TSX:GRT.UN - Post Discussion
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retiredcf on May 11, 2023 8:41am
TD
Currently on their Action Buy List with a $100.00 target. GLTA Granite REIT (GRT.UN-T, GRP.U-N) C$80.21 | US$60.15
Q1/23 First Look: Results Ahead; SPNOI Growth +5.4%
Event
Q1/23 results (see Exhibit). Conference call is at 11:00 a.m. (1-800-920-3395).
Impact: SLIGHTLY POSITIVE
Our Take: Granite delivered strong results in Q1, with FFO/unit growing 18% y/y to $1.25 and exceeding our estimate/consensus at $1.19/$1.20. The beat versus our forecast was on higher NOI (aided by FX and higher GTA rents) and lower interest expense. AFFO/unit (TD calc.) of $1.10 was +12% y/y and +4% versus our estimate.
Previously-Announced Developments/Acquisitions:
During Q1, Granite closed on the previously announced forward purchase of two vacant industrial properties totaling 1.0mmsf (US$79mm / 5.4% yield) in Avon, Indiana (Indianapolis). Granite also reached substantial completion post- quarter at its Highway 109 Business Park (three properties totaling ~509,300sf) in Lebanon, Tennessee (Nashville), with one lease so far completed for 66,500sf. Granite also completed its 220,600sf development in Bolingbrook, Illinois (Chicago) which is 100%-leased to La-Z-Boy for 12.4 years. There are two remaining developments/expansion projects spanning ~0.5mmsf with completion dates both in Q1/24.
Operations:
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Granite's portfolio from last quarter experienced no change in leased area (no surprise since occupancy was 99.6%), but the occupancy rate at Q1/23 dropped to 97.8% due to aggregate portfolio growth of 2.7mmsf being only 50%-leased on average.
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SPNOI growth (constant currency) was solid at +5.4% (Canada +8.3%, Netherlands +6.3%, and the U.S. +6.1%), which is up from 3.4% for FY2022 but slightly lower than the 6% growth in Q4/22.
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Blended new/renewal leasing spreads were +3% in Q1, due to a flat renewal in the U.S. that represented 84% of the 805,000sf of total Q1 leasing activity. The remaining 127,000sf leased was in Europe at +9% spread.
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Magna's revenue concentration remains ~26%. Granite sold a small Magna- leased property in the U.S. for US$17.9mm.
Balance Sheet:
Q1/23 fair value losses were $73mm (cumulative since Q1/22: $783mm). The fair value loss was largely due to higher cap rates (overall cap rate +14bps to 5.01%). These were offset by rent growth in the GTA and select U.S. and European markets, stabilization of the three Houston developments, and the Graz, Austria lease renewal.
Net leverage was unchanged q/q at 32%, as was liquidity at $1.1bln.
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