Granite REIT
(GRT.UN-T, GRP.U-N) C$85.13 | US$65.64
Q1/22 First Look: Results In-Line; SPNOI Growth +4.6% Event
Granite reported Q1/22 operating results that were in line with our expectations, along with sizeable IFRS fair value gains. Conference call is at 11:00 a.m. (416-981-9014).
Impact: SLIGHTLY POSITIVE
Results vs. Estimate: Q1/22 FFO/unit of $1.05 was +4% q/q, +14% y/y (+5% y/y excluding one-time costs in Q1/21) and matched our estimate/consensus. FFO/unit growth would have been 2% higher y/y if not for the strengthening of the Canadian dollar.
Operations: Portfolio occupancy was stable q/q at 99.7%. SPNOI growth (constant currency) was +4.6% and has averaged ~+4.5% over the past three quarters compared with the 2018-2019 average of +3.5%. The growth in Q1 was led by the Netherlands (+9.6%) and the U.S. (+6.1%).
Acquisitions: During Q1, Granite completed the $140mm (€96.6mm) of previously- announced acquisitions in Germany — at an average 3.6% going-in yield (€1,300/ sqm or $175/sf). The properties are all 100%-leased and have a weighted average lease term of 7.3 years.
Post-Q1, Granite completed three new U.S. acquisitions for an all-in cost of $229mm (average pricing US$113/sf). Two newly-constructed income- producing properties near Indianapolis were acquired for $179.1mm at a 4.2% stabilized yield. They are proximate to five major interstate highways and 15 miles south from the FedEx World Hub. They are 100%-leased to investment grade tenants (believed to be Mars Petcare and Life Sciences Logistics) with a 10-year WALT. Granite also acquired a cross-dock logistics property under construction in Bolingbrook, IL (near Chicago) leased for 12 years to a globally-recognized furniture provider. Completion is expected in Q1/23 and the stabilized yield is anticipated to be 3.9%.
Development Pipeline Leasing Up: Granite secured a 10.3-year lease with a leading North American glassware provider for its 0.6mmsf, distribution/e-commerce facility under development in Fort Worth, Texas. This increased pre-leasing on Granite's overall 5.5mmsf active development and expansion pipeline to 40% from 29% q/q.
Balance Sheet: Granite recorded fair value gains of $490.6mm (~$7.50/unit) in Q1/22. The portfolio cap rate fell 23bps q/q to 4.30%. Net leverage was unchanged q/q at 25%, while current liquidity stood at $1.2bln.
Magna revenue concentration was largely unchanged q/q but was -630bps y/y to 28.9%.