Release Date: February 27, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Granite Real Estate Investment Trust (GRP.U, Financial) posted Q4 2024 results ahead of Q3 and management's expectations, driven by strong NOI growth and positive foreign exchange impacts.
- FFO per unit in Q4 was $1.47, marking an 8.9% increase from Q3 2024 and a 15.7% increase from the same quarter in the prior year.
- The US portfolio generated a strong 6.5% same-property NOI growth in Q4, with significant rent increases on new leases and renewals.
- Granite completed a successful $800 million bond offering, which allowed for strategic debt repayment and refinancing, reducing the weighted average cost of debt to 2.66%.
- Granite's liquidity remains robust with approximately $1.1 billion available, including cash on hand and an undrawn operating line.
Negative Points
- Interest expense increased in Q4 relative to Q3 by $1.5 million, although this was offset by higher interest income.
- AFFO-related capital expenditures increased significantly in Q4, totaling $11.3 million, which is a substantial rise from previous quarters.
- Granite's Utrecht property in the Netherlands is impacting same-property NOI performance due to its status as a redevelopment site with leasing limitations.
- The company expects AFFO-related capital expenditures to rise to approximately $40 million in 2025, primarily due to planned roofing and parking lot work.
- Granite's occupancy could potentially dip in the second quarter of 2025 due to timing of expiries and move-outs, with recovery expected in the latter half of the year.
Q & A Highlights
Q: Can you explain the $2.8 million foreign currency gain that contributed to FFO this quarter?
A: Teresa Neto, CFO: The $2.8 million gain was due to the term loan that was no longer an accounting hedge, leading to foreign currency gains flowing through the P&L. This was unusual and resulted from the strong movement of the USD in Q4. Typically, these adjustments are minimal and not forecasted.
Q: How do you expect occupancy to trend throughout the year?
A: Kevan Gorrie, CEO: Occupancy might dip in the second quarter due to timing of expiries and move-outs, but we expect it to increase in the third and fourth quarters.
Q: What factors could cause same-property NOI growth to be at the lower or higher end of the guidance range?
A: Kevan Gorrie, CEO: If no new leasing occurs, we might miss the range slightly. Backfilling expected vacancies would keep us within the 4.5% to 6% range, while completing 1.5 million square feet of new leases would place us at the upper end.
Q: Are you seeing any changes in leasing activity post-US elections?
A: Kevan Gorrie, CEO: Activity has picked up since February, with multiple prospects on larger availabilities. However, we are waiting for deal flow and lease signings to materialize.
Q: Can you provide an update on the Houston development site?
A: Kevan Gorrie, CEO: We announced a new build-to-suit project on a long-term lease with a Fortune 50 company, representing the third phase of our Houston development site. This validates our site and location, with income expected in late 2026.
Q: Are there any tenants on a watch list or concerns about bankruptcies?
A: Kevan Gorrie, CEO: We have no tenants on a watch list. We are in advanced discussions with True Value but do not have a signed agreement yet.
Q: How are market rents trending across your operating regions?
A: Kevan Gorrie, CEO: Market rents are moderating. For example, the GTA saw a 6% decrease year-over-year, while Houston and Nashville experienced increases of 17% and 20%, respectively.
Q: What is the outlook for occupancy by the end of 2025?
A: Kevan Gorrie, CEO: We expect occupancy to be in the range of 95.5% to 96% by the end of 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
