Granite Real Estate Inc.

Good morning, ladies and gentlemen, and welcome to the conference call of Granite REIT. Speaking to you on the call this morning is Kevin Gorey, President and Chief Executive Officer, and Theresa Netto, Chief Financial Officer. Before we begin today's call, I would like to remind you that statements and information made in today's discussion may constitute forward-looking statements and forward-looking information, including but not limited to expectations regarding future earnings and capital expenditures, as well as potential impact of COVID-19, and that actual results could differ materially from any conclusion, forecast, or projection. These statements and information are based on certain material facts or assumptions reflect management's current expectations and are subject to known and unknown risks and uncertainties. These risks and uncertainties are discussed in Grenade's material filed with the Canadian Securities Administrators and the U.S. Securities and Exchange Commission from time to time, including the Risk Factors section of its Annual Information Form for 2021 filed on March 3, 2021. Readers are cautioned not to place undue reliance or any of these forward-looking statements and forward-looking information. Grenade undertakes no intention or obligation to update or revise any of these forward-looking statements or forward-looking information, whether as a result of new information, future events, or otherwise, except as required by law. In addition, the remarks this morning may include financial terms and measures that do not have the standardized meaning under international financial reporting standards. Please refer the Q1 2021 Condensed Combined Unaudited Financial Results and Management Discussion in Analysis of Grenet Real Estate Investment Trust and Grenet's REITs. and other materials filed with the Canadian Securities Administrators and U.S. Securities and Exchange Commission from time to time for additional relevant information. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question and answer session. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Thursday, May 6, 2021. I will now turn the call over to Kevin Corey. Please go ahead.

Thank you, operator. And thanks, everyone, for taking the time to join us for our Q1 2021 earnings call. I hope you're all doing well when I'm taking another call from my house. As usual, I am pleased to be joined this morning by Teresa Netto, our CFO, Warren Coomer, our EVP and Global Head of Real Estate, and Michael Van Paris, our EVP of Global Real Estate and Head of Investments. For our call this morning, Theresa will begin our discussion with a review of the financial highlights. I will then provide an update on our operations, acquisitions, developments, and ESG, and then, as usual, open up the call to any questions that you may have. Theresa, over to you.

Thanks, Kevin, and good morning, everyone. Granted, first quarter results are in line with expectations with FFO and the FFO per unit coming in flat to Q4 2020 in light of negative foreign currency effects from the recently strengthening Canadian dollar and the impact of a few non-recurring items pertaining to financing costs, current income tax, and G&A. FFO per unit in Q4 was 93 cents, but included in this quarter, FFO is $4 million of redemption premium incurred upon the early redemption of the 2021 Ventures in January, and half a million of accelerated amortization of financing costs relating to the amendment and upsizing Granite's credit facility. Excluding the impact of these financing costs, SFO per unit would be a dollar representing a five cent or 4.8% decrease relative to prior year and flat to Q4. FFO is negatively impacted by foreign exchange translation losses of our foreign-based income as the U.S. dollar and euro weakened by 3% and 2% respectively, resulting in a two-cent decline in FFO relative to Q4. Partially offsetting these translation losses are a net $0.7 million of foreign currency gains being realized in the first quarter, mostly as a result of Granite's ASFO FX hedging program. Relative to Q1 last year, however, foreign currency gains are $2 million lower as the Canadian dollar had weakened significantly at the end of March 2020, resulting in a large $2.8 million foreign currency gain on foreign cash held at that time. SFO this quarter was also positively affected by the recognition of tax assets, reducing current income tax expense. In the first quarter, we realized tax assets of However, this amount is lower than the 0.8 million of tax assets realized one year ago, resulting in a negative variance of half a million dollars relative to prior year. Lastly, FFO was impacted by higher G&A relative to prior year, mostly driven by incremental compensation costs pertaining to the 2020 fiscal year recognized in the current quarter and fair value gains realized in Q1 last year on deferred compensation liability when Granite's unit price declined sharply at the end of March 2020. Granite's ASFO on a pre-unit basis in Q4 was 89 cents, but adjusting for the financing costs previously mentioned, ASFO would be 96 cents, which is 9 cents, or 8% lower than prior year in flat Q4. ASFO-related capital expenditures, leasing costs, and tenant allowances incurred in the quarter worth $0.6 million, which was lower than the $1.1 million incurred in the same quarter last year and also lower than the $2.3 million incurring Q4. We expect maintenance, capex, and leasing costs to ramp up in Q2 and Q3 of this year and continue to estimate expenditures of approximately $15 million for the year. In addition to the impact of foreign currencies, tax provision adjustments, and G&A impacting FFO overall, FFO and AFFO also continued to be impacted by the temporary dilutive impact of the Q4 2020 equity and bond offerings where net proceeds have yet not been fully deployed. Granite's AFFO payout ratio came in at a conservative 79% for the quarter after adjusting for the previously mentioned financing costs. NOI on a cash basis for the quarter increased 12 million or 17.7% from the same quarter in 2020, and by 3.5 million or 4.6% from Q4. Same property NOI for the first quarter was solid relative to Q1 last year, increasing 2.6% on a constant currency basis and increasing 1.2% when FX impacts are included. Same property NOI growth was driven primarily by positive leasing spreads in Canada, contractual rent and CPI increases across the portfolio, as well as incremental rent earned from excess land at a GTA magna property. G&A for the quarter was $3.1 million higher than the same quarter last year and $0.9 million higher than Q4. The negative variance relative to Q4 is primarily due to an additional compensation expense of $0.9 million relating to the 2020 fiscal year and therefore non-recurring recognized this quarter. In comparison to the first quarter of 2020, the $3.1 million variance is mostly related to $0.9 million of additional compensation expense just mentioned. A negative change in the fair value gain on non-compensation liabilities of $1.4 million as Granite's unit price declined sharply at the end of March 2020 and no similar adjustment in Q1 2021 occurred. And higher non-cash compensation expense of $0.7 million as a result of the increased director fees and higher amortization expense on outstanding LPIP grants. Excluding the $0.9 million of 2020 related compensation expense recognized this quarter, G&A would be $8 million, which is consistent to Q4 and in line with an expected run rate for the remaining quarters of 2020. Our estimate of G&A expenses of $8 million per quarter assumes about $1.6 million of non-cash compensation expense, but assumes no fair value losses or gains associated with the increase or decrease in non-cash compensation liabilities, which cannot be predicted. With respect to current income tax, for Q1, income tax was $2 million, which is higher than Q4 by $0.3 million and higher than Q1 by $0.7 million. This quarter, as I mentioned, Granite recognized $0.3 million of tax assets in Germany relating to tax years that have now gone statute-barred. Similarly, tax assets of $0.8 million were recognized in Q1 of last year and also $1.7 million of tax assets were recognized in Q4. On a run rate basis, current tax is approximately $2.3 million per quarter. With respect to the potential recognition of tax assets, as mentioned previously, Granite has a further potential $2 million of tax assets that may be recognized in Q4 of this year relating to tax positions taken on taxation years, which will go statute-barred. But we cannot assess whether these tax assets can be realized at this time. The trust's balance sheet comprising total assets of approximately $6.6 billion at the end of the quarter was positively impacted by approximately $210 million in fair value gains to Granite's investment property portfolio in the first quarter, offset by approximately $140 million in translation losses on Granite's foreign-based investment property, particularly impacted by a decline in the Euro of 5.3%, as well as a decline in the U.S. dollar of 1.4% relative to the end of Q4. The fair value gains on Granite's investment property portfolio is mostly attributable to fair value gains in the trust of GTA and U.S. properties, as well as the trust's modern distribution warehouse assets in Germany and the Netherlands, due to increases in fair market rent assumptions and declines in capitalization rates. The trust's overall weighted average cap rate of 5.4% decreased 20 basis points from the end of Q4. Total net leverage as of March 31 was 25% unchanged from Q4. As announced in March, Granite's credit rating was upgraded by DBRS Morningstar to BBB High, and as a result, Granite's borrowing costs on its term loans and credit security have declined by 25 basis points, resulting in annualized interest expense savings of approximately $1.8 million. However, This is mostly offset by higher financing fees relating to Granite's up-sized credit facility of approximately $1.5 million per year. The trust's current liquidity is approximately $1.5 billion, representing cash on hand of around $500 million and the undrawn operating line of $999 million. I will now turn the call over to Kevin. Thank you.