Granite Real Estate Inc.

Ladies and gentlemen, thank you for joining us and welcome to Granite REIT's second quarter 2026 results conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Teresa Netto, Chief Financial Officer. Teresa, 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 material filed with the Canadian Securities Administrators from time to time, including the risk factors section of the Annual Information Form for 2025 and Granite's management discussion and analysis for the year ended December 31, 2025, filed on February 25, 26, and for the quarter ended June 30, 2026, filed on August 5, 2026. Now getting to the quarter, granted delivered Q2, 2026 results in line with management's annual forecast and guidance driven primarily by strong NOI growth and favorable foreign exchange. NOI growth in the second quarter was primarily driven by strong same property performance supported by leasing spreads of 7% and the lease up of previously completed development vacancies in the United States, along with a favorable foreign exchange as the US dollar and Euro strengthened 0.9% and 0.2% respectively. As advised last quarter, Granite did recognize two income statum items of a non-recurring nature in the second quarter that impacted FFO and AFFO. Granite recognized approximately $1.3 million in termination and closeout fee revenue relating to the termination of a magna lease at one of Granite's bond properties. More than offsetting this amount was a $2.6 million provision relating to a five-year HST audit at Granite's operating subsidiary where the CRA has assessed Granite with denied input tax credits, interest and penalties that impacted G&A and interest expenses by approximately $1.7 million and $0.9 million respectively. Granite has filed a notice of objection with the CRA to dispute the CRA's assessment. However, Granite has deemed it prudent to recognize such provisions at this time. The net negative impact of these two non-recurring items was negative $1.3 million or approximately $0.02 to FFO and AFFO per unit for the quarter. FFO per unit in Q2 was $1.56, down $0.01 sequentially and up $0.17 or 12.2% compared to the same quarter last year. Excluding the non-recurring items previously discussed, FFO per unit would have been 158, resulting in Q2 FFO per unit being 1 cent higher on a normalized sequential quarter basis. AFFO per unit was $1.26, down 15 cents sequentially, and up 3 cents year-over-year, with the increase from Q1 primarily driven by higher maintenance capital expenditures, leasing costs, and tenant allowances incurred. Excluding the non-recurring items previously discussed, of course, AFFO would have been $128 million. AFFO-related capital expenditures incurred in the quarter totaled $14.7 million, which is an increase of $7.1 million over last quarter and an increase of $6.7 million over the same quarter last year. For 2026, we continue to expect AFFO-related capital expenditures to come in at approximately $40 million, unchanged from our estimates previously provided. In the second quarter, same property NOI delivered very strong growth, increasing 8.3% on a constant currency basis and up 9.1%, including the impact of foreign exchange. The continued momentum in same property NOI growth is a reflection of the successful execution on leasing, achievement on leasing spreads, and the 220 basis point improvement in occupancy year over year. For 2026, we expect continued strong organic growth from our same property portfolio and have positively narrowed the range of our outlook for the four-quarter average constant currency same property NOI growth to a range of 6% to 6.5%. G&A for the quarter was $18.2 million, which is $8.2 million higher than the same quarter last year and $6.5 million higher than Q1. The sequential increase was primarily driven by 4.6 million higher fair value adjustments on non-cash compensation liabilities, which does not impact Grants FFO and AFFO metrics, and the non-recurring HSD expense recorded this quarter of 1.7 million. The remainder of the variance reflects normal quarterly fluctuations across other G&A expense categories. For 2026, we continue to expect G&A expenses that impact FFO and ASFO to average approximately $11.5 million per quarter, or roughly 7% of revenues. Interest expense and interest income both decreased modestly in the first quarter, down $0.8 million and $0.2 million respectively, compared to Q1. The reduction in interest expense is due to the full repayment of the September 26 term loan back in February of 26, and the reduction in the credit facility balance over the course of the quarter using proceeds from the March disposition and the issuances under the Granite's ATM program. These positive impacts were partially offset by the impact of a stronger Euro on Granite's foreign denominated debt and the non-recurring HSC interest and penalties recognized at 0.9 million as previously mentioned. The reduction in interest income relates to a lower average cash balance in the quarter as compared to the prior quarter. Granite's weighted average cost of debt is currently 2.62%, and the weighted average debt term to maturity is 2.9 years. With Granite's next debt to maturity not until December, we continue to expect interest expense to remain stable over the next couple of quarters at around $23.5 million per quarter, assuming no new transactions. Q2 26 current income tax was $3.2 million, up $0.2 million year-over-year, and $0.1 million from Q1. The year-over-year increase is primarily due to an increase in rental revenues in Europe and the United Kingdom and the impact of a stronger Euro on Granite's primarily Euro-denominated tax expenses, the effects of which were partially offset by the recognition of a withholding tax reserve reversal in Germany in the prior year. For 2026, we continue to expect current income tax expense to remain at approximately 3.2 to 3.3 million per quarter. Looking out to our 26 estimates, Granite is updating its guidance to positively narrow the ranges. Our current outlook reflects lease renewals and new leasing, dispositions and financing transactions completed year to date. In addition, our outlook assumes the disposition of the assets currently held for sale, which at Q3 were approximately $66 million, and new acquisitions totaling $195 million to be executed by early Q4. and these will be financed by net proceeds from the dispositions, draws on the credit facility and cash on hand. We are not assuming any further ATM issuances in the forecast at this time. The outlook assumes no material changes to its assumptions regarding the remaining leasing activity for the year, operations and capital expenditures. We expect FFO per unit to be in the range of 630 to 640, approximately 7% to 8% growth over 2025. For AFFO per unit, we expect a range of 545 to 555, reflecting growth of approximately 4% to 6% year over year. As previously noted, AFFO related capital expenditures are forecasted at 40 million for 26 compared to 34 million incurred in 25. Our guidance has been updated for foreign exchange rate assumptions for the US dollar and British pound for the second half forecast period. We will continue to provide updates on our guidance each quarter as appropriate based on leasing and transaction activity executed and the market conditions at that time. Investment properties totaled $9.6 billion at the end of the quarter, a modest increase from the prior quarter and excludes the $66.2 million related to the two assets held for sale. During the quarter, movements in investment properties reflected the foreign exchange gains of $112.6 million driven by the strengthening of the US dollar and the Euro against the Canadian dollar over the period by 1.8% and 0.9% respectively. Additionally, capital and leasing expenditures including development spend at the Houston construction site, maintenance capital projects and leasing activity related costs increased value by 32.9 million. These positive impacts were partially offset by the net fair value losses recorded in the quarter of 20.6 million on our IPP portfolio, driven by expansion in the discount in terminal capitalization rates at select European properties due to market conditions and decreases in fair market rents at select properties in Canada, partially offset by increases in fair market rents at select properties in the United States. Our overall weighted average cap rate of 5.7% on in-place NOI increased 10 basis points relative to Q1 and has increased 20 basis points since the same quarter last year. With respect to the assets held for sale of $66.2 million, the trust recorded a net fair value gain of $5.2 million in the quarter on these assets. And on July 20th, we completed the disposition of the 41.2 square 41.2 thousand square foot property located in Canada for gross sale price of $16.5 million. The remaining asset for sale located in the U.S. is expected to be sold in the third quarter of 2026. Granite's balance sheet remains strong and its debt metrics have shown notable strengthening from last quarter. Net leverage ratio at the end of the quarter was 32% and improvement from 33% at Q1 and 35% at the end of 2025. Debt to EBITDA was 6.6 times, also improved from 6.8 times in Q1 and 7.3 times at the end of 2025. The continued improvement in Granite's debt metrics is reflective of a reduction in debt using the proceeds from issuance of equity under Granite's ATM program and free cash flow from operations, together with the quarterly growth in Granite's EBITDA rooted in same property NOI growth achieved in each of the trailing four quarters. Ratios continue to trend as targeted by management providing financial flexibility for future growth. Year to date, you will see that Granite issued 1.4 million units under its ATM program at an average price of $96.61 for gross proceeds of approximately $138.4 million, excluding issuance costs. Our liquidity is currently $1.2 billion, representing cash on hand of about $165 million and a nearly completely undrawn operating line of $997 million. As of today, Granite has no borrowings under the credit facility and only $2.8 million in letters of credit outstanding. We expect to utilize its existing liquidity and free cash flow from operations to fund the assumed acquisitions net of dispositions throughout the remainder of 26. And now I'll turn over the call to Kevin.

Thanks, Theresa, and welcome everyone to our call. Q2 results, as Theresa mentioned, were in line with management's expectations. with normalized FFO per unit at $1.58 excluding onetime items, primarily as a result of higher same-property NOI, partially offset by non-recurring G&A items, as Theresa mentioned, an increase of just over 12% year-over-year on a cost and currency basis. NOI in the quarter was also negatively impacted by the disposition of a large asset in Atlanta late in the first quarter. To begin, as you can see, turnover was lower in the second quarter as the team renewed roughly 250,000 square feet of leases and closed on a new lease at one of our national developments. A rather muted increase in the quarter was impacted by a month-to-month extension of an existing tenant at expiring rent while finalizing a fixed-term lease on expanded space within the building at a higher rental rate. The team has since renewed and expanded the tenant and the increase will be recorded in the third quarter. To date, we have so far renewed roughly 65% of our 2026 expiry by GLA and an average rent increase of 21%. And we continue to expect to achieve an average increase of between 20 to 25% on our overall expiry for the year, which is in line with our average increase for 2024. As you can see, same property NOI in the quarter was led by the GTA and the U.S. portfolios at 20% and 9% respectively. And while leasing activity across those smaller vacancies was slower over the first half, activity has increased and the team is currently negotiating new leases on over 500,000 square feet of vacant space. Staying on leasing, a few comments on relevant market depth. Based on published research, leasing momentum remains positive across the bulk of our sector, with vacancy stabilizing or declining broadly across our markets, led by vacancy declines in Indianapolis, Dallas-Fort Worth, and Houston. Net absorption was positive across our entire portfolio in the second quarter, and our portfolio markets once again represented the top three markets and eight of the top ten in the U.S. led by Dallas, Fort Worth, New Jersey and Atlanta at 9.96 and 5.9 million square feet respectively. Asking rents rose once again across the majority of our markets led again by Dallas, Fort Worth, Miami and Columbus with year over year growth ranging from just under 10% to 14.5%. Our weakest markets were once again the GTA and New Jersey with asking rents down just under 5% year over year. In the UK, net absorption topped 12 million square feet in the second quarter, a roughly 40% increase over the first quarter, leading to an 8% drop in availability, representing the largest quarter-over-quarter decrease in vacancies since the fourth quarter of 2021, and supporting just under 4% year-over-year growth in asking rents for Class A large and mid-bay space. Data for the second quarter in the Netherlands is not yet available. The net absorption was strong in the first quarter at roughly 9 million square feet, or up 10% year over year. Net absorption in Germany was very strong in the first half of this year, topping 35 million square feet, an increase of 23% year over year, with space over 200,000 square feet, representing the strongest segment to date. Market rate growth in the Netherlands was more or less flat year over year, And Germany posted an increase of just under 5%. So in summary, I would characterize the tone in the leasing market as constructive, with an element of cost sensitivity to be sure, and a continued bias in occupier demand for larger, modern, and well-located space, and lower cost inland markets. The positive impact of the near and on-shoring of production continues to be seen. with demand related to manufacturing activity outpacing 3PL demand in the US for the first time in modern history, led by markets in California, Texas, the Midwest, and the Southeast. Additionally, data center related demand for logistics space continues to strengthen, led by leasing activity in Texas, Arizona, and parts of the Midwest. This increase in manufacturing and data center activity is expected to drive further demand for logistics as materials and equipment continue to be positioned closer to production hubs and consumers. I'll comment briefly on the changes to our IFRS values, which were effectively flagged quarter over quarter before accounting for the positive impact from a higher US dollar in Euro versus CAD. As you can see from the materials, we also closed on the sale of a small asset in the GTA and the team achieved a sale price well above our unaffected IFRS value. Further, assuming we successfully conclude the disposition of the final remaining asset held for sale, we will have disposed of over $210 million of non-strategic assets this year at a normalized yield of 5.1%, enabling us to redeploy the proceeds accretively on strategic acquisitions in our target market. Staying on strategy and capital allocation, as mentioned in our press release, we have roughly $195 million in new acquisitions pending in our target markets in the US and Europe. And as an update on our development program, our Build-A-Suit project in Houston continues to progress on budget and schedule for completion in the fourth quarter. Also as disclosed, We have issued roughly 1.4 million units to date for net proceeds of $138 million, which of course will be used to fund the aforementioned acquisitions. As a general comment on the investment market, cap rates appear to be holding, for the most part, across our portfolio markets. Bond yields have risen in recent weeks, but it appears that global institutional capital continues to increasingly favor the logistics sector based on strengthening fundamentals and sectoral tailings. with first-half investment volumes up roughly 50% year-over-year in the U.S. and between 10% to 30% in the U.K. and Western Europe, and as evidenced by recent large-scale M&A activity involving logistics reefs in the U.S., U.K., and continental Europe. Further, the data suggests that the average price in the U.S. is up almost 7.5% year-over-year, reaching an all-time high of $160 per square foot, A strong activity in Dallas, LA, Houston, Atlanta, Chicago, and Southern Florida. Investment volume in Germany topped 2 billion euros in the first half, which is up 10% year over year. And yields for Class A products appear to be holding steady at 4.5% to 5%. In summary, I would characterize the quarter as positive, led by continued strong operating results with industry-leading occupancy. and selective and effective execution of our capital allocation strategy, with full year guidance tightened and raised slightly on stronger than expected NOI growth. This is notably inclusive of over $200 million in dispositions and the issuance of almost $140 million in equity. As three to mention, I would also like to highlight that we have increased FFO per unit year to date by almost 10% year over year while reducing debt to EBITDA from 7.3 times to 6.6 times. Looking forward, leasing fundamentals in our portfolio markets for modern, well-located logistics properties remain positive. Consistent with my comments from the first quarter, while energy prices and instability may negatively impact the macro environment and occupy our decision-making to be sure, the data continues to suggest that trade policy shifts and ongoing geopolitical uncertainty appear to support the continued expansion of inland supply chains. And for the U.S. specifically, this trend is particularly benefiting markets in the Midwest, Texas, and the Southeast, while negatively impacting demand in higher cost coastal markets. On the capital allocation front, the combination of the disposition and ATM program activity have enabled us to effectively and efficiently fund the pending acquisitions while maintaining the strength of our balance sheet. In closing, we are well-positioned to once again deliver strong financial results and execute on all of our corporate objectives for the year, and our focus remains on active asset management and effective capital allocation, which we believe will deliver attractive income and net asset value growth for Uniholders. And on that, operator, I'll open up the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sam Damiani with TD Cowen. Your line is open. Please go ahead.

Thank you. Good morning, everyone. First of all, congrats on a great quarter on the leasing front. And as you mentioned, Kevin, solid FFO growth while reducing debt. It's always a nice thing to do. Maybe my first question, just on the trend of market rent, the sort of realized trend spreads that you're getting, not only on the leases taking effect, but also on the leases that you're signing. That spread, I assume, is starting to narrow as you're capturing that mark to market. And I know there's going to be some unusual things with the Samsung lease and then comparing to the Wayfair bump in the rent last year. But just purely on a sort of a rental spread basis, that contribution to same property and a wide growth, how do you see that aspect kind of evolving into 2027 and 2028?

I think, Sam, it's a great question. I think it is going to be lumpy. I will remind everyone that 2025 was a rent lift of almost 50% on it. So it is going to fluctuate from quarter to quarter and from year to year. I will say this, though, and point out, I believe if you go back a few years ago with the height of the market, say 2022, middle of 2022, I think it would have characterized the true market market on in-place rents versus market rents probably around 25% overall, including Europe. And today where I sit, I think that it's very close to that. And I think the product of that has been positive movement in market rents in Europe over that time. and positive movement in market rents in most of our markets in the U.S. As I've stated, I think the GTA market rents have pulled back quite a bit, and then the major coastal markets in the U.S., New Jersey, New York, and L.A. being the ones that are top of mind, and the U.K. as well. So higher cost markets, coastal markets have pulled back, but for the most part, Market rent growth has been positive, in some cases, very positive across our market. So that's what I continue to see. What gets in the way of it sometimes, we're not the only portfolio, are contractual increases on renewals that come up. In some years, it impacts us more than others. And so I don't want to say anything for 2027, but I do want to emphasize the fact that this year, We feel that the market market on the expiry is including Samsung within that 20 to 25% range. And over the long term, say over the next five years, I think that that would be a fair characterization of the market market. Let's say over the next five years that helps him.

Well, that's that's really helpful. Thanks. Thanks for that. So lots to ask, but I'll defer one more question, then I'll turn it back just on the acquisitions that you've teed up any any further detail. you can share at this point?

I will say, yeah, I think we're far enough along in this. We have acquisitions in the UK and in the southern US, in southern Texas, put it that way.

Okay. Okay. That was quick, Kevin. So maybe just one more. The acquisition you made early in the year in the UK, the first one, it was a sort of a two-year development start. Is that still on track? to do that redevelopment?

Yeah, as far as we know, I think we're in for planning and entitlement right now on the assets. So nothing new to report. But yeah, that two-year program is still in place and our original plans are intact. Great.

Thank you. I'll turn it back.

Thank you for your questions. We will now move on to the next question coming from the line of Brad Sturges with Raymond James. Your line is open. Please go ahead.

Hey, good morning. Just following along the lines of Sam's questions, just looking at your 27 lease maturities, a lot of it is rolling in the U.S. and I think you got a bit in Austria as well. I guess, would most of the U.S. then be like free market expiries where you could take rents to market and then would Austria still be kind of a fixed rate renewal if it is exercise?

Yeah, I think that that's fair. That's fair, Brad. Yeah. So the ones in Europe, and I will make this comment, and I think it's obvious to everyone that a lot of our lease renewals in Europe are contractual or fixed. Those do burn off over time. And so we do have a number of leases that there will be a renewal option at a fixed increase. But one of the reasons why we like these assets and acquiring these assets is that there will be an opportunity at some point in the future, in the next five years, to really move those assets to market rent. And there is a sizable opportunity there. We just have to be patient with them to be sure. And the time will come where we'll really be able to move rents on our European assets.

And for the leases that you can take to market, those would be consistent with that comment around a mark to market of 25% for next year?

I'd have to look at it, Brad. I think that that's fair, but I would have to really, I have not looked exactly what that is, but I think that that would be fair on the mark on the leases where we have, where we're able to move them to fair market rent. Correct. Yeah. Okay.

I guess my last question would be, you know, in your preamble, it seems to have been pretty consistent. Like you call out the GTA multiple quarters of kind of being one of your weaker markets. Are we getting closer to a turnaround enough in the GTA where maybe that market moves up your relative performance list? Or is it just there a large enough delta between some of your other US markets or Europe versus the GTA that, you know, there's still a gap there?

Well, I think if you're asking me about the trajectory of rents in the GTA, I do think that we are near a bottom. It does lag. It always lags. So even if occupancy were to begin improving, there will be a lag where rents are. And I think we've taken that view for years now. You've heard Don Coles talk about that. It's the higher cost markets. Toronto, they're all hip. for different factors and multiple factors. But at the end of the day, there is a consistency globally that the highest cost markets have been hit the hardest. And as people are sort of moving their supply chains inland and potentially doing that for economic reasons as well. And the GTA falls into that category as a higher cost market. So we are seeing improvements in the GTA, certainly in demand for larger big products. It does feel like it will take a few more quarters for rents to bottom out. Certainly, we've seen the decrease, the pace of decreases has fallen, and so that will start to flatten. But I think you made a comment about the U.S. markets. Let's keep in mind, I think the narrative on the sector, particularly in the U.S., was probably negative for a few years from late 2022 through to 2025. But during that time, market rents continued to increase across the majority of our markets. In some of our markets, it was quite strong. Savannah, Nashville, even Dallas, which was dealing with the supply overhang, rents moved strongly upward over that time. And that's why I made the comment about our true market to market being, for the most part, maintained since the top of the market in early 2022. That's great, Collin.

I'll turn it back. Thanks a lot.

Thank you for your questions. We will now move on to your next question coming from the line of Mark Rothschild with Canaccord. Your line is open. Please go ahead.

Thanks, Dan. Good morning. Kevin, you haven't been shy about expressing frustration with Uniprice when you thought that it was lagging, especially compared to how the FFO growth had been. When we look at the use of the ATM, To what extent is this a comment on opportunities you're seeing or maybe just a little more comfortable with where the value is relative to private market value?

Thanks, Mark. I think it has, it's always somewhere in the middle, but I think it has more to do with the opportunities that we're seeing. And just so everyone is aware, when we look at, when we're using equity at all, And in this case, remember, we're financing new acquisitions, not only with ATM activity, but also with dispositions, which we've talked about. Rebalancing remains an important part of our investment strategy moving forward. But I will make the comment that whenever we're using equity, even partially, we run analysis, accretion analysis, on any time we put money out the door. And we use actual equity issuance at all costs. And we use on a debt neutral basis, we assume new debt at prevailing market rates that we have available to us. So we always run that analysis. And what is, I think, notable to us is we are able to step into assets in these leading tier one markets with strong growth prospects at yields we haven't seen in several years and able to manage, like to step into these assets at virtually negligible dilution to our 2,026 days per unit. So we're able to step in with very little to zero dilution and to us generate the potential for stronger future growth, both on the income and the capital side from these assets. And so I think it is really, Mark, more opportunity driven. So as we look forward, look, we're fully, we feel we're, you know, the capacity that we have to close on these acquisitions is there, probably to do a little more on the acquisition side without doing anything else. And if there are future opportunities, we'll have to balance that with where the unit price is, because where it is today, I would not be comfortable utilizing the ATM. So you have to balance those things. And I think we've been quite disciplined and selective in how we're using the ATM and how we're pursuing acquisitions. And I think we're going to continue to do that.

Okay, great. Thanks. That's often been very helpful.

Thank you for your questions. We will now move on to your next question coming from the line of Himanshu Gupta with Scotiabank. Your line is open. Please go ahead.

Thank you and good morning. So on Magna, for Australia lease coming due next year, by when do you start the process of renewing it? And do you see Magna doing any consolidation in Europe based on your conversations?

The answer to that is we are in pretty constant dialogue with Magna. I won't disclose anything we have with respect to specific assets, but I will say we have no indication that Magna intends to vacate the space when the lease expires next year. And in terms of consolidation, no, we have not had those discussions with Magna. We continue to see them make investments in the assets that are within our portfolio anyways. And I think also these are very difficult assets to replicate in today's world. And so activity remains strong across our portfolio with Magna in Austria and Germany.

Got it. And then on that subject, any update on the one property which was vacated in April?

In Vaughan, we've had a lot of activity. We've had a number of tours, but no, nothing to report on the asset in Vaughan at this time.

Yeah, and Kevin, do you have a better sense of like the capex involved now to ease up that asset compared to like three months ago?

Well, I think Theresa mentioned the one-time termination fee that we got. So that will help to fund A lot of the restoration work that we're doing in the property, so it currently looks very good. In terms of capex for a new tenant, I think it will be very manageable and I don't think it would be out of the ordinary for any new lease that we're working on with tenants in North America or Europe.

And you continue to expect the rents being much higher than what was the expiring rate at the time?

That's correct. That's correct. And I will tell you, you know, anytime, particularly in our sector, anytime you have an asset come vacant, as an asset manager, as a manager of assets, particularly in this sector, it is important to always review with an objective eye the future of this asset. Do you want to continue to hold this asset or do you want to look at selling this asset? To us, the location of this asset And the excess land that this has in this location, I think it's a tremendous value. So this is an asset that we will, and I will say, look, in this market, user sales, as you know, are quite common and can be quite accretive. And so we would look for the right deal to sell this asset to a user if that makes the most sense to us, but we would prefer to keep it just because of the quality of this location in the property itself. So we're looking, we would prefer to release the space if we think that we will have success this year. But just pointing out that, you know, user sales are very common in this market, particularly in this sub-market, and that could be an option as well.

Great color there. Thank you. Moving on, on same property NOI growth, obviously strong in the first half. In terms of second half, you know, Faye will say that Q3 could be somewhere similar to the first half, and then we'll see some deceleration in Q4 due to buff comps.

I think this is going to be, you know, same property in Hawaii. From year to year, it goes up a little bit down, and from quarter to quarter, it can fluctuate. So I think what would be fair to say is this year, same property in Hawaii will be stronger in the first half of the year and weaker in the second. Next year, we anticipate it will be weaker in the first half of the year and stronger in the second half of the year. So it will decelerate through this year, and then 2027 will be a year of acceleration of same property in line.

Awesome. Okay. Thank you. And the last question, perhaps for Teresa here, balance sheet, you know, there's a maturity coming up in December. Any thoughts? What are the ways to mitigate the interest headwind there?

Yeah, so we are considering a number of options. I'm not necessarily tied to doing a five, six year bond at this point in time, especially where the underlying treasury yields have gone. But we have some options. We can do some shorter term, either term debt or, frankly, on the credit facility. I can refi and be well below. We could be in the 3.5% range. If I keep it short term, which is something I'm considering at this time. So we've got a few options. And frankly, I'm probably favoring going a little bit more short term right now.

Thank you so much. And I'll be back.

Thank you for your questions. We will now move on to your next question coming from the line of Kyle Stanley with Desjardins Capital Markets. Your line is open. Please go ahead.

Thanks. Morning, everyone. So Kevin, you had previously mentioned maybe a bit of concern on the smaller bay leasing environment in 2026, but then I guess your remarks earlier today indicated that seems to be abating somewhat. So I'm just curious, what's changed maybe over the last few months to see renewed strength in that segment of the market?

That's a great question. Most of the activity we had in the first half of this year and late last year was around our larger availabilities. And we did notice that there was much more activity on the over 200,000 feet, over 250,000 feet than it was under it. And that's what we're left with today. I would say I think the theme that has been most noticeable the last few years is consolidation and flight quality. And I know it sounds cliched. We've been talking about it for years. Show me any data that refutes that. We have seen the larger base space and modern being the two characteristics that have been the most active and in the most demand basically across all of our markets, broadly speaking. What I do think is that as these larger spaces are being taken up, there is a spillover effect. So there is less options for an occupier to consolidate into space, and then they have to start looking at smaller space. Now, that's a very broad comment, Kyle, but I do think that that's something that's feeding into this. I think there's just this spillover effect, and now that's driving demand for smaller spaces within our markets.

Okay, no, I think that makes a lot of sense to me. Just moving on to my next question, I mean, obviously, It's tough to say, but looking at where we are kind of in this current industrial logistics cycle, I mean, how long do you see the strength in the kind of underlying market rent absorption persisting, just given your view of occupier demand today, before we start to see another kind of more sizable supply response take hold?

Yeah, let's just focus on the demand side. I think I've mentioned that there are these sort of sectoral tailwinds. We're getting near shoring and on shoring. We're seeing that both on both sides of the Atlantic to be sure. And that's causing not only demand for logistics space immediately, but also it is moving these supply chains out of some of the higher cost markets into more inland markets where production is being set up. We are seeing that. And then on the data center side, which I've talked about, I mean, I read a report not that long ago that estimated data center demand for logistics year to date in Texas is over 9 million square feet. And we are starting to see data center developers and users appear as prospects, particularly in a few of our markets in the Midwest and Texas. So we are seeing that as well. That is a trend that is expected to continue and probably grow over the next few years. So I think there is, if you look, I made a comment on the investment market. The amount of capital that's amassing for the logistics sector in Europe and North America is quite startling. So it's becoming more competitive, and I made that comment about the cap rates. It would be very, I think, very tempting to look at the backup in treasury yields and say that cap rates are moving with this, Against that, what we're seeing is this formation of capital and this aggressiveness moving into the sector. So it is my view or my opinion that cap rates are holding steady. And we have seen recent deals that would sort of suggest that cap rates will be moving down over the second half of the year and not up as demand for product continues to increase. I think I lost train of my thoughts. Did I answer your question there?

Yes, no, it definitely did for sure. And maybe just adding to the kind of something you said there. So like a new pocket of demand emerging from the data center type users, do they have a preference to larger bay, mid bay, small bay? Like what are you seeing the RFP look like from them?

It has been more in the larger bay, I would say sort of over 250,000 feet. We haven't seen anything smaller than that, although it's not as though we have that product to sort of market to data center users. So it would be, for the most part, larger bay, anything over 250,000 feet. Okay.

Okay. Very helpful. That's it for me. I'll turn it back. Thanks.

Thank you for your questions. We will now move on to your next question, coming from the line of Tal Woolley with CIBC Capital Markets. Your line is open. Please go ahead.

Hi, good morning. Theresa, just wondering, can you give an estimate of what your five-year Canadian unsecured rate would be right now?

If I borrow strictly with a Canadian rate, it'd be about four and a quarter. And then if I can swap to Euro, which this one that's maturing is a swap Euro bond, so we could certainly do that. We'd be looking at very low 4% for five years.

Okay. And just wondering too, like, You know, your leverage ratios have ticked down a lot. Do you have a sense of when the credit rating agency is going to make the call on a ratings upgrade or not at this point in time?

Yeah, I mean, they want to see at least some history, but we typically have an annual review where we discuss, you know, all things and we go through quite a detailed analysis with the DBRS. So that does happen around March. So it is another incentive. Frankly, I should have probably mentioned that, why I'm actually favoring shorter term as well, because it may be worthwhile to wait. So typically 12 months, in their reports, they'll say 12 to 18 months. They would like to see some sort of trend. So it's obviously not my call, but it would be, I think, it would make sense that it would coincide with our annual review, which happens in March of every year. So there is an advantage to waiting because we'll get an immediate reduction in borrowing rates on our credit facility if we get the upgrade.

Okay. And then also, like, I guess, too, like, incidentally, like, using the ATM a little bit here also kind of helps with the presentation for that potential upgrade as well.

Well, I mean, it's obviously it made sense that we paid off our credit facility, you know, and this is just more of a timing of when the disposition activity and acquisition activity is occurring. But really, I mean, that ATM, those proceeds were used to reduce our debt, which definitely impacted favorably on our metrics this quarter. But I mean, that was effectively earmarked for our upcoming acquisitions. But we continue to have EBITDA growth, right? Because obviously our measures on trailing 12 months, so that That continues to grow and that's also helping us in our in our in our metrics.

And if you went to like a term loan or something like that, would the rates be materially different from what you were talking about on the unsecured?

Yes, it would be. I mean, depending on the year, it's usually a term loan. You're not going to get really get past three years. But, you know, right now I know we definitely we can definitely get a term loan for a year with materially lower rates than than a five year.

Okay, got it. That's great. Thanks very much, everybody.

Thank you for your questions. We will now move on to our next question coming from the line of Pammy Burr with RBC Capital Markets. Your line is open. Please go ahead.

Thanks. Good morning. Just wanted to come back to the acquisitions that you spoke about that I guess we'll expect for Q4. Are these all stabilized, or are you perhaps maybe prepared to take on any sort of lease-up risk with developments or repositioning any of these?

These are all stabilized, probably, but the answer is yes, we are. We are willing to look at any asset where we feel that there's value in it. So it could be ground-up development. It could be vacancy. It could be redevelopment. So I think all of the above, these happen to be stabilized. And again, it's over what's going to provide us with the best long-term lift and value is what's ultimately driving our investment decisions.

Okay. And that's helpful. I guess just maybe more broadly in terms of the mix in there, you know, large bay, multi, single, et cetera. I mean, what are, like, are these a mix of those types of opportunities or what specifically kind of stands out to you on these assets?

Well, again, listen, it has to be modern. It has to be functional or something that we could make very functional. It has to be the right market. It has to be the right location in that market. And the cost basis has to make sense. And so those are the main factors to us. These actually are not all large bay assets. As a matter of fact, it would probably be closer to mid bay than they would large bay. Again, and I know It might be fair to say that we're focused on large space single tenant assets. I keep saying it, but ultimately we're not. We're focused on what is the most effective, functional, modern distribution assets in the market and what fits the market is the most important criteria to us. So in this case, they're not effectively large bay assets. They're closer to mid-bay assets. And two of them are multis.

Great. That's helpful. And I guess just from a cap rate standpoint or maybe the range, how do they compare relative to the, I think you cited a low five on the dispositions?

Yeah, these would be in the sort of low, you know, low to mid five range. So I would say low five range going in.

Okay. And then just I did want to come back to maybe some of the leasing commentary. I think you've secured about a million square feet so far on the 2027 maturities. How have the spreads trended to date relative to that 20% to 25% long-term target that you cited?

I would say, again, it can be timing-wise, and it can be affected by every portfolio is going to have contractual renewal increases at some point in the portfolio, and it just depends on timing. And I still stand by over the long term, I would say over the next five years at 20 to 25% is intact on the market to market.

Okay. And then just maybe last one for me with respect to Austria, assuming that that renewal does move ahead. Any update on potentially selling the bulk of that portfolio in that market, and I guess more specifically the larger gross facility? I think you're now a couple of years into that renewal, right?

Yeah, we're a couple of years into it. Again, I think the conditions that are important to us are where the rates are. Look, rates could stay high for longer. I acknowledge that. I do think conditions could improve from an interest rate perspective. I think that that would help the potential disposition of these assets. I will say we're in discussions across a lot of our portfolio on potential sales. That would include Germany and that would include Austria. I won't get into particular assets for sure, but we are having those discussions and if there is an opportunity to dispose of those assets at prices that make sense to us, we certainly would pursue it. But I do want to caveat that with, I think, As interest rates or if interest rates fall over the coming years, I think that that would be a better condition for us to look at all of the assets in Austria.

Makes sense. Just on that last point you made, what would sort of be the value or your book value of those assets in Germany and et cetera? What's in discussions at this point? What would that sort of book value look like?

Well, if I were to say overall, that includes North America. And there, we're probably on discussions in that sort of 300 to 500 million Canadian range of assets, but that includes North America as well, because we are in discussions on dispositions across our portfolio. And that's just normal rebalancing. But I can tell you that the interest and level of discussions we're having have picked up. Again, I think this speaks to demand for logistics and industrial in general for the sector because we're getting more inbounds from interested parties, and in a lot of cases, parties we have not spoken to in the past that are looking at aspects of the portfolio.

Got it. No, that's great, Collin. Thank you very much. I'll turn it back.

Thank you for your questions. We will now move on to your last question coming from the line of Matt Cornick with National Bank of Canada Capital Markets. Your line is open. Please go ahead.

Lucky me. Good morning, guys. Just wanted to go back to Kyle's line of questioning around supply and also the data center aspects. Are you seeing in markets like southern Texas or Texas generally where there's been a ton of investments in data centers that that's maybe competing for land, resources, labor in terms of building and maybe increasing the cost of new supply and industrial and driving potentially rents higher that you'd need to ultimately build today?

I would agree. I would say all of the above. and all those things I think have a positive impact on our sector. It does make construction and I think we're just seeing the beginning of it. The anticipation is that it is going to make it much more expensive to develop and again that helps us from a land value, it helps us from economic rent, so we are encouraged by, frankly, the sort of tangential impact it has on our sector. So we are just starting to see it. And I think from a supply side, it's only going to get worse on the cost basis and just make things more expensive to build.

So if I look at your kind of mid-US single digit dollar rents in the US and call it mid-single digit euro dollar rents in Europe, You can't deliver supply into the market at that type of a rate today, and presumably it maybe gets higher as we go forward.

Yeah, we have noticed, if you look at a lot of the leasing, a good chunk of the new leasing that's occurred in the market, part of the reason why rents continue to move, posted rents continue to move, is that these are new builds and they're higher rents. than the existing market rent. So we're seeing that sort of pressure that you're referring to there. And I just want to make one last point about data centers. And I don't know this for sure, but when we're asked the question, especially for the large bay, why did tenants and occupiers come off the sidelines so rapidly in 2025? I do think what gets overlooked is the data center demand. And again, I'm not in the heads of occupiers. They don't share all of their strategic decisions with us in the real estate side. But I would have to think that perhaps what they're seeing is this demand coming in from data center users and they're trying to get in front of it and they're trying to improve their supply chains before the full impact of data center demand or data center user demand hits the logistics sector. That's just my opinion.

That's an interesting angle. We always think of it in terms of you guys potentially getting a data center user into the portfolio, but in actuality, it's kind of increasing the demand for the space generally.

We think it's creating greater urgency, which is a great word for landlords. It's one of our favorite words.

Okay, thanks, guys. I'll let this call end before the morning's over. Thanks for the incremental color.

We have reached the end of the Q&A session. I will now turn the call back to Kevin Gorey for closing remarks.

All right. So on behalf of the board and management team here at Granite, I would like to thank everyone for joining our Q2 call, and hopefully we'll speak to you on the next call.

This concludes today's call. Thank you for attending. You may now disconnect.