Granite REIT
(GRT.UN-T, GRP.U-N) C$91.59 | US$71.15
Q4/21 First Look: Results Overall In Line; SPNOI growth +4% Event
Granite reported Q4/21 operating results that were overall in-line with expectations. Conference call is 11:00 a.m. (416-641-6701).
Impact: SLIGHTLY POSITIVE
Results vs. Estimate: Q4/21 FFO/unit of $1.02 (+1% y/y, +3% q/q) was essentially in-line with our $1.03 estimate and $1.01 consensus. FFO/unit growth would have been +6% y/y if not for the strengthening of the U.S. dollar and euro. Property NOI was slightly below our estimate due acquisition closing delays largely beyond management's control.
Operations:
Portfolio occupancy increased +50bps q/q to 99.7% due to the 250,000sf lease-up of vacancy acquired in early 2021 near Atlanta, GA. Blended new/renewal leasing spreads were +10% in 2021.
SPNOI growth (constant currency) was strong at +4.0% y/y, with the Netherlands at +21% (largely due the burn off of free rent periods), and the U.S. at +5.3%.
Acquisitions:
Granite completed $330mm of previously-announced acquisitions in Q4 plus $140mm YTD 2022 – at an average stabilized yield of approximately 4%. Key markets represented are The Netherlands, Germany, Indianapolis, and the GTA. Most properties have lease terms ranging between five and 15 years. The exceptions are a pair of buildings near Toronto's Pearson Airport (2.8% going-in cap rate; ~ $250/sf) with rents that are expected to increase by 80% upon expiry of the one-year leases resulting in a 5% stabilized yield.
Development Pipeline:
Granite has 11 active development and expansion projects plus six forward purchase commitments with total/remaining costs of $789mm/$620mm that are expected to contribute 6.3mmsf and produce an average 4.9% stabilized yield.
Balance Sheet:
Granite recorded fair value gains of $349.1mm (~$5.30/unit) in Q4/21 (2021: $1.3bln). The portfolio cap rate fell 24bps q/q to 4.53%.
Net leverage increased to 25% from 23% q/q. Current liquidity totals $1.3bln.
Granite obtained a new cross-currency interest rate swap on $350mm of debt that reduced the effective fixed coupon to 0.536% for a 6.5-year term from 2.096% previously. Interest savings amount to $0.08/unit annually.
Magna revenue concentration declined to 29.0% (31.2% q/q). Completion of all developments and forward purchases would further reduce Magna concentration meaningfully. Magna's 802,000sf Special Purpose Property lease at Lannach, Austria was extended beyond its previous December 2022 expiry.