Granite Real Estate Inc.

Good morning, ladies and gentlemen, and welcome to the conference call of Gurnayit Reed. Speaking to you on the call this morning is Kevin Gorey, President and Chief Executive Officer in Teresa Neto, 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, 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 and granite 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 3rd, 2021. Readers are cautioned not to place undue reliance on any of these forward-looking statements and forward-looking information. The NITE 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 a standardized meaning under the International Financial Reporting Standards. Please refer the Q2 2021 consent condensed, combined, and audited financial results in management discussion and analysis of Granite Real Estate Investment Trust and Granite REIT, Inc., and other materials filed with the Canadian Securities Administrator and U.S. Securities and Exchange Commission from time to time for additional relevant information. During this presentation, all lines will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. Today's call is being recorded. I will now turn the call over to Kevin Gorey. Please go ahead.

Thank you, Operator, and thank you, everyone, for taking the time to join us for our second quarter earnings call. I hope you're all doing well and taught Damian Warner's gold medal performance this morning in the decathlon. As usual, I am pleased to be joined this morning by Theresa Netto, our CFO, Lauren Coomer, our Executive Vice President of Global Real Estate, and Michael Ramparis, our Executive Vice President of Investments. Theresa will begin our discussion this morning with a review of the financial highlights. I will then provide an update on our operations, acquisitions, developments, and ESG, and then open up the call to any questions that you may have.

Theresa? Thanks, Kevin, and good morning, everyone. Granite's second quarter results are in line with expectations with FFO and ASFO per unit coming in essentially flat to Q1 in light of continued negative foreign currency effects from the stronger Canadian dollar and the temporary dilutive effect of Granite's recent equity and debt offerings. FFO per unit in Q2 is $0.99, representing a $0.02 or 2% increase relative to the same quarter prior year, and $0.06 or 6.5% increase relative to Q1. However, normalizing Q1 for the $4.5 million of financing costs associated with the redemption of Granite's 2021 debentures in January and accelerated amortization of financing costs relating to the amendment and upsize of Granite's credit facility, Q1 FFO per unit would have been $1 level with Q2's performance. FFO is positively impacted by 12.7% growth in net operating income relative to prior year. However, FFO continues to be negatively impacted by foreign exchange translation losses on our foreign-based income as the U.S. dollar and euro weakened by 11% and 3% respectively relative to the same quarter last year. Partially offsetting these translation losses are $1.1 million of net foreign currency gains realized in the second quarter as a result of Granite's ASFO at-batch hedging program. Granite's ASFO on a per-unit basis in Q2 is $0.96, which is flat to Q1 after adjusting for the previously mentioned financing costs, and $0.03, or 3.2% higher than prior year. ASFO-related capital expenditures, leasing costs, and tenant allowances incurred in the quarter were $1.7 million, which was lower than the $2 million incurred in the same quarter last year, but $1.1 million higher than Q1. Maintenance projects are ramping up over the remainder of the year, and we estimate maintenance capital expenditures and leasing costs of approximately $13 million for the year, which is $2 million lower than communicated on the Q1 call. In addition to the effects of foreign currency impacting FFO overall, FFO and ASFO per unit results are partially affected by the temporary dilutive effect of the $316 million equity offering completed June 9th, as well as the Q4 2020 equity and bond offerings where net proceeds have not yet fully been deployed. Granted, ASFO pair ratio came in at a conservative 79% for the quarter. NOI on a cash basis for the quarter increased nearly 9 million for 12.5% from the same quarter in 2020 and unchanged from Q1 of this year with NOI growth muted by the US dollar weakening further 3% in Q2 relative to Q1. Same property NOI for Q2 2021 was solid relative to Q2 last year, increasing 2.9% on a constant currency basis, but 3.5% when foreign currency effects are included. Same property NOI growth was driven primarily by positive leasing spreads in Canada and incremental rent earned from excess land at a GTA magna property, as well as contractual rent and CPI increases across all of Granite's regions. GNA for the quarter was $8.3 million, which was $0.7 million lower than the same quarter last year and $0.5 million lower than Q1. The improvement over Q1 is primarily due to the non-recurring compensation expense of 0.9M related to the 2020 fiscal year that we recognize in the first quarter. In comparison to the second quarter of 2020, the 0.7M positive variance is mostly related to lower fair value losses on non-cash compensation liabilities. We continue to estimate GNN expenses of approximately 8M per quarter on a run rate basis for the remaining half of 2021, which assumes approximately 1.6 million per quarter of non-cash compensation expenses, but assumes no fair value losses or gains associated with the increase or decrease in the non-cash compensation liabilities, which we cannot predict. With respect to current income tax, for Q2, current income tax was 4.3 million. However, excluding 2.3 million of current taxes relating to the sale of an Austrian property this quarter, current taxes were 2 million, which was flat to Q1, and slightly lower than last year Q2 by 0.1 million, mostly due to a weaker euro relative to the prior year. On a run rate basis, we continue to estimate current tax at approximately 2.2 million per quarter. With respect to the potential recognition of tax assets, as mentioned on the Q1 call, Granite has a further potential 2 million of tax assets that may be recognizing Q4 this year relating to tax decisions taken on taxation years, which will go statute barred. but we cannot make that assessment until the fourth quarter. The trust balance sheet comprising total assets of $7.2 billion at the end of the quarter was positively impacted by approximately $308 million in fair value gains to Granite's investment property portfolio in the second quarter, offset by approximately $43 million of translation losses on Granite's foreign-based investment properties, particularly impacted by the decline in the U.S. dollar of 1.4% relative to Q1. The fair value gains on Granite's investment property portfolio is mostly attributable to fair value gains in the trust's GTA and U.S. properties. The trust's overall weighted average cap rate at 5.1% decreased 30 basis points from the end of Q1. The total net leverage as of June 30th was 20%, down 5 percentage points from Q1, and debt to EBITDA remains healthy at 6.7 times. The trust's current liquidity is approximately $1.7 million, representing cash of approximately $690 million and the Andron operating line of $998 million. I will now turn the call over to Kevin.