 3% range for 2021.
Okay.
On average that is on average per quarter for next year.
Okay. So is two and a half excluding expansion is 3%.
Yes.
Okay.
And then just on.
The series too dependent debentures at a maturing next year.
Any kind of early thoughts on refinancing plans, there and what type of right do you think you might be able to achieve relative to the the existing swap right.
Yes, so Chris yes that is on our mind and we're watching timing on that again.
Care for as far as the prepayment penalty. So it is something we will be looking at early in the first quarter.
Right now the bond markets are quite favorable and so refinancing that you just on a Canadian coupon 10 years, we could be in the queue and a half percent range seven year around 2% and swapping that would be lower and around one 5%. We go 10 years, so about a 1% lower than what we currently.
Have it flopped in right now for the 2020 lines.
Okay, great. Thanks very much.
Thank you and the next question comes from Sam Damiani with television Securities. Please go ahead.
Thanks, and good morning, everyone.
Wanted to start off with your comment Kevin about the I guess the evaluations in the sector.
Accelerating during the second and third quarters. So could you provide a little bit of color on sort of the dynamics of some of your negotiations that were going on to the vendors kind of pull the properties stock off the market and hoping to get sort of higher prices later on or did they retail the retreating going on like what's.
What's sort of what's happening real time, I guess when you're in your acquisition pursuits.
We will assume all speak more to the second quarter than the third.
In the second quarter, there was certainly a downturn depending on the market. It was it was brief too reefer.
And you saw the the three acquisitions that we announced in the GTA and two was it felt.
And I will speak to those acquisitions is kind of lead into market conditions, but.
During that time, we saw a number of opportunities that across our radar in the GTA.
And we liked these opportunities because they were really good locations. They had a good growth profile and we felt that pricing was impacted by covid. So on a per square foot basis cost replacement, we felt comfortable.
In the U S. It was a different story the the investment market market fundamentals to a degree, but particularly the investment market snapback much faster.
And there were new entrants and pricing competition was higher accrue.
Across our target markets anyways.
And so it wasn't so much that vendors were pulling assets I think that the the the volume of opportunities continue to grow later in the second quarter. It into the third it's just that pricing had gone up in our minds quite considerably and cap rates had fallen and so you're seeing that in.
Terms of our Ifr's values, but we certainly we're seeing in the markets, we potentially mistakenly thought that there would be more value opportunities out there as a result of covid.
But there was just too much capital chasing good products, good industrial product in our target markets and pricing became much more competitive much faster than we expected.
Helpful. So was a fair to assume that the granite may have.
Pull back a little bit on some on some sort of some negotiations and just to sort of.
Take a bit of a pause and see where things.
Because I think the commentary last quarter was that you hope to have the bulk of the liquidity.
Deplored by year end.
Well I think there's just.
That's fair, but I think it just validated our strategy the whole time, if there is a.
Large portfolio or even a large asset and is fully marketed it can get very competitive all it takes is for one group to Wanna place capital quickly and it can move the market for that asset.
Where I think we're having success most recently as we continue to.
Have access to off market deals and so I think the comments I made about our piece of acquisition the fourth quarter is accurate.
Are inactive discussions on a few strategic opportunities and I think that will get those done. It just again reminds us where there are modern assets or portfolios that are fully marketed we're just probably not going to have success.
Taking a lot of those down just because we're pricing tends to end up in this market.
It's helpful. Thank you just switching over to to I guess the comment on the.
The 250 K square feet of role in the fourth quarter that you do not expect to renew and then I guess there was a vacancy in Australia in the third quarter are the bulk of these magna facilities by chance.
No they're not actually the the 250000 includes the vacancy in Austria that you mentioned so that's one and then the other ones in Savannah.
So that one was not magna. So we are looking to renew that space in Austria to a new tenant and then the one in Savannah, we're pretty confident on in terms of the release ability we were in in discussions with the prospect I'm not sure where we are in that so we don't expect that they can see to last.
A long time, but that's that's the to that.
That I was referring to the 250000 feet in total.
And I guess, the Austria asset as a piece of a larger building that Bang there's got up.
Partial occupancy of or is it a singleton magnet mania was Maine. It is one of the tenants and this vacancies non related to magnet. This was another tenant.
Understood. Thank you very much.
Thank you. Our next question comes from how it Liang, Missouri investment research. Please go ahead.
Thanks, and I am.
Want to return back to that.
Your question about acquisitions.
Kevin You mentioned you point out some of the sales sales leasebacks that we're done this quarter, where they off market deal. Then do you see more sales leasebacks in the near future or in the pipeline, maybe some owners also need capital because.
Covid obsession.
Alright, well generally I do expect to see.
Sales leaseback opportunities increase to your point.
It's very important for us and for for owners look into these opportunities to make sure your underwriting the tenant in the space very carefully which we do so we do expect to see more.
Of the ones that we announced.
There were two that I would characterize as off market or very selectively marketed and there was one that was more broadly marketed and frankly.
Think that the one that was more broadly marketed.
Was probably the best pricing just because of the timing. It was so early on in April.
And Covid that we felt.
Reising was obviously impacted significantly by the by the conditions around Covid and the concerns.
And Ah provided us the opportunity to add this to our portfolio it.
A good price.
Thanks that Sir that's helpful.
<unk> returned to the leasing vacancies I think in the U S portfolio areas. They can see even in the beginning of the year 402000 square feet is that I think you mentioned that you are in discussion to be something in Memphis that bulk in the Memphis, the bulk of the make and keep a mess right here yeah.
There was one in Novi Novi, Michigan, and just to make a point to theresa's on the Capex for next year, that's accurate, but that does include a about a quarter of that's related to our Novi, Michigan asset, which is effectively an office asset. It's a legacy asset we do want to it's not a core asset of ours, but we do think that there is value to add.
Really seem that space and then looking to sell but there is capex associated with that it makes up almost a quarter of are expected spend next year. That's 90000 feet in the remainder 312000 square feet as Memphis and that's the one that I was referring to in terms of negotiating a lease on that space.
Okay, No that's great that's a good color.
And then just a question on your way average lease term biggest we've kind of seen it take down a bit.
I think maybe that's a side effect of selling something magnum properties.
The last six years now you I guess, how does that kind of relate with your view on any potential long term recession effects from Covid I guess does that mean that you think that it might not last much longer and they're not too worried about that kind of lease term shortly.
Well, it's a good question I think a big part of it though was the portfolios we added in the in the Midwest in Memphis, those were shorter and we actually we love the call. We liked the markets, we like to call the assets and we felt that they provided strong growth potential. So we will we.
Billing for the average wait at least hear him to go down to capture some growth because we believe in the quality of those assets in the location.
Ian said, we are mindful of the lease term in the current environment in which we're in and so as you can see I felt like we paid market for the PVH asset because that provides good credit and a long term on a large asset that's brand new in the Atlanta market. So I.
Just put it this way where we feel we can capture growth and we have confidence in the market and and the assets were willing to take a short lease term.
But at the same time, we are mindful of the overall weighted average remaining lease term and to US stability is a very important consideration.
And I, just I'll make that point, so I think because of PVH and other acquisition opportunities were looking at I do expect that weighted average lease term to take up slightly.
In the coming quarters.
I just did the point that would be because we're mind oven, we're mindful of it particularly in the current environment in which we're in.
For sure Yeah, there, there's kind of a need to balance both sides.
And then just mainly another one I kind of saw contractual adjustments they seem to improve as a percentage of base rents.
I guess with with the number I think some of the actresses you announcing a date and also have contractual adjustments or steps in there as well do you expect to see that being a strong contributor to organic growth or is it kind of be similar to what we've seen in fiscal 20.
Well I think it's I think we have seen and contribute to ours.
To our organic growth and I think it will continue to and again like the weighted average lease term.
The growth in a contractual rand's is important to US is a consideration if there is an asset we really like and it's flat ran for seven years.
What we're willing to pay for that asset matters.
So all of the acquisitions, we've announced have contractual rent escalations and we expect to see that on the vast majority of acquisitions that we make and certainly any lease deal were involved with it's a it's a very important consideration you mentioned covid, though so I think.
At one point the expectation on the annual rent escalation was getting quite high whether that moderate somewhat in this environment would be would be a fair question I think but rent escalations are are are an important consideration for us anytime we make an acquisition or make any leasing.
<unk>.
Right and just on that for the rent Escalations are you are you signing more fixed wrentham estimations. These days or is it still link to CPI and and what's the next right now between your rent escalations like how much it is.
Linked to inflation, how much a six.
The vast majority are fixed rent escalations and that's in North American saying.
We have CPI indexed.
In our in our acquisitions and developments in the Netherlands, and that's typical in the Netherlands, and you see that very much in Germany in North America, it's much less common although we do have a number of magnum assets that are CPI index, including motor Tech and Carmax too large assets and Milton those are CPI indexed but.
Overall over 100 plus properties the majority are fixed.
Annual increases.
Okay, great and I guess, even even because you've been able to renew leases in there hasn't been any kind of pushed back.
During covid about each kind of picks escalations.
No in terms of existing tenants no.
No, they're they're great so to be fair I should say to date to date. There has not that has not been that has not been a focus in our portfolio anyways.
Okay.
Okay, that's great. Thanks.
Turn it back.
No problem.
Thank you.
The next question comes from the line of.
<unk> quit National Bank financial please go ahead.
Good morning Us.
With regards to just a follow up to Howard's questioning there on the lease term.
Stability versus rent increases are your competitors of the market more generally pricing.
<unk> chairman stability differently than mark to market potential or is it is it market specific are generally are there any trends there.
Yeah, I think that's fair I think.
When you were in a really strong market kerning credit tends not to matter.
And we saw that I think in the fourth quarter of 2019, and frankly, the first quarter of 2020.
And then Covid hit all sudden tenant credit matters.
And it was also it was always an important part of our underwriting I can assure you of that and I think when you look at our rent collection, it's hard to say that as we've acquired and developed so much that hasn't been part of our DNA in our motor.
Modus operandi.
So.
It has become upgrader interest to buyers, we've seen that I'm not sure I can quantify how much that is.
But we have seen deals with to me very low key AGR.
On medium to long term leases with credit that have gone for prices that are really surprised us. So that would suggest to me that tenant credit in today's market matters.
More than it did nine to 12 months ago.
It makes sense with regards to the P.
PVH acquisition is that.
Sorry was there rent step provided and any of the disclosure can you provide that.
We didn't know.
We we have to be careful that under the terms of the lease where we disclose but it does have annual rent escalations.
Okay Fair enough and then Theresa on straight-line rent I apologize if I missed it in your comments, but the uptick in this quarter, what would that have related to and how should we think of it going forward.
I didn't mention that but yes, there are two assets. So the <unk> development, which came online in June 15 on June 15th last quarter that does have free rent until November.
So that will wear off in Q4, and the Kilburg asset in the Netherlands, which we closed in on July 1st that will have free rent until next year. So we'll be income cash producing and next year. So that's the way that uptake is coming from okay, and and in terms of the the quantum.
We should expect sort of in Q4, and then what what it would go to into next year can you provide that.
If you don't mind can I get offline fine sure absolutely that's it for me thanks guys.
The next question comes from Fred Blonde Gal within the account online security. Please go ahead.
Thanks, and the good morning, I'll be quick I was wondering if you could give us submit the color on the strong same-store NOI growth in Canada, this quarter and what would be the drivers.
I think we had.
Yeah.
Yeah, I think yeah. There were a few there with some leasing done last year, Fred that contributed pretty heavily including Tessmer in von which was released Amazon that was a contributor and we had a.
Rent increase in our cleared real asset with Magna, which kicked in I believe in the second quarter of this year or actually maybe it was July 1st.
So they were a few assets that.
Chevy is quite a bit.
In the quarter.
I'm, sorry to say that it was somewhat.
A normal type of growth or not the growth you would expect for the next two quarters or something.
I think it will go down a bit in the GTA in terms of I mean, we have one that we expect to come up in the fourth quarter and we have tests on the same property and Roy growth, where we expect that to go down a moderate in the fourth quarter. So I think it will be.
Think it will be lower in the fourth quarter still positive obviously.
The lower the fourth quarter as rules. So I think it's fair to say will moderate in the fourth quarter moving forward.
That's great and the second just on the disposition of these magna facilities in September and October could you remind us what what would be your you'll commit target exposure to magna and you're and you're expected timeline from here.
We I think we said at the end of this year, we expect it to be around 35% and hope to be below 35% and and again I will emphasize that we're very fortunate to have magnet as a major tenant during a period of time like this they've been very professional.
Through this haven't missed rent as Lorne always reminds me they didn't miss any rent in 2008 and 2009 as well. So they provided that stable cashflow that we thought that they would but just to repeat.
There are non core assets, obviously that.
Don't fit in with our investment criteria today.
So we want to or expect to get under 35%. This year for next year, probably somewhere below 30% would be a target.
In <unk>.
Just to say to.
To remind everyone a lot of our portfolio with magnetism is in the GTA.
Say somewhere between 15 and 17% of our total portfolio is in the GTA those could be longterm holds just by virtue of the location and where we think land values are.
And then in Austria again, these are all mission critical facilities with Magnum and.
And we feel that there continues to be the opportunity to add value to lease extensions.
Et cetera, and and there will be a time, where we will look at.
A possible disposition of those assets, but we can afford we believe to be <unk>.
Patient with that so I don't want to look longer term, Fred and maybe 2021.
And hopefully that hopefully that helps.
Absolutely and ask you what what would be the the.
The profile of the buyers of distress to these generally speaking.
Definitely I think we've seen this isn't just a 2020 thing, but I think it's accelerated in 2020, what we've seen in the past couple of years is private equity.
Buyers have been interested in longterm leases with good covenants and we've seen.
Those buyers get more aggressive each year and I think covid is probably accelerated so.
I wouldn't say anything specific but but definitely what we have seen as an increase in interest with facilities related to good credit with term.
And that's I think that's kind of where.
Where the world is going in terms of cash flow stability.
It's becoming more valuable to investors then maybe it was two or three years ago.
Mhm, Oh, that's great. Thank you I'll leave it there.
Thank you. Our next question comes home Joanne Chang with BMO capital markets. Please go ahead.
Alright. Thank you good morning, Okay Sir.
I've had a couple of quick ones real quick just give him a cause that's fine, but my collection I'll be a superbowl and.
Previous professional like Saint cards, too long going that escalation you did say that you know Q for asking alive, probably attending I think direction. That's cute through perhaps so that you can give us a little bit color cause of what your account so I'll try that.
For the next year expect some kind of online Penpal Carol clear from 2028th of 2021.
In terms of leasing do you mean or or organically in terms of organic growth.
Yeah.
I think I think the question was asked to we think we guided this year or two 3% to 4% 3% without.
Expansions, 4% with expansions, we think next year will probably be a percent or maybe a little less below that because we have less role.
The GTA that that happened in 2018, 2019 and 20.
Then we do for next year, so slightly lower than than this year in terms of organic growth in in terms of occupancy pending what what happens we expect occupancy to remain relatively stable from where it is today into 2021.
Okay, Great and I guess the checking.
What we're saying and cancel that appointment.
Asking liquidity.
Or would it be kind of a balance of control.
Development or <unk> <unk> assets.
I paid it a special with regards to the kind of pricing environment that you're feeling right now and then maybe perhaps looking to the library.
Oh, and whether there are certain geography's wearing ear more focused on at this point.
Yes in terms of stabilized versus development.
And you know the the assets that we intuitive three assets, we announced anyways. The GTA, we see is Israel value at and providing a little bit better growth for us.
As we look forward in the fourth quarter right now what's in our pipeline is more stabilize assets than say value add although one I would I would possibly characterizes.
Combination of core value at.
We don't have any development land currently in our immediate pipeline and we have.
Somewhere between probably 100, <unk> 140 million next year plan for development.
Would we look at new development opportunities absolutely in terms of the markets.
We do expect to continue to be busy and our target markets in the U S.
And in Europe, obviously, there are restrictions now on travel.
In Europe, there could be restrictions on travel in the U S, which could impair the team's ability to pursue acquisitions in certain markets. So we will see but we do expect to have a pretty active year in 2021 in terms of acquisitions I would say, we do want to add more development.
Land to our portfolio in 2021.
Okay, Great and I guess that maybe this way I can look around that development.
Actually all that development.
What was that <unk> are you looking at for that property.
Well when we did the first go around before Covid hit we were in discussions I mean, there are some dominant I don't need to mention names, where there are some dominant companies in the Stuttgart area that we're in discussions are looking at asset.
There was also a global E commerce provider that was looking at asset and there was also a food distributor. So it's very broad it's kind of across all.
All users in terms of what Hoover targeting we're not really targeting anyone I think we build the best generic box we can.
And we want to make sure that it could be used for ecommerce it could be used for last offer last mile or it could be used for conventional distribution, where we're not building as a manufacturing building that's for sure. So we're not exactly targeting a tenant we're just trying to build the best Distributional logistics facility and then we'll see.
The market will decide with the best tendency is for that for that space.
Okay, Great and maybe just one last one for me and perhaps.
Oh, I, Kevin how attractive but yeah.
At that time. Thank environment is is the thought still for Paul.
<unk> kind of around at seven times range.
Yeah, Joanne and we definitely are committed to keeping it in and around that level of the right right now like on it that that David hour, obviously close to like closer to five bag.
Our target is around six and a half to say seven times. So we are still continuing that.
Okay.
Okay, Great. That's it for me I'll turn it back.
Thank you for our next question comes home, Hey Man check account Scotiabank. Please go ahead.
Thank you and good morning, just a follow up on the mountain that as physicians to talk with us at <unk> and one in Spain. What was at least left on these properties and are there any board member dispositions of the new account, you're working on especially given that you know you mentioned that the private equity capital.
As of label for these type of my life.
Yeah. There was a few things because of these these assets uhm there they were all less than five years and these particular assets. The tenant magnet has five year renewal options. So you'll never have more than five years on those.
What was the second question.
Are you walking on any more of an amendment is felicia someone nieto. It looks like the company is available for these kind of assets supermarket, well we expect.
We're working on nothing in the near term.
And we expect in 2021 in terms of dispositions to be near the 50 million Mark in total.
So that's what we expect in 2021 and beyond what we've announced we don't have anything immediate in terms of dispositions.
Alright, and then just turning on the acquisitions.
<unk> you made see small acquisitions are you looking to buy a new one by one or are you ready to do some portfolio acquisitions as well.
In general How's the acquisition pipeline into G T.
Well I mean, it is it continues to be quiet in the in the GTA. There's just.
The one that owns good assets in the GTA wants to hang onto those assets in the GTA. So there isn't a lot of lost the or volume there.
Your question of our portfolios, we're always happy to look at a portfolio, but I will remind everyone that it is our experienced particularly in Canada.
That portfolios.
Tracked higher pricing and.
And typically.
Have assets in the portfolio.
That we don't necessarily want.
So we just had more success looking at smaller portfolios or single last sentence, because we can evaluate better if they meet our investment criteria or not so we're open to it.
But we are mindful of the quality of the assets within the portfolio when the pricing of the portfolio and so far we've had more success in our minds pursuing single asset acquisitions rather than portfolios.
Yeah.
And what kind of portfolio P. M. Do you thing you know on these portfolio Rosemary.
Quiet duplicate it.
It's heard that as long as well.
I mean, I think that would be fair, it's hard to point and antennae real data set in Canada, because you're not if you're seeing a portfolio. It could be small day industrial tertiary markets. So it's really hard to 0.2.
In some ways you could say that there is a discount if you're saying it's going to be a portfolio of a million square feet and it's modern product. That's a different story I think 25 basis points would be very fair, we do see more of those deals in the U S and the larger the portfolio higher the premium.
And that may be because the larger the portfolio of the better the quality, but again, you will still end up with 20% to 30% of the portfolio, that's not as high quality of the others and it could be in markets that are not in your target market set.
And we've definitely seen at least 25 basis point premiums on those types of portfolios. So probably best for us for shareholders not for us to spend too much time looking at those opportunities.
Absolutely and that'll just any attention to the Atlanta property, you bought 1 million square feet for four cats eight pricing looks strong how much do you think market has motions or beginning of the year and what is the investment case here and are you also begging at any intensification potential.
As the I think that's all <unk> since you will get out of a large piece of land.
Yeah. So so one I think you mentioned a couple of things one is Atlanta has been on our radar for awhile. We think it is a very important logistics market. There is a lot of supply but demand to date has continued to keep up with it and we think with the continued emerging substance Savannah poor.
You know, we like the Savannah market.
We think Atlanta is going to continue to be a very strong critical distribution market for the U S, particularly the east coast of the US So we liked that market.
This asset is a fully conditioned.
Asset, which I think gives it advantages in a market it as a long term lease with a credit worthy tenant.
And so for us it made sense and there are rent escalations as I mentioned, so there is a decent growth out of this asset for the next number of years. It was a good fit for us. It's a good entrance into the Atlanta market and we don't believe that we are done in the Atlanta market, we want to continue to find opportunities and <unk>.
Rover footprint in that market.
Alright, and then just sort of developments and especially the acquisition market a little stronger the U S.
The Atlanta do you think how's the development shaping up in Dallas, and Houston, and especially you know the pricing has more would you actually need to develop and death on both of those projects.
Yeah I think.
Just a further point to start on Atlanta, and we've been asked this question recently it feels like there has been very strong strong to very strong cap rate compression across most of the U S markets. We've certainly seen it very strong and or Midwest markets like Louisville, Cincinnati et cetera.
The markets the the core markets or the tier one markets like L. A and Miami there has probably been cap recompression, but well what we've seen is the very large secondary markets.
The compression has brought those cap rates closer to L. A in our view so Atlanta has been one of those markets.
Would typically have been for newer product in the high for cap range. It certainly now in the low for cap ranch and we have seen for flat deals.
In Atlanta for the right product, so cap rates of compressed more in Atlanta.
Louisville Dallas continues to fall then maybe some markets like L. A that's something we've observed the developments that we have I would say Dallas, we're very comfortable in that location. It's a seven minute drive from downtown Fort worth we're very comfortable moving ahead with spec and that will be the plan once we get.
Approval to move ahead with with that 600000 square foot facility Houston.
Longterm, we still really liked that market, but Houston has been hit not only by covid, but by oil prices. So we we.
We certainly observed that there has been more softness in Houston than our other markets. So we prep the sites. The plan is to wait until the new year evaluate the market and decide when to go. So it's it's a tale of two cities to be honest with you we do expect conditions too.
To approve improve in Houston, probably by the second half of the year.
And maybe move ahead, but uhm as of now we're going to continue to evaluate that market before making the go decision on Houston, but Dallas for sure will go as soon as we are able to go.
Gotcha and you mentioned in your you know call it something about the can't pay markets like any are you willing to look at that market. If you get something in the signal pricing like account. So I can make for a cabinet.
And how was the event go to central would you like T M. A N some of the other market.
Well, we're very we're very ire are driven here so.
And that's our thesis as I've mentioned for.
For Europe for European markets.
Not necessarily the three and a half or four cap I don't want to scare anybody, but it's not necessarily the going and yield that scares us.
It's the coming out yield and what the IRR is like where long term holders of real estate.
And so we do look at markets, we look at Seattle, We look at even San Francisco that market around Oakland.
And if there is if there are compelling growth opportunities. There then absolutely we would carefully consider.
Opportunities in that market.
But to us we see decent rent growth prospects in the markets were in now and we're seeing going in yields that are still higher than L. A so we do look at that it just to us makes more sense for us to continue to look at the target markets.
That were in today.
Sure and maybe just finally once told me on the maintenance Capex guidance for next year I think Tony say, you mentioned $15 million.30 per square feet.
Is that a go forward and what is that late or do you think there is no. Yes, yes, I'm 2020, as well which was hold on the website.
I think probably because we do have about almost $4 million in there that's allocated specifically to the Novi asset, which is more of an office type asset.
Perhaps you should be looking at more something along the lines of like 12 million or so and I think we should be looking at is more of a trend going forward and that 25 cents range to 30 cent range per square foot.
Awesome. Thank you guys I'll send it back.
Thank you.
Thank you. Our next question comes from Mike My kidney.
Are there any capital markets. Please go ahead.
Alright.
Good morning, numerous luck, but anyway.
Karen you mentioned that you can't really color on the pricing snapback that you saw in and.
And maybe that's why you both with a <unk> with.
With the recent acquisition.
If I'm mistaken I didn't really hear much about Europe, so maybe just give us a call.
No sooner contrast to what you're seeing there over the last three or four months.
Well Europe has been quieter.
It is getting busier now but for example, what we saw was.
Transaction volume or acquisition opportunity volume drop sharply in late March and April in the U S.
And I would say by June or July it had come back.
And clearly there was a lot of demand for product and part of it maybe was there was a lot of demand for products and acquisition opportunities. We're just starting to ramp up so there was too much demand for too little product.
In the second quarter and by the third quarter transaction volume in the U S had returned almost to normal.
In Europe that didn't happen. So July August was quiet and that is partly a European saying it is very quiet in the summer you don't expect to see transaction opportunities to happen before the fall. So I think that's really why we did we just didn't see that much transaction volume in Europe, because that's typically what you.
Don't see in the summer we are seeing greater volume now.
But again, we're heading into a period of potential restrictions. So it will in that case I would not be surprised to see vendors pole.
Certain opportunities because a lot of parties will not be able to.
Physically underwrite those assets. So we'll see if that has an impact on the European market.
Later on this quarter in early in 2021.
Okay, and then just falling on there.
I need the name.
I I'm, sorry, we didn't hear that Mike.
Oh, sorry, it's with them I think you mentioned you got a couple of things that you are working on now is just curious if any of that is in Europe, It's all North America.
Yes, no no there are a couple of opportunities in Europe that we're we're we're moving down the road on hopefully.
Okay, great. Thanks very much.
Thank you.
Okay. It's a follow up question from San Danny any with television security. Please go ahead.
Thanks, I just wanted to touch on on the Leafs expiry schedule. It did look like your 2024.
We'll has come down a bit too seemed to address the one more leases there.
Perhaps that was a magnet least that was renewed and just just wondering should we.
Like are you are you prioritizing some of that lease role in 24.
Be addressed within the next sort of 12 months in this kind of ties to the questioning earlier about the special purpose properties as well.
So are you, saying you mean 2021 or 2024 24, I think the 24 roll came down by about 10%.
Quarter over quarter.
Yeah.
And must be the sale of the assets great I'm looking at the team unless you had a sales those assets at.
Alright, that's it thank you very much.
Alright, no problem.
Thank you I am showing no further questions at this time.
Thank you operator, so on behalf of the trustees and management team here at granite. Thank you again for participating in our call today and to our unitholders. Thank you for your continued trust and support and a special shadow to our team Indiana.
Hang in there and Christian rest in peace.
And can that concludes our conference call for today, we thank you for your participation and ask that you. Please disconnect your lines have a good day.
Okay.
[music].