Granite Real Estate Investment Trust (GRP.U) 2021 Q4 法說會逐字稿

Good morning, and welcome to Granite REIT's Fourth Quarter and Year-End Results for 2021 Conference Call. As a reminder, today's call is being recorded, Thursday, March 10, 2022. 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 followed by an introduction from Kevan Gorrie. Please go ahead.

Good morning. Before we begin today's call, I would like to remind you that the statements and information made in today's discussion may constitute forward-looking statements and forward-looking information, including, but not limited to, expectations regarding future earnings and capital expenditures and that actual results may -- could differ materially from any conclusion, forecast or projection. These statements and information are based on certain material facts or assumptions, reflects management's current expectations and are subject to known and unknown risks and uncertainties. These risks and uncertainties 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 2021 filed on March 9, 2022.

Readers are cautioned not to place undue reliance on any of these forward-looking statements and forward-looking information. The REIT reviews its key assumptions regularly and may change its outlook on a going forward basis, if necessary. Granite undertakes no intention or obligation to update or revise its key assumptions, any of forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

In addition, the remarks this morning may include financial terms and measures that do not have a standardized meaning under International Financial Reporting Standards. Please refer to the audited combined financial results and management's discussion and analysis for the year ended December 31, 2021, for Granite REIT and Granite REIT, Inc. and other materials filed with the Canadian Securities Administrators and U.S. Securities and Exchange Commission from time to time for additional relevant information.

Now I'll get started on our operational results and then followed by Kevan. Granite posted a strong fourth quarter driven by strong NOI growth, but despite continuing foreign currency headwinds. FFO per unit in Q4 was $1.02, representing a $0.03 or 3% increase from Q3 and 2% relative to the same quarter last year. Strong NOI and same property NOI growth was partially muted by unfavorable foreign exchange translation losses as both the euro and U.S. dollar were weaker by 7% and 3%, respectively, relative to the same quarter last year, resulting in a $0.04 decline in FFO per unit. This was partially offset by foreign exchange gains of $0.7 million realized on Granite's derivative hedges, which have now fully expired at the end of 2021.

Granite's AFFO on a per unit basis in Q4 was $0.90, which is $0.03 and $0.04 lower, respectively, relative to Q3 in the fourth quarter of 2020. AFFO related capital expenditures, leasing costs and tenant allowances incurred in the quarter were higher than past quarters totaling $7 million as maintenance projects delayed from the summer were finalized at the end of the year. Total AFFO related capital expenditures for the year came in at $12.4 million. With respect to 2022 and an increased level of lease turnover for the year, we are estimating AFFO related maintenance capital expenditures and leasing costs coming in slightly higher at approximately $15 million for the year.

Same-property NOI for Q4 was strong relative to the same quarter last year, increasing 4% on a constant currency basis, but effectively flat when foreign currency effects are included. Same-property NOI growth was driven primarily by positive leasing spreads, contractual rents and CPI increases across all of Granite's regions as well as the expiry of free rent periods that were realized in the prior years at Granite's Indianapolis asset and Tilburg, Netherlands assets. G&A for the quarter was $12.4 million, which was $4.5 million higher than the same quarter last year and $3.5 million higher than Q3. The main variance relative to Q3 are the recognition of $3.6 million in unit-based compensation expense as a result of favorable value losses recognized on noncash compensation liabilities due to a 17% increase in credit unit price during the quarter and also some higher salaries and benefits expense.

$1.3 million of these fair value losses related to our DSUs directly impacts FFO and does not get added back. Given the pullback of Granite's unit price so far in 2022, we will expect to see a reversal of these losses and will likely recognize a gain in G&A related to these noncash compensation liabilities. On a run rate basis, we expect G&A expenses to continue at approximately $8.5 million to $9 million per quarter or roughly 8% of revenues, excluding any amount for fair value adjustments related to noncash compensation liabilities. For income tax, Q4 current income tax was just $0.1 million when you exclude the $2.8 million of current taxes recognized in the quarter relating to the sale of an Austrian property.

Similar to last year, Granite recognized the reversal of tax provision totaling $1.8 million for the quarter, favorably impacting the quarter as did the weaker euro. On a run rate basis, we estimate current tax at approximately $2.2 million per quarter. With respect to potential recognition of reversals of tax provisions for 2022, Granite has a further potential $2 million of tax liability reversals that may be recognized mostly in Q4 of this year. But as always, we can't make a call on the reversal at this time.

Granite continues to leverage its net investment in Europe and access to lower cost debt. The recent partial financing completed early February of its 2028 cross-currency interest rate swaps from U.S.-based payments to euro-based interest payments will result in annual interest expense savings of $5.5 million or $0.08 per unit annually. Therefore, on a run rate basis, interest expense will run approximately $10.7 million per quarter before factoring in any new debt.

Looking out to '22, given the numerous variables of same-property NOI, foreign currency and growth expectations, we would like to provide some initial 2022 estimates with respect to FFO per unit and AFFO per unit. For 2022, Granite is forecasting FFO per unit of approximately $4.39 or a 10% increase from 2021 and within a range of $4.31 to $4.43. For AFFO per unit, we are forecasting $4.04, an 8% increase from last year and within a range of $3.96 to $4.08. This forecast is based on the closing foreign currency rate of the Canadian dollar relative to the euro and U.S. dollar as of December 31, 2021.

The high end of our range provides for an approximate 1% increase in both the euro and U.S. dollar relative to the Canadian dollar. The low end of the range provides for a 3.5% decrease in the euro, which is reflective of where it is today and a 1% decline in the U.S. dollar. Please note that we estimate that a $0.01 movement in the U.S. dollar relative to the Canadian dollar impacts FFO and AFFO per unit by $0.02 and a $0.01 movement in the euro relative to the Canadian dollar results in a $0.01 impact to FFO and AFFO per unit.

The REIT's balance sheet is comprised of total assets of $8.6 billion at the end of the quarter and was positively impacted by $349 million in fair value gains on Granite's investment property portfolio. And that was offset partially by $45 million of translation losses on Granite's foreign-based investment properties, but particularly the 1.8% decrease in the euro exchange rate relative to Q3. The fair value gains on Granite's investment property portfolio are attributable to fair value gains across all of our regions, but particularly the trust assets in the GTA and the U.S. due to increases in fair market rent assumptions and declines in cap rates.

The trust's overall weighted cap rate of 4.5% decreased a further 24 basis points from the end of Q3 and has declined a total of 108 basis points in 2021. Our net leverage at December 31 was 25% and net debt to EBITDA remains healthy at 6.7x. Our current liquidity is sitting at about $1.3 billion, and that represents cash of about $260 million and our undrawn operating line of $998 million. Since placing our ATM in place in November of 2021, Granite has not sold any units through the ATM to date.

I'll now turn over the call to Kevan.

Thanks, Teresa, and thank you, everyone, for joining us on the Q4 call. As always, I will keep my comments brief and happy to take questions at the end. I'll start by repeating 2 themes from my opening comments on our past few calls. Once again, we posted an inline quarter. And it is worth highlighting that FFO per unit for the quarter increased year-over-year, as Teresa mentioned, despite a corresponding negative move in FX of roughly $0.04 and a $0.02 impact on our G&A from the appreciation in our unit price in the quarter, which often gets overlooked.

Also worth highlighting, I think, is another increase in the fair market value of our portfolio in the quarter, led primarily by fair market value increases in the U.S. and GTA due to further increases in market rental rates and declines in capitalization rates for modern logistics assets across our markets in those jurisdictions. We continue to execute well on our strategic plan in the fourth quarter, acquiring 6 core and value-add properties in our target markets in the U.S., the Netherlands and the GTA in the quarter for approximately CAD 330 million.

We followed up 2021 with the acquisition of 3 properties in Germany for $140 million. And in all, we acquired 16 income-producing properties and 3 development sites for a total investment of $923 million in 2021. Further, we committed an additional $216 million on 3 new development projects in our existing markets of Indianapolis and Tilburg, Netherlands expected to be completed sometime in the third quarter of 2022. We also disposed of a small noncore asset in Austria for $13 million at the end of November, and our sole asset in Poland for $36.2 million in February. And we expect the sale of our sole asset in the Czech Republic to close sometime in the second quarter.

Our development program made significant strides in 2021. And our active pipeline comprises 6 sites and 9 buildings currently under construction in the U.S., Germany and the Netherlands, plus expansions in Mississauga and Indianapolis as disclosed, totaling roughly 5 million square feet and $450 million commitments. Construction of these properties is expected to be completed in the second quarter through the fourth quarter of this year. To date, 2 of the buildings are fully leased and activity is strong on the remaining buildings under construction.

We have seen an increase in costs associated with most of our projects, but it has been absorbed mostly within established budget contingencies to date and offset by higher rents versus pro forma. And I would estimate further that project completion on average has been delayed by 2 to 3 months from initial schedule due to supply chain and COVID-related issues. As I have mentioned before, development is core to our growth strategy, and these projects are expected to improve the quality and functionality of our portfolio and drive significant growth in cash flow and net asset value upon stabilization.

It is also worth repeating that all of the above mentioned developments are expected to receive Green Building certification and will satisfy the criteria outlined in our Green Bond framework. Staying on ESG for the year and as disclosed in our MD&A, we are proud to report that Granite achieved a global ESG benchmark or GRESB score of 65 out of 100 for 2021 versus the average for a peer group of 52, of which Granite was the only Canadian reporting entity. We also achieved the highest score in the category of public disclosure. We are currently developing our 2021 ESG report, which will outline the progress we made in 2021 against our objectives and set detailed and likely more ambitious targets and objectives for 2022 and beyond. The report is expected to be published early in the third quarter of this year.

Operationally, as stated on our Q3 call, all 2.3 million square feet of our 2021 lease expiries were renewed or released and the team leased approximately 300,000 feet of vacancy in Atlanta and our recently acquired property in Utrecht, the Netherlands in the fourth quarter. For 2022, we have now exercised renewals on 4 million of our 5.9 million square feet of expiries at an average increase in rental rate of just over 10%, and we anticipate achieving an increase of between 15% to 20% on the remaining maturities for 2022.

As Teresa mentioned earlier and as disclosed in our MD&A, same-property NOI increased by 4% on a constant currency basis, driven by strong re-leasing spreads, contractual rent increases in the expiry of rent-free periods on a few of our newer assets in the U.S. and the Netherlands, offset partially by contractual free rent period and short-term vacancy at 2 of our properties in Germany. We expect same-property NOI to be similar to 2021 and average between 3.5% and 4.5% in 2022 as the impact of strong re-leasing spreads could be partially offset in the short term by vacancy from turnover of 2 properties in the U.S. At this time, we also expect same-property NOI growth to accelerate in 2023, but we will have more information on 2023 in later quarters.

We have all seen the devastation in the Ukraine. And I think like all of you, we are hoping for a peaceful resolution to this conflict as soon as possible. Notwithstanding the resulting disruption to the supply chains in that region, all of our tenants in Europe continue to operate in their space, and we are not aware of major disruptions so far to their operations involving our properties. But we will, of course, continue to monitor the situation for any major developments.

In closing, I think the quarter and the year were characterized by fair value gains, operational stability, progress on the ESG front and significant investment in acquisitions and specifically development. We expect 2022 to be a busy and productive year for Granite, and we remain very well positioned to continue to execute on our strategic plan and deliver strong results for unitholders. I would like to take this opportunity to thank all of our employees for contributing to another strong year in 2021.

On that note, I will open up the floor for any questions.

(Operator Instructions) Our first question comes from Sam Damiani of TD Securities.

Just on the conflict in Ukraine. Thank you for your comments, Kevan. Have you seen any impact on just sort of general levels of business activity generally and also more specifically with people making decisions to lease space and that acquire spouse or finance properties? Any impact on the investment market?

And I think we all agree that it's early days. We've been talking about this internally with our team in Europe. And so far, we have not seen a major shift or a major disruption to normal operations or to acquisitions or developments. So I would characterize, maybe this is unfair, I would just characterize it as we see in North America, we seem to have more, I guess, concerns than what we're seeing from on the ground in Europe. Now that may change, but that's what we're seeing so far.

Okay. That's great. And just on your 2022 renewal guidance for bigger lists on the remaining renewals. Are there particular markets or projects that are driving that? And I wonder if you could update us on your views on market rents generally in Germany and the Netherlands.

Yes. Well, the bulk of our remaining maturities in 2022 are in the U.S. So you can see from our estimates, there's very strong rent growth in the U.S. We're seeing very healthy spread there north of 10%, almost across the board and sometimes approaching 20%. The Netherlands and Germany, we're also seeing strong rent growth as well. But of course, we don't have a lot of role in 2022 in Europe. We see more of it in 2023. We have the role in Europe. And of course, in 2024, with Graz, we are expecting good results there in Austria and then continued strong growth in the U.S. as well.

And one more, if I could, just before we turn it back. On the Magna leases in Austria, what typical -- what are the terms, I guess, in terms of getting a rent up on the renewals with this lease that's basically happening in Lannach and also in the other properties to expire with Lannach?

Yes. Well, Lannach is specifically has CPI look backs, but I think we talked about this a bit on the Q3 call. Lannach is a bit different because it has multiple cash streams or rent stream. So that CPI look back is spread out over 3 years, I believe. So the best way to look at Lannach is every 5 years, if it renews, it will be 10%, that would be spread out over 5 years. So 2% contractual rent growth a year. Net -- Graz is a bit different, but it has the same CPI look back mechanism that would kick in on the date of maturity.

The next question comes from Joanne Chen, BMO.

Congrats on a very great end to the year. I just had a quick question. I apologize if I missed this earlier, but on the renewals that you've done for 2022, do you -- what kind of rent lists were you able to achieve on those? Did you say 10% to 15%?

Yes. Joanne, I said what we've achieved so far, it's just over 10%. I think closer to 10%, 10.5%. And on the remaining, I think, 2 million square feet, roughly we are anticipating between 15% and 20% on average.

Okay. That's a lot. That's a big pickup from what I think you've said for last quarter, so great to see that momentum.

Sorry, just to clarify, I think what I said for 2022 is we would be around 11% to 12%. And so the 7.5 and 15% to 20% should get us pretty close to that number, maybe a bit above 12%, but I think it's consistent with what we saw in Q3. But I do appreciate you point that out. It is moving in the right direction.

For sure. And I guess just going back, unfortunately, obviously, what's going on in geo politically in the Europe right now. But do you think that pressure with rising oil prices and upward pressure on transportation costs that will only feel higher demands or you don't have this for like logistics like located in your key logistics hub just given how expensive transportation costs could get?

Yes. That's -- I think we've always kind of bought into that thesis that the higher oil prices go, the more storage space you're going to need. You're going to need a shortened dry [cart] and you're going to need to have more storage. You cannot afford to have just on delivery. And I would say, I just think overall with what's happening in the Ukraine and Russia that I think it just shows how mission critical the existing facilities we have with our tenants in Western Europe are. And I think a lot of these tenants not only Magna are rethinking their supply chains and the vulnerability of their supply chain. So I think that, that bodes well for assets in Western Europe and locations in Western Europe.

Well, for sure, that's helpful. And I guess just one last one for me. With respect to your kind of your growth strategy for 2022, should we kind of expect more developments in land acquisitions in Canada and then kind of a more even split between development and income producing properties in the U.S. and I guess, more income-producing properties in Europe? Sorry, I know that's a long-winded question.

No. I know I think -- I mean, certainly, it was a major pivot to development in 2022. What I would say is we continue to look at the right opportunities. I'm not sure how comfortable we would be adding a lot of development right at the moment. I think we have some leasing to work through, which we expect to do through 2022. But yes, on a normalized basis, we want development to be -- to play a major role in our growth. At some point, it's going to be more than 50% of our growth on an annual basis. I think we've kind of always pointed in that direction. I think 2022, we accelerated the program significantly. So we've been focusing, as you can tell, I think Q4 and into Q1, we are focused on some IPP acquisitions into 2022. And so we've got to work through these developments in 2020, maybe add some IPP, continue to add IPP in our target markets. But at some point, you're going to see development continue to outpace acquisitions.

The next question comes from Matt Kornack of National Bank.

On the vacancy that you expect in the U.S., is the thinking around that, that it's still going to be pretty short term in nature and that the properties in pretty high demand?

Yes. I'm just pointing out that I think like we're pretty bullish on the U.S. and where leasing is going and where these tenants, they're not leaving because of the weakness of location. They just need twice as much space as those assets can provide so they're moving on. We're just thinking at some point when we re-lease to a new tenant, there could be some downtime associated by it. So it's really moving in the right direction, but there may be noise in a quarter or maybe 2 quarters.

And I think as we've mentioned, our tenant in Pennsylvania, 750,000 feet, they triggered a 6-month extension. So now they're there until September 30. And we wouldn't be surprised if they overhaul until the end of the year. So the same-property NOI could be stronger for 2022. But just pointing out, if we put a new tenant in there, there's a pretty good chance we want to incur a month or 2 months of vacancy or maybe 3 months, but we're not anticipating a prolonged vacancy associated with those assets or their re-leasing.

Okay. No, that makes sense. And then the 3.5% to 4.5% same-property NOI growth that anticipate at least some downtime on that property, even if it get overhauled until the end of the year? Okay.

Yes. Absolutely.

And then rule of thumb wise, and I know that's not -- you can't really have a rule of thumb. But in terms of the geographic split on mark-to-market potential in the portfolio and maybe not for 2022, but thinking of 2023, has the sort of 10% to 15%, is that moving up to sort of 15% to 17% in the U.S.? And I know that Canada is up with kind of a strong Europe as well. I'm not sure exactly where that would fall.

Yes. And I definitely think it's close to the 15%. It's moving towards 15% in the U.S. I think Europe we felt with 10% for the 2023s. And obviously, we don't have that much rolling in the GTA, but that's closer to 60%.

Okay. Perfect. And then last one for me. Just in terms of the FX move and I guess this is for Teresa. On the hedging front, I know you did that favorable hedge in the quarter -- sorry, post quarter. But has the -- how has the market dynamics shifted on the ability to do that? Let's say, if you did another bond and wanted to swap it, has the rate moved at this point given this volatility? Or is it more favorable or less favorable? And then just I'm not entirely sure on that.

I think it moved up a little bit as far as -- and it's really the -- where the euro rates are relative to Canada. And I think it's shifting stuff a little bit. So if we had additional investment in Europe, and we could, again, hedge further with euro debt -- I don't think it would be a favorable at 25.6 that we experienced, but let's say, closer to like the 1% range. So it's...

Okay. Perfect. Then -- and is there, I guess, with the existing asset base or even with your forward purchases of European assets and the ones that closed subsequently, would you anticipate there being a couple of hundred million more capacity on that front in euros?

Yes. I mean we have a forward purchase coming in, in the midyear. With that, we have a little bit of room left. There might be a couple of hundred million in there. But I'd probably wait for it to bulk up a little bit more before we look at that again.

The next question comes from Himanshu Gupta of Scotiabank.

So just on the Magna lease and Lannach. On the lease side, that was renewed. Was there any negotiation or any incentive given for this extension? And also, is it fair to say now that no mid Magna lease is coming to you until 2024?

Yes. The question on 2024, correct. There's very few Magna leases rolling before then. And on Lannach, there were no incentives or commissions associated with that renewal. It's just a straight renewal.

Okay. And Kevan, now that Lannach has been reviewed, would you look to monetize those assets? And bigger picture, Magna overall exposure is reduced to 29% now. Are you happy where Magna is or would you look to further reduce your exposure to Magna?

Well, no, I think we said on previous calls, I -- there were -- that's a large single time exposure, and I get that. It's not so much reducing the exposure to Magna. But as we said at the end of the day, these aren't the facilities that meet our investment criteria. So they're probably at some point, held better in someone else's hands. But there is still some value to be added to those assets and we want to see that through and execute on that strategy. And then we'll look at it. I think at 29%, we don't feel any urgency to do anything today. We want to make the best decision. But the conditions for potential monetization are still continuing to improve, and we'll review it over the next few years. But we still believe that there is value in these assets to unearth before we look at doing something on a major scale.

Got it. And specifically for Lannach. I mean given renewal now, do you think the value would have enhanced now just by the definition of you're getting the renewals there?

Yes. I think the question -- if I'm correct, I think the question was, was there a value bump from Lannach because of the renewal. And the answer is yes, that it was not as much as you might think because we always knew there was going to be a renewal or from our value perspective, we were not concerned of them moving out. But of course, yes, there was a rather automatic sort of bump in value due to the renewal.

Got it. Okay. And then just shifting to your FFO per unit guidance for 2022. What acquisition activity or what leverage are you assuming in this 10% FFO buying [input]?

Yes, not to provide too much detail, but I think we would see it as kind of a similar year, although I would point out quite strongly, and actually that as we look at this market, we do expect to execute on more rebalancing and more dispositions. And I'm not even sure I would use the word noncore. I would just say we are looking at the right opportunities to trim our portfolio as we always have, but we do expect to be a little more active on that front in 2022.

(Operator Instructions) The next question is from Howard Leung of Veritas Investment.

I just wanted to ask about the mark-to-market and follow-up on that. They seem really favorable. And Teresa, I know you talked about the higher CapEx in 2022. Are you seeing existing tenants when it comes to expiries, maybe that a lot of them are opting to move out, but you're being able to find new tenants that are willing to pay that higher mark-to-market or any kind of pressure on that front?

I think the question is that, are we seeing. Well, I'm not sure what the question is, Howard, but I would say that definitely, we feel like we're in strong markets. Our assets are, for the most part, very modern. So we are not concerned per se if tenants for whatever reason, need to move out. So the re-leasability of these asset -- whenever we're looking acquiring an asset or developing an asset, the leasability is always paramount in our consideration. So we do approach a lot of leasing recently with the attitude that if the tenant moves out, then we feel confident we will be able to replace them with a similar comparable tenant at a higher rent. So that's kind of the attitude or approach we take as we're looking at these renewals.

But at the end of the day, tenants aren't going to -- particularly in a market like this, they're not going to move for $0.50. They're going to move because there are differences in their needs. And like I mentioned before, the tenant that will move probably by the end of the year or at the end of the year in Pennsylvania is moving into a facility that I think is 60% to 70% bigger than our facility. And we do have on this site, some capacity to expand the building, but not that size. So their needs have changed, and they're moving on and the -- there is a lot of interest in that building, in the market right now. So we are very comfortable and confident with our ability to re-lease that at a rent that's much higher than the tenant was paying on the expiry. I hope that answers your question, Howard.

It does. Yes, I was trying to find -- just kind of ask the market dynamic and of course, there is a lot of demand for your assets, if there is -- even if there is a turnover. I guess on that same topic, the inflation rates are pretty strong now. Is there -- given kind of the -- it's more of the landlord's market. Are there any thoughts to building in more CPIs greater in your non-Magna leases to kind of capture that penetration?

Yes. Certainly, we're approaching it from that way as well because we did one recently, it was 3.5%. I think we're working on a deal right now where it's approaching 3% and 3.25% a year or so. You can get it. I mean we're -- the majority of tenants we deal with are very sophisticated tenants and we don't have a lot of small day tenants. We have major tenants that are very sophisticated. The pushback that they will have is we're not expecting -- it shows where inflation is going to be 3.5% to 4% for the next 10 years. So that's where -- so most leases that we see in the market today are still in the 2% to 3% range. But I would say this, they're not closer to 2% anymore. They're closer to 3%. So we have seen contractual escalations average closer to 3% in the past couple of years than 2%. And that's a pretty recent move and a pretty significant move when someone is going to commit to space for the long term.

Right. Yes, I know it adds up over time.

The next question comes from Mark Rothschild of Canaccord Genuity.

Kevan, I just want to make sure I understand your comments regarding development, maybe you could expand on it. You said that -- or I think you said that we expect to be even more active in development going forward and view that even more than acquisitions. You've obviously assembled a large pipeline. But with land costs going up and pressure on yields, do you still expect to be able to find a large number of new development opportunities? And how do you think about that now in the context of acquisitions?

No, it's a great question, Mark. And it is based on opportunity and what we think is the best thing to do. I think what we've been most focused on is just really optimizing our development capabilities. And I feel really good about where we are, I think. I'm talking about, say, 2025, 2026. It would not surprise me at all if we're spending $500 million a year on development, and we're acquiring $300 million a year in new properties. So all I'm saying it's a bit of a shift there. And those numbers can change from year-to-year just based on where the market is and where the opportunities are absolutely. And I've always -- we've always been interested in redevelopment players.

And those had been, as you can tell, I mean, we almost look at the deals in the GTA, some of them you could -- the 2 that we disclosed on in December, those are redevelopment players or I would say, refurbishment place. But the redevelopment players or I would say refurbishment players. The redevelopment players are highly interesting to us as well. Those have been hard to come by and quite extensive. So we want for fluctuation in this locations in the market as well, and we're built to be flexible and pursue what's going to generate the best long-term returns for unitholders.

Okay. Great. And maybe just for Teresa. I'm not sure if you said this or you’re going to have this right in front of you. But for the guidance where you talk about FFO for 2022, what G&A was built into that?

It's about, I'm going to say, $34 million. It's about $8 million a quarter.

You said $8.5 million to $9 million.

$8.5 million to $9 million a quarter is what's built in.

The next question comes from Pammi Bir of RBC Capital Markets.

Kevan, can you maybe just -- I was interested in your comments on Lannach and the additional perhaps value creation opportunity there. Can you just maybe expand on that? I'm just interested in sort of what you (inaudible).

Well, I think the question was, was there a bump in value when the renewal was triggered. And I said that, yes, it was. I wasn't sure exactly what the bump was, but there was. The other comment I made is it's probably not as high as you might think because it's not that binary. There was a very strong expectation that the tenant would renew at Lannach. So although there was a bump when it was crystallized, it probably wasn't as much as most people would think.

No. Yes. No, I understood that part. But with respect to possibly, I guess, looking to monetize or sell that asset at some point guide, and you already you mentioned that maybe it's not necessarily the right time to think there's still more value that can be created there. So I'm just curious more about that aspect of your comment on the additional value that could be created down the road.

Yes. Yes. Because what I meant by, Pammi, was -- and I don't want to go into it too much detail. But we've set up the -- we set up our properties in Europe in a tax efficient way. And so we have to think about how we approach that, and that may involve more than one asset at a time. So that's what I meant by it. There are other assets. There are other assets in Austria and Europe that could impact that as well and the timing of extensions on those.

Okay. Got it. And then just maybe just rounding up the discussion on Lannach. Can you -- what was the renewal term? And then secondly, you spoke about the 10% renewal spread that you've accomplished so far on the 2022 maturities to date. So just curious what did that 10% include Lannach in that figure?

Yes. So it's 5 years, they are 5-year extensions. And I mentioned that there are different cash flows and the largest cash flow that has the -- when it triggers is in 2024. So what I was saying is the best way to look at it probably is to say it's going to increase by 10% over that 5-year term. So really, it's going to average 2% a year, probably the best way to look at it. But the big bump in Lannach hits in 2024, early 2024 or June of '24.

Got it. Just the cash on the books. You put some of that to work in February and you talked about some additional income-producing acquisitions in the pipeline, maybe even some Graz developments. I guess, that's the -- but what can you share with us in terms of what the acquisition pipeline looks like today? And does your guidance assume that you'd be carrying some excess cash for a good portion of the year?

Yes, I'll start and Teresa can jump in any time. First of all, I think the acquisition pipeline is in the $250 million range. These are deals that are actively under negotiation, and we're obviously always looking at opportunities. And we have balance sheet capacity to add to that when the time is right. And then I mentioned on the disposition side, we are looking at trimming parts of our portfolio, some in the U.S., some in Europe that we think will also be a pretty active way to raise capital for deployment. So was that the question or…

Yes. Yes, and then just on the -- I guess, the general -- you won't -- won't you be carrying some excess cash. Did the guidance assumes some excess cash being carried over the course of the year?

I don't think we're going to see a lot of excess cash being carried outside of Q1. We're sitting around $215 million, but we do have commitments. Obviously, we have $480 million of development and forward purchase commitments. So I think we're going to get to a play where we're just going to be holding cash more at an operational level, and it will be excessive as we've seen in the last couple of years. So we managed to a lower level.

Right. Okay. And then just last one for me. The same-property NOI growth. You talked about that 2.5% to 4.5%, but you also talked about, I guess, some transitional vacancy possibly, I guess, maybe towards the end of the year. But fair to assume that the bulk of this growth is really just mostly coming from rents, minor rents, the contractual steps, maybe some renewal leasing rather than occupancy in your -- I'm assuming that the growth that you've guided to assumes some lower occupancy that were a result of that.

Yes, I think it's just pure rental rate growth.

The final question comes from Brad Sturges of Raymond James.

Just to go back to the guidance there on FFO in April again. Just to clarify, that does assume that there will be some rebalancing within the portfolio?

Yes. Yes, it does. Yes, it does.

Would it be any -- I guess, would that be a negative impact or just from a transaction -- like timing of transaction to redeploy on the buying side? Or is there expectation to see a little bit of a roll down on going in yields?

I don't think we're going to see necessary an impact on a per unit basis, Brad. I think it will be a redeployment into new IPPs.

Got it. And just to understand the strategy there a bit, not necessarily noncore assets, more of a rebalancing. Is it -- are you making a rebalancing just based on the market specifically within the U.S. and Europe? Or how should we think about what that rebalancing strategy could look like?

It could -- yes, it could include assets where we feel like we have enough exposure in a certain market. It could be assets where we feel we've added. And there are a number where we've added a lot of value and maybe the growth and continued appreciation and value is not going to be there versus what we're acquiring today. So those are the things. You have the growth profile to look at and maybe market concentration. So those are 2 things that are constantly on our minds looking at. And I think we have some attractive opportunities to mine the portfolio this year.

That was our final question. I'll turn the call back over for any closing remarks.

Okay. Thank you, operator. So again, on behalf of the trustees and the team here at Granite, thank you all again for participating on our call. And to our unitholders, thank you for your continued trust and support.

Thank you. This does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines. Thank you, and have a good day.