Our view: Post in line Q3 results, our constructive view is intact. Investors likely still need some convincing and stronger occupancy traction should certainly help. With that in mind, we’re encouraged by progress already made on 2025 lease maturities, continued strength in leasing spreads, and easing new supply, which should collectively fuel another year of healthy organic growth. Combined with ample financial flexibility and a discounted valuation, we like the risk/reward mix here. Outperform, $91 PT (+$2).
Key points:
Momentum should build, but keeping an eye on potential speed bump ahead. SP NOI rose a solid 6.2% YoY (+4.2% YTD), while in-place occupancy slipped to 94.3% (-20 bps QoQ, -130 bps YoY). With Q4/24 anticipated to finish at ~95% (vs. GRT’s prior 96-97% forecast), 2024 quarterly average SP NOI growth guidance was trimmed to ~6% (from 6-6.5%). For 2025, GRT has made solid progress on lease expiries, with >50% already addressed. With the US election in the rear view, rising demand from onshoring and ecommerce users, and easing construction starts, signs seem to point to stronger occupancy gains ahead. Combined with target leasing spreads of >30%, management noted 2025 SP NOI growth should be similar to 2024. Our 2025E reflects ~6% organic NOI growth, though the recent bankruptcy of True Value (2.1% of revenue, ~3% of our 2025E FFOPU) has raised some uncertainty. Of note, the company has agreed to be acquired and rents remain current, though an outcome on GRT’s lease has yet to be finalized.
Solid balance sheet creates plenty of optionality. In Q3, GRT completed a modest $22MM of developments in ON and the Netherlands at decent ~6.4% stabilized yields. While deal flow remains muted, select acquisitions and build-to-suit projects are under review. The NCIB may also get some attention, but overall, we expect GRT to maintain its disciplined approach to capital allocation. Importantly, with $800MM (6.4Y term, 4.1% effective rate) of unsecured debentures issued post-Q3 to repay upcoming debt maturities, GRT extended its debt maturity profile to 4.6 years (vs. 3.1Y at Q3/24) and at more favourable rates than we had previously modelled.
Forecasts reflect solid growth. Our 2024E-26E FFOPU increased to $5.35 (+ $0.02), $5.75 (+0.10), and $6.18 (+$0.09) on higher NOI and lower interest costs. Our 2024E-26E CAGR is a solid 7%, in line with its Canadian (8%) and US (8%) industrial counterparts. Our current and one-year forward NAVPU estimates increased to $90 (+$3) and $98 (+$2), respectively, on higher NOI.
Maintaining Outperform, PT raised to $91 (+$2) on the increase in our forward NAV. GRT’s trading at 16% below NAV (6.2% implied cap/15x 2025E AFFO), in line with its Canadian peers (15% NAV discount) and below its US comps (6% discount). We see a discounted entry to a name with an attractive earnings and NAV growth profile, strong track record, solid balance sheet, and ample room for further distribution growth.