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.

Thanks, Teresa. As always, I will keep my comments brief as I trust you've had the opportunity to review our MD&A and press release. I'll begin again by echoing Teresa's comments. Once again, an inline quarter, although it is worth mentioning, highlighting that FFO and AFFO per unit for the quarter increased year over year despite a corresponding negative move in FX of roughly $0.08 per unit. I think also worth repeating is the increase in the market value of our portfolio in a quarter, representing almost $5 per unit, with gains across our entire portfolio on a constant currency basis, led by fair market value increases in our portfolios in the U.S., GTA, and the Netherlands due to a combination of rising market rental rates and declines in cap rates for industrial assets. As disclosed in the MD&A and press release, we completed the sale of one non-core asset in Austria and closed on two strategic acquisitions in the quarter, including a 1.1 million square foot portfolio in Chicago for U.S. $94 million, and the forward purchase of an 800,000-square-foot state-of-the-art e-commerce distribution facility in the Murfreesboro suburb of Nashville. The development will feature several key sustainability features and will meet the criteria set out in our green bond framework. Leasing fundamentals in Nashville continue to be very strong, with current vacancy in the Nashville East market sitting at just over 1.5%. It is a market we have been targeting for many months now. We are also in advanced due diligence on roughly $370 million in acquisitions of stabilized assets and development sites in our target markets in the US and the GTA, which we expect to close on in August, and a further $200 million in acquisitions in the US, the GTA, and the Netherlands, also comprising stabilized assets and development projects, which we hope to complete by the end of the third quarter. As an update on our development pipeline, our project in Altbach, Germany, is well in progress and remains on schedule to be completed by the end of the year. Construction on our development projects in Dallas and Houston, comprising three buildings totaling nearly 1.3 million square feet, has commenced with completion scheduled for the second quarter of 2022. We are now also in negotiations with a national e-commerce retailer for a 690,000-square-foot build-to-suit project on our Houston development site. In addition, vertical construction on the expansion of our Conjubect cold storage facility in Mississauga is well underway, and we expect completion to occur in the second quarter of 2022. As mentioned above and on previous calls, development will continue to play a critical role in our growth plans. particularly given current pricing levels for modern stabilized assets across our target markets. As a note, all of our developments will meet the green building criteria outlined in our green bond framework, and we are pleased to have published our comprehensive global ESG plus R report for 2020 in conjunction with our Q2 financials and MD&A. As mentioned in our earnings release, a copy of the report is available on our website for review at your convenience. Operationally, we have now renewed or re-leased all 2.3 million square feet of our 2021 lease expiries. Although we are still finalizing fair market rent on two renewals, we estimate an average increase in rental rate of roughly 6%. Of the 5.6 million square feet in leases scheduled to expire in 2022, We have renewed 650,000 square feet to date and are currently in discussions on over 1.2 million square feet of remaining expires. As Theresa mentioned and as disclosed in her MD&A, same property NOI increased by 2.9% on a constant currency basis. Same property NOI growth for the quarter was again muted by lower CPI increases, which came in below 1% for the year and a vacancy in polling. Through June 30th of 2021, CPI is tracking at 5.4% and 3.1% for the US and Canada respectively, and between two and 3% for our respective markets in Europe. As mentioned, or as announced in our press release, I would like to recognize the appointment of Emily Pang to our board of trustees. Emily brings a wealth of experience in the logistics sector, finance, and governance, among other skills, and she will be a great addition to our organization. A sincere welcome to Emily. In closing, I think the quarter was characterized by operational stability and strength and fair value gains. And while our cash flow per unit metrics were impacted somewhat by the dilution from our June equity offering, we are poised to deploy a significant portion of our cash in hand in the third quarter on strategic acquisitions. We continue to benefit from strong leasing and investment market fundamentals broadly across our portfolio, and our pipeline of investment opportunities remains very robust at well over $1 billion currently. On that note, I will now open up the floor for any questions.

Thank you. Ladies and gentlemen on the phone lines, if you would like to register for a question, please press the 1 followed by the 4 on your telephone. If your question has been answered and you would like to withdraw your registration, you can press 1 followed by the 3. Once again, ladies and gentlemen, it is 1-4 if you have a question. We do have a question. The first one is from the line of Brad Stregis with Graham and James. Please go ahead. Your line is open.

Hi. Good morning. Just thanks for the color on the acquisition pipeline that you have in your term. Just wanted to get a little bit more sense on – the potential in development and stabilized assets within those two buckets you identified that are closing in August and maybe by the end of the quarter?

Yeah, sure, Brad. For the $370 million in acquisition this month, two-thirds would be stabilized and roughly one-third would be related to development. And for the remainder $200 million by the end of the third quarter, it's roughly a 50-50 split between stabilized and development projects.

With those development projects, are those opportunities that you'll be able to commence in the near term, or are those more like land bank and longer-term prospects?

Well, we'd be commencing construction, but we would not expect to see any income in 2021. Got it. Okay.

And in terms of the leasing expires that you're addressing or have addressed in 22 so far, I think 650,000 square feet that was recently done and another 1.2 million square feet. Can you just give a little bit more context on the 1.2 million square feet in terms of location and the types of rent spreads you're seeing right now for those where you expect to see for those renewals?

Happy to. So on the 650,000, we've achieved roughly 9% rent lift. Of the 1.2 million is in the US. And I'll just say this, overall, we're tracking, we estimate an average increase of 7.5% to 8% for 2022. Okay.

That's pretty similar to your guidance for Yeah, okay. So, I mean, the rents in the market are changing pretty rapidly, but at this stage you're not thinking that will change too much for your term expires?

Well, you're right on that, and certainly we feel that same demand pressure as well. But we're basing it on deals we're actually seeing occurring in the market. So I agree with you. We expect – We hope to maybe do better in 2022 on those renewals, but we're still basing it on transaction data, rental transaction data that we're seeing and receiving on the markets as of today. Okay.

That's great. I'll turn it back. Thanks a lot.

Thank you. Our next question is from the line of Matt Cornack with National Bank of Canada. Please go ahead. Your line is up.

Good morning, guys. A bit of a broader question here with regards to the United States. They're a bit further than we are here in Canada on the reopening. Has that changed anything in terms of industrial tendencies? Obviously, you'd expect e-commerce take-up to go down a bit as people gained flexibility, but it sounds like things are still quite strong. But any color you can provide on how the market is unfolding post-pandemic would be great.

Matt, I think it's a very fair question, and I I always worry about saying that our sector is immune in any way to what's going on in the world and the pandemic, but the truth is we have seen the strongest absorption in late 2020, and I think it was 100 million in the U.S. absorption in the first quarter. Is that related to any reopening activities? We can't point to that. So it's hard for me to sit here today and comment whether the reopening is causing more absorption. I would certainly think it's plausible, but we can't see any evidence that the reopening is having a major impact, which I think is a good thing. Overall, it's, I think, a positive comment. We can't see that the reopening, it's certainly not hurting us, but we can't point to any evidence quantitatively that it is assisting our sector.

And just, I guess, at a time, there were guys looking for shorter-term spaces just to meet a crunch in terms of what they were doing. Is that gone? Are tenants in the market at this point looking for longer-term leases and locking in rents as quickly as they can?

Yeah, I don't think. Maybe there was a short period of time early on in 2020 where they were looking for short-term leases. I saw it more than landlords. looking at doing shorter-term leases. I think there was a period of time where tenants were really unsure of the future and not wanting to commit. That changed very quickly, and I think what was happening was those tenants were seeking longer-term commitments on the space, but it was the landlords that wanted to lock in on shorter-term leases and capture that expected rent growth in the future. So I think that was more the dynamic that we saw. Everything that we're seeing today, I think tenants on the whole are looking for longer-term leases, maybe more in North America right now than in Europe. But I think as we've mentioned before, we think that that dynamic is certainly going to make its way to Europe shortly.

Fair enough. That makes sense. The last one is a little bit more technical, and it may be Teresa. In terms of the mechanics behind these forward purchases for development, How does it work exactly? Do you put the money out today and get some sort of yield in the interim, or is it like you purchase it at some point in the future and the money goes out then?

No, so at this point in time, so with the Mercer's Bureau, I always pronounce that wrong, we purchase the land effectively, and then as construction commences, we will be funding the construction and we'll be adding to that property under development. And then at the end, we settle on the profit and full price. once it's complete. So it'll be a gradual spend or use of cash over the construction period.

And the numbers quoted in terms of the value, is that the full project or is that just for the land day one?

That's the full project. But if you notice, we just recorded as far as acquisition for this quarter, $17 million. That's really just the land cost. But what we've described, I think the $66 million. That's the total cost of the project.

Okay. Perfect. Thanks, Seth.

Thank you. Once again, ladies and gentlemen, it is 1-4 to ask a question. And our next one is from the line of Joanne Chen with BMO Capital Markets. Please go ahead. Your line is open.

Hi. Good morning. Good morning. Maybe just jumping back on the acquisition comments, for the stabilized assets, would you be able to give kind of a range of kind of what kind of cap rates you're seeing right now for those stabilized assets?

The ones that were still to close, I don't want to disclose it at this time, not even a range. I apologize. We'll announce it as soon as we're able to disclose them. We're not able to at this point in time. under the terms of the purchase and sale agreement.

Okay, now that's fair. And would you say the bulk of the 370 that is balanced between the U.S. and Canada?

Well, the ones in August, yeah. It's roughly, I think, two-thirds U.S., one-third Canada. And then for the remainder in the third quarter, I think it's roughly 25% Canada, 25% the Netherlands, and 50% the U.S. Got it.

Okay. And in the U.S., it would be markets that you already operate in or any new markets?

Correct. As of today.

Okay. Okay. And I guess just looking on the other side of things, how much capital recycling opportunities do you think it would be for the remainder of the year?

Roughly 35 million, I think, is the number. And it could be a bit higher, but it's not going to be. It's going to be very consistent with that number, I think, between 30 and 40 million left to go this year.

Okay. I guess, sorry, I just wanted to clarify. I might have missed it earlier. In terms of the revenues that you were expecting for the 2022 lease expiry, would you say down to 8%? Sorry, I just wanted to clarify. Yeah. Okay. Okay, that's it for me. Thanks very much. I'll turn it back.

Thank you. Our next question is from the line of Sam Damiani with TD Securities. Please go ahead. Your line is open.

Thank you. Good morning, everyone. Just first off on the acquisitions, Kevin, I just want to clarify the larger pools of assets that you're expecting to close over the next couple of months, These include the deals that you announced with the equity offering, and then you've added to that. In other words, those original deals back in June are still underway as planned? Absolutely.

Yeah, absolutely. And I would just offer the comment that, you know, particularly on land acquisitions, there's a lot of due diligence involved. And so we're, you know, we're still confident we're going to close. I think the due diligence is going well overall, but there's still work to be done to make sure that we cover off all of the issues related to those types of acquisitions. So it's what we've announced already and plus add-on acquisitions.

Perfect. And then just switching over to Magna, nice to see the concentration falling to 32% on revenue. I guess just three quick questions. The new tenant over at, I guess, Oberthausen, Are you familiar with them? Are they going to stay in the building for the longer term?

Yeah, so the sale to Materas, we do know Materas is private equity that specializes in these types of business acquisitions. The due diligence that we did, that our team did, I think we're very comfortable that they're going to continue to invest and commit to that building. I don't see much of a point of buying that business and not using that asset. So I think we gained a lot of comfort from what we learned in the terrace and their plans for the building.

And are you able to share the current lease expiry?

I think it's 2023. Okay.

And then I just, I assume there's no news, but Magna has a notice deadline at the end of this year on one or more leases. Any update there?

No, I will tell you that's just their modus operandi. We would not expect for them to engage with us on those, and there's no change. We have a high degree of comfort that they're going to renew on those assets.

Exactly. Okay, and then just finally, the small building you did sell in Austria, I know it's hard to extrapolate, but were the metrics there at all relevant in terms of how you look at the value of industrial property generally in Austria and specifically the rest of your portfolio there?

Well, yeah, keep in mind it did have a vacancy in the building, so I think the cap rate as reported is low. I would think the sale would be closer to a seven on that asset. That's not exact, but it's a little misleading with the in-place income.

Okay, just finally one for Teresa, which is I mean, if the exchange rates, you know, stay the same for the balance of the year, do you expect the quarterly impact to stay around $1.1 million, or would that sort of taper off a bit?

I'm glad you asked that question. Yeah, it will be tapering off simply because even our hedge levels are going to be a little bit lower in the third and fourth quarters. So on the U.S. dollar, things don't change. I'm not expecting a lot of gains on our U.S. hedges. On the euro... We'll probably continue to see maybe about $300,000 each quarter for the remaining half of this year, assuming the year-old stays where it is. So, yeah, we will see smaller gains with respect to the callers. And really, we're only hedged to the end of December. We haven't extended out to 2022. Okay.

Thanks very much. I'll turn it back.

Thank you. Our next question is from the line of Mark Rothschild with Canaccord. Please go ahead. Your line is open.

Thanks, Sam. Good morning, everyone. Kevin, in regards to development projects, have you seen any change in the way people are underwriting or the way even you're looking at going into new development projects in the context of a market with rising inflation?

Well, I would say, yeah. But, for example, if you look at land values in the GTA, certainly I think people are underwriting, from where we even sit today, a fair amount of rent growth in the short term. When it comes to the U.S., probably not so much. And I think that's where we continue to see, I think, the most opportunity to drive value there. Whereas the rents continue to climb, maybe not as much as the GTA, but they continue to climb pretty handsomely. but there's still the opportunity to acquire well-located land that has not, frankly, kept pace with the increase in rent. And it's, as I've mentioned many, many times before, it's just a lot less expensive to carry land in the U.S. than it is to carry land in the GTA and Europe, for that matter. So that's why we continue to look at opportunities in the U.S., although we were looking at opportunity and we're close to closing on... That's why we continue to be busy in the U.S.

And I know in Chicago it's not necessarily development, but should we connect your comment about seeing opportunities in the U.S. with expanding in markets like Chicago where historically granite has not been and it's been more difficult to grow? No.

We would like to. It is one of our – I mentioned Nashville and Chicago. They are target markets for us. We've been focused on for the better part of the year. So we hope to continue to grow in the Chicago market and hope to continue to grow in the Nashville market for that matter.

And then just lastly, you have prior experience in the Vancouver market. Have you seen any opportunities there that would make sense for granted, or is that just a market that's not going to be possible to really grow in a material way?

I mean, we certainly see the opportunities. I just think where cap rates are and what is the realistic ability for us to grow with scale in that market, it frankly is not a focused market of ours. If the right opportunity came up with scale, I think we certainly would give it a lot of careful attention. But we're not expecting an opportunity like that to come up. So we're focused on other markets, frankly. And I would say in Canada, our main focus, obviously, is the GTA.

Great. Thanks so much.

Thank you. Our next question is from the line of Himanshu Gupta with Scotiabank. Please go ahead. Your line is open.

Thank you, and good morning. Just a follow-up on 2022 lease expiries. I think, Kevin, you mentioned rental spread of 7.5 to 8%. Does that include all 2020 lease expiries or only on the U.S. portfolio?

No, all.

All, okay. And as you know, that includes magna large expiry as well. So you're expecting some rental pickup on that expiry as well? Yes. Okay. Okay, and then just turning to the balance sheet, how much cash will you have left to oppose the announced acquisitions? And, you know, by when do you think you can deploy most of the cash there?

So based on what Kevin mentioned earlier, so we're probably going to end maybe mid-third quarter or end of third quarter around 100 million or so. So we have quite a bit in the pipeline, which we're sitting at about 680, 90 million right now. So I anticipate somewhere in that 100 million range by sometime in Q4. Okay.

Okay. That includes all the announced acquisitions, and I think you guys mentioned another $200 million under negotiations as well. So that includes the closing of that acquisition. Okay, that's great. And then maybe, you know, broader question, Terran, on the acquisition strategy in the U.S. I mean, recent acquisitions have been in, you know, Chicago, Atlanta, Nashville, northern Pennsylvania. Okay. So are you looking to add more markets or, you know, the plan is to gain scale in some of the existing U.S. markets now?

I think we have enough in the existing markets to keep us busy. We have said before we do like the Florida market. That's something that we have been looking and pursuing opportunities. And it's not just in Florida or Atlanta. The cap rates have really, really tightened across those markets. So certainly we're not the only ones that are interested in in Florida, but that's a market that you could see us add in. We don't have anything on the go currently, but it's something you could see in the next 12 months. So what we're working on right now are all in markets where we have existing assets or development land today.

All right. Okay, that's great. And just one final question on the forward purchase of property in Tennessee. I think it was in the suburb of Nashville. Is it being built on a speculative basis, or do you plan to pre-lease the property?

Correct. Correct. And I think just for, just as a comment, in that market, that vacancy, existing vacancy rate and what we're building, I mean, it is a perfect for us. I think it's a perfect e-commerce market. So we're comfortable moving ahead. And for a lot of these projects, it's difficult. to pre-lease until at least you're going vertical with the steel. So we hope to make progress on the leasing side as we move through this development in the coming months. But yes, as of now, it is a speculative development.

Got it. And just to clarify, this property will qualify for eligible green certification? And I think you still have some room to deploy, you know, the proceeds from your green bond offer.

Yes, that is correct.

Awesome. Okay. Thank you, guys. I'll turn it back.

Great. Thank you.

Thank you. Our next question is from the line of Sammy Bear with RBC Capital Markets. Please go ahead. Your line is now open.

Thanks. Hi, everyone. Just with respect to coming back against those leasing spreads for 2022, the 78% that you quoted, I'm just curious, does that fully close the market opportunity on those expiries? And really just, I guess, a second piece of that question would be, you know, are you trying to balance occupancy and near-term growth, or are you willing to sacrifice some occupancy for perhaps some stronger upside, you know, a bit longer term?

No, I don't think it's a question of trying to balance or it's a question of prioritizing occupancy over cash flow. I certainly think internally, we know, you know, when you're 99 and a half percent occupied, you can't really, you can't really improve on that. And I think you've seen where we're willing to purchase assets with vacancy, which drives our vacancy up a little bit, like Locust Growth, this quarter as an example. So it's not about maintaining a high occupancy, it's about driving the highest NOI growth that we can. So I would say looking today, Pommy, at overall in our portfolio, and remember, a lot of these special purpose or not, the special purpose properties in Europe, a few of them have CPI lookbacks. So it's hard to look at those and say, okay, what is the mark to market on that rent? Taking a conservative view, I would say that overall we're roughly – our in-place rents are roughly 10% below market rents, and that's just generally across our entire portfolio.

Got it. Yeah, no, that's good, Kohler. You know, yeah, I certainly recognize the challenges on some of the magnet leases on getting more, just given the unique nature of those assets. That's it for me. I'll turn it back. Thanks very much.

Thank you. And there are no further – but we have another question, and that is a follow-up question. One moment. Your line is now open. It is Sam Damiani with TD Securities. Please go ahead.

Thanks. Just wanted to touch on your comment, Kevin, about the CPI increases recently being below average but with inflation tracking higher. How much of an impact on NOI growth will this higher inflation have on Greta's portfolio?

It's a good question, and I mentioned the special purpose property. So, overall, roughly 40% of our portfolio by revenue is tied to CPI. Now, a portion of that is, again, CPI look-back mechanisms, and a part of it is related to annual CPI increases. So, roughly, I would say half of that, or 20% of our portfolio is tied to annual CPI adjustments. So that's the impact that it will have. So hopefully we go from sub 1% for 2021 to somewhere, I don't know, 3% for 2022, which should assist overall same property and white growth for next year.

Okay, that's great. Thank you very much.

Thank you. And there are no further questions at this

Okay. Thank you, operator. So, on behalf of the trustees and management team here at Granite, thank you for participating on our Q2 call, and we look forward to speaking with you again in November. Have a great day.

Thank you, ladies and gentlemen. That does conclude today's call. We thank you for your participation and ask that you please disconnect your lines.