TSX:GRT.UN - Post Discussion
Post by
retiredcf on Feb 02, 2023 9:20am
RBC
February 1, 2023
Granite Real Estate Investment Trust Magna leases at Graz extended for 10 years
TSX: GRT.UN | CAD 81.43 | Outperform | Price Target CAD 100.00
Sentiment: Neutral
Our view: We believe the lease extensions were largely expected, although the announcement provided some clarity on the terms. Notably, based on the rent escalation parameters outlined below, we estimate the renewal should drive ~$3.5MM (~$0.05/unit) of annual incremental revenue through the first five years, followed by another CPI-based adjustment in year six. Importantly, GRT did not provide any tenant allowances on the extensions, unlike the EUR31MM provided to Magna with the last extensions announced in 2014. We note that our 2024 estimates already assume the leases are extended, with no material related tenant allowances. Finally, we think the extensions could also open the door to a potential sale of the properties, further reducing GRT’s exposure to Magna (26% of revenue at Q3/22). Bottom line, we continue to see good growth and value in GRT’s units.
Details: GRT announced that the leases with Magna at its special-purpose properties in Graz, Austria were extended for 10 years to Jan-31, 2034 (they were set to mature in Jan-2024). Recall, the Graz facilities are GRT’s largest properties, comprising 5MM sf or ~8% of revenue. In Feb-2024, the annual rent for the initial five years of the extension will escalate by the increase in the Consumer Price Index for the 60-month period preceding that date, to a max of 10%.
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