Granite Real Estate Investment Trust (GRTUN) Q4 FY2025 Earnings Call Transcript & Summary

Good morning. My name is Sergio, and I will be your conference operator today. At this time, I would like to welcome everyone to Granite REIT's Fourth Quarter and Year-End 2025 Results Conference Call. [Operator Instructions] Speaking to you on the call this morning is Kevan Gorrie, President and Chief Executive Officer; and Teresa Neto, Chief Financial Officer. I will now turn the call over to Teresa Neto to go over certain advisories. Please go ahead.

Thank you, operator. Good morning, everyone. Before we begin today's call, I would like to remind you that statements and information made in today's discussion may constitute forward-looking information and that actual results could differ materially from any conclusion, forecast or projection. These statements and information are based on certain material factors or assumptions, reflect management's current expectations and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from forward-looking information. These risks and uncertainties and material factors and assumptions applied in making forward-looking information are discussed in Granite's materials filed with the Canadian Securities Administrators from time to time, including the Risk Factors section of its annual information form for 2025 and Granite's management discussion and analysis for the year ended December 31, 2025, filed on February 25, 2026. For usual, I will commence the call with financial highlights, and then Kevan will follow with an operational and strategy update. Granite delivered a strong finish to 2025 with Q4 results ahead of Q3 and above management's full year guidance, reflecting sustained momentum and continued strength in our operating fundamentals, with NOI growth accounting for most of the $0.11 per unit sequential quarter increase in FFO. That momentum translated into strong bottom line growth in the quarter. FFO per unit in Q4 was $1.59, up $0.11 sequentially or 7.4% and $0.12 or 8.2% compared to the same quarter last year. As a result, FFO per unit for the full year of 2025 came in at $5.91, representing year-over-year growth of 8.6% ahead of management's guidance. NOI growth in the fourth quarter was primarily driven by strong same-property NOI performance, supported by leasing spreads of 24% and the lease-up of previously vacant space in the United States. Results were further enhanced by favorable foreign exchange with the U.S. dollar and euro strengthening by 1.3% and 0.9%, respectively, as well as by the acquisition of the 6 income-producing properties completed in the U.S. and the U.K., partially offset by the disposition of our Midwest portfolio of 3 properties completed during the quarter. FFO for the quarter also benefited from a $1.6 million tax provision reversal relating to prior tax year. Excluding this item, FFO per unit would have been $1.56, representing still a 5.4% sequential quarter growth. AFFO per unit in Q4 '25 was $1.30, up $0.04 sequentially and $0.05 year-over-year, with the increase versus Q3 mostly tied to FFO growth, partially offset by higher maintenance capital expenditures and tenant allowances incurred. AFFO-related capital expenditures incurred in the quarter totaled $14.9 million, representing an increase of $4.4 million over Q3 and $3.6 million relative to the same quarter last year. As a result, AFFO per unit for the full year of 2025 came in $5.21, representing year-over-year growth of 7.2% and ahead of management's guidance. Same-property NOI delivered strong growth in the fourth quarter, increasing 7.9% on a constant currency basis and up 10.8%, including the impact of foreign exchange. For the full year of '25, Granite generated 4-quarter average constant currency same-property NOI growth of 5.6%, consistent with management's expectations and guidance. Looking ahead to 2026, we expect our same-property portfolio to continue to drive strong organic growth and are establishing our outlook for the 4-quarter average constant currency same-property NOI growth to a range of 5.5% to 6.5%. G&A for the quarter was $13.3 million, which was $5 million higher than the same quarter last year and $0.8 million lower than Q3. The primary driver of the sequential quarter decrease was a $1.5 million favorable fair value adjustment to noncash compensation liabilities, which does not impact Granite's FFO and AFFO metrics. The remainder of the variance reflects normal quarterly fluctuations across other G&A expense categories. For 2026, we expect G&A expenses that impact FFO and AFFO to average approximately $11 million per quarter, which equates to 7% of revenues, reflecting our disciplined and stable cost structure. Interest expense increased modestly in the fourth quarter, up $0.3 million compared to Q3, while interest income remained flat. The increase in interest expense was primarily attributable to draws on the credit facility to fund acquisitions completed during the quarter and the foreign exchange impact of the strengthening euro on Granite's majority euro-denominated interest. Subsequent to the quarter, on February 13, Granite fully prepaid the remaining EUR 50 million principal amount of the unsecured term loan maturing September 2026 with no prepayment penalty. As of December 31 and prior to this repayment, Granite's weighted average cost of debt was 2.72% with a weighted average debt term of maturity of 3.4 years. Following the repayment, Granite's weighted average cost of debt decreased to 2.68% and the weighted average term to maturity extended to 3.5 years. With our next debt maturity not until December 2026, we continue to expect interest expense to remain stable and declining over the next approximate 3 quarters to around $23.2 million per quarter, assuming no additional transactions. Q4 2025 current income tax was $1.4 million, which is $0.5 million higher compared to the prior year and $1.6 million lower compared to Q3. The movement in current tax relative to Q4 2024 is mostly attributable to increased taxable income in Europe due to rental growth, together with the strengthening of the euro relative to the Canadian dollar as nearly all of Granite's current income tax is generated from its European region. And as mentioned earlier, current period results also benefited from a $1.6 million tax provision reversal relating to a prior tax year, consistent with prior years. Looking ahead to 2026, we expect current income tax expense to remain at approximately $2.9 million to $3 million per quarter. Looking out to 2026 estimates, Granite is forecasting FFO per unit in a range of $6.25 to $6.40, approximately 6% to 8% increase over 2025. AFFO per unit is forecast to be within a range of $5.40 to $5.55, reflecting growth of approximately 4% to 7% year-over-year. Our FFO outlook assumes the disposition of assets currently held for sale totaling approximately $81 million is -- and those would be completed by early Q4 2026, and it does not assume any unidentified acquisitions. AFFO-related capital expenditures are again expected to be approximately $40 million in 2026 compared to $34 million incurred in '25. Our high end of our guidance range assumes foreign currency ranges of 1.34 to 1.4 for the U.S. dollar, 1.58 to 1.62 for the euro and 1.80 to 1.86 for the British pound. We will continue to provide updates on our guidance each quarter as appropriate based on leasing activity executed and any changes in market conditions. Our balance sheet remains strong. Investment properties totaled $9.5 billion at the end of the quarter, which excludes $81 million of 2 assets held for sale. The increase in investment properties during the quarter was driven primarily by approximately $296 million for the acquisitions of 6 income-producing properties as well as a $60.5 million of net fair value gains across the portfolio due to increases in fair market rents at numerous properties in the U.S., the compression in discount and terminal capitalization rates at select U.S. properties as well as positive leasing activity, including the lease-up of previously completed developments in the U.S. These increases were partially offset by $115.5 million of foreign exchange translation losses on our foreign-based investment properties, reflecting an approximate 1.5% strengthening of the Canadian dollar against both the U.S. dollar and euro at the quarter end. Our overall weighted average cap rate of 5.6% on in-place NOI remained stable relative to Q3 and has increased 26 basis points since the same quarter last year. Our net leverage ratio at the end of the quarter was 35%, unchanged from Q3. Net debt-to-EBITDA was 7x, also flat to Q3 and broadly consistent with the prior year when the ratio was 6.8x. Leverage metrics remain modestly elevated, reflecting higher unsecured debt following draws on the credit facility to fund acquisitions completed during the quarter, resulting with a year-end balance of $205 million. Our liquidity is currently $893 million, representing cash on hand of about $137 million and the undrawn operating line of approximately $756 million. As of today, Granite has $241 million drawn on the credit facility and $2.8 million in letters of credit outstanding. Granite does expect to reduce the outstanding balance on the credit facility throughout 2026 with free cash flow from operations and with proceeds from the disposition of properties, barring any other major transactions. I'll now turn the call over to Kevan.

Thanks, Teresa. Good morning, everyone. Q3 results, as Teresa mentioned, were in line with management's expectations. NOI and FFO per unit growth remained impressive, and we continue to execute our portfolio rebalancing strategy by completing over $500 million in key acquisitions and dispositions in the fourth quarter and so far this year, and we once again finished the year in a very strong financial position. Firstly, strong leasing momentum continued as the team executed on over 750,000 square feet of new leases in the quarter and renewed approximately 1.2 million square feet of leases at a weighted average lift in rent of 24%, which brings our average increase in rents on renewal for 2025 at 45%. And as you can see from our results, we finished the year with one of, if not the highest occupancy in the sector at 98%. Our committed occupancy at 98.6% is an increase of over 350 basis points year-over-year. For 2026, we have renewed just over 55% of our expiries at an average increase in rent of 10.5%, and we expect to achieve an average increase of between 20% and 25% overall for the year, in line with our average increase for 2024. Same-property NOI growth for the year was led by the GTA and the U.S. portfolios of 20.8% and 8.1%, respectively, offset by muted growth across our European portfolio, particularly in Austria and Germany at 0.5% and 1%. As you can see from our guidance and despite higher turnover than in the past few years, we expect same-property NOI growth to remain strong for 2026 as a result of attractive spreads on renewals and new leasing activity. Staying on leasing, a few comments on relevant market data. Leasing momentum continued to grow across the bulk of the sector with vacancy stabilizing or declining in 12 of our 15 markets in North America, the strongest improvement in probably 3 years. And all of our portfolio markets reported positive net absorption in the quarter, led by Houston, Dallas-Fort Worth and Indianapolis at 8.3 million, 8.1 million and 6.2 million square feet, respectively. With respect to market rents, asking rents continue to climb in most of our portfolio markets, led by Nashville, Miami and Louisville at 6.4%, 4.3% and 4.1% over the third quarter, respectively. Year-over-year, asking rents once again rose across the majority of our markets, led by Louisville at just over 12%. Our weakest market was once again the GTA as asking rents fell just under 5%, similar to the U.K. Market rent growth in Germany and the Netherlands remained steady at between 4% to 6% year-over-year. So I would characterize the tone in the market is clearly improving, particularly in the large bay category as occupiers are increasingly leaving the sidelines and opting for high-quality space to improve and modernize their supply chain. I'd like to provide a few quotes from Jones Lang LaSalle's industrial outlook because selfishly, I think they're consistent with our messaging over the past number of quarters and "Flight to quality persists among industrial occupiers as Class A volumes increased 10% year-over-year and represented approximately 2/3 of total leasing volume for 2025." And further, both warehouses, those over 500,000 square feet, showed overwhelming Class A preference. So to view our leasing performance and NOI growth over the past 3 years, we have generated cash NOI growth per unit of 43% over that period, a cumulative annual growth rate of 12.7% over a period which most of you would characterize as challenging for our sector. On a longer-term earnings basis, our FFO per unit growth has been impressive by any standard. We have delivered a 5-year compounded annual growth rate of 8.2%. And I think even more impressive is the fact that we have delivered a CAGR of 7.5% since our inception in 2011. Now granted, we have used our balance sheet somewhat to achieve this growth, but we have done so prudently and successfully maintained a very strong balance sheet. And I would like to point out that over that same period since 2011, we have reduced our single tenant concentration from 97% of GLA to 19% through growth and the disposition of roughly $1 billion in higher-yielding noncore assets. I would also like to take the opportunity to highlight the resiliency of our business and our sector because I see that word used often along with stability and safety in the context of other real estate asset classes. Over our roughly 15-year history, we have had only 3 years of negative FFO per unit growth, and those were all related solely to the sale of non-large -- sorry, of large noncore assets as in 2016 and 2018. and the issuance of equity to specifically fund development as in 2021. So I believe it's worthwhile to highlight the stability and resiliency, not only of Granite, but of our asset class because I think it gets overlooked as one of the defining characteristics of the industrial sector and frankly, one of the main reasons behind my decision to join this sector in the first place. I'll comment briefly on the changes to our IFRS value. As you can see, we recognized a modest gain in the quarter, primarily from increases in market rent in a number of our U.S. markets and positive contributions from new leasing activity, offset, as Teresa mentioned, by the negative impact of unfavorable movement in the CAD versus USD at the end of the quarter. Approximately $840 million or 5.3 million square feet of properties were appraised this quarter, and the appraised value came in at roughly 8% above IFRS overall and was above our IFRS values across all regions. As with FFO per unit, I wanted to also highlight our success in adding value for unitholders over the long term, which remains, of course, our focus. Since 2011, our NAV per unit has increased by over 500%, a CAGR of 12.4% despite growing our unit base by 30% over that period. Moving on to strategy and capital allocation. As you can see in the disclosures, the team executed on just over $340 million in acquisitions in our target markets of South Florida, Houston and the U.K. The weighted average going-in yield is roughly 5%, and this portfolio of assets is expected to generate a yield of just over 6% over the next few years. Conversely, we disposed of just over $225 million in nonstrategic assets in the U.S. and the Netherlands in the fourth quarter and the first quarter of this year. While the U.S. assets were all high-quality portfolios, they were located in markets where we currently have higher concentration and have lower return profiles over the medium term in our opinion, hence, why those assets fit our disposition profile. The Utrecht asset was intended to be a redevelopment play, but the combination of higher development costs due to inflation over the past few years and softer rental rate growth rendered our plans less economical. And we ultimately made the decision to sell the asset and redeploy the proceeds more accretively elsewhere. The assets were all sold above or at our unaffected IFRS value. In terms of future disposition activity, as outlined in the MD&A, we had 2 assets totaling just over $80 million in value listed as held for sale as at December 31, and one of those assets was sold earlier this quarter. We are also in the process of negotiating the sale of 2 additional assets in the U.S. and the GTA totaling approximately $100 million in value, which may or may not close in the first and second quarters. To summarize, I believe that we had a very successful year in 2025. And when we consider our priorities for the year as outlined in our 2024 annual report, namely driving FFO and NAV per unit growth, actively managing our portfolio, both from a concentration and leasing perspective, identifying value-add opportunities within the portfolio, such as build-to-suit development, selectively pursuing acquisition opportunities in our target markets, it's clear that we achieved all of these objectives, one, from generating strong FFO and NAV per unit growth through impressive achievement on the leasing front as the team completed over 4.5 million square feet of renewals and 2.4 million square feet of new leasing at rental rates well above initial pro forma and increasing occupancy by over 300 basis points. Additionally, the opportunistic use of the NCIB, plus actively rebalancing the portfolio and positioning Granite for continued NOI growth in the near to medium term, securing a Fortune 50 tenant for a build-to-suit project on our Houston development property at an attractive return; and finally, repositioning our remaining development lands for future build-to-suit opportunities and successfully acquiring over $340 million in assets in Tier 1 markets in the U.S. and the U.K. Looking forward, we are encouraged by the recent acceleration in leasing activity across our portfolio markets, particularly in newer construction. And we believe that a steady recovery in demand will continue based on a number of key factors: one, the reduced uncertainty around the impact of tariffs; two, the continued modernization of supply chains and the ongoing march of e-commerce, particularly in Mainland Europe. three, the nearshoring of manufacturing in the U.S., partly driven by aggressive government incentives; four, the reindustrialization of Europe, particularly in defense spending; and finally, the significant investment in data center development, which is an adjacent center but increases demand for industrial land and requires logistics for construction and to sustain ongoing operations. Looking forward, in 2026, our priorities and our focus remain the same, driving FFO and NAV per unit growth, executing on our leasing and capital recycling programs and identifying key value-add opportunities within and outside our portfolio, all while maintaining a strong balance sheet. In our opinion, focusing on these priorities will continue to position Granite to deliver the highest long-term value for unitholders. As you can see from our guidance, we expect another strong year of performance in 2026 as we continue to execute on our strategy. You may have also seen the announcement regarding the renewal of our ATM program, which, as you know, provides Granite with the option to issue units under the ATM for a period of 12 months. It does not signal that we have immediate plans to use this facility or that we would do so at the current unit price. We are, however, hopeful that market conditions will continue to improve over the remainder of this year, and we could be in a position to do so, but we are assuming any new capital deployment on new acquisitions or build-to-suit projects will be funded through the disposition of nonstrategic assets, as Teresa mentioned. In closing, I just wanted to mention the changes to our Board of Trustees. Firstly, we are pleased to welcome Jon Kelly and Amber Choudhry as trustees, both come with extensive finance and capital markets expertise and will be great additions to our Board. Finally, Peter Aghar and Sheila Murray will not be standing for reelection in June, and I would personally like to recognize their contribution to Granite's success and development, and I thank them both for their support over the years. And to our team, thank you for your commitment and all of your contributions to our success in 2025, very well done. On behalf of the Board and management team at Granite, thank you for joining us for our Q4 call. And operator, I'm happy to open the line for questions.

[Operator Instructions] Your first question comes from Mike Markidis from BMO.

Kevan, thanks for the commentary on the disposition. It sounds like there's more volume there to come. On the $100 million in addition to the held for sale at the end of the quarter, could you just give us a sense of the income tied to those assets? Because I think your $80-some-odd million of assets held for sale didn't have any income on them. So just trying to get a little bit more color on that.

What I will say is that all of these assets are income producing, the 2, one in the U.S. and one in the GTA. I can't disclose what the yield would be on that or what the income related to that, Mike, as we'll obviously provide more information in the NDA once we close on these. But if the question is, are you selling vacant assets or assets that are sort of redevelopment? No. These are IPP assets.

Okay. The Utrecht was vacant and I think the other assets.

Utrecht had some income. Yes, Utrecht was a redevelopment play, but did have some income. But you're right, it was not fully stabilized as with the other assets.

Okay. And then the guidance had suggested that dispositions would all be completed by Q4. Is that on the $180 million? Or is that just on the $80 million?

On the $80 million. It's just on the $80 million, of which we've completed $37.5 million in January.

Yes.

Yes.

Okay. Okay. All right. What about on the acquisition side? I know your outlook didn't contemplate any contribution from acquisitions. I imagine given your recent velocity that the market tone is improving. Are the current dispositions that you have in place, is that just part of the plan to get you back to, I think, 2, 3 quarters ago, Kevan, you mentioned being leverage neutral. Is that part of the plan? Or I'm just guessing what your thoughts on that...

Yes. It's a fair question. I think we were probably -- I think we acquired roughly $100 million more than we disposed of in 2025. So where we sit today, we have roughly $45 million assets held for sale to go. We're working on another $100 million in dispositions. We have roughly $115 million expected in free cash flow in 2026. Half of that is spoken for in development commitments, but say there's another $50 million to $60 million. So with all of that said, I think we feel we probably have -- if we execute on these dispositions successfully, we probably have $100 million to $120 million in dry powder for acquisitions without any further dispositions. But of course, the team is actively looking at future disposition activities within the portfolio. So that number could grow. But where we sit today, based on what I said, I would think $100 million in new acquisitions would be possible.

Okay. That's useful. Last one for me before I turn it back. Just on certain asset classes, at least in Canada, and I know you've been more active -- well, you've been active in the U.S. and Europe, but it would seem that you can -- that buying or selling assets or buying assets on a single basis perhaps might be more expensive in bulk. Now I'm not suggesting that's the case in industrial, but I was wondering about your thoughts on that. Like are there any bulk acquisition opportunities where you could potentially get assets at a more attractive valuation in bulk? Or are you just sacrificing too much on the quality scale that you mentioned earlier?

It's definitely a balance. And I would offer this, the disposition we made in the Midwest, we probably gave up maybe 1% a little bit because we pursued deal certainty a little bit more. So we sold 3 assets as part of our portfolio. If we were to just concentrate on individual assets, we think we could have pushed pricing a little bit more, but there was value to executing a sale to a very qualified buyer. And the timing, I think, was important to us. So what I'm saying is we still think there's probably a portfolio discount in play, and that's not just in Canada. I think that's in the U.S. and Europe as well. So we definitely monitor opportunities where we can leverage that. I would say it's diminishing that sort of portfolio discount. If you had asked me 12 months ago, portfolio discount would have been as high as 5%, maybe closing on 10%, that discount is reducing, and we're seeing larger deals for both, of course, in North America and Europe. So still a slight portfolio discount and something we don't mind taking advantage of. As I mentioned before, too, we're careful about our leverage. We are not willing on a stabilized basis to increase our leverage, but we will do so in the short term as long as we have confidence and the foresight that we'll be able to dispose of noncore assets on a timely basis and rebalance that balance sheet. So we're willing to look at portfolios if we think that there is a portfolio discount for sure. And -- but to your point, a lot of times, assets are aggregated in such a way that there might be 1 or 2 assets within a portfolio that just don't fit our strategy and we don't want. So that's one of the careful considerations we make. That's why we have not made as many portfolio acquisitions, I think, over the years as many others.

Your next question comes from Kyle Stanley from Desjardins.

Kevan, in your prepared remarks, you provided kind of 5 drivers of industrial demand, reindustrialization of Europe, e-commerce onshoring in the U.S. In your view, which one of those do you believe provides the best opportunity for Granite looking forward or maybe the most near-term opportunity? Would just love your thoughts on kind of those themes.

Well, a couple of things I would say about it. It's tough to say, and it depends on the market. But I said on the Q3 call, and I still stand by this, when you look at the investment in new construction, manufacturing construction in the U.S., which was, I think, $250 million in 2025. The bulk of that, I think roughly 80% was in the Midwest through the Southeast. And so I don't think we're trying to overthink this. I think we're targeting markets where we think the fundamentals are going to be strong and business investment is going to continue to be strong. So I don't think there's going to be much change in the markets that we're focusing on. South Florida, I think, is an important market. And it won't be just those. But Houston, we think will continue to have very strong fundamentals. And in terms of Europe, maybe it's more -- it's not as much about the targeting markets where we think reindustrialization will be strongest. It's not going to change the type of assets we look at. But it will give us a view of where we think fundamentals are going over the next 12 to 24 months or even 5 years and where rents are going. And so it's a combination of all those factors. And I would say this, too, we see the reindustrialization and nearshoring overall as being a positive catalyst for our sector, but it doesn't change our strategy, if that makes any sense, Kyle.

Yes. No, well understood. You kind of hit on some of the markets, and it leads to my next question. So as you look at the U.S. industrial landscape, how are you feeling about, I would say, your relative geographic positioning with more of a focus in the Midwest, the Southeast, as you mentioned, versus a portfolio that would be more positioned in gateway or West Coast markets? And how would maybe this -- your current view today differ from a few years ago when maybe there's a lot of desire to be on the West Coast?

Well, yes, I had a conversation with the peer that works for a large Canadian institution that made a comment to me literally this week that they are almost entirely invested in the gateway markets, and they're having a really hard time. So if we go back 3 years ago, I think we were criticized pretty heavily for having no exposure to L.A., New Jersey. Well, we do New Jersey, but more the coastal markets. And I think where we sit today, we're very comfortable with our portfolio and very comfortable with the decisions we made years ago about where to invest our capital. And I think that's coming to fruition. Could it change where we look at those markets at some point in time like in L.A., I think that there's that possibility, but we still have concerns about fundamentals over the near to medium term in a market like L.A. and a market like L.A. that's very affected by trade tensions and very affected by imports. So we like the sort of balance that a lot of our markets provide for our sector. And so it's pivoted. I mean we have -- look, we are focusing on certain markets more than others. But I think our strategy over the years has played out really well. And I don't think that there's -- we're obviously looking to rebalance our portfolio. We're using higher concentration markets and assets to fund our growth and expansion into different markets. But I don't think it's a fundamental change of how we see those markets.

Okay. That makes sense. And just one last one. With the 2 new additions to your Board and looking at the backgrounds there, specifically in infrastructure data centers, things like that, are we to read anything into that for your strategic outlook, I guess, going forward?

No, I think it certainly helps. No, we really like obviously, the Brookfield background and the Blackstone background, large private equity, large deals, we think he's a great addition to the Board. Is it specifically because of the data center? It's adjacent. It helps a little bit, but I wouldn't read too much into the data center angle with respect to our future plan.

Your next question comes from Brad Sturges from Raymond James.

Just on the acquisition in the U.K., how do you think about the opportunity set there? And do you have a target in mind in terms of what type of scale you like to get there over the next 2 to 3 years?

Yes. I mean we think the location is what's driving this more than anything else. We didn't necessarily want our first acquisition to be too large in the U.K. And part of that is just we're limited on the equity side. There's only so much capital that we have. So I think we have to move thoughtfully here. So this was to us the right location and where we know we want to be in the U.K. at such an important logistics market there. In terms of growth, we're certainly not done yet. I don't know exactly how much we'll add. But if you look at our concentration in other markets, Brad, that should give you a strong indication or an indication anyways of what we would be targeting in terms of scale in the U.K.

Okay. That's helpful. In terms of the -- it sounds like the near-term opportunity in terms of incremental growth capital is going to be on acquisitions. But I guess where -- how does the pipeline look on the development build-to-suit opportunity? Has there been much change in that opportunity set right now?

Well, we've actually had some interest in both our larger sites, one in Brantford and 2 in Houston, so we'll see. So I would not -- I wouldn't promise anything. I would not be surprised if we did have another build-to-suit project to go on one, at least one of those sites this year, but I'm just not sure. And I don't think we're in a position to want to move ahead on speculative development at this time. Now that may change, but I'll make sure that I certainly telegraph that to the market before we do. The other thing is that we are running out of land, and we are looking for opportunities to build up our land base at Granite. So that may not happen this year, but that's certainly on our minds and something we always want to continue to have a land bank and the opportunities to add value through development.

I guess the last question in terms of just thinking about the acquisitions that you're contemplating, I guess, part of the opportunity has been because you've had a lot of success on the leasing front, you've been able to, I guess, trade a bit of that growth through the portfolio rebalancing and kind of trading short-term dilution for longer-term growth. Is that really the way we should continue to think about the capital recycling program right now?

That's exactly right. And we talked about that heading into 2025. Obviously, we're in as strong a position on the leasing side. But where our heads were at was that we had strong growth. We had embedded growth that we believed in. And as I mentioned, the sort of arbitrage in yields between some of the Tier 1 markets and the markets where we had concentration was to us at all-time lows. So the conditions were right for us to pursue a portfolio rebalancing strategy in our mind. But part of that consideration, important factor is how do we maintain organic growth over the coming years. And so that as we redeploy our capital, you're going to see that as a theme in our decision-making.

Your next question comes from Himanshu Gupta from Scotiabank.

On the leasing side, first of all, great progress done on the leasing front there. 400,000 of lease commitments post quarter, I mean, which property or market is that? I know frankly, you don't have much vacancy left now in the portfolio.

You mean in the one we announced in the first quarter?

That's right, yes.

Yes. They were in the U.S., Columbus and Houston.

Okay. And so I guess the remaining vacancy left is really the Memphis submarket, I would say, and a bit in Indianapolis, I mean, fair to say that. And...

Yes, they're smaller ones, so like 120,000 feet in Indianapolis. We have 50,000 less in Nashville. We have, what, 300,000 in Memphis. It sort of spread out a little bit, but nothing that's too large.

Got it. Okay. And then on the -- again, on the leasing side, I mean, if I look at your U.S. markets, the market vacancy is like 7% to 8%, call it, high single digit. Your portfolio vacancy is now like almost 2% here, I mean, low single digit. Like what has changed? Like why -- I mean, is the demand for the larger product is stronger here as we -- in the last few months? Like what led to this outperformance?

Well, I definitely think we've been talking about the theme of flight to quality, and that's why I sort of quoted JLL there is because we've sort of been talking about it. And it has been a real trend in the market, particularly in the large bay. So one, yes, you're right, large bay demand and leasing activity has really picked up, particularly in Class A, and that's what we tend to own. So I think that has really benefited us. And what's interesting is when we look to 2026, our leasing availabilities, most of them are in the smaller range. And also, I mentioned the higher turnover in 2026. Part of that's related to Samsung at the end of the year, as you know, but this is the first large tenant that we've seen not renew. It's just been so steady. So it's a bit of a surprise to us, but it happens. And just to give everyone an update, we don't have an update for that space, but we're really not worried about it. I think it's a great asset, all the right characteristics for that market, very well located within that market as well. So that asset is going to be fine. But it's not lost on us. We're at a point now where most of our leasing availabilities are in that sort of 75,000 to 200,000 foot range.

Got it. Last question is on the capital recycling. And I know you've provided a lot of color already. I mean the way I see it, I mean, you sold in markets where you had higher concentration, Indy, Columbus, Cincy, and you're buying in markets where you have lower exposure in Houston, Florida, U.K. Is that really the strategy here you're running diversification as you resume your acquisition plan?

It is. Yes, it is. Market concentration is a consideration for us and also what we think the return profile of the asset is going to be. So what we're looking to sell, what we're looking to buy. So if we feel that we have added as much value to an asset as we can, then certainly, that would be a consideration for us for disposition and market concentration, of course, is -- because it just doesn't make sense. If we were to be in a market with low concentration, we still want to be in that market. It would make no sense for us to sell an asset in that market. So it makes sense that it's those 3 in terms of market concentration and also just the expected return profile of the respective assets.

Yes. So by that token, like Memphis could be on your hit list as far as dispositions are concerned?

I think it could. Yes. Yes, it could, actually.

And maybe just the last question. Where does the GTA fit into this diversification strategy? I mean you have a concentration there, but then this is now at a stage where we could see some recovery in the overall industrial market -- I mean, the GT industrial market. So you expect to be net seller this year or net buyer in GTA?

Well, we would like to continue to grow in the GTA. But as I've said before, I think we remain pretty disciplined on pricing and our view of where market rents are. So I think that, that has put us on the sideline for a lot of these acquisition opportunities that have come to the market. So net-net, we want to be buyers in the GTA when the time is right. But we also have assets in the GTA, which -- where we felt like we've added a lot of value or just not strategic to our plans moving forward. So we might be net sellers in the short term. But certainly, I wouldn't take that as a signal that we want to decrease our overall exposure to the GTA.

Your next question comes from Sam Damiani from TD...

Just to maybe pick up where Himanshu left off there. On the acquisition side, you've added the U.K. Kevan, would you think about adding a second new country in the near term? Or are you sort of sticking with the U.K. for now?

Well, we've mentioned France in our plans as well because it's just such a large market and would be probably a useful addition to the portfolio at some point. And we've looked at a number of opportunities in that country. So right now, our greater focus is on the U.K. and continuing to grow in the U.K., but that could be a market. And we monitor the fundamentals and the trends in the market very carefully. And so it could be a market that we're in at some point in the near to medium term, but our greater focus right now is on the U.K.

Okay. And just on the guidance, maybe I missed it, but is there an occupancy either for the year-end or for the average for the year that's kind of built into the same-property guidance? And I guess, what is assumed for the Samsung space, I assume that's sort of assumed to be vacant for the fourth quarter?

Yes. We've never provided it. I mean I think the same-property NOI is sort of the telling KPI that we provide guidance on. Obviously, the occupancy is very strong. I hope no one expects it to remain at 98.6%. But obviously, we expect occupancy to finish the year strongly. We expect it to remain strong -- do I feel the need to maintain it at 98% or above? No. We do have turnover happening throughout the year. So occupancy may go up or down, but we expect to finish on a strong footing at the end of the year. And I would say about Samsung, it is our expectation that, that space, at least most of that space is spoken for by the end of the year, but we're not expecting rent or NOI in the fourth quarter of this year. So that's how we're viewing the Samsung availability.

Okay. Last one for me. I just -- I don't want to read too much into all the data you guys disclosed, which is greatly appreciated. But the commitments on the 2026 lease expiries in the U.S., it's up nicely quarter-over-quarter, but still down a little bit from where it was a year ago on '25 expiries. I guess is there anything in the U.S.? Maybe it's the Samsung. Is there anything sort of in your U.S. renewals that's causing that stat to hold back a little bit year-over-year?

A lot of smaller spaces that we're expecting turnover on. And again, we expect to finish the year about 70 -- between 70% and 75% renewal rate on our expiries, which is normal. We've had some extraordinary years, over 90% in 2024 is a ridiculously high number and 2025 at 84%. So we're sort of reverting to the mean for the sector in that sort of 70% to 75% range for us. And it is mostly in the U.S. Samsung is obviously a chunk of it, 750,000 feet. The remaining spaces are all sort of smaller in that sort of 100,000 foot range.

Your next question comes from Tal Woolley from CIBC Capital Markets.

Just with the investment into England, I'm just wondering like how big an opportunity do you see that being going forward? And like what sort of -- how big a piece of the portfolio you could see England becoming?

Well, I think we sort of talked about that. I think if you look at our market concentration, the U.K. is a large market. We want it to be an important market for us in Europe. So I mean, if we're 2 million square feet, 3 million square feet, that probably makes sense. Do we feel the need to get there tomorrow? No. Do we feel the need to get there by the end of this year? No. So this could be a 5-year plan. We'll take as long as we need to take it. But clearly, one asset is not our end goal in the U.K., and it should be reflective of where we think it fits into the overall portfolio. So we hope to remain active over the next few years in the U.K. and the market concentration in the U.K. will probably be similar to what you would see in other markets in North America and Europe that we have.

Okay. And then can you just talk maybe a little bit to the fundamentals there? Like I guess, just looking from the outside, I would think it would maybe take a little bit of work to sort of -- there's been a lot of disruption there, obviously, over the last several years. And just wondering like how you sort of saw your way through that to make the investment.

Yes. Well, I think a lot of this comes down to quality. So the reason -- one of the reasons why we like the redevelopment opportunity here is that we can build exactly what we think is right for the market. So looking at absorption in the U.K., it had a sharp rebound in the second half of the year. So it finished 2025 strongly. We think that, that continues in 2026. A lot of the 3PLs are very active. We think that, that continues through 2026 and into 2027. So it's been a strong market in the second half of the year, and I think the expectations are pretty high for the market over the next few years. So I think it will be one of the strongest markets in Europe.

Okay. And then, Teresa, just yields continue to bounce around a little bit as you -- we get into the back half of the year. Where do you think your borrowing costs kind of settle out? And are you still looking to swap hedge those rates?

Yes. Well, we'll definitely hedge. If we're replacing euro debt, we'll still hedge with euro debt because there still is roughly 25, 30 basis point difference favorable. But if I were to go and do a 5-year bond, say, today, I would say that it would be around 3.75 roughly. So under 4 for sure. And we're borrowing right now on the credit facility pretty great rates. We're getting about 3.5% on the credit facility right now.

Your next question comes from Pammi Bir from RBC Capital Markets.

Kevan, I just want to come back to the leasing spreads that you mentioned. I think for the year for 2026, you said 20% or 25%. But I think what you've generated to date on the leases that have been addressed so far for the year are, I think, 10%. So what's maybe held back the lower start? Were there some sort of fixed rate options in there? Or just curious what drove that?

Yes. And part of it, Pammi, is we have sort of what would you call it, rights that the tenants have -- yes, they're sort of exercising their options, not really a renewal. We put it down as a renewal. So they have these termination options that they are not exercising. And so a lot of it, we don't see a lift in rent on that. We disclosed it as a renewal. So that's what's held it back so far, and we obviously expect stronger performance on the remaining renewals.

Okay. All right. Got it. Yes, I think that does bring back some, I guess, some past situations like that. If I look out through the rest of the year, is there anything -- or even -- well, 2027 is probably too early. But for this year, is there any large nonrenewals that you're aware of other than the Samsung's space? I think you mentioned that the bulk of what's left is really just smaller.

Yes. No large ones.

Okay. And then just coming back to that $100 million that you had mentioned about dispositions that are in the works between Canada and the U.S. Is the U.S. asset, is that a Midwest asset? And are there maybe perhaps others that you'd consider lightening up on as you kind of reduce the exposure there?

Yes. I'm not going to say if it's the Midwest or not, it might not be. And there are a few others that we've identified in the U.S. and Europe. and potentially the GTA that we will look at disposing of in 2026.

Okay. All right. Last one, just on the -- again, you mentioned -- we've heard this now from several of the industrial players that defense spending is perhaps helping some of the demand. Have you seen any direct impacts in the portfolio yet, whether it's in Europe or in Canada?

Not so much in our direct portfolio, just more tangentially, which obviously gives us better comfort about the health of our assets and our portfolios. So we've seen it in the sector, hasn't had a direct impact on our portfolio yet, and we'll see. We'll see what happens over the coming years.

[Operator Instructions] Your next question comes from Matt Kornack from National Bank Financial.

Kevan, would you say just given how high your retention rate has been that you've maybe left a little bit of rent on the table in order to secure that? Or is that just a function of -- or was it by design? Or is that tenant demand driven at the end of the day?

No. I mean 45% is a really good number. I put that up against anybody. So I mean if you're -- if we -- if our sort of renewal lifts were way below our competitors and let know, I'm not aware that that's the case.

Fair enough. And then the flight to quality, is that building attribute driven or location at the end of the day? Or is it a mix of both?

Yes, it's a mix of both. And like we've said, the overall leasing activity was slower than in '20 and '21 and '22, obviously. And net absorption was positive, but not as high as the 10-year average. So in our minds, what we were seeing in the market was a consolidation of assets and modernization decisions by the tenants. I think that, that continued in 2025. And what we finally saw was a lot of these tenants come off the sidelines and make decisions more quickly than they had in the past for whatever reason. And part of it is, I think, just greater comfort that the tariffs, which may change, who knows, but the impact of the tariffs has been more manageable than first thought. So we really saw it in the last 6 months of 2025, where not just our assets but the other modern assets, newer construction assets, which were within our markets and our submarkets, we're starting to move more quickly. And I think to your question about location within the market, I think if you look at markets like Indy, it really shows. So the overall vacancy in Indy, I think, fell 3% in the fourth quarter of 2025, right? Still at 8%. But the markets to the East and the Southeast remained at 16% and 19% overall. And so where you saw all the leasing, we're in the stronger submarkets where we are in the West near the airport. So that's where a lot of the leasing activity has occurred. And so I think your comment about flight to quality, both in terms of asset class and location within a market is very accurate.

Okay. No, that makes sense. Last one for me. You mentioned land banks. I don't think we have stats in terms of where site coverage is for your portfolio. But is there any meaningful kind of expansion opportunity across the portfolio that you could execute on? Or are most of the sites fully built out?

Yes. I mean we track it when we need to really or I track it when I need to really. I don't think we have any expansion plan this year, not really. We do have an asset where we're looking to redevelop it potentially and add density. We'll probably announce that later this year. That's not really an expansion to your point. So I think it will happen over the next few years. I think there will be opportunities within our portfolio to densify certain assets and properties, but not in 2026.

Okay. And maybe a follow-up. Like if you're acquiring something, is buying an existing building with expansion opportunity more attractive than, let's say, buying just land? Or how should we think about it?

Well, of course, yes, absolutely, it is. And when we get assets back and they're vacant, that's another consideration as well as how much density can we potentially add, particularly in the U.S., when we look at acquisition opportunities of IPP properties, the ability to expand the asset is a consideration for us. It may not be a deal breaker. But certainly, it's an attractive characteristics of a property, the ability to expand the building. It's something that we look at.

Thank you. There are no further questions at this time. This concludes today's conference call. You may now disconnect.

Thank you, operator.

Thank you.