Granite Real Estate Inc.

Thank you. Thank you. Thank you. Thank you. Thank you. ¶¶ Thank you. Thank you. Thank you. Thank you. We'll be right back. Thank you. . . . . . . . . . . Thank you. © transcript Emily Beynon Thank you. Thank you.

Good morning, my name is Sergio and I will be your conference operator today. At this time, I would like to welcome everyone to Granite REIT's fourth quarter and year end 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 Start followed by the number one on your telephone keypad. If you would like to withdraw your question, please press Start too. Thank you. Speaking to you on the call this morning is Kevin Goree, President and Chief Executive Officer, and Teresa Neto, Chief Financial Officer. I will now turn the call over to Teresa Neto to go over certain advisories. Please go ahead.

Thank you, Operator. 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 information and that actual results could differ materially from any conclusion, forecast or projection. These statements and information are based on certain material factors 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 information. These risks and uncertainties and material factors and assumptions applied in making forward-looking information are discussed in Granite's materials filed with the Canadian Securities Administrators from time to time, including the Risk Factors section of its Annual Information Form for 2025 and Granite's Management Discussion and Analysis for the year ended December 31, 2025, filed on February 25, 2026. For usual, I will commence the call with financial highlights and then Kevin will follow with an operational and strategy update. Granted delivered a strong finish to 2025 with Q4 results ahead of Q3 and above management's full year guidance, reflecting sustained momentum and continued strength in our operating fundamentals, with NOI growth accounting for most of the 11 CED per unit sequential quarter increase in FFOs. That momentum translated into strong bottom line growth in the quarter. FFO per unit in Q4 was $1.59, up 11 cents sequentially, or 7.4%, and 12 cents, or 8.2%, compared to the same quarter last year. As a result, FFO per unit for the full year of 2025 came in at $5.91, representing year-over-year growth of 8.6% ahead of management's guidance. NOI growth in the fourth quarter was primarily driven by strong same-property NOI performance, supported by leasing spreads of 24% and the lease up of previously vacant space in the United States. Results were further enhanced by favorable foreign exchange with the U.S. dollar and euro strengthening by 1.3% and 0.9% respectively, as well as by the acquisition of the six income-producing properties completed in the U.S. and the U.K., partially offset by the disposition of our Midwest portfolio of three properties completed during the quarter. FFO for the quarter also benefited from a $1.6 million tax provision reversal relating to prior tax year. Excluding this item, FFO per unit would have been $1.56, representing still a 5.4% sequential quarter growth. AFFO per unit in Q4-25 was $1.30, up 4 cents sequentially and 5 cents year-over-year, with the increase versus Q3 mostly tied to FFO growth partially offset by higher maintenance capital expenditures and tenant allowances incurred. AFFO-related capital expenditures incurred in the quarter totaled $14.9 million, representing an increase of $4.4 million over Q3 and $3.6 million relative to the same quarter last year. As a result, AFFO per unit for the full year of 2025 came in $5.21, representing year-over-year growth of 7.2% and ahead of management's guidance. Same property NOI delivered strong growth in the fourth quarter, increasing 7.9% on a constant currency basis and up 10.8%, including the impact of foreign exchange. For the full year of 2025, Granite generated four-quarter average constant currency same property NOI growth of 5.6%, consistent with management's expectations and guidance. Looking ahead to 2026, we expect our same property portfolio to continue to drive strong organic growth and are establishing our outlook for the four-quarter average constant currency same property NOI growth to a range of 5.5% to 6.5%. GNA for the quarter was $13.3 million, which was $5 million higher than the same quarter last year and $0.8 million lower than Q3. The primary driver of the sequential quarter decrease was a $1.5 million favorable fair value adjustment to non-cash compensation liabilities, which does not impact Granite's FFO and AFFO metrics. The remainder of the variance reflects normal quarterly fluctuations across other G&A expense categories. For 2026, we expect G&A expenses that impact FFO and AFFO to average approximately $11 million per quarter which equates to 7% of revenues reflecting our disciplined and stable cost structure. Interest expense increased modestly in the fourth quarter, up 0.3 million compared to Q3, while interest income remained flat. The increase in interest expense was primarily attributable to draws on the credit facility. Excuse me, sorry. On the credit facility to fund, acquisitions completed during the quarter and the foreign exchange impact of the strengthening euro on Granite's majority euro denominated interest. Subsequent to the quarter, on February 13th, Granite fully prepaid the remaining euro $50 million principal amount of the unsecured term loan maturing September 2026 with no prepayment penalties. As of December 31st and prior to this repayment, Granite's weighted average cost of debt was 2.72 with a weighted average debt term of maturity of 3.4 years. Following the repayment, Granite's weighted average cost of debt decreased to 2.68% and the weighted average term to maturity extended to three and a half years. With our next debt maturity not until December 2026, we continue to expect interest expense to remain stable and declining over the next approximate three quarters to around $23.2 million per quarter, assuming no additional transactions. Q4 2025 current income tax was $1.4 million, which is $0.5 million higher compared to the prior year and $1.6 million lower compared to Q3. The movement in current tax relative to Q4 2024 is mostly attributable to increased taxable income in Europe due to rental growth, together with a strengthening of the Euro relative to the Canadian dollar, as nearly all of Granite's current income tax is generated from its European region. And as mentioned earlier, current period results also benefited from a 1.6 million tax provision reversal relating to a prior tax year, consistent with the prior years. Looking ahead to 2026, we expect current income tax expense to remain at approximately $2.9 to $3 million per quarter. Looking out to 2026 estimates, Granite is forecasting FFO per unit in a range of $6.25 to $6.40, approximately 6% to 8% increase over 2025. AMFO per unit is forecast to be within a range of $5.40 to $5.55, reflecting growth of approximately 4% to 7% year over year. Our FFO outlook assumes the disposition of assets currently held for sale totaling approximately $81 million and those would be completed by early Q4 2026. And it does not assume any unidentified acquisitions. AFFO related capital expenditures are again expected to be approximately $40 million in 2026 compared to $34 million incurred in 2025. Our high end of our guidance range assumes foreign currency ranges of 1.34 to 1.4 for the US dollar, 1.58 to 1.62 for the euro, and 1.80 to 1.86 for the British pound. We will continue to provide updates on our guidance each quarter as appropriate based on leasing activity executed and any changes in market conditions. Our balance sheet remains strong. Investment properties totaled 9.5 billion at the end of the quarter, which excludes 81 million of two assets held for sale, The increase in investment properties during the quarter was driven primarily by approximately $296 million for the acquisitions of six income-producing properties, as well as a $16.5 million of net fair value gains across the portfolio due to increases in fair market rents at numerous properties in the U.S., the compression and discount in terminal capitalization rates at select U.S. properties, as well as positive leasing activity, including the lease-up of previously completed developments in the U.S. These increases were partially offset by 115.5 million of foreign exchange translation losses on our foreign-based investment properties, reflecting an approximate 1.5% strengthening of the Canadian dollar against both the U.S. dollar and euro at the quarter end. Our overall weighted average cap rate of 5.6% on in-place NOI remained stable relative to Q3 and has increased 26 basis points since the same quarter last year. Our net leverage ratio at the end of the quarter was 35%, unchanged from Q3. Net debt to EBITDA was seven times, also flat to Q3, and broadly consistent with the prior year, when the ratio was 6.8 times. Leverage metrics remain modestly elevated, reflecting higher unsecured debt following draws on the credit facility to fund acquisitions completed during the quarter, resulting with a year-end balance of $205 million. Our liquidity is currently $893 million, representing cash on hand of about $137 million and the undrawn operating line of approximately $756 million. As of today, Granite has $241 million drawn on the credit facility and $2.8 million in letters of credit outstanding. Granite does expect to reduce the outstanding balance on the credit facility throughout 2026 with free cash flow from operations and with proceeds from the disposition of properties barring any other major transactions. I'll now turn the call over to Kevin.