Q2 2025 Granite Real Estate Investment Trust Earnings Call
Good morning. My name is Jenny and I will be your conference operator today.
At this time, I would like to welcome everyone to Granite reads. A second quarter, 2025 results conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press *1 on your telephone keypad. If you would like to withdraw your question, please press *2. Thank you.
Speaking to you on the call this morning, as Kevin gory president and chief executive officer and Teresa Netto Chief Financial Officer.
I will now turn the call over to Theresa Netto to go over certain adversaries.
Good morning everyone. Before we begin today's call, I would like to remind you that the statements and information made. In today's discussion, May constitute 4 looking statements and 4 looking information and that actual results could differ materially from any conclusion, forecast or projection. These statements and information are based on certain material factors or assumptions, reflect Management's, current expectations, and are subject to known and unknown risks, and uncertainties that could cause actual results to differ materially from forward-looking statements, or information. These risks, and uncertainties and material factors and assumptions applied in making forward-looking statements, or information or discussed in Grant's material files with the Canadian Securities administrators and the US,
Us Securities and Exchange Commission from time to time, including the risk factor section of its annual information form for 2024. And granite's, Management's discussion and Analysis for the year ended. December 31st 2024 filed on February 26th, and for the quarter ended, June 30 filed on August 6th, 25.
Granted posted Q2 25 results in line with Management's, annual forecasts and guidance. Largely driven by strong noi growth and positive accretion from ncib unit repurchases, partially offset by unfavorable foreign exchange.
Ffo per unit in Q2 was 1.39 representing a 7 Cent or 4.8% decrease from q1 and a 7 Cent or 5.3% increase relative to the same quarter in the prior year.
In Q1, FFO included a number of non-recurring items, including lease closeout revenue, a reversal of prior year bonus approvals, and a favorable credit relating to our prior year German withholding tax reserve, all totaling $1.7 million. If excluded, FFO per unit would have been $1.43. Therefore, Q2 2025 FFO per unit is 4 cents lower relative to a normalized Q1.
However, in Q2 the US dollar weakened by 3.6% partially offset by the Euro, strengthening by 4%, which caused a further negative 4 cents, uh, to ffo negative impact of 4 cents to ffo per unit quarter over quarter.
in addition, Granite realized a foreign currency loss of 1 million on monetary items that was driven by the large changes in foreign currency rates and their impact on settling Financial ACS
In the impacts of, if the impact of foreign currency are isolated and excluded ffo per unit, in Q2 is, in fact, slightly ahead of normalized, q1 by 1 cent due to ncib, accretion offset, partially, by a small decline in noi. Titan, new, vacancies, commencing in the quarter.
Afo per unit in Q2 was 1.23 which is 18 cents, lower relative to q1 and 6 cents, higher relative, to the same quarter last year with the decrease versus q1 mostly tied to higher Capital expenditures, leasing costs and tenant allowances incurred. Largely driven by strong leasing activity during the quarter as previously mentioned.
Ifo related Capital expenditures incurred in the quarter to totaled 8 million which is an increase of 7.3 million over q1 and 0.9 million lower than the same quarter last year.
4 2025, we continue to expect afo related expenditures to come in at approximately 40 million for the year unchanged from our estimate previously provided
Same property on a y for the second quarter with strong relative to the same quarter last year, increasing 4.6% on a constant currency basis and up 7.4%. When foreign currency affects our included,
In Canada and the Netherlands and a new lease commencing at a development project in the US.
Given the strong leasing activity in the second quarter of 25 and the effects of removing assets held for sale, we are raising our guidance for the year. For constant currency, same property on the Y based on a 4 quarter average to be in the range of 5 to 6 and a half percent up from our previous estimate of 4 and a half to 6%.
GNA for the quarter was 10 million, which was 2.3 million higher than the same quarter last year and 1.5 million higher than q1. The increase relative to q1 includes 0.3 million, unfavorable fair value, adjustments to non-cash, compensation liabilities, which does not impact granite's, ffo and afo.
G&A expenses that do impact ffo and efo were approximately 1.2 million higher than q1, which is mostly related to the absence of a reversal of the prior year, bonus approval, recorded in q1 and higher public entity costs, due to a seasonality relating to Grant's AGM in June. And a 2024 ESG are report that was released yesterday.
For 25 2025, we continue to expect GNX GNA expenses that impact ffo and afo of approximately 10 million per quarter or roughly 7% of revenues.
It just expands with higher in Q2 relative to q1 by 04 million while interest income, decreased by 3 million, compared to the first quarter resulting in an increase to net interest expense.
The increase in interest expense was primarily driven by draws on the credit facility to fund granite's. Ncib repurchases. The decrease in interest income was due to lower invested cash, balances,
Although net in net interest expense was higher the impact to both ffo and ffo per unit is more than offset by the accretion from repurchased units under the ncip.
Grant, it's weighted average cost of debt. It's currently 2.71 percent and the weighted average debt to term to maturity is 3.9 years with granite's, net debt maturity. Now, in September 2026, we continue to expect interest expense to remain stable over the next approximate 12 months or roughly 24 million per quarter. Barring any other new transactions,
Q2 25, current income tax was 3 million, which is 0.4 million higher, as compared to the prior year and 0.5 million higher as compared to q1, the increase in current tax, relative to q1 is mostly related to the strengthening of the Euro relative to Canadian dollar and the absence of the 0.2 million credit related to the German withholding tax Reserve we recognized in q1.
For the remainder of 2025, we are expecting current income taxes to come in at approximately 2.8 million per quarter.
Regarding 25 estimates.
Granted is increasing its 25 guidelines. Grants current Outlook reflects lease, renewals and new leasing of vacant space completed year to date the acquisition of the Florida property as we completed on June 30th and excludes any potential impact from the disposition activity of the 5 Aces, that granted has classified it as for help help for sale.
Since the timing of such Des dispositions can be determined at this time.
The Outlook also factors year to date, financing and ncib activity.
For ffo per unit. We are raising guidance from last quarter to the range of 575 to 590 which represents an approximate 6 to 9%, increase over 24 for afo per unit. We are increasing our guidance to the range of 4.90 to 505, which represents an increase of 1 to 4% over 2024, partially impacted by higher maintenance, Capital expenditures, which we discussed in Prior calls.
granite's, forecast was updated this quarter to assume a range of on foreign currency of US dollar to Canadian Dollar of 135 to 139 that was previously, 1 137 to 142 and the range for the Euro Canadian dollar of 156 to 161 previously 152 to 158
Granite will continue to rise up updates on guidance, each quarter based on Leasing and any other transaction activity.
Our balance sheet, comprises of investment properties, of 9 billion, at the end of the quarter and that was reduced by an approx by the approximate 310.5 million due to the classification of 5 assets of Health for sale. Uh consistent with our me messaging from the last quarter in which Kevin will uh discuss further.
Driven by the 5.3% decrease in the US spot exchange rate, relative to q1 partially offset by a small gain of 16.8 million on the portfolio.
And the 49.7 million increase due to the Florida Acquisitions the trust or the reit's overall, weighted average cap rate of 5 and a half percent on in place and oi increased 13 basis points from the end of q1 and has increased 21 basis points since the same quarter last year.
Net. Leverage at the end of the quarter was 36% which is an increase of 4% from the last quarter at 32%, net debt to Eva was 7.1 times, a slight increase from 6.8 in q1 and consistent relative to the second quarter of 24.
The increase in granite's, key leverage. Ratios is primarily due to the classification of the 5 assessment. As they are excluded from the investment property value. Resulting in a decrease in the denominator of the net leverage ratio.
In addition, Granite has increased unsecured debt due to drawing on the credit facility to fund repurchases of units under the NCIB, resulting in an outstanding balance of $91 million at the end of the second quarter.
Granted expects these ratios to normalize lower when assets sales are completed.
Our liquidity is approximately $1 billion, currently representing cash on hand of about $86 million and the undrawn operating line of $914 million.
As of today, granted has 95 million drawn on the credit facility and 2.4 million in letters of credit outstanding.
We do expect to reduce the outstanding balance on its on the credit facility throughout 2025 with free cash, flow from operations barring, any other major transactions.
And is noted, in our disclosures we have been taking advantage of the significant discount to nav. Uh, and we, we have, we repurchased year to date 2.2 million units on average, with unit cost of 67.1 for total consideration of about 145 million.
I'll turn over the call now to Kevin. Thank you.
Thanks Theresa. Good morning everyone.
uh, as Theresa mentioned the Q2 results, more or less were in line, obviously, impacted negatively by the weakening of the US dollar in the quarter,
And as mentioned, excluding the negative impact of FX in favorable, 1-time items, in the first quarter, Q2 was slightly ahead of the first quarter.
With a slight drop in noi of 1 cent offset by roughly 2 Cent net positive impact from UniFi back activity in the first and second quarters.
And as you can see from our Q2 guidance, we expect our financial performance to continue to strengthen over the remainder of the year.
As shown in the MDA, occupancy in the quarter was assisted by the listing of one of our vacant assets for sale in Indy. The new vacancy in the quarter was more than offset by strong leasing activity, as the team executed on roughly 1.3 million square feet of renewals related to 2026 expiries and 1.1 million square feet of new leases since the first quarter call.
These new leases are expected to contribute over 10.5 million in Gross, rent in the portfolio, in the first year.
In terms of mark-to-market on renewal.
We have now renewed roughly 80% of our 2025 expiries at a weighted average increase of over 40%. And that excludes the new lease in Atlanta, where the team achieved an increase in rental rate of 58% over the expiring. Rent, at the end of the first quarter.
in addition to the contribution from new Leasing,
the renewal increases that we have achieved on our 2025 expiries will also contribute strongly to further anti growth in the third and fourth quarters.
To illustrate this point that 5 largest renewal increases by dollar value, represent roughly 13 million in additional rent, annually.
Those 5 renewal increases commence in order of magnitude from largest to smallest on October 1st, on January 1st, of 2026.
On September 1st, May 1st and August 1st.
So only 1 of those increases occurs in the first half of the year and the obvious point being that the increases are significantly weighted to the latter part of the year as we have discussed on previous calls.
A few comments I would make on relevant market data.
8 of our 15 markets in North America, reported flat, or a decline in Market vacancy from the first quarter.
With Savannah and Memphis reporting the largest quarter over quarter increases in vacancy.
In a second quarter with the exception of Toronto and New Jersey.
The GTA was once again, our weakest market in terms of demand posting negative 900,000 square feet, and net absorption following a positive print in the first quarter.
Dallas and Houston.
Saw the strongest net absorption in the second quarter at 5.6 and 2.7 million square feet respectively.
With respect to market asking rents, Broward County a key submarket of the Miami market and home to our new acquisition.
hosted, the strongest quarter of a quarter growth in asking rent at, 3.4%
Followed by Nashville at 3%.
Conversely Dallas and Toronto posted the weakest quarterly.
Asking rank growth and negative 6.7% and 1.2% respectively.
So, while leasing conditions continue to slowly improve across our portfolio,
And our leasing per performance was obviously strong in the quarter. Net absorption overall remains below the 10-year average and conditions remain competitive generally.
In Europe, they can see in Germany and the Netherlands was flat slightly below. First quarter levels and remains below 5%.
Similarly Market, rent growth, all those subdued remain positive quarter over quarter and year to date in the low to mid single digits.
Net absorption or take up remains healthy, across both markets but Germany and the Netherlands recording. Well over 10 million square feet of positive net absorption respectively year to date.
For comparison, there was roughly 4.5 million square feet of positive, net absorption, in all of Canada, over that same period.
Concurrent with our second quarter results.
And once again, pleased to announce the publication of our corporate sustainability or ESG plus r report, which summarizes our activities and progress against targets for 2024, including now achieving roughly 50, megawatts of peak rooftop, solar capacity within our portfolio.
Achieving Green Building certification on 63 Properties or roughly half of our portfolio.
And being ranked. First in our, peer group of North American listed, industrial companies for ESG performance by gresb.
Sustainability is an important area for granted and I invite you to read a report and I'll post it to the website.
I don't have a lot of comments on our quarterly IFRS value. As Theresa mentioned, roughly 70 million positive impact of leasing activity, rank growth. And the addition of 2 new Assets in Florida was more than offset by the negative impact of that fact, primarily or all related to the sniff significant weakening of the US dollar versus the Canadian dollar since the end of the first quarter.
Moving on to Capital, allocation.
The list of assets held for sale combined, with the announcement of our new acquisition, in the Miami market, and our ncib activity, reflect our priorities as a company to fund strategic acquisitions.
Our bill to suit development program and unit buybacks on an opportunistic basis to retain cash, and the sale of select non-core assets.
We have obviously used our line of credit to fund the new acquisition and NIV activity in the near term.
But the objective Remains the funder growth and the debt neutral basis. Thereby, maintaining our conservative Capital ratios and the strength of our balance sheet,
At this time, I don't wish to Telegraph individual markets, Target markets for new acquisitions but I can tell you that the team is currently active on new opportunities.
and as of as of as I have commented in the past, we will look to deploy capital and select core markets in Europe, Canada and the US
In closing the teams on new Leasing and renewals year to date, have positioned us very well for continued. Strong organic growth in the coming quarters.
And as evidenced by our now's acquisition and list of assets held for sale.
Successful execution of disposition program and effective Capital redeployment will be a focus of ours for the remainder of this year and into 2026.
And on that, I will turn the call over for questions.
Thank you, ladies and gentlemen. We will now begin the question and answer session.
Should you have a question please? Press the star followed by the 1 on the touchdown phone.
Should you wish to cancel your request? Please press the star, followed, by the 2.
Open.
Thank you, and, uh, good morning, uh, 2 questions for me, uh, for Kevin. Kevin, you touch on the capital location, just to clarify, uh, is it fair to say that you seem to be a little bit more? Um,
your appetite is has improved in terms of Acquisitions, uh, on an opportunity to basis. That mean that, uh, you know, you'll be focusing a little bit more on Acquisitions versus the ncib, or, or your view will remain quite balanced between the 2 at this stage.
Well, I think the ncib activity, depends, very much on the on the price of the unit to be fair. Um, on the acquisition side, we do expect to be more active. I think we find pricing for core assets and developments in our Target markets to be attractive.
and I think we find the spread between those markets or Tier 1 markets,
and markets that we're in such as Indian Columbus to be quite. That spread is quite low. And I think it's lower than we've seen in many years. So I think it's a good opportunity for us to continue our rotation into those core markets. The ones that we're targeting. So I do expect us to be active on that. Hopefully, we're not active on the inside, see, based on the price of the unit, but it always remains an option. Uh, if if we find pricing to be very compelling on the on the ncib side,
Got it. Thank you. And and uh secondly is it fair to say that? Germany is performing below your expectations. Uh so far this year um or or you feel like the underperformance is related to more you know, short-term specific factors in the the country.
Well, it's we, we don't have a lot of recent activity to point to Fred, to see that it's underperforming, our expectations. I think it's I think it has slowed activity has slowed, but they can see as sort of held in there, in a very low level and we continue to see Market rent growth
Which is more than, than we can say, for a lot of markets including the GTA. So if you if you were to characterize Germany as being weak, I would wonder what your view of the of the Toronto Market would be.
Mhm, that's great. Thank you.
Thank you. And you our next question is from Sam diani from TD Cowen, your line is now open.
Thank you. Good morning everyone. Um, Kevin just, you know, with the big surgeon leasing this quarter, you know, 3 sizes of leases, uh, covering some vacant space. Uh, wonder if you just, uh, touch on what's, what's changed. Uh what, what what uh allowed you to sort of, uh, come to terms with these 3 tenants, uh, that really wasn't, uh, wasn't available. You know, 6 12 months ago.
I, I don't know, Sam that there's any clear Catalyst that I can point to, I mean, as we've said, we have seen activity pickup across our portfolio. And I I think what we're finally starting to see is
maybe we're seeing more activity than other portfolios out there which isn't really a shock to us. Um,
As to why they're actually signing leases today. I I, I can't point to a clear 1. I just think
Um, we were due, certainly for for a few of these. Leases I can tell you on the lease in Louisville, there were multiple prospects on that. So, I think what we're finally starting to see is, is the delays in Leasing
decisions, that tenants are making, they can no longer delay, those decisions and they're moving forward. And so, I would say right now, we probably have another 300 to 300 350 thousand feet under lease negotiation. So, the activity continues to be good, but then I will tell you, tenants can continue to be cautious.
And not that you're asking about tariffs, uh, particularly. But when we look at our us portfolio, I think
I think there's a general consensus that
tariffs will ultimately be good for the US portfolio because it is going to drive more us production, domestic us production.
but,
I think right now there remains an uncertainty about what the rules of the game really are and we can see that we can see the tenant probably need more space, they're just not sure how to proceed with the uncertainty around what these tariffs, uh, are going to look like from various countries. So that's where we are today. And uh, I think I think slow and steady Improvement in the market as well. We would look to over the coming. Quarters overall
That you achieved with these 3 leases, you know, kind of in line with you what you were expecting. You know, again 6 12 months ago or
Uh, I think they were stronger.
Stronger. Yeah, that's great. Okay, um, maybe just moving on on the, um, the I guess the outlook for the year end committed documents. See? You know, it's been a lot of change since the last quarter with uh, assess health for sale and this leasing um,
How would you, how would you characterize? You know, your update, your outlook for your end, committed occupancy.
I think we would expect our occupancy to be between 96 and a half, and 97% at the end of the year. And so roughly 100 basis points over what we, what we were expecting at the end of the first quarter.
And sorry. That's, uh, that's committed. Um,
and how much of that would be would be, you know, I most yeah I would say most of it would be in 2025
Okay, perfect. Okay, thank you. And I'll uh, I'll turn it back.
Thank you, and your next question.
This is Mike Martinis from BML. Your line is open.
Thanks operator. Um, just with the 300 and some odd million of assets held for sale. Um, I think they're, I think they're fully occupied or close to it. Um, and most of them in the US, are you able to give us some sort of brain, give income attached to those assets?
Oh, the majority are are occupied, just the 1 is they can. So there's 2, 2 Assets in Indy 2 in Columbus 1 in the Netherlands. Um, the income that's attached to. Yes, we have a schedule in the I it's 14.8 million of annualized Revenue associated with those assets. Great, thanks. Oh perfect. I missed that, thank you. Um, okay, and just Kevin with your respect to comment, obviously, you don't want to get into the markets Etc that you're you're targeting for Acquisitions and the team seems active, are you able to give us sort of like a Quantum of opportunities that's being considered or under written today?
We have roughly 65 million Canadian. Uh in negotiation right now both in Europe and probably I I would this would be a guess right now Mike, but I would say probably another 100 million to 150 million
That were uh, pursuing early days.
Okay. Got it. And then um spec development, I guess being all. Sorry not respect development, build suit development. I should say um I know you've got the 1 Project in Houston that's uh that's underway. Um is it reasonable to think like are you close to getting anything else done on the on the development side on the build build to suit? Or is that something that just? You know, I, I we are we have activity on our Brandford site and we have some further activity on our Houston site, uh, but early days so nothing, that's closed. Maybe we'll have a little bit more information on our third quarter, call
Okay. That's, uh, that's all I have. Thanks so much.
thank you, and your next question is from Mark V from canaccord genuity, your line is now open
I have 1. Kevin. I heard your comments just now in regards to from an early question on tariffs and some positive. There is some positive leasing news that you had, but your tone overall may be just down to a bit cautious. Still, I recognize that market vacancy in the US is increased, but there's so much news about companies expanding operations in the US, are we possibly heading into a time where fundamentals can approve meaningfully in the US. And is that something you think about as you consider Capital allocation decisions?
Yeah, I I think what you're hearing Mark is is a fair comment. I think our leasing has been strong leasing activity, leasing activity and traffic in our portfolio, uh, is positive. But it's against a more cautious backdrop in the market. And that's what I'm, I'm hoping comes through. I think our portfolio is performing well.
Probably better than most in the market. Uh, in terms of the tariffs I I have to think that once the Agreements are signed and people understand what the tariffs are. And hopefully there is low as possible. But I think what people are waiting for is just certainty around what the deals are and I think that that will I don't want to say it. It'll it'll unleash a significant
You know, movement and leasing, but I think it will be a positive Catalyst for the leasing Market. Once the once the certainty, once the uncertainty around the impact, the extent of the tariffs is, is removed.
More positive outlook or is it just that's not your core business?
Oh, I, I think, I think that's on the table for us to buy a vacant asset and we have pursued those, um, at the right price. I mean, cost basis, remains probably the most important thing that we pay we pay attention to obviously location. Quality of asset, has to be in a market that we like,
Um that's definitely on on the table for us, but I will tell you to your point. Um, we can't seem to get there on pricing because sellers probably have the same level of confidence in the future of the market that we do. So the the opportunities are there. We just can't seem to shake them loose of pricing that that we want, which is not a surprise to us. And, and by the way, you know, 1 of the assets we have for sale, has vacancy. We're going to take the same approach to that. I don't think we're interested in any sort of compromised sale, because it's vacant. We, we have enough confidence in the market that we're going to want to achieve pricing on the sell side as well.
Okay, I appreciate that. Thank you so much.
Thank you, and your. Next question is, from Kyle Stanley from Beijing. Your line is now open.
Thanks morning everyone. Um, 1 of your users uh earlier in earning season kind of mentioned an element of fomo. It seems like from occupiers that may have been contributing to the recent pickup in in demand for space.
Just love to hear your thoughts on that comment and you know could that help explain maybe the the the more recent leasing demand you've seen maybe since since June
Well, I think we saw it in real time, Kyle, in Louisville, where we actually had a competition for the space, and I think that advanced the timeline on it. So.
yes, and I also think,
You know, an important element of all of this that I think it's overlooked is, you know, we renewed over 90% of our expiries last year. This year, we will renew between 80 and 85% and I hope everyone appreciates that those are very strong numbers.
and I think 1 of the things that we are seeing in the market is, although
A lot of tenants may be hesitant to expand their space. They certainly don't want to lose it. And I think part of it is and this is becoming a bigger factor in the US, is fear of losing out on Workforce.
And so, that is becoming a really important element for tenants.
and I think, um,
I think that will lead into that sort of formal comment that you're referring to. We expect to see that probably later this year, early into 2026 for sure.
Okay. No, that's very helpful context. Um, just with regards to the Louisville asset, I think going back to, you know, when it was vacated, I believe in 2023, you'd highlighted a potential, you know, 20% gain to lease opportunity. Obviously, a lot's changed in the market since then. I'm curious to know if you can disclose, you know, how did that work?
Yeah, I think we were right in line with that.
That's encouraging. Yes. I, I can tell you. You can tell you. We we achieved
we achieved better rents than we thought at the time.
Okay, great. And then, just the last 1. Um, obviously looking at your assets held for sale, uh, you disclose kind of the locations of them.
What's the private market like, um, what you know, what's demand like for those types of assets today? Um, you know, and and who are the the buyers that are that are active.
Well, I think um, going out to the market on these, we have seen uh a lot of um, interest coming in IE signing ndas. So the the level of activity on the NDA has been high, which would suggest to us. That there's a fair amount of capital on the sidelines looking for assets in these markets. So we think that it's strong.
We will see. Um, I think we're pretty disciplined on pricing both ways, so there's pricing that we want to achieve here.
Um, but so far, the level of interest that's come in on those assets has been strong.
Okay.
Very helpful. Thanks for that. I'll turn it back.
Thank you, and your next question is from Brad Sturgis from Raymond James. Your line is open.
Around the, the the softness in the Toronto Market that or there's leasing that needs to be get done. That would make it maybe less of an ideal time to maybe sell a little bit of Toronto right now.
Yeah, I mean we have assets listed for sale or lease in the Toronto market, and we have assets in Europe that...
We're working through leasing Etc. We would consider a sale on these are ones that we have identified for a formal marketing process and moving forward with part of its Market concentration. You know, we've talked about rotation and markets, we want to be in and markets where we could probably
Uh, afford to trim, uh, and and free up some capital for deployment. So that's why these ones were sort of chosen, uh, as ones to formally market. And uh, which we expect to dispose of within the next 12 months. That doesn't mean that there aren't other non-core assets within our portfolio that we're in discussions on, or may sell, or at least consider selling um, that that are not listed as assets held for sale.
But I, I guess to expand the program for that. You would need to see line of sight on the acquisition side, or, uh, use of capital for that to, to expand beyond what you got. You're always. Yeah. We're always trying to balance the timing of it. But as you can see, we we we didn't hesitate to use the line of credit on the acquisition in Florida. Nor do, we hesitate to use a line of credit on the ncib activity. Now, there is a limit to that
But we're retaining cash. So we have confidence as Theresa mentioned, we will pay down that line of credit. Uh, and we're trying to balance sort of assets uh going out in assets coming in, um, but it's never easy to sort of balance those. So I wouldn't say I would say that the pace of disposition or successful disposition will be a consideration for us, but I don't think we would hesitate to make the right acquisition uh at the right time, even if it's a portfolio and use the line of credit to to execute on that. If that answers your question, Brad.
Um last question just going. Certainly back to Louisville real quick. I think that that 20% Gap. That you you uh kind of highlighted is that a growth spaces? Are how would that look like on an unaffected? Would it be similar? Like would it would have been more like a standardized TI package? That would have been used.
I well, the 1 thing I will say if you're talking about free rent and that I don't want to get into the the specifics of it. But if you look at the the lease term in terms of months you can kind of get a guess you can kind of guess and see the amount of free rent that's in the that's in the term of the lease and it gives you an idea. But in this case, I mean, we bought this building um occupied
So, it's hard for us to look back and see what the net effect of rent was when the deal was first done, which is the way you really should do it to compare apples to apples. So, I don't have an answer for you on that. But I would just say that, I think that the.
The the net effect of rent over the expiring, rent is very close to the to the rent. Because I think that the, the free rent within the term was was quite nominal.
Okay, that helps. Thank you.
You and your next question is.
From him on Sha Gupta from Scotia Bank Carolina, so open.
Thank you and good morning.
So just look again at the acquisitions in Florida. We're going in capital of $5.
Uh, how do you get that 15% increase? You mentioned in the next 2 years? I mean, considering the world is like, 6 to 7 years.
Yeah, there's contractual escalations built into the leases and that's what gets us up in the in the next couple of years.
Okay. Uh and then uh I mean bigger picture wise, as you resume your acquisition program uh is 5 to 6 Capital. It's going in is what you are targeting. Uh, I mean anything in mind that
Well I don't think the the going in cap rate is the is is sort of the um the most important thing that we're that we're targeting. We really are more long-term irr driven, but I think if you were to use a number, I think 5% to 6% would be fair.
Overall.
Okay, yeah, and for the $300 million dispositions, a soft 5% cap rate on your in-place. And why pay to say that? I mean, based on your $14.8 million in place NOI, so something in that range.
There, were there any discussions to go for, you know, like a relatively smaller way assets or multi-tenant properties?
Yes, I think we're always looking at what best fits our portfolio, uh, in terms of small Bay, uh, know, I can tell you guys, that is something that is not on our radar. Now something that's, um, well, I think infills use rather irresponsibly at times but this smaller to mid-bay. Yes. As long as it's Logistics focused. Um, we have uh, I will tell you the, the, the small Bay for us, has a lot of and I've talked about this many times before, has a lot of concerns for us and a lot of drawbacks. Uh, and so that is not on our radar that sort of small multi, but anything that's that small to uh, sorry mid-bay. Um, whether it's a multi or single, as long as it's really functional Logistics, that's well located in our markets is on our radar
Okay, stand up.
And then just turning to the Indianapolis leagues, which got done, did you finalize that second property? And I think only a portion of that, you know, 290,000 square feet, we've got done.
That was the idea. Yeah. So that. Yep. 290,000 ft which is being demised as we speak and I think we listed 178 of the 290 which is which I think our original underwriting we had 2 tenants in there. So this is this is very much in line with our original performer uh and expectations for the for the building.
And for the bigger piece, you are exploring demising that property too, as well as the bigger property next door.
Yeah, we have responded to our rfps for the entire building. We've responded to our rfps for a portion of the building. So, um, there are, uh, there is activity on the building. I don't want to say what size range, uh, right now, but we are open to demising the large 1 as well, and that probably would have been in our original performer uh, as well.
Okay. Okay. Thank you. Maybe just one last quick question here. I mean, 2025 LE expires are almost done now. As you shift focus on 2026, are there any spaces expected to come back or any chunky deals you’re expecting?
Yeah, I think we talked about the 1 in Pennsylvania, 750,000 ft with Samsung. Um, we are expecting that to come back to us. I think it's in the latter part of 2026, um but I think we discussed it on the previous call, it's a very strong location on i78 uh within a 2 and a half hour drive of what New York. Phil.
Baltimore Washington. Uh, so that 1 we are expecting to come back and uh again we're sort of running the the leasing process right now and um we expect there to be some decent activity over the coming quarters.
Awesome. Thank you and I'll do them back. Thank you.
Thank you once again. Should you have a question?
Press star 1.
And your next question is from Matt Kornak from National Bank Financial. Your line is now open.
Um, can you just provide a
Where in place and, like, rent-paying occupancy would be today to kind of your 96% to 97% end of year? It sounds like there's still a lot to be captured potentially into Q2.
On that front as well. I'm just trying to gauge kind of how it comes in on an economic basis versus a straight line basis. Um,
Because it's it's pretty big number of gla.
I’m trying to understand the question. Sorry, let me just look at it. Well, I think we have committed activity. I think he’s trying to get at where is the free... like...
Like I guess by the end of the year we're we're at least going to be at 96 and a half percent in place, right? Like we we know that for sure. No no, no, no by the fourth quarter. Yeah. But that's what I'm saying before the end of the year but the fourth quarter. Sorry by the fourth quarter, we will hit 96 and a half percent.
Yeah.
Okay. And then, I mean, yeah, so the full benefit will be felt in college. Not, not like if I could, like I said, like I pointed out before, look at the lease term in months.
And you get a sense of the free rent.
Okay.
Uh, you've got any concern about or, or at this point is that it's pretty locked. I know you haven't done much in the the committed. Uh,
For next year. But would you think that you'd get kind of in that 80 to 90% retention ratio again?
Yeah, I don't want to throw a number out there. If your question is, do we have any particular concerns now? We don't. We know we have 750,000 square feet coming back, but we think the mark-to-market there is probably 15% to 20%.
So um we're you know encouraged by sort of the prospects there to drive rent in the future, but don't have any specific concerns about 26 at this time.
And and I think you highlighted it last quarter and and achieved a good rent spread in the US this quarter. Um can you give us a sense as to kind of where Mark to Market sits, uh, for the geographies at this point or what you'd expect? I know Europe was kind of
low single digits, but it sounded like there were some
Fixed renewal aspects there, as well.
Are you talking about 2026 specifically?
Uh maybe just in terms of the the balance of 25 and then you know how 26 is shaping up.
I don't have that for you. I think we'll make a point on the Q3 call to, uh, to have more specific numbers. The only reason I'm hesitating is we've moved rent so much.
On these assets that I'd rather wait for another quarter and give you a better idea of our viewpoint.
if that if that's okay.
Um and then the last 1 for me, um, Toronto like you've done well in your portfolio in the Toronto Market, is it?
This point. Do you feel good with what you own in the market?
I think I launched it for a bit there. Um, you mentioned that we had done well in Toronto. Are we happy with the portfolio in Toronto? Was that the question? No. The question would be, as you kind of expand into, I guess, Gateway markets, I don't know if the pricing is attractive in Toronto at this point or more attractive, but would you look to add in Toronto or any other Canadian market for that matter?
Yeah, I I think we would, I think what's really important to us when we underwrite is is the strength of the market, but we think the market is going to do and how it's going to perform over the next 5 to ten years.
And I think for, and that's how we base our pricing on it as well. Um, and I think,
For us, we think some markets will outperform Toronto and therefore we adjust our pricing accordingly. So we do want to continue to grow in the GTA Market. I think right now we just probably have a different view than than most and where rents
Uh will be in the market, in a couple years from now and that obviously impacts our pricing.
Uh, on those on those assets. So I we will I I am confident, we will grow in the Toronto Market. I just think we're going to remain very disciplined on pricing.
And what we buy?
Makes sense. Thanks Kevin.
Thank you. And your next question is from Todd Willie from CIBC Capital markets. Your line is now open.
Hi, good morning.
Hello.
All right, we're here. Hey. All right. Um,
3, I was just wondering. Um, if I'm reading my charts here correctly, you're sort of. If you were looking to float unsecured. Right now, you're probably looking at a rate in the fours, low Force. Yeah. That's, that's right, I would say right around 4, especially if you know, looking at the deal that choice did yesterday and that brought in spreads, uh, quite a bit. So that would be on the Canadian front. If we were
To go like to swap to Euro, which of course you know, we do most of our debt that way, we would be looking at 3.5.
Okay.
Perfect. Um, and then I guess, Kevin, let's assume for a moment I'm a representative from a pension plan here in Canada. I come to you to say I've got a couple billion dollars I'd like Granite to manage for me and invest in industrial real estate. First of all, are you interested in that proposition?
Well, that is a loaded question.
Understanding the, uh, the strings attached and the conditions, probably not. I would say, what if the season?
To the right way, and there will be a time, I think, for a JB Partnerships. But those have to be on the right terms, and you have to be very aligned. I think the last few years will show you that that will put Partnerships and Alignment under a lot of pressure.
Right. I think that it has been constructive to go through the challenges that I think all REITs and all companies have gone through over the past few years. So I think anyone coming out of this would look at.
Uh, partnership opportunities, um, carefully. And so, to answer your question,
Under the right conditions. Absolutely.
Okay, um, so let's say we can come to mutually agreeable terms. Where would you expect, uh, if you can maybe do it on a percentage basis, how much land? How much would you look to buy in Europe versus Canada versus the U.S. right now?
well, yeah, I mean
I think, I think for us, I think Europe is providing more compelling opportunities today.
And that can change. As you've seen, we like certain markets in the U.S., and there are always opportunities in the U.S.
There are fewer. Although I say compelling. Um, there is not as much transaction volume in Europe, but the opportunities we are seeing today are more compelling in Europe and I think for now that it's going to continue. So if you look at our activity and this is just a, an opinion of mine at a point in time today I would say we're probably be more active in Europe.
Uh, and select markets in the U.S.
And less. So, in Canada, over the next 12 months, based more on opportunities and pricing that we see on those opportunities.
And sorry. Your reason for calling Europe compelling is that? You're
Uh, the returns you think you can get upfront are?
Are signs materially better than what you can get elsewhere?
Not materially. I mean, it's very, I mean, the market's very efficient, believe me. And we're not the only ones that are, um, trying to place capital. If you look at the, you know,
uh, Quantum of of, uh
Private Equity capital in institutional Capital pursuing. These types of assets is very large and it's it is uh, it is a challenge for a company like Granite to find the right opportunities um, that fit for us.
Uh, in a very competitive uh Capital environment right now, but that's that's what we do. We've been successful uh Through The Years doing doing just that. So I'm confident we'll we'll continue to be successful.
but um,
To me, I just feel that there will be better performance.
Uh, overall, in Europe, we will see trends different from what we observe in markets in the U.S. And again, that can change; it depends on pricing and it depends on the denominator as well.
And if Factor when you are you factoring in the cost of financing there too with Europe as well. Is that part of what makes it compelling
It can, but that will be a consideration. That wouldn't be a major consideration. When we underrate most deals, we do it on a leverage-neutral basis.
And a growth basis, i.e., without leverage, right? So that's the acquisition, and the asset has to stand on its own without the benefits of, uh, leverage and pricing on the debt.
Okay.
All right, that's great. Thanks very much.
Thank you, and your next question.
This is from the poem from RBC Capital Markets. Your line is now open.
Thanks. Good morning. Um, Kevin, you've made some good leasing progress, but you've also mentioned, or maybe emphasized, a bit of caution still among tenants. Are you seeing any pressure on any of the tenant base at the moment or anything that maybe gives you some concern, either by segments or by market?
No, I don't think we have any immediate concerns and I didn't think I came by that. I didn't think I sort of sounded that negative, but, uh, I guess I did. But, no, I, and I think everyone's sort of reading too much into this that we think that there's the sort of shoe to draw. Uh, we're not aware of any immediate concerns with our with our tenant base. If that's the sort of question.
Okay, and then just lastly, um, any notable changes in terms of bad debts?
No, nothing.
No, we've revisioned. Nothing, Tammy, and, uh,
No credit. Watch at the moment.
Thank you so much.
Go ahead. I'll, I'll turn it back. Thank you.
Thank you very much at this time. Please proceed.
All right. Well, thank you everyone for being on the call today and look forward to hopefully, uh, speaking with you again, in 2 3.
Thank you, ladies and gentlemen. This concludes today's conference call, you may now disconnect your lines