Granite Real Estate Investment Trust (GRTUN) Earnings Call Transcript & Summary

Hello, and welcome to the 2025 Annual General Meeting of Unitholders of Granite Real Estate Investment Trust. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant to Computershare and Granite Real Estate Investment Trust that you first obtained all required consents for the disclosure, recording, transfer and use of such personal information from all appropriate persons before your disclosure. During the meeting, we'll have a question-and-answer session. [Operator Instructions] It is now my pleasure to turn today's meeting over to Kevan Gorrie, President and Chief Executive Officer and trustee of Granite Real Estate Investment Trust. Mr. Gorrie, the floor is yours.

Thank you, and good morning, everyone. This is Kevan Gorrie, President and CEO of Granite. I would like to welcome you to the 2025 Annual General Meeting of Unitholders of Granite Real Estate Investment Trust. Kelly Marshall, our Chair, is on the call with us today but was unable to connect remotely to conduct the meeting, so I will be conducting the meeting from our offices in Toronto. Today's meeting will be conducted virtually by way of a live audio webcast. Holding a virtual meeting, we believe, will enable unitholders to attend and enjoy an equal opportunity to participate in the meeting regardless of their location. We have made every effort to afford unitholders the same rights as they would have at a physical meeting by enabling registered unitholders and duly appointed proxy holders to listen to the meeting, submit questions in both online and real time. As in past years, the majority of votes have been cast in advance of the meeting by proxy. If you submitted your vote in advance of today's meeting and do not wish to revoke your vote, do not vote again during the online ballot. Registered unitholders and duly appointed proxy holders will be allowed to vote online during the meeting in accordance with the instructions that were provided. In order for us to undertake the business of the meeting expediently, we request that if a unitholder has a comment or question on the formal business of the meeting, please make such written submission now. Please clearly identify the item of formal business to which your submission applies. During the course of the meeting, at the appropriate time, any such submission will be addressed prior to voting on the applicable motion. For the good conduct of the meeting, questions should be of interest to all unitholders and not personal in nature. If your question is related to a personal matter, a Granite representative will communicate with you after the meeting if you have provided your contact information. Following the formal business of the meeting and management's presentation, we will have a question-and-answer period. If you have any questions not specifically related to an item of formal business to be discussed at today's meeting, please feel free to submit those questions at any time during the meeting, and we will do our best to address such questions at the conclusion of the meeting. Questions can be submitted at any time during the meeting until the Chair closes the session. All questions to the extent not deemed offensive or inappropriate will be read verbatim for the benefit of all unitholders participating in the meeting. [Operator Instructions] When asking a question, please indicate your name, company, if any, and e-mail and confirm that you are a registered unitholder or a duly appointed proxy holder. If you have any objection to an item of business, please follow the same procedure at the appropriate time. I would like to introduce the other trustees who are attending today's meeting: Kelly Marshall, Chairman of the Board; Peter Aghar; Robert Brouwer; Remco Daal; Fern Grodner; Al Mawani; Sheila Murray; Emily Pang; and Jennifer Warren. Also attending today's live audio webcast are Teresa Neto, Chief Financial Officer; Lorne Kumer, Executive Vice President and Head of Global Real Estate; Michael Ramparas, Executive Vice President, Global Real Estate and Head of Investments; and Lawrence Clarfield, Executive Vice President, General Counsel and Corporate Secretary. The matters of business to be conducted today were described in the management information circular dated April 10, 2025, made available to unitholders along with the notice of this meeting. Voting at today's meeting will be open to registered unitholders and duly appointed proxy holders and will be conducted by online ballot. As I mentioned earlier, if you have already voted by proxy, there is no need for you to vote online since your vote will be recorded in accordance with your proxy instructions. The poll will be open for all items of business to be voted on at the same time. This will allow you to vote on each of them immediately or, if you prefer, you may wait until the conclusion of discussion on each item prior to casting your vote. The matters of business to be voted on and your available voting options will be visible on the voting panel on your screens, provided you are logged in as a registered unitholder or duly appointed proxy holder. To submit a vote, please click on the voting choice displayed on your screen. Once discussion has concluded on all matters of business, you will have a few minutes to enter your votes. I will then declare voting closed on all matters of business. Following the formal business of the meeting, I will make a presentation and there will be an opportunity to ask questions at the end of the presentation. Before we proceed further, I want to note that in the course of today's meeting, including during the presentation and the question-and-answer period, trustees and officers of Granite may, in their remarks or in response to questions, make certain statements which are forward-looking statements or contain forward-looking information. I draw your attention to the cautionary note regarding such statements on the screen. I will now call the meeting to order. With the consent of the meeting, I will act as Chair and I will ask Lawrence Clarfield to act as secretary. Unless there is an objection, I will appoint Shirley Tom of Computershare to act as scrutineer of the meeting. As there is no objection, I appoint Shirley Tom of Computershare to act as scrutineer for the meeting. The notice calling this meeting, together with the formal proxy and circular have been provided or made available to each of the trustees, Granite's auditor and each intermediary and registered unitholder of record as of April 10, 2025, the record date for this meeting. The annual report containing the consolidated combined financial statements of Granite Real Estate Investment Trust for the financial year ended December 31, 2024, and the auditor's report thereon have also been provided or made available to unitholders. With the consent of the meeting, I will dispense of the reading of the notice of meeting. The scrutineer has provided me with the preliminary report regarding attendance. The scrutineer reports that there are present at this meeting in person or represented by proxy holders of units holding 46,974,215 units, representing 76.32% of the issued and outstanding units. Accordingly, I confirm that the requisite forum is present, and I declare that the meeting is duly and properly constituted for the transaction of business. I direct that the confirmation of mailing received from Computershare and the scrutineer's report on attendance be annexed to the minutes of the meeting. The vote for all matters will be conducted by online ballot. I will announce results of the votes for all matters at the conclusion of the meeting. In order to expedite matters, I have requested that certain persons make and second the formal motions and I will call upon these persons at the appropriate time. The secretary has the minutes of the last meeting of unitholders and these can be examined at any time. With the consent of the meeting, I will dispense of the reading of such notes. The first item of business is a presentation of the consolidated combined financial statements of Granite REIT and the auditor's report thereon. With the consent of the meeting, I will dispense of the reading of the auditor's report. We will now proceed with the election of trustees. The number to be elected is 10. I declare the meeting open for nominations. I will ask Alison Clements to nominate those individuals specified in the management information circular for the meeting.

I nominate Peter Aghar, Robert D. Brouwer, Remco Daal, Kevan Gorrie, Fern Grodner, Kelly Marshall, Al Mawani, Sheila A. Murray, Emily Pang, and Jennifer Warren to serve as trustees of Granite REIT and to hold office until the next Annual General Meeting or until their earlier resignation or removal or their successors are duly elected or appointed.

May I have the motion seconded?

I second the motion.

These nominees have accepted their nominations. In accordance with the advanced notice provisions of Granite's Declaration of Trust, no further nominations may be made at this time. Therefore, I declare the nominations closed. May I have a motion for election of the 10 nominees?

I move that each of the 10 individuals nominated for election as trustees of Granite REIT be elected on the basis proposed with immediate effect.

May I have the motion seconded?

I second the motion.

The polls are now open. We will vote on this motion. Only registered unitholders or duly appointed proxy holders can vote by online ballot. Would those unitholders who have not already voted by proxy please now submit their online ballot for the election of trustees by selecting a voting option on the voting panel displayed on the top of your screen. [Voting]

We will now move to the next item of business, which is the reappointment of the auditor. May I have a motion that Deloitte LLP be reappointed as auditor of Granite REIT until the next Annual General Meeting or until a successor is appointed.

I so move.

May I have the motion seconded?

I second the motion.

Is there any discussion on this matter? Seeing none, we will vote to conduct the vote by way of online ballot. [Voting]

We will now move to the next item of business, which is consideration of the nonbinding advisory resolution on Granite's approach to executive compensation. As described in the management information circular dated April 10, 2025, and made available to unitholders, unitholders are being asked to approve the resolution on Granite's approach to executive compensation. Our Board values the opinion of Granite's unitholders. Although the vote is nonbinding, the Board and its committees will take into account the outcome of the vote when considering Granite's compensation philosophy. Granite will disclose the voting results of the say-on-pay resolution as a part of its reporting on voting results for the meeting. The advisory resolution is set out on Page 22 of the management information circular. May I have a motion on the advisory resolution?

I so move.

May I have the motion seconded?

I second the motion.

Is there any discussion on this matter? Seeing none, we will conduct the vote by way of online ballot. [Voting]

Is there any other formal business that may be properly brought before this meeting? It is now 10:14, and the polls on all matters of business will close. For those of you who have not voted on all matters of business, please do so now. We will now take a short break while the polls close and the results are tabulated by the scrutineer. [Voting]

The polls are now closed. I confirm the scrutineer has reported to me that all matters put to a ballot have been passed with the requisite unitholder approval. Accordingly, as a result, I hereby declare the trustees elected, the auditors reappointed, and the advisory resolution on executive compensation approved. A report disclosing the voting results will be filed on SEDAR and disclosed in a press release promptly following the meeting. This concludes the voting of today's meeting. For the information of the meeting with respect to Granite's majority voting policy, I note that Granite has received proxies and votes in respect of the election of each nominee that results in a greater number of votes in favor of his or her election than the number withheld from his or her election. There being no further business, that concludes the formal business of the meeting. I declare the formal part of this meeting now terminated. I will now provide a brief presentation outlining our results for 2024 and our priorities for 2025, a copy of which will be available on Granite's website following the meeting. I'll begin with an overview of our portfolio and highlight any changes from the prior year. No acquisitions occurred in 2024 as we instead focused our capital on unit buybacks and development. And we delivered roughly 500,000 feet of new developments and expansions in the Toronto area, Southwestern Ontario and the Netherlands, which brought our total portfolio to just over 63 million feet. And our portfolio volume increased by approximately $500 million as a result of the aforementioned development stabilizations but primarily due to significant appreciation of the U.S. dollar and euro versus the Canadian dollar. Looking at the right column, I will provide further detail on our 2024 financial results on the following slides. Once again, Granite posted sector-leading income growth in 2024, leaving us in a very strong financial position with low leverage and a low payout ratio of just under 70% on an AFFO basis and debt-to-EBITDA metrics that are very strong and continue to improve. In 2024, we also announced another increase to our annual distribution to $3.40 for 2025, our 14th consecutive annual increase since our inception in 2011. We maintain this slide to remind us of our beginnings and to emphasize the direction of the organization and to point out the progress we have made on those strategic objectives. 2024 was frankly the quietest year for growth in my tenure, and that was likely prudent and appropriate, given market conditions and our cost of capital. But through selected deployment of our free cash flow on our development, expansions and unit buybacks, we successfully achieved our dual objective of continuously improving the quality of our portfolio and driving income and cash flow growth. Modern distribution e-commerce assets now comprise roughly 77% of our overall portfolio. And we expect this concentration will continue to increase through further development, acquisitions and targeted dispositions of noncore assets. This slide graphically illustrates the geographic concentration and diversification of our current portfolio, which we believe has served us well financially over the past number of years. And as mentioned, our modest growth through development and expansion occurred in our key markets in Southwestern Ontario, the GTA and the Netherlands. Moving to financial highlights. As I touched upon in my opening remarks, our per unit FFO and AFFO growth remained very strong in 2024 and has averaged 11.4% and 9.7% annual growth, respectively, over the past 3 years, following an admittedly down year in 2021, where we deployed over $600 million in capital on key development projects throughout our portfolio, which began to stabilize in 2022 and contributed strongly to our recent growth but diluted our returns in 2021. Additionally, organic growth in the portfolio remained strong as we posted average same-property NOI growth of just under 6% despite weaker market fundamentals in the sector globally. And I would mention that the organic growth that was aided by an extremely high tenant retention rate of over 90% for the year. And finally, we finished 2024 with 95% occupancy, unchanged from the prior year. As mentioned, the value of the portfolio increased rather significantly in 2024, driven primarily by strong gains in the U.S. dollar and the euro versus the Canadian dollar. In a more challenging macro and market environment, I think that prudent and effective capital allocation is critical. Driving cash flow while protecting the balance sheet is key, and I can't stress enough the advantage provided to us by maintaining a low payout ratio, which has enabled us to fund our accretive and strategic development program and very accretively, on a cash flow and net asset value basis, fund roughly $45 million in unit buybacks in the year. We also took advantage of a relatively short window of favorable unsecured debt market conditions in late 2024 to refinance $800 million of debentures, increasing our overall cost by only 15 basis points as a result and improving our weighted average remaining term to 4.3 years. So despite funding over $150 million in development and unit buybacks in 2024, we finished the year with roughly the same liquidity position of $1.1 billion and lower net debt-to-EBITDA metrics of 6.8x. At Granite, we are proud of the work we have done on our ESG program. And I am very pleased and proud to highlight that Granite has been recognized as the top performer among North American listed industrial REITs for 2024 according to GRESB, the leading global sustainability benchmark for real estate. And to date, we have deployed roughly $1.2 billion in net proceeds towards eligible green projects. And although the pace of deployment has slowed in conjunction with the pullback in our development program the last 2 years, we do expect to fulfill our commitments under the green bonds over the next few years. Each year, we like to highlight at least one example of one of our certified green projects. And for 2024, the choice was made easier by the fact that we had only one full project delivered in the year. And this was our new development in Brantford, Ontario, which was substantially completed in the second quarter of 2024 and represents one of the most modern food-grade production and distribution facilities in North America. Following the strong relative performance in 2023, where Granite outperformed the REIT index by over 12%, our performance lagged the REIT and composite indices in 2024 as industrial REITs globally underperformed certain other real estate sectors. But as you can see on the right graph, we continue to outperform the Canadian REIT index strongly over the longer term. And I believe that our unit price will improve as long as we continue to demonstrate strong financial performance and successfully execute on our strategy. And part of that performance will be to continue to put ourselves in a position to deliver further increases to our annual distribution in the future while maintaining our conservative capital structure, as we did once again in 2024, increasing our annual distribution of $3.40 while simultaneously decreasing our payout ratio from 73% in 2023 to 68% in 2024. Looking forward to 2025, as economic, trade, geopolitical and market uncertainty persists, effective capital allocation and operational management will remain our focus. Following strong results in Q1 and continued growth in NOI, FFO and AFFO expected for 2025, we have, so far this year, prioritized development and unit buybacks, having acquired over 1.7 million units year-to-date and committing over $70 million to a build-to-suit development on our Houston site for a Fortune 50 tenant on a long-term lease, with the project expected to yield roughly 7.5%. And finally, in addition to our unit buyback and development programs, we are also pursuing select acquisitions in a few of our key markets. We expect to fund these new acquisitions primarily through the planned disposition of noncore assets in our portfolio throughout the remainder of this year and into 2026.

We have no questions.

We would now like to invite any supplemental questions from unitholders or proxy holders present at the meeting. As with a physical meeting, we will observe the same protocols of appropriateness and relevance to the meeting and we'll do our best to address issues raised. Any attendees who would like to ask a question, please use the instant messaging feature on your screen to do so. We will now give attendees a moment to type in their questions. As there are no further questions, on behalf of the Board and management of Granite, I would like to thank all of our unitholders as well as others who have joined us today for your support and your attendance at this meeting. Thank you.

This concludes the meeting. You may now disconnect.