Q1 2024 Granite Real Estate Investment Trust Earnings Call
Provide updates to its guidance each quarter as warranted based on leasing activity.
Executed to date.
Speaker Change: [noise] granites balance sheet comprising of total assets of $9 2 billion at the end of the quarter was positively impacted by approximately $13 million of fair value gains on granite investment property portfolio in the first quarter and was further enhanced by $117 million of translation gains on granite foreign based investment properties Prime.
Speaker Change: Merely due to the 2% increase in the spot USD exchange rate relative to Q4.
Speaker Change: The fair value gains on grants investment property portfolio was primarily attributable to the stabilization of the development property in Branford, Canada, which was completed and transfer it to income producing properties. During the first quarter, partially offset by the expansion in discount in terminal capitalization rates across very selective granted assets due to <unk>.
Speaker Change: Conditions.
Speaker Change: Are the trusts overall weighted average cap rate of five 2% on in place NOI increased only two basis points from the end of Q4 and has increased 25 basis points since the same quarter last year.
Speaker Change: Our net leverage as at the end of the quarter was 32% and debt to EBITDA was $7. Two two times, which is slightly lower relative to Q4 and lower than Q1 as a result of the NOI growth, including the completion and stabilization of the majority of granites development properties.
Speaker Change: Our current liquidity is approximately $1 1 million, representing cash on hand of $130 million and the Undrawn operating line of 90 $997 million.
Speaker Change: As of today granted has no borrowings under the credit facility and there are $2 $8 million in letters of credit outstanding.
Speaker Change: And as noted in our disclosures on the March 27, and it extended its credit facility for a new five year term to March 31, 2020 now.
Speaker Change: And then finally subsequent to the quarter granted repurchased 375600 stapled units under it and CIB at an average price of $69.39 for total proceeds of $26 1 million Excluding commission.
Speaker Change: Now I'll turn over the call to Kevin.
Kevin: Thanks Theresa.
Kevin: And I'm joined by Michael Roth, There isn't more tumor as usual.
Kevin: On the call is calling from Europe.
Kevin: Certainly in <unk> and strong quarter with NOI growth of four 5 million over Q4 more than offset the increase in interest expense as Teresa mentioned.
Kevin: <unk> seen a healthy four 8% increase in ethical for unit over Q4, when excluding the reversals of tax provisions in that work.
Speaker Change: Teresa mentioned, we lowered our guidance.
Speaker Change: To adjust for additional Capex that was originally originally budgeted to occur in 2023.
Speaker Change: Reiterating our full year guidance for ethical and same property NOI growth.
Speaker Change: I'll begin with a brief update on our current development pipeline.
Speaker Change: As stated in our MD&A, our 409000 square foot build to suit projects were very cowboy boots ICD in the quarter.
Speaker Change: Our 50000 square foot expansion and <unk> remains on schedule were substantial completion by or near the end of the second quarter.
Speaker Change: And similarly, the 52000 square foot expansion of our property and work the Netherlands remains on schedule to date for substantial completion in the fourth quarter.
Speaker Change: As a reminder, all projects were expected to achieve certification in accordance with our published Green Bond framework.
Speaker Change: And in addition to the projects just discussed.
Speaker Change: We have roughly 160 acres of land remaining for development in Frankfurt, Houston in Columbus, which could accommodate up to $2 4 million square feet of space once constructed.
Speaker Change: As outlined in our press release and MD&A. The team achieved an average increase in rental rate of 10% on renewals were roughly $6 4 million square feet of leases that expired in the quarter.
Speaker Change: Predominantly by the gross renewal increase.
Speaker Change: I did want to say just based on comments that we've received.
Speaker Change: Regarding our renewal increases are moderating.
Speaker Change: Disappointed that renewal increases in each quarter will fluctuate.
Speaker Change: And it can fluctuate quite significantly and so I wanted to emphasize the team also executed one 3 million square feet 136 million square feet of renewals in the quarter associated with leases, which were due to expire later in 'twenty four 'twenty five on an average increase in rental rate of 35%. So you will see.
Speaker Change: Those increases flow through in future quarters.
Speaker Change: With respect to our 2024 maturities, we have now renewed $7 8 million or 79% over $9 8 million square feet of maturity and an average rate increase of approximately 16% again muted by the garage renewal and as stated in our last call, we expect to renew 85% to 90% of our 2024.
Speaker Change: Expired.
Speaker Change: As <unk> mentioned earlier same property NOI increased by four 9% in the quarter on a constant currency basis slightly above Q4 and in line with expectations for the quarter.
Speaker Change: NOI was positive across all of our geographies on a constant currency basis led by Canada at 11, 3% driven by renewal increases.
Speaker Change: Property NOI across our U S portfolio posted same property posted an increase of three 2% down from Q4 as a result of vacancy partially offset by strong renewal spreads.
Speaker Change: Of note, Austria finally carry some of the load at.
Speaker Change: It posted a modest three 6% increase by virtue of the garage renewal.
Speaker Change: As you can see from our disclosure, we adjusted cap rates and market rents anomaly in the quarter based on appraisal and relevant transaction data at our disposal.
Speaker Change: And excluding the 225% strengthening of the U S. Dollar from December 31 March 31.
Speaker Change: The increase in <unk> volume was driven primarily as Teresa mentioned from the stabilization of our brand through development.
Speaker Change: As for a general market update leasing activity continued to be slow in the first quarter as higher interest rates and economic uncertainty continues to impact tenant activity broadly across sector.
Speaker Change: On a comparable basis our markets. Once again represented the majority of the top markets in the U S through net absorption totaling roughly 21 million square feet for the quarter, which was similar to Q4 and representing well over half of the total U S absorption in the quarter.
Speaker Change: Led once again by Dallas, Chicago, Houston and Atlanta.
Speaker Change: Our portfolio markets, which experienced negative net absorption included Cincinnati, Memphis, Indianapolis, and Columbus, but all was less than half a million square feet in total in the GTA at negative 2 million square feet. Once again, our worse performing market for net absorption.
Speaker Change: As for rental rates, Nashville, Atlanta, and Columbus, all positive rent growth over Q4.
Speaker Change: While rental rates fell between 1% and 2% from Q4 across our remaining markets.
Speaker Change: We do not have relevant Q1 market data for European markets, yet, but our view at this time would be that the current pace of leasing activity in Germany in the Netherlands would be comparable to our north American markets.
Speaker Change: But that rent growth continues overall to be positive.
Speaker Change: It is probably worth noting at this point that we have renewed just under 90% of the 950000 square feet of 25 expiring leases in Europe.
Speaker Change: The team also executed 300000 square feet of new leases in the first quarter on our development properties in Houston Nashville in Asia.
Speaker Change: At rates, which slightly exceeded budget for 2024, but also notably represented an increase of roughly 40% over our development profile.
Speaker Change: As <unk> mentioned and I do feel like I'm repeating myself here, we offer opportunistically utilize available cash on hand to purchase roughly 375000 units at an average price of 6900 $30 million.
Speaker Change: As you know unit buybacks are not our first choice for capital allocation, but we won't hesitate to capitalize when a unit price without far below NAV and we have sufficient cash on hand.
Speaker Change: In closing our results were in line with expectations.
Speaker Change: Hawaiian cash NOI increased once again this quarter and our liquidity position remains very strong at roughly $1 1 billion in cash and available credit.
Speaker Change: I think it's worth noting as well our NOI has increased over 12 consecutive quarters.
Speaker Change: An average growth rate of three 3% per quarter, and almost 14% annually over that three year period.
Speaker Change: So addressing our current availabilities and remaining 2024 maturities and preserving capital for future strategic opportunities remain our highest priorities.
Speaker Change: And we remain well positioned to deliver attractive NOI and <unk> growth growth once again in 2024.
Speaker Change: But before I open up the call for questions I'd like to ask Mike <unk> and provide an update for you in our view on the investment market.
Mike: Thank you, Kevin and good morning, everyone with the macroeconomic uncertainty and the preceding rising rate environment.
Mike: Buyers and investors alike approach industrial warehouse property deals more scrutiny, and caution, which impacted leasing and investment volumes and activities.
Mike: For the past 16 months, we have seen pricing contracts across our markets to varying magnitudes dependent on factors such as market dynamics asset quality and embedded rental world.
Mike: More recently, we have been encouraged as there has been an increased demand and in fact are seeing some deals in the market achieved strong pricing, especially for high quality assets with near term mark to market. When the opportunities are which are priced at attractive discounts to replacement cost.
Mike: These deals are seeing deep deep bitter lift at times in excess of 20 groups, which implies a significant amount of opportunistic capital in the market.
Mike: Looking for quality deals.
Mike: The buyer pool remains largely private capital such as close of institutional funds private equity sovereigns high net worth private Conversely, many of them.
Mike: Open ended funds and generally leveraged buyers, having quiet due to higher weighted average cost capital.
Mike: Our team continues to underwrite and have reasonably pursue select opportunities in our target markets.
Mike: Some fundamental themes have emerged reasonably be an increased focus on yield and buyer shy away from longer term negative leveraged trades.
Mike: Groups are rightfully looking to see more positive returns sooner rather than later.
Mike: In terms of deal size, we continue to see small to mid sized deal having the most volume and liquidity in the marketplace.
Mike: We also are encouraged on the debt side as we're starting to see that liquidity to reemerge from namely life companies and more recently bank lenders participating in the capital stack.
Mike: <unk> quality assets and blowers.
Mike: If this trend continues and the availability of it as that improves.
Mike: Likely bode well for the investment market and pricing.
Mike: We look forward to the balance of the year on the investment side, we will continue to focus on opportunities that will complement our current portfolio of high quality assets and remain prepared to transact on the right deal and in the case of weakening fundamentals. We will also look to capitalize on any disruption.
Mike: The issues that may arise.
Mike: With that I'll pass it back to Kevin.
Kevin: Thanks, Mike So operator at this point.
Kevin: And before questions.
Speaker Change: Thank you.
Kevin: This time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: We will pause for a moment to compile the Q&A roster.
Operator: Your first question comes from the line of Sam Damiani with TD Cohen.
Sam Damiani: Thank you and good morning, everyone.
Sam Damiani: First off just wanted maybe to continue on the topics that Mike was just discussing and I guess just I guess the question really is.
Sam Damiani: With the.
Sam Damiani: The transaction market is starting to percolate.
Sam Damiani: Others are starting to deploy capital.
Sam Damiani: What is it the grants waiting for to in order to sort of participate like is there a different sort of macro view that you're.
Sam Damiani: Expecting over the next year or two versus some of these players. So I'm just wondering where you guys are thinking in terms of.
Sam Damiani: When to pull the trigger and how.
Speaker Change: Well I'll start and certainly invite Mike too to build volume whatever comments here.
Mike: I think we have to be aware of our capital situation and Sam to be honest with you.
Mike: Like we've said if there is something that is truly compelling and opportunity in our target markets I don't think we would hesitate to.
Mike: Transact on it and we would figure out a way to whether its selling assets we would.
Mike: Figure that out, but we havent seen anything thats really that compelling and again I'll ask Mike to provide his comments on that specifically.
Mike: But we also have to be aware that we have cash on hand, we have development commitments I don't think were interested in taking on a significant amount of additional debt to fund those acquisitions.
Mike: So there are constraints there from a financial perspective that we have to be awareness, but Mike anything you want to stay on the market.
Mike: No.
Speaker Change: Like I said.
Speaker Change: Kevin.
Mike: In my commentary we are pursuing.
Speaker Change: <unk>.
Mike: Sure.
Mike: Again happy with the deals we find very attractive a lot of other players too as well too.
Sam Damiani: So pricing.
Sam Damiani: Ex transact the opportunities aren't there at the moment.
Kevin: Further to Kevin's point.
Kevin: Preservation of our capital.
Sam Damiani: Situation is always Paramount.
Sam Damiani: <unk>.
Speaker Change: Hope that answers the question.
Speaker Change: It does thank you.
Speaker Change: Yes. The other question I wanted to ask and then I'll turn it back is just on the very modest tweak to the same property NOI and NOI growth guidance.
Speaker Change: And just I guess I'm kind of curious why are you why you bother to do that it seems like such a small thing.
Speaker Change: Is it mostly related to just delays on the leasing that you referred to in your opening comments or is some of it also related to the rents that you expect to realize on that Lisa.
Speaker Change: Non rent just timing timing of lease up and that's a good question, we actually discussed internally, whether it's worth doing that we just saw.
Speaker Change: We didn't think it would be that these three months.
Speaker Change: Since then we thought it was worth just pointing out that we've extended.
Speaker Change: The estimated lease up of a couple of our availabilities and tweak it a little bit, but no no impact on rental rate.
Speaker Change: Female.
Speaker Change: Okay, and I think last quarter, you gave a range of targeted occupancy in the portfolio for the end of the year, how much is that different today.
Speaker Change: It has not and again I think with respect to occupancy, particularly I think it's early.
Speaker Change: So we have one 9 million, let's take <unk> out of it because we have I think a 150000 short term leases that continually roll there so taking that out of it we have roughly.
Speaker Change: $1 9 million of Expiries.
Speaker Change: We expect to lease up probably around one to $1 2 million of that so.
Speaker Change: So we would expect to see 700 800000 square feet of space come back to us.
Speaker Change: We are at 95, 4% occupied and committed so overall that would require us to complete another one three to one 5 million square feet of leases before the end of the year and we think that that's entirely achievable now certainty absolutely not but we think that is.
Speaker Change: Achievable and it's within our expectations.
Speaker Change: So for now we're not we don't see.
Speaker Change: Need based on the activity that we're seeing within our portfolio.
Speaker Change: And a bit of a pick up the activity, we're seeing overall in the markets and our markets in particular.
Speaker Change: It's necessary to move that guidance for philosophy.
Speaker Change: Thank you and I'll turn it back appreciate it.
Speaker Change: Thank you. Your next question comes from the line of Mike <unk> with BMO.
Speaker Change: BMO.
Mike: Thank you.
Mike: Kevin just a quick one for me I guess, you pointed out and I agree with your 0.1 quarter doesn't make a trend.
Mike: What are you seeing spreads, but as you pointed out I think during the quarter. There was 136 million square feet of leases.
Mike: <unk>.
Mike: I guess or so by reason late 'twenty four 'twenty five that were done at an average rate of 35%.
Mike: Is that is that all how do we how do we read that I'm just looking at your lease maturity schedule alarm DNA.
Mike: I see that your committed rate per.
Speaker Change: 0.4.
Speaker Change: Went up.
Speaker Change: I guess you're up settling.
Speaker Change: I don't know thousands square feet, there, but I don't see anything in 2025, so that's sort of also including subsequent quarter activity, that's maybe not what bucket.
Speaker Change: No the one in.
Speaker Change: It was done in the quarter. It was the large one in the Netherlands. This should be in there for 2020 from that.
Speaker Change: It depends on if it didn't roll this quarter it may not be showing but I have to look at that specifically what we're looking at.
Speaker Change: So there was a large one in the Netherlands. There was two in the U S. The newest one in the GTA.
Speaker Change: And Oh, Okay, Yeah, So I guess.
Speaker Change: I guess some of that maybe isn't being with bucket. Okay. That's fine I can circle back offline on that and just to confirm the 35%.
Speaker Change: Is that a just a pure renewal number or is there likely to newly assume that you would have done because there's 270.
Speaker Change: Does make commitments on.
Speaker Change: Taking space that you do show.
Speaker Change: No that's the pure renewal those are for renewals.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Using Mike we've talked about this before you talked about renewals you actually execute according to Tiger renewals related to the expiries in that quarter. So in.
Speaker Change: In the press release, we try and keep it really straightforward. It's just renewals that are expiring in that quarter. The oil and we won't hesitate to talk about renewables have we're doing that relate to future expiries.
Speaker Change: But I just wanted to make that point, because we did receive some comments asking why the.
Speaker Change: <unk> increases were falling and everyone understands it cross the 10% will impact that number within this quarter, but I just wanted to make that point and emphasize that.
Speaker Change: There will be a fluctuation in our renewal increases obviously from quarter to quarter and it can be quite significant.
Speaker Change: Yeah, Okay, I mean, I'm not sure they're hesitant, maybe maybe I Miss.
Speaker Change: This is something that I think going forward would be useful to talk about both.
Speaker Change: Lease assigned in patients that commenced I think that'd be helpful. Greg.
Speaker Change: Right.
Greg: That's it for me thank you.
Greg: Okay.
Greg: Thank you and we will take our next question from Kyle Stanley with Desjardins.
Kyle Stanley: Thanks, Good morning, everyone.
Kyle Stanley: It was encouraging that the outlook really didn't change to materially since we last spoke especially just given some of the commentary out of your U S. Peers earlier. This earnings season, just curious if you take a step back high level. What are you seeing from a supply demand perspective of your portfolio specific geographies.
Kyle Stanley: It gives you that comfort in the outlook and maybe deferring from from what some of your peers may have disclosed.
Kyle Stanley: Well I think first of all.
Kyle Stanley: The U S. Some of the commentary we've heard out of the U S rights for the first quarter is consistent with what I've been saying for three quarters.
Kyle Stanley: Slowdown in leasing activity.
Kyle Stanley: I don't listen to all the calls and on <unk>, specifically, but just reading some of the commentary.
Kyle Stanley: I think we've been very straightforward about what we've been seeing in the market for a number of quarters. So when we went into 2024 I think we were quite realistic with our expectations on the leasing side I won't use the word conservative.
Kyle Stanley: We've tweaked some of the timing, but I think that we were more realistic than some.
Kyle Stanley: What we're expecting for 2024 Wow why I remain confident that we can execute on a $1 million due to a 1 million $1 $300 million five of leasing is just based on activity that we're seeing within our portfolio.
Kyle Stanley: Again, there is no certainty about it but we are responding to rfps or removing paper were in discussions and roughly $1 2 million square feet of space within our portfolio and again I'm not saying that applebee's that will be executed is certainly.
Kyle Stanley: All of those won't be executed, but the point is we are seeing decent activity.
Kyle Stanley: And even on our big stock on our big availability. So it is very much I think within our expectations.
Kyle Stanley: We will see future leasing activity this year in 2024.
Speaker Change: Okay, great. Thank you for that maybe two just quick questions Tricia I think you mentioned.
Tricia: Some potential costs on the kind of the restructuring side I'm. Just wondering if you have an idea of what that might be and the timing of that flowing through.
Tricia: It's going to be hard to estimate because it's really really all legal time, but the heavy loads going to happen in Q3 for sure Q2, Q3 will be probably a more significant amount I don't know, we're kind of estimating maybe a million and a half to $2 million.
Tricia: And then so Q2 Q3 Q4 that I think Q3, probably the heaviest quarter.
Tricia: And that yet, but we'll be stripping that out as he can.
Speaker Change: I'll schedule right, Yeah, Yeah, Yeah fair enough.
Speaker Change: And then the last question just on the brand for delivery. This quarter I'm, just wondering on timing of the delivery and maybe how much NOI was generated this quarter just for modeling purposes going forward.
Tricia: I think we've got NOI of $7 $7 million annually.
Kyle Stanley: Yes.
Kyle Stanley: And annually again, yes.
Kyle Stanley: Hopefully that helps I think is $7 7 million annually.
Speaker Change: Okay. Thank you everybody the way to offer the <unk> defines it I'm wrong somewhere else.
Kyle Stanley: Sure.
Kyle Stanley: Gotcha.
Kyle Stanley: $14 three of them straight line it will clear enough if I'm wrong.
Speaker Change: Okay. No problem. Thank you very much I'll turn it back.
Kyle Stanley: Thank you. Your next question comes from the line of Brad Sturges with Raymond James Your line is open.
Bradley Sturges: Hey, good morning.
Bradley Sturges: Just wanted to follow up on the acquisition commentary I think last call. Kevin you talked about maybe the potential for some distressed opportunities to arise.
Bradley Sturges: In the coming months Im just curious to get updated thoughts on whether that's something you still think could be the case and kind of what youre seeing from that perspective today.
Bradley Sturges: I mean, we keep talking about it I think.
Bradley Sturges: We still expect to see some level of distress I think every quarter we go through.
Bradley Sturges: I think our hopes of finding a unicorn or are falling to be honest with you but.
Bradley Sturges: And I did hear commentary.
Bradley Sturges: From a U S.
Bradley Sturges: Industrial REIT, saying that they had gotten a number of calls the distressed developer.
Bradley Sturges: Development deals those are certainly on our radar I don't think we have seen it not that they haven't they probably have seen things that we haven't seen.
Bradley Sturges: But I think.
Bradley Sturges: Yeah.
Bradley Sturges: Yes.
Bradley Sturges: Still expect to see opt.
Bradley Sturges: Opportunities that theyre through distress, we have not seen anything that's really compelling yet to date on our breath.
Speaker Change: Okay. So I guess near term capital allocation, if you're deploying capital it sounds like just given where the stock prices in CIB is probably going to be at least a use of some cash proceeds in the short run.
Speaker Change: Yeah in the short term I don't think that will be that busy on the acquisition side.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: The first half of the year.
Speaker Change: Yes.
Speaker Change: And maybe just one last one just on the leasing side of things in terms of your broader discussions in particularly with existing tenants in the portfolio.
Speaker Change: Does the appetite for expansion.
Speaker Change: Opportunities within the portfolio is that are you seeing any.
Speaker Change: Improvement or indicators.
Speaker Change: Starting to tick up.
Speaker Change: I don't know if it's picked up but I don't know if its ticked down either I think we are in discussions with with a few tenants on potential expansions again, they I think they are taking longer.
Speaker Change: To explore other options and make financial commitments. So we're in discussions on one in the U S on an expansion and we're in discussions with.
Speaker Change: One in the GTA and we're in discussions with one in Europe. So and then I think that's been pretty steady over the years that are in our portfolio. So I don't think that it has ticked up I don't think it has ticked down.
Speaker Change: Okay. That's helpful I'll turn it back thanks.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Comanche.
Speaker Change: Scotia Bank your line is open.
Comanche: Thank you and good morning.
Comanche: So just on the Indianapolis.
Comanche: One property under lease up.
Comanche: What kind of response, you have seen so far and.
Comanche: Is there a lot of product you are competing with.
Comanche: Do you think demand is.
Comanche: A bit less in that category.
Comanche: No I think most I think the first or maybe it was the fourth quarter I think we saw more activity on the smaller one than the larger one I'd say most recently, we've got more activity on the larger one.
Comanche: We are responding to.
Comanche: Two rfps and I think.
Comanche: I don't want to provide too much detail, but I think these sort of modern characteristics of our building and location.
Comanche: Has put us on a.
Comanche: If you list that many others aren't so we seem to be captured by all rfps by virtue of the location and just the characteristics of the building.
Comanche: So that's the way I would characterize it right now as we sit here today, there's more activity on the larger building and there isn't this model.
Comanche: Okay.
Comanche: And then looking at the activity and then it looks like this was done on Nashville and Houston.
Comanche: Yeah.
Speaker Change: And do you think the next would be yes.
Speaker Change: Oh, maybe Memphis at Liza.
Speaker Change: I mean, that's tough I definitely would agree I think.
Speaker Change: I think we've got more activity in Houston, and Nashville, I would probably put in the after that and then Louisville, and Memphis, or Memphis, or Louisville, those shades of gray to a degree.
Speaker Change: But you are right I think Houston and Nashville, there continues to be a lot of activity in those markets in general I think they are stronger markets and indeed, we are seeing more activity in a larger building, which is encouraging to us and e-commerce users.
Speaker Change: And then Louisville, and Memphis behind that not to say, they're bad I mean, the net absorption continues to be positive.
Speaker Change: I think.
Speaker Change: But not as strong as the other markets.
Speaker Change: Alright.
Speaker Change: Would you say you're in Memphis is probably the toughest market in your portfolio right now.
Speaker Change: I don't know I mean.
Speaker Change: 600000 feet of vacancy we're in discussions on 300 other right now I don't think I wouldn't use the word tough.
Speaker Change: Okay, Okay fair enough.
Speaker Change: And then the broader common sound leasing activity pick up in the U S.
Speaker Change: Do you still think we will see a second half recovery or is it getting even pushed out.
Speaker Change: And.
Speaker Change: Yes, I do.
Speaker Change: Don't know if I said it would.
Speaker Change: It would be a 2020 for recovery I think we feel at the 2025 recovery I think 2024 is going to remain competitive through the year would.
Speaker Change: It would be would be my estimation.
Speaker Change: It's only that the peak of again seems more likely to be.
Speaker Change: Backhaul.
Speaker Change: Early next year.
Speaker Change: Yes.
Speaker Change: Great.
Speaker Change: Okay Fair enough and maybe just one last question I had on the valuation and I know you've already provided some comments.
Speaker Change: Any specialty comments related to the cap rates, you're seeing in your U S portfolio, what kind of Capex that you don't think Mexico is fine.
Speaker Change: Hi.
Speaker Change: Any comment there.
Speaker Change: No I mean, I think you see our overall cap rate.
Speaker Change: It depends on the product I think everyone saw recently the deal involved with DRA and I'll provide a few comments on that with respect to our valuations and Mike is closer to it than I am but.
Mike: You have a portfolio.
Speaker Change: Inefficient size portfolio, and a significant deal with Brookfield and the buyer.
Speaker Change: At 89 or $90 a foot on average, but these are older assets.
Speaker Change: And I don't think they are comparable in terms of quality to our portfolio I don't think anyone would say that.
Speaker Change: And also the one thing that struck as I think everyone. We've spoken to you was quite surprised that the deal was broken up that was transacted as a single portfolio and you would have to.
Speaker Change: And I think everyone would agree a portfolio discount somewhere around 5% would probably apply to that because it was taken down to the single portfolio.
Speaker Change: As many geography said there were.
Speaker Change: So I think the pricing that we saw and I've seen a six cap from around I think it would be supportive of where our cap rate is for our assets.
Speaker Change: In those markets and I think the final thing I would say.
Speaker Change: And it mainly does actually look at it a little bit to one of the things that.
Speaker Change: It doesn't sound like it's a big impact, but this a couple of assets in our portfolio that can skew the per square foot and the one one of them that jumps to mind for me is the curve than us fight in South Dallas that we own and that's a 200000 foot building on 180 acre site.
Speaker Change: So the price per square foot is very high at $3 15, or 320 a foot.
Speaker Change: And that skews or per square foot number and it doesn't reflect the average price that we have which is well below $90 for four for our portfolio in the U S.
Speaker Change: So I hope that answers the question on cap rates, but I do think there is discussion around the DIR fee or a transaction, which I think fully.
Speaker Change: Supports.
Speaker Change: Our <unk> volumes in the U S.
Speaker Change: No. Thanks, Kevin that's really helpful and can we agree that the DRA.
Speaker Change: Transaction.
Speaker Change: Kind of.
Speaker Change: Hopefully your.
Speaker Change: Evaluation as well.
Speaker Change: So I'll turn it back thanks.
Speaker Change: Yes.
Speaker Change: Thank you. Your next question comes from the line of Matt <unk> with National Bank financial.
Matt: Your line is open.
Matt: Yes.
Matt: Just.
Matt: Looking at your free cash flow profile, you actually are adding to your cash balance pretty much every quarter between now and the end of our forecast period.
Matt: Should we expect that you continue to kind of pick away on the NCI B I mean, you don't have any.
Matt: Debt maturities, but no nothing drawn on the facility. So you can't necessarily pay down debt to immediately or should we just expect that your cash balance is going to kind of continue to move higher.
Speaker Change: I'm going to talk about.
Speaker Change: Well, we definitely did pick away at it obviously as you know we use that 26 million cell.
Speaker Change: Assuming if our unit price, obviously falls as Kevin mentioned.
Speaker Change: So significantly below and now we will take away with free cash flow, but the reality is you don't build.
Speaker Change: Slowly every month so.
Speaker Change: So yes, we do have some capacity to continue to do that but not on a large scale and then yes, we will accumulate some cash and then we can apply some of that to the end of the year.
Speaker Change: When we when our term loan mature so I think that's kind of like how we see it running through the rest of the year.
Speaker Change: Okay fair enough when the meantime, any excess will invest right well invested about 5% right.
Speaker Change: And Kevin would you entertain for some of the projects that you already have kind of been process developing at this point or are you holding off.
Kevin: Until market demand returns.
Kevin: Yes, I think on a speculative basis, there's nothing that we're looking at doing I know in the MD&A and I think we actually combined land held for development and Alex all properties under development and we are moving through the application and approval process for Bradford has made to Houston.
Kevin: And the point is not to move ahead on a speculative basis just to be ready to respond to any.
Kevin: Build to suits that are appropriate for us so and thats. The other thing too that <unk> mentioned there are things that are on our mind with respect to the use of cash proceeds.
Kevin: Is the maturing debenture this year there was the.
Kevin: NTIC potential and there is also.
Kevin: Remaining development commitments and future development commitments, which could include sales pursuits as well things are on normally.
Kevin: But right now no plans to move speculatively on any of our remaining land and.
Speaker Change: I think that that will be the case through the year again, we will respond if there are interesting build to suit opportunities, but otherwise no.
Speaker Change: Not at this time.
Speaker Change: Makes sense.
Speaker Change: Just looking at your top 10 tenants the only one that stands out.
Speaker Change: Uh huh.
Kevin: 0.8 year maturity is that 'twenty four 'twenty five.
Kevin: Sure.
Kevin: Do you have any color as to what would happen there potentially.
Speaker Change: In fact, it's the end of the year as well no no color at this time and we certainly don't want to we're in discussions on on on both basis with them. So we don't want to tip, our hands in any way.
Kevin: Almost done.
Kevin: No.
Kevin: And then just back to <unk> question I don't know if.
Kevin: If you answered it but the timing would it would the full quarter impact has been felt.
Kevin: Or is it kind of in straight line rent and then we will we will transfer over to both were very very favorable.
Kevin: Yes.
Speaker Change: Yeah, it's straight line rent number in the first.
Kevin: First quarter yet.
Kevin: Okay.
Speaker Change: That's it for me thanks.
Speaker Change: Thank you.
Speaker Change: Again, if you would like to ask a question. Please press. The Star then the number one on your telephone keypad.
Speaker Change: Next question comes from the line of Tami Barron with RBC capital markets. Your line is open.
Tami Barron: Thanks, Good morning.
Tami Barron: Kevin I just wanted to clarify your comments on the occupancy and I think it was roughly that 97% target that was set.
Tami Barron: Started last quarter.
Tami Barron: Is that is that a committed figure that you expect to sort of become cash producing next year or do you think you can train them will that translate actually into cash flow or income in.
Tami Barron: In 2024 towards the end of the year.
Kevin: That's a good question Tommy no that would include cash in 2025, so youre right that would be I guess.
Tami Barron: Sure.
Tami Barron: Occupied and committed to be fair.
Tami Barron: Okay, and then just and not to nitpick here, but on the in place side, where do you see I mean, it's nice to see a bit of progress after the quarter on on some of the U S leasing does that get to like 96% sure kind of hold that where it is as it may I guess.
Tami Barron: I think that 90 basis is fair and I am not sure.
Tami Barron: I think.
Tami Barron: I mean, there is there is entirely a chance that we see rent this year as well, but I think if you assume 96 were in place to think about.
Speaker Change: Okay got it.
Speaker Change: And then just sticking with the U S leasing I'm just curious have you changed the strategy at all on some of the deals that you have been able to execute more recently.
Speaker Change: And obviously you did change some of your maintenance Capex and Ti assumptions by.
Speaker Change: There been any change at all in terms of maybe what youre offering from an incentive standpoint free rent or anything of that nature.
Speaker Change: No I think two things I would say if you say that that is again the increase in the and the Capex was because of stock for 2023, when we scrub the numbers and realize it's not as though we're doubling ti.
Speaker Change: On our new leases and renewals.
Speaker Change: So we're not just to be clear on that that's about carryover from previous year, but that's why the increase with respect to Ti and free rent on deals. We are always always open and willing to respond to market conditions and do whatever we have to do to to execute on these deals without the <unk>.
Speaker Change: The deals that we have done so far this year and the deals that we're working on we have not seen a material amendment from our budget assumption for <unk> and I don't want to get into details of the <unk> that we're assuming because we're in discussions with tenants on them and brokers as well, but there has not been a major change.
Speaker Change: In Ti and free rent periods from our expectations for 2024, so far but if those conditions change we will respond accordingly.
Speaker Change: To execute on those deals.
Speaker Change: That's helpful. Thanks for that.
Speaker Change: Last one just on the lease that was done.
Speaker Change: In Nashville, and he wants to elaborate on one of the one of the 11 properties.
Speaker Change: Which.
Speaker Change: Which property was that.
Speaker Change: Of the three that are there.
Speaker Change: With the middle one number two.
Speaker Change: The background.
Speaker Change: Things are back on one of the vacuum you remember I can't remember where this building.
Speaker Change: One is building.
Speaker Change: Okay.
Speaker Change: Got it thanks, very much I'll turn it back.
Speaker Change: Thank you. Your next question comes from the line of Sam ISI AD with CIBC.
Speaker Change: Line is open.
Speaker Change: Thanks, Good morning.
Speaker Change: I'll ask about the Frankfurt develop and then the lease up there just wondering if you can share.
Speaker Change: With D. A free rent period included but that lease and also what's the standard you're seeing being offered in the GTA market more broadly at these days.
Speaker Change: I think yes, I think it's I think it's a four month free rent period tamiya.
Speaker Change: So let him run like that.
Speaker Change: Into April and then we will be cash cash from April 15 onwards tomorrow less.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: And then just switching to the demand side I guess, if you could qualify in terms up by industry vertical our user type by would you say, there's the most hesitation or delay in terms of making a decision today.
Speaker Change: In terms of future development.
Speaker Change: Or just addressing current vacancies in the types of users and.
Speaker Change: Just delaying the most precious whose amounts havent changed.
Speaker Change: It's tough I mean, <unk>, we're still carrying the day as far as we can see it sounds like in the U S. Anyway. It's automotive it's been active food has been active pharmacy has been active I think these are things that continued from last year.
Speaker Change: E Commerce is starting to come back and we're seeing more and more in our market is not that they have done leases that we're aware of anyway, but we're starting to see activity are starting to underwrite.
Speaker Change: It's more than we've seen.
Speaker Change: It certainly in 2023 and that is good for us too because it typically involves larger space.
Speaker Change: So I'm not sure if thats. The color you were looking for but Thats kind of what we're seeing on the ground. So far so far this year.
Speaker Change: Okay. That's helpful and that's all I was trying to box.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I would like to turn the call back over to the presenters.
Speaker Change: Okay, well on behalf of the trustees and the management team here at granite. Thank you for participating in the call today and we look forward to speaking with you again in August.
Speaker Change: <unk>.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].