Q1/24 FIRST LOOK: FFO SLIGHT BEAT; VACANCY LEASE-UP TAKING A BIT LONGER
THE TD COWEN INSIGHT
Q1/24 results were slightly ahead due to the early commencement of Barry Callebaut's lease in Brantford, Ontario. Progress on leasing the vacant U.S. space has reached 273,000sf (9% of Q4 U.S. vacancy), but GRT has very slightly tweaked 2024 SPNOI guidance to reflect today's market (FFO guidance is intact). With the unit price down since PLD's mid- April guidance update, we see this as priced in.
Impact: MIXED
FFO/unit of $1.30 was slightly ahead of our $1.26 forecast (consensus: $1.27) due to Barry Callebaut AG (global chocolate maker) taking the space at its 410,000sf Brantford Ontario (4 Bowery Road) distribution facility earlier than expected. Q1 FFO/unit increased 4% y/y.
2024 FFO/unit guidance of $5.30-$5.45 was left unchanged, but GRT made one minor downward revision:
SPNOI growth of 7%-8% y/y (constant currency, four-quarter average) was reiterated, but management now expects SPNOI growth to skew to the lower end of the range due to revised leasing assumptions on certain existing availabilities.
In-place occupancy was flat q/q at 95.0% with all regions largely unchanged q/q. Granite presented new committed occupancy disclosure in Q1 which was 95.4% as at May 8, 2024.
SPNOI growth (constant currency) was +4.9%, and was slightly ahead of Q4/23's +4.7% pace.
Blended new/renewal rental rate spreads on leasing were +10% in Q1, largely reflecting the 5mmsf renewal for Magna's properties in Graz, Austria at +10% but also 12% uplifts on 1.3mmsf of renewals in the U.S, which narrowed again this quarter to 12% (Q4/23: 15%, FY2023: 20%).
Leases signed during and post-Q1 included a ~124,500sf lease (5.3 year term commencing in June/24) at Granite's 109 Industrial Park complex in Lebanon, Tennessee (Nashville) along with a ~148,100sf lease at the REIT's 13220 Crosby Freeway property in Houston for a 3.3 year term. (commencing in May/24).
Balance Sheet. Net leverage of 32% was -1% q/q, while net debt/EBITDA ended Q1 at 7.5x (-0.1x q/q). Liquidity was $1.1bln. Granite recorded an IFRS fair value gain of +$12.7mm.
Post-Q1 Granite repurchased 375,600 units for $26.1mm ($69.39/unit average price), all of which appears to have taken place after GRT's unit price fell in reaction to Prologis's (PLD- N) slightly reduced guidance in mid-April
Valuation. Granite's units trade at 14.5x P/AFFO, which is 61% of the U.S. peer group average and near the bottom end of the 60%-70% range Granite generally traded at over the last two years.
Conference call: 11:00 a.m. (1-800-926-4951