Granite REIT
(GRT.UN-T, GRP.U-N) C$100.32 | US$80.65
Q3/21 First Look: +5% SPNOI Growth and Record Fair Value Gains Event
Granite reported Q3/21 operating results that were overall in-line with our expectations, along with record IFRS fair value gains. Conference call is at 11:00 a.m. (416-981-9005).
Impact: SLIGHTLY POSITIVE
Results vs. Estimate: Q3/21 FFO/unit of $0.99 (+3% y/y, flat q/q) was in-line with consensus and slightly ahead of our $0.96 estimate (see Exhibit). The slight FFO beat versus our forecast resulted from higher straight-line rent accruals. AFFO/unit (our calculation) matched expectations. In-line with its annual track record, Granite announced a $0.10/unit or +3.3% increase to annualized distributions (to $3.10/ unit)
Operations
Portfolio occupancy of 99.2% (-10bps q/q) reflected a Netherlands acquisition in Q3 that came with 40% vacancy.
SPNOI growth (constant currency) was strong at +5.0% y/y, driven by the burn-off of prior-year free rent periods in the Netherlands and U.S. regions. Rent collections remained in-line with pre-pandemic levels.
Magna revenue concentration declined to 31.2% in Q3 (34.4% q/q), reflecting portfolio growth and Magna's sale of an operation that leases a 796,000sf property in Obertshausen, Germany (near Frankfurt). There was no new information regarding the next Special Purpose Property lease expiry (Lannach, Austria, in December 2022).
Acquisitions
In-line with our expectations, Granite completed $375mm of mostly previously- disclosed acquisitions in Q3 (including income properties, PUD and development land), bringing YTD closings to $593mm.
Developments
With new investments announced after Q2 results, the budgeted cost of Granite's pipeline of construction, development and property commitments now totals $605mm (+$400mm q/q). The average stabilized yield is 5.1% (-100bps q/q due to lower-yields on newer projects).
Balance Sheet
Record-high fair value gains of $432mm (~$6.60/unit), helped push IFRS NAV above $84/unit. Higher market rents and compressing cap rates (-32bps q/q to 4.77%) throughout the portfolio drove the gains. YTD FV gains now total $950mm.
Net leverage increased to 23% from 20% q/q. Available liquidity totals ~$1.8bln (including $779mm of cash), and the next debt maturity is two years away. Granite established an At-The-Market program to periodically issue shares, with a limit set at $250mm over the next two years.