Granite Real Estate Inc.

like to welcome everyone to granite treats third quarter 2025 results conference call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you would like to ask a question during this time simply press star followed by the one on your telephone keypad if you would like to withdraw with your question Please press the pound key. Thank you. Speaking to you on this 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 some certain advisories.

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 GRANIT's material filed with the Canadian Securities Administrators and the U.S. Securities and Exchange Commission from time to time, including the risk factors section of its annual information form for 2024, GRANIT's management discussion and analysis for the year ended December 31, 2024, filed on February 26, 2025, and for the quarter ended September 30, 2025, filed on November 5, 2025. Granted posted Q3 2025 results ahead of Q2 and in line with management's annual forecast and guidance that reflects continued strength in our operating fundamentals supported by strong NOI growth representing $0.06 per unit of the $0.09 per unit growth in FFO quarter over sequential quarter. FFO per unit in Q3 was $1.48, representing the 9 cents or 6.5% increase from Q2-25, and a 13 cents or 9.6% increase relative to the same quarter in the prior year. The growth in NOI this quarter is primarily derived from strong same-property NOI growth enhanced by leasing spreads of 88% and the lease-up of previously vacant units in Canada and the United States. NOI growth was further enhanced by the Florida acquisitions completed last quarter. AFFO per unit in Q3-25 was $1.26, which is $0.03 higher relative to Q2 and $0.04 higher relative to the same quarter last year, with the increase versus Q2 mostly tied to FFO growth and lower leasing costs due to timing of leasing turnover, partially offset by higher capital expenditures incurred. AFFO-related capital expenditures incurred in the quarter total $10.5 million, which is an increase of $2.5 million over Q2 and $5.3 million higher than the same quarter last year. For 2025, we continue to expect AFFO-related capital expenditures to come in at approximately $40 million for the year, and that is unchanged from our estimates previously provided. Same property NOI for Q3 remained robust, increasing 5.2% on a constant currency basis and up 8.4% in foreign currency effects are included. Same property NOI growth was driven primarily by CPI and contractual rent increases across all regions, positive leasing spreads on lease renewals primarily in the U.S. and Canada, and the lease of previously vacant units in the U.S. and Canada, and the expiration of a free rent period at a property in the United States. Given the continued strong leasing activity in the third quarter of 25, we are increasing our guidance for the year and narrowing the range for consequences same property under Y based on a four-quarter average to come in at approximately 5.4% to 6.2% from the range previously provided of 5% to 6.5%. GNA for the quarter was $14.1 million, which is $0.9 million higher than the same quarter last year and $4.1 million higher than Q2. The main variance relative to Q2 is the $4.2 million unfavorable fair value adjustment to non-cash compensation liabilities, which do not impact Granite's FFO and AFFO metrics. For the fourth quarter, we expect G&A expenses that impact FFO and AFFO to be approximately $10.5 million. Interest expense was slightly higher in Q3 2025 relative to Q2 by half a million, while interest income remained flat as compared to Q2. The slight increase in interest expense was primarily driven by the draws on the credit facility to fund last quarter's Florida acquisitions. Granite's weighted average cost of debt is currently 2.7%, and the weighted average debt term to maturity is 3.6 years. With Granite's next debt maturity in September of 26, we continue to expect interest expense to remain stable over the next approximate four quarters at roughly $24.5 million per quarter, barring any new transactions. Q3 2025 current income tax was $3 million, which is $0.3 million higher as compared to the prior year and remained flat compared to Q2. For the fourth quarter in 2025, we are expecting current income taxes to come in at approximately $3 million as well. As in prior years, Granite may realize a credit to current income taxes of approximately $1.8 million in Q4 due to the reversal of prior year tax provisions. However, we cannot confirm the certainty of such credit until December 31st, and our guidance does not factor any tax provision reversals. Regarding the 25 outlook, Granite is increasing its 2025 guidance and narrowing the ranges relative to estimates previously provided. Granite's current outlook reflects lease renewals and new leasing of vacant space completed year-to-date, which have increased overall NOI estimates. The current outlook reflects the Florida acquisitions, but does not include any assumption for a potential property disposition. In addition, the current outlook reflects year-to-date financing and NCIB activity completed in the first half of 2025 and embeds the year-to-date positive impact to FFO of the weaker Canadian dollar relative to the Euro and US dollar. So for FFO per unit, we are raising guidance from last quarter to the range of 583 to 590, representing an approximate 7 to 9% increase over 24. For AFFO per unit, we are raising guidance to the range of 503 to 510, representing an increase of 4 to 5% over 2024. Granite's balance sheet remains strong. Investment properties totaled $9.1 billion at the end of the quarter, which excludes $370.7 million of six assets held for sale, consistent with Granite's messaging last quarter on its disposition program. The increase in investment properties from last quarter was primarily due to $156.5 million of foreign exchange translation gains on Granite's foreign-based investment properties, driven by a 2.3% increase in the spot U.S. exchange rate and a 1.9% increase in the spot Euro exchange rate relative to Q2, partially offset by net fair value losses of $34.6 million. The Trust's overall weighted average cap rate is 5.6% on in-place NOI increased five basis points from the end of Q2, and it has increased 32 basis points since the same quarter last year. Net leverage ratio at the end of the quarter was 35%, a decrease of 100 basis points from last quarter. Net debt to EBITDA was seven times, a slight decrease from the 7.1 times in Q2, and consistent relative to the same quarter last year. Granite's key leverage ratios remain slightly elevated due to the classification of the six assets held for sale as they are excluded from investment properties, resulting in a decrease in the denominator for the net leverage ratio. In addition, Granite has increased unsecured debt due to drawing on the credit facility to fund the Florida acquisitions, resulting in an outstanding balance of $78 million at the end of the quarter. Granite does expect these ratios to normalize when the asset sales are completed. The trust's liquidity is approximately $1 billion, representing cash on hand of approximately $109 million, and the undrawn operating line of approximately $918 million. As of today, Granite has $79.5 million drawn on the credit facility and $3 million of letters of credit outstanding. Granite does expect to reduce the balance on the credit facility throughout 26, with free cash flow from operations or with proceeds from disposition of certain properties, barring any other major transactions. I'll now turn over the call to Kevin. Thank you.

Thanks, Teresa. As usual, I'll be brief with my comments and hopefully provide some helpful context to our results. As Teresa mentioned, our Q3 results were in line with expectations, driven by strong leasing momentum and NOI growth. And as you can see from our updated year-end guidance, we expect our financial performance to continue to strengthen over the remainder of the year. Firstly, strong leasing momentum continued as the team executed on over 400,000 square feet of new leases in the quarter and extended six leases related to expiries in the fourth quarter of 2025 and in 2026, representing just over 2.3 million square feet. In this quarter, as you can see, the increase on renewals in the third quarter was extremely strong at 88% on 1.85 million square feet of Q3 expiries in the GTA and the U.S. We have now renewed 81%, roughly, of our 2025 expiries at a weighted average increase of roughly 47%. and that excludes the increase on the new lease in Atlanta, where the team achieved an increase in rental rate of 58% over expiring rent at the end of the first quarter. Staying on leasing, a few comments on relevant market data. Eight of our 16 markets in North America reported flat or declined in market vacancy from the second quarter, and all of our portfolio markets reported positive net absorption in the quarter, led by Dallas-Fort Worth, Indianapolis, Savannah, and Houston. With respect to market rents, asking rents fell year over year in four of our portfolio markets in North America and increased in 11, led by Houston at 10.3%, Nashville at 8.3%, and Louisville at 6.3%. Our weakest market was once again the Greater Toronto Area, as asking rents fell roughly 5.5% year over year. So while leasing conditions steadily improve across our portfolio and our leasing performance continues to be strong, net absorption overall remains below the 10-year average and conditions are competitive. But I would highlight at this time that modern, functional, well-located portfolios are, as expected, clearly outperforming the general markets. I will provide a detailed update on our European portfolio markets in the fourth quarter as we receive the data. And in viewing our leasing performance in NOI growth over a longer term, over the past three years, we have generated cash NOI growth per unit of 44%, a CAGR of 12.9% over a period which most of you would characterize as challenging for our sector. I provided an update on our last call regarding the publication of our 2024 corporate ESG report. But I did want to mention at this time that Granite was recognized for the second consecutive year with the top ranking in our industrial peer group like Grespi for overall score in public ESG disclosure. I'll comment briefly on the changes to our IFRS values. As Theresa mentioned, we made minor negative adjustments to capitalization and discount rates broadly across our US and European portfolios, which was partially offset by positive gains from recent renewals in our GTA portfolio. And our overall IFRS value was obviously positively impacted, as Theresa mentioned, by the favorable movement in the USD and Euro against CAD in a quarter. Moving on to capital allocation, I'll begin with an update on the plan dispositions. Of the 370 million of assets held for sale, we have agreed to terms in roughly 190 million of those assets in the US, and the transactions are progressing well. and we expect to provide a more wholesome update on the dispositions with our Q4 results at the very latest. In terms of capital deployment so far in 2025, we have acquired roughly 145 million in granite units through our NCID, as well as funding roughly 10 million year-to-date on our development projects and 50 million related to our recent acquisition in the Miami market. So to fund over 200 million in these areas and finish the quarter, With only 70, I think it's 79 million drawn on a line of credit and roughly 128 million in cash, you can see the power of our low payout ratio and free cash flow. We have also agreed to terms on approximately 240 million of new acquisitions in our target markets in the US and Europe and expect to close on those transactions in late Q4 or early Q1, 2026. Staying on capital allocation, Our $0.15 distribution increase represents the 15th consecutive annual increase since our inception in 2011 and marks the first above $0.10, as we believe the incremental increase is merited at this time and sustainable, supported by the strength of our cash flow growth over the past number of years and a conservative nature of our capital structure and correspondingly low AFFO payout ratio. We are able to fund the increased distribution while continuing to reinvest strongly in our business without compromising the strength of our balance sheet and capital ratios. So looking out to the remainder of the year, our leasing pipeline remains quite strong at well over 500,000 square feet currently under lease negotiation. And although we'll provide specific guidance in conjunction with our Q4 results, we are confident that the achievements made by the team in 2025 That position does well to execute on our financial, operational, and strategic objectives for 2026 and beyond. Operator, I'll now open it up for questions.