Granite Real Estate Inc.

telephone keypad if you'd like to withdraw your question please press part two thank you speaking to you on the call this morning is kevin gory president and chief executive officer and teresa nito chief financial officer i would now turn the call over to teresa nito to go over certain advisories

Thank you. Good morning, everyone. 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, 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 that could cause actual results to differ materially from forward-looking statements or information. These risks and uncertainties and material factors and assumptions applied in making forward-looking statements or information are discussed in Granted's material files of 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 2024 and Granted's management discussion and analysis for the year-end of December 31, 2024, filed on February 26, 2025. So, Grant had posted Q4 2021 results ahead of Q3 and ahead of management's expectations, largely driven by strong NOI growth, a positive impact from foreign exchange as a result of the strengthening of the U.S. dollar, and a few net positive adjustments, which I will go into detail later. FFO per unit in Q4 was $1.47, representing a $0.12 or 8.9% increase from Q3 24 and a $0.20 or 15.7% increase relative to the same quarter in the prior year. FFO per unit for fiscal year 2024 was $5.44, representing a 47 cent or 9.5 increase from 23. The growth in NOI this quarter is primarily derived from strong same property NOI growth enhanced by double digit leasing spreads in the U.S. and the lease commencement at a previously 308,000 square foot vacant unit in the U.S. in the fourth quarter. NOI growth was further enhanced by a foreign exchange as the US dollar was 3.5% stronger, partially offset by the euro being 0.9% weaker in comparison to Q3. Also impacting FFO this quarter were a few adjustments with a net positive impact, including a 1.6 million tax provision reversal relating to the prior tax year, a 0.5 million credit to capital tax, which is included in G&A expenses, and a foreign exchange gain realized on monetary assets and liabilities held or settled for $2.8 million, partially offset by a negative $0.8 million adjustment to non-controlling interest expense relating to a catch-up adjustment pertaining to the net income of our joint venture partner at our Houston development site. Excluding these specific four adjustments, FFO per unit would have been $1.41, still 4.5% ahead of Q3. ASFO per unit in Q4 was $1.25, which is $0.03 higher relative to Q3 and $0.10 higher relative to the same quarter last year, with the increase in Q3 mostly tied to FFO growth, partially offset by higher maintenance capital expenditures, higher tenant allowances incurred due to timing of leasing turnover, and higher leasing commissions primarily related to leasing activities in the U.S. and Canada, including the lease-up of two previously vacant units in the U.S., and an early lease renewal for a property in the U.S. in the fourth quarter. AFFO-related capital expenditures incurred in the quarter totaled $11.3 million, which is an increase of $6.1 million over Q3 and $5.3 million over the same quarter last year. However, for the 2024 year, total AFFO-related capital expenditures came in at $25.1 million in line with management's expectation and guidance. For 2025, we expect AFFO-related capital expenditures to come in at approximately $40 million for the year, with the increase relative to 2024 being mostly related to additional roofing and parking lot work planned for 2025, as well as additional forecasted spend on tenant allowances in support of expected new leasing activity. Same property NOI for Q4 was strong relative to the same quarter last year, increasing 6.3% on a constant currency basis and up 8.4% when foreign currency effects are included. For 2024, granted four-quarter average constant currency same property NOI growth came in at 5.9% in line with management's expectations. For 2025, we are updating our forecast for constant currency same property NOI based on a four-quarter average to come within a range of 4.5% to 6%, which Kevin will address in his remarks. G&A for the quarter was $8.3 million, which was $1.1 million lower than the same quarter last year, and $4.9 million lower than Q3. The main variance relative to Q3 is $5.6 million favorable fair value variance and non-cash compensation liabilities, partially offset by a $1 million unfavorable variance due to corporate restructuring costs relating to the uncoupling of granted stapled unit structure. But that does not impact SFO or AFFO metrics. G&A expenses that do impact FFO and AFFO were approximately $0.3 million lower than Q3, which is mostly related to an approximate $0.5 million capital tax refund mentioned earlier, resulting from changes in tax regulation in the state of Tennessee. For 2025, we continue to expect G&A expenses that impact FFO and AFFO are approximately $10 million per quarter, or roughly 7% of revenues. Interest expense was higher in Q4 relative to Q3 by $1.5 million, while interest income also increased by $2.2 million as compared to Q3, resulting in a decrease to net interest expense. As previously mentioned on the Q3 call, on October 4, Granted completed $800 million bond offering in two series. The net proceeds from the offering were used to immediately fully repay, without penalty, Granite's 2025 term loan with a principal balance outstanding of $400 million, which had a maturity date of September 15, 25. The remaining net proceeds from the offering were held in short-term cash deposits until used to fully repay Granite's 2024 term loan with a principal balance outstanding of U.S. $185 million upon maturity on December 19. For the period from October to December 19, 2024, Granite earned interest on these net proceeds from the offering at approximately 4.33%. Therefore, relative to Q3, interest expense increased due to the October 29 debentures being outstanding at the same time as the 2024 term loan, which was fully offset by the interest income noted previously, resulting in a decrease in net interest costs of $0.7 million. Post-quarter end on February 4th, Granite completed its inaugural $300 million floating rate note offering, which together with an existing cross-currency interest rate swap results in an effective fixed rate of 0.27% for the year of the term of the 26th debentures. Net proceeds from the offering were used to immediately fully repay without penalty Granite's December 2026 term loan with a principal balance of $300 million, which was due to mature on December 11th, 2026. The refinancing is expected to save Granite approximately $0.03 per unit per annum in interest expense for the next two years. On December 31st and prior to the completion of the refinancing in February, Granite's weighted average cost of debt was 2.74%, and the weighted average debt term of maturity was 4.3 years. After the refinancing, Granite's weighted average cost of debt is now 2.66%, with the weighted average debt term to maturity remaining unchanged at 4.3 years. With Granite's next maturity now in September 2026, we expect interest expense to remain stable over the next approximate two years at roughly $23 million per quarter, barring any new transactions. For income tax, Q4 2024 current income tax was 0.9 million, which is 0.8 million higher than the prior year and 1.8 million lower as compared to Q3. The movement in current tax relative to Q4 2023 is mostly attributable to increased taxable income in Europe due to rental growth, together with the strengthening of the Euro relative to the Canadian dollar, as all of Granite's current income tax is generated from its European region. As in prior years and mentioned earlier, Granite realized a credit to current income taxes of $1.6 million in Q4 due to the reversal of prior year tax provisions. For 2025, we are expecting current income taxes to remain at current levels at approximately $2.5 million per quarter. Also mentioned earlier, Granite realized foreign exchange gains in FFO of $2.8 million in Q4. This is a $3.6 million increase in foreign exchange gains in comparison to Q3. The items relate to the re-measurement of cash and monetary assets and liabilities denominated in foreign currencies and held in Canada, primarily as a result of the strengthening of the US dollar. Now, looking out to 2025 estimates, Granite is forecasting FFO per unit within a range of $5.70 to $5.85, representing an approximate 5% to 8% increase over 24. For AFFO per unit, we are forecasting a range of 480 to 495, representing an increase of approximately flat to 2% over 2024, and fully reflecting the expected increase in AFFO-related capital expenditures noted earlier. The FFO per unit forecast includes assumptions of some new leasing of vacant space, primarily in the second half of 2025. The high end of the range reflects foreign currency exchange rates of $1.50 for the Canadian dollar to euro, and 145 for the Canadian dollar to U.S. dollar exchange rate. On the low end of the range, Granite is assuming exchange rates of the Canadian dollar to Euro of 1.45 and the Canadian dollar to U.S. dollar of 1.40. Granite will provide updates to guidance each quarter as warranted based on leasing activity executed to date. Grant's balance sheet, comprising of total assets of 9.6 billion at the end of the quarter, was positively impacted by 280 million of translation gains on Grant's foreign-based investment properties, primarily due to the 6.4% increase in the spot USD exchange rate and 2% increase in the spot euro exchange rate, respectively, relative to Q3, partially offset by marginal movement in the fair valuation of Grant's portfolio with a net fair value loss of 1.5 million. The trust's overall weighted average cap rate of 5.3% on in-place NOI increased five basis points from the end of Q3 and has increased eight basis points since the same quarter last year. Our total net leverage as of December 31st, 24 was 32% and net debt to EBITDA was 6.8 times, which is slightly lower relative to Q3 and lower than Q4 2023 as a result of NOI growth, including the completion and stabilization of the majority of grants development properties. Granite's current liquidity is approximately $1.1 billion, representing cash on hand of approximately $120 million and the undrawn operating line of $998 million. As of today, Granite has no borrowings under the credit facility and there are 2.4 million of letters of credit outstanding. Granite's recent refinancing will have no material impact on its net leverage, net debt to EBITDA and liquidity position. Granite has been active on its NCIB for the three months ended December 31st, 24. Granite repurchased 23,000 units under the NCIB at an average unit cost of $69.08 for total consideration of $1.6 million. During the year 2024, granite purchased 667,300 units at an average cost of $68.64 for total consideration of $45.8 million. Post year end, granite has purchased 459,100 units under this NCIB at an average cost of $68.75 for a total consideration of $31.6 million. I'll now turn the call over to Kevin.

Thanks, Teresa, and good morning. I frankly don't have a lot of prepared comments to make. I think there will be a lot of questions, so we're happy to get to that. I do want to highlight a few things about the quarter and the year for you. beginning with same property in Hawaii, just to highlight the fact that it increased each quarter. And in the fourth quarter, it was muted somewhat by our Utrecht property vacancy and non-recoverable costs. And the reason why I'm highlighting it is Utrecht is technically a redevelopment site of ours in the Netherlands. And we keep it as IPP because we're not sure ultimately what we're going to do with the asset. But at the end of the day, we're unable to offer term to prospects. So it does limit our ability to lease. And I just want to highlight that. It is having an impact on our Saint-Pierre-Pied-en-Y performance, but it is technically to us a redevelopment site. The final thing on Saint-Pierre-Pied-en-Y I wanted to highlight is that our U.S. portfolio is generated 6.5% same property NOI growth in a quarter, which was very strong. Rent increases, just to point out again, that they naturally fluctuate each quarter for expiries within a quarter, and they're having no impact, as Theresa mentioned, on our guidance for 2025. The team also signed, I think, over 400,000 in new leases and a million square feet of renewals in the quarter at an average increase of 22% over expiring rents. And to date, as noted, we have renewed just under 70% of our 2025 expiries and an average increase of almost 45%. And I think we remain on target for an average increase in 2025 on renewals of 30 to 35%. The third thing I wanted to highlight is our cash position. We finished the year with $126 million in cash. That is up 10 million over 2023, despite a 3.1% increase to our annual distribution, and the fact that we deployed 46 million on unit buybacks and 34 million on development in 2024. And seeing as it's the fourth quarter end of the year, wanted to highlight FFO, NAV, and NOI per unit metrics, which I hope you find helpful or useful. Over the past three years, our FFO per unit has increased by 38%. That is an annual growth rate of 11.5%, all while reducing our debt to EBITDA from 8.1 times to 7.1 times over that period. Over five years, our FFO per unit has grown 50%. That's an 8.5% annual growth rate. NAP per unit has increased or has a five-year cater of 9.6%, this despite an $850 million downward adjustment in price associated with expansion in cap rates and discount rates. And finally, NOI per unit, which is something I like to track because as we can see with some other REITs, it is possible to grow NOI dilutably. Our NOI per unit has increased for 12 straight quarters and is up roughly 46% over the past three years, that is a CAGR of 13.6%. And just to highlight the fact that cash in Hawaii increased by 2.4 million over the third quarter, which is 4 cents per unit. And finally, just to recognize the new development that we announced in Houston, new build to suit on a long-term lease with a Fortune 50 company representing the third phase of our development site in Houston. I think the team did a, a fantastic job at landing this opportunity and negotiating this lease and this development at a very attractive return with income expected in late 2026. And I think as importantly, it displays very strong validation for our site and our location. And that's it on that. I'll open up the line for any questions, operator.