Granite Real Estate Inc.

Good morning and welcome to Granite Reef's fourth quarter and year-end results for 2021 conference call. As a reminder, today's call is being recorded Thursday, March 10, 2022. Speaking to you on the call this morning is Kevin Gorey, President and Chief Executive Officer, and Teresa Netto, Chief Financial Officer. I will now turn the call over to Teresa Netto to go over certain advisories, followed by an introduction from Kevin Gorey. Please go ahead.

Good morning. Before we begin today's call, I would like to remind you that the 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 in grant material filed with the Canadian Securities Administrators and the U.S. Securities and Exchange Commission from time to time, including the risk factor section of its annual information form for 2021 filed on March 9, 2022. Readers are cautioned not to place undue reliance on any of these forward-looking statements and forward-looking information. The REIT reviews its key assumptions regularly and may change its outlook on a going-forward basis if necessary. Granted, it undertakes no intention or obligation to update or revise its key assumptions, any 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 international financial reporting standards. Please refer to the audited combined financial results and management discussion and analysis for the year ended December 31st, 2021 for Granite Read and Granite Read Inc. and other materials filed with the Canadian Securities Administrators and US Securities and Exchange Commission from time to time for additional relevant information. Now I'll get started on our operational results and then followed by Kevin. Granite posted a strong fourth quarter driven by strong NOI growth but despite continuing foreign currency headwinds. FFO per unit in Q4 was $1.02 representing a 3 cent or 3% increase from Q3 and 2% relative to the same quarter last year. Strong NOI and same property NOI growth was partially muted by unfavorable foreign exchange translation losses as both the Euro and US dollar were weaker by 7% and 3% respectively, relative to the same quarter last year, resulting in a 4 cents decline in FFO per unit. This was partially offset by foreign exchange gains of 0.7 million realized on Granite's derivative hedges, which have now fully expired at the end of 2021. Granted, AFFO on a per-unit basis in Q4 was $0.90, which is $0.03 and $0.04 lower, respectively, relative to Q3 in the fourth quarter of 2020. AFFO-related capital expenditures, leasing costs, and tenant allowances incurred in the quarter were higher than past quarters, totaling $7 million, as maintenance projects delayed from the summer were finalized at the end of the year. Total AFFO-related capital expenditures for the year came in at $12.4 million. With respect to 2022 and an increased level of lease turnover for the year, we are estimating ASFO-related maintenance capital expenditures and leasing costs coming in slightly higher at approximately $15 million for the year. Same property NOI for Q4 was strong relative to the same quarter last year, increasing 4% on a constant currency basis, but effectively flat when foreign currency effects are included. Same property NOI growth was driven primarily by positive leasing spreads, contractual rent and CPI increases across all of Granite's regions, as well as the expiry of free rent periods that were realized in the prior years at Granite's Indianapolis asset and Tilburg Netherlands asset. G&A for the quarter was $12.4 million, which was $4.5 million higher than the same quarter last year, and $3.5 million higher than Q3. The main variance relative to Q3 are the recognition of $3.6 million in unit-based compensation expense as a result of fair value losses recognized on non-cash compensation liabilities due to a 17% increase in grants unit price during the quarter and also some higher salaries and benefits expense. $1.3 million of these fair value losses related to our DSUs directly impacts FFO and does not get added back. Given the pullback of Granite's unit price so far in 2022, we will expect to see a reversal of these losses and will likely recognize a gain in G&A related to these non-cash compensation liabilities. On a run rate basis, we expect G&A expenses to continue at approximately $8.5 to $9 million per quarter, or roughly 8% of revenues, excluding any amounts for fair value adjustments related to non-cash compensation liabilities. For income tax, Q4 current income tax was just 0.1 million when you exclude the 2.8 million of current taxes recognized in the quarter relating to the sale of an Austrian property. Similar to last year, Granite recognized the reversal of tax provisions totaling 1.8 million for the quarter, favorably impacting the quarter, as did the weaker euro. On a run rate basis, we estimate current tax at approximately 2.2 million per quarter. With respect to potential recognition of reversals of tax provisions for 2022, Granite has a further potential $2 million of tax liability reversals that may be recognized mostly in Q4 of this year. But as always, we can't make a call on the reversal at this time. Granite continues to leverage its net investment in Europe and access to lower-cost debt. The recent partial financing completed early February of its 2028 cross-currency interest rate swaps from U.S.-based payments to Euro-based interest payments will result in annual interest expense savings of $5.5 million, or $0.08 per unit annually. Therefore, on a run rate basis, interest expense will run approximately $10.7 million per quarter before factoring in any new debt. Looking out to 2022, given the numerous variables of same property NOI, foreign currency, and growth expectations, we would like to provide some initial 2022 estimates with respect to FFO per unit and AFFO per unit. For 2022, Granite is forecasting FFO per unit of approximately $4.39 or a 10% increase from 2021 and within a range of $4.31 to $4.43. For AFFO per unit, we are forecasting $4.04, an 8% increase from last year and within a range of $3.96 to $4.08. This forecast is based on the closing foreign currency rate of the Canadian dollar relative to the Euro and US dollar as at December 31st, 2021. The high end of our range provides for an approximate 1% increase in both the Euro and US dollar relative to the Canadian dollar. The low end of the range provides for a 3.5% decrease in the Euro, which is reflective of where it is today, and a 1% decline in the US dollar. Please note that we estimate that a one-cent movement in the U.S. dollar relative to the Canadian dollar impacts FFO and AFFO per unit by two cents, and a one-cent movement in the Euro relative to the Canadian dollar results in a one-cent impact to FFO and AFFO per unit. The REITs balance sheet is comprised of total assets of $8.6 billion at the end of the quarter and was positively impacted by $349 million in fair value gains on Granite's investment property portfolio. And that was offset partially by $45 million of translation losses on Granite's foreign-based investment properties, but particularly the 1.8% decrease in the euro exchange rate relative to Q3. The fair value gains on Granite's investment property portfolio are attributable to fair value gains across all of our regions, but particularly the trust assets in the GTA and the U.S. due to increases in fair market rent assumptions and declines in cap rates. The trust's overall weighted cap rate of 4.5% decreased a further 24 basis points from the end of Q3 and has declined a total of 108 basis points in 2021. Our net leverage at December 31st was 25%, and net debt to EBITDA remains healthy at 6.7 times. Our current liquidity is sitting at about $1.3 billion, and that represents cash of about $260 million, and our undrawn operating line of $998 million.

since placing our atm in place in november of 2021 granite has not sold any units through the atm to date i'll now turn over the call to kevin thanks teresa and thank you everyone for joining us on the q4 call as always i will keep my my comments brief and happy to take questions at the end i'll start by repeating two themes from my opening comments on our past few calls once again we posted an inline quarter And it is worth highlighting that FFO per unit for the quarter increased year over year, as Theresa mentioned, despite a corresponding negative move in FX of roughly $0.04 and a $0.02 impact on our GNA from the appreciation in our unit price in the quarter, which often gets overlooked. Also worth highlighting, I think, is another increase in the fair market value of our portfolio in the quarter, led primarily by fair market value increases in the U.S. and GTA due to further increases in market rental rates and declines in capitalization rates for modern logistics assets across our markets in those jurisdictions. We continue to execute well on our strategic plan in the fourth quarter, acquiring six core and value-add properties in our target markets in the U.S., the Netherlands, and the GTA in the quarter for approximately 330 million Canadians. We followed up 2021 with the acquisition of three properties in Germany for $140 million. And in all, we acquired 16 income-producing properties and three development sites for a total investment of $923 million in 2021. Further, we committed an additional $216 million on three new development projects in our existing markets of Indianapolis and Tilburg, Netherlands, expected to be completed sometime in the third quarter of 2022. We also dispose of a small non-core asset in Austria for 13 million at the end of November, and our sole asset in Poland for 36.2 million in February. And we expect the sale of our sole asset in the Czech Republic to close sometime in the second quarter. Our development program made significant strides in 2021. And our active pipeline comprises six sites and nine buildings currently under construction in the U.S., Germany, and the Netherlands, plus expansions in Mississauga and Indianapolis as disclosed, totaling roughly 5 million square feet and 450 million commitments. Construction of these properties is expected to be completed in the second quarter through the fourth quarter of this year. To date, two of the buildings are fully leased and activity is strong on the remaining buildings under construction. We have seen an increase in costs associated with most of our projects, but it has been absorbed mostly within established budget contingencies to date and offset by higher rent versus pro forma. And I would estimate further that project completion on average has been delayed by two to three months from initial schedule due to supply chain and COVID-related issues. As I have mentioned before, development is core to our growth strategy, and these projects are expected to improve the quality and functionality of our portfolio and drive significant growth in cash flow and net asset value upon stabilization. It is also worth repeating that all of the above-mentioned developments are expected to receive green building certification, and will satisfy the criteria outlined in our green bond framework. Staying on ESG for the year and as disclosed in our MD&A, we are proud to report that Granite achieved a global ESG benchmark or Grespi score of 65 out of 100 for 2021 versus the average for our peer group of 52, of which Granite was the only Canadian reporting entity. We also achieved the highest score in the category of public disclosure. We are currently developing our 2021 ESG report, which will outline the progress we made in 2021 against our objectives and set detailed and likely more ambitious targets and objectives for 2022 and beyond. The report is expected to be published early in the third quarter of this year. Operationally, as stated on our Q3 call, all 2.3 million square feet of our 2021 lease expiries were renewed or released And the team leased approximately 300,000 feet of vacancy in Atlanta and a recently acquired property in Utrecht, the Netherlands, in the fourth quarter. For 2022, we have now exercised renewals on 4 million over 5.9 million square feet of expiries and an average increase in rental rate of just over 10%. And we anticipate achieving an increase of between 15% to 20% on the remaining maturities for 2022. As Theresa mentioned earlier and as disclosed in our MD&A, same property NOI increased by 4% on a constant currency basis, driven by strongly releasing spreads, contractual rent increases and the expiry of rent-free periods on a few of our newer assets in the US and the Netherlands, offset partially by a contractual free rent period and short-term vacancy at two of our properties in Germany. We expect same property NOI to be similar to 2021 and average between 3.5% and 4.5% in 2022, as the impact of strong releasing spreads could be partially offset in the short term by vacancy from turnover at two properties in the U.S. At this time, we also expect same property NOI growth to accelerate in 2023, but we will have more information on 2023 in later quarters. We have all seen the devastation in the Ukraine, and I think, like all of you, we are hoping for a peaceful resolution to this conflict as soon as possible. Notwithstanding the resulting disruptions to supply chains in that region, all of our tenants in Europe continue to operate in their space, and we are not aware of major disruptions so far to their operations involving our properties. But we will, of course, continue to monitor the situation for any major developments. In closing, I think the quarter and the year were characterized by fair value gains, operational stability, progress on the ESG front, and significant investment in acquisitions and specifically development. We expect 2022 to be a busy and productive year for Granite, and we remain very well positioned to continue to execute on our strategic plan and deliver strong results for unit holders. I would like to take this opportunity to thank all of our employees for contributing to another strong year in 2021. On that note, I will open up the floor for any questions.

Thank you. If you would like to register a question or comment, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. One moment, please. Our first question comes from Sam Damiani of TD Securities. Please go ahead.

Thank you. Good morning, everyone.

Morning, Sam.

Just on the conflict in Ukraine, thank you for your comments, Kevin. Have you seen any impact on just sort of general levels of business activity there? generally, but also more specifically with people making decisions to lease space and acquire, dispose, or finance properties? Any impact on the investment market?

No, and I think we all agree that it's early days. We've been talking about this internally with our team in Europe, and so far we have not seen a major shift or a major disruption to normal operations or to acquisitions or development. So, you know, I would characterize, maybe this is unfair, I would just characterize it as we seem to, in North America, we seem to have more, I guess, concerns than what we're seeing from on the ground in Europe. Now, that may change, but that's what we're seeing so far.

Okay, that's great. And just on your 2022 renewal guidance for bigger lifts on the remaining renewals, are there particular markets or projects that are driving that? And I wonder if you could update us on your views on market rents generally in Germany and the Netherlands.

Yeah, well, the bulk of our remaining maturities in 2022 are in the U.S. So you can see from our estimates, there's very strong rent growth in the U.S. We're seeing very healthy spreads there north of 10%, almost across the board, and sometimes approaching 20%. The Netherlands and Germany, we're also seeing strong rent growth as well, but, of course, we don't have a lot of role in 2022 in Europe. We see more of it in 2023. We have a bit of role in Europe. And, of course, in 2024 with Graz, we are expecting good results there in Austria and then continued, you know, strong growth in the U.S. as well.

And one more, if I could, just before we turn it back. On the Magna leases in Austria, what are the terms, I guess, in terms of getting a rent bump on the renewals with this lease that's basically happening in Lanark and also the other properties to expire over there?

Yeah, well, Lanark and Grant specifically have CPI lookbacks, but I think we talked about this a bit on the Q3 call. Lanark is a bit different because it has multiple cash streams or rent streams. So that CPI look-back is spread out over three years, I believe. So the best way to look at LONIC is every five years, if it renews, it would be 10%. That would be spread out over five years. So 2% contractual rent growth a year. GRATS is a bit different, but it has the same CPI look-back mechanism that would kick in on the date of maturity.

Thank you. I'll turn it back.

Thank you. The next question comes from Joanne Chen, BMO. Please go ahead.

Hey, good morning. Congrats on a very great end to the year. I just had a quick question. I apologize if I missed this earlier, but on the renewals that you've done for 2022, did you... What kind of RIT lists were you able to achieve on those? Did you say 10% to 15%?

Yeah, Joanne, I said what we've achieved so far is just over 10%, closer to 10.5%. And on the remaining, I think, 2 million square feet, roughly, we are anticipating between 15% and 20% on average.

Oh, wow. Okay, that's a lot. That's a big pickup from what I think you said for last quarter, so it's great to see that momentum.

Sorry, just to clarify, I think what I said for 2022 is we would be around 11% to 12%, and so the 10.5% and 15% to 20% on the remaining should get us pretty close to that number, maybe a bit above 12%, but I think it's consistent with what we said on Q3. But I do appreciate you pointing that out. It is moving in the right direction.

Okay.

Oh, for sure. And I guess just going back, unfortunately, you know, obviously what's going on politically in Europe right now, but do you think that pressure, you know, with rising oil prices and, you know, upward pressure on transportation costs, that will only fuel higher demand for, you know, assets for, like, logistics, like located in your key logistics hub, just given how expensive transportation costs could get?

Yeah, I think we've always kind of bought into that thesis that the higher oil prices go, the more storage space you're going to need. You're going to need to shorten drive time, and you're going to need to have more storage. You cannot afford to have just time delivery. And I would say, I just think overall with what's happening in the Ukraine and Russia, that I think it just shows how mission critical the existing facilities we have with our tenants in Western Europe are. And I think a lot of these tenants, not only Magna, are rethinking their supply chains and the vulnerability of their supply chain. So I think that that bodes well for assets in Western Europe and locations in Western Europe.

Well, for sure, that's helpful. And I guess just one last one for me with respect to your kind of your growth strategy for 2022. Should we kind of expect more developments in land acquisitions in Canada and then kind of a more even split between development and income-producing properties in the U.S., and I guess more income-producing properties in Europe? Sorry, I know that's a long-winded question.

No, I know. I think, I mean, certainly it was a major pivot to development in 2022. What I would say is We continue to look at the right opportunities. I'm not sure how comfortable we would be adding a lot of development right at the moment. I think we have some leasing to work through, which we expect to do through 2022. But, yeah, on a normalized basis, we want development to play a major role in our growth. At some point, it's going to be more than 50% of our growth on an annual basis. I think we've kind of always pointed in that direction. I think 2022, we accelerated the program significantly. So we've been focusing, as you can tell, I think Q4 and into Q1, we have focused on some IPP acquisitions into 2022. And so we've got to work through these developments in 2022, maybe add some IPP, continue to add IPP in our target markets. But at some point, you're going to see development continue to outpace acquisitions

Got it. No, that's very helpful. Thank you very much. I will turn it back.

Thank you. The next question comes from Matt Hornick of National Bank. Please go ahead.

Hi, good morning, guys. On the vacancy that you expect in the U.S., is the thinking around that that it's still going to be pretty short-term in nature and that the property is in pretty high demand?

Yeah, I'm just pointing out that I think we're pretty bullish on the U.S. and where the leasing is going and where these tenants, they're not leaving because of the weakness of location. They just need twice as much space as those assets can provide, so they're moving on. We're just thinking at some point when we release to a new tenant, there could be some downtime associated by it. So it's really moving in the right direction, but there may be noise in a quarter, maybe two quarters. And I think as we've mentioned, our tenant in Pennsylvania, 750,000 seats, they triggered a six-month extension. So now they're there until September 30th, and we wouldn't be surprised if they overhauled until the end of the year. So The same property NY could be stronger for 2022, but just pointing out, if we put a new tenant in there, there's a pretty good chance we're going to incur a month or two months of vacancy, maybe three months, but we're not anticipating a prolonged vacancy associated with those assets or the releasing.

Okay. No, that makes sense. And then the 3.5 to 4.5, the same property NY growth, that anticipates at least some... downtime on that property, even if it may get overheld until the end of the year. Yeah, absolutely. And then rule of thumb wise, and I know that's not, you can't really have rule of thumb, but in terms of the geographic split on mark to market potential in the portfolio and, and maybe not for 2022, but thinking of 2023 has the sort of, 10% to 15%, is that moving up to sort of 15% to 17% in the U.S.? And I know that Canada is strong, Europe as well. I'm not sure exactly where that would fall.

Yeah, I know. I definitely think it's close to 15%. It's moving towards 15% in the U.S. I think Europe, we felt, was 10% for the 2023s. And obviously, we don't have that much rolling in the GTA, but that's closer to 60%. Okay, perfect.

And then a last one for me, just in terms of the FX move, and I guess this is for Teresa, on the hedging front, I know you did that favorable hedge in the quarter, sorry, post-quarter. But how has the market dynamic shifted on the ability to do that? Let's say if you did another... bond and wanted to swap it. Has the rate moved at this point, given this volatility, or is it more favorable, less favorable? I'm just not entirely sure on that.

I think it's moved up a little bit as far as, and it's really the, you know, where the Euro rates are relative to Canada. And I think it's just inched up a little bit. So if we were, if we had additional investment in Europe and we could again, hedge further with Euro Euro debt, I don't think it'd be as favorable as 0.56 that we experienced, but let's say closer to like the 1% range. Okay, perfect.

And is there, I guess, with the existing asset base or even with your forward purchases of European assets and the ones that close subsequently, would you anticipate there being a couple hundred million more capacity on that front in euros?

Yeah, I mean, we have a forward purchase coming in in the mid-year. With that, we have a little bit of room left. There might be a couple hundred million in there. But, you know, I'd probably wait for it to bulk up a little bit more before we look at that again.

Okay, perfect. Thanks, guys.

Thank you. The next question comes from Himanshu Gupta of Scotiabank. Please go ahead.

Thank you and good morning. So just on the Magna lease and the max, it looks like it was renewed. Was there any negotiation or any incentive given for this extension? And also, is it fair to say now that no big Magna lease is coming due until 2024?

Yes, the question on 2024, correct. There's very few manual leases rolling before then. And on LONIC, no, there were no incentives or commissions associated with renewal. It's just a straight renewal.

Okay. And Kevin, you know, now that, you know, LINAC has been renewed, would you look to monetize this asset? And bigger picture, you know, MAGNA overall exposure is reduced to 29% now. Are you happy where MAGNA is, or would you look to, you know, further reduce your exposure to MAGNA?

Well, no, I think we said on previous calls that's a large single-tenant exposure, and I get that. It's not so much reducing the exposure to magnet, but as we said at the end of the day, these aren't the facilities that meet our investment criteria. So they're probably at some point held better in someone else's hands. But there is still some value to be added to those assets, and we want to see that through and execute on that strategy. And then we'll look at it. I think at 29%, we don't feel any urgency to do anything today. We want to make the best decision. But the conditions for potential monetization are still continuing to improve, and we'll review it over the next few years. But we still believe that there is value in these assets on Earth, before we look at doing something on a major scale.

Got it. And, you know, specifically for the NAC, I mean, given a renewal now, do you think the value would have enhanced now just by the definition of, you know, you getting the renewal here?

Yeah, I think so. I think the question, if I'm correct, I think the question was, was there a value bump in LONIC because of the renewal? And the answer is yes, that there was. Not as much as you might think, because we always knew there was going to be a renewal, or from our value perspective, we were not concerned of them moving up. But, of course, yes, there was a rather automatic sort of bump in value due to the renewal.

Got it. Okay. Thank you. And then just shifting to your FFO per unit guidance for 2022, what acquisition activity or what leverage are you assuming in this 10% FFO per unit group?

Yeah, not to provide too much detail, but I think we would see it as kind of a similar year, although I would point out quite strongly, actually, that as we look at this market, we do expect to execute on more rebalancing and more dispositions. And I'm not even sure I would use the word non-core. I would just say we are looking at the right opportunities to trim our portfolio, as we always have. But we do expect to be a little more active on that front in 2022.

Okay, thank you, and I'll turn it back.

Thank you. As a reminder, via the phone lines, you may press the 1 followed by the 4 if you would like to register a question. One moment, please, for our next question. The next question is from Howard Long of Veritas Investment. Please go ahead.

Thank you. I just wanted to ask about the mark-to-market follow-up on that. You know, they seem really favorable. And, Teresa, I know you talked about the higher capex in 2022. Are you seeing, you know, existing tenants when it comes to expiries, maybe that, you know, a lot of them are, you know, opting to move out, but you're being able to find, you know, new tenants that are willing to pay that higher mark-to-market or, you know, any kind of pressure on that front?

I think the question is are we seeing – well, I'm not sure what the question is, but I would say that definitely we feel like we're in strong markets and our assets are, for the most part, very modern. So we're not concerned per se if tenants, for whatever reason, need to move out. So the releasability of these assets – whenever we're looking at acquiring an asset or developing an asset – the leaseability is always paramount in our considerations. So we do approach a lot of leasing recently with the attitude that, you know, if the tenant moves out, then we feel confident we will be able to replace them with a similar comparable tenant at a higher rent. So that's kind of the attitude or approach we take as we're looking at these renewals. But at the end of the day, Tenants aren't going to – particularly in a market like this, they're not going to move for 50 cents. They're going to move because there are differences in their needs. And like I mentioned before, the tenant that – will move out probably by the end of the year or at the end of the year in Pennsylvania, is moving into a facility that I think is 60% to 70% bigger than our facility. And we do have on this site some capacity to expand the building, but not that size. So their needs have changed, and they're moving on. And the there is a lot of interest in that building in the market right now. So we are very comfortable and confident with our ability to release that at a rent that's much higher than the tenant was paying at expiring. I hope that answers your question a lot.

It does. I was trying to find, just kind of ask for the market dynamic, and of course there is a lot of demand for your assets, even if there is turnover. I guess on that same topic, the inflation rates are pretty strong now. Given it's more of a landlord's market, are there any thoughts to building in more CPI escalators in your non-MAGNA leases to capture that inflation?

Yeah, certainly we're approaching it from that way as well. I think we did one recently that was 3.5%. I think we're working on a deal right now where it's approaching 3.75% a year, so you can get it. I mean, the majority of tenants we deal with are very sophisticated tenants. We don't have a lot of small pay tenants. We have major tenants that are very sophisticated. The pushback that they will have is we're not expecting, show us where inflation is going to be 3.5% to 4% for the next 10 years. So that's where most leases that we see in the market today are still in the 2% to 3% range. But I would say this, they're not closer to 2% anymore. They're closer to 3%. So we've seen contractual escalations average closer to 3% the past couple of years than 2%. And that's a pretty recent move and a pretty significant move when someone's going to commit to space for the long term.

Right, yeah, no, it adds up over time. Thanks for, those are all my questions. Thanks for answering them. I'll turn it back. Thank you.

The next question comes from Mark Rothschild of Canaccord Genuity. Please go ahead.

Thanks. Good morning, everyone. Kevin, just want to make sure I understand your comments regarding developments. Maybe you could expand on it. You said that, or I think you said that you expect to be even more active in development going forward and view that even more than acquisitions. You've obviously assembled a large pipeline, but with land costs going up and pressure on yields, do you still expect to be able to find a large number of new development opportunities? And how do you think about that now in the context of acquisitions?

No, it's a great question, Mark. And it is based on opportunity and what we think is the best thing to do. I think what we've been most focused on is just really optimizing our development capabilities. And I feel really good about where we are. And I think I'm talking about, say, 2025, 2026. It would not surprise me at all if we're – spending $500 million a year on development, and we're acquiring $300 million a year in new property. So all I'm saying is it's a bit of a shift there. And those numbers can change from year to year just based on where the market is and where the opportunities are. Absolutely. And we've always been interested in redevelopment plans. And those have been, as you can tell, I mean, almost look at the deals in the GTA. Some of them you could, well, the two that we just closed on in December, those are redevelopment plays, or I would say refurbishment plays. But the redevelopment plays are highly interesting to us as well. Those have been hard to come by and quite expensive. So we watch for fluctuation and dislocations in the market as well, and We're built to be flexible and pursue what's going to, you know, generate the best long-term returns for union holders.

Okay, great. And maybe just for Teresa, I'm not sure if you said this, you're going to have this right in front of you, but for the guidance, we talked about FFO for 2022, what G&A was built into that?

It's about, I'm going to say, $34 million. It's about $8 million a quarter.

You said $8.5 to $9 million a quarter is what's built in.

Perfect. Thank you so much.

Thank you. The next question comes from Pommy Burr of RBC Capital Markets. Please go ahead.

Hi, everyone. Good morning. Kevin, can you maybe just I was interested in your comments on LONIC and the additional, perhaps, value creation opportunity there. Can you just maybe expand on that? I'm just interested in sort of what your thoughts were there.

Well, I think the question was, was there a bump in value when the renewal was triggered? And I said, yes, there was. I wasn't sure exactly what the bump was, but there was. The other comment I made is it's probably not as high as you might think because it's not that binary. There was a very strong expectation that the tenant would renew at Lonix. So although there was a bump when it was crystallized, it probably wasn't as much as most people would think.

No, yes. No, I understood that part. But, you know, with respect to possibly, I guess, looking to monetize or sell that asset at some point down the road. You mentioned that maybe it's not necessarily the right time because you think there's still more value that can be created there. So I'm just curious more about that aspect of your comment on the additional value that could be created down the road.

Yeah, because what I meant by it, Tommy, was that I don't want to go into it with too much detail, but we've – We've set up our properties in Europe in a tax-efficient way, and so we have to think about how we approach that, and that may involve more than one asset at a time. So that's what I meant by it. So there are other assets in Austria and Europe that could impact that as well, and the timing of extensions on those.

Okay, got it. And then just maybe just rounding up the discussion on LONIC, what would be the renewal term? And then secondly, you spoke about the 10% renewal spread that you've accomplished so far on the 2022 maturities to date. So just curious, did that 10% include LONIC in that figure?

Yeah, so it's five years. They're five-year extensions. And I mentioned that there are different cash flows, and the largest cash flow that has the when it triggers is in 2024. So what I was saying is the best way to look at it probably is to say it's going to increase by 10% over that five-year term. So really it's going to average 2% a year, probably the best way to look at it. But the big bump in lawn kits in 2024, early 2024, or June of 2024. Okay, thank you, Bob.

Got it. Just the cash on the books, you know, you put some of that to work in February, and, you know, you talked about some additional income-producing acquisitions, you know, in the pipeline, and maybe even some grass developments, I guess we'll see. But what can you share with us in terms of what the acquisition pipeline looks like today, and does your guidance assume that you'll be carrying some excess cash for a good portion of the year?

Yeah, I'll start, and Teresa can jump in any time. First of all, I think the acquisition pipeline is in the $250 million range. These are deals that are actively under negotiation, and we're obviously always looking at opportunities. And we have balance sheet capacity to add to that when the time is right. And then I mentioned on the disposition side, we are looking at trimming parts of our portfolio, some in the U.S., some in Europe, that we think will also be a pretty active way to raise capital for deployment. So was that the question? Yep.

And just on the, I guess, the general, you know, will you be carrying some excess cash? Just the guidance is doing some excess cash being carried over the course of the year.

I don't think we're going to see a lot of excess cash being carried outside of Q1. You know, we're sitting around $216 million, but we do have commitments. Obviously, we have $480 million of development and forward purchase commitments. So I think we're going to get to a point where we're just going to be holding cash more at an operational level, and it won't be excessive as we've seen in the last couple of years. It will be managed to a lower level.

Right. Okay. Yeah. And then just last one for me, the same property and the wide growth, you talked about, you know, that 3.5% to 4.5%, but you also talked about, I guess, some transitional vacancy, possibly, I guess, maybe towards the end of the year, but care to assume that the bulk of this growth is really just mostly coming from rents, from higher rents, the contractual steps, maybe some renewal leasing, rather than occupancy. I mean, you're I'm assuming that the growth that you've guided to assumes some lower occupancy than what you said today.

Yeah, I think it's just pure rental rate growth.

Thanks very much. I'll turn it back.

Thank you. The final question comes from Brad Sturgis, Raymond James. Please go ahead.

Hi there. Just to go back to the the guidance there on FFO and APHO again, just to clarify, that does assume that there will be some rebalancing within the portfolio?

Yeah. Yes, it does. Yes, it does.

Would it be any, I guess, would that be a negative impact or just from a transactional, like timing of transactions to reemploy on the buy side, or is there expectation to see a little bit of a roll down on going in yields?

I don't think we're going to see necessarily an impact on a pre-unit basis, Brad. I think it would be a redeployment into new IPP.

Got it. And just to understand the strategy there a bit, it's not necessarily non-core assets, more of a rebalancing. Are you making... A rebalancing just based on the market specifically within the U.S. and Europe, or how should we think about what that rebalancing strategy could look like?

It could, yes, it could include assets where we feel like we have enough exposure in a certain market. It could be assets where we feel we've added, and there are a number, where we've added a lot of value and maybe the growth and the continued appreciation of value is not going to be there versus what we're acquiring today. So those are the things. You have the growth profile to look at and maybe market concentration. So those are two things that are constantly on our minds looking at, and I think we have some attractive opportunities to mine the portfolio this year. Okay.

That makes sense. I'll turn it back.

Thank you. That was our final question. I'll turn the call back over for any closing remarks.

Okay. Thank you, Operator. So, again, on behalf of the trustees and the team here at Granite, thank you all again for participating on our call. And to our uniholders, thank you for your continued trust and support.

Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.