Granite Real Estate Investment Trust ($GRTUN)

Ladies and gentlemen, thank you for joining us, and welcome to Granite REIT's Third Quarter 2026 Results Conference Call. [Operator Instructions] I will now hand the conference over to Teresa Neto, Chief Financial Officer. Teresa, please go ahead.

Thank you. 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 material 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, and for the quarter ended March 31, 2026, filed on May 6, 2026. As usual, I'll comment the call with financial highlights and followed by Kevan with operational and strategy update. Granite delivered Q1 2026 results in line with management's annual forecast and guidance, driven primarily by strong NOI growth, partially offset by unfavorable foreign exchange. Starting with FFO performance, FFO per unit in Q1 was $1.57, down $0.02 sequentially and up $0.11 or 7.5% compared to the same quarter last year. In Q4 2025, FFO included a favorable nonrecurring reversal of tax provisions of $1.6 million. Excluding this item, FFO per unit would have been $1.56, resulting in Q1 '26 FFO per unit being $0.01 higher on a normalized sequential basis. NOI growth in the first quarter was primarily driven by strong same-property performance, supported by leasing spreads of 23% and the lease-up of previously completed development vacancies in the United States, partially offset by unfavorable foreign exchange as the U.S. dollar and euro weakened by 1.6% and 1.1%, respectively. AFFO per unit in Q1 '26 was $1.41, up $0.11 sequentially and flat year-over-year and with the increase from Q4 primarily driven by lower maintenance capital expenditures, leasing costs and tenant allowances incurred, partially offset by lower FFO per unit. AFFO-related capital expenditures incurred in the quarter totaled $6.9 million, which is a decrease of $8 million over Q4 and an increase of $6.2 million over the same quarter last year. For 2026, we continue to expect AFFO-related capital expenditures to come in at approximately $40 million and that is unchanged from our estimate provided previously. Before going over some further details of the first quarter, I do want to advise that Granite will be recognizing 2 income statement items of a nonrecurring nature in the second quarter that will impact FFO and AFFO. Granite will be recognizing approximately $1.3 million in termination and closeout fee revenue relating to the termination of a Magna lease at one of Granite's Vaughan properties in April. More than offsetting this amount will be a $2.4 million provision relating to a 5-year HST audit at Granite's operating subsidiary, where the CRA has assessed Granite with denied input tax credits, interest and penalties that will impact G&A and interest expenses by approximately $1.6 million and $0.8 million, respectively. Although Granite fully intends to file notices of objection with the CRA and to dispute the CRA's assessments, Granite deemed it prudent to recognize such provision at this time. The net negative impact of these 2 nonrecurring items will be minus $1.1 million or approximately $0.02 to FFO and AFFO per unit for the quarter. Going back to the first quarter, same-property NOI delivered strong growth, increasing 8.3% on a constant currency basis and up 8%, including the impact of foreign exchange. The continued momentum in SPNOI growth is a reflection of the successful execution on leasing, achievement on leasing spreads and the 270 basis point improvement in occupancy year-over-year. For 2026, continued strong organic growth from our same-property portfolio has maintained an unchanged outlook for the fourth quarter average constant currency same-property NOI growth to a range of 5.5% to 6.5%. G&A for the quarter was $11.7 million, which was $3.2 million higher than the same quarter last year and $1.6 million lower than Q4. The sequential decrease was primarily driven by $2.1 million lower fair value adjustment on noncash compensation liabilities, which does not impact Granite's FFO and AFFO metrics. The remainder of the variance reflects normal quarterly fluctuations around other G&A expense categories. For 2026, we continue to expect G&A expenses that impact FFO and AFFO specifically to average approximately $11.5 million per quarter or roughly 7% of revenues. For Q2 2026, all else remaining equal, G&A will be elevated due to the incremental HST expense provision of $1.6 million discussed earlier and to be recognized in that quarter. Interest expense decreased modestly in the first quarter, down $0.2 million compared to Q4, while interest income remained flat, primarily driven by full repayment of our September '26 term loan in February and the impact of a weaker U.S. dollar and euro on Granite's foreign denominated debt, partially offset by a higher average balance outstanding on the credit facility throughout the quarter due to the interim funding of acquisitions in December in advance of the disposition in the United States that closed in March of '26. Granite's weighted average cost of debt is currently 2.63% and the weighted average debt term of maturity is 3.2 years. With Granite's next debt maturity not until December '26, we continue to expect interest expense to remain stable and declining over the next couple of quarters to around $23.5 million per quarter, assuming no additional transactions. For Q2, as mentioned earlier, interest expense will be impacted by this nonrecurring $0.8 million provision for the HST audit assessed interest and penalties. Q1 '26 current income tax was $3.1 million, up $0.6 million year-over-year and $1.7 million from Q4. The sequential increase primarily reflects the $1.6 million tax provision reversal recorded in Q4 '25. The year-over-year increase is primarily due to the release of a withholding tax reserve in the prior year of $0.2 million, an increase in rental revenues in Europe and the impact of a stronger euro on Granite's primarily euro-denominated tax expenses. For 2026, we continue to expect current income tax expense to remain at approximately $3.1 million to $3.2 million per quarter. Looking out to our estimates, Granite is keeping its guidance unchanged. Our current outlook reflects no material changes in assumptions related to leasing activity, operations, asset dispositions and acquisitions, capital expenditures or financing plans. We continue to forecast FFO per unit in the range of $6.25 to $6.40, 6% to 8% growth over '25. For FFO per unit, we expect a range of $5.40 to $5.55, reflecting growth of 4% to 7% year-over-year. The FFO outlook assumes the disposition of assets currently held for sale totaling approximately $57.7 million is fully completed by early Q4 and does not assume any unidentified acquisitions. AFFO-related capital expenditures, as discussed earlier, are expected to remain around $50 million for the year compared to $34 million incurred in '25. And our guidance range on FX remains unchanged at $1.34 to $1.40 for the U.S. dollar, $1.58 to $1.62 for the euro and $1.80 to $1.86 for the British pound. As usual, we will continue to provide updates on guidance each quarter as appropriate. Granite's balance sheet remains strong and its debt metrics have shown notable strength from last quarter. Investment properties totaled $9.5 billion at the end of the quarter, broadly unchanged from the prior quarter and excludes the approximately $58 million related to 2 assets held for sale. During the quarter, movements in investment properties reflected disposition of an income producing property in Palmetto, Georgia, in the United States for about $105 million and the classification of an asset held for sale in Canada for $16 million, partially offset by foreign exchange gains of $81 million, driven primarily by the strengthening of the U.S. dollar against the Canadian dollar over the period. Additional movements included development spend primarily on our Houston construction site, maintenance capital projects and leasing activity-related costs and net fair value gains driven by higher market rents, partially offset by discount and cap rate expansions at select U.S. properties. Our overall weighted average cap rate of 5.6% on in-place NOI remained stable relative to Q4 and has increased 23 basis points since the same quarter last year. Our net leverage ratio at the end of the quarter was 33%, which is an improvement from 35% at Q4. Debt-to-EBITDA was 6.8x, also improved from 7.3 in Q4 and 7.1x in Q1 '25, primarily due to lower unsecured debt following the full repayment of our September '26 term loan and lower outstanding balance on the credit facility due to the net proceeds from the completion of the disposition of 2 income-producing properties in the Netherlands and the United States during the quarter. All ratios remain relatively favorable and provide financial flexibility for our future growth. As a result of Granite's continued commitment to maintaining its strong balance sheet, its stable and strong operating performance and its improved asset quality as evidenced by its recent improvement in occupancy, Morningstar DBRS recently has taken rating action on Granite. On March 24, Morningstar DBRS confirmed Granite REIT Holding LP's issuer rating and debenture rating at BBB high and changed the trend to positive from stable. And then finally, on February 25th, Granite reestablished its at-the-market equity program through the filing of a prospectus supplement to our base shelf prospectus. The program allows Granite the issuance of up to 250 million of units from treasury to the public from time to time at Granite's discretion at prevailing market prices. And subsequent to the quarter, Granite issued 65,100 units under the program at an average price of $93.67 for gross proceeds of approximately $6.1 million, excluding issuance costs. Granite's liquidity is currently approximately $1 billion, representing cash on hand of about $119 million and the undrawn operating line of approximately $892 million. As of today, Granite has $105 million drawn on the credit facility and $2.8 million in letters of credit outstanding. We expect to reduce the outstanding balance on the credit facility throughout '26 with free cash flow from operations and with proceeds from the disposition of properties, barring any other major transactions. I'll now turn over the call to Kevan.

Thanks, Teresa. Q3 results, as Teresa mentioned, were in line with management's expectations. Higher NOI and acquisitions and stronger same-property NOI was partially offset by a number of minor onetime items and unfavorable FX movement from the fourth quarter. FFO per unit year-over-year growth in the quarter as reported was 7.5%. That translates to almost 9% on a constant currency basis. To begin, the team renewed 730,000 square feet of leases in the quarter, a portion of which is related to expiries later in the year with a weighted average increase of 48% and closed on a new lease as disclosed, totaling 250,000 square feet in Ohio. Subsequent to the quarter end, the team also executed on a 225,000 square foot lease at the same property. Accounting for the new commitments and a new 200,000 square foot vacancy in Vaughan as at April 30th, our committed occupancy currently sits at slightly under 98%, still among, if not the highest in the sector. To date, we have so far renewed roughly 65% of our 2026 expiries by GLA at an average increase of 21% and we expect to achieve an average increase of between 20% and 25% on our overall expiries for the year, which is in line with our average increase for 2024. Same-property NOI in the quarter was led by the GTA and U.S. portfolios at 22% and 8.8%, respectively, offset by muted growth from our European portfolio, particularly in Germany and Austria at negative 1% and 1%, respectively. Staying on leasing, a few comments regarding relevant market data. Leasing momentum continues to grow across the bulk of the sector with vacancy stabilizing or declining in 13 of our 15 markets in North America, the strongest improvement in 3 years, led by declines in Savannah, Memphis, Indianapolis and Cincinnati. Our portfolio markets once again represented the top 3 markets and 8 of the top 10 markets in the U.S. for net absorption and notably represented a staggering 75% of the total net absorption nationally. Also of note is the bottom 5 markets for net absorption in the quarter were all located in California. Asking rents once again rose year-over-year across the majority of our markets, led by Columbus, Louisville and Indianapolis ranging from 6% to 12%. Our weakest market once again was the GTA and the U.K. with asking rents down just under 5%. Market rent growth in the Netherlands was more or less flat year-over-year and Germany posted a strong increase of just over 7%. Overall, the 5% average year-over-year increase in rate was the first increase nationally in the U.S. since the fourth quarter of 2024. So in summary, I would characterize the tone in the leasing market as continuing to improve with an element of cost sensitivity to be sure and a clear bias in occupier demand for larger, modern and well-located space. As we saw in the second half of 2025 and so far this year, the bulk, no pun intended, of the leasing activity throughout our portfolio has occurred in availabilities exceeding 300,000 square feet. According to CBRE, leasing activity comprised of renewals and new leases increased by 14% year-over-year in the first quarter and is projected to reach a record level in 2026, with leases over 700,000 feet increasing by almost 300% year-over-year and conversely, leases below 700,000 square feet increasing by just over 1%. Additionally, vacancy on newly constructed space decreased by almost 500 basis points year-over-year, while increasing roughly 70 basis points in older buildings. So demand for larger modern space is clearly driving the increase in leasing activity in the U.S. and globally as occupiers are prioritizing properties that can accommodate higher levels of automation and power requirements. To punctuate this dynamic with a Granite-specific data point, consider that at the end of the first quarter of 2025, we had 5 availabilities exceeding 250,000 square feet compared with 0 at the end of this quarter. As we sit today, we have 14 availabilities totaling 1.27 million square feet across our portfolio, ranging from 20,000 to 237,000 square feet for an average size of 90,000 square feet. So while we are seeing strength in demand for larger base space, activity has been slower in the small to mid-bay segment recently. I'll comment briefly on the changes to our IFRS values. As you can see, we recognized a modest gain in the quarter, primarily from increases in market rents in a few of our U.S. markets and a positive impact, as Teresa mentioned, of the favorable movement in the USD versus CAD at the end of the quarter, offset by the disposition of an asset in the U.S. Although the asset was high-quality and well located in one of our key markets, the growth profile was limited and we're able to repatriate capital and attractive yield for accretive redeployment. Moving on to strategy and capital allocation. As outlined in the MD&A, we currently have 2 assets totaling just under $60 million in value listed as assets held for sale as at March 31st. We expect to close on both dispositions in the second or third quarter of this year and we continue to identify target disposition assets to help fund our acquisition and rebalancing program. Consistent with that approach, we are currently pursuing roughly $125 million in new acquisitions in our target markets in the U.S. and Europe. And as an update on our development program, our build-to-suit project in Houston continues to progress on budget and schedule for completion at the end of the third quarter. As disclosed and as mentioned, we utilized our ATM program to a small degree since our last call. And we hope if the price is supportive -- unit price is supportive, to utilize the ATM prudently to augment our disposition program and free cash flow as a source of capital for near-term accretive deployment on new build-to-suit developments and selective strategic acquisitions. As a general comment on the investment market, cap rates appear to be holding across our portfolio markets. And although the positive momentum we observed heading into 2026 could understandably be tempered by recent headwinds related to the conflict in the Middle East and correspondingly higher inflation concerns and bond yields, our recent experience on the ground appears to suggest that investor demand consistent with occupier demand in our portfolio markets remains resilient, particularly for modern products in key locations. In summary, I would characterize the quarter as positive, led by strong operating results and sound deliberate execution of our investment strategy with our full year guidance firmly intact. Looking forward, we remain encouraged by the continued steady improvement in leasing activity across our portfolio of markets, particularly in the newer segment. As I stated, with higher energy -- while higher energy prices and instability may impair this momentum if the conflict is prolonged, the data continue to suggest the trade policy shifts and ongoing geopolitical uncertainty appear to support continued expansion of inland supply chains, benefiting markets such as Dallas, Indianapolis and Atlanta, while negatively impacting demand in higher cost West Coast markets. In closing, we are well positioned to deliver strong financial results and execute on all of our corporate objectives for the year. And our focus remains on active asset management and effective capital allocation, which we believe will deliver attractive income and net asset value growth for our unitholders. So on behalf of the management team at Granite, I'd like to open up the floor for questions, please.

[Operator Instructions] Your first question comes from the line of Sam Damiani with TD Cowen.

Thank you, Kevan and Teresa, for a comprehensive overview with a great quarter. So I guess, good commentary there. I'm just wondering, Kevan, if you are looking at the supply side of the sort of the leasing market and if you have any different view than a quarter ago, are you any more or less concerned about the pace of supply in your key markets?

No, I'm certainly not. I think it continues to slow down. And I think in terms of net absorption, the markets that we're in anyways continue to perform very well. As I mentioned, they were the top 3 markets in the U.S. and 8 of the top 10. So we are not concerned with the level of supply. And frankly, I made a point about the absorption in the newer product segment because I think that, that's very important and very telling. I think occupier demand, and we talked about consolidation and I think that lends to the larger base segment. But there is a clear bias towards this newer product, which I think is driving a lot of the demand, the level that's needed for automation and the higher power requirements. So I think where we're positioned as a portfolio in newer products is going to continue to serve us very well in terms of market performance moving forward.

And just for my follow-up, the pace of dispositions is pretty healthy here with the one in Georgia announced last night, potentially using the ATM as a source as well. And the acquisition pipeline is building, but it's not completely offsetting the dispositions. Is that a sign that Granite is targeting like a slowly sort of moderating balance sheet leverage ratio over the next year or 2?

I think that's very fair. I think when we look at investment opportunities, we continue to see more value in smaller portfolios and single assets. And so I think -- and also, we have to work within our limitations and we understand that. But I think it's going to be -- our acquisition program or growth program is going to be, in our mind, steady. We will use the ATM selectively if the price is supportive and we hope to do that because, look, we've said before, there have been opportunities that we have not been able to transact on because of the constraints of the balance sheet and we'll continue to be mindful of that. But we see compelling opportunities in our market and want to continue to pursue the right opportunities. Not only that's going to improve the quality of the portfolio but provide us growth in the future years in the near term. So these are the priorities and I don't see that changing. I think we've been successful at it and remaining disciplined. And I think we're just going to stick with our knitting for now.

Your next question comes from the line of Brad Sturges with Raymond James.

Just on the leasing side of things, just one of the key on your opening comments around seeing maybe a little bit less activity on the small and mid-bay side of things. And I'm curious as to why you think that might be the case here compared to seeing a bit more activity on large bay?

I think one of the themes we've discussed on previous calls is consolidation, like we said, the larger bay has performed well, but overall, leasing has been -- leasing activity has been below the 10-year average until the first quarter. But I think it's consistent with that. And so I think that's led to a very strong quarter for the large bay in Q1. And I think that, that will probably continue for the next couple of quarters.

Okay. And I guess on the leasing activity so far that you've committed to, it looks like you've started to work on a bit of the '27 maturities. Any thoughts on what the rent mark-to-market could be or any early indications around nonrenewal? I guess, just more looking for general thoughts of what to expect for next year.

No, I don't think we do on the rent side yet. I would just say in terms of the renewals, we -- by default, we assume somewhere between 70%, 75%, which is very common in our sector. I will say there's 3 expiries in 2027 that are over 500,000 feet. There's 2 in Europe, and there's 1 in the U.S. And we don't have any indications at this time that any of those tenants are planning to vacate. And the utilization levels in those buildings seem quite high. So that would be my comments in 2027. Early days, but that's our viewpoint.

Your next question comes from the line of Himanshu Gupta with Scotiabank.

So first question on this one Magna property. It looks like you're expecting some lease termination income there. So can you elaborate, I mean, is that a vacancy you're expecting? And then what are the plans going forward on that property?

Yes. That was the one that I mentioned, Himanshu, I said a 200,000 foot vacancy at the end of April. And frankly, Teresa mentioned it as well. It's related to a Magna facility in Vaughan. And it was one that's been planned for a few years. They consolidated in one of our Magna facilities in Mississauga. So we are aware of their plans. We weren't sure whether they would be in a position to vacate this year, frankly, but they were. So this is an asset in Vaughan at a very strong location by [ Jan Rustord Road ]. So it's an asset that we want to keep within this portfolio and it has a decent amount of excess land. So we've already begun to market this asset for lease and we hope to have it at least committed by later this year.

Awesome. And for my follow-up question is on the capital recycling. The Atlanta property sold, I think that's the PVH lease, if I remember. How was the demand for this asset? And 5 cap rate, I mean, looks like a good price. And maybe what was the motivation for sale of this property?

Well, it was unsolicited that came in. It wasn't -- I don't think we even listed it as an asset held for sale on our Q4 results. But for us, again, a strong asset in a market we like. But contractually, the tenant has control over the space, I think, for over a decade and the contractual escalations were low. So I can't speak to the motivation for the buyer. But for us, this was one that had limited growth profile and we could execute it on a low cap rate at a value firmly above our IFRS for deployment. And as we've talked about, it is a priority for us. We've had very strong growth and not just us, the sector as well, but Granite has had very strong income growth and we want to try and extend that as best we can. And I think this was an opportune time and asset for us to repatriate that capital and be able to redeploy it accretively. So it was unsolicited and it was a tough asset to let go. But at the same time, I think we can generate higher growth by redeploying those proceeds.

Your next question comes from the line of Kyle Stanley with Desjardins.

Just as you look across your different markets, are the sources of the leasing demand that you're seeing today different maybe from the Midwest to the Sunbelt to the other Southeastern markets? Would the demand in maybe some of your Tier 1 markets within the portfolio be more focused in a certain bay size? Just trying to understand the different dynamics across the various markets.

Well, they are different. I would say, very generally, if we're looking at the Midwest and even the Southeast, it's a real mix. 3PLs still continue to be very active. We have seen some activity with data center suppliers and operators that's having an impact -- a positive impact on our markets. In Europe, we have seen more activity among the agent 3PLs, which is having a positive impact, particularly in the U.K. So it's different. I think what's consistent though, what we've seen is manufacturing and nearshoring continues to have a positive impact. And 3PL activity, particularly out of Asia, is a positive impact, I would say, pretty globally is the comment I would make.

Okay. No, that's encouraging. Maybe just for my second question, you made a comment about focusing on build-to-suit development. Just curious, what is the demand profile out there today for build-to-suit, what type of tenants would be pursuing this and which markets are most attractive to those pursuing it?

Well, if I focus on the markets where we actually have land for development and we're able to develop, so that would be Branford and Houston, primarily. We do have decent activity from prospects on both those sites. I can tell you there's really no trend. They've been sort of across the board. One is a manufacturer, one is a retailer, for example. So we have seen decent activity. Again, I think tenants continue to be very selective. Occupiers are back in the market, but they've been cost-sensitive, which I mentioned, and they've been selective. Thankfully for us, both of these markets seem to be in demand, particularly Houston. So it's -- I can't really point to any particular occupier that's looking for it, but the demand for build-to-suit remains strong.

[Operator Instructions] Your next question comes from the line of Mark Rothschild with Canaccord.

Maybe 2 parts to the question, Kevan. I mean you definitely sound a little more optimistic on the fundamentals and activity that you're seeing. Is there any specific region, whether it's the U.S. or Europe or Canada that you feel most excited about right now as far as the deals that you're seeing and what you're doing? And maybe the second part to that is just how you're thinking about capital allocation. You spoke a little bit about that in regards to the deals and not pushing the balance sheet, but using the ATM, obviously, not in a material way, but I don't think you look at it as issuing at a premium to NAV. So how you're thinking about that?

Yes. I think that's a very fair question, Mark. I think -- and I've talked about this on calls before. Where we sit today, we're aware of where IFRS NAV is, we're aware of where consensus NAV is, but we're also seeing very compelling opportunities in our market. When I think about it, looking at assets in the Tier 1 markets that we've been priced out of forever with core assets in core locations with attractive growth profiles in the near term at yields we haven't seen in almost a decade. And so that's what we're facing right now. We're trying to do it in a very prudent manner in terms of capital allocation. But we also don't want to miss out on some of these opportunities. And we're not talking about large portfolios. We're talking about very targeted acquisitions, as I mentioned. So it's a tough question for us. In the ATM, we're using it. We want to use it in a measured way. I mean, obviously, when you're in blackout, you know how it works. You issue instructions and the agent follows those instructions. Once we're out of blackout as we are soon, we can do it in a -- we can be -- we have much more discretion on how we use it. But -- and that's how we're going to continue to view it. In terms of the opportunities themselves, we've said we want to continue to grow in the GTA. We want to continue to grow in Canada. We have seen better opportunities we feel in our select U.S. markets and in Europe. And I think that we'll continue to look at all those markets and work within our means to continue to diversify and improve the portfolio and drive, again, continued growth in future years, which is a priority for us.

Your next question comes from the line of Pammi Bir with RBC Capital Markets.

It sounds like the tone on leasing continues to improve. So are you seeing any changes in terms of whether it's the lease durations or incentives or the time lines it's taking to get deals completed in light of anything that's happening in the Mid East or even the USMCA, which remains under review?

I don't think we've really seen an impact. I think we definitely saw an increase in incentives, but that seems to have plateaued in line with vacancy. So we haven't seen much there to be honest with you. In terms of duration, I would say, and this could be just a bias on the deals that we've worked on, the duration does seem to be a bit longer. And that could be a function of just the amount of investment that's going in typically behind the doors. So I would say duration seems to be up recently. Incentives seem to be stable and rents seem to be moving in the right direction.

Okay. That's helpful. And then just -- I did want to come back to the bond space. I believe you mentioned that you've got -- or you're, I guess, aiming to have it committed by year-end. How does the market rent compare to that space that Magna was paying? And then are you anticipating to put any sort of bigger amounts of capital or larger amounts of capital to get a deal done?

I think offhand, I think the in-place rents were roughly 50% below market and everyone seems to be nodding in the room. In terms of the CapEx spend, we're not anticipating that would be a very large CapEx spend. And certainly, if there was the right tenant for the space that required higher TI or [ landlord ], that certainly would be priced into the economics of the deal.

Your next question comes from the line of Matt Kornack with National Bank Capital Markets.

Can you give us a sense as to what stands between now and you becoming potentially the first A-rated REIT credit in Canada?

I think, honestly, we just have to show on a sustained basis that we can hold kind of debt to EBITDA like below 7.2x for like 12 to 18 months. And obviously, they have some flexibility there, but I think that -- and that should be very doable, at least like based on our forecast, we're going to stay below 7 till the end of the year based on the current forecast. So we just -- I think it may not be a '27 event, but it's looking pretty good for '28, assuming we kind of carry on as we do right now.

You mean '26, '27?

Sorry, the next review will be in '27. So we'll have 12 months worth. So it's very possible in '27 potentially. I'm just saying the DBRS is 12 to 18 months. But certainly, we're on track to deliver the metrics that are necessary to get the upgrade next year.

Okay. I mean, it's well deserved. And in terms of the -- like we look at our numbers, you generate anywhere from, call it, $100 million to $200 million in free cash flow after paying dividends. Is that going to go to kind of development acquisitions, deleveraging at this point? And then maybe a very quick one -- limited to 2. Will the disposition, I don't know if you had a capital gain, but would you be able to use the 1031 exchange against what you've already acquired? Or would it be used against something that you plan to acquire?

Yes, it would be used against something we plan to acquire. And we would always use -- we -- any time we're doing a disposition in the U.S., we assume we're using the 1031. That would be the plan. In terms of deployment, I think it remains the same. I think the build-to-suits, the one that we have underway in Houston provides, I think, very strong returns, like 7.5% yield on cost. If we can achieve those on future build-to-suits, I think that would be the highest priority, not only are we -- we have control over the quality of the asset, we're building to a very strong IRR and we're utilizing our land. So that would, I think, be our first priority. Second would be acquisitions. And again, we want to see acquisitions that improve the portfolio and provide accretion, say, by year 3. That would sort of be the priority for us. And then finally, debt repayment would be an option as well, certainly if rates were to go up from where they are today.

There are no further questions at this time. I will now turn the call back to Kevan Gorrie for closing remarks.

All right. Well, thanks, everyone, for joining us for the Q1 call, and we look forward to speaking to you again in the second quarter.

This concludes today's call. Thank you for attending. You may now disconnect.