Q3 2023 Granite Real Estate Investment Trust Earnings Call
Okay.
Good morning.
Speaker 1: Good morning and welcome to Granite Reads 3rd quarter 2023 Result Conference call. As a matter of today's call,
Good morning, and welcome to the granite REIT third quarter, 2023 result conference call.
A reminder, today's call is being recorded speaking to you on the call. This morning is Kevin Gordon President and Chief Executive Officer, and Theresa Neto, Chief Financial Officer, I will now turn the call over now to Teresa Neto took over he started advisors. Please go right ahead.
Good morning, everyone before we begin todays call I'd 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 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 factors section of the annual.
Information for them for 2022 filed on March eight 2023.
Readers are cautioned not to place undue reliance on any of these forward looking statements and forward looking information the REIT reviews at the key assumptions regularly and May change its outlook on an on going forward basis, if necessary granite undertakes no intention or obligation to update or revise its key assumptions any of forward looking statements are forward looking information, whether as a result of new information.
<unk> 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 condensed combined unaudited financial results and management's discussion and analysis for the three and nine months periods ended September 32023 for granite real estate investment Trust and granite REIT, Inc, and <unk>.
Other materials filed with the Canadian Securities administrators, and U S Securities and Exchange Commission from time to time for additional relevant information.
As usual I will commence the call with financial highlights and then Kevin will follow with the operational update.
Granted posted Q3 2023 results ahead of Q2 and in line with expectations supported by strong NOI growth high interest income and lower G&A expenses.
And with low per unit in Q3 was 124, representing a three cent or two 5% increase from Q2, 'twenty three and a 14, 8% increase relative to the same quarter in the prior year.
The growth in NOI is derived from developments and expansions that came on online since the third quarter of 'twenty, two and strong same property NOI growth enhanced by double digit leasing spreads in Canada, and the U S and inflationary increases in Europe, partially offset by the disposition of two properties during the second and third quarters of 'twenty three.
And some new vacancies in North America well.
While foreign exchange was relatively flat overall compared to Q2, it can be a comparison to the prior year. The euro was 11% stronger in the U S dollar, 3% stronger, resulting in a positive <unk> impact <unk> per unit.
Interest expense was also lower in Q3, 'twenty three relative to Q2 due to the impact of lower interest costs, resulting from the refinancing activity completed during the quarter and higher interest income as a result of incremental cash on hand that was invested in high interest income accounts.
In addition, due to the timing of certain activities ethical related G&A expenses were approximately $42 million lower than Q2.
Granted if it though on a per unit basis. In Q3, 23 was $1.09, which is flat relative to Q2, and 12 cents higher relative to the same quarter last year with the variance is mostly tied to episode growth offset by higher capital expenditures leasing costs and tenant allowances incurred due to timing of leasing.
Turnover and seasonality.
It's a full related capital expenditures leasing costs and tenant allowances incurred in the quarter totaled $6 7 million, which is an increase of 2.2 dollars 2 million and point 1 million over Q2 in the prior year quarter, respectively.
For the fourth quarter of 'twenty, three we are estimating <unk> related maintenance capital expenditures leasing and leasing costs of approximately $7 million to $10 million for approximately $20 million to $23 million for the year.
Looking out to 'twenty 'twenty, four we expect maintenance capex leasing costs and tenant allowances to remain in line with 2023 levels and in and around $25 million for the year.
Same property NOI for Q3, 2023, with very strong relative to the same quarter last year, increasing 7% on a constant currency basis and up 12, 2% with foreign currency effects are included.
Same property NOI growth was driven primarily by higher than previous years CPI adjustments positive leasing spreads contractual rent increases across all of granites regions lease renewals in the U S and Canada and it includes the impact of completed expansions in Indiana and completed developments in Fort worth, Texas, and all back Germany.
Which had free rent periods and vacancy in the prior year, partially offset by a free rent period in the U S related to a lease renewal and vacancy at certain properties in the U S and Canada.
G&A for the quarter was $8 4 million, which was $1 9 million higher than the same quarter last year and $25 million lower than Q2, the main variance relative to the prior quarter and Q2 is the change in noncash compensation liabilities, which generated an unfavorable $1 3 million fair value swaying rare.
<unk> to the same quarter last year, and a favorable 3 million fair value swing relative to Q2.
These fair value adjustments do not impact as a floor a F. A full metrics stripping out these fair value adjustments as mentioned earlier G&A expenses that impact <unk> were approximately <unk> 2 million lower than Q2, which is mostly related to timing of professional fees and travel expenses.
For the fourth quarter of 'twenty, three we expect G&A G&A expenses to come in at approximately $90 million to $95 million or roughly 75% of revenues, excluding any amount for fair value adjustments related to noncash compensation liabilities.
Looking out to 'twenty four for G&A expenses, we expect a run rate of approximately nine and a half to $10 million per quarter.
On income tax Q3, 2023 current income tax was $2 1 million, which is point 2 million higher than prior year and flat as compared to Q2.
The movement in current tax relative to Q3 2022 is mostly attributable to the strengthening of the euro relative to the Canadian dollar as olive granted current income taxes generated from its European region.
As well as slightly higher taxes in the Netherlands due to depreciation limitations on a couple of assets.
For the fourth quarter of 2023, we estimate current tax.
Right two remained flat two relative to Q2 Q2, assuming no significant change in the euro FX rate.
As with the past few years granite has the potential to recognize the reversal of tax provisions in Q4 relating to tax positions taken on taxation years, which will go statue board totaling approximately $1 8 million. However, we cannot assess whether these reversals can be realized until after year end.
For 'twenty 'twenty four we are expecting current income taxes to increase to approximately $2 4 million per quarter as a direct result of higher revenues and the burn off of T. I amortization expenses in Austria related to the grassroot lease renewal commencing February one 2024, increasing taxable income.
In that region.
Interest expense was lower in Q3, 2023 relative to Q2 by <unk> 4 million as a result of lower interest expense, resulting from resulting from the refinancing of the high interest construction loan in Houston in June 2023, with lower interest costs draws from the credit facility and then with further improve.
<unk> by the Euro 70 million term loan that closed September seven which resulted in the repayment of the credit facility with lower cost debt at an effective rate of 4332, 5%.
Post the quarter end on October 12 granted completed a 400 million Green bond and concurrently entered into a cross currency interest rate swap exchange exchanging the Canadian dollar denominated principal and interest payments for a euro denominated payments, resulting in an effective fixed interest rate of 498, 5% for the five.
A half year term of these 2029 debentures.
The net proceeds from the offering will be used to repay a granted 2000 twenty's reedbird teachers with the principal outstanding of 400 million due on November 30th 2023.
Prior to that repayment of these 2023 debentures.
Janet is earning interest on the net proceeds from these 29 debentures at approximately five to five 5%, which will be reflected in interest income in the fourth quarter.
Therefore for the fourth quarter, we do estimate interest expense to increase to approximately $23 million, partially offset by interest income of approximately $4 million.
Granted weighted average cost of debt is at the end of the quarter was $2 two 7% and is expected to increase modestly to approximately two 6% after the repayment of the twenty-three debentures.
For 2024, given that we have no debt maturing until December next year. Our interest expense run rate is estimated to drop to approximately $21 million per quarter, which will be offset by some interest income of approximately half a million to a million per quarter.
With respect to our 2023 estimates granted guidance to episode has been updated and narrowed as we approach the final quarter of the year.
We estimate estimate episodes, where unit within a range of $4 93 to $5 in comparison to previous guidance of $4 90 to 505.
This represents approximately 11% to 13% increase over 2022.
<unk> per unit. Our guidance has also been narrowed estimated at $4 35 to $4 45 in comparison to last quarter's guidance of $4 25 to $4 40, representing an increase of 7% to 10% over 22.
The foreign currency rates driving the high and low ranges have been amended slightly for the fourth quarter for the high end of the range. We are assuming foreign exchange rates of the Canadian dollar to euro of $1 48, and the Canadian dollar to USD 139.
On the low end of the range, we are assuming exchange rates of the Canadian dollar to Euro and Canadian dollar to USD 1.44, and 1.35, respectively reflective of the current Canadian dollar weakness relative to both currencies.
The trust balance sheet, comprising a total absence of $9 2 billion at the end of the quarter was negatively impacted by $53 million in fair value losses on granted investment property portfolio in the third quarter, which was offset by $87 million of translation gains on granted foreign based investment properties, primarily due to the two 3% increase in this.
Spot USD exchange rate relative to Q2.
The fair value losses on granite investment property portfolio were primarily attributable to the expansion in discount and terminal capitalization rates across selective granite markets in response to rising interest rates.
Partially offset by fair market rent increases on multiple properties in the GTA, the U S, Netherlands and Germany.
The overall weighted average cap rate of 514% on in place NOI increased five points five basis points from the end of Q2 and has increased the totaled 46 basis points since the same quarter of last year.
Total net leverage as at September 30th was 32% and net debt to EBITDA was 7.3 times, which was has improved from Q2.
And as a result of same property NOI growth as previously mentioned and the completion and stabilization of the majority of grants development properties.
Granite continues to expect its net debt to EBITDA decreased to seven two times by the end of this year and to improve thereafter into 2024.
The EBITDA from completed developments come online throughout the year. The Trust's current liquidity is approximately 1.6 billion representing cash on hand of about $600 million and the Undrawn operating line of $997 million.
As of today granted has no borrowings under the credit facility and there are $2 $9 million in letters of credit outstanding.
Granted increased liquidity position from the end of Q3 as temporary elevated due to the net proceeds obtained from the 29 debentures at the beginning of October after repayment of the 23 debentures upon maturity and based on remaining development commitments granite estimates that it will end the year with approximately $120 million of cash on hand and no.
Draws on the credit facility for a total liquidity of approximately $1 1 billion I'll now turn over the call to Kevin.
Thanks, Teresa and it's certainly an in line quarter for us driven by higher NOI and lower net interest net interest expense as mentioned.
I'll begin with a brief update on our current development projects.
Our 410000 square foot build to suit project for Berry caliber continues to progress on schedule with substantial completion expected in the first quarter of 2024.
Similarly, the 50000 square foot expansion over our existing property in the Ajax is underway with substantial completion also scheduled for the first quarter of next year.
As a reminder, these projects are expected to achieve certification in accordance with our published Green Bond framework.
In addition to the projects just discussed we have 160 acres of land remaining for development in Branford to Houston in Columbus, which could accommodate up to two 4 million square feet of space once constructed.
As outlined in our press release and MD&A the team executed renewals on three leases comprising roughly one 9 million square feet involving two maturities in 2024, and $1 2026 maturity and an average increase in rental rate of 33%.
With respect to our 2024 maturities.
We have now renewed $7 4 million or 75% over $9 7 million square feet of maturities and an average increase in rental rate of 14%.
That increase primarily driven by the 10% increase on the garage renewal.
Further we anticipate achieving roughly a 20% increase in rental rate on our remaining maturities in 2024.
As Teresa mentioned same property NOI increased by 7%.
In the quarter on a constant currency basis within expectations same property NOI was positive across all of our geographies on a constant currency basis exceeding 6% with the exception of our Australian portfolio.
Driven partially by strong renewal spreads in North America development stabilization and strong CPI increases year to date in Europe, offset by lower occupancy in our U S portfolio.
We expect same property NOI to moderate in Q4 as mentioned and now project same property NOI to average in the low to mid 6% range over the four quarters in 2023 due to higher vacancy and lower CPI increases in Europe in the fourth quarter versus budget.
We will provide specific <unk> and same property NOI guidance on our Q4 call, but for now we can state that we expect same property NOI growth to be higher for 2024.
As you can see from our disclosure, we adjusted cap rates and discount rates normally in the quarter based on relevant transactional data in the U S and the Netherlands.
Excluding FX movement, roughly $270 million in negative fair value adjustments associated with terminal cap rate and discount rate adjustments year to date has been partially offset by $120 million and gains from a combination of development stabilization and increase in value, resulting from the long term renewal of three properties in the <unk>.
In Germany, and an increase in the fair market value of our land for development in Branford.
Alright, okay.
Yes.
Looking forward.
We will continue to monitor.
Comparable transactions in our markets.
And further adjustments may be appropriate.
But at this point it is difficult to estimate the direction of asset pricing reset.
Recent optimism among investors that the pause in central bank increases will be sustained and reductions potentially on the horizon may incent buyers to return to the market the liquidity issues and limited access to credit could appear buyer prospects in asset values in the short term.
As for a general market update leasing activity continued to slow in the third quarter as higher interest rates and economic uncertainty continue to impact tenant activity broadly across the real estate sector.
On a comparable basis our markets. Once again represented eight of the top nine markets in the U S for net absorption totaling 22 million square feet for the quarter and over 100 million square feet year to date led by Dallas, Chicago and Houston.
So despite the increase in vacancy the data illustrates that the logistics and manufacturing sectors continued to invest and grow in our key markets due to a combination of a strong business climate in labor force critical logistics infrastructure and proximity and connectivity with a large percentage of the U S population.
These are characteristics that we believe will continue to attract tenants and drive growth over the long term.
As for rents the data suggests that market rents increased roughly 3% on average over the second quarter across our U S markets led by the 70 881 corridor Savannah, and Louisville, all in double digits.
The Indianapolis posted a slight decline in rents negative one 6% quarter over quarter.
Year over year rent growth across the U S market's average roughly 15% similar to the GTA.
Although Q3 broker data for our European markets is not yet available our records of comparable transactions indicate year over year growth in the Netherlands, and Germany coming in at roughly 7% and 12% respectively.
So although new supply continues to outpace demand in the short term new starts for example in the U S are currently at multiyear lows and.
And when combined with a significant increase in the cost of development for new product should support rent stabilization and potential rent growth in the latter half of 2024 and into 2025.
I will provide a more fulsome update on our ESG program in the fourth quarter, but I did want to mention that we were recently notified that we received the top ranking from breast be among the listed North American peer group and further received a score of 94% for public disclosure ranking of seconds in the U S industrial real estate group.
Both excellent results.
In closing results were in line with expectations NOI continue to increase.
As Teresa mentioned, despite lower occupancy and we are maintaining our <unk> guidance for 2023, which has remained unchanged from our initial guidance provided on our Q4 call in March.
Our upfront our upcoming 400 million maturity on November 30th has been fully refined finance at a very competitive rate of 493% for five and a half years.
And our liquidity position remains very strong at almost $1 2 billion post repayment of the bonds.
And cash and available credit.
In addition, we announced our 13th consecutive annual distribution increased to $3 30.
Which continues to reflect our philosophy of delivering consistent distribution growth for our unit holders, while maintaining conservative capital ratios and sufficient free cash flow with which to reinvest in the business.
I also wanted to mention that we are in the process of renewing our base shelf prospectus, which expired this month.
This is simply a formality and is being renewed in normal course to facilitate any potential actions. We may contemplate over the next 25 months.
Addressing our current leasing availabilities in 2024 maturities and preserving capital for future opportunities remain our highest priorities.
And we believe we're very well positioned to deliver industry, leading NOI <unk> and <unk> growth once again in 2024.
And on that operator, I will open up the floor for any questions.
Thank you very much.
And if you'd like to register a question. Please press the one oh by the four on your telephone.
We're three Tom Mcnaughton request.
The question has been asked I have to draw the restoration of the one.
Right.
One moment, please our first question.
And we'll go with our first question on the line from Bras Sturges with Raymond James.
Ed.
Hey, good morning.
Congrats on the on the 2024.
<unk>.
How much if you already addressed 75% already and it sounds like.
Still expecting.
Good uplifts on what's left to do just wanted to get a little bit more color on I guess, a little bit over 2 million square feet left to do would that be more back end weighted to next.
Next year.
Just a little bit more color in terms of.
What has led to a drop in terms of where that would be in terms of size.
Boxes and location.
No I think there is a couple to do in Toronto, but the bulk of it is in the U S and it is back end loaded.
What did you say the 2.4 million square feet I think over $1 million is actually expiring in December 31 2024.
So it is back end loaded for the year I think there are a few in the second quarter, but the bulk is the second half of the year towards the end.
And that.
The U S that are expiring.
One is that.
Broken down by a couple of different locations or is that way.
Weighted towards one specific.
And I think it's in a few but I think the bulk of it's in Memphis and Indianapolis.
Okay.
That's helpful.
Just in terms of what's left to do this year.
Less than 400000 square feet, just any update on what you're expecting for the remaining 23 maturities.
Well I think the maturities in 2023 have been spoken for yes, there is nothing.
Nothing to report on those.
Okay.
Just based on.
Your comment around.
Leasing velocity has slowed down a little bit I guess it depends on the type of size and location, but.
Any general comments on what are you expecting occupancy to trend next couple of quarters.
Well I think right now we're in advanced discussions on a boat 2 million feet of both new leasing in 2024 maturities. So the activity is strong but it is taking us longer. So I think I think we will have a better update on the next call in March but.
We were expecting occupancy that bounce back quite strongly in 2024, just based on the activity that we're seeing.
<unk>.
And the strengthen in those parts of the markets that we expect to see in 2024.
Okay, I'll turn it back to the floor.
Thank you very much.
Our next question.
<unk> from Michael Curtis with BMO capital markets.
Thank you operator.
Kevin just.
On the 2024 maturities in the U S are you able to give us what the expected.
Increase would be just for that bucket.
It's about 20% Mike.
20% for that okay perfect.
The maturities, we've done or 14% as I mentioned and that was driven.
<unk> by the 10% increase in Graz.
Yes.
Down to 14 and 20% on the remaining.
Okay. Good segue action for me a modeling question here, but with the 10% increase.
Cash on cash from grabs but.
This is the <unk> impact once that commences its going to be materially different just because of the noncash items or how should we be thinking about.
No thats pure cash that 10% is all revenue.
Yes.
Because of the <unk> is there is no ti so but in the previous last 10 years, there was a ti but that that goes away because we didn't have one for this renewal so that 10% is a pure cash lift.
And from an <unk> perspective would it be greater or less.
It would be greater.
It would be better okay.
Did I misunderstand that like you're asking about <unk> <unk> higher yes, sorry, I think what you're asking me. So <unk>, yes. It is higher by both the Ti that has burned off and.
And the 10% increase in actual it's close to I believe 8 million for the year.
From an <unk> perspective.
Yes.
Awesome.
Yeah, Yeah, that's right that's right.
That is very well. Thank you Okay, and then last one for me before I turn it back just on the Capex and leasing prospect if I heard you guys correctly I think.
$20 million to $23 million is this year's forecast and a similar amount.
Next year.
If you think about that like how much of that.
Amount for next year are expected to be from from new leasing as opposed to just dealing with 2024 matures.
Oh, no the new leasing actually so any of the new leasing related to the development that wouldn't be part of the <unk> capex.
I'd say a good majority of that 25 million is related to maintenance capex in this regard.
Yes, I think it's roughly about half right and then half of it is for just renewal leasing.
Of existing properties.
Got it okay. So it sounds like your tis are going.
Growing our necessarily because youre.
Process your leases maturing next year are actually slightly higher up across the amount of Ti. So private your tis are going up on a per square foot basis to your maintenance Capex is going up is that how we shouldn't forget.
That's right, yes, Thats a fair comment.
Okay.
That's all I got thanks very much.
Thank you.
And well go to our next question on the line is.
Himanshu Gupta with Scotiabank go right ahead.
Thank you and good morning.
So just on the leasing activity in the quarter.
Pretty strong, though if I look at the U S.
900000 square feet done that I think 40% plus spread.
Can you talk which market it was done.
Of the $1 9 million the 2020.
Sorry.
The 2020 fours was in Cincinnati Columbus and.
Yes, Cincinnati, Columbus and Memphis.
Okay and all these three where 2024 lease expiry is right no two or 24, and one was actually a 2026, but there will be an increase in rents beginning in 2024. So that was an early renewal.
Okay.
And Kevin did the tenant approach you or did you approach for those.
<unk> for the next two.
I think the 2026 was incoming it came into the 2020 fours was dialogue from the team.
Okay, Okay fair enough.
And then in terms of you know.
Lisa.
On 12 days, which youre working on.
How would you rank them in terms of who we are.
Which one would it get done first.
Between like Nashville, Indianapolis and Louisville.
And there's been on any given year.
It's hard it's really hard to say at this point I don't think it really have an answer I think.
Right now we found activity and I don't want to basically say to the market, which properties were effectively in advanced discussions on for competitive reasons, but we have been active in both in all of Nashville.
Louisville and Indianapolis at this point I do have a feeling which ones will come first but I don't want to say.
Okay fair enough and.
And then maybe I can ask that I think there was around 400000 cars. They can see this quarter, which market can you identify that.
I think K power was in Memphis, and that was a three PEO where.
There were still a question, we almost as expected them to renew based on the contracted they receive they werent able to land that contract was in Chicago.
The other one with Chicago the other one was just the tenant that stayed in this space for downsized.
And then there was a three PL in Memphis that.
We're not able to renew their three PL contract and so they vacated.
Got it Okay, and then maybe the last it's a broad question.
Obviously, you have a pretty global view U S, Canada and Europe.
What is your strongest market and what is the weakest market in your portfolio as you look into next year.
I've been asked this maybe U S and on previous calls it's difficult to say in Europe, because we have not had to leasing activity. We've seen so Europe has been very steady for us we have been doing some leasing in Utrecht, which is a smaller asset which has been going well.
I would say that Europe has been very steady.
For us the markets that we're dealing with right now there has been a theory broad moderation in demand.
Across all our markets. So it's very difficult for me to look at North America, and say well the GTA has been the strongest because it really hasnt.
In terms of net absorptions as.
As I've said on previous calls.
I point out the net absorption because I think.
I think they can see a new supplier, obviously factors you want to look at but over the long term you want to know which markets are attracting investment and are attracting growth and when we rank our markets year to date in terms of net absorption.
North America travel is one of the worst one of the lowest so where are we seeing the most activity I think it's been.
A few of our markets in the U S.
But there hasn't been any standout that has been the strongest so I think the moderation of demand as I mentioned has been very broad based across all the markets.
Fair enough and maybe you know.
Talk about product categories.
Lots been mentioned about maybe weakness in big bulk versus small and mid way of doing better.
Would you agree with that statement and is that something you're seeing as well.
I think that that's more market specific.
I think it depends on the margin if you look at.
Some of our markets in the U S.
The assets that have come in at 800000 foot plus have done very well the 3% to seven has been client, but Don can really move from quarter to quarter. So it depends very much on the market that you're in I think it's not fair to to to make the general statement across all the markets.
Definitely as we mentioned at Indianapolis, a market, where 700000 feet has been very strong historically and has seen some recent weakness, but I don't think that thats something that will be sustained over over the coming years.
Fair enough. Thank you and maybe just last one for Teresa on balance sheet.
Is it fair to see on the next debt maturity is I think coming in December or November of next year.
So I think it's December 19.
December 19th Okay fantastic. Thank you so much and I will come back.
Okay.
Thank you.
Our next question on the line.
Blondell merchant Bank Securities correct.
Thank you and good morning, I just wanted to discuss capsule location, Kevin last time, we spoke.
More than two capsule preservation mode. I was wondering what are your views for 2024 on that front.
I think it remains the same Fred we had talked about taking advantage of any market dislocation or distress.
It's hard to see how exactly that goes as I mentioned I think there is a little more optimism about the direction.
Interest rates, but there's also a much tighter access to credit.
And I think that if anything will impact.
Smaller developers more than anyone else, because frankly looking at stabilized industrial assets have actually held up pretty well there value. So we don't see a lot of loans being necessarily underwater like you may see in the office sector.
So we're willing to be patient and wait for that.
Where are prices right now I think the NCI is completely on the table for us and something that we'll consider in the short term.
So we think that.
But we have to also balance that with I think our desire to maintain our capital for future use at some point in 2024.
That's great to you and sort of my three questions. In one question. So thank you so much that's it for me.
Thank you.
Our next question on the line.
From Cal Sally with RBC capital markets go right ahead.
Thanks, Good morning, everyone. Kevin just on your comment about same property NOI growth being higher in 2024 versus 2023 would that include lease up of the development properties again, I'm thinking, but it would be.
Specifically and if so if you were to exclude that what what.
The impact would that have on your same property NOI outlook for the existing portfolio I guess.
It's tough to say at the top my head, but it is definitely a part of our same property NOI projections for for next year.
And I think one of the things I would point out is we were very.
CPI increases that we had in Europe late late last year and into this year in 2023 were very strong and it's hard to say where those will be.
But we do have some rent lifts that we have secured for next year that will be a strong driver of growth but of course, we think that the lease up of the development properties will also be a part of that growth for next year.
Okay. Thank you for that.
Obviously, a small sample size, but the leasing that you did in the quarter and the GTA, 206% spread can you just talk about the dynamics of that lease.
How the tenant accepted that that significant increase.
I think they were coming off of $7 rent.
And I think our average rents in the GTA off the top of my heads around $10, so well below market, but we do have a number of leases frankly coming up over the next couple of years that are in that sort of seven to $8 range.
Okay that makes sense.
Last one for me any.
Other vacancies that Youre aware of maybe in Q4 or into 2024 at this point.
Nope.
Okay.
Perfect ill turn it back thank you.
Thank you very much.
Next question on the line.
Matt <unk> with National Bank of Canada. Please go right ahead.
Hey, guys.
Most of what I was going to ask has been answered, but just quickly with regards to the same property NOI growth. This quarter can you speak to what component of that May have been expansion space and then maybe secondary to that with regards to straight line rent I think there was a sequentially down $1 million.
That adds to cash NOI.
But can you give us a sense as to what is the floor level as to how much of that would be kind of free rent periods for existing leases.
And so without the expansions on a constant currency basis at six 4%.
And it's a 11, 6% with the FX in there.
Youre right straight line rent dropped.
And the free rent piece of that was about 400000.
$1 million.
Yes, so like straight line rent is going to fall continue to fall, but I expect it to increase again, when we do lease up those developments that were recently.
Came online because obviously, you're anticipating some free rents as we lease those at some point in the second quarter third quarter, Youll see probably a pop up in straight line rent.
Okay. So we should expect to see before it would contribute to same property NOI growth that will contribute to <unk> growth in the form of.
Straight line rents.
Exactly yeah.
Okay. Okay. Thanks, guys I appreciate it.
Thank you very much.
And what time the fall into like traffic question, Tennessee, a one four on your telephone keypad.
Our next question on the last one.
Damiani with PD <unk> ahead.
Thanks, and good morning, everyone.
First question, just because sort of continue on the balance sheet discussion from earlier with the with the rate move over the last 18 months, what would be your updated target leverage range, either on a debt to assets or debt to EBITDA basis.
Going forward versus what it was a couple of years ago.
Well, Sam I think we're kind of operating with like that 32% right now and I think like next year. For example, that's kind of what I'm forecasting.
For the year.
And Thats, what you are expecting to sort of target going forward.
Yeah until we see kind of until we see kind of values change a little bit right I mean, so for now.
As you know we used to operate in the high Twenty's.
But it's been a series of fair value losses and.
We have increased slightly and our debt because I mean your funding our development program. So on the debt sorry debt to asset value straight debt to asset value. It has picked up and I think in that 30% to 32% range is probably nor.
Normal going forward.
Okay. Okay.
Houston, the acreage there as being sort of moved up into the integral sort of active development pipeline at least on a preliminary basis.
Any updates on tenant discussions there that could drive an actual construction.
Construction start in that market.
Great.
Well there is potential for that Sam the reason why we moved both Branford I think the land and Bradford in and in Houston too.
<unk> to put is just to facilitate any potential build to suit opportunities. So we are servicing and going through the zoning process on that land. So we move them into <unk>.
No intention or plans to commence construction on a speculative basis.
But it does facilitate discussions around build to suit opportunities and we have had discussions.
Houston in that regard, but nothing to nothing to report at this time.
Early discussions.
Okay last question for me and I know, it's been touched on earlier in the call but.
At some level can you give us any update on the sort of pace or volume of leasing discussions on the.
On the vacant spaces that you have in the U S that we saw on the tour last month.
Yes, I mean, there has been progress, but again early days and as I characterize it previously we're in advanced discussions on roughly 2 million feet, including some renewals as well.
But the bulk of that is new leasing and hopefully we'll have deals completed by the end of the year, but at this point we can't.
We can confirm that.
Okay. Thank you and I'll turn it back.
Thank you.
Our next question on the line from Tomorrow, Yes, Hi, Ed We decided we see capital markets go right ahead.
Thanks, Good morning, just to follow up a bit more around your development leasing and wondering what's your.
Appetite to take on more multi tenant approach or something your assets seem to be seeing more interest in the.
The my space.
Okay.
If youre talking about <unk> I think we're always as we said we're always open to that we've always sort of designer buildings to accommodate.
Devising.
So I will just tell you that on all of our buildings we have received.
Interest.
On both from both multi tenant.
<unk> and entire building so it just depends on what.
Deal materializes, the fastest frozen what deal makes the most economic sense, so just to confirm.
Any one of our buildings can be demised they.
They were designed that way and it just depends on which tenant steps up first.
The best economic terms.
Okay.
And you mentioned a bit earlier about the three PL activity the one the vacancy in the quarter.
How much does that reflect broader activity that youre seeing from your existing tenants or is that just more of a one off.
Well I mean, it's a $65 million of portfolio.
This happens.
Usually 30% to 40% of industrial portfolios, our three pls and the <unk> contract is typically three to five years and so this is just normal course of business.
And I will tell you a lot of the sort of availabilities that we are working on our three pls.
That are looking to expand and have to move out of their existing building to accommodate newer larger contracts. So these things happen. So I would call. It a one off but it's just normal course of business for us.
Okay. Thank you I'll turn it back.
Thank you very much.
Score there are no further questions at this time I'll turn the call back to you.
Alright, Thank you operator, well, thank you everyone for being on the call.
We look forward to speaking to you on our next call in March.
Thank you very much and thank you everyone that does conclude the conference call for today. We thank you for your participation disconnect your lines.
Have a good rest of the day everyone.
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