Granite Real Estate Investment Trust Stock

Ladies and gentlemen, thank you for joining us, and welcome to Granite REIT's Second 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, 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 the annual information form for 2025 and Granite's management's discussion and analysis for the year ended December 31, 2025, filed on February 25, '26, and for the quarter ended June 30, 2026, filed on August 5, 2026.

Now getting to the quarter. Granite delivered Q2 2026 results in line with management's annual forecast and guidance, driven primarily by strong NOI growth and favorable foreign exchange. NOI growth in the second quarter was primarily driven by strong same-property performance, supported by leasing spreads of 7% and the lease-up of previously completed development vacancies in the United States, along with a favorable foreign exchange as the U.S. dollar and euro strengthened 0.9% and 0.2%, respectively.

As advised last quarter, Granite did recognize 2 income statement items of a nonrecurring nature in the second quarter that impacted FFO and AFFO. Granite recognized 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.

More than offsetting this amount was a $2.6 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 impacted G&A and interest expenses by approximately $1.7 million and $0.9 million, respectively.

Granite has filed a notice of objection with the CRA to dispute the CRA's assessment. However, Granite has deemed it prudent to recognize such provisions at this time.

The net negative impact of these 2 nonrecurring items was negative $1.3 million or approximately $0.02 to FFO and AFFO per unit for the quarter. FFO per unit in Q2 was $1.56, down $0.01 sequentially and up $0.17 or 12.2% compared to the same quarter last year. Excluding the nonrecurring items previously discussed, FFO per unit would have been $1.58, resulting in Q2 FFO per unit being $0.01 higher on a normalized sequential quarter basis.

AFFO per unit was $1.26, down $0.15 sequentially and up $0.03 year-over-year, with the increase from Q1 primarily driven by higher maintenance capital expenditures, leasing costs and tenant allowances incurred. Excluding the nonrecurring items previously discussed, of course, AFFO would have been $1.28.

AFFO-related capital expenditures incurred in the quarter totaled $14.7 million, which is an increase of $7 million over last quarter and an increase of $6.7 million over the same quarter last year. For 2026, we continue to expect AFFO-related capital expenditures to come in at approximately $40 million, unchanged from our estimates previously provided.

In the second quarter, same-property NOI delivered very strong growth, increasing 8.3% on a constant currency basis and up 9.1%, including the impact of foreign exchange. The continued momentum in same-property NOI growth is a reflection of the successful execution on leasing, achievement on leasing spreads and the 220 basis point improvement in occupancy year-over-year.

For 2026, we expect continued strong organic growth from our same-property portfolio, and have positively narrowed the range of our outlook for the 4-quarter average constant currency same-property NOI growth to a range of 6% to 6.5%.

G&A for the quarter was $18.2 million, which is $8.2 million higher than the same quarter last year and $6.5 million higher than Q1. The sequential increase was primarily driven by $4.6 million higher fair value adjustments on noncash compensation liabilities, which does not impact Granite's FFO and AFFO metrics, and the nonrecurring HST expense recorded this quarter of $1.7 million.

The remainder of the variance reflects normal quarterly fluctuations across other G&A expense categories. For 2026, we continue to expect G&A expenses that impact FFO and AFFO to average approximately $11.5 million per quarter or roughly 7% of revenues.

Interest expense and interest income both decreased modestly in the second quarter, down $0.8 million and $0.2 million, respectively, compared to Q1. The reduction in interest expense is due to the full repayment of the September '26 term loan back in February '26 and the reduction in the credit facility balance over the course of the quarter using proceeds from the March disposition and the issuances under the Granite's ATM program.

These positive impacts were partially offset by the impact of a stronger euro on Granite's foreign denominated debt and the nonrecurring HST interest and penalties recognized of $0.9 million, as previously mentioned.

The reduction in interest income relates to a lower average cash balance in the quarter as compared to the prior quarter. Granite's weighted average cost of debt is currently 2.62% and the weighted average debt term to maturity is 2.9 years. With Granite's next debt maturity not until December, we continue to expect interest expense to remain stable over the next couple of quarters at around $23.5 million per quarter, assuming no new transactions.

Q2 '26 current income tax was $3.2 million, up $0.2 million year-over-year and $0.1 million from Q1. The year-over-year increase is primarily due to an increase in rental revenues in Europe and the United Kingdom and the impact of a stronger euro on Granite's primarily euro-denominated tax expenses, the effects of which were partially offset by the recognition of a withholding tax reserve reversal in Germany in the prior year.

For 2026, we continue to expect current income tax expense to remain at approximately $3.2 million to $3.3 million per quarter.

Looking out to our '26 estimates, Granite is updating its guidance to positively narrow the ranges. Our current outlook reflects lease renewals and new leasing, dispositions and financing transactions completed year-to-date.

In addition, our outlook assumes the disposition of the assets currently held for sale, which in Q2 were approximately $66 million and new acquisitions totaling $195 million to be executed by early Q4, and these will be financed by net proceeds from the dispositions, draws on the credit facility, and cash on hand. We are not assuming any further ATM issuances in the forecast at this time.

The outlook assumes no material changes to its assumptions regarding the remaining leasing activity for the year, operations, and capital expenditures. We expect FFO per unit to be in the range of $6.30 to $6.40, approximately 7% to 8% growth over 2025.

For AFFO per unit, we expect a range of $5.45 to $5.55, reflecting growth of approximately 4% to 6% year-over-year. As previously noted, AFFO-related capital expenditures are forecasted at $40 million for '26 compared to $34 million incurred in '25.

Our guidance has been updated for foreign exchange rate assumptions for the U.S. dollar and British pound for the second half forecast period. We will continue to provide updates on our guidance each quarter as appropriate based on leasing and transaction activity executed and the market conditions at that time.

Investment properties totaled $9.6 billion at the end of the quarter, a modest increase from the prior quarter and excludes the $66.2 million related to the 2 assets held for sale. During the quarter, movements in investment properties reflected the foreign exchange gains of $112.6 million, driven by the strengthening of the U.S. dollar and the euro against the Canadian dollar over the period by 1.8% and 0.9%, respectively.

Additionally, capital and leasing expenditures including development spend at the Houston construction site, maintenance capital projects and leasing activity-related costs, increased value by $32.9 million. These positive impacts were partially offset by the net fair value losses recorded in the quarter of $20.6 million on our IPP portfolio, driven by expansion in the discount and terminal capitalization rates of select European properties due to market conditions, and decreases in fair market rents at select properties in Canada, partially offset by increases in fair market rents at select properties in the United States.

Our overall weighted average cap rate of 5.7% on in-place NOI increased 10 basis points relative to Q1 and has increased 20 basis points since the same quarter last year. With respect to the assets held for sale of $66.2 million, the Trust recorded a net fair value gain of $5.2 million in the quarter on these assets.

And on July 20, we completed the disposition of the 41,200 square foot property located in Canada for a gross sale price of $15.5 million. The remaining asset for sale located in the U.S. is expected to be sold in the third quarter of 2026.

Granite's balance sheet remains strong, and its debt metrics have shown notable strengthening from last quarter. Net leverage ratio at the end of the quarter was 32%, an improvement from 33% in Q1 and 35% at the end of 2025. Debt to EBITDA was 6.6x, also improved from 6.8x in Q1 and 7.3x at the end of '25. The continued improvement in Granite's debt metrics is reflective of a reduction in debt using the proceeds from issuance of equity under Granite's ATM program and free cash flow from operations, together with the quarterly growth in Granite's EBITDA rooted in same-property NOI growth achieved in each of the trailing 4 quarters. Ratios continue to trend as targeted by management, providing financial flexibility for future growth.

Year-to-date, you will see that Granite issued 1.4 million units under its ATM program at an average price of $96.61 for gross proceeds of approximately $138.4 million, excluding issuance costs. Our liquidity is currently $1.2 billion, representing cash on hand of about $165 million and a nearly completely undrawn operating line of $997 million.

As of today, Granite has no borrowings under the credit facility and only $2.8 million in letters of credit outstanding. We expect to utilize its existing liquidity and free cash flow from operations to fund the assumed acquisitions net of dispositions throughout the remainder of '26.

And now I'll turn over the call to Kevan.

Thanks, Teresa, and welcome, everyone, to our call. Q2 results, as Teresa mentioned, were in line with management's expectations, with normalized FFO per unit at $1.58, excluding onetime items, primarily as a result of higher same-property NOI, partially offset by nonrecurring G&A items, as Teresa mentioned, an increase of just over 12% year-over-year on a constant currency basis. NOI in the quarter was also negatively impacted by the disposition of a large asset in Atlanta late in the first quarter.

To begin, as you can see, turnover was lower in the second quarter as the team renewed roughly 250,000 square feet of leases and closed on a new lease at one of our Nashville developments. The rather muted increase in the quarter was impacted by a month-to-month extension of an existing tenant at expiring rent while finalizing a fixed-term lease on expanded space within the building at a higher rental rate. The team has since renewed and expanded the tenant and the increase will be recorded in the third quarter.

To date, we have so far renewed roughly 65% of our 2026 expiries by GLA at an average rent increase of 21%, and we continue to expect to achieve an average increase of between 20% to 25% on our overall expiry for the year, which is in line with our average increase for 2024.

As you can see, same-property NOI in the quarter was led by the GTA and the U.S. portfolios at 20% and 9%, respectively. And while leasing activity across our smaller vacancies was slower over the first half, activity has increased, and the team is currently negotiating new leases on over 500,000 square feet of vacant space.

Staying on leasing, a few comments on relevant market data. Based on published research, leasing momentum remains positive across the bulk of our sector with vacancy stabilizing or declining broadly across our markets, led by vacancy declines in Indianapolis, Dallas-Fort Worth and Houston.

Net absorption was positive across our entire portfolio in the second quarter, and our portfolio markets once again represented the top 3 markets and 8 of the top 10 in the U.S., led by Dallas-Fort Worth, New Jersey and Atlanta at 9.9 million, 6 million and 5.9 million square feet, respectively.

Asking rents rose once again across the majority of our markets, led again by Dallas-Fort Worth, Miami and Columbus, with year-over-year growth ranging from just under 10% to 14.5%. Our weakest markets were once again the GTA and New Jersey, with asking rents down just under 5% year-over-year.

In the U.K., net absorption topped 12 million square feet in the second quarter, a roughly 40% increase over the first quarter, leading to an 8% drop in availability, representing the largest quarter-over-quarter decrease in vacancy since the fourth quarter of 2021 and supporting just under 4% year-over-year growth in asking rents for Class A large and mid-bay space.

Data for the second quarter in the Netherlands is not yet available, but net absorption was strong in the first quarter at roughly 9 million square feet or up 10% year-over-year. Net absorption in Germany was very strong in the first half of this year, topping 35 million square feet, an increase of 23% year-over-year, with space over 200,000 square feet, representing the strongest segment to date.

Market rent growth in the Netherlands was more or less flat year-over-year, and Germany posted an increase of just under 5%.

So in summary, I would characterize the tone in the leasing market as constructive with an element of cost sensitivity to be sure and a continued bias in occupier demand for larger, modern and well-located space in lower-cost inland markets.

The positive impact of the near- and onshoring of production continues to be seen with demand related to manufacturing activity outpacing 3PL demand in the U.S. for the first time in modern history, led by markets in California, Texas, the Midwest and the Southeast.

Additionally, data center-related demand for logistics space continues to strengthen, led by leasing activity in Texas, Arizona and parts of the Midwest. This increase in manufacturing and data center activity is expected to drive further demand for logistics as materials and equipment continue to be positioned closer to production hubs and consumers.

I'll comment briefly on the changes to our IFRS values, which were effectively flat quarter-over-quarter before accounting for the positive impact from a higher U.S. dollar and euro versus CAD. As you can see from the materials, we also closed on the sale of a small asset in the GTA, and the team achieved a sale price well above our unaffected IFRS value.

Further, assuming we successfully conclude the disposition of the final remaining asset held for sale, we will have disposed of over $210 million of nonstrategic assets this year at a normalized yield of 5.1%, enabling us to redeploy the proceeds accretively on strategic acquisitions in our target markets.

Staying on strategy and capital allocation. As mentioned in our press release, we have roughly $195 million in new acquisitions pending 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 in the fourth quarter.

Also, as disclosed, we have issued roughly 1.4 million units to date for net proceeds of $138 million, which, of course, will be used to fund the aforementioned acquisitions.

As a general comment on the investment market, cap rates appear to be holding for the most part across our portfolio of markets. Bond yields have risen in recent weeks, but it appears that global institutional capital continues to increasingly favor the logistics sector based on strengthening fundamentals and sectoral tailwinds, with first half investment volumes up roughly 50% year-over-year in the U.S. and between 10% to 30% in the U.K. and Western Europe, and as evidenced by recent large-scale M&A activity involving logistics REITs in the U.S., the U.K., and Continental Europe.

Further, the data suggests that the average price in the U.S. is up almost 7.5% year-over-year, reaching an all-time high of $160 per square foot with strong activity in Dallas, L.A., Houston, Atlanta, Chicago and Southern Florida. Investment volume in Germany topped EUR 2 billion in the first half, which is up 10% year-over-year and yields for Class A product appear to be holding steady at 4.5% to 5%.

In summary, I would characterize the quarter as positive, led by continued strong operating results with industry-leading occupancy and selective and effective execution of our capital allocation strategy, with full year guidance tightened and raised slightly on stronger-than-expected NOI growth. This is notably inclusive of over $200 million in dispositions and the issuance of almost $140 million in equity.

As Teresa mentioned, I would also like to highlight that we have increased FFO per unit year-to-date by almost 10% year-over-year, while reducing debt to EBITDA from 7.3x to 6.6x.

Looking forward, leasing fundamentals in our portfolio markets for modern, well-located logistics properties, remain positive. Consistent with my comments from the first quarter, while energy prices and instability may negatively impact the macro environment and occupier decision-making to be sure, the data continues to suggest that trade policy shifts and ongoing geopolitical uncertainty appear to support continued expansion of inland supply chain.

And for the U.S. specifically, this trend is particularly benefiting markets in the Midwest, Texas, and the Southeast, while negatively impacting demand in higher cost coastal markets.

On the capital allocation front, the combination of the disposition and ATM program activity have enabled us to effectively and efficiently fund the pending acquisitions while maintaining the strength of our balance sheet.

In closing, we are well positioned to once again 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 unitholders.

And on that, operator, I'll open up the line for questions.

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

First of all, congrats on a great quarter on the leasing front. And as you mentioned, Kevan, solid FFO growth while reducing debt. It's always a nice thing to do.

Maybe my first question, just on the trend of market rent, the sort of realized spreads that you're getting, not only on the leases taking effect, but also on the leases that you're signing. That spread, I assume, is starting to narrow as you're capturing that mark-to-market.

And I know there's going to be some unusual things with the Samsung lease, and then comparing to the Wayfair bump in the rent last year. But just purely on a sort of a rental spread basis, that contribution to same-property NOI growth, how do you see that aspect kind of evolving into 2027 and 2028?

I think, Sam -- it's a great question. I think it is going to be lumpy. I will remind everyone that 2025 was a rent lift of almost 50% on it. So it is going to fluctuate from quarter-to-quarter and from year-to-year.

I will say this, though, and point out, I believe if you go back a few years ago with the height of the market, say, 2022, middle of 2022, I think I would have characterized the true mark-to-market on in-place rents versus market rents probably around 25% overall, including Europe. And today, where I sit, I think that it's very close to that.

So -- and I think the product of that has been positive movement in market rents in Europe over that time and positive movement in market rents in most of our markets in the U.S. As I've stated, I think the GTA market rents have pulled back quite a bit and then the major coastal markets in the U.S., New Jersey, New York and L.A. being the ones that are top of mind, and the U.K. as well.

So higher cost markets, coastal markets have pulled back. But for the most part, market rent growth has been positive, in some cases, very positive across our market. So that's what I continue to see.

What gets in the way of it sometimes, and we're not the only portfolio, are contractual increases on renewals that come up. In some years, it impacts us more than others. And so I don't want to say anything for 2027, but I do want to emphasize the fact that this year, we feel that the mark-to-market on the expiries, including Samsung, is in that 20% to 25% range. And over the long term, say, over the next 5 years, I think that, that would be a fair characterization of the mark-to-market. Let's say, over the next 5 years, if that helps, Sam.

That's really helpful. So lots to ask, but I'll defer -- one more question, and then I'll turn it back. Just on the acquisitions that you've teed up, any further detail you can share at this point?

I will say, yes, I think we're far enough along in this. We have acquisitions in the U.K. and in the Southern U.S., in Southern Texas, put it that way.

Okay. Okay. That was quick, Kevan. So maybe I'll -- just one more. The acquisition you made early in the year in the U.K., the first one, it was sort of a 2-year development start. Is that still on track to achieve that redevelopment plan...

Yes, as far as we know, I think we're in for planning and entitlement right now on the asset. So nothing new to report. But yes, that 2-year program is still in place and our original plans are intact.

We will now move on to the next question coming from the line of Brad Sturges with Raymond James.

Just following along the lines of Sam's questions, just looking at your '27 lease maturities, a lot of it is rolling in the U.S., and I think you've got a bit in Austria as well. I guess, would most of the U.S. then be like free market expiries where you could take rent to market? And then would Austria still be kind of a fixed rate renewal if it is exercised?

Yes, I think that that's fair, Brad. Yes. So the ones in Europe -- and I will make this comment, and I think it's obvious to everyone that a lot of our lease renewals in Europe are contractual or fixed.

Those do burn off over time. And so we do have a number of leases that there will be a renewal option at a fixed increase. But one of the reasons why we like these assets and acquire these assets is that there will be an opportunity at some point in the future in the next 5 years to really move those assets to market rent.

And there is a sizable opportunity there. We just have to be patient with them to be sure. And the time will come where we'll really be able to move rents on our European assets.

And for the leases that you can take to market, those would be consistent with that comment around a mark-to-market of 25% for next year?

I'd have to look at it, Brad. I think that that's fair, but I would have to -- I have not looked exactly what that is, but I think that, that would be fair on the mark -- on the leases where we have -- where we're able to move them to fair market rent, correct.

Okay. And then I guess my last question would be, in your preamble, it seems been pretty consistent like you called out the GTA multiple quarters of kind of being one of your weaker markets. Are we getting closer to a turnaround enough in the GTA where maybe that market moves up your relative performance list?

Or is it just there a large enough delta between some of your other U.S. markets or Europe versus the GTA that there's still a gap there?

Well, I think if you're asking me about the trajectory of rents in the GTA, I do think that we are near a bottom. It does lag. It always lags. So even if occupancy were to begin improving, there will be a lag where rents are.

And we've -- I think we've taken that view for years now. You've heard calls talk about that. It's the higher cost markets. Toronto, they're all hit for different factors and multiple factors. At the end of the day, there is a consistency globally that the highest cost markets have been hit the hardest.

And as people are sort of moving their supply chain inland and potentially doing that for economic reasons as well. And the GTA falls into that category as a higher cost market. So we are seeing improvements in the GTA, certainly in demand for larger bay product.

It does feel like it will take a few more quarters for rents to bottom out. Certainly, we've seen the decrease -- the pace of decreases has fallen, and so that will start to flatten. But I think you made a comment about the U.S. market.

Like, let's keep in mind, I think people would -- the narrative on the sector, particularly in the U.S. was probably negative for a few years from late 2022 through to 2025. But during that time, market rents continue to increase across the majority of our markets.

In some of our markets, it was quite strong, Savannah, Nashville, even Dallas, which was dealing with the supply overhang, rents moved strongly upward over that time. And that's why I made the comment about our true mark-to-market being, for the most part, maintained since the top of the market in early 2022.

We will now move on to your next question coming from the line of Mark Rothschild with Canaccord.

Kevan, you haven't been shy about expressing frustration with the unit price when you thought that it was lagging, especially compared to how the FFO growth had been. When we look at the use of the ATM, to what extent is this a comment on opportunities you're seeing or maybe just a little more comfortable with where the value is relative to private market value?

Thanks, Mark. I think it has -- it's always somewhere in the middle, but I think it has more to do with the opportunities that we're seeing. And just so everyone is aware, when we look at -- when we're using equity at all, and in this case, remember, we're financing new acquisitions, not only with ATM activity, but also with dispositions, which we've talked about rebalancing remains an important part of our investment strategy moving forward.

But I will make the comment that we -- whenever we're using equity even partially, we run analysis, accretion analysis on any time we put money out the door, and we use actual equity issuance and all costs, and we use -- on a debt-neutral basis, we assume new debt at prevailing market rates that we have available to us.

So we always run that analysis. And what is, I think, notable to us is we are able to step into assets in these leading Tier 1 markets with strong growth prospects at yields we haven't seen in several years and able to manage, like, to step into these assets at virtually negligible dilution to our 2026 AFFO per unit.

So we're able to step in with very little to 0 dilution and to us generate the potential for stronger future growth, both on the income and the capital side from these assets. And so I think it is really, Mark, more opportunity-driven. So as we look forward, look, we're fully -- we feel we're -- the capacity that we have to close on these acquisitions is there, probably to do a little more on the acquisition side without doing anything else.

And if there are future opportunities, we'll have to balance that with where the unit price is because where it is today, I would not be comfortable utilizing the ATM. So you have to balance those things. And I think we've been quite disciplined and selective in how we're using the ATM and how we're pursuing acquisitions. And I think we're going to continue to do that.

We will now move on to your next question coming from the line of Himanshu Gupta with Scotiabank.

So on Magna, for Austria lease coming due next year, by when do you start the process of renewing it? And do you see Magna doing any consolidation in Europe based on your conversations?

The answer to that is we are in pretty constant dialogue with Magna. I won't disclose anything we have with respect to specific assets. But I will say we have no indication -- no indication that Magna intends to vacate the space when the lease expires next year.

And in terms of consolidation, no, we have not had those discussions with Magna. We continue to see them make investments in the assets that are within our portfolio anyways. And I think also it's a very -- these are very difficult assets to replicate in today's world. And so activity remains strong across our portfolio with Magna in Austria and Germany.

Got it. And then on that subject, any update on the Vaughan property, which got vacated in April?

In Vaughan, we've had a lot of activity. We've had a number of tours, but no, nothing to report on the asset in Vaughan at this time.

Yes. And Kevan, do you have a better sense of like the CapEx involved now to lease up that asset compared to like 3 months ago?

Well, I think Teresa mentioned the onetime termination fee that we got. So that will help to fund a lot of the restoration work that we're doing at the property. So it currently looks very good. In terms of CapEx for a new tenant, I think it will be very manageable. I don't think it would be out of the ordinary for any new lease that we're working on with tenants in North America or Europe.

Yes. And you continue to expect the rents being much higher than what was the expiring rent at the time?

That's correct. That's correct. And I will tell you, anytime -- particularly in our sector, anytime you have an asset come vacant, as an asset manager, as a manager of assets, particularly in this sector, it is important to always review with an objective eye the future of this asset.

Do you want to continue to hold this asset? Or do you want to look at selling this asset? To us, the location of this asset and the excess land that this has in its location, I think it's a tremendous value.

So this is an asset that we will -- and I will say, look, in this market, user sales, as you know, are quite common and can be quite accretive. And so we would look for the right deal to sell this asset to a user if that makes the most sense to us.

But we would prefer to keep it just because of the quality of this location and the property itself. So we're looking -- we would prefer to re-lease the space, and we think that we will have success this year. But just pointing out that user sales are very common in this market, particularly in this submarket, and that could be an option as well.

Great color there. Moving on, on same-property NOI growth, obviously strong in the first half. In terms of second half, fair to say that Q3 could be somewhere similar to the first half and then we'll see some deceleration in Q4 due to tough comps?

I think this is going to be same-property NOI from year-to-year goes up a little bit down. And from quarter-to-quarter, it can fluctuate. So I think what would be fair to say is this year, same-property NOI will be stronger in the first half of the year and weaker in the second.

Next year, we anticipate it will be weaker in the first half of the year and stronger in the second half of the year. So it will decelerate through this year and then 2027 will be a year of acceleration of same-property NOI.

Awesome. Okay. And the last question, perhaps for Teresa here. Balance sheet, there's a maturity coming up in December. Any thoughts? What are the ways to mitigate the interest headwind there?

Yes. So we are considering a number of options. Like, I'm not necessarily tied to doing a 5-, 6-year bond at this point in time, especially where underlying treasury yields have gone. But we have some options.

We can do some shorter-term either term debt or frankly, on the credit facility. I can refi and be well below, like, we could be in the 3.5% range if I keep it short-term, which is something I'm considering at this time. So we've got a few options. And frankly, I'm probably favoring going a little bit more short-term right now.

We will now move on to your next question coming from the line of Kyle Stanley with Desjardins Capital Markets.

So Kevan, you had previously mentioned maybe a bit of concern on the smaller bay leasing environment in 2026. But then I guess your remarks earlier today indicated that seems to be abating somewhat. So I'm just curious what's changed maybe over the last few months to see renewed strength in that segment of the market?

Yes. That's a great question. And yes, it was just -- most of the activity we had in the first half of this year and late last year was around our larger availabilities. And we did notice that they -- there was much more activity on the over 200,000 feet -- over 250,000 feet than it was under, and that's what we're left with today.

I would say, I think the theme that has been most noticeable in the last few years is consolidation and flight to quality. And I know it sounds cliche. We've been talking about it for years, but show me any data that refutes that. We have seen the larger bay space and modern being the 2 characteristics that have been the most active and in the most demand basically across all of our markets, broadly speaking.

What I do think is that as these larger spaces are being taken up, there is a spillover effect. So there is less options for an occupier to consolidate into space, and then they have to start looking at smaller space. Now that's a very broad comment, Kyle. But I do think that that's something that's feeding into this. I think there's just a spillover effect and now that's driving demand for smaller spaces within our markets.

Okay. No, I think that makes a lot of sense to me. Just moving on to my next question. I mean, obviously, it's tough to say, but, like, looking at where we are kind of in this current industrial logistics cycle, I mean, how long do you see the strength in the kind of underlying market rent absorption persisting just given your view of occupier demand today before we start to see another kind of more sizable supply response take hold?

Yes. Let's just focus on the demand side. I think I've mentioned that there will be sort of sectoral tailwinds we're getting nearshoring and onshoring. We're seeing that both -- on both sides of the Atlantic to be sure. And that's causing not only demand for logistics space immediately, but also it is moving the supply chains out of some of the higher-cost markets into more inland markets where production is being set up. We are seeing that.

And then on the data center side, which I talked about, I mean, I read a report not that long ago that estimated data center demand for logistics year-to-date in Texas is over 9 million square feet. And we are starting to see data center developers and users appear as prospects, particularly in a few of our markets in the Midwest and Texas. So we are seeing that as well. That is a trend that is expected to continue and probably grow over the next few years.

So I think there's -- and if you look -- I made a comment on the investment market. The amount of capital that's amassing for the logistics sector in Europe and North America is quite startling.

So it's becoming more competitive, and I made that comment about the cap rate. It would be very -- I think, very tempting to look at the backup in treasury yields and say that cap rates are moving with it. But against that, what we're seeing is this formation of capital and its aggressiveness moving into the sector.

So it is my view or my opinion that cap rates are holding steady. And we have seen recent deals that would sort of suggest that cap rates will be moving down over the second half of the year and not up as demand for product continues to increase.

I think I lost train of my thoughts. Did I answer your question there?

Yes. No, you definitely did for sure. And maybe just adding to the kind of something you said there. So like a new pocket of demand emerging from the data center-type users, do they have a preference to larger bay, mid-bay, small bay? Like what are you seeing the RFP look like from them?

It has been more in the larger bay, I would say, sort of over 250,000 feet. That was -- we haven't seen anything smaller than that, although it's not as though we have that product to sort of market to data center users. So it would be, for the most part, larger bay, anything over 250,000 feet.

We will now move on to your next question coming from the line of Tal Woolley with CIBC Capital Markets.

Teresa, just wondering, can you give an estimate of what your 5-year Canadian unsecured rate would be right now?

If I borrow strictly with Canadian rate, it would be about 4.25%. And then if I can swap to euro, which this one that's maturing is a swap euro bond, so we could certainly do that, we'd be looking at very low 4% for 5 years.

Okay. And just wondering too, like, your leverage ratios have ticked down a lot. Do you have a sense of when the credit rating agency is going to make the call on a ratings upgrade or not at this point in time?

Yes. I mean, they want to see at least some history, but we typically have an annual review where we discuss all things and we go through quite a detailed analysis with DBRS. So that does happen around March. So it is another incentive.

Frankly, I should have probably mentioned that why I'm actually favoring shorter term as well because it may be worthwhile to wait. So typically, 12 months, in their reports, they'll say 12 to 18 months, they would like to see some sort of trend.

So it's obviously not my call, but it would be -- I think it would make sense that it would coincide with our annual review, which happens in March of every year. So there is an advantage to waiting because we'll get an immediate reduction in borrowing rates on our credit facility if we get the upgrade.

Okay. And then also, like, I guess, to, like, incidentally, like, using the ATM a little bit here also kind of helps with the presentation for that potential upgrade as well?

Well, I mean, obviously, it made sense that we paid off our credit facility. And this is just more of a timing of when the disposition activity and acquisition activity is occurring. But really, I mean, that ATM -- those proceeds were used to reduce our debt, which definitely impacted favorably on our metrics this quarter.

But I mean, those -- that was effectively earmarked for our upcoming acquisition. But we continue to have EBITDA growth, right, because obviously, our measures on trailing 12 months. So that continues to grow, and that's also helping us in our metrics.

And then if you went to, like, a term loan or something like that, would the rates be materially different from what you were talking about on the unsecured?

Yes, it would be. I mean, depending on the year, usually a term loan, you're not going to get -- really get past 3 years. But right now, I know we definitely -- we can definitely get a term loan for a year with materially lower rates than a 5-year.

We will now move on to our next question coming from the line of Pammi Bir with RBC Capital Markets.

Just want to come back to the acquisitions that you spoke about that I guess we'll expect for Q4. Are these all stabilized? Or are you perhaps maybe prepared to take on any sort of lease-up risk with developments or repositioning any of these?

These are all stabilized, Pammi, but the answer is yes, we are. We are willing to look at any asset where we feel that there's value in it. So it could be ground-up development, it could be vacancy, it could be redevelopment.

So I think all of the above, these happen to be stabilized. And it's -- again, it's over -- what's going to provide us with the best long-term lift in value, it's what's ultimately driving our investment decisions.

Okay. That's helpful. I guess just maybe more broadly in terms of the mix in there, large bay, multi, single, et cetera, I mean, what are -- like, are these a mix of those types of opportunities? Or what specifically kind of stands out to you on these assets?

No, again, it's the -- listen, we -- it has to be modern. It has to be functional or something that we can make very functional. It has to be in the right market and it has to be in the right location in that market and the cost basis has to make sense. And so those are the main factors to us. These actually are not all large bay assets. As a matter of fact, it would probably -- they would be closer to mid-bay than they would large bay.

Again, and I know it might be fair to say that we're focused on large bay single tenant assets. I keep saying it, but ultimately, we're not. We're focused on what is the most effective, functional, modern, distribution assets in the market, and what fits the market is the most important criteria to us. So in this case, they're not effectively large bay assets, but closer to mid-bay assets and 2 of them are multis.

Great. That's helpful. And I guess just from a cap rate standpoint or maybe the range, how do they compare relative to the -- I think you cited a low 5 on the dispositions?

Yes, these would be in the sort of low to mid-5 range. I would say, low 5 range going in.

Okay. And then just I did want to come back to maybe some of the leasing commentary. On the -- I think you secured about 1 million square feet so far on the 2027 maturities. How have the spreads trended to date relative to that -- the 20% to 25% long-term target that you cited?

I would say, again, it can be timing-wise, and it could be affected by every portfolio is going to have contractual renewal increases at some point in the portfolio. And it just depends on timing. And I still stand by, over the long term, I would say, over the next 5 years, that 20% to 25% is intact on the mark-to-market.

Okay. And then just maybe last one for me. With respect to Austria, assuming that, that renewal does move ahead, any update on potentially selling the bulk of that portfolio in that market and I guess, more specifically, the larger Graz facility? I think you're now a couple of years into that renewal, right?

Yes. We're a couple of years into it. I think -- again, I think the conditions that are important to us are where the rates are. And look, rates could stay high for longer. I acknowledge that.

I do think conditions could improve from an interest rate perspective. I think that, that would help the potential disposition of these assets. I will say we're in discussions across a lot of our portfolio on potential sales. That would include Germany and that would include Austria.

I won't get into particular assets for sure, but we are having those discussions. And if there is an opportunity to dispose of those assets at prices that make sense to us, we certainly would pursue it. But I do want to caveat that with, I think as interest rates or if interest rates fall over the coming years, I think that, that will be a better condition for us to look at all of the assets in Austria.

Makes sense. Just on that last point you made, what would sort of be the value or your book value of those assets in Germany and et cetera? What would the -- or what's in discussions at this point? What would that sort of book value look like?

Well, if I were to say overall, that includes North America in there. We're probably on discussions in that sort of CAD 300 million to CAD 500 million range of assets, but that includes North America as well because we are in discussions on dispositions across our portfolio. And that's just normal rebalancing. But I can tell you that the interest and level of discussions we're having have ticked up.

Again, I think this speaks to demand for logistics and industrial in general for the sector because we're getting more inbounds from interested parties in a lot of cases, parties we have not spoken to in the past that are looking at aspects of the portfolio.

We will now move on to your last question coming from the line of Matt Kornack with National Bank of Canada Capital Markets.

I just wanted to go back to Kyle's line of questioning around supply and also the data center aspect. Are you seeing in markets like Southern Texas where there's been -- or Texas generally where there's been a ton of investments in data centers, that that's maybe competing for land resources, labor in terms of building and maybe increasing the cost of new supply in industrial and driving potentially rents higher that you need to ultimately build today?

I would agree. I would say all of the above and all those things, I think, have a positive impact on our sector. It does make construction -- and I think we're just seeing the beginning of it. The anticipation is that this is going to make it much more expensive to develop. And again, that helps us from a land value.

It helps us from economic rent. So we are encouraged by, frankly, the sort of tangential impact that has in our sector. So we are just starting to see it. And I think from a supply side, it's only going to get worse on the cost basis and just make things more expensive to build.

Okay. So if I look at your kind of mid-U.S. single-digit dollar rents in the U.S., and call it, mid-single-digit euro dollar rents in Europe, you can't deliver supply into the market at that type of a rate today and presumably, it maybe gets higher as we go forward?

Yes. And we have noticed, if you look at a lot of the lease, a good chunk of the new leasing that's occurred in the market, part of the reason why rents continue to move -- posted rents continue to move is that these are new builds and they're higher rents than the existing market rent. So we're seeing that sort of pressure that you're referring to there.

And I just want to make one last point about data centers, and I don't know this for sure. But when we're asked the question, especially for the large bay, why did tenants and occupiers come off the sidelines so rapidly in 2025? I do think what gets overlooked is the data center demand.

And again, I'm not in the heads of occupiers. They don't share all of their strategic decisions with us in the real estate side. But I would have to think that perhaps what they're seeing is this demand coming in from data center users and they're trying to get in front of it, and are trying to improve their supply chains before the full impact of data center demand or data center user demand hits the logistics sector. That's just my opinion.

That's an interesting angle. We always think of it in terms of you guys potentially getting a data center user into the portfolio, but in actuality, it's kind of increasing the demand for the space generally and...

To creating -- we think it's creating greater urgency, which is a great word for landlords. It's one of our favorite words.

We have reached the end of the Q&A session. I will now turn the call back to Kevan Gorrie for closing remarks.

All right. So on behalf of the Board and management team here at Granite, I would like to thank everyone for joining our Q2 call. And hopefully, we'll speak to you on the next call.

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

Hello, and welcome to the 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 Odyssey Trust Company and Granite Real Estate Investment Trust that you first obtained all required consents for the disclosure, recording, transfer and use of personal information from all appropriate persons before your disclosure.

During the meeting, we will have a quest-and-answer session. [Operator Instructions] It is now my pleasure to turn today's meeting over to Kelly Marshall, Chair of the Board of Trustees of Granite Real Estate Investment Trust. Mr. Marshall, the floor is yours.

Good morning, everyone. This is Kelly Marshall, Chair of the Board speaking, and I would like to welcome you to the 2026 Annual General Meeting of Unitholders of Granite Real Estate Investment Trust.

Today's meeting will be conducted virtually by way of a live audio webcast. Holding a virtual meeting, we believe, enables 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 that they would have had at a physical meeting by enabling registered unitholders and duly appointed proxy holders to listen to the meeting, submit questions and vote online in real time. As in past years, a majority of the 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. 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 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 correct information. Following the formal business of the meeting and management's presentation, we will have a question-and-answer session. If you have any questions not specifically relating 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 defensive 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 an objection to an item of business, please follow the same procedure at the appropriate time.

Before I commence with the formal business of the meeting, I would like to take a moment to acknowledge and thank Peter Aghar and Sheila Murray, who are retiring from Granite REIT's Board for their significant contributions and dedicated service over the years. And on a personal note, I would like to echo that by saying that they were tremendous and tremendously important individuals who allowed us to reach the success that we have, and we will miss them dearly.

I would like now to introduce other trustees who are attending today's meeting: Robert Brouwer; Amber Choudhry, Remco Daal; Kevan Gorrie, also Granite's President and CEO; Fern Grodner, Jonathan Kelly; Al Mawani; Emily Pang and Jennifer Warren. Also attending today's live audio webcast are Teresa Neto, CFO; Lorne Kumer, EVP, Head of Global Real Estate; Michael Ramparas, EVP, Global Real Estate and Head of Investments; and Lawrence Clarfield, EVP, General Counsel and Corporate Secretary.

The matters of business to be conducted today were described in the management information circular dated April 9, 2026, 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 in accordance with the instructions that were provided. 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 the proxy instructions. The polls are now open for all items of business. This will allow you to vote on each item immediately or if you prefer, you wait until the conclusion of the 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 screen 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 the votes. I will then declare the voting closed on all matters of business. I will announce the 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 on these persons at the appropriate time. Following the formal business of the meeting, Kevan Gorrie, Granite's President and CEO, 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 meetings, including during the presentation and question-and-answer period, trustees and officers of Granite REIT may, in their remarks or in response to questions, make certain statements which 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. And 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 Patty Sigiannis of Odyssey Trust to act as scrutineer for the meeting. As there is no objection, I appoint Patty Sigiannis, and apologies if I missed that out, from Odyssey to act as scrutineer.

The notice calling this meeting together with the form of proxy and circular have been provided or made available to each of the trustees, Granite's auditor and each intermediary and registered unitholder record as of April 9, 2026, the record date for this meeting. The annual report containing the consolidated combined financial statements of Granite Real Estate Investment Trust for the financial years ended December 31, 2025 and 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 with the reading of the notice of the 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 46,869,025 units, representing 77.28% of the issued and outstanding units. Accordingly, I confirm that the requisite quorum is present, and I declare the meeting is duly and properly constituted for the transaction of business. I direct that the confirmation of the mailing received from Odyssey Trust Company and scrutineers' report of the meeting, be annexed to the minutes of the meeting. 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 with the reading of such minutes.

The first item of business is the presentation of the consolidated combined financial statements of Granite REIT and the auditor's report therein. With the consent of the meeting, I will dispense with the reading of the auditor's report.

We will now proceed with the election of the trustees. The number to be elected is 10. I declare the meeting open for nominations, and I will ask Alison Clements to nominate the individuals specified in the meeting information circular for the meeting.

I nominate Robert D. Brouwer, Amber Choudhry, Remco Daal, Kevan Gorrie, Fern Grodner, Jonathan Kelly, Kelly Marshall, Al Mawani, 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.

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

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

May I have the motion seconded?

I second the motion.

With those registered unitholders and duly appointed proxy holders who do not have already voted online or by proxy, please submit their online ballot for the election of trustees by selecting a voting option on the screen panel displayed on your screen.

[Voting]

We will 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 conduct the vote by way of online ballot.

[Voting]

We will now move on to the next item of business, which is the consideration of the Nonbinding Advisory Resolution on Granite's approach to executive compensation. As described in the management information circular dated April 9, 2026, 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 part of the report 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 10:12, and the polls on the matters of business will close and at 1 minute to the current time of 10:12. For those of you who have not voted on all of the matters and businesses, 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 based on the scrutineer's preliminary report that all matters put to a ballot have been passed with the requisite unitholder approval. Accordingly, 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. That concludes the voting at today's meeting. For the information of the meeting with respect to Granite's majority and 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. We will now have a presentation from Kevan Gorrie, Granite's President and CEO. A copy of the presentation will be available on Granite's website following the meeting.

Thanks, Kelly, and good morning, everyone. As mentioned, I will now present a brief summary of our results, performance for 2025 and year-to-date 2026 and also provide an outlook for the remainder of this year before we open the line for any questions. As Kelly mentioned, a full copy of this presentation will be available on our website at the conclusion of our AGM, so I will focus only on a few major points on each slide.

2025 was a year highlighted by strong financial and operational performance, including significant progress on the leasing front, as I'll discuss, improvement in Granite's unit price and our 15th consecutive annual distribution increase. We show this slide every year as a reminder of our origin and how our business has transformed and evolved since our inception in January of 2013. You can see how Granite has grown from a Magna-dominated portfolio of just under $2 billion to today where U.S. unitholders now own a $9.5 billion portfolio of predominantly modern logistics assets in key markets in North America and Western Europe.

Geographically, and although not exactly the scale, here, you can visualize our geographic diversification in more detail. Our portfolio concentration has remained relatively stable from 2024, but we are pleased to highlight that we have entered the exciting and dynamic U.K. and South Florida markets resulting from acquisitions in the fourth quarter of 2025. The highlights contained herein reflect another very strong year of financial performance as key metrics of FFO and AFFO per unit were up nicely from 2024, driven by strong operating performance as the team achieved, as you can see, a weighted average increase on renewals of almost 50% and completed over 2 million square feet of new leases in the year, improving our committed occupancy from 95% at the end of 2024 to an industry-leading 98.6% at the end of 2025.

I would also like to acknowledge here, Granite's track record of financial performance as summarized on the right graph. As a result of strong operating performance, combined with prudent and opportunistic capital allocation, Granite has delivered an average annual growth rate of over 8% since 2020. Following a quiet year of two expansion and one development projects and no acquisitions in 2024, Granite invested roughly $350 million in leading Tier 1 markets in South Florida, Houston and the U.K. taking advantage of a compelling investment market conditions to enter or expand in these key markets at attractive yields with strong growth potential. To help fund our acquisition program and as communicated at our AGM last year, we disposed-off select nonstrategic assets in U.S. markets where we had higher concentration and evolving assets where we believe we have already maximized value.

As a result of this balanced approach to portfolio modification and improvement, our balance sheet remained one of the strongest in the entire Canadian REIT sector, finishing the year with liquidity just under $1 billion and debt-to-EBITDA at just 7x.

At Granite, we continue to pragmatically incorporate sustainability into our corporate decisions and actions. And I am pleased to report that Granite was recognized once again as a leader in this sector by GRESB, the largest real estate sustainability benchmark globally, both in terms of disclosure and overall score. And as you can see, we continue to allocate the proceeds from our green bonds towards eligible green projects, and we expect to be fully allocated within the next few years.

In the fourth quarter of 2025, we commenced the third phase of our successful Houston development site, a 391,000 square foot build-to-suit project fully leased to a Fortune 100 company for a 12-year lease term, which is expected to generate an un-levered stabilized yield of 7.5% with completion scheduled for the fourth quarter of this year. And looking forward, we will continue to prioritize future build-to-suit opportunities within our portfolio and further would look to add new sites over time to our land bank to augment our future development program within our target markets.

After 14 consecutive annual increases to our annual distribution of $0.10, the Board elected to increase the annual distribution by $0.15 or 4.4% for 2026. That decision was taken only because we were able to balance such an increase while maintaining a conservative AFFO payout ratio, which finished 2025 at just 65%.

Turning to our unit performance for the year. Granite generated a total return of almost 23% for 2025, well above the TSX REIT Index return of 9.6%. And more importantly, as you can see from the graph on the right, Granite has very strongly outperformed the index over the long term since our inception in 2023. Looking forward, priorities will shift somewhat from year-to-year, but the key principles remain the same: driving FFO and NAV growth through effective management and capital allocation remain our priorities and to us should lead to higher long-term return for unitholders. On that note, we are projecting another strong year of growth with FFO per unit expected to increase by 6% to 8% over 2025 and debt-to-EBITDA decreased to 6.8x in the first quarter of 2026.

Finally, from a capital allocation standpoint, different market conditions merit different approaches. And we believe that current conditions provide us with attractive opportunities to continue to deploy capital in leading Tier 1 logistics markets at yields and growth profiles that we believe will continue to improve our portfolio and generate attractive long-term total return for unitholders. In conjunction with these strategic acquisitions, we will also continue to identify select nonstrategic assets for disposition and when appropriate, utilize our ATM program in order to fund these investments.

That is the conclusion of my presentation, and I will now turn the floor back to Kelly.

Thank you, Kevin. We would now like to invite any supplemental questions from unitholders or proxy holders present at the meeting. As with the 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 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 unitholders -- 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.

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.

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.

Good morning. My name is Lily, and I will be your conference operator for today. At this time, I would like to welcome everyone to Granite REIT's Third Quarter 2025 Results Conference Call. [Operator Instructions]

Speaking to you on this 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 some certain advisories.

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 statements and 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 facts 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 statements or information. These risks and uncertainties and material factors and assumptions applied in making forward-looking statements or information are discussed in Granite's material filed with the Canadian Securities Administrators, and the U.S. Securities and Exchange Commission from time to time, including the Risk Factors section of its annual information form for 2024, Granite's management discussion and analysis for the year ended December 31, 2024, filed on February 26, 2025, and for the quarter ended September 30, 2025 filed on November 5, 2025.

Granite posted Q3 2025 results ahead of Q2 and in line with management's annual forecast and guidance that reflects continued strength in our operating fundamentals supported by strong NOI growth, representing $0.06 per unit of the $0.09 per unit growth in FFO quarter over sequential quarter. FFO per unit in Q3 was $1.48, representing the $0.09, or 6.5% increase from Q2 '25, and a $0.13, or 9.6% increase relative to the same quarter in the prior year. The growth in NOI this quarter is primarily derived from strong same property NOI growth, enhanced by leasing spreads of 88%, and the lease-up of previously vacant units in Canada and the United States. NOI growth was further enhanced by the Florida acquisitions completed last quarter.

AFFO per unit in Q3 '25 was $1.26, which is $0.03 higher relative to Q2, and $0.04 higher relative to the same quarter last year, with the increase versus Q2 mostly tied to FFO growth and lower leasing costs due to timing of leasing turnover, partially offset by higher capital expenditures incurred. AFFO-related capital expenditures incurred in the quarter totaled $10.5 million, which is an increase of $2.5 million over Q2, and $5.3 million higher than the same quarter last year. For 2025, we continue to expect AFFO-related capital expenditures to come in at approximately $40 million for the year, and that is unchanged from our estimates previously provided.

Same-property NOI for Q3 remained robust, increasing 5.2% on a constant currency basis and up 8.4%, and foreign currency effects are included. Same-property NOI growth was driven primarily by CPI and contractual rent increases across all regions, positive leasing spreads on lease renewals, primarily in the U.S. and Canada, and the lease up of previously vacant units in the U.S. and Canada, and the expiration of a free rent period at a property in the United States.

Given the continued strong leasing activity in the third quarter of '25, we are increasing our guidance for the year and narrowing the range for constant currency, same property NOI, based on a 4-quarter average to come in at approximately 5.4% to 6.2% from the range previously provided of 5% to 6.5%. G&A for the quarter was $14.1 million, which is $0.9 million higher than the same quarter last year, and $4.1 million higher than Q2. The main variance relative to Q2 is the $4.2 million unfavorable fair value adjustment to noncash compensation liabilities, which do not impact Granite's FFO and AFFO metrics.

For the fourth quarter, we expect G&A expenses that impact FFO and AFFO to be approximately $10.5 million. Interest expense was slightly higher in Q3 2025 relative to Q2 by $0.5 million, while interest income remained flat as compared to Q2. The slight increase in interest expense was primarily driven by the draws on the credit facility to fund last quarter's Florida acquisitions. Granite's weighted average cost of debt is currently 2.7%, and the weighted average debt term to maturity is 3.6 years. With Granite's next debt maturity in September of '26, we continue to expect interest expense to remain stable over the next approximate 4 quarters at roughly $24.5 million per quarter, barring any new transactions.

Q3 2025 current income tax was $3 million, which is $0.3 million higher as compared to the prior year and remained flat compared to Q2. For the fourth quarter in '25, we are expecting current income taxes to come in at approximately $3 million as well. As in prior years, Granite may realize a credit to current income taxes of approximately $1.8 million in Q4, due to the reversal of prior year tax provisions. However, we cannot confirm the certainty of such credit until December 31, and our guidance does not factor any tax provision reversals.

Regarding the '25 outlook, Granite is increasing its 2025 guidance and narrowing the ranges relative to estimates previously provided. Granite's current outlook reflects lease renewals and new leasing of vacant space completed year-to-date, which have increased overall NOI estimates. The current outlook reflects the Florida acquisitions, but does not include any assumption for a potential property dispositions. In addition, the current outlook reflects year-to-date financing and NCIB activity completed in the first half of 2025, and embeds the year-to-date positive impact to FFO of the weaker Canadian dollar relative to the euro and U.S. dollar.

So for FFO per unit, we are raising guidance from last quarter to the range of $5.83 to $5.90 representing an approximate 7% to 9% increase over '24. For AFFO per unit, we are raising guidance to the range of $5.03 to $5.10, representing an increase of 4% to 5% over 2024. Granite's balance sheet remains strong. Investment properties totaled $9.1 billion at the end of the quarter, which excludes $370.7 million of 6 assets held for sale, consistent with Granite's messaging last quarter on its disposition program.

The increase in investment properties from last quarter was primarily due to $156.5 million of foreign exchange translation gains on Granite's foreign-based investment properties, driven by a 2.3% increase in the spot U.S. exchange rate, and a 1.9% increase in the spot euro exchange rate relative to Q2, partially offset by net fair value losses of $34.6 million. The Trust's overall weighted average cap rate is 5.6% on in-place NOI, increased 5 basis points from the end of Q2, and has increased 32 basis points since the same quarter last year. Net leverage ratio at the end of the quarter was 35%, a decrease of 100 basis points from last quarter. Net debt to EBITDA was 7x, a slight decrease from the 7.1x in Q2, and consistent relative to the same quarter last year.

Granite's key leverage ratios remained slightly elevated due to the classification of the 6 assets held for sale as they are excluded from investment properties, resulting in a decrease in the denominator for the net leverage ratio. In addition, Granite has increased unsecured debt due to drawing on the credit facility to fund the Florida acquisitions resulting in an outstanding balance of $78 million at the end of the quarter. Granite does expect these ratios to normalize when the asset sales are completed.

The trust liquidity is approximately $1 billion, representing cash on hand of approximately $109 million, and the undrawn operating line of approximately $918 million. As of today, Granite has $79.5 million drawn on the credit facility and $3 million of letters of credit outstanding. Granite does expect to reduce the balance on the credit facility throughout '26 with free cash flow from operations or with proceeds from disposition of certain properties, barring any other major transactions.

I'll now turn over the call to Kevan. Thank you.

Thanks, Teresa. As usual, I'll be brief with my comments and hopefully provide some helpful context to our results.

As Teresa mentioned, our Q3 results were in line with expectations, driven by strong leasing momentum and NOI growth. And as you can see from our updated year-end guidance, we expect our financial performance to continue to strengthen over the remainder of the year.

Firstly, strong leasing momentum continued as the team executed on over 400,000 square feet of new leases in the quarter, and extended 6 leases related to expiries in the fourth quarter of 2025 and in 2026, representing just over 2.3 million square feet. In this quarter, as you can see, the increase on renewals in the third quarter was extremely strong at 88% of 1.85 million square feet of Q3 expiries in the GTA and the U.S. We have now renewed 81%, roughly, of our 2025 expiries at a weighted average increase of roughly 47%. And that excludes the increase on the new lease in Atlanta where the team achieved an increase in rental rate of 58% over expiring rents at the end of the first quarter.

Staying on leasing a few comments on relevant market data. 8 of our 16 markets in North America reported flat or decline in market vacancy from the second quarter, and all of our portfolio markets reported positive net absorption in the quarter, led by Dallas-Fort Worth,

Indianapolis, Savannah and Houston. With respect to market rents, asking rents fell year-over-year in 4 of our portfolio markets in North America and, increased in 11 led by Houston at 10.3%, Nashville at 8.3% and Louisville at 6.3%. Our weakest market was once again the Greater Toronto area as asking rents fell roughly 5.5% year-over-year.

So while leasing conditions steadily improve across our portfolio and our leasing performance continues to be strong, net absorption overall remains below the 10-year average and conditions are competitive. But I would highlight at this time that modern, functional, well-located portfolios are as expected, clearly outperforming the general markets. I will provide a detailed update on our European portfolio markets in the fourth quarter as we receive the data.

And in viewing our leasing performance and NOI growth over a longer term, over the past 3 years, we have generated cash NOI growth per unit of 44%, a CAGR of 12.9% over a period, which most of you would characterize as challenging for our sector. I provided an update on our last call regarding the publication of our 2024 corporate ESG report. But I did want to mention at this time that Granite was recognized for the second consecutive year with the top ranking in our industrial peer group by GRESB for overall score and public ESG disclosure.

I'll comment briefly on the changes to our IFRS values. As Teresa mentioned, we made minor negative adjustments to capitalization and discount rates broadly across our U.S. and European portfolios, which was partially offset by positive gains from recent renewals in our GTA portfolio. And our overall IFRS value was obviously positively impacted, as Teresa mentioned, by the favorable movement in the USD and euro against CAD in the quarter.

Moving on to capital allocation. I'll begin with an update on the planned dispositions. Of the $370 million of assets held for sale, we have agreed to terms on roughly $190 million of those assets in the U.S., and the transactions are progressing well, and we expect to provide a more fulsome update on the dispositions with our Q4 results at the very latest.

In terms of capital deployment so far in 2025. We have acquired roughly $145 million in Granite units through our NCIB, as well as funding roughly $10 million year-to-date on our development projects, and $50 million related to our recent acquisition in the Miami market. So to fund over $200 million in these areas and finish the quarter, with only 70 -- I think it's $79 million drawn on our line of credit and roughly $128 million in cash, you can see the power of our low payout ratio and free cash flow. We have also agreed to terms on approximately $240 million in new acquisitions in our target markets in the U.S. and Europe, and expect to close on those transactions in late Q4 or early Q1 2026.

Staying on capital allocation. Our $0.15 distribution increase represents the 15th consecutive annual increase since our inception in 2011, and marks the first above $0.10, as we believe the incremental increase is merited at this time and sustainable, supported by the strength of our cash flow growth over the past number of years, and the conservative nature of our capital structure and correspondingly low AFFO payout ratio. We are able to fund the increased distribution while continuing to reinvest strongly in our business without compromising the strength of our balance sheet and capital ratios.

So looking out to the remainder of the year, our leasing pipeline remains quite strong at well over 500,000 square feet currently under lease negotiation. And although we'll provide specific guidance in conjunction with our Q4 results, we are confident that the achievements made by the team in 2025 have positioned us well to execute on our financial, operational and strategic objectives for 2026 and beyond.

Operator, I'll now open it up for questions.

[Operator Instructions] Your first question comes from the line of Brad Sturges of Raymond James.

Just on the transaction, I want to clarify there, Kevan. the transactions that you were talking about U.S. Europe, I think that was referring to the dispositions or assets held for sale. Would all that, everything that's held for sale now, could that close by early '26? Or how are you thinking about the time line to those transactions right now?

If you're referring to the dispositions, Brad, I think that -- yes, all of the $370 million would be expected to close as we sit here today by the end of 2026.

Okay. And how is -- in terms of redeploying that cash, obviously, I think you've talked about opportunities -- you're even looking at on the acquisition side. How does that pipeline look today? And how do you think about sort of capital allocation priorities once the cash comes back beyond, I guess, repaying the line?

Well, as I mentioned, we have $240 million in acquisitions that we're currently working on. I would estimate probably another $100 million that we are currently looking at, not pursuing in earnest, but looking at. So that's what the pipeline of acquisitions looks like. And as I mentioned before, particularly in the U.S., we have to balance the acquisitions with the dispositions or the pace of those. So that -- obviously, the pace of our acquisitions will rely somewhat on the pace of dispositions.

Okay. Just last question, just on the leasing front. I think last call on the -- I guess, within the Indianapolis market, you had the larger facility, you're still looking at lease, you're looking at RFPs, or reviewing them for the entire building there in Indianapolis. Is there any update on that front?

I don't want to update on particular markets. I may sound a little paranoid, but I don't want to do anything that will compromise our efforts on the leasing front, acquisition front or disposition front. So just to say I mean at over 0.5 million square feet under lease negotiation that obviously involves some of our large spaces, and those deals are progressing well.

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

So you've made great progress on the '26 maturities already as well. With most of the expiries happening in the U.S., is there any kind of early nonrenewal concerns that you might have? And generally, what kind of leasing spreads would you expect overall and then maybe more for the U.S. portfolio specifically?

I think other than the Samsung space in the U.S. next year, nothing that really stands out to us. But I think we've had some very high levels of renewals. We were over 90% in '24, over 80% at '25. I would expect us to be sort of in that traditional range of 70% to 75% renewals for next year, partly because of the Samsung nonrenewal.

In terms of spreads, I think it would be -- look, I wouldn't expect anyone to expect a repeat of 2025, i.e., 47%. I think it would be closer to our range in 2024, which is more in that 20% range for 2026. But I'll have more details on the next call.

Okay. No, that's very helpful. I mean leasing activity seems to have remained quite strong or improved even since our last update. What's changed in the last maybe 4 to 6 months that has allowed for this improvement in demand more broadly in the market? And then specifically, within your portfolio to convert leasing tours to and RFPs to signed leases at this point?

I don't know if there's anything specific. I think the two trends that sort of come to mind to me that I think I've mentioned is, one, I think tenants have put off their leasing decisions for a long time. And I think that, that is -- they're reaching sort of a point in time where they have to make a decision to move forward.

And two, I do think we are seeing a flight to quality. I think a strong location and assets are really starting to outperform the market. I mentioned that in my remarks and I would certainly highlight that. So I think in terms of our portfolio, and I've said this on calls before, look if the market vacancy rate in the U.S. overall or across our portfolio markets is 7%, we expect to outperform that. So our vacancy is expected to be lower than that. And I think we are seeing that.

So I will tell you, I think the activity across our specific portfolio is quite strong relative to the overall market and maybe some of our competitors. But I think that, that's a testament to the quality of the platform and the quality of the real estate that we own. It's starting to show.

Okay. I appreciate that. Just one more question. With the fundamentals across the U.S. firming up, are you seeing any new development start to percolate, particularly, I guess, on spec? And has your outlook towards development changed at all in the last several months?

No, I think we're continuing to see a gradual decline. Like in the U.S., it's never going to go to zero in terms of new supply. There has been a gradual decline. I think, 2026, if you look at some of the expectations from CBRE and others, they're expecting the lowest, I think, development pipeline in well over 10 years. So it's never going to go to zero. And I think we've seen pre-leasing in the sort of 30% to 35% range, which is pretty consistent with pre-COVID levels.

So we're not seeing an uptick in development, if that's what you're asking or new supply. If there is, it's usually build-to-suit. In terms of speculative, I think it continues to slow down. We expect that trend to continue in 2026.

Your next question comes from Himanshu Gupta of Scotiabank.

So first on capital allocation. Distribution increase was a bit higher than the last couple of years. Just wondering what led to that decision? And is that a reflection of your stronger expected FFO growth next year?

It's a great question. I think -- look, we've been at $0.10 since inception in 2011. And I think our first distribution was $2. So $0.10 represented the first year would have been 5%. And so on a percentage basis, the increase was declining every year. And if we had stayed with $0.10 this year, it would have been sub 3% increase. I think it would have been 2.91. And so I think we thought long and hard about what the right distribution increase was for Granite.

I don't think we would have been in this place if we didn't have such strong FFO and AFFO per unit growth over the past 5 years. But where we sit today, I mean, obviously, we want to prioritize reinvestment in our business. But when you have a payout ratio, and AFFO payout ratio in the mid-60s, and you have $100-plus million in free cash flow, the $0.10 to $0.15 only represents $3 million in incremental distributions on an annual basis. And we feel we can do that and continue to reinvest in the business and not compromise our liquidity, and not compromise our free cash flow. So that's why we made the decision.

What was really important is if we move to [ $0.15 ], we have to be able to sustain it. And I think all of us on the management team and the Board are very confident we can sustain that level of increase. Again, there's no guarantee. We have to review it every year, but the sustainability of the distribution increase was an important consideration for us when we made this decision to move to $0.15.

Got it. Very helpful. And then on the capital recycling. So you're selling in markets like Indianapolis, Columbus and you're looking to buy in core markets. How tight is the CapEx spread now versus historically speaking, which encourages you to make that move from selling these assets and buying on the other side?

Well, it depends on the market, but we -- I think what we've signaled is, look, as we are continuing this rotation into the Tier 1 markets that we believe are going to be the strongest markets over the next decade. A spread of 75 basis points to 100 basis points is probably something the market should expect. It may not be the case all the time, but that's sort of what we're seeing right now in terms of our dispositions versus our acquisitions.

Now keep in mind, that's a year 1 yield. We're certainly targeting assets where we feel we can drive that yield over the next 3 to 4, say, 5 years. So when you look at it on a year 1 basis, yes, you might see a spread of 75 to 100 basis points. But we certainly expect to eat into that spread over the near to medium term, if that makes sense.

Got it. That's helpful. And then as you kick start the disposition program, did you consider adding Magna to the mix as well? And any of the Magna assets to that list?

Yes. I mean it depends on the market. I certainly think we look at all of our noncore assets as part of this disposition program. So the short answer to your question is yes, we do. And I would think in 2026 and 2027, as we look at further dispositions, certainly Magna assets could form part of that disposition program.

Your next question comes from the line of Tal Woolley of CIBC.

Actually, just following up on Himanshu's question. Now that we're sort of 6-plus months out from when the tariff drama sort of began. You've got a little bit of time to assess how things have shaken out. How are you feeling overall just about automotive exposure in the portfolio period?

I think one thing -- I've talked about this, Tal. I think one thing that really gets missed here, and I don't know really it's interesting to me reading some of the analyst reports on Magna and other automotive parts providers is you don't see tariffs mentioned in their analyst reports. You see tariffs mentioned more with respect to Granite. Let's not forget that the automotive parts industry is covered under [indiscernible]. And that is an important piece. That's an important trade agreement for sure and something that we monitor.

And in listening to Magna's calls and Magna's disclosures. They've been very clear. There hasn't been a lot of noise around the tariff side. So I certainly don't think that it merits any immediate action on our part. Those assets continue to perform well. And hopefully, the trade agreement that's in place continues in its current form, or as close to it as possible. And if that's the case, then these assets will, in our opinion, continue to perform well.

And actually, you're just sort of leading me into where I wanted to go next was just with the [indiscernible] negotiation -- renegotiation coming up, given what you sort of saw this year, do you have any insight for us on how to think about leasing velocity going into 2026? Like how you would expect your clients to respond?

Are you talking about overall in the portfolio in 2026?

Yes.

Well, I think we've talked about Canada. And if there are any changes to the Magna portfolio specifically in our view, it's not related to tariffs at all. For the U.S. portfolio, it's hard for us to see how it's actually hurt our U.S. portfolio at all. I'm not -- I can't say with any sort of certainty that it has helped the U.S. portfolio. But certainly, we have seen an uptick in manufacturing demand.

And not in all markets. If you look at -- looking at a stat the other day, if you look at construction spending on manufacturing facilities in the U.S. the last 12 months, 80% of it has occurred, the Midwest through the South and Southeast. So there's an awful lot of investment, particularly in the manufacturing side going into those markets. And that has benefited our portfolio for sure. So I have no concerns with the U.S. market.

With respect to Europe, it has not affected our leasing that we can see anyway at all. So I don't anticipate any impact on our 2026 leasing as a result of the trade sort of narrative that's going on right now or tariffs, if that helps.

Okay. And just lastly if you look sort of over the last maybe a decade or so, there's been a big change in rent levels in some of your markets. Have you now sort of any long-term kind of implications around, like, for industrial development with occupiers preferring to build their own stuff, given that the rents have risen? Or any sort of changes in terms of whether potential tenants decide to own on their own versus decide to lease?

No. And I mean, we did go through this. There was a period of time where companies like Amazon wanted to own their facilities and then they wanted to not own all of their facilities because they probably have a better use of funds within their own business. So I don't think we -- as I'm looking at the team here. I don't think we've seen a trend of ownership.

Now the legislation in the U.S., I think, and the pending legislation, the budget in Canada, I think, certainly incentivizes capital spending. I don't think we anticipate that there will be a big impact on tenant decisions regarding ownership of their facilities. And I mean, we've certainly seen it. There's always a percentage of tenants that will want to own mission-critical facilities, but we haven't seen an uptick in that trend, and we don't expect to see it in the next couple of years.

Your next question comes from Matt Kornack of National Bank.

Just a follow-up to Tal's questioning there is through this kind of capital recycling that you're anticipating to do, is there a theme that you're trying to play that you currently aren't playing or something in those markets that you see that would be different than where you are? Because to your point, it seems like the markets you're in are actually the ones that have been kind of net beneficiaries of some of the changes in industrial.

Okay. So we should invest more in the Midwest. Is that the point?

Well, just -- is there something outside the Midwest? Or where -- like what are you trying to get at in going into these new markets relative to your...

I think -- look, I'm not trying to be facetious, but I think we've been clear that it was always our intent. We like the markets that we're in. And I agree with you. And certainly, when you look from a tenant demand perspective, [ Indiana ] and other markets in the Midwest have performed as well as any markets in the U.S. Dallas would be in there. Houston would be in there. Savannah had a terrific year last year despite high levels of supply. They seem to sort of continue to absorb that. So we like the markets that we're in.

But as we said, it was always our intent to continue to rotate into Tier 1 markets. And there are markets that we feel are going to perform very well, and we like the pricing in those markets as we sit here today. And so it's not so much looking at an [ Indiana ] Columbus and saying, we just like the market. It's that we have a relatively high level of concentration in those markets. And if we are very interested in moving into Miami, for example, or the U.K. or France, or certain markets in the U.S., we have to use our existing assets to move into those markets. And that's what we're doing.

So I hope that that's coming through clear. It is really more a concentration play than anything else, and this allows us to enter the markets that we've been monitoring closely and coveting for years at prices that we think make a lot of sense to us, both from a ingoing yield perspective and from a total return perspective.

And in terms of the type of industrial building that you'd be getting in these markets, it's consistent with what you own large bay, high-quality taking tenants, et cetera, value-add or anything along those lines?

Well, I mean -- but it has to be modern. It has to be modern is something that we can make modern. We are never going to play in the small bay older generation assets. It's just not what we do. And if you're truly a logistics company, you want to try to the best of your ability to stay with logistics tenant. It doesn't have to be large-bay. We're certainly looking at some very attractive opportunities that involve some mid-bay tenants in there, but the point is they have to be very functional logistics type of assets for us.

So it doesn't have to be large-bay. That's not -- we're rather agnostic about whether it's multi-bay or a single tenant large-bay. It's just the functionality of the asset. That's a top priority for us and location within the market.

Okay. And of course, this is not to say that you need to be there, but have you not caught the data center bug at this point that some of your peers are chasing?

I think -- well when you look at -- if you look at portfolios where companies have converted assets to data centers, we're one of them. We actually have converted an asset in the GTA to a data center. So we have a data center within our portfolio. With respect to the new generation data centers, they are extremely capital intensive. And so it's an area that our team has been paying more attention to, both from a converting existing assets at some point to data centers, if feasible, or looking at new builds. But I would just -- they're very capital intensive and certainly not something that I think would be in the immediate radar of Granite as we sit here today.

Okay. Fair. Last one for me. Wayfair moved up your tenant list, which presumably was part of the really strong leasing spread that you got this quarter. Can you give us a sense, obviously, the Toronto market, you said, has been a little bit more challenging, but why they would have needed to stay in that space and pay a much higher rent relative to what they were paying?

Yes. I think that that's one of the top 3 assets in the country, to be honest with you. 40-foot clear excess trailer parking, literally across the street from the GTA. It's on 2 bus routes, Mississauga and Brampton, large labor pool. It is just an absolutely fantastic asset. And so I don't think Wayfair had any intentions of moving. And we certainly -- although we were confident in our ability to re-lease the space, it's a large base, and we are happy to keep them in that space.

So I think there's a lot of things that were going for that billing that Wayfair recognized in terms of value. And so we were able to get a very strong renewal done in a relatively short period of time.

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

Just back to the $240 million of acquisitions in progress. Are these all stabilized assets? Or are you perhaps willing to take on some vacancy, maybe create some value in that way?

For the most part, there's stabilized assets. One that we're looking at would be a redevelopment play with income in the short term. I just don't want to provide too much more detail than that, Pammi, but all of them would be stabilized assets at this time.

Okay. And sort of the mix between the U.S. and Europe. Can you provide some context there? And what sort of cap rates are you kind of seeing these deals come in at?

Well, it is a mixture of the U.S. and Europe, predominantly in the U.S. And as we've said, I think we're targeting ingoing yields in the low to mid-5s.

Okay. And then just -- sorry. And just coming back to, I think, one of the earlier questions on Samsung. Have you started marketing that space? And any color you can provide in terms of where the re-leasing prospects are?

Yes. No, there was -- we have started marketing the space for lease. The only thing I would say is I would remind people that the in-place rents, or the expiring rents are roughly 25% of the market. And we don't have anything to update you on at this time.

And is it fair -- and can you remind me, when does that -- that lease is due a year or so, basically before the end of Q3 in '26?

At the end of Q3 '26.

Great. And I guess it would be fair to assume that there's going to be some downtime there, probably if it does get re-leased, let's say, to 2027?

Yes, I think that's fair.

Yes. Okay. And then just lastly, on the 500,000 square feet of leases that I think you mentioned were in progress or in discussions. Whats the mix there between new leasing versus renewals?

It's all new leasing.

Sorry, can you repeat that?

All new leasing.

The last question comes from the line of Sam Damiani of TD Securities.

So obviously, most of my questions have been answered, but I just wanted to get your sense, Kevan on -- at this point in the cycle, if you see cap rates more likely to be moving in a meaningful way in the next year or so? And if there's any markets in particular where you see potentially some bigger moves?

I don't want to discuss specific markets. Those would be markets that we're paying a lot of attention to. I can assure you of that. Certainly, we've seen more capital come off the sidelines. There is still more of a focus on value-add assets. And by the way, we probably put ourselves in that category with a probably a more refined focus on modern assets.

So core assets are still -- they're catching a bit, but it's not that deep. But looking at the dispositions that we're going through, it does feel like momentum is picking up. And if you were to ask me, do I think that there's -- is there a greater chance that cap rates are rising [ and ] falling? I would say absolutely not. Our expectation is cap rates will fall in 2026. Just based on the activity that we're seeing, the competition that we're seeing on our acquisition targets, et cetera. It certainly feels like it's going in a favorable direction.

There are no further questions at this time. I will now turn the call over to Mr. Kevan. Please continue.

Thank you, operator, and thank you, everyone, for joining us on our Q3 call, and we look forward to speaking to you in the new year on our fourth quarter results. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.