TD Currently have a $92.00 target. GLTA
Granite REIT
(GRT.UN-T, GRP.U-N) C$70.44 | US$51.84
Q4/23 First Look: In-line Results and New 2024 Guidance
Event
Q4/23 results (see exhibits). Conference call: 11:00 a.m. (1-800-926-4951).
Impact: NEUTRAL
FFO/unit of $1.27 matched our forecast (consensus: $1.25) with a 1.8%/$2mm NOI
miss (vacancy; weaker USD) offset by lower current tax. Q4 FFO/unit increased 6%
y/y (FY2023 +12% y/y), while our calculation of AFFO/unit increased 9% y/y.
Occupancy fell 60bps q/q to 95.0%, with the drop fully explained by two U.S. spaces
(Memphis and Houston markets) that we had learned about late last year and not yet
reflected in our forecast. Overall portfolio occupancy is now outside the 96%-98%
target range, and down by 280bps since Q1/23. U.S. portfolio occupancy is 92.2%
(-110bps q/q, -750bps y/y), with about half of the YTD drop caused by newly-finished
developments that are still in lease-up (e.g., Plainfield/Indianapolis). Occupancy
rates in all other regions (Toronto, Netherlands, Germany, Austria) are between
98.9% and 100%.
SPNOI growth (constant currency) was +4.7% (+5.1% FY2023), which slowed from
7%-plus in the previous two quarters due to the drop in occupancy.
Blended new/renewal rental rate spreads on leasing were +24% in Q4 (+22% for the
year), based on leases commenced.
For the 9.8mmsf of 2024 lease expiries, 74% have been extended at a blended 15%
uplift (10% on the Graz, Austria renewal, and we estimate +26% on the remainder
which is mostly U.S., Toronto, and Germany). Management acknowledged today's
moderating market rent growth and reiterated that leasing spreads overall remain
positive.
New 2024 FFO/unit guidance is 1.5% above consensus and in-line with our
forecast, at the mid-point. Key growth drivers are rent growth, new developments
coming online (2024 deliveries are 96% pre-leased), and some vacancy lease-up.
Guidance details:
FFO/unit up 7%-10% y/y to $5.30-$5.45 (TD/consensus $5.39/$5.30);
AFFO/unit (mgmt's calc. using un-smoothed capex) up 3%-7% y/y to $4.65-$4.80;
SPNOI growth up 7%-8% y/y (constant currency, four-quarter average); and,
Guidance includes no acquisitions and dispositions.
Balance Sheet
Ratios/liquidity: Net leverage 33% (+1% q/q), net debt/EBITDA 7.6x (-0.2x q/q),
liquidity $1.1bln.
IFRS fair value -$33mm (-$173mm YTD), overall cap rate 5.24% (+10bps q/q,
+37bps YTD).
Granite restarted its NCIB activity in Q4, with 392,700 units repurchased ($68.73/
unit average price).