Granite Real Estate Investment Trust T.GRT.UN

TD

[retiredcf]

Granite REIT

(GRT.UN-T, GRP.U-N) C$95.14 | US$74.58

European Property Tour Highlights

Event

Update following Granite's European property tour in The Netherlands and Austria.

Impact: SLIGHTLY POSITIVE

• The property tour and discussions with management reinforced our favourable views of Granite's capital allocation, asset quality, and market exposure. We also came away with increased confidence in the lease-up progress on Granite's overall development pipeline.

• European Industrial Rent Growth Accelerating: During the property tour, we saw the best evidence to-date of European industrial market rents increasing – including market presentations and specific comparable transactions. Record market-wide leasing volumes (40% above trailing 5-year average) led to ~9% average rent growth across Western Europe in 2021 (source: JLL). Contracted rents for Granite's two properties and others similar in Tilburg, NL have risen ~30% (to ~€65/sqm/year) in the two years since Decathlon signed their lease. With European industrial market vacancy down to ~3%, we expect further rent growth going forward. We note that the Netherlands market strength has occurred despite Amazon having very little presence.

• Granite's Magna Steyr Properties in Graz, Austria: Our site visit and facility tour reaffirmed to us the mission critical nature of this complex to Magna, and our high confidence that Magna will exercise its renewal options on the two leases (current expiry: January 2024). We also expect the terms of these renewals to be more favorable compared to the prior renewals executed in 2013/2014, when Granite paid an incentive to Magna and deferred one scheduled rent increase. Our understanding is that the "default" renewal terms for these leases are for 10 years with rent increases every five years based on a cumulative 5-year inflation look-back (particularly attractive in today's inflationary environment).

• Key factors supporting a relatively more favourable lease renewal versus 2013/2014 include: i) Granite is far less dependent on Magna as its revenue contribution is <30% today vs. 90% in 2013, and ii) auto industry changes including the advent of many new OEMs that increasingly require contract manufacturing (e.g. Fisker).

• We are also confident in Mutares renewing its 0.8mmsf lease at the Special Purpose property in Germany (expiry: November 2023).

  TD Investment Conclusion

  We reiterate our ACTION LIST BUY rating and $115 target price.

[jcjohn36]

Thanks for sharing. was pretty surprised at the hit the whole group took the last few days. I thought the cap rate increases were already baked into the share price - apparently not or else there is something else going on?